nep-tra New Economics Papers
on Transition Economics
Issue of 2005‒11‒05
nineteen papers chosen by
Tono Sanchez
Universitat de Valencia

  1. The Role of the State in Economic Transformation: Comparing the Transition Experiences of Russia and China By David M. Kotz
  2. Ownership Concentration, Market Monitoring and Performance: Evidence from the UK, the Czech Republic and Poland By Vahe Lskavyan; Mariana Spatareanu
  3. Structural Change in Russian Transition By Paul R. Gregory; Valery Lazarev
  4. The New England-China relationship in 2005 By Lynn E. Browne
  5. External Contradictions of the Chinese Development Model: Why China Must Abandon Export-led Growth or Risk a Global Economic Contraction By Thomas I Palley
  6. The China Currency Problem: A Reply to Albert Keidel By Thomas I. Palley
  7. Industrial Development in Republican China,Newly Revised Index: 1912-1948 By Toru Kubo
  8. Will China Eat Our Lunch or Take Us to Dinner?—Simulating the Transition Paths of the U.S., E.U., Japan, and China By Hans Fehr; Sabine Jokisch,; Laurence J. Kotlikoff
  9. The Hyperinflation Model of Money Demand (or Cagan Revisited): Some New Empirical Evidence from the 1990s By Atanas Christev
  10. A Chinese Sky Trust? Distributional Impacts of Carbon charges and Revenue Recycling in China By Mark Brenner; Matthew Riddle; James K. Boyce
  11. The Value Relevance of Financial Accounting Information in a Transitional Economy: The Case of the Czech Republic By Hellström, Katerina
  12. What Happens to Japan if China Catches Cold? - A causal analysis of the Chinese growth and the Japanese growth By Chen Pu; Hsiao Chihying
  13. Trends in East European Factor Productivity By Oldrich Kyn; Ludmila Kyn
  14. Using a Choice Experiment to Estimate the Demand of Hungarian Farmers for Food Security and Agrobiodiversity During Economic Transition By Ekin Birol; Andreas Kontoleon; Melinda Smale
  15. Monetary and Exchange Rate Policy Coordination in ASEAN 1 By William H. Branson; Conor N. Healy
  16. Trade Liberalization and Employment Effects in Ukraine By Atanas Christev; Olga Kupets; Hartmut Lehmann
  17. Growth Cycles in Centrally Planned Economies: An Empirical Test By Oldrich Kyn; Jiri Slama; Wolfram Schrettl
  18. Simulation des Einflusses der Planung auf die sowjetische Wirtschaft By Oldrich Kyn; Wolfram Schrettl; Volkhart Vincentz
  19. A New International Division of Labor in Europe: Offshoring and Outsourcing to Eastern Europe By Marin, Dalia

  1. By: David M. Kotz
    Abstract: This paper will examine the transition experiences of Russia and China, with the aim of drawing lessons about the relative effectiveness of the neoliberal and the state directed transition strategies. Section 2 considers Russia's economic transition since 1992, which has been guided by the neoliberal strategy. Section 3 examines China's economic experience since 1978, when it began a transition based on a different approach from the neoliberal one. Section 4 considers why, in countries that successfully pursue a state directed strategy, such as China, pressure builds up over time to shift to a neoliberal strategy. Section 5 offers concluding comments.
    Date: 2004
  2. By: Vahe Lskavyan; Mariana Spatareanu
    Abstract: Using data for publicly traded companies from the UK and two transition countries, the Czech Republic and Poland, we analyze the relationship between ownership concentration and performance while also accounting for the effect of hostile takeover threats on this relationship. Some argue that ownership concentration will improve performance by making the owners more willing or able to monitor managers. Others argue that in the presence of efficient markets, market monitoring (via the threat of hostile takeovers) will discipline the managers. Our results show that concentration is insignificant in explaining performance both in the transition countries, where market monitoring is supposedly weak, and in the UK, where market monitoring is supposedly strong.
    Keywords: Ownership Concentration, Markets for Corporate Control
    JEL: G32 G34
    Date: 2005–09
  3. By: Paul R. Gregory; Valery Lazarev
    Abstract: This paper examines structural change in the Russian economy in 1990-2001, as measured by the changing composition of output and consumption, using international panel data sets as a frame of reference. It calculates a series of indexes to determine the extent to which the Russian economy is converging towards market economies. Although the Russian structure of output is becoming increasingly similar to that of upper-middle and the lower tier of high-income countries, the structure of Russian manufacturing is inconsistent with its income level and the extent of labor reallocation remains inadequate. Russia's pattern of consumption remains distorted due to the incomplete price liberalization.
