nep-tra New Economics Papers
on Transition Economics
Issue of 2005‒03‒20
35 papers chosen by
Toño Sanchez
Universidad de Valencia

  1. The human capital heterogeneity at the Russian labor market By Borisov Gleb
  2. Achieving stability in heterogeneous societies: multi-jurisdictional structures, and redistribution policies By Savvateev Alexey
  3. Determinants of unemployment duration in Ukraine By Kupets Olga
  4. Impact of joining the WTO on Ukrainian ferrous metallurgy By Eremenko Igor; Lisenkova Ekaterina
  5. Models of supply functions competition with application to the network auctions By Vasin Alexander; Vasina Polina
  6. China's Innovation System Reform and Growing Industry and Science Linkages By Kazuyuki Motohashi; Xiao Yun
  7. Poverty, Inequality and Health: А case study of Armenia By Tamara Tonoyan
  8. Are Vietnamese Farmers Concerned with their Relative Position in Society? By Carlsson, Fredrik; Nam, Pham Khanh; Linde-Rahr, Martin; Martinsson, Peter
  10. Diverging Paths: Transition in the Presence of the Informal Sector By Maxim Bouev
  11. Executive Compensation, Firm Performance, and State Ownership in China: Evidence from New Panel Data* By Takao Kato; Cheryl Long
  12. Impact of Cross-listing on Local Stock Returns: Case of Russian ADRs By Elena Smirnova
  13. Credibility and adjustment: gold standards versus currency boards By Jean Baptiste Desquilbet; Nikolay Nenovsky
  14. Money Market Liquidity under Currency Board – Empirical Investigations for Bulgaria By Petar Chobanov; Nikolay Nenovsky
  15. The Unanticipated Effects of Insider Trading Regulation By Art Durnev; Amrita S. Nain
  16. Firm Ownership and Internal Labor Practices in a Transition Economy: An Exploration of Worker Skill Acquisition in Vietnam By Jed Friedman
  17. Russian Cities in Transition: The Impact of Market Forces in the 1990s By Ira N. Gang; Robert C. Stuart
  18. What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania By J. David Brown; John S. Earle; Dana Lup
  19. Returns to Skills and the Speed of Reforms: Evidence from Central and Eastern Europe, China, and Russia By Belton M. Fleisher; Klara Sabirianova Peter; Xiaojun Wang
  20. Returns to Schooling in China Under Planning and Reform By Belton M. Fleisher; Xiaojun Wang
  21. Beliefs about Exchange-Rate Stability: Survey Evidence From the Currency Board in Bulgaria By Neven T. Valev; John A. Carlson
  22. Economic Reform in Tanzania and Vietnam: A Comparative Commentary By Brian Van Arkadie; Do Duc Dinh
  23. Determinants of Employment Growth at MNEs: Evidence from Egypt, India, South Africa and Vietnam By Sumon Kumar Bhaumik; Klaus Meyer; Saul Estrin
  25. The Stability and Growth Pact from the Perspective Of the New Member States By Gábor Orbán; György Szapáry
  26. Firms’ Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary By Rumen Dobrinsky; Gábor Kõrösi; Nikolay Markov; László Halpern
  27. The Evolution of Cross-Region Price Distribution in Russia By Konstantin Gluschenko
  28. Wage Determination Under Communism and In Transition: Evidence from Central Europe By Swati Basu; Saul Estrin; Jan Svejnar
  29. The emergence of large shareholders in mass privatized firms: Evidence from Poland and the Czech Republic By Irena Grosfeld; Iraj Hashi;
  30. Returns to Schooling in Russia and Ukraine: A Semiparametric Approach to Cross-Country Comparative Analysis By Yuriy Gorodnichenko; Klara Sabirianova Peter;
  31. An Analysis of Gender Wage Differentials in Russia from 1996-2002 By Rita Hansberry; ;
  32. Distance to the Efficiency Frontier and FDI Spillovers By Klara Sabirianova Peter; Jan Svejnar; Katherine Terrell
  33. Russia from Bust to Boom: Oil, Politics or the Ruble? By Bruno Merlevede; Koen Schoors; Bas van Aarle
  34. External and Fiscal Sustainability of the Czech Economy: A Quick Look Through the IMF’s Night-Vision Goggles By Ales Bulir
  35. Beyond Balassa - Samuelson: Real Appreciation in Tradables in Transition Countries By Martin Cincibuch; Jiri Podpiera

  1. By: Borisov Gleb
    Abstract: The study raises the problem of human capital heterogeneity at the Russian labor market caused by non-random distribution of unobservable skills across the population of a transition country. At the beginning of the transition, people who were grown up in different times or cultures have distinct moral norms, behavioral patterns, preferences and the knowledge. This results in the differences in unobservable abilities and earnings capacity of people. We argue that cohort, a pre-transition occupation, an urban place of birth, and nationality might serve as proxies for unobservable skills in the transition. The cohort effects were separated by two ways. According to the first one, the logarithm of the real wages index was used as a proxy for current period. The second one is based on an assumption on the form of age-earnings profiles in Russia. The estimation results reveal the significance of all the proxies for unobservable abilities and the robustness of estimates. At the same time, conditioning of the effects of cohort and pre-transition occupation on gender is discovered.
