nep-tra New Economics Papers
on Transition Economics
Issue of 2005‒10‒22
fifty-nine papers chosen by
Tono Sanchez
Universitat de Valencia

  1. Book Review--Doing Business in Asia’s Booming “China Triangle” By Deepak Kumar
  2. China: International Trade and WTO Accession By Nicolas R. Blancher; Thomas Rumbaugh
  3. Trade Costs and Location of Foreign Firms in China By Mary Amiti; Beata K. Smarzynska Javorcik
  4. Executive Compensation, Firm Performance, and Corporate Governance in China: Evidence from Firms Listed in the Shanghai and Shenzhen Stock Exchanges By Takao Kato; Cheryl Long
  5. Russia and the WTO: The "Gravity" of Outsider Status By Yaroslav Lissovolik; Bogdan Lissovolik
  6. The Productivity Effects of Privatization: Longitudinal Estimates from Hungary, Romania, Russia, and Ukraine By J. David Brown; John S. Earle; Almos Telegdy
  7. FDI Flows to Asia: Did the Dragon Crowd Out the Tigers? By Benoît Mercereau
  9. Too Much of a Good Thing? Credit Booms in Transition Economies: The Cases of Bulgaria, Romania, and Ukraine By Nikolay Gueorguiev; Christoph Duenwald; Andrea Schaechter
  10. The Incidence and Cost of Job Loss in the Ukrainian Labor Market By Hartmut Lehmann; Norberto Pignatti; Jonathan Wadsworth
  11. The IMF and Russia in the 1990s By J. C. Odling-Smee
  12. Les hydrocarbures russes : une industrie en quête de modèle By Catherine Locatelli
  13. Can China Grow Faster? A Diagnosis on the Fragmentation of the Domestic Capital Market By Genevieve Boyreau-Debray; Shang-Jin Wei
  14. Toward More Effective Redistribution: Reform Options for Intergovernmental Transfers in China By Mario Fortuna; Ehtisham Ahmad; Raju Singh
  15. Crouching Tiger, Hidden Dragon: What are the Consequences of China's WTO Entry for India's Trade By Sandra A. Rivera; Valerie Cerra; Sweta Chaman Saxena
  16. Exchange Rates in Central Europe: a Blessing or a Curse? By Alain Borghijs; Louis Kuijs
  17. Foreign Exchange Market Volatility in EU Accession Countries in the Run-up to Euro Adoption: Weathering Uncharted Waters By Ádám Kóbor; István P. Székely
  18. Money Demand and Inflation in Dollarized Economies: The Case of Russia By Nienke Oomes; Franziska Ohnsorge
  19. Issues in Intergovernmental Fiscal Relations in China By Era Dabla-Norris
  20. Equilibrium Exchange Rate in the Czech Republic: How Good is the Czech BEER? By Ian Babetskii; Balazs Egert
  21. 'The Role of Employee Ownership in Privatisation of State Enterprises in Eastern and Central Europe,' (1993) Europe-Asia Studies Vol.45, No.3, 463-481. By Zeljko Bogetic
  22. Is Russia Still Driving Regional Economic Growth? By Etibar Jafarov; Marco Pani; Clinton R. Shiells
  23. Financial Crisis, Economic Recovery and Banking Development in Russia, Ukraine, and Other FSU Countries By Dalia Marin; Haizhou Huang; Chenggang Xu
  24. Disability Risk and Miraculous Recoveries in Russia By Becker, Charles M.; Merkuryeva, Irina S.
  25. Inflation in Mainland China - Modelling a Roller Coaster Ride By Michael Funke
  26. The Russian Flat Tax Reform By Anna Ivanova; Alexander Klemm; Michael Keen
  27. Taxation Reforms and Changes in Revenue Assignments in China By Ben Lockwood; Ehtisham Ahmad; Raju Singh
  28. China: Sources of Real Exchange Rate Fluctuations By Tao Wang
  29. Who is Still Haunted by the Specter of Communism? Explaining Relative Output Contractions Under Transition By Julian Berengaut; Katrin Elborgh-Woytek
  30. The Chinese Approach to Capital Inflows: Patterns and Possible Explanations By Eswar Prasad; Shang-Jin Wei
  31. Analysis of Recent Growth in Low-Income CIS Countries By Elena Loukoianova; Anna Unigovskaya
  32. Post-Transition Investment Behavior in Poland: A Sectoral Panel Analysis By Zuzana Murgasova
  33. Interest Rate Pass-Through in Romania and other Central European Economies By Alexander F. Tieman
  34. Outsourcing Tariff Evasion: A New Explanation for Entrepot Trade By Raymond Fisman; Peter Moustakerski; Shang-Jin Wei
  35. Labor Productivity and Real Exchange Rate: The Balassa-Samuelson Disconnect in the Former Yugoslav Republic of Macedonia By Boileau Loko; Anita Tuladhar
  36. A Common Currency for Belarus and Russia? By Etibar Jafarov; Anne Marie Gulde; Vassili Prokopenko
  37. Debt Accumulation in the CIS-7 Countries: Bad Luck, Bad Policies, or Bad Advice By Ashoka Mody; Thomas Helnling; Ratna Sahay
  38. Russia's Regions: Income Volatility, Labor Mobility and Fiscal Policy By Antonio Spilimbergo; Goohoon Kwon
  39. Wage Ceilings and Floors: The Gender Gap in Ukraine’s Transition By Ina Ganguli; Katherine Terrell
  40. Foreign Direct Investment in Southeastern Europe: How (and How Much) Can Policies Help? By Yi Wu; Elina Ribakova; Dimitri G. Demekas; Balázs Horváth
  41. Front-Loaded or Back-Loaded Fiscal Adjustments: What Works in Emerging Market Economies? By Carlos Mulas-Granados; Emanuele Baldacci; Benedict J. Clements; Sanjeev Gupta
  42. Foreign Exchange Market Organization in Selected Developing and Transition Economies: Evidence from a Survey By Jorge Iván Canales Kriljenko
  43. Central Bank Losses and Experiences in Selected Countries By John W. Dalton; Claudia Helene Dziobek
  44. Maintaining Competitiveness Under Equilibrium Real Appreciation: The Case of Slovakia By Nienke Oomes
  45. Who gains from restructuring the post-Soviet transition economies, and why? By T. Huw Edwards
  46. Macroeconomic Implications of the Transition to Inflation Targeting and Capital Account Liberalization in Romania By Nikolay Gueorguiev; Pelin Berkmen
  47. Haircuts: Estimating Investor Losses in Sovereign Debt Restructurings, 1998-2005 By Jeromin Zettelmeyer; Federico Sturzenegger
  48. Current Account Reversals In Selected Transition Countries By Aleksander Aristovnik
  49. The Effects of Exchange Rate Change on the Trade Balance in Croatia By Tihomir Stucka
  50. Knowledge Society and Transition Economies The Bulgarian Challenge By BOURDEAU-LEPAGE, Lise; KOLAROVA,Desislava
  51. Slovakia's 2004 Tax and Welfare Reforms By David Moore
  52. Competitiveness in Bulgaria: An Assessment of the Real Effective Exchange Rate By Dimitar Chobanov; Piritta Sorsa
  53. Implications of EU Enlargement for Border Management and Citizenship in Europe By Enrica Rigo
  54. Fiscal Indulgence in Central Europe: Loss of the External Anchor By Helge Berger; George Kopits; István P. Székely
  55. To Study or to Work? Education and Labour Market Participation of Young People in Poland By Francesco Pastore
  56. Integrating a Unified Revenue Administration for Tax and Social Contribution Collections: Experiences of Central and Eastern European Countries By Peter Barrand; Stanford G. Ross; Graham Harrison
  57. Exchange Rate, Money, and Wages: What is Driving Prices in Armenia? By David A. Grigorian; Armine Khachatryan; Grigor Sargsyan