    Keywords: Post-Communist Transition, Value Added, Labor Productivity, Composition of GDP, Price Distortions
    JEL: E20 P20
    Date: 2004–10
  4. By: Lynn E. Browne
    Abstract: This essay provides an overview of current trade patterns between New England and China. It was prepared for a symposium sponsored by The Boston Athenaeum comparing New England’s present-day trade with China to the region’s prominence in the U.S.-China trade of the 19th century. The essay concludes that a special trade relationship between New England and China does not exist at the present time. Although New England’s exports to China are growing rapidly, they are not growing markedly faster than exports from the rest of the country, and China does not account for an unusually large fraction of New England’s exports. Moreover, there is some indication that New England has felt the brunt of competition from Chinese imports more strongly than other regions. In one arena, New England does hold a special position: New England universities are highly regarded in China, and the region’s share of Chinese students is above its population share—although in line with its share of foreign students generally.
    Keywords: International trade ; China ; New England
    Date: 2005
  5. By: Thomas I Palley
    Abstract: China’s development model faces an external constraint that could cause an economic hard landing. China has become a global manufacturing powerhouse, and its size now renders its export-led growth strategy unsustainable. China relies on the U.S. market, but the scale of its exports is contributing to the massive U.S. trade deficit, creating financial fragility and undermining the U.S. manufacturing sector. These developments could stall the U.S. economy’s expansion, in turn triggering a global recession that will embrace China. This is the external constraint. These considerations suggest China should transition from export-led growth to domestic demand-led growth. This requires growing the economy’s demand side as well as its supply-side. To avoid stalling the U.S. economic expansion, which is critical to China’s growth, China should significantly revalue its currency as part of a generalized East Asian upward currency revaluation. Longer term, China should raise wages and improve income distribution. Under export-led growth, higher wages undermine employment. Under domestic demand-led growth, they support it. The challenge is to raise wages in an efficient decentralized manner. History shows that this requires independent democratic trade unions. However, such unions are currently unacceptable to Chinese political leadership. Creating a domestic demand-led growth regime therefore requires solving this political roadblock.
    Date: 2005
  6. By: Thomas I. Palley
    Abstract: In a recent policy brief Albert Keidel (2005) argues that China’s exchange rate is not a problem, and that focusing on China’s currency is a risky distraction for U.S. economic policy. This paper replies to Keidel, and diametrically disagrees with his analysis. The paper has four principal conclusions which are: 1) China’s exchange rate is under-valued and is a significant problem; 2) The China exchange rate problem is part of a broader East Asian (and even global) exchange rate problem; 3) China needs to improve its performance regarding WTO compliance; and 4) Chinese manufacturing must shift from export-led growth to domestic demand-led growth.
    Date: 2005
  7. By: Toru Kubo
    Date: 2005–09
  8. By: Hans Fehr (University of Wuerzberg); Sabine Jokisch, (University of Wuerzberg); Laurence J. Kotlikoff (Boston University, National Bureau of Economic Research)
    Abstract: This paper develops a dynamic, life-cycle, general equilibrium model to study the interdependent demographic, fiscal, and economic transition paths of China, Japan, the U.S., and the EU. Each of these countries/regions is entering a period of rapid and significant aging that will require major fiscal adjustments. But the aging of these societies may be a cloud with a silver lining coming, in this case, in the form of capital deepening that will raise real wages. China eventually becomes the world’s saver and, thereby, the developed world’s savoir with respect to its long-run supply of capital and long-run general equilibrium prospects. And, rather than seeing the real wage per unit of human capital fall, the West and Japan see it rise by one fifth percent by 2030 and by three fifths by 2100. Even if the Chinese saving behavior gradually approaches that of Americans, developed world real wages per unit of human capital are roughly 17 percent higher in 2030 and 4 percent higher at the end of the century. Without China they’d be only 2 percent higher in 2030 and 4 percent lower at Century’s end. The short-run outflow of capital to China is met with a commensurate short-run reduction in developed world labor supply, leaving the short-run ratio of physical capital to human capital, on which wages positively depend, actually somewhat higher than would otherwise be the case. On the other hand, our findings about the developed world’s fiscal condition are quite troubling. Even under the most favorable macroeconomic scenario, tax rates will rise dramatically over time in the developed world to pay baby boomers their governmentpromised pension and health benefits. As Argentina has so recently shown, countries can grow quite well for years even with unsustainable fiscal policies. But if they wait too long to address those policies, the financial markets will do it for them, with often quite ruinous consequences.
