nep-tra New Economics Papers
on Transition Economics
Issue of 2006‒11‒25
twenty-two papers chosen by
Tono Sanchez
Universitat de Valencia

  1. Changing Diets in China's Cities: Empirical Fact or Urban Legend? By Fengxia Dong; Frank H. Fuller
  2. Changing Diets in China’s Cities: Empirical Fact or Urban Legend? By Dong, Fengxia; Fuller, Frank H.
  3. How Robust are Estimates of Equilibrium Real Exchange Rates: The Case of China By Steven Vincent Dunaway; Lamin Leigh; Xiangming Li
  4. A Chinese Sky Trust? Distributional Impacts of Carbon charges and Revenue Recycling in China By James Boyce; Matthew Riddle; Mark D Brenner
  5. Money Demand and Disinflation in Selected CEECs during the Accession to the EU By Fidrmuc, Jarko
  6. Do Foreign Firms Crowd Out Domestic Firms? Evidence from the Czech Republic By Renata Kosova
  7. Does FDI facilitate Domestic Entrepreneurship? Evidence from the Czech Republic By Renata Kosova; Meghana Ayyagari
  8. A quantitative analysis of China’s structural transformation By Robert Dekle; Guillaume Vandenbroucke
  9. Are Japanese Firms Failing to Catch up in Localization? An Empirical Analysis Based on Affiliate-level Data of Japanese Firms and a Case Study of the Automobile Industry in China By Kyoji Fukao; Keiko Ito; Shigesaburo Kabe; Deqiang Liu; Fumihide Takeuchi
  10. Skill diffusion by temporary migration? Returns to Western European working experience in the EU-accession countries By Anna Iara
  11. Partially awakened giants : uneven growth in China and India By Chaudhuri, Shubham; Ravallion, Martin
  12. New Evidence on Fiscal Adjustment and Growth in Transition Economies By Alejandro Simone; Alex Segura-Ubiergo; Sanjeev Gupta
  13. Capital Flows to Central and Eastern Europe By Gian Maria Milesi-Ferretti; Philip R. Lane
  14. Real-Time Time-Varying Equilibrium Interest Rates: Evidence on the Czech Republic By Horvath, Roman
  15. Mass Privatization and the Postcommunist Mortality Crisis By Patrick Hamm; David Stuckler; Lawrence King
  16. Structural Policies and Growth: Time Series Evidence from a Natural Experiment By Theo Eicher; Till Schreiber
  17. Exchange-rate effects on China's trade: an interim report By Jaime Marquez; John W. Schindler
  18. Downward nominal wage rigidity in Poland By Brzoza-Brzezina, Michal; Socha, Jacek
  19. Transmission Mechanisms of Monetary Policy in Armenia: Evidence from VAR Analysis By Holger Floerkemeier; Era Dabla-Norris
  20. Monetary Transmission Mechanisms in Belarus By Rodolfo Maino; Balázs Horváth
  21. Macroeconomic Uncertainty and Bank Lending : The Case of Ukraine By Oleksandr Talavera; Andriy Tsapin; Oleksandr Zholud
  22. Analyzing Balance Sheet Vulnerabilities in a Dollarized Economy - The Case of Georgia By Andreas Billmeier; Johan Mathisen

  1. By: Fengxia Dong (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Frank H. Fuller (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI); Midwest Agribusiness Trade Research and Information Center (MATRIC))
    Abstract: China's economic reforms, which began in 1978, resulted in remarkable income growth, and urban Chinese consumers have responded by dramatically increasing their consumption of meat, other livestock products, and fruits and by decreasing consumption of grain-based foods. Economic prosperity, a growing openness to international markets, and domestic policy reforms have changed the food marketing environment for Chinese consumers and may have contributed to shifts in consumer preferences. The objective of this paper is to uncover evidence of structural change in food consumption among urban residents in China. Both parametric and nonparametric methods are used to test for structural change in aggregate household data from 1981 to 2004. The tests provided a reasonably clear picture of changing food consumption over the study period.
    Keywords: China, demand models, food consumption, nonparametric analysis, parametric tests, structural change.
