nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒02‒17
sixteen papers chosen by
J. David Brown
Heriot-Watt University

  1. What kind of shock was it? Regional Integration and Structural Change in Germany after Unification By Michael C. Burda
  2. Testing the purchasing power parity in China By Olivier Darné; Jean-François Hoarau
  3. Corporate Governance and Corporate Performance: Some Evidence from Newly Listed Firms on Chinese Stock Markets By Langnan Chen; Steven Li; Yijia Chen
  4. Finnish Firms Operating in the Czech, Slovak, Hungarian and Slovenian Markets (in Finnish with an English abstract/summary) By Ville Kaitila; Nuutti Nikula; Judit Karsai
  5. China’s swing from a planned Soviet-type economy to an ingenious socialist market economy: An account of 50 years By Arnaldo Gonçalves
  6. Consumption Behaviour Under Institutional Transitions in China By Shulian Zhang
  7. China: Políticas de Comércio Internacional e Desenvolvimento Econômico By Leonardo Cembranelli De Aquino
  8. Rising Regional Inequality in China: Policy Regimes and Structural Changes By Ho, Chun-Yu; Li, Dan
  9. The export of Russian gas to Europe: breaking up the monopoly of Gazprom By Marina Tsygankova
  10. The Dynamics of Provincial Growth in China: A Nonparametric Approach By Bulent Unel; Harm Zebregs
  11. Wealth Accumulation and Distribution in Urban China By Xin Meng
  12. Hot Air for Sale: A Quantitative Assessment of Russia’s Near-Term Climate Policy Options By Böhringer, Christoph; Moslener, Ulf; Sturm, Bodo
  13. R&D and Firm Performance in a Transition Economy By Czarnitzki, Dirk; Kraft, Kornelius
  14. Vietnam’s Accession to the WTO: Lessons from Past Trade Agreements By Philip Abbott; Jeanet Bentzen; Finn Tarp
  15. The Role of Banks in the Transmission of Monetary Policy in the Baltics By Köhler, Matthias; Hommel, Judith; Grote, Matthias

  1. By: Michael C. Burda
    Abstract: Eastern Germany’s recovery from the “unification shock” has been characterized by deep structural change – with apparent repercussions for the West as well – and an integration process involving both capital deepening (extensive and intensive investment) and labor thinning (net out-migration). I propose a constant-returns neoclassical model of economic integration which can account for these facts. Adjustment costs determine dynamics and steady state regional distribution of production factors. The model also explains persistent wage and capital rate-of-return differentials along the equilibrium path. Under competitive conditions, observed factor price differentials contain information on those adjustment costs.
    Keywords: German reunification, regional integration, costs of adjustment, capital mobility, migration
    JEL: F2 J61 P23
    Date: 2007–01
  2. By: Olivier Darné; Jean-François Hoarau
    Abstract: In this paper we examine whether purchasing power parity holds in the long run in China for the period 1970:1 to 2006:5 from an alternative method relative to the previous studies. We underlined the effects of large, but infrequent shocks due to changes of Chinese exchange policy (undertaken since the China's foreign exchange reform) on the real exchange rate, using outlier methodology. We also show that there is no endency to the purchasing power parity in China to hold in the long run during this period.
    Keywords: Purchasing power parity; real exchange rate; unit root tests; outliers; renminbi.
    JEL: C22 F31
    Date: 2006
  3. By: Langnan Chen; Steven Li; Yijia Chen (School of Economics and Finance, Queensland University of Technology)
    Abstract: This paper is concerned with some corporate governance issues related to newly listed firms in China based on a sample of 329 firms commencing listing on Shanghai Stock Exchange (SHSE) and Shenzhen Stock exchange (SZSE) during the period from 1998 to 2000. We first investigate the impact of ownership change due to stock market listing on corporate performance. We consider four aspects of corporate performance: profitability, sales, leverage and employee productivity. Our research results indicate that, on average, profitability, sales and employee productivity have improved from pre-listing to post-listing. We further investigate the impacts of state majority control, foreign ownership and regulation effects on corporate performance. Overall, this paper provides some new evidence on the listing effect, ownership structure and regulation effect on Chinese firms which will be valuable to the future reform of state owned enterprises in China.
    Keywords: State owned enterprise, corporate governance, and corporate performance
  4. By: Ville Kaitila; Nuutti Nikula; Judit Karsai
    Abstract: We analyse the experience of Finnish firms operating in the Czech Republic, Slovakia, Hungary and Slovenia (CEE4 countries) and their future business prospects there. First, we review the state and development of these countries’ economies. The countries face different economic challenges. After that we analyse the results from our firm survey. The questionnaire was sent to Finnish firms that operate in the CEE4 countries. According to the results, growing local markets and the countries’ EU membership are the principal factors that support business there. The firms that answered the questionnaire plan to continue to expand their operations in the CEE4 countries. We also interviewed a number of Finnish business leaders whose companies have production in Hungary. Finally, the paper includes an analysis by a Hungarian researcher on the outlook of the Hungarian economy and the investment and business environment in the country. The economic size of the CEE4 countries and their growth potential form a possibility for Finnish firms. In the future, competition in the local markets will continue to increase, however.