  58. In the Pipeline: Georgia's Oil and Gas Transit Revenues By Andreas Billmeier; Bert van Selm; Jonathan C. Dunn
  59. European Union Enlargement and Equity Markets in Accession Countries By Richard Podpiera; Tomas Dvorak

  1. By: Deepak Kumar (ICFAI University Press , Hyderabad,India)
    Abstract: The book encapsulates the ways and means of doing business with China, and the opportunities out there. It reveals how China has transformed itself for the investors by creating a friendly environment; but,nevertheless, cultural and social aspects must not be forgotten while dealing with them. The book is divided into four parts. These are: • The China Triangle, • Trading with China, • Investing in China and • Dealing with Chinese. This book on “China Triangle” encourages foreign businessmen to invest here, as it has gone through different economic reforms. China Triangle, here,stands for People’s Republic of China, Taiwan and Hong Kong. These countries are now united commercially and their people are coming together to do business. Examples of this are: • The Chinese town of Shenzhen, with skyline crammed with office towers, has been financed by Hong Kong banks. • Hong Kong firms employ five million workers in South China and 70% of the foreign investment flows into Guangdong province. • Taiwan is upgrading its production technology while Hong Kong is improving its finances, transportation,and telecommunication infrastructure. • People’s Republic of China is expanding its share in export markets and as per recent data of 2005, China already has trade surplus.
    Keywords: China,Business Environment,Asia
    JEL: F1 F2
    Date: 2005–10–19
  2. By: Nicolas R. Blancher; Thomas Rumbaugh
    Abstract: China's increasing integration with the global economy has contributed to sustained growth in international trade. Its exports have become more diversified, and greater penetration of industrial country markets has been accompanied by a surge in China's imports from all regions-especially Asia, where China plays an increasingly central role in regional specialization. Tariff reforms have been implemented in China since the 1980s; and, with its recent WTO accession, China has committed itself to additional reforms that are farreaching and challenging. Sustained implementation of these commitments would further deepen China's international integration and generate benefits for most partner countries.
    Keywords: International trade , China , World Trade Organization ,
    Date: 2004–03–10
  3. By: Mary Amiti; Beata K. Smarzynska Javorcik
    Abstract: This study examines the determinants of entry into by foreign firms, using information on 515 Chinese industries at the provincial level during 1998-2001. The analysis, rooted in the new economic geography, focuses on market and supplier access within and outside the province of entry, as well as production and trade costs. The results indicate that market and supplier access are the most important factors affecting foreign entry. Access to markets and suppliers in the province of entry matters more than access to the rest of China, which is consistent with market fragmentation due to underdeveloped transport infrastructure and informal trade barriers.
    Keywords: Trade , China , Foreign investment , Emerging Markets , Supply , Economic models ,
    Date: 2005–03–22
  4. By: Takao Kato (Colgate University, Columbia University and IZA Bonn); Cheryl Long (Colgate University, Stanford University and University of Electronic Science and Technology of China)
    Abstract: This paper provides evidence on how executive compensation relates to firm performance in listed firms in China. Using comprehensive financial and accounting data on China’s listed firms from 1998 to 2002, augmented by unique data on executive compensation and ownership structure, 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. In addition, sales growth is shown to be 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. Perhaps more importantly, we find that ownership structure of China’s listed firms has important effects on pay-performance link in these firms. Specifically state ownership of China’s listed firms is weakening pay-performance link for top managers and thus possibly making China’s listed firms less effective in solving the agency problem. As such, ownership restructuring may be needed for China to successfully transform its SOEs to efficient modernized corporations and reform its overall economy.
    Keywords: executive compensation, firm performance, corporate governance, ownership structure, China, and transition economies
    JEL: M52 M12 J33 P31 P34 O16 G30 O53 G15
    Date: 2005–09
  5. By: Yaroslav Lissovolik; Bogdan Lissovolik
    Abstract: With China's accession to the WTO in 2001, Russia is by far that organization's most prominent nonmember. This paper applies the gravity model to gauge whether this "outsider" status has been affecting Russia's export structure. On the basis of cross-section and panel regressions for 1995-2002, we find that Russian exports to WTO members have fallen short of the model's predictions. The paper discusses possible explanations of this result, including Russia's exclusion from various WTO procedures, although own-export restrictions could have a similar effect. The model points to Russia's further trade reorientation toward WTO members after a putative accession. Our results also prompt some ideas that may resolve the recent empirical controversy over the WTO's overall role in promoting trade.
    Keywords: World Trade Organization , Russian Federation , Trade , Economic models ,
    Date: 2004–09–07
  6. By: J. David Brown (Heriot-Watt University and CEU Labor Project); John S. Earle (W.E. Upjohn Institute for Employment Research and Central European University); Almos Telegdy (Central European University and Institute of Economics of the Hungarian Academy of Sciences)
    Abstract: This paper estimates the effect of privatization on multifactor productivity (MFP) using long panel data for nearly the universe of initially state-owned manufacturing firms in four economies. We exploit the key longitudinal feature of our data to measure and control for pre-privatization selection bias and to estimate long-run impacts. We find that the magnitudes of our estimates are robust to alternative functional forms, but sensitive to how we control for selection. Our preferred random growth models imply that majority privatization raises MFP about 15% in Romania, 8% in Hungary, and 2% in Ukraine, while in Russia it lowers it 3%. Privatization to foreign rather than domestic investors has a larger impact, 18-35%, in all countries. Positive domestic effects appear within a year in Hungary, Romania, and Ukraine and continue growing thereafter, but take 5 years after privatization to emerge in Russia.