    Date: 2006–11
  2. By: Dong, Fengxia; Fuller, Frank H.
    Abstract: China’s economic reforms, which began in 1978, resulted in remarkable income growth, and urban Chinese consumers have responded by dramatically increasing their consumption of meat, other livestock products, and fruits and by decreasing consumption of grain-based foods. Economic prosperity, a growing openness to international markets, and domestic policy reforms have changed the food marketing environment for Chinese consumers and may have contributed to shifts in consumer preferences. The objective of this paper is to uncover evidence of structural change in food consumption among urban residents in China. Both parametric and nonparametric methods are used to test for structural change in aggregate household data from 1981 to 2004. The tests provided a reasonably clear picture of changing food consumption over the study period.
    Keywords: China, demand models, food consumption, nonparametric analysis, parametric tests, structural change.
    Date: 2006–11–15
  3. By: Steven Vincent Dunaway; Lamin Leigh; Xiangming Li
    Abstract: Increased attention is being paid to assessments of the actual values of countries' real exchange rates relative to their "equilibrium" values as suggested by "fundamental" determining factors. This paper assesses the robustness of alternative approaches and models commonly used to derive equilibrium real exchange rate estimates. Using China's currency to illustrate this analysis, the variance in estimates raises serious questions regarding how robust the results are. The basic conclusion from the tests used here is that, at least for China, small changes in model specifications, explanatory variable definitions, and time periods used in estimation can lead to very substantial differences in equilibrium real exchange rate estimates. Thus, such estimates should be treated with great caution.
    Keywords: China's equilibrium real exchange rate , robustness tests ,
    Date: 2006–10–13
  4. By: James Boyce; Matthew Riddle; Mark D Brenner
    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.
    Keywords: carbon charges, fossil fuels, China, income distribution, carbon revenues, fuel consumption, income equality
    JEL: Q32 Q52
    Date: 2005
  5. By: Fidrmuc, Jarko
    Abstract: A panel data set for six countries (Czech Republic, Hungary, Poland, Romania, Slovakia, and Slovenia) is used to estimate money demand with panel cointegration methods over the recent disinflation period. The basic money demand model is able to convincingly explain the long-run dynamics of M2 in the selected countries. However, money demand is found to have been significantly determined by the euro area interest rates and the exchange rate against the euro, which indicates possible instability of money demand functions in the CEECs. Therefore, direct inflation targeting is an appropriate monetary regime before the eventual adoption of the euro.
    Keywords: Money demand; panel unit root tests; panel cointegration; direct inflation targeting; CEECs
    JEL: E41 E58 C23
    Date: 2006–10
  6. By: Renata Kosova (The George Washington University School of Business)
    Date: 2006–03
  7. By: Renata Kosova (The George Washington University School of Business); Meghana Ayyagari (The George Washington University School of Business)
    Date: 2006–09
  8. By: Robert Dekle; Guillaume Vandenbroucke
    Abstract: Between 1978 and 2003 the Chinese economy experienced a remarkable 5.7 percent annual growth of GDP per labor. At the same time, there has been a noticeable transformation of the economy: the share of workers in agriculture decreased from over 70 percent to less than 50 percent. We distinguish three sectors: private agriculture and nonagriculture and public nonagriculture. A growth accounting exercise reveals that the main source of growth was TFP in the private nonagricultural sector. The reallocation of labor from agriculture to nonagriculture accounted for 1.9 percent out of the 5.7 percent growth in output per labor. The reallocation of labor from the public to the private sector also accounted for a significant part of growth in the 1996-2003 period. We calibrate a general equilibrium model where the driving forces are public investment and employment, as well as sectorial TFP derived from our growth accounting exercise. The model tracks the historical employment share of agriculture and the labor productivities of all three sectors quite well.