    Keywords: Russia, transition, labor market, human capital, heterogeneity, vintage effect, cohort effect, earnings function, identification problem
    JEL: J31 O15 P21 P27
    Date: 2005–02–17
  2. By: Savvateev Alexey
    Abstract: Consider a “linear world” populated by several agents. These agents’ locations are identified with optimal variety of a horizontally differentiated local public good. Agents are to be partitioned into several communities (hereafter, groups), and each group chooses a variety of public good to be produced and consumed by members of that group via the majority voting procedure. It is shown that a stable partition may fail to exist, where stability means that no potential group would like to secede and form a new community. At the same time, compensation schemes are proposed which guarantee the existence of a stable partition. Small societies are studied in detail, as well as certain special types of distributions of agents’ locations.
    Keywords: Russia, stability, partitions, redistribution, core of a cooperative game
    JEL: D70 H20 D73
    Date: 2004–12–25
  3. By: Kupets Olga
    Abstract: This paper presents first evidence on the determinants of unemployment duration in Ukraine between 1997 and 2003, using individual-level data from the first wave of the Ukrainian Longitudinal Monitoring Survey (ULMS -2003). It investigates the conditional probability of an individual leaving unemployment to employment or economic inactivity in any particular month of his spell out of work by estimating it in a discrete time independent competing risks framework with flexible baseline hazard rates and gamma-distributed unobserved heterogeneity. The results in all specifications indicate no significant effect of receiving unemployment benefits but significant negative effect of having income from casual activities, subsidiary farming, household income or pension on the hazard of re-employment. Multivariate analysis also suggests that policies to reduce long-term unemployment should focus on older workers, less educated individuals, residents of small towns and rural area in the regions with relatively high unemployment rates.
    Keywords: Ukraine, long-term unemployment, unemployment insurance, Ukraine, semiparametric duration analysis, flexible baseline hazard
    JEL: J64 J68 P23
    Date: 2005–02–28
  4. By: Eremenko Igor; Lisenkova Ekaterina
    Abstract: The goal of our research is to study Ukraine’s accession to the WTO referring to one particular sector discussed most hotly in this context: metallurgy. Ukrainian metallurgy has two remarkable features: from one side, steel producers receive substantial subsidies; from the other side, Ukrainian metallurgical exports have been permanently brought under antidumping investigations. The purpose of this research is to study effects of both cases and find impact on metallurgy and total welfare. Results of partial equilibrium model shows that on balance the total gains for the Ukrainian economy are calculated to be above USD 343 million, or 1.1% of GDP, hence, in subsidies-antidumping duel there is no trade-off for Ukrainian economy.
    Keywords: Ukraine, metallurgy, WTO, antidumping, subsidization
    JEL: F13 F14 L61 H21 H25
    Date: 2005–02–22
  5. By: Vasin Alexander; Vasina Polina
    Abstract: This paper studies different auctions of supply functions in a local market and a simple network market of a homogeneous good with two nodes and a fixed transmission loss per unit of the good. We study problems of existence, uniqueness and computation of Nash equilibria for these models. We also obtain the estimate of Nash equilibria deviation from the Walrasian equilibrium for each variant. We consider the problem of optimal auction organization from the point of view of the social welfare maximization.
    Keywords: Russia, supply function auction, Cournot, Vickrey, Russian electricity market
    JEL: D44
    Date: 2005–03–01
  6. By: Kazuyuki Motohashi; Xiao Yun
    Abstract: In this paper, linkages of S&T activities between industry and science are investigated in the context of innovation system reforms. A firm level dataset from S&T survey at National Bureau of Statistics (NBS) of PRC for about 22,000 manufacturing firms is used for econometrics analysis of firm's S&T outsourcing activities. In transition period of China's innovation system from 1996 to 2002, firm's S&T outsourcing activities have been increased significantly. In addition, positive association between basic research oriented firms and collaboration with science sector can be found. China's innovation system was suffered from Russian model, where S&T activities at public research institutes and production activities at state owned enterprises are completely separated. However, in transition period of innovation system reform toward network type one, we can find that some firms have gained their technological capability to collaborate with universities and PRIs.