    Date: 2005–09
  9. By: Atanas Christev
    Abstract: This paper employs cointegration techniques to examine three recent hyperinflationary episodes in transition economies, which, with the exception of Russia (1992-1994), have been largely overlooked in the literature. More specifically, these episodes include Bulgaria during 1995-1997 and Ukraine during 1993-1995. We use the well-known maximum likelihood estimator due to Johansen (1988, 1991) and Stock and Watson's (1993) dynamic ordinary least squares (DOLS) estimator to complement each other and obtain consistent estimates of the semi-elasticity of real money demand with respect to inflation. The empirical results obtained in this study support the Cagan model of money demand in the East European hyperinflation experiences of the 1990s. However, our results do not indicate that the rational expectations hypothesis holds during these episodes. In addition, we also test the hypothesis that monetary policy in these three hyperinflations was conducted with the sole intent of maximizing the inflation tax revenue for the government.
    Keywords: Cagan, cointegration, inflation tax, transition economies, stabilizations
    JEL: C45 C62 E31 E63 E65
    Date: 2005
  10. By: Mark Brenner; Matthew Riddle; James K. Boyce
    Abstract: The introduction of carbon charges on the use of fossil fuels in China would have a progressive impact on income distribution. This outcome, which contrasts to the regressive distributional impact found in most studies of carbon charges in industrialized countries, is driven primarily by differences between urban and rural expenditure patterns. If carbon revenues were recycled on an equal per capita basis via a ‘sky trust,’ the progressive impact would be further enhanced: low-income (mainly rural) households would receive more in sky-trust dividends than they pay in carbon charges, and high-income (mainly urban) households would pay more than they receive in dividends. Thus a Chinese sky trust would contribute to both lower fossil fuel consumption and greater income equality.
    Date: 2005
  11. By: Hellström, Katerina (Dept. of Business Administration, Stockholm School of Economics)
    Abstract: The paper investigates the value relevance of accounting information in the Czech Republic in 1994-2001. Value relevance is understood as the ability of financial statement information to capture or summarise information that affects share values and empirically tested as a statistical association between market values and accounting values. The first objective is to evaluate the value relevance of accounting information in the Czech Republic in comparison to accounting information in a well-developed market economy. The second objective is to investigate whether the value relevance of accounting information has increased over time in the Czech Republic, as an indictor of improvements in the accounting regulation and practice. Sweden is chosen as a benchmark country for the comparison. The results show that the value relevance of accounting information indeed is lower in the Czech Republic than in Sweden. The results, however, indicate an improvement in the quality of the Czech financial accounting information during the research period
    Keywords: value relevance; financial accounting information; transitional economy; international accounting
    Date: 2005–10–11
  12. By: Chen Pu (Bielefeld University); Hsiao Chihying (Bielefeld University)
    Abstract: Many economic professionals like financial analysts, economic journalists and regulatory officers prevailingly regard the fast growth of the Chinese economy as the key factor that leads recently the Japanese economy to recover from the recession that started since beginning of the nineties. This judgement are mostly underpinned by statistical facts that the Chinese economy grew fast in the last two years; the Japanese export to China has experienced a dramatically increase during last two years, China has become now the biggest foreign trade partner of Japan and so on. However, this convincingly sounding arguments are not sufficient to conclude the statement that the Chinese growth leads Japan out of the recession. In fact the statement has essentially a causal character, which means both the interdependence and the directionality of the dependence. While the positive dependence/correlation between the Chinese economy and the Japanese economy is often explicitly documented by statistical facts, arguments about the directionality of the dependence are totally missing. In this paper we conduct an empirical study to investigate the directionality of the dependence in order to justify the statement empirically. Taking a probabilistic causal approach, we infer the causal dependence among the Japanese economy and the Chinese economy based on observed data. We find the evidence that the Chinese growth on average has been a positive cause of the Japanese since the later nineties and the temporary positive casual effect is even more pronounced.