    Keywords: China
    Date: 2006
  9. By: Kyoji Fukao; Keiko Ito; Shigesaburo Kabe; Deqiang Liu; Fumihide Takeuchi
    Abstract: This paper analyzes the degree and the current status of localization of Japanese affiliates in China. For this purpose, we (1) compare the localization (measured in terms of the number of expatriates, local sales, local procurement, and local management) of Japanese and U.S. affiliates in China and other major regions; (2) analyze the impact of localization on the profitability of Japanese affiliates in China and in other major regions; and (3) conduct a detailed investigation of inter-firm transactional relationships in China between automobile manufacturers and parts suppliers. We find that compared with U.S. affiliates, Japanese affiliates tend to be less localized. Using a comprehensive affiliate-level panel data set on Japanese multinationals and concentrating on China, we then examine the effect of localization quantitatively and find that Japanese affiliates with higher procurement ratios and/or local CEOs and procurement managers enjoyed high profits. Next, turning to the factors determining trading relationships between assemblers and suppliers of different nationalities in China, our analysis suggests that even when taking various control variables into account, such as suppliers' productivity level and the distance between assembler and supplier, the transactional relationships of Japanese suppliers are more limited than those of suppliers of other nationalities. Moreover, Japanese automobile assemblers do not choose suppliers based on their current labor productivity level and transactional relationships between assemblers and suppliers are more closed in the case of Japanese firms than in the case of firms of other nationalities. On the other hand, we find that auto parts suppliers dealing with Japanese assemblers see their productivity grow faster regardless of the supplier's nationality. The results indicate that Japanese assemblers may well be choosing business partners which they expect to realize sustainable productivity increases in the future rather than focusing on present productivity levels. This finding provides evidence of business practices based on a long-term perspective characteristic of Japanese enterprises.
    Date: 2006–11
  10. By: Anna Iara (The Vienna Institute of International Economic Studies (wiiw))
    Abstract: Temporary migration is of growing significance in Europe. Upon migration to a country with higher technological development that typically coincides with positive wage differentials, temporary migrants may upgrade their skills by learning on the job and subsequently import the newly acquired human capital to their source country, thus adding to international know-how diffusion and the catching up of the respective economy. This paper is the first to provide supportive evidence of this hypothesis in a cross-country East to West European perspective, using the 2003 Youth Eurobarometer dataset.
    Keywords: Central and Eastern Europe, return migration, wage premium, skill diffusion
    JEL: J61 J31 O15
    Date: 2006–08–30
  11. By: Chaudhuri, Shubham; Ravallion, Martin
    Abstract: The paper examines the ways in which recent economic growth has been uneven in China and India and what this has meant for inequality and poverty. Drawing on analyses based on existing household survey data and aggregate data from official sources, the authors show that growth has indeed been uneven-geographically, sectorally, and at the household level-and that this has meant uneven progress against poverty, less poverty reduction than might have been achieved had growth been more balanced, and an increase in income inequality. The paper then examines why growth was uneven and why this should be of concern. The discussion is structured around the idea that there are both " good " and " bad " inequalities-drivers and dimensions of inequality and uneven growth that are good or bad in terms of what they imply for both equity and long-term growth and development. The authors argue that the development paths of both China and India have been influenced by, and have generated, both types of inequalities and that while good inequalities-most notably those that reflect the role of economic incentives-have been critical to the growth experience thus far, there is a risk that bad inequalities-those that prevent individuals from connecting to markets and limit investment and accumulation of human capital and physical capital-may undermine the sustainability of growth in the coming years. The authors argue that policies are needed that preserve the good inequalities-continued incentives for innovation and investment-but reduce the scope for bad ones, notably through investments in human capital and rural infrastructure that help the poor connect to markets.
    Keywords: Rural Poverty Reduction,Pro-Poor Growth and Inequality,Inequality,Population Policies
    Date: 2006–11–01
  12. By: Alejandro Simone; Alex Segura-Ubiergo; Sanjeev Gupta
    Abstract: This paper analyzes the relationship between fiscal adjustment and real GDP growth in a panel of 26 transition economies during 1992-2001. Unlike most previous studies using cross-country regressions, the paper finds a positive and statistically significant relationship between fiscal adjustment and growth that is robust to different model specifications and estimation methods. The paper also presents country experiences to delve deeper into the mechanisms that may underlie this statistical relationship.
    Keywords: Fiscal adjustment , growth , transition economies , fiscal policy ,
    Date: 2006–10–31
  13. By: Gian Maria Milesi-Ferretti; Philip R. Lane
    Abstract: We examine the evolution of the net external asset positions of Central and Eastern Europe (CEEC) countries over the past decade, with a strong emphasis on the composition of their international balance sheets. We assess the extent of their international financial integration, compared with the advanced economies and other emerging markets, and highlight the salient features of their external capital structure in terms of the relative importance of FDI, portfolio equity, and external debt. In addition, we briefly describe the country and currency composition of their external liabilities. Finally, we explore the implications of the accumulated stock of external liabilities for future trade and current account balances.