    Date: 2005–03
  7. By: Tamara Tonoyan (Armenian Medical Institute)
    Abstract: The paper describes the issue of the impact of poverty and income inequality on the health of the population using Armenia as a case study. In the framework of this paper author provides an overview of research relating to inequalities in health to the disadvantage of the poor, and to changes in impoverishment and income inequality associated with payments for health care. After demonstrating the logic of the investigation, the paper recapitulates the information about results of reforms that do not appear to meet all the objectives of health care policy. The paper indicates that the gains in freedom have been accompanied by the losses of many basic economic and social services that the population had come to enjoy and expect. At the same time the success of reforms applied in Armenia is often evaluated against improvements in the health status of the population. Funding shortages often means that even vulnerable groups have to pay. Thus, the principle of equity with respect to financing and access is undermined. It is emphasized that reducing poverty and income inequality should be grounded in a pro-poor growth approach, i.e. for equality to be achieved economic growth in the development process should be deliberately adapted to the needs of the poor. The paper concludes that there is undoubtedly a large gap in our knowledge on how best to reach the poor in the health sector. In order to fill this gap, more work is needed along the lines of the above studies related to health sector inequalities and public policy. There is necessity to encourage the development of insurance companies, pension funds, and funds for public health care education, which have not yet been properly undertaken.
    Keywords: poverty, inequality, health, income distribution
    JEL: D63 I11 I12 I18
    Date: 2005–02–01
  8. By: Carlsson, Fredrik (Department of Economics, School of Economics and Commercial Law, Göteborg University); Nam, Pham Khanh (Faculty of Development Economics, University of Economics); Linde-Rahr, Martin (Department of Economics, School of Economics and Commercial Law, Göteborg University); Martinsson, Peter (Department of Economics, School of Economics and Commercial Law, Göteborg University)
    Abstract: This paper examines the attitude towards relative position or status among rural households in Vietnam. On average, the respondents show weaker preferences for relative position than in comparable studies in Western countries. Possible explanations are the emphasis on the importance of equality and that villagers are very concerned with how the local community perceives their actions. We also investigate what influences the concern for relative position and find, among other things, that if anyone from the household is a member of the Peoples Committee then the respondent is more concerned with the relative position. <p>
    Keywords: Relative income; positionality; experiments; Vietnam; Asia
    JEL: C91 D63
    Date: 2005–03–16
  9. By: Sharon Eicher
    Abstract: Dollarization comes in several forms. The type that this paper examines is asset substitution, when savers hold dollar assets in bank accounts, instead of local currency. It is limited to the transition economy of Kazakhstan. This paper estimates demand for dollar accounts and shows that avoidance of inflation risk, rather than avoidance of exchange rate devaluation of savings, is the most important in explaining dollarization. This result is unexpected. This study examines data from Kazakhstan. Kazakhstan is seen as having a strong banking system and a healthy economy for a former Soviet Republic. It is seen as one of the most market-oriented, FSU countries. However, Kazakhstan also has a large demand for a means of storing savings in dollars, rather than in the local currency. This is particularly curious, when the local currency is appreciating relative to the U.S. dollar. This demand in less prosperous FSU countries is likely to be even greater. The paper combines data and statistical methods with anecdotal information in order to improve our understanding of a paradoxical occurrence.
    Date: 2004–05–01
  10. By: Maxim Bouev
    Abstract: This work suggests a development of the seminal model of transition from plan to market economy by Aghion and Blanchard (1994). We introduce an informal sector to show that its presence can generate qualitatively di?erent steady states, to which the economy converges in the end of transition. Two types of transitional dynamics are considered, and it is argued that they can help explain di?erences in evolution of formal and informal output exhibited, on the one hand, by East European countries and, on the other hand, by the former Soviet Union republics such as Russia or Ukraine.
    Keywords: optimal speed of transition, informal economy, search models
    JEL: J41 J42 J64 O17 P29
    Date: 2004–05–01
  11. By: Takao Kato; Cheryl Long
    Abstract: This paper provides the first systematic evidence on compensation for executives of firms listed in China’s emerging stock market (currently the eighth largest of the world with market capitalization of over $550 billion). Specifically, using comprehensive financial and accounting data on China’s listed firms from 1998 to 2002 (data modeled after Compustat and CRSP in the U.S.), augmented by unique data on executive compensation, we find for the first time statistically significant sensitivities and elasticities of annual cash compensation (salary and bonus) for top executives with respect to shareholder value in China. The size of the estimated sensitivities imply that a 1000 RMB increase in shareholder value yields a 0.020 RMB to 0.053 RMB increase in annual cash compensation, whereas the size of the estimated elasticities suggest that a 10 percent increase in shareholder value results in 3.7 to 4.0 percent increase in annual cash compensation for top executives. The estimated sensitivities and elasticities of cash compensation for top executives in China’s listed firms are greater than what has been reported for Japan and the U.S. However, we also find that state ownership of China’s listed firms is weakening executive pay-performance link and thus possibly making China’s listed firms less effective in solving the agency problem. As such, ownership restructuring may be needed for the “shareholding experiment” to fully succeed in transforming China’s emerging listed firms to efficient modernized corporations and for the overall successful economic transition of China. Finally, we find that sales growth is significantly linked to executive compensation and that Chinese executives are penalized for making negative profit although they are neither penalized for declining profit nor rewarded for rising profit insofar as it is positive.
