Electronic Library of Scientific Literature - © Academic Electronic Press


Volume 51 / No. 10 / 2003


Book Reviews

Contents of the 51th Volume of Journal of Economics 1302

Industry on the Eve of the NEW CENTURY – Implication for the Slovak Republic


This work which was supported by Science and Technology Assistance Agency under the contract No. APVT-51-023602 is divided into two main parts. The changing role of industry within differing models of economic growth is analysed in the first part. The attention is given above all to the so called deindustrialisation, its causes and implications. The chapter tries to answer the question if the deindustrialisation means a weakening or strengthening of the position of industry. The second part identifies the new conditions, driving forces and limitations of industrial development in the age of globalisation with special regard on the European industry.
On the eve of the third millennium the setting for industrial development is changing rapidly. There are differences between the economic developmental model of the core European countries and that of the fast-growing European rim countries, from Ireland to Portugal, or Finland to Slovak Republic. From the 1950s to the 1970s the economic miracles of the core countries basically depended on national resources, companies and markets. That’s why we can refer to this as internally-driven development.
Today development features of the rapid growing countries of the European rim, and amongst them the transition economies, such as Poland, Slovak Republic, Czech Republic, Hungary are different and economic growth is based on a great influx of FDI, global companies and global resources. Thus, we can refer to an externally-driven developmental model. Depending on this development the role of industry is changing.
During the past years, employment in manufacturing as a share of total employment has declined dramatically in the world’s most economies (above all in advanced economies). This phenomenon is by a great number of authors called deindustrialisation. The first point the research makes is that deindustrialisation is primarily a feature of successful economic development. From this point of view they distinguish between positive and negative deindustrialisation. The former occurs when labour is shed as a result of manufacturing productivity rising faster than output; the displaced workers find new jobs in the service sector. Negative deindustrialisation is characterised by rising unemployment.
In the end we can state that industry hasn’t loosed its importance as one of the key development elements. Consequently the changing conditions it only fulfils this role on qualitative higher level.



Up to 1989, the post-communistic European countries developed under regimes that were known by their stubborn and systematic degradation and refusal of market econo-my. Currently they are in the process of their integration into the European Union.
Since 1989, individual post-socialistic countries have gone through differentiated de-velopments. However, it is possible to observe some common elements that have been formulated as integration criteria required by the European Union. The current integration process of the Slovak Republic takes place on several platforms. It is not possible to assess any of them as being more important than others. However, there is no doubt that insurance, being part of the financial sector, represents a significant aspect of integration. Within this context, it may be interesting to compare the European and Slovak insurance markets.
The comparison presented in this contribution is based on the 2001 data issued by the European Insurance Committee. The comparison criteria were chosen as follows:

· proportional share of insurance in GDP,
review of insurance companies,
review of numbers of employees,
the development of Gross Premium Income,
allocation of technical reserves.

I have compared especially the countries of the European Union as well as other European economically advanced countries and states that are currently in the process of integration. The comparison is supported not only by summarising tables, but also by graphs that clearly review economic positions of individual European countries.
From the aspect of the Slovak insurance market, the results of the comparison are surely interesting. However it is also important to emphasise the criteria that will be required from insurance companies whose objective is to operate within the European Union.
Regarding the fact that the insurance companies operating within the territory of Slovakia are owned by foreign subjects, it is justified to assume that the differences and disproportions in relation to best European insurance companies are going to diminish rapidly.

Czech Insurance Market before entering the European Union

Viktória ČEJKOVÁ – Svatopluk NEČAS

Insurance market works on a principle of collection and distribution of finances, especially the reserves. They are created for reimbursement of casual (accidental) needs. Insurance market is influenced by: state through legal rules and supervision in insurance, insurers (insurance companies), clients, insurance brokers, reinsurers and various consultancy firms. Also the associations of insurance companies play an important function, they significantly influence through their activity the behavior of member insurance companies.
According to subject of insurer's activity we can divide insurance market in two relatively separate segments: supply and demand of insurance and reinsurance (relevant insurance market) and investment of temporarily free finances (investment insurance market).
It is not possible to evaluate the development of insurance market without checking the development of its indicators. In the Czech insurance industry, the system of indicators of insurance market standard is not fully defined. The choice of insurance market indicators is directed such way to enable a complex evaluation. We can mention these basic indicators: premium written, insurance benefit, loss experience, insurance market cover and concentration of insurance market and other indicators.
Insurance market in Europe, as well as in the Czech Republic, came in last years through distinctive restructuring changes. An increase of competition developed especially by gradual liberalization of market after ratification of key European directives was the reason. The most important factor for gradual convergence of Czech and European insurance industry and for classification of development of this process is and in future will be the sphere of legislation.
Although the process of insurance legislation convergence is almost over, in the Czech Republic there will be necessary to make several steps supposing a creation of new act on insurance or novel of current act, new act on insurance policy, act on insurance brokers, insurance consultants and independent loss adjusters, novel of act on motor third party insurance and other arrangements related with insurance industry (bankruptcy and discharge, tax rules, economic competition).
In actual period, the Czech Republic has still to solve several unsettled problems of pragmatic character. We can mention especially: low share of life assurance, low insurance market cover, high concentration of insurance market, persistance of business liability insurance (it should be transformed to contractual obliged insurance).