    Keywords: Inferred Causality, Recovery of the Japanese economy, China Japan relation
    JEL: C1 F4 F4
    Date: 2005–10–29
  13. By: Oldrich Kyn (Boston University); Ludmila Kyn (---)
    Abstract: During the 1960s most of the countries of Eastern Europe experienced a visible retardation of economic growth. This paper supports the view of many Eastern as well as Western economists that the retardation was caused primarily by declining rates of growth of the total factor productivity. The rate of growth of the total factor productivity was estimated as a parameter of the macroeconomic production functions. Several other economists who estimated the production functions for East European countries obtained frequently results with low statistical significance because the time series were short and in addition suffered with the high degree of multicollinearity. In a previous papers (Kyn-Kyn ) we tried to demonstrate, that this obstacles can be overcome by estimating the production functions from the pooled cross-section and time series data. By doing so we received economically reasonable and statistically significant estimates of the capital and labor elasticities, and of the rate of technical change for Poland, Czechoslovakia, Hungary, Bulgaria and Rumania. Although the pooling eliminated the multicollinearity, it caused two other problems, namely heteroscedasticity and autocorrelation. In this paper we have applied a step-wise method with data transformation that practically eliminated these problems. Our results confirmed that the average annual rates of growth of the total factor productivity were very high (around 6 per cent) in the case of Czechoslovakia, Bulgaria and Rumania and somewhat lower, but still respectable (3 - 5 per cent) in the case of Poland and Hungary. It is, however, necessary to keep in mind that this estimates are not strictly comparable with the similar estimate for Western countries, because we have used the gross value of industrial production rather than GNP for measuring the output, and only the data for the nationalized part of industry. In the version of the model that allowed for changing rate of growth of total factor productivity over time we found that Czechoslovakia, Poland and Bulgaria experienced a quite considerably declining trend in the rate of change of the total factor productivity while such trend could not have been discovered in Hungary and Rumania.
    Keywords: Production Function, Total Factor Productivity, Eastern Europe, Czechoslovakia. Hungary, Poland, Bulgaria, Romania,
    JEL: E
    Date: 2005–10–29
  14. By: Ekin Birol (Homerton College, University of Cambridge, UK); Andreas Kontoleon (Department of Land Economy, University of Cambridge, UK); Melinda Smale (International Food Policy Research Institute, Washington DC, USA and International Plant Genetic Resources Institute, Rome, Italy)
    Abstract: Hungarian home gardens are small farms that are repositories of agrobiodiversity and provide food security during economic transition. We use a choice experiment to test the hypothesis that farmer demand for home gardens will decrease as markets develop with European Union accession. Data represent 22 communities with varying levels of market and social infrastructure. We find that farmers located in more economically developed communities choose to be less dependent on small farms for food and prefer lower levels of agrobiodiversity. Findings indicate that the survival of small farms is jeopardized by economic change, but point to some conservation policy options.
    Keywords: food security, agrobiodiversity, home gardens, choice experiment, multi-functional agriculture
    Date: 2005–06
  15. By: William H. Branson; Conor N. Healy
    Abstract: This paper develops the basis for monetary and exchange rate coordination in Asia as part of a package of monetary integration that could support growth and poverty reduction. This could be achieved directly through coordinated exchange rate stabilization, and indirectly through the implications of this for reserve pooling and investment in an Asian development fund (ADF) and through development of the Asian bond market (ABM). Macro policy coordination could be viewed as a necessary condition for further development of both reserve pooling via the Chiang Mai Initiative (CMI) and of the ABM. The paper analyzes the trade structure of ASEAN and China in terms of both geographic sources of imports and markets for exports, and of the commodity structure of trade. The similarities of the geographic and commodity trade structures across the region are consistent with adoption of a common currency basket for stabilization, and with an argument for monetary integration across the region along the lines of Mundell (1961) on optimum currency areas. The paper constructs currency baskets and real effective exchange rates (REERs) for the countries in the region. Since their trade patterns are quite similar and their policies are already implicitly coordinated, their REERs tend to move together. This means that ASEAN and China are already moving toward integration in practical effect. Explicit movement toward coordination could support surveillance and reserve-sharing under the CMI, and release reserves to be invested in an ADF.