    Keywords: transition economies, China, executive compensation, firm performance, corporate governance, and ownership structure.
    JEL: P31 P34 M52 M12 G30 G15 J33 O53
    Date: 2004–05–01
  12. By: Elena Smirnova
    Abstract: The paper examines the impact of American Depositary Receipt (ADR) listings on the return of the underlying Russian stocks. The contribution of this paper is twofold. First, it looks at a new sample of ADRs issued by Russian companies. Second, the technique used to estimate the market model is different from the previous studies. The returns are modeled to follow GARCH process, as opposed to the regular OLS procedure, which assumes homoscedasticity in residual returns. Average abnormal returns and cumulative average abnormal returns are calculated for the [-25, +25] event window, with the ADR listing date being the event date. The results indicate a significant negative abnormal local market return on an ADR listing day. The return volatilities after the listing are compared to those before the listing. Eleven out of sixteen companies experienced increased volatility of local returns after the cross-listing.
    Keywords: finance, Russia, international cross-listings, ADRs
    Date: 2004–05–01
  13. By: Jean Baptiste Desquilbet; Nikolay Nenovsky
    Abstract: It is often maintained that currency boards (CBs) and gold standards (GSs) are alike in that they are stringent monetary rules, the two basic features of which are high credibility of monetary authorities and the existence of automatic adjustment (non discretionary) mechanism. This article includes a comparative analysis of these two types of regimes both from the perspective of the sources and mechanisms of generating confidence and credibility, and the elements of operation of the automatic adjustment mechanism. Confidence under the GS is endogenously driven, whereas it is exogenously determined under the CB. CB is a much more asymmetric regime than GS (the adjustment is much to the detriment of peripheral countries) although asymmetry is a typical feature of any monetary regime. The lack of credibility is typical for peripheral countries and cannot be overcome completely even by “hard” monetary regimes.
    Keywords: monetary regime, gold standards, and currency boards
    JEL: E42
    Date: 2004–05–01
  14. By: Petar Chobanov; Nikolay Nenovsky
    Abstract: Over the last years the efficiency and existence of an automatic adjustment mechanism of currency boards are in the centre of economic discussions. This study is intended to provide an empirical analysis of the volume and interest rate of unsecured overnight deposits at Bulgarian interbank market. Three empirical models are developed in order to explain the behaviour of demand, supply and interest rates. The impact of reserve requirements, operations connected with government budget, transactions in reserve currency (Euro) and some seasonal factors is discussed. The developments of interest rates and volumes are well captured by the employed variables and their statistically significant signs coincide with the theoretical literature.
    Keywords: money market, currency board, Bulgaria
    JEL: E4 E5
    Date: 2004–05–01
  15. By: Art Durnev; Amrita S. Nain
    Abstract: Using a sample of 2,827 firms from 21 countries we examine whether insider trading laws achieve the primary objective for which they are introduced – protecting uninformed investors from private information-based trading. We find that when control is concentrated in the hands of a large shareholder, insider trading regulation is less effective in reducing private information-based trading if investor protection is poor. We suggest that controlling shareholders who are banned from trading may resort to covert expropriation of firm resources, creating more information asymmetry and thereby encouraging private information trading by informed outsiders. Consistent with this, we find evidence that when the rights of controlling shareholders are high, insider trading restrictions are associated with greater earnings opacity.