    Keywords: privatization, productivity, foreign ownership, random growth model, transition, Hungary, Romania, Russia, Ukraine
    JEL: D24 G34 L33 P31
    Date: 2005–10
  7. By: Benoît Mercereau
    Abstract: China's dramatic success in attracting foreign direct investment (FDI) has raised concerns that it has success diverted FDI from other countries in Asia. We develop a new methodology to estimate crowding out, and we use it to investigate the impact of China's emergence on FDI flows to Asia using data from 14 Asian economies from 1984 to 2002. The results suggest that China did not have much impact on FDI to other countries. In particular, lowincome economies, which compete with China for low-wage investment, and countries with low levels of education or scientific development do not seem to have been especially affected.
    Keywords: Foreign investment , China ,
    Date: 2005–10–05
  8. By: Aleksander Aristovnik (Faculty of Administration)
    Abstract: The article’s main objective is to investigate the empirical link between the fiscal balance and the current account (i.e. the twin deficits phenomenon). The article focuses on transition economies which are according to their different characteristics divided into three major groups, i.e. Central and Eastern Europe (CEE), Southern and Eastern Europe (SEE) and the Commonwealth of Independent States (CIS). In fact, the inconsistency between public sector instability and currency overvaluations which led to current account balance deterioration was denoted as one of the key determinants of the balance of payments (currency) crisis seen in transition economies like Czech Republic (1997) and Russia (1998). Moreover, the importance of the so- called Horioka-Feldstein puzzle in transition economies is examined in order to draw some conclusions about the regions’ integration with international capital markets. For this purpose, pooled cross-sectional and time-series techniques are used to characterize the properties of current account variations across selected groups of transition economies in the 1990-2003 period. The empirical results suggest that high budget deficits in transition countries have signaled relatively low level of substitutability between private and public savings, implying a relatively high correlation between fiscal and external imbalances. Accordingly, special emphasis should be paid to the fiscal policy shift in these economies. Indeed, the main element of the economic policy reversal in transition countries should involve a substantial reduction of fiscal deficits in the future in order to reduce the probability of a balance of payments (currency) crisis. Finally, the article provides some evidence of the existence of the Horioka-Feldstein puzzle in transition economies.
    JEL: C3
    Date: 2005–10–18
  9. By: Nikolay Gueorguiev; Christoph Duenwald; Andrea Schaechter
    Abstract: Rapid credit growth in Bulgaria, Romania, and Ukraine has been driven by successful macroeconomic stabilization, robust growth, and capital inflows. While financial deepening is both expected and welcome, the recent expansions appear to have been excessive, as evidenced by widening current account deficits in Bulgaria and Romania, and prudential concerns in Ukraine. Policy responses have included attempts to both moderate credit growth and offset its impact on domestic demand, with mixed success thus far.
    Keywords: Transition economies , Bulgaria , Romania , Ukraine , Credit ,
    Date: 2005–07–08
  10. By: Hartmut Lehmann (University of Bologna, CERT, Heriot-Watt University, EROC, Kiev School of Economics and IZA Bonn); Norberto Pignatti (University of Bologna and IZA Bonn); Jonathan Wadsworth (Royal Holloway College, University of London, CEP, London School of Economics and IZA Bonn)
    Abstract: We examine the effects of economic transition on the pattern and costs of worker displacement in Ukraine, using the Ukrainian Longitudinal Monitoring Survey (ULMS) for the years 1992 to 2002. Displacement rates in the Ukrainian labor market average between 3.4 and 4.8 percent of employment, roughly in line with levels typically observed in several Western economies, but considerably larger than in Russia. The characteristics of displaced workers are similar to those displaced in the West, in so far as displacement is concentrated on the less skilled. Around one third of displaced workers find re-employment immediately while the majority continues into long-term non-employment. The wage costs of displacement for the sub-sample of displaced workers do not seem to be large. The main cost for displaced workers in Ukraine consists in the extremely long non-employment spell that the average worker experiences after layoff.
    Keywords: displaced workers, labor markets in transition, Ukraine
    JEL: J64 J65 P50
    Date: 2005–09
  11. By: J. C. Odling-Smee
    Abstract: This paper explains the IMF's impact on economic policies in Russia, focusing on where the IMF made a difference. The Russian economic and political leadership essentially determined economic policies. The IMF's influence was modest: it had only a limited impact on overall fiscal policy and the major structural reforms, but it had a positive impact on monetary policy. A tougher position on fiscal policy in 1996-98 might have produced a better outcome. The G-7's concerns weakened the IMF. However, the IMF played a major role in transferring knowledge about macroeconomic policymaking and implementation.
    Keywords: Transition economies , Russian Federation , Fund , Fiscal policy , Structural adjustment ,
    Date: 2004–09–02
  12. By: Catherine Locatelli (LEPII - Laboratoire d'économie de la production et de l'intégration internationale - - CNRS : FRE2664 - Université Pierre Mendès-France - Grenoble II)
    Abstract: La politique énergétique de la Russie, producteur important de pétrole et de gaz, témoigne d'évolutions majeures notamment dans le domaine des hydrocarbures. La principale d'entre elles réside dans l'évolution du modèle organisationnel qui s'était progressivement mis en place lors des premières années de la transition.
    Keywords: politique énergétique;Russie;industrie pétrolière;industrie gazière;structure d\'organisation
    Date: 2005–10–07
  13. By: Genevieve Boyreau-Debray; Shang-Jin Wei
    Abstract: This paper examines possible segmentation of the internal capital market in China. We employ two standard tools from the international finance literature to analyze financial integration across Chinese provinces. Both tests confirm a similar (and somewhat surprising) picture: capital mobility within China is low! Furthermore, the degree of internal financial integration appears to have decreased, rather than increased, in the 1990s relative to the preceding period. Finally, we document that the government tends to reallocate capital from more productive regions to less productive ones. In this sense, a smaller role of the government in the financial sector might increase the rate of economic growth.
    Keywords: Capital markets , China , Capital flows , Financial sector , Economic growth ,
    Date: 2004–05–17
  14. By: Mario Fortuna; Ehtisham Ahmad; Raju Singh
    Abstract: Full implementation of an intergovernmental transfer system based on revenue capacities and expenditure needs could significantly improve both redistribution and equity objectives of the Chinese authorities. This was envisaged in the 1994 fiscal reforms, but the authorities were unable to implement the measures fully. This paper examines mechanisms that might facilitate effective implementation.
    Keywords: Fiscal reforms , China , Income distribution , Fiscal policy ,
    Date: 2004–06–29
  15. By: Sandra A. Rivera; Valerie Cerra; Sweta Chaman Saxena
    Abstract: One of the most significant recent developments in world trade has been the entry of China into the World Trade Organization (WTO). This paper examines the implications of China's WTO accession for India's trade, using both econometrics and computable general equilibrium (CGE) models. The paper analyzes how India stands to lose or gain from China's WTO entry in terms of both the direct and competitive channels.