ACCOUNTING FOR intangible assets within the contemporary Slovak and international legal framework


Harmonization of accounting, which is focused on the narrowing the gaps between the accounting systems of the various countries. For Slovakia, which is currently in the cession process to the EU, the most predominant issue is to harmonize accounting system with the international accounting standards. New accounting legislation (in force as of 2003) has introduced further convergence of various issues between the Slovak statutory accounting and international financial reporting environment. This paper is thus focused on providing a comparative analysis of the intangible assets as a basic element of the financial statements, its scope, ways of measurement and amortization both under the provisions of the Slovak accounting framework and international accounting standards.
Intangible asset represents a specific sort of assets, which contributes to the income even if it is not diminishing its own value. Under the Slovak legislation, intangible assets are represented by: formation expenses, development costs, software, property rights and goodwill. There are few basic recognition criteria – intangible assets shall be specifically identified, they should be employed (within in enterprise) for a period of more than 1 year and its cost of acquisition shall exceed 50 000 SKK. However, an entity may decide that if the period of employment exceed 1 year, intangible assets might be recognized even if their value is less than 50 000 SKK.
From the point of view of International Financial Reporting Standards, standard IAS 38 is applicable in dealing with and accounting for intangible assets. Under the provisions of this standard, intangible assets represent identifiable non-monetary assets, which is not tangible and is held for the purpose of manufacturing, selling of merchandise (or providing the services), for a lease or for an administrative purposes. It is asset controlled by the enterprise, which is a result of past events and from which future economic benefits are expected. Unlike the Slovak statutory accounting, IAS 38 accounts for intangible assets based on a more general and a complex approach.
Finally, recognition of intangible assets is deeply affected by choices of appropriate measurement bases. Under the Slovak accounting legislation (which is, from this point of view comparable to provisions of IAS 38), intangible assets are measured at cost. IAS 38 allows revaluation of intangible assets to its fair value, a treatment which is currently prohibited by Slovak accounting legislation.
Intangible assets shall be amortized systematically, based on the best estimate of their useful life, which (under IAS 38) shall not exceed 20 years. In Slovakia, its useful life shall not exceed 5 years from the date of the acquisition.
Even though the convergence process is on its way, there are some urgent topics which require increased attention. These are the top-issues in the aforementioned agenda:

· Definition of intangible assets without the further reference to a specific law (e. g. Law on Income Taxes),
Elimination of value threshold for recognition of intangible assets,
Elimination of formation expenses from the category of intangible assets,
Possibility to reevaluate intangible assets to its fair value (with a view to achieve an objective way of presentation their value in the financial statements),
to increase the useful life of intangible assets (for the purpose of their amortization) from 5 years (under the provisions of Slovak law) up to 20 years (as allowed under IAS 38).