    Keywords: Insider Trading Regulation, Ownership, Private Information Trading, Earnings Opacity
    JEL: G15 G14 G38
    Date: 2004–05–01
  16. By: Jed Friedman
    Abstract: One feature common to many post-socialist transition economies is a relatively compressed wage structure in the state owned sector. We conjecture that this compressed wage structure creates weak incentives for work effort and worker skill acquisition and thus presents adverse consequences for the entire transition economy if a substantial portion of the labor force works in the state sector. We explore firm wage incentives and worker training, as well as other labor practices and outcomes, in a transition setting with matched firm and worker data collected in one of the largest provinces of Vietnam – Ho Chi Minh City. The Vietnamese state sector exhibits a compressed wage distribution in relation to foreign invested privately owned firms. State wage practices stress tenure over worker productivity and their wage policies result in flatter wage – experience profiles and lower returns to education. The state work force is in greater need for formal training, a need that is, in part, met through direct government financing. In spite of the opportunities for government financed training and at least partly due to inefficient worker incentives, state firms, by certain measures, exhibit lower levels of labor productivity. The private sector comparison group to state firms for all of these findings is foreign owned firms. The internal labor practices of foreign firms are more consistent with a view of profit-maximizing firms operating with no political constraints. This is not the case for Vietnamese de novo private firms that exhibit much more idiosyncratic behavior and whose labor practices are often indistinguishable from state firms. The exact reasons for this remain a topic of ongoing research yet we conjecture that various private sector constraints, including limited access to formal capital, play an important role.
    Keywords: Vietnam, within-firm incentives, labor productivity, transition
    JEL: P31 J31
    Date: 2004–05–01
  17. By: Ira N. Gang; Robert C. Stuart
    Abstract: This paper analyses Russian city growth during the command and transition eras. Our main focus is on understanding the extent to which market forces are replacing command forces, and the resulting changes in Russian city growth patterns. We examine net migration rates for a sample of 171 medium and large cities for the period 1960 through 2002. We conclude that while the declining net migration rate was reversed during the first half of the 1990s, restrictions continued to matter during the early years of transition in the sense that net migration rates were lower in the restricted than in the unrestricted cities. This pattern seemingly came to an end in the late 1990s.
    Keywords: cities; city growth; migration; Russia; urbanization
    JEL: J6 P20 R23
    Date: 2004–05–01
  18. By: J. David Brown; John S. Earle; Dana Lup
    Abstract: Although the development of a new private sector is generally considered crucial to economic transition, there has been rather little empirical research on the determinants of startup firm growth. This paper uses panel data techniques to analyze a survey of 297 new small enterprises in Romania containing detailed information from the startup date through 2001. We find strong evidence that access to external credit increases the growth of both employment and sales. Taxes appear to constrain growth. The data suggest that entrepreneurial skills have little independent effect on growth, once demand conditions are taken into account, and there is only weak evidence for the effectiveness of technical assistance, and only when it is provided by foreign partners. A wide variety of alternative measures of the business environment (contract enforcement, property rights, and corruption) are tested, but none are found to have any clear association with firm growth.
    Keywords: Small Firms, Entrepreneurship, Microfinance, Business Environment, Romania
    JEL: M13 O16 O19 P26
    Date: 2004–05–01
  19. By: Belton M. Fleisher; Klara Sabirianova Peter; Xiaojun Wang
    Abstract: We explore the pace of increase in returns to schooling during the transition from planning to market over time across a number of Central and Eastern European countries, Russia, and China. We use metadata from 33 studies of 10 transition economies covering a period from 1975 through 2002. Our empirical model is an attempt to account for cross-section and over-time variation in rates of return as a function of the timing, speed, and volatility of reform processes as well as estimation methods used and sample characteristics. Our principal aim is to investigate the relative strength of two hypotheses: (1) the speed of economic transformation from planning to market represent the relaxation of legal, regulatory, and institutional constraints on wage-setting behavior, leading directly to adjustment returns to schooling to market rates; 2) the rapid increase in returns to schooling during the early reform period reflects the ability of highly-educated individuals to respond to changing opportunities in a disequilibrium situation. We find that both the speed of reforms and the degree of economic disequilibrium as reflected in macroeconomic volatility help to explain cross-country differences in the time paths of the returns to schooling. We report the systematic effects of sample characteristics, estimation methods, and model specifications on estimated returns to schooling.
    Keywords: returns to schooling, skills, speed of reforms, meta-analysis, transition, Central and Eastern Europe, China, Russia.
    JEL: J31 J24 O15 P2 P3 P5
    Date: 2004–06–01
  20. By: Belton M. Fleisher; Xiaojun Wang
    Abstract: We estimate returns to schooling using a retrospective work history survey covering more than 4,000 workers over the period 1950 to 1994, with particular emphasis to the returns to schooling for workers who attended institutes of higher education and who graduated from college. We find evidence that schooling returns declined throughout the period leading up to the Cultural Revolution (CR), with returns for workers who did not attend college becoming negligible. Returns to those with some college education remained positive, but low compared to other countries. Consistent with other studies, we find that returns to schooling did not recover from their CR low until the 1990s. Increases in the return to schooling during the transition following the CR were not associated directly with workers changing jobs or with taking “new-economy” jobs but appear to have occurred for most workers across all ownership categories. Workers most likely to leave jobs in the traditional ownership sector for jobs in the private or jointventure categories were those who entered the labor force prior to 1967. We do not find evidence supporting other studies’ finding that schooling returns for college graduates increased more than for workers with lower levels of schooling attainment.