    Keywords: World Trade Organization , China , India , Trade , Economic models ,
    Date: 2005–06–03
  16. By: Alain Borghijs; Louis Kuijs
    Abstract: Central European accession countries (CECs) are currently considering when to adopt the euro. From the perspective of macroeconomic stabilization, the cost or benefit of giving up a flexible exchange rate depends on the types of asymmetric shocks hitting the economy and the ability of the exchange rate to act as a shock absorber. Economic theory suggests that flexible exchange rates are useful in absorbing asymmetric real shocks but unhelpful in the case of monetary and financial shocks. For five CECs-the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia-empirical results on the basis of a structural VAR suggest that in the CECs the exchange rate appears to have served as much or more as an unhelpful propagator of monetary and financial shocks than as a useful absorber of real shocks.
    Keywords: Exchange rates , Czech Republic , Hungary , Poland , Slovak Republic , Slovenia ,
    Date: 2004–01–23
  17. By: Ádám Kóbor; István P. Székely
    Abstract: The paper analyzes foreign exchange market volatility in four Central European EU accession countries in 2001-2003. By using a Markov regime-switching model, it identifies two regimes representing high- and low-volatility periods. The estimation results show not only that volatilities are different between the two regimes but also that some of the cross-correlations differ. Notably, cross-correlations increase substantially for two pairs of currencies (the Hungarian forint-Polish zloty and the Czech koruna-Slovak koruna) in the high-volatility period. The paper concludes by discussing the policy implications of these findings.
    Keywords: Exchange markets , Czech Republic , Hungary , Poland , Slovak Republic , Euro , Economic models ,
    Date: 2004–02–10
  18. By: Nienke Oomes; Franziska Ohnsorge
    Abstract: Money demand in dollarized economies often appears to be highly unstable, making it difficult to forecast and control inflation. In this paper, we show that a stable money demand function for Russia can be found for "effective broad money," which includes an estimate of foreign cash holdings. Moreover, we find that an excess supply of effective broad money is inflationary, while other excess money measures are not, and that effective broad money growth has the strongest and most persistent effect on short-run inflation.
    Keywords: Demand for money , Russian Federation , Inflation , Dollarization , Currency substitution ,
    Date: 2005–08–02
  19. By: Era Dabla-Norris
    Abstract: The paper reviews the changing nature of intergovernmental fiscal relations between the provinces and the central government in China over the past two decades and provides an assessment of the success of previous reforms in meeting their objectives. Key existing weaknesses in the current system that undermine these objectives are identified. Alternative instruments, procedures, rules, and incentives that could result in better outcomes are outlined by drawing upon relevant cross-country experiences.
    Keywords: Intergovernmental fiscal relations , China , Income distribution , Fiscal policy ,
    Date: 2005–03–01
  20. By: Ian Babetskii; Balazs Egert
    Abstract: This paper investigates the equilibrium exchange rate of the Czech koruna using the reduced form equation of the stock-flow approach advocated, for instance, by Faruqee (1995) and Alberola et al. (1999). We investigate whether or not the observed real exchange rate of the Czech koruna is close to its equilibrium value over the period from 1993 to 2004. Our empirical approach is tantamount to the Behavioural Equilibrium Exchange Rate (BEER) popularised by MacDonald (1997) and Clark and MacDonald (1998), in that the Czech real exchange rate vis-a-vis the euro is regressed on the dual productivity differential and the net foreign assets position, based on which actual and total misalignment figures are derived in a time series context. In other words, we check the quality of the Czech BEER. We also study the impact of a possible initial under-valuation on the estimated equilibrium exchange rate. Employing monthly time series from 1993:M1 to 2004:M9 and applying several alternative cointegration techniques, we identify a period of an over-valuation in 1997 and in 1999, an increasing over-valuation until 2002, an under-valuation in 2003 and a correction towards equilibrium in the second half of 2004.
    Date: 2005–06
  21. By: Zeljko Bogetic (The World Bank)
    Abstract: The article provides a fresh look at employee ownership as a method of privatization and discusses theoretical and incentives effects and recent experiences in Eastern and Central Europe.
    Keywords: privatisation, privatization, employee-owenrship, incentives, buy-outs
    JEL: O P K D6
    Date: 2005–10–17
  22. By: Etibar Jafarov; Marco Pani; Clinton R. Shiells
    Abstract: This paper investigates whether the linkages between economic growth in Russia and growth in other countries in the region have weakened over time, particularly following the 1998 Russian crisis. It specifies an econometric model that includes standard growth determinants as well as Russian economic growth, and which allows for the effects of Russian growth to vary over time. The paper finds that Russian growth was indeed a significant determinant of regional economic growth prior to the Russian crisis, but that this link weakened significantly thereafter.
    Date: 2005–10–12
  23. By: Dalia Marin; Haizhou Huang; Chenggang Xu
    Abstract: This paper provides a unified analysis for the onset of the 1998 financial crisis and the strong economic recovery afterward in Russia and other former Soviet Union countries. Before the crisis a banking failure arose owing to the coexistence of a lemons credit market and high government borrowing. In a lemons credit market low credit risk firms switched from bank to nonbank finance, including trade credits and barter trade, generating an externality on banks' interest rates. The collapse of the treasury bills market in the financial crisis triggered a change in banks' lending behavior, providing initial conditions for banking development.
    Keywords: Financial crisis , Russian Federation , Ukraine , Former Soviet Union , Banking , Economic models ,
    Date: 2004–07–12
  24. By: Becker, Charles M.; Merkuryeva, Irina S.
    Abstract: This paper examines determinants of being disabled in Russia, along with the probability of moving from one disability status to another, using data from 1994 through 2002 from the Russian Longitudinal Monitoring Survey. Disability risk rises with age, declines with income and self-reported good health, and is lower for women. On the other hand, neither smoking nor drinking alcohol increase either the risk of being or becoming disabled.
    JEL: J10 J15 P36
    Date: 2005
  25. By: Michael Funke
    Abstract: The New Keynesian Phillips curve (NKPC) posits the dynamics of inflation as forward looking and related to marginal costs. In this paper we examine the empirical relevance of the NKPC for mainland China. The empirical results indicate that an augmented (hybrid) NKPC gives results that are consistent with the data generating process. It is in this respect that the NKPC provides useful insights into the nature of inflation dynamics in mainland China as well as useful insights for the conduct of monetary policy.
    Keywords: China, Inflation, New Keynesian Phillips Curve
    JEL: C22 E31
    Date: 2005–07
  26. By: Anna Ivanova; Alexander Klemm; Michael Keen
    Abstract: Russia dramatically reduced its higher rates of personal income tax (PIT) in 2001 establishing a single marginal rate at the low level of 13 percent. In the following year, real revenue from the PIT actually increased by about 26 percent. This 'flat tax' experience has attracted much attention (and emulation) among policymakers, making it perhaps the most important tax reform of recent years. But it has been little studied. This paper asks whether the strong revenue performance of the PIT was itself a consequence of this reform, using both macro evidence and, in particular, micro-level data on the experiences of individuals and households affected by the reform to varying degrees. It concludes that there is no evidence of a strong supply side effect of the reform. Compliance, however, did improve quite substantially-by about one third according to our estimates-though it remains unclear whether this was due to the parametric reforms or to accompanying changes in enforcement.