    Keywords: trade balance , rates of return , net external position , FDI , Capital flows , Eastern Europe , Balance of trade , Current account , Foreign direct investment ,
    Date: 2006–08–15
  14. By: Horvath, Roman
    Abstract: This paper examines (real-time) equilibrium interest rates in the Czech Republic in 2001:1-2005:12 estimating various specifications of simple Taylor-type monetary policy rules. First, we estimate it using GMM. Second, we apply structural time-varying coefficient model with endogenous regressors to evaluate fluctuations of equilibrium interest rate over time. The results suggest that there is substantial interest rate smoothing and central bank primarily responds to inflation (forecast) developments. The estimated parameters seem to sustain the equilibrium determinacy. We find that the equilibrium interest rates gradually decreased over sample period to the levels comparable to those of in the euro area reflecting capital accumulation, smaller risk premium and successful disinflation in the Czech economy.
    Keywords: equilibrium interest rates; Taylor rule; augmented Kalman filter
    JEL: E58 E43 E52
    Date: 2006–10–30
  15. By: Patrick Hamm; David Stuckler; Lawrence King
    Abstract: During the transition to capitalism, postcommunist countries have experienced unprecedented mortality crises, although there has been considerable variation within — and between — countries and regions. Much of this variation remains unexplained, although alcohol and psychological stress have been found to be major causes of declining life expectancy. We move beyond this finding by showing that the implementation of neoliberal-inspired rapid large-scale privatization programs (mass privatization) was a major determinant of the decline in life expectancy. We find that mass privatization also increased alcohol-related deaths, heart disease, and suicide rates, strong evidence that mass privatization created psychosocial stress that directly resulted in higher mortality. We also find that mass privatization modestly contributed to a decline in the number of physicians, dentists, and hospital beds per capita; however, we find only very weak evidence that this reduction in health resources directly contributed to the mortality crisis itself. By using “control function” and instrumental variable approaches to account for the potential endogeneity of mass privatization, we also demonstrate that the choice of mass privatization as a property-reform strategy was not economically determined, but was rather caused by ethnic politics and the mimicking of policies adopted by powerful neighboring countries.
    Keywords: postcommunist, mortality crisis, privatization, psychosocial stress
    JEL: I12 J18 L33 P36
    Date: 2006
  16. By: Theo Eicher (Department of Economics, University of Washington); Till Schreiber (Department of Economics, College of William and Mary)
    Abstract: Documenting the long term impact of structural policies on economic performance has generated tremendous interest in the development literature. In contrast, contemporary effects of structural policies are difficult to establish. Structural policies seldom change sufficiently in the short run, and accepted instruments to control for endogeneity in cross sections are inappropriate for time series analysis. In this paper we utilize an eleven year panel of 26 transition countries to identify short term effects of structural policies that are large and significant. A ten percent change in the quality of structural policies (or the Rule of Law) towards OECD standards is shown to raise annual growth by about 2.5 percent. To control for endogeneity, we instrument using the hierarchy of institutions hypothesis and find that it holds robust explanatory power. We also document that early reformers reap the greatest benefits, but that it is never too late to begin structural policy reforms.
    Keywords: structural policies, growth, dynamic panel, transition economies
    JEL: O40 P48 O11
    Date: 2006–11–15
  17. By: Jaime Marquez; John W. Schindler
    Abstract: The rising current account deficit in the USA has attracted considerable attention in recent years. We use the "business cycle accounting" methodology to identify the principal distortions that have affected the external accounts of the US. In particular, we measure distortions in the optimality conditions of a simple two-country general equilibrium model using data from the US and the other G7 countries. We then feed these measured distortions into the model individually and use the simulated counterfactual paths of the current account to determine the contribution of each of these "wedges" to the overall external imbalance of the USA. We find that no single wedge in isolation can account closely for the observed current account. However, a combination of productivity differences and deviations from risk-sharing between the US and the rest of the G7 does the best job in accounting for most of the measured movement of the US current account.