    Keywords: returns to schooling, skills, China
    JEL: J31 J24 O15
    Date: 2004–06–01
  21. By: Neven T. Valev; John A. Carlson
    Abstract: We use unique survey data from Bulgaria’s currency board to examine the reasons for persistent incomplete credibility of a financial stabilization regime. Although it produced remarkably positive effects in terms of sustained low inflation since 1997, the currency board has not achieved full credibility. This is not uncommon in other less-developed countries with fixed exchange rate regimes. Our results reveal that incomplete credibility is explained primarily by concerns about external economic shocks and the persistent high unemployment in the country. Past experiences with high inflation do not rank among the top reasons to expect financial instability in the future.
    Keywords: Credibility, Currency Boards, Financial Stabilization Programs
    JEL: E5 F3
    Date: 2004–06–01
  22. By: Brian Van Arkadie; Do Duc Dinh
    Abstract: The economic reforms in Tanzania and Vietnam represent the two typical cases of transition economies in Asia and Africa, particularrly the transformation of the two developing economies from the planned to the market mechanism. In this paper, the two authors, Brian - a British economist and Dinh - a Vietnamese economist, have, basing on a comparative approach, enquired into various economic and social aspects of the economic reforms in the two countries, including the demographic transition, the change in population growth, the investment in human capital, the growth of GDP, the structural sransformation, the linkage between gricultural growth, rural development, food production and poverty alleviation, the reform in the industrial sector and the state enterprises, the change of ownership , the role of the State, the capital formation, the role of the domestic savings, foreign aid, investment and trade, the gains and losses from globalisation, with an aim to find the answer to the question why in the two cases, Tanzania seemed to follow the donors’ guidance better than Vietnam, but achieved smaller successes?
    Keywords: Reform vesus Renovation; Fast Liberalisation vs Step-by-Step Transformation; Privatisation vs Equitisation; Multi-Sector Ownership vs Private Ownership Bias; Industrialisation vs Agriculture-Driven Growth; Active State vs Passive State.
    JEL: E6 F41 F43 H11 N10 N15 N17 O11 O53 O55 O57 P52
    Date: 2004–06–01
  23. By: Sumon Kumar Bhaumik; Klaus Meyer; Saul Estrin
    Abstract: Foreign investors are expected to contribute to economic development through a variety of channels. However, many foreign investment operations are small, and almost insignificant in their impact on the local environment. An important indication of the potential contribution of foreign investors is thus their employment growth. Employees working for, and trained by, a multinational enterprise may become carriers of new technology and business practices. The more employees receive access to new knowledge, the more they in turn may spread the knowledge across the economy, for instance by setting up their own businesses. In this paper, we make a first step in investigating the determinants of this important mediating variable, employment growth. For a dataset covering four diverse emerging economies, we find that wholly-owned FDI operations have higher employment growth, while local industry characteristics moderate the growth effect.
    Keywords: MNE, employment growth, control, institutions, FDI policy
    JEL: O13 O33 J21 F23
    Date: 2004–07–01
  24. By: John S. Earle; Klara Sabirianova Peter
    Abstract: We present a model of neighborhood effects in wage payment delays. Positive feedback arises because each employer’s arrears affect the late payment costs faced by other firms in the same local labor market, resulting in a strategic complementarity in the practice. The model is estimated on panel data for workers and firms in Russia, facilitating identification through the use of a rich set of covariates and fixed effects for employees, employers, and local labor markets. We also exploit a policy intervention affecting public sector workers that provides an instrumental variable to estimate the endogenous reaction in the non-public sector. Consistently across specifications, the estimated reaction function displays strongly positive neighborhood effects, and the estimates of four feedback loops – operating through worker quits, effort, strikes, and legal penalties – imply that costs of delays are attenuated by neighborhood arrears. We also study a nonlinear case exhibiting two stable equilibria: a “punctual payment equilibrium” and a “late payment equilibrium.” The estimates imply that the theoretical conditions for multiple equilibria under symmetric local labor market competition are satisfied in our data.
    Keywords: wage arrears, contract violation, neighborhood effect, social interactions, multiple equilibria, network externality, strategic complementarity, transition, Russia.