    Keywords: Tax reforms , Russian Federation , Income taxes , Tax evasion ,
    Date: 2005–02–03
  27. By: Ben Lockwood; Ehtisham Ahmad; Raju Singh
    Abstract: The value-added tax (VAT) in China has the unusual feature that capital goods are included in the VAT base. In addition, most services are subject to the business tax, which is not creditable against VAT, but which accrues to local governments, and operates as a turnover tax. On grounds of economic efficiency, it would be desirable to eliminate these distortions so that domestic producers are not increasingly placed at a disadvantage as China dismantles tariff and nontariff barriers on competing goods. Reforming indirect taxation would however generate considerable revenue losses for local governments and, in the absence of any compensatory mechanisms, there would be significant impediments to the needed reforms. This paper focuses on the extent of revenue losses, their distribution across provinces, and possible options for compensation.
    Keywords: Fiscal policy , China , Indirect taxation , Value added tax , Tax reforms ,
    Date: 2004–07–29
  28. By: Tao Wang
    Abstract: This paper reviews the evolution of China's real effective exchange rate between 1980 and 2002, and uses a structural vector autoregression model to study the relative importance of different types of macroeconomic shocks for fluctuations in the real exchange rate. The structural decomposition shows that relative real demand and supply shocks account for most of the variations in real exchange rate changes during the estimation period. The paper also finds that supply shocks are as important as nominal shocks in accounting for real exchange rate fluctuations, in contrast with other studies that show that, in industrial countries, nominal shocks are more important in explaining real exchange rate fluctuations.
    Keywords: Real effective exchange rates , China ,
    Date: 2004–02–17
  29. By: Julian Berengaut; Katrin Elborgh-Woytek
    Abstract: The paper analyzes the initial output decline in transition economies by estimating a crosssection model stressing two major factors-conflicts and the legacies of the Soviet period. We link the Soviet legacies in place at the outset of the transition to the subsequent path for the development of market-related institutions. Institutional development (as proxied by measures of corruption) is used as an intermediate variable. An instrumental variable approach is followed to derive estimates that are not biased by the possible endogeneity of corruption with respect to output developments. Assuming that the extent of Soviet legacies was positively correlated with the length of the communist rule allows us to use the years under the Soviet regime as an instrument.
    Keywords: Production , Former Soviet Union , Transition economies , Corruption , Economic models ,
    Date: 2005–04–12
  30. By: Eswar Prasad; Shang-Jin Wei
    Abstract: In this paper, we adopt a cross-country perspective to examine the evolution of capital flows into China, both in terms of volumes and composition. China's inflows have generally been dominated by foreign direct investment (FDI), a pattern that appears to be favorable in light of the recent literature on the experiences of developing countries with financial globalization. We provide a detailed documentation of the evolution of China's capital controls, a proximate determinant of the pattern of capital inflows. We also discuss a number of other intriguing hypotheses that attempt to capture the "deeper" causes underlying China's approach to capital flows. In particular, we argue that some popular mercantilist-type arguments are inconsistent with the facts. We also analyze the recent rapid rise of China's international reserves and discuss its implications. Contrary to some popular perceptions, the dramatic surge in foreign exchange reserves since 2001 is mainly attributable to non-FDI capital inflows, rather than current account surpluses or FDI.
    Keywords: Foreign investment , China , Reserves , External debt , Capital controls , Capital inflows ,
    Date: 2005–04–28
  31. By: Elena Loukoianova; Anna Unigovskaya
    Abstract: This paper analyzes factors that determine recent economic growth in the low-income countries of the Commonwealth of Independent States.2 The main findings are as follows: (1) productivity gains in export-oriented sectors and expansion of exports may have become the main sources of growth in five of the seven CIS-7 countries, while in the early years of transition the output recovery was mainly driven by consumption; (2) economic growth has concentrated in agriculture and the raw material sectors, and, thus, is vulnerable to changes in external conditions; and (3) structural reforms matter for growth, which is consistent with previous research on growth in transition countries.
    Keywords: Economic growth , Armenia , Azerbaijan , Georgia , Kyrgyz Republic , Moldova , Tajikistan , Uzbekistan , Transition economies , Economic recovery ,
    Date: 2004–08–27
  32. By: Zuzana Murgasova
    Abstract: Analyzing and projecting the behavior of macroeconomic variables in new EU member states presents special challenges, owing to limited time series of the available data. This paper presents an analysis of investment in Poland based on an underexplored sectoral data set. The determinants of investment are found to include lagged investment, lead production, relative unit labor costs, EU demand, corporate profitability, and greenfield FDI (foreign direct investment) inflows. Dynamic in-sample simulations indicate some overinvestment in 1997 compared with what the model would suggest, and a substantial underinvestment during 2000-2004. The model is then used to project future investment: while rapid investment growth is likely, it remains uncertain whether investment as a share of GDP will reach its peak levels on the late 1990s.
    Keywords: Investment , Poland , Data analysis ,
    Date: 2005–09–28
  33. By: Alexander F. Tieman
    Abstract: Interest rate pass-through from policy interest rates to market rates and inflation has been hypothesized to play a lesser role in Romania than in other Central European transition economies. This paper tests this hypothesis and concludes that it cannot be supported by the data. Hence pass-through in Romania is concluded to be in line with that in comparable economies in the region. Moreover, the interest rate pass-through has become more pronounced over time.
    Keywords: Monetary policy , Romania , Transition economies , Interest rates , Economic models ,
    Date: 2004–11–15
  34. By: Raymond Fisman; Peter Moustakerski; Shang-Jin Wei
    Abstract: Traditional explanations for indirect trade carried out through an entrepôt have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepôts may facilitate tariff evasion. Using data on direct exports to mainland China and indirect exports to it via Hong Kong SAR, we find that the indirect export rate rises with the Chinese tariff rate, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses.
    Keywords: Tax Evasion , Tariffs , Trade , Corruption ,
    Date: 2005–06–06
  35. By: Boileau Loko; Anita Tuladhar
    Abstract: This paper seeks to investigate the transmission mechanisms linking productivity to the real exchange rate in the former Yugoslav Republic of Macedonia. At first glance, the stylized facts-low labor productivity growth and a trend real depreciation-suggest that a Balassa- Samuelson effect is in play. We find that the relationship between the two is not a result of the traditional Balassa-Samuelson effect. Instead, the depreciation of the real exchange rate reflects mainly the behavior of prices in the tradable sector. We argue that the depreciating real exchange rate may reflect a prolonged transition associated with slow technological growth and the low quality of the country's tradable-goods basket.
