nep-cis New Economics Papers
on Confederation of Independent States
Issue of 2016‒02‒17
five papers chosen by

  1. Belarus at a crossroads By Marek Dabrowski
  2. The Effect of Doubling the Minimum Wage on Employment: Evidence from Russia By Muravyev, Alexander; Oshchepkov, Aleksey
  3. Types of Spatial Mobility and the Ethnic Context of Destination Neighbourhoods in Estonia By Mägi, Kadi; Leetmaa, Kadri; Tammaru, Tiit; van Ham, Maarten
  4. Skill biased labour demand and the wage growth of younger workers: Evidence from an unexpected pension reform By Danzer, Alexander
  5. Science, Innovation and National Growth By Brenner, Thomas

  1. By: Marek Dabrowski
    Abstract: Since the collapse of the Soviet Union in 1991, Belarus has maintained a largely non-market economic system. This did not prevent rapid growth of its economy over a sustained period up to 2011. However, the period of economic growth in Belarus seems to be over. The factors that underpinned Belarus’s growth, mainly the beneficial external environment, have gradually disappeared. As a result, the country is confronted by the need to start the far-reaching programme of market-oriented economic reforms and macroeconomic stabilisation which it tried to avoid for so long. Reform will not be easy, economically and politically. The potential hardship facing Belarus could be at least partly cushioned by external assistance, in the first instance from the International Monetary Fund and the World Bank. However, the IMF has relatively fresh memories of the failure of its 2009-10 Stand-By Arrangement (SBA) with Belarus, which provided substantial balance-of-payments support, but which was derailed by its too-narrow focus on monetary and fiscal quantitative performance criteria, and by insufficient reform commitment on the Belarusian side. Other donors, such as the European Union, might be reluctant to offer assistance as long as Belarus does not improve its poor human rights record and start some political reforms. In this analysis, we describe the characteristics of Belarus’s economic model, explain how the Belarus growth ‘miracle’ was possible, why it cannot be continued, the reforms that are needed and why they might be difficult to implement and, finally, what the chances are, and what the conditions might be, under which Belarus could obtain external support. Europe’s last non-market economy According to the European Bank for Reconstruction and Development’s (EBRD) transition indicators1 Belarus is among the least advanced of the former USSR’s successor states in building a market economy. It is one of three reform laggards, the others being Turkmenistan and Uzbekistan. This assessment relates to both ‘first generation’ reforms such as price, trade and foreign exchange liberalisation and small-scale privatisation (Figures 1-3), and to more sophisticated ‘second generation’ reforms such as large-scale privatisation, governance and enterprise restructuring, and competition policy (Figures 4-6). On average, all post-Soviet countries other than the Baltic states, lag behind central and eastern Europe in the implementation of ‘second generation’ reforms, which makes Belarus even less advanced than Figures 4-6 suggest. Price controls in Belarus have remained extensive, and have been reinforced with each macroeconomic crisis. For example, in 2011 after a major devaluation and its consequent pass-through to domestic prices, administrative price regulation of ‘socially important goods’ reached almost half (49 percent) of the consumer price index (CPI) basket. It subsequently went gradually down to 25 percent in 2014. However, after the devaluation of the Belarusian ruble (BYR) at the end of 2014, a temporary ban on all price increases was imposed (IMF, 2015a; IMF, 2015b) and stayed in force until April 20152. Use of such broad price regulation has led to price distortions, which are particularly evident in the utility sector. Electricity tariffs remain, on average, at the level of about 50 percent of cost recovery. For natural gas, central heating and water supply, the situation is even worse, with tariffs converging to 20 percent of the cost recovery level in early 2015 (IMF, 2015a). It is worth remembering that Belarus is a net importer of energy resources (mainly from Russia) and excessive energy imports contribute to trade and current account deficits. Although in 2001 Belarus formally introduced current-account convertibility of the BYR (as determined by Article VIII of the IMF’s Articles of Agreement), it has never fully respected it. Various forms of foreign-exchange restrictions have remained in place and in times of market strain, for example in 2008-09, 2011 and 2014-15, exchange restrictions were intensified, leading to the re-emergence of a ‘black’ foreign exchange market and multiple exchange rates (see IMF, 2015c). The role of the private sector remains limited. In 2010, according to the most recent EBRD estimate, the private sector’s share of Belarusian GDP amounted to 30 percent only3; probably it has not changed substantially since then. The activities of private firms are administratively restricted in various ways and are often the target of hostile government propaganda. Meanwhile, state-owned enterprises must still meet mandatory production targets, as in the era of the centrally-planned economy. If they fail to do so, their managers put their careers at risk or even face criminal prosecution. Overall, Belarus retains a largely non-market economy, which is business unfriendly (IMF, 2012). Not surprisingly, the Heritage Foundation’s 2015 Index of Economic Freedom (IEF) ranks Belarus 153 among 178 countries, making it one of the ‘repressed’ economies4.