Thirty-six years of existence of ASEAN: Performance and challenges

Obadi Saleh MOTHANA

This paper provide not only an information about the Association of Southeast Asian Nations (ASEAN), but also examines the performances and challenges witch it has faced by its existence. The founders of the ASEAN were only five countries namely: Indonesia, Malaysia, the Philippines, Singapore and Thailand and signed the ASEAN Declaration of 8 August 1967. Thirty-two years later, on 30 April 1999, ASEAN encompassed all ten countries of Southeast Asia by admitting Cambodia. (Brunei Darussalam had been admitted in 1984, Viet Nam in 1995, and Laos and Myanmar in 1997).
A stated goal of the Bangkok Declaration and many of the succeeding ASEAN pronouncements was to accelerate economic growth...through joint endeavours and to promote active collaboration and mutual assistance on matters of common interest in the field of economics; little concrete action was taken to promote economic cooperation. In fact, until 1977, regional Economic Ministers failed to meet on a regular basis; ASEAN had rotated around the annual meeting of its Foreign Ministers. Yet, despite the neglect, the ASEAN economies have all prospered.
Confidence in ASEAN economic cooperation is growing. Yet, data suggest that ASEAN is fighting an uphill battle in its attempt to form a free trade area. In spite of the modest growth, much seems to be going more and less against it. First, data illustrates that, intra-ASEAN trade has been insubstantial. In 1988 it accounted for just over 18 per cent of total ASEAN exports. This figure was actually lower than the 21.4 per cent of 1970. In spite of that, the intra- ASEAN trade has increased to up to 22 per cent in 2001. Although intra-ASEAN trade is high relative to the intra-regional trade of other deve-loping country groups. If Singapore-a large center for trade-is excluded, the share of intra-ASEAN trade drops to only 4 percent of the region's total exports. Second, the ASEAN-4 countries (excluding Brunei, Singapore and the new four members) have relatively similar production structures and compete for the same export markets. There is a greater degree of complementarity between the ASEAN economies and the industrial and newly-industrialized economies, than between the ASEAN countries themselves. It was afraid that since most ASEAN economies (with the exception of Singapore) are basically agricultural economies (at least until the end of the 1980s anyway), the trade creation benefits from forming economic grouping to trade more freely among one another would not be that great. This, however, has been proven wrong. The rapid industrialisation of ASEAN countries in the last two decades have brought about different manufacturing as well as processed agricultural products so that during the last one and half decades trade among ASEAN partners expands substantially. The gains from trade are obvious from industrial restructuring and more efficient industrial production.
What is clear is that the real changes that have taken place in the international arena and within ASEAN have altered the calculus of national interest for countries in the region. The evolving nature of the costs and benefits associated with economic cooperation has undoubtedly affected the support being lent to AFTA by member countries. The first of these changes is embodied in the transformations sweeping through the ASEAN economies. The ASEAN leaders have been compelled to adopt economic reforms as a result of hardships suffered from external circumstances in the 1980s. General liberalization policies, as well as the adoption of outward-oriented industrialization strategies, have strengthened the economies in ASEAN. Domestic industries have gained significantly from international competition and trade, and many officials are dedicated to enhancing these gains. Furthermore, ASEAN liberalization policies have been predicated on the assumption of an open international market. ASEAN solidarity as exemplified in AFTA-especially now that a general commitment has been made-will allow the group to have a greater say in the international community and to address its concerns over the trading system.
The second change is related to the growth strategies adopted by the ASEAN governments in the 1990s. These policies stress the need to attract foreign direct investment (FDI), which has already contributed to the economic growth and the relatively rapid rates of industrialization in ASEAN. In light of the competition from Indochina, China, Eastern Europe, and Mexico for increasingly scarce capital, an effort has been made to maintain these inflows. A multitude of incentives have been offered to foreign investors throughout the region. Incentives, however, are not the primary factors influencing the decisions of foreign investors. The general investment climate is a far more important determinant of an economy's attraction. This climate is not only positively affected by sound macroeconomic management, economic growth, a developed infrastructure, and political and economic stability, but also by the size of the market. The establishment of AFTA will form a single enlarged market with 500 million people, instead of ten individual markets. This undoubtedly will be attractive to foreign investors who are looking to gain from economics of scale by producing for the region, or by manufacturing truly regional products for export. Officials involved in the negotiations leading up to the summit meeting in Singapore admit that this capability of attracting foreign investment was one of the most compelling arguments for the free trade area.
Today the ASEAN region stretches across three time zones and incorporates a key part of Asia’s continental landmass and several archipelagos. Economically, it belongs to the developing world, but some of its member countries have joined the world’s top 20 most competitive economies. Its population of about 500 million constitutes a huge, increasingly middle-class market, half the size of China’s.

Absolute Convergence across Time and Space: New Empirical Evidence for an Old Debate

Menbere WORKIE

This paper contributes to the ongoing convergence debate in two ways: First, using the recent Penn World Table’s database (PWT 6.1), ranging from 1960 to 2000, it shows the absence of the so-called absolute convergence across the world economy at large in the past four decades. While the decade- by- decade regressions indicate similar results, things seem to have worsened in the 1980s and 1990s. One of the primary suspects in this regard is the debt and financial crises. Second, a separate regression for developing countries alone indicates the absence of unconditional (absolute) convergence across this group of countries. However, once we split countries into groups with similar political, economic and institutional parameters (OECD and EU, for instance), it appears that there is an evidence for unconditional convergence.


Milota ŠujanováIvan Šujan

At present time, there are three centers of the world economy: USA, European Union (EU), and Japan. China would like to become the fourth centre in the middle of this century.
China is a country with the largest population in the world, third largest area and second largest economy (measured with PPP US dollar), producing 1/8 of the world GDP. The authors examine past development and present status of the Chinese economy, as well as the perspectives of its further development.
In 2002, the Chinese per capita GDP has amounted to 4 400 US dollar (PPP), which is approximately 12 per cent of U. S. level and 16 per cent of the Japanese level. On the other hand, Chinese growth rate of real GDP (8 per cent in 2002) is one of the largest in the world. Economic growth in China has been supported i. e. by high foreign capital inflow attracted by reduced taxes especially in the “exclusive economic zones”, extremely low nominal wages, and undervalued exchange rate of the Chinese currency.
In the second part of the article the authors present i. e. Chinese official forecast of crucial macroeconomic indicators, territorial structure of foreign trade, and selected structural changes (with their extrapolations up to 2002). Share of urban population has grown from 23.7 per cent in 1985 to 37.7 per cent in 2001 and may grow further up to about 54 per cent in 2020. At the same time the share of primary sectors decreases in favour of secondary and tertiary sectors, the share of primary goods in exports decreases in favour of manufactured goods and the share of food in total consumption of households declines as well, etc.
China has declared a goal to catch up the USA in per capita GDP up to 2050. The authors have shown possible growth of the relation of Chinese per capita GDP to that of U. S. (provided that the present rates would continue) and come to the conclusion that this ambitious goal is feasible.

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