    Keywords: Productivity , Yugoslavia , Labor markets , Real effective exchange rates ,
    Date: 2005–06–16
  36. By: Etibar Jafarov; Anne Marie Gulde; Vassili Prokopenko
    Abstract: This paper discusses costs, benefits, and implementation challenges of a possible currency union between Belarus and Russia. It shows that Belarus and Russia are economically closely linked but nevertheless do not fulfill all "optimal currency area" criteria, especially the macroeconomic symmetry condition. Furthermore, we argue that the different speeds of economic liberalization over the past decade have resulted in different economic structures, with Belarus still dependent on monetary financing of budgets and industries. However, a final cost-benefit analysis also needs to consider that currency unification may bring substantial benefits from reduced transaction costs, an improved macroeconomic environment in Belarus, and by acting as a catalyst to advance structural reforms in Belarus.
    Keywords: Monetary unions , Belarus , Russian Federation , Currencies ,
    Date: 2004–12–22
  37. By: Ashoka Mody; Thomas Helnling; Ratna Sahay
    Abstract: Following the breakup of the Soviet Union in 1992, several low-income countries in the Commonwealth of Independent States (CIS) accumulated substantial external debt in a short time span, about half of which is owed to multilateral financial institutions. Three factors contributed to the current debt burden. First, the initial years of transition brought large systemic economic disruptions, loss of transfers from the center and collapse of trade relations among Council for Mutual Economic Assistance (CMEA) countries, and negative terms of trade shocks. Second, fiscal and other reforms, and consequently, growth revival, took longer than expected. Third, overoptimism by multilaterals contributed to the high debt levels. If external financial assistance, which was needed because of high social costs of the transition, had come in the form of grants in the first two or three years of the transition, the debt burden would have been lower and sustainable.
    Keywords: Debt , Armenia , Azerbaijan , Georgia , Kyrgyz Republic , Moldova , Tajikistan , Uzbekistan , Transition economies , Economic growth , Structural adjustment ,
    Date: 2004–06–17
  38. By: Antonio Spilimbergo; Goohoon Kwon
    Abstract: Russia's regions are heavily exposed to regional income shocks because of an uneven distribution of natural resources and a Soviet legacy of heavily skewed regional specialization. Also, Russia has a limited mobility of labor and lacks fiscal instruments to deal with regional shocks. We assess how these features influence the magnitude and persistence of regional income shocks, through a panel vector autoregression, drawing on extensive and unique regional data covering last decade. We find that labor mobility associated with regional shocks is far lower than in the United States yet higher than in the EU-15, and that regional expenditures tend to expand in booms and contract in recessions. We discuss institutional factors behind these outcomes and policy implications.
    Keywords: Fiscal policy , Russian Federation , Labor mobility ,
    Date: 2005–09–30
  39. By: Ina Ganguli (Harvard University); Katherine Terrell (University of Michigan, Ann Arbor and IZA Bonn)
    Abstract: This paper uses new micro data from the Ukrainian Longitudinal Monitoring Survey (ULMS) to examine the gender gaps across the distribution of wages in Ukraine during communism (1986), the start of transition (1991), and after Ukraine started to be considered a market economy (2003). We find that the gender pay gap is higher in the top half of the distribution than at the bottom half and that this ‘glass ceiling’ is persistent across the three points in time, while the wage floor rose for women in 2003. Closer inspection of two sectors - the private and the public - reveals the striking finding that the glass ceiling is lower in the public than in the private sector but the floor is the same. We use the Machado and Mata (2004) method to create counterfactuals that advance our knowledge of which factors are driving these differences; we find that the differences in men’s and women’s rewards (ßs) rather than differences in their productive characteristics (Xs) explain most of the wage gap throughout the distribution. The different ceilings in the public and private sectors are largely due to differences in men’s and women’s productive characteristics, which favor men in the public and women in the private sector. The fall in the gender gap in the lower part of the distribution from 1986 to 2003 is explained partially by the improvement in women’s productive characteristics and partially by the worsening in men’s rewards in the bottom half of the distribution over time. However, probably the most important reason for the reduction in the gap at the bottom of the distribution over time is that the value of the minimum wage was set relatively high in 2003 and it raised the wage floor for more women than men.
    Keywords: gender gap, quantile regression, glass ceilings, glass floors, transition, Ukraine
    JEL: C14 I2 J16
    Date: 2005–09
  40. By: Yi Wu; Elina Ribakova; Dimitri G. Demekas; Balázs Horváth
    Abstract: Gravity factors explain a large part of Foreign Direct Investment (FDI) inflows in Southeastern Europe-a region not comprehensively covered before in econometric studies-but hostcountry policies also matter. Key are policies that affect relative unit labor costs, the corporate tax burden, infrastructure, and the trade regime. This paper develops the concept of potential FDI for each country, and uses its deviation from actual levels to estimate what policies can realistically be expected to achieve in terms of additional FDI. It also finds evidence that above a certain threshold, the importance of some policies for attracting FDI is distinctly different.
    Keywords: Foreign investment , Europe , Transition economies ,
    Date: 2005–06–15
  41. By: Carlos Mulas-Granados; Emanuele Baldacci; Benedict J. Clements; Sanjeev Gupta
    Abstract: This paper investigates the political and economic determinants of successful fiscal adjustment in 25 emerging market economies from 1980 to 2001. The results show that large and back-loaded fiscal adjustments have the highest likelihood of success. Fiscal consolidations based on expenditure cuts increase the probability of approaching and achieving fiscal sustainability but are insufficient to maintain it unless accompanied by revenue reforms. Adjustment episodes launched in countries where governments enjoy a parliamentary majority and do not face imminent elections, are found to be more successful. Fiscal consolidations undertaken under IMF-supported programs also have a higher probability of success.
    Keywords: Emerging markets , Transition economies , Fiscal policy , Economic models , Structural adjustment ,
    Date: 2004–09–02
  42. By: Jorge Iván Canales Kriljenko
    Abstract: The foreign exchange market microstructures in developing and transition economies are characterized by the results from the IMF's 2001 Survey on Foreign Exchange Market Organization. The survey found that these markets are usually unified onshore spot markets for U.S. dollars, where transactions are concentrated at the bank-customer level. The trading mechanisms are usually dealer or mixed dealer/auction markets; the degree of transparency is often low; settlement systems remain risky; and the scope for price discovery is variable.
    Keywords: Exchange markets , Developing countries , Transition economies ,
    Date: 2004–01–27
  43. By: John W. Dalton; Claudia Helene Dziobek
    Abstract: Under normal circumstances, a central bank should be able to operate at a profit with a core level of earnings derived from seigniorage. Losses have, however, arisen in several central banks from a range of activities including monetary operations under extreme conditions and financial sector restructuring. The paper discusses the impact of losses on central bank operations and lays out the principles and practices for handling central bank losses. It is suggested that losses should be disclosed as a reduction of the central bank's net worth unless covered by the government. Governments may cover losses through recapitalization of the central bank, and this will create a new central bank asset, usually in the form of government securities held by the central bank. Six case studies illustrate the circumstances under which losses may arise, their coverage, and central banks' disclosure practices.