    JEL: A12 B52 J30 K42 L14 O17 P31 P37
    Date: 2004–07–01
  25. By: Gábor Orbán; György Szapáry
    Abstract: The purpose of this paper is to examine the fiscal characteristics of the new members in the light of the requirements of the SGP and the criticisms levelled against the Pact and to see in what ways their initial conditions differ from those faced by the current euro zone countries in the run-up to the adoption of the euro. Overall, because of the lower debt levels and greater yield convergence already achieved, the new members will be able to rely less on gains from yield convergence than the current euro zone members were able to do. EU accession will also have a negative net impact on the budgets of the new members in the early years of membership. We also look at the cyclical sensitivities of the budgets and find that in the new members the smoothing capacity of the automatic stabilizers might be weaker than in the current euro zone members. Beyond these general characteristics, we also emphasize that there are large differences in the starting fiscal positions of the new members. Some of the policy implications of our findings are discussed.
    Keywords: EU enlargement, fiscal policy, fiscal rules, Stability and Growth Pact
    JEL: E61 H6 H87
    Date: 2004–07–01
  26. By: Rumen Dobrinsky; Gábor Kõrösi; Nikolay Markov; László Halpern
    Abstract: Under perfect competition and constant returns to scale, firms producing homogeneous products set their prices at their marginal costs which also equal their average costs. However, the departure from these standard assumptions has important implications with respects to the derived theoretical results and the validity of the related empirical analysis. In particular, monopolistic firms will charge a markup over their marginal costs. We show that firms’ markups tend to be directly associated with the employed production technology, more specifically with their returns to scale. Accordingly, we analyze the implications for the markup ratios from the incidence of non-constant returns to scale. We present quantitative results illustrating the effect of the returns to scale index on the firms’ price markups, as well as the relationship between the two indicators, on the basis of firm-level data for Bulgarian and Hungarian manufacturing firms.
    Keywords: markup pricing, market imperfections, return to scale, Bulgaria, Hungary
    JEL: C23 D21 D24
    Date: 2004–07–01
  27. By: Konstantin Gluschenko
    Abstract: The behavior of the entire cross-section distribution of prices in Russian regions is analyzed from 1992 through 2000, using non-parametric techniques. The cost of a staples basket is used as a price representative. Price dispersion measured as the standard deviation of prices is found to be diminishing since about 1994; and the shape of the cross-region distribution of prices tends to be more regular over time. To characterize intra-distribution mobility, a transition probability function (stochastic kernel) is estimated. It is also used to derive a long-run limit of the price distribution. Overall, the results suggest that, excluding a few years following the price liberalization, price convergence has been happening among Russian regions.
    Keywords: price convergence, price dispersion, distribution dynamics, market integration, Russia
    JEL: P22 R10 R15
    Date: 2004–07–01
  28. By: Swati Basu; Saul Estrin; Jan Svejnar
    Abstract: Using large firm-level data sets from the Czech Republic, Slovakia, Poland and Hungary, we show that the wage behavior of firms changed considerably as these economies launched their transitions to a market system. We find evidence of worker sharing in their enterprise rents and losses at the end of the communist period in some economies and within a year after the launching of the transition, we find rent sharing in all of them. Using the Czech and Slovak data we show that the state-owned enterprises (SOEs) that existed under communism and survived allow for less worker rent-sharing than other firms. We also test for the presence of a wage curve and with the exception of Slovakia we do not find a significant association between local unemployment and wages. Finally, we do not find significant effects of firm ownership on wages.
    Date: 2004–08–01
  29. By: Irena Grosfeld; Iraj Hashi;
    Abstract: Mass privatization offers a particularly suitable framework to study the change in ownership concentration as the extent of change is unusual for a stable market economy. Focusing on two different mass privatization schemes in two transition economies, Poland and the Czech Republic, we find that despite important differences in the design of the two programmes and despite different quality of legal and regulatory framework, ownership structure in the two countries has rapidly evolved and the emerging ownership patterns are remarkably similar. This suggests that private benefits of control are large and the quality of investor protection regime is low in both countries. However, looking at the relationship between the change in ownership concentration and firm performance, we find an interesting difference between the two countries: in the Czech Republic the increase in ownership concentration seems to be less likely in poorly performing firms while in Poland the quality of past performance does not affect investors' willingness to increase their holdings. This effect may be interpreted in the light of the theory stressing the importance of the quality of investors' protection. It could be argued that if Czech investors are more risk averse and more concerned with diversification this is largely due to the weakness of the legal protection they face.