    Keywords: Foreign exchange rates - China ; Trade ; Econometric models
    Date: 2006
  18. By: Brzoza-Brzezina, Michal; Socha, Jacek
    Abstract: We use data on enterprise level from a survey of medium sized and big companies to test for downward nominal wage rigidity in Poland. We find relatively weak support for downward nominal wage rigidity when average total compensation in the enterprise is taken into account. However, since this result may be affected by job rotation, we propose a method for eliminating its impact and find that downward wage rigidity becomes higher. Moreover, disaggregating the data reveals strong differences between sectors, with no rigidity in highly competitive branches and significant rigidities in monopolized or state-owned sectors. Still, the amount of downward nominal wage rigidity seems lower than in other countries, although, due to differences in data sets, robust comparisons are not possible.
    Keywords: Downward nominal wage rigidity; Poland; inflation
    JEL: E31 J30 E24
    Date: 2006–05
  19. By: Holger Floerkemeier; Era Dabla-Norris
    Abstract: This paper examines monetary policy transmission in Armenia in light of the authorities' intention to shift to an inflation-targeting regime over the medium term. We find that the capability of monetary policy to influence economic activity and inflation is still limited, as important channels of monetary transmission are not fully functional. In particular, the interest rate channel remains weak, even though there is some evidence of transmission to prices of changes in the repo rate, the central bank's new operating target for inflation. As in other emerging and transition economies with a high degree of dollarization, the exchange rate channel has a strong impact on the inflation rate. Moreover, we find that inflation does respond to broad money shocks, once foreign currency deposits are included.
    Keywords: Armenia , monetary policy , transmission mechanism ,
    Date: 2006–11–03
  20. By: Rodolfo Maino; Balázs Horváth
    Abstract: We explore monetary policy transmission by estimating VAR impulse response functions to illustrate the Belarusian economy's response to unexpected changes in policy and exogenous variables. We find a significant exchange rate pass-through to prices, and interest rate policy following, rather than leading, financial market developments. Our estimated monetary policy reaction function shows the central bank striking a balance between real exchange rate stability and containing inflation. We discuss dollarization, administrative interventions, and other features complicating monetary policy transmission, review specific constraints and vulnerabilities, and conclude with observations on possible measures that could raise the effectiveness of monetary policy in Belarus.
    Keywords: Monetary policy , inflation , transmission mechanisms , dollarization ,
    Date: 2006–11–02
  21. By: Oleksandr Talavera; Andriy Tsapin; Oleksandr Zholud
    Abstract: Our study investigates the link between bank lending behavior and macroeconomic uncertainty. We develop a dynamic model of a bank's value maximization that results in a negative relationship between loan to capital ratio and macroeconomic uncertainty. This proposition is tested using a panel of Ukrainian banks collected from NBU and covering the period 2003q1-2005q3. The results indicate that banks increase their lending ratios when macroeconomic uncertainty decreases. We demonstrate that our results are robust with respect to the measurement of macroeconomic uncertainty. The reaction of banks to changes in uncertainty is not uniform and depends on bank-specific characteristics.
    Keywords: Banks, macroeconomic uncertainty, Ukraine, banks' balance sheets
    JEL: G21 G28 P27 P34
    Date: 2006
  22. By: Andreas Billmeier; Johan Mathisen
    Abstract: Balance-sheet analysis (BSA) complements traditional flow-oriented macroeconomic analysis by gauging mismatches in aggregate and sectoral balance sheets of an economy. Enabled by recent progress in data availability, this paper applies BSA to Georgia, focusing on currency mismatches. In reviewing developments over the last five years, the paper finds that the still-high level of dollarization continues to create financial vulnerabilities, but that the overall level of currency mismatch has fallen and that liquidity problems are unlikely, in part owing to a strengthening of sectoral buffers, hedges, and insurance against shocks. Policy recommendations include accumulating reserves, strengthening securities markets, enhancing banking supervision, and maintaining a flexible exchange rate.
    Keywords: Balance sheet analysis , BSA , Georgia , vulnerabilities , currency mismatch , Dollarization , Georgia , Bank supervision , Flexible exchange rates , Exchange rate regimes ,
    Date: 2006–07–28

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