    Keywords: Central banks , Brazil , Chile , Czech Republic , Hungary , Korea, Republic of , Thailand , Currency issuance ,
    Date: 2005–04–19
  44. By: Nienke Oomes
    Abstract: This paper evaluates competitiveness in Slovakia and estimates the equilibrium real exchange rate for the koruna. Slovak wages and prices are found to have been relatively low even when adjusted for differences in relative income and productivity, suggesting an undervalued real exchange rate. However, recent rapid nominal appreciation has reduced most or all of this undervaluation and has brought the real exchange rate near or above equilibrium. The productivity-driven equilibrium real appreciation rate during 2005?09 is estimated at close to 3 percent per year but can be lower with the help of fiscal consolidation.
    Keywords: Prices , Slovak Republic , Real effective exchange rates , Exchange rate appreciation ,
    Date: 2005–04–04
  45. By: T. Huw Edwards (Loughborough University)
    Abstract: Post-Soviet restructuring has produced mixed economic results. In general, the more advanced countries, which have now joined the European Union, have fared better, while those further East in the CIS have seen a combination of rapid falls in measured gross domestic product and wages, followed by prolonged recession, while the large gains to a wealthy minority who gained from privatisations have largely been reinvested abroad, following capital flight. I set up a series of theoretical and numerical simulation models, based upon a batting order approach where reform means closure of inefficient capacity. In the presence of significant costs to new firm entry and international capital mobility, restructuring and privatisation can lead to falls in GDP and real wages, while capital is transferred abroad. This situation can occur even under perfect competition, but is worse when industrial production is concentrated and trade costs are high. By contrast, workers can gain when costs of establishing new firms are low, and/or when the inefficient industries are capital- intensive. For countries with high costs of firm setup and of trade, capital controls may be justified to protect wages.
    Keywords: Transition, wages, general equilibrium
    JEL: P30 D58 D33
    Date: 2004–06
  46. By: Nikolay Gueorguiev; Pelin Berkmen
    Abstract: In the near future, Romania will introduce inflation targeting and fully liberalize its capital account. This paper aims to analyze, in a dynamic general-equilibrium model with sticky prices and monopolistic competition, how these two profound changes will affect the ability of monetary policy to pursue its objective of price stability. In particular, the resilience of the current and future monetary policy regimes to shocks is evaluated against two welfare criteria: a standard central bank loss function containing the deviations of inflation, output, and the real exchange rate from their equilibrium values, and the compensating variation measure of Lucas (1987).
    Keywords: Inflation targeting , Romania , Monetary policy , Capital account liberalization ,
    Date: 2004–12–27
  47. By: Jeromin Zettelmeyer; Federico Sturzenegger
    Abstract: This paper estimates bond-by-bond "haircuts"-realized investor losses-in recent debt restructurings in Russia, Ukraine, Pakistan, Ecuador, Argentina, and Uruguay. We consider both external and domestic retructurings. Haircuts are computed as the percentage difference between the present values of old and new instruments, discounted at the yield prevailing immediately after the exchange. We find average haircuts ranging from 13 percent (Uruguay external exchange) to 73 percent (2005 Argentina exchange). We also find within-exchange variations in haircuts, depending on the instrument tendered. With exceptions, domestic residents do not appear to have been treated systematically better (or worse) than foreign residents.
    Keywords: Debt restructuring , Russian Federation , Ukraine , Pakistan , Ecuador , Argentina , Uruguay , Bond markets , Sovereign Debt Restructuring Mechanism , Financial crisis ,
    Date: 2005–07–28
  48. By: Aleksander Aristovnik (University of Ljubljana, Slovenia)
    Abstract: The paper investigates sharp reductions seen in current account deficits in selected transition countries in the 1992-2003 period. The analysis focuses on three important aspects of these current account reversals: a) to examine those factors that might have triggered the reversals and to provide some insights into the current account adjustment process; b) to reveal some characteristics of persistent current account deficits; and c) to investigate the direct impact of these reversals on economic growth in the region. Results suggest that restrictively defined reversals seem to be closely related to factors such as domestic savings, real export growth, international reserves and external indebtedness as well as with the budget and trade balances. While the role of exchange rate depreciation seems ambiguous, we found that the sharp current account reversals are systematically associated with a gradual GDP growth slowdown in the pre-reversal period and with robust GDP growth impetus afterwards. Indeed, less restrictively defined reversals show that reversals are associated with an increase of output by around 1.20 percentage points in the second year of recovery. Finally, the results suggest the significant possibility that persistent current account deficits, which on average last more than five years, are consumption-driven in the transition countries.
    JEL: C33 F32
    Date: 2005–10–18
  49. By: Tihomir Stucka
    Abstract: A reduced-form model approach was used to estimate the trade balance response to permanent domestic currency depreciation. For this purpose, long-run and short-run effects were estimated, using three modeling methods along with two real effective exchange rate measures. On average, a 1 percent permanent depreciation improves the equilibrium trade balance by between 0.94 percent and 1.3 percent. The new equilibrium is established after approximately 2.5 years. Evidence of the J-curve is also found. Overall, in the light of the results obtained, it is questionable whether permanent depreciation is desirable to improve the trade balance, taking into account potential adverse effects on the rest of the economy.
    Keywords: Balance of trade , Croatia , Exchange rate depreciation , Exchange rate adjustments , Transition economies , Trade models , Economic models ,
    Date: 2004–05–10
  50. By: BOURDEAU-LEPAGE, Lise (LEG - CNRS UMR 5118 - Université de Bourgogne); KOLAROVA,Desislava (Université Grenoble II - Espace Europe Institut)
    Abstract: Ce papier évalue la situation bulgare dans l' économie fondée sur la connaissance en Europe. Il s'appuie sur la méthodologie de la banque mondiale (2005). Après avoir présenté le cadre analytique, l' analyse révèle que la Bulgarie se trouve dans une situation très défavorable, résultant de différents facteurs se renforçant les uns aux autres dans un processus cumulatif. Aussi doit-elle s'attacher à améliorer ses règles de gouvernance et sa capacité à mobiliser le capital humain et à coordonner les interactions entre les personnes et les organisations si elle veut aller vers une économie fondée sur la connaissance. / This paper evaluates the Bulgarian positioning in the European knowledge-based economy. The analysis is mainly based on the Knowledge Assessment Methodology of the World Bank (2005). After an analytical framework, the analysis reveals an alarming situation for Bulgaria resulting from several unfavorable factors, which reinforce one another in a cumulative process. Finally, the conclusion underlines that a necessary condition for the Bulgarian economy to become knowledge-based, is to set up good rules of governance but also to be able to mobilize human capital and to coordinate the interactions within citizens and organizations
    Keywords: Bulgaria ; Innovation ; Knowledge-based
    Date: 2005–09
  51. By: David Moore
    Abstract: The paper reviews Slovakia's comprehensive reforms to its taxation and welfare systems in 2004, including the introduction of a flat-rate income tax and single-rate value-added tax (VAT), and linkage of social benefits to participation in labor market programs. Though revenues following the reform are lower as a ratio to GDP, the paper argues that the reforms have helped encourage investment and improved efficiency by broadening the tax base, reducing the administrative burden, and improving work incentives. The paper also looks at some implications of the reforms for income distribution and social protection.
