nep-tra New Economics Papers
on Transition Economics
Issue of 2006‒07‒28
six papers chosen by
Tono Sanchez
Universitat de Valencia

  1. Foreign Exchange Risk Premium Determinants: Case of Armenia By Tigran Poghosyan; Evzen Kocenda
  2. Acquisition versus greenfield - the impact of the mode of foreign bank entry on information and bank lending rates By Sophie Claeys; Christa Hainz
  3. Estimating The Impacts of Demographic and Policy Changes On Pension Deficit A Simple Method and Application to China By Zeng Yi
  4. Migration and first-time parenthood: evidence from Kyrgyzstan By Lesia Nedoluzhko; Gunnar Andersson
  5. Ownership concentration and firm performance: Evidence from an emerging market By Irena Grosfeld
  6. Voting Rules and Budget Allocation in an Enlarged EU By Heikki Kauppi; Mika Widgrén

  1. By: Tigran Poghosyan; Evzen Kocenda
    Abstract: This paper studies foreign exchange risk premium using the uncovered interest rate parity framework in a model economy. The analysis is performed using weekly data on foreign and domestic currency deposits in the Armenian banking system. Results of the study indicate that contrary to the established view there is a positive correspondence between exchange rate depreciation and interest rate differentials. Further, it is shown that a systematic positive risk premium required by economic agents for foreign exchange transactions increases over the investment horizon. One-factor two-currency affine term structure framework applied in the paper is not sufficient to explain the driving forces behind the positive exchange rate risk premium. GARCH approach shows that central bank interventions and deposit volumes are two factors explaining time-varying exchange rate risk premium.
    Keywords: “Forward premium” puzzle, exchange rate risk, time-varying risk premium, affine term structure models, GARCH-in-Mean, foreign and domestic deposits, transition and emerging markets, Armenia.
    JEL: E43 E58 F31 G15 O16 P20
    Date: 2006–05
  2. By: Sophie Claeys (Department of Financial Economics and CERISE, Ghent University, W. Wilsonplein 5D, B-9000 Ghent, Belgium.); Christa Hainz (Department of Economics, University of Munich, Akademiestr. 1/III, 80799 Munich, Germany.)
    Abstract: Policy makers often decide to liberalize foreign bank entry but at the same time restrict the mode of entry. We study how different entry modes affect the interest rate for loans in a model in which domestic banks possess private information about their incumbent clients but foreign banks have better screening skills. Our model predicts that competition is stronger if market entry occurs through a greenfield investment and therefore domestic banks' interest rates are lower. We find empirical support for our results for a sample of banks from 10 transition countries of Eastern Europe for the period 1995-2003. JEL Classification: G21, D4, L31.
    Keywords: Banking, Foreign Entry, Mode of Entry, Interest Rate, Asymmetric Information.
    Date: 2006–07
  3. By: Zeng Yi (Center for Demographic Studies and Department of Sociology, Duke University China Center for Economic Research, Peking University)
    Abstract: This article derives a simple method for projecting pension deficit as percent of GDP in future years based on commonly available population forecasting and a few predictable economic and policy variables. Compared with the classic basic equilibrium equation of pension funds, our new formula decomposes the retirees-workers ratio which mixes various kinds of impacts into three more-easily-predictable variables – the elderly dependent ratio, the prevalence of pension coverage, and the employment rate. Our illustrative application to China shows that gradually increasing the current low minimum age of retirement will largely reduce the pension deficit, under various demographic regimes. The pension deficit as % of GDP in the low fertility scenarios (which corresponds with keeping the current rigid fertility control policy unchanged in the longrun)would be 5.6-11.1, 3.8-6.3, and 9.0-13.8 times as high as that in the Medium Fertility & Medium Mortality scenarios in 2040, 2060, and 2080
  4. By: Lesia Nedoluzhko (Max Planck Institute for Demographic Research, Rostock, Germany); Gunnar Andersson (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: In this paper, we investigate the reproductive behavior of young women and men in Kyrgyzstan, with special emphasis on the demographic adjustment strategies of internal migrants in this post-Soviet Central Asian republic. We employ event-history techniques to data from the “Marriage, Fertility, and Migration” survey conducted in northern Kyrgyzstan in 2005 to estimate relative risks of becoming a parent. We demonstrate to what extent migration is part of the family building process and how it is related to elevated parenthood risks shortly after resettlement. We gain additional insight by information on factors such as the geographical destination of migration, and of retrospectively stated motives for the move. In addition, we reveal clear ethnic differences in the timing of entry into parenthood in Kyrgyzstan.
    Keywords: Kyrgyzstan, fertility, migration
    JEL: J1 Z0
    Date: 2006–07
  5. By: Irena Grosfeld
    Abstract: The initial view of the advantages of ownership concentration in joint stock companies was determined by the concern about the opportunistic managerial behavior. The growing importance of knowledge and human capital in the operation of firms shifts the focus of concern: excessive ownership concentration may stifle managerial initiative. This may be particularly true, and the results obtained in this paper support this hypothesis, in firms with high share of knowledge related activities. I explore the determinants of ownership concentration and the relationship between ownership structure and firm value in the context of a transition economy, i.e. an economy undergoing important changes in its legal and regulatory framework, in macroeconomic policy and most of all, in its property rights allocation. I focus on all non-financial companies traded on the Warsaw Stock Exchange since its inception in 1991 and up to 2003. We can observe that ownership of companies becomes more dispersed with the number of years of listing. The results reported in this paper suggest that firm adjust their ownership structure to firm specific characteristics and that firms belonging to the sector of high technology tend to have lower ownership concentration. The positive impact of ownership concentration on firm value detected in OLS regressions becomes even stronger when we control for the endogeneity of ownership.
    Date: 2006
  6. By: Heikki Kauppi (Department of Economics, University of Helsinki); Mika Widgrén (Department of Economics, Turku School of Economics)
    Abstract: EU declares to provide support for the rural and poor regions of its member states. However, recent research shows that past EU budget allocations (in EU-15) can be attributed to measures of the distribution of voting power in the Council of Ministers deciding on the bulk of EU spending. A standard power measure alone can explain about 85% of the variance of the past EU budget shares, while, if stable coalition patterns among member countries are taken into account, power can explain at least 95% of the budget allocation. In this paper we use such estimates to predict EU budget shares after the eastern enlargement. According to our estimates eastern enlargement has large effects on the budget receipts of the incumbent member states. Moreover, whether the voting rules are based on the Nice Treaty (NT) or the Constitutional Treaty (CT) makes a difference for most member states. Many member states would be worse off under CT than under NT.
    Keywords: EU budget, voting power, Constitutional Treaty, Treaty of Nice
    JEL: C71 D70 D72
    Date: 2006–04

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