    JEL: F33 F41 G15
    Date: 2005–10
  16. By: Atanas Christev (CERT, Heriot-Watt University and IZA Bonn); Olga Kupets (National University-Kiev Mohyla Academy and IZA Bonn); Hartmut Lehmann (University of Bologna, CERT, Heriot-Watt University, EROC, Kiev School of Economics, and IZA Bonn)
    Abstract: This paper addresses the important issue of the effects of trade liberalization on labor market job flows. It studies the case of Ukraine where we view the sudden openness of the economy to trade as a quasi-natural experiment. We use disaggregated data on manufacturing industries and customs data on trade flows taking account of shifting trade patterns after the disintegration of CMEA trade regime. We provide some first evidence that three-digit NACE sector job flows are predominantly driven by idiosyncratic factors within industries. Other things equal, there is increased labor shedding as larger non-state share in industry relates to less job creation and more job destruction. Trade openness does affect job flows in Ukrainian manufacturing disproportionately according to trade orientation. We find that while trade with CIS decreases job destruction, trade with the EU increases excess reallocation mainly through job creation.
    Keywords: job creation, job destruction, trade flows and trade liberalization, Ukraine
    JEL: E24 F14 J63 P23
    Date: 2005–10
  17. By: Oldrich Kyn (Boston University); Jiri Slama (Osteuropa Institut, Muenchen); Wolfram Schrettl (Freie Universität Berlin)
    Abstract: For some time Marxist economists believed that central planning as applied in the Soviet-type economies could prevent cyclical fluctuation. This view, however changed, when in 1960’s it became quite obvious, that some type of cycle is generated in centrally planned economies as well. Because the mechanism of functioning is different than in market economies, the existing theories of business cycle do not apply. This paper provides empirical tests of the recently developed theories of socialist “growth cycles” or “quasi-cycles”, using data for Czechoslovakia. Two theories of “investment cycles” were tested. The first one, formulated by Oskar Lange was based on the idea that the large amount of investment concentrated in the short time period—as happened during the industrialization in the Soviet Union and Eastern Europe—would have an “reinvestment echo effect” when the obsolete physical capital needs to be replaced. The evidence from Czechoslovakia very clearly demonstrates, that although the need for increased reinvestments may have contributed, it could not have been the main cause of the recessions in economic growth in early 50’ and 60’s. The second theory formulated by Josef Goldman blames the cyclical fluctuations on the very long gestation period between planners’ decisions to invest and the introduction of the newly constructed capital into production. The empirical evidence shows that the average time lag in the investment process is much shorter than ten years that would be needed for this theory to be valid. Finally, a new theory is formulated and empirically tested. It attributes the cycles to a peculiar behavior of the planners, who plan the future growth rates of the economy on the basis of their observation of the actual growth rates in the past.
    Keywords: Economic fluctuations, Centraly planned economies, Growth cycles, quasi-cycles, Economic cycles, Socialist economy, Reinvestment cycles, Oskar Lange, Josef Goldman.
    JEL: E
    Date: 2005–11–01
  18. By: Oldrich Kyn (Boston University); Wolfram Schrettl (Freie Universitaet Berlin); Volkhart Vincentz (Osteuropa Institut Muenchen)
    Abstract: This paper presents the econometric model of the Soviet economy that was built at the Osteuropa Institut in Munich. In the core of the model is the adaptive planning equation. Other equations are presented and discussed as well. The model is tested by ex post forcast and then some policy simulations are discussed.
    Keywords: Econmometric model, Soviet economy, planning, policy simulations,
    JEL: C1 C2 C3 C4 C5 C8
    Date: 2005–11–02
  19. By: Marin, Dalia
    Abstract: Europe is reorganizing its international value chain. I document these changes in Europe?s international organization of production with new survey data of Austrian and German firms investing in Eastern Europe. I show estimates of the share of intra-firm trade between Austria and Germany on the one hand and Eastern Europe on the other. Furthermore, I present empirical evidence of the drivers of the new division of labor in Europe. I find among other things that falling trade costs and falling corruption levels as well as improvements in the contracting environment in Eastern Europe are affecting the level of intra-firm imports from Eastern Europe. They are also favoring outsourcing over offshoring. Low organizational costs of hierarchies and large costs of hold-up (when there are no alternative investors in Old Europe or no alternative suppliers in Eastern Europe) are favoring offshoring over outsourcing. Tax holidays granted by host countries in Eastern Europe also mildly affect the organizational choice.
    JEL: O11 L14 F11 D51 D23
    Date: 2005–09

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