    Keywords: Tax reforms , Slovak Republic , Income taxes , Value added tax ,
    Date: 2005–07–14
  52. By: Dimitar Chobanov; Piritta Sorsa
    Abstract: This paper presents an empirical analysis of the medium- and long-term determinants of the real (effective) exchange rate (RER) of the Bulgarian lev using elements from the natural real exchange rate (NATREX) and the behavioral equilibrium exchange rate (BEER) approaches. The results indicate that the RER is driven by fundamentals, including labor productivity, terms of trade, world real interest rates, gross savings, and foreign direct investment. The model also shows that there is no significant misalignment of the Bulgarian lev.
    Keywords: Real effective exchange rates , Bulgaria , Economic models , Terms of trade ,
    Date: 2004–03–22
  53. By: Enrica Rigo
    Abstract: The process of repositioning European borders in the context of EU enlargement confronts the theory and practice of defining 'European citizenship'. This paper examines the deterritorialisation of the EU's external and internal borders through an analysis of the immigration laws of Poland, Romania and Bulgaria which have all been recently modified in order to meet the requirements of the Schengen aquis. Clear lines of continuity can be traced between the externalization of border control through visa policies or readmission agreements and the internalization of borders resulting from institutions which define the legal position of aliens such as expulsion or administrative detention. I will argue that the transformation of European borders creates a system of 'differentiated' memberships which questions the normative assumption that post-national communities are potentially inclusive.
    Keywords: European citizenship; EU-East-Central Europe; enlargement; immigration policy; asylum policy; Europeanization
    Date: 2005–05–15
  54. By: Helge Berger; George Kopits; István P. Székely
    Abstract: In recent years, fiscal performance in Central Europe has steadily deteriorated, in contrast to the improvement in the Baltics. This paper explores the determinants of such differences among countries slated for EU accession. Regression estimates suggest that economic and institutional fundamentals do not provide a full explanation. An alternative explanation lies in the political economy of the accession process, and a game-theoretic model illustrates why a country with a stronger bargaining position might have an incentive to deviate from convergence to the Maastricht criteria. The model generates alternative fiscal policy regimes-allowing for regime shifts-depending on country characteristics and EU policies.
    Keywords: Fiscal policy , Europe , European Union , European Economic and Monetary Union , Fiscal reforms , Budget deficits , Economic models ,
    Date: 2004–04–26
  55. By: Francesco Pastore (Seconda Università di Napoli and IZA Bonn)
    Abstract: This paper proposes Heckprobit estimates of the determinants of labour market participation of a sample of young (15-30) Poles, controlling for the sample selection bias caused by excluding those in education. There is evidence of sample selection bias in the case of young men, suggesting that they obey more than women to economic factors in making their educational choices. Education is an important determinant of the success in the labour market. The instrumental variables used in the selection equation - the local unemployment rate, expected lifetime earnings and the opportunity cost of education - have a statistically significant impact on the probability to be in education. In contrast with several previous studies relative to mature market economies, in high unemployment voivodships young people prefer to seek a job, rather than studying. In turn, this contributes to make regional unemployment persistent.
    Keywords: youth unemployment, education, heckprobit, Lisbon strategy, Poland
    JEL: C35 I2 J24 P3 P52
    Date: 2005–10
  56. By: Peter Barrand; Stanford G. Ross; Graham Harrison
    Abstract: During the 1990s, a failure to collect social contributions in Central and Eastern European countries deprived pension schemes of resources needed to meet their obligations. Based on these countries' experience, this paper examines the trend to increase coordination of tax and contribution collections. It sets out the rationale for establishing a unified agency as the best long-term strategy, and discusses policy and administrative issues in implementing this approach. The appendix presents three case studies for Albania, Bulgaria, and Romania, which are establishing a unified revenue administration. Another case study is presented for Sweden, which successfully integrated tax and social contributions collections in the 1980s.
    Keywords: Tax administration , Europe , Albania , Bulgaria , Romania , Sweden , Revenues , Tax collection , Social security , Economic models ,
    Date: 2005–01–07
  57. By: David A. Grigorian; Armine Khachatryan; Grigor Sargsyan
    Abstract: This paper is the first attempt to look at inflation dynamics and monetary transmission mechanisms in Armenia in the context of a full information model containing three interrelated markets: foreign exchange, money, and labor. Using the vector error correction model (VECM) approach, we find that the exchange rate pass-through to prices is very strong relative to credit, wage, and interest rate channels. The analysis suggests a relatively fast adjustment of prices to long-run disequilibria in the exchange rate market, albeit with initial overshooting of the price level. In addition, we find no evidence of prices responding to changes in money and wages in a statistically significant manner.
    Keywords: Price adjustments , Armenia , Exchange markets , Wages , Money markets , Labor markets , Economic models ,
    Date: 2004–12–21
  58. By: Andreas Billmeier; Bert van Selm; Jonathan C. Dunn
    Abstract: Starting in 2005, nontax revenue in Georgia is expected to rise significantly, in the form of transit fees for oil transported through the Baku-Tbilisi-Ceyhan Oil Pipeline. Transit fees for gas transported through the South Caucasus Pipeline are expected to start in 2007. This paper discusses (1) how much additional revenue can be expected, (2) prospects for monetizing gas that could be received as in-kind transit fees, in the light of pervasive nonpayment in the domestic gas sector, (3) the impact of these inflows on external competitiveness, (4) how to put in place appropriate reporting on these additional revenues, and (5) whether these inflows justify the creation of a special natural resource fund.
    Keywords: Oil , Georgia , Natural gas , Transport , Revenues , Fiscal policy ,
    Date: 2004–11–12
  59. By: Richard Podpiera; Tomas Dvorak
    Abstract: The announcement of the European Union enlargement coincided with a dramatic rise in stock prices in accession countries. This paper investigates the hypothesis that the rise in stock prices was a result of the repricing of systematic risk due to the integration of accession countries into the world market. We found that firm-level stock price changes are positively related to the difference between a firm's local and world market betas. This result is robust to controlling for changes in expected earnings, country effects, and other controls, although the magnitude of the effect is not very large. The differences between local and world betas explain nearly 22 percent of the stock price increase.
    Keywords: International financial system , European Union , Asset prices , International capital markets , Stock markets ,
    Date: 2005–09–25

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