    Date: 2016–01
  2. By: Muravyev, Alexander (Higher School of Economics, St. Petersburg branch); Oshchepkov, Aleksey (Higher School of Economics, Moscow)
    Abstract: We take advantage of a natural experiment in the minimum wage setting in Russia to study the employment consequences of large hikes in the minimum wage. In September 2007, the Russian government raised the federal minimum wage from 1,100 to 2,300 Rubles and simultaneously gave the regions the power to set their own minima above the federal threshold. In studying the effect of this reform, we follow the approach proposed by David Card and compare changes in employment rates and other labor market outcomes before and after the hike across regions with different shares of affected workers. We find some evidence of adverse effects of the 2007 hike in the minimum wage on employment. They are mostly visible in lower employment rates among the youth, as well as the increased informalization of employment.
    Keywords: minimum wages, unemployment, informal employment, Russia
    JEL: J38 J23
    Date: 2015–12
  3. By: Mägi, Kadi (University of Tartu); Leetmaa, Kadri (University of Tartu); Tammaru, Tiit (University of Tartu); van Ham, Maarten (Delft University of Technology)
    Abstract: Most studies of the ethnic composition of destination neighbourhoods after residential moves do not take into account the types of moves people have made. However, from an individual perspective, different types of moves may result in neighbourhood environments that differ in terms of their ethnic composition from those in which individuals previously lived. We investigate how the ethnic residential context changes for individuals as a result of different types of mobility (immobility, intra-urban mobility, suburbanisation, and long-distance migration) for residents of the segregated post-Soviet city of Tallinn. We compare the extent to which Estonian- and Russian-speakers integrate in residential terms. Using unique longitudinal Census data (2000-2011) we tracked changes in the individual ethnic residential context of both groups. We found that the moving destinations of Estonian- and Russian-speakers diverge. When Estonians move, their new neighbourhood generally possesses a lower percentage of Russian-speakers compared with when Russian-speakers move, as well as compared with their previous neighbourhoods. For Russian-speakers, the percentage of other Russian-speakers in their residential surroundings decreases only for those who move to the surburbs or who move over longer distances to rural villages. By applying a novel approach of tracking the changes in the ethnic residential context of individuals for all mobility types, we were able to demonstrate that the two largest ethnolinguistic groups in Estonia tend to behave as 'parallel populations' and that residential integration in Estonia is therefore slow.
    Keywords: residential mobility, migration, suburbanisation, ethnicity, longitudinal data, Estonia
    JEL: J15 J61 R20 R23
    Date: 2015–12
  4. By: Danzer, Alexander
    Abstract: Large-scale pension reforms can have redistributive wage effects across generations and education groups when the labour market suffers from skill mismatch. A quasi-experimental retirement shock in Ukraine illustrates the effect of labour scarcity on wage growth and returns to education: it reveals that young and well educated workers enjoyed significant wage growth accelerations while older workers with outdated skills did not benefit from the retirement of their comparable peers. The estimated wage effects are in line with predictions from a simple heterogeneous labour demand model applied to a cross-section of Ukrainian firms. The paper illustrates that general equilibrium wage effects can be estimated in a policy evaluation framework if quasi-experiments fulfil very restrictive preconditions.
    JEL: J20 J31 P23
    Date: 2015
  5. By: Brenner, Thomas
    Abstract: This paper studies the effects of public research (publications) and innovation output (patents) on national economic growth with the help of a GMM panel regression including 114 countries. Effects on productivity growth and capital and labor inputs are distinguished. Furthermore, different time lags are examined for the various analyzed effects and two time periods as well as less and more developed countries are studied separately. The results confirm the effect of innovation output on productivity for more developed countries. Simultaneously, innovation output is found to have negative impacts on capital and labor inputs, while public research is found to have positive impacts on labor inputs.
    JEL: O11 O31 C23
    Date: 2015

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