    Keywords: ownership concentration, mass privatisation, corporate governance, transition
    JEL: G3 L2 P3 P5
    Date: 2004–08–01
  30. By: Yuriy Gorodnichenko; Klara Sabirianova Peter;
    Abstract: n Russia and Ukraine (1985-2002). There has been an increase in returns to schooling in both countries but the increase is much bigger in Russia than in Ukraine. The intriguing question is why returns to schooling in Russia and Ukraine diverged so much over the transition period while the skill composition of employment did not. Our approach in analyzing the sources of cross-country differences in returns to schooling is to compare the Mincerian earnings functions between the two countries and then to employ decomposition techniques. Using semiparametric methods, we construct counterfactual wage distributions for university and secondary school graduates for Ukraine using the distributions of Russian characteristics, returns to characteristics, and unobservables. This allows us to decompose differences in returns to schooling between the two countries due to differences in the labor market returns (price effect), differences in unobservables (residual effect), and differences in the labor force composition (composition effect). We conclude that of these three effects the price effect makes a major contribution to the observed differences in the returns to schooling.
    Keywords: returns to schooling, earnings function, semiparametric approach, decomposition, counterfactual, cross-country analysis, retrospective data, transition, Russia, Ukraine
    JEL: C14 I20 J31 O15 O57 P50
    Date: 2004–08–01
  31. By: Rita Hansberry; ;
    Abstract: This paper examined the male-female differentials in hourly earnings in Russia from 1996 to 2002. The gender wage gap did not alter significantly in the earlier years, a period characterized by economic instability, but as the economy recovered, the differential in earnings increased initially. This trend reversed in 2002 and while the gender wage gap in mean earnings fell to its previous level the differential increased at the lower percentiles. Throughout all years, most of the gender wage differential is accounted for by differences in rewards rather than differences in observable characteristics. Occupational segregation continues to be a salient feature of the labor market with women clustered in professional, clerical and service occupations while men are more predominantly employed in blue-collar jobs.
    Keywords: Russia, economic transition, gender wage gap, occupational segregation
    JEL: J16 J31 P31
    Date: 2004–09–01
  32. By: Klara Sabirianova Peter; Jan Svejnar; Katherine Terrell
    Abstract: We establish that domestically owned firms in two alternative models of emerging market economies, the Czech Republic and Russia, have not been converging to the technological frontier set by foreign owned firms. In both countries, the distance of domestic firms to the frontier grew (in all parts of the distribution) from 1992-1994 to 1995-1997 and did not change from 1995-1997 to 1998-2000. However, the distance to the frontier is orders of magnitude greater in Russia than in the Czech Republic throughout 1992-2000. We also find in both countries that domestic firms in industries with a greater share of foreign firms are falling behind more than domestic firms in industries with a smaller foreign presence. However, in the Czech Republic this “negative spillover” effect is diminished over time, whereas in Russia it continues to cause domestic firms to fall further behind. On the other hand, we find in both countries that foreign firms experience positive spillovers from other foreign firms operating in the same product market. This evidence on the dynamics of efficiency is consistent with the view that economies (firms) need to be more technologically advanced and open to competition in order to be able to gain from foreign presence.
    Keywords: foreign direct investment, productivity, convergence, frontier, knowledge spillovers, Czech Republic, Russia.
    JEL: C33 D20 F23 G32 L20 O33
    Date: 2004–09–01
  33. By: Bruno Merlevede; Koen Schoors; Bas van Aarle
    Abstract: This paper develops and estimates a small macroeconomic model of the Russian economy. The model is tailored to analyze the impact of the oil price, the exchange rate, and political stability on economic performance. The model does very well in explaining Russia’s economic history in the period 1995-2002. We then use the model to simulate two sets of scenarios, one with various oil price scenarios and one with various adverse shocks. The simulations suggest that the Russian economy is still very vulnerable to oil price swings, and that these swings have asymmetric effects. Indeed the cost of a downward swing of oil prices seems to be larger than the benefit of an upward swing. We also find that the aggregate effects of an oil price collapse are comparable to these of renewed political instability. Although their propagation mechanism is quite different, both adverse shocks do have a similar effect on real GDP. A real exchange rate appreciation on the other hand has relatively mild effects on real GDP. All in all, it is suggested that Russia should reduce its vulnerability to adverse oil price shocks and maintain political stability.
    Keywords: Russia, Macroeconomic Modeling, Macroeconomic stabilization
    JEL: C70 E17 E58 E63
    Date: 2004–10–01
  34. By: Ales Bulir
  35. By: Martin Cincibuch; Jiri Podpiera
    Abstract: Using the simple arbitrage model, we decompose real appreciation in tradables in three Central European countries between the pricing-to-market component (disparity) and the local relative price component (substitution ratio). Appreciation is only partially explained by local relative prices. The rest is absorbed by disparity, depending on the size of the no-arbitrage band. The observed disparity fluctuates in a wider band for differentiated products than for a commodity like goods.

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