    Keywords: Czech Republic, Sl
    Date: 2006–12–18
  5. By: Arnaldo Gonçalves
    Abstract: China has met largely these targets in the first third of the period monitored and has experimented since 2000 a growth of its GDP about 8 % en 2000, 7.5 % in 2001, 8 % in 2002 and 9.1 % in 2003, according with international data. Due to its large and stable population, its rapidly growing economy and military spending and capabilities China is increasly looked as a world power and by this fact raises contradictory perceptions in its neighbors, rivals and competitors. This ascent of China to a primary role in the next decades hoists many important questions. How the West will accommodate to this economic and political climb? What strategy China’s neighbors will choose: a “containment” approach or a friendly but prudent partnership? And, finally, how China will act internationally when becomes a geopolitical power capable of projecting its military and economic magnitude?
    Keywords: planned economy, china, economic growth
  6. By: Shulian Zhang (School of Economics and Finance, Queensland University of Technology)
    Abstract: The study on Chinese consumption behaviour under institutional transitions is significant from a theoretical as well as a policy perspective. Ignoring heterogeneity in consumption behaviour across regions may lead to a bias in estimation results when modelling a consumption function. This paper attempts to provide an alternative empirical study on Chinese consumption behaviour where panel data estimation approaches are employed to capture heterogeneities across regions. Our findings suggest that there are significant changes in both urban and rural households’ consumption behaviour during 1990s and rural households’ consumption is more volatile and sensitive to the changes in economic variables than their counterparts in China.
  7. By: Leonardo Cembranelli De Aquino
    Abstract: The present study has as its objective to show the level of the economic development attained by the People’s Republic of China through analysis of statistical data in the term between 1978 and 2004. The study brings a brief historical about the Chinese society and explains concepts of economic growth, economic development,economic development according to the evolutionist theory, HDI and social development and International Trade policies. Following, we analyze statistical datafrom the country, in the light of theories mentioned throughout the study
    Keywords: China, economic development, International Trade
  8. By: Ho, Chun-Yu; Li, Dan
    Abstract: Regional inequality is severe in China since regional development is uneven due to various initial conditions and government policies. We employ unit root tests allowing for structural breaks to alternative inequality measures from 1952 to 2000. Empirical results indicate that (1) the regional inequality is trend stationary with structural breaks rather than follow a random walk. Thus, ignoring structural changes might induce incorrect inference and misleading policy implications; (2) the break points are associated with episodic events in Chinese economic history such as the Cultural Revolution and market reforms. It implies that the policies had a long-lasting and fundamental effect on the inequality.
    Keywords: Structural break; unit root; inequality; China
    JEL: R58 O15 C22
    Date: 2007–02–13
  9. By: Marina Tsygankova (Statistics Norway)
    Abstract: Having exports from more than one Russian gas producer has been an important issue in the Russian–EU energy dialogue during the last decade. Nevertheless, in June 2006, Russian Federal law legalized the de facto export monopoly of Gazprom. Political and commercial interests have regularly explained the Russian strategy for the European gas market. However, it is important that economic efficiency is also taken into account. Economists often evaluate the efficiency of a policy through its effect on national welfare. In this paper, I examine both theoretically and numerically whether a liberalization of Russian gas exports would increase Russian national welfare, given that the Russian domestic market is already deregulated. The results of the paper show that the dominant position of Gazprom in the Russian gas industry might stimulate the government to support Gazprom's export monopoly. The market share of independent producers in the Russian gas market would have to be significantly increased for Russian export liberalization to be welfare enhancing.
    Keywords: Russia; Natural gas; export; monopoly; national welfare
    JEL: D43 D60 L13 Q38
    Date: 2007–02
  10. By: Bulent Unel; Harm Zebregs
    Abstract: We use a recently developed non-parametric approach to analyze the variation in labor productivity growth across China's provinces. This approach imposes less structure on the data than the standard growth accounting framework and allows for a breakdown of labor productivity into capital deepening, efficiency gains, and technological progress. We find that capital deepening is the prime factor behind the change in the distributional dynamics of the labor productivity: on average capital deepening accounts for 75 percent of total labor productivity growth, while improvements in efficiency and technological progress account for 7 percent and 18 percent, respectively. We also find that while improvements in efficiency levels are higher in initially less productive provinces, relatively more productive provinces benefitted more from technological progress than less developed ones.
  11. By: Xin Meng (Australian National University and IZA)
    Abstract: Under socialism it was neither possible nor necessary to accumulate significant levels of personal wealth. The acceleration of economic reform in the last decade, however, has brought dramatic increases in income and investment opportunities. Reform has also reduced social protections provided by the state welfare system. In response to these changes, between 1995 and 2002, urban average real household net total wealth increased by 24 per cent per annum. There is a concern, however, that those accumulating wealth are the economic and political elites while those unable to accumulate wealth are the most vulnerable workers who are losing social protection. Using Chinese urban survey data of 1995, 1999, and 2002, this paper investigates this issue. It is found that households with above average income have accumulated more wealth than their poorer counterparts. In addition, a large proportion of this wealth accumulation may be from non-earned sources, such as buying larger and better housing at highly subsidized prices. Furthermore, party members and their children have benefited a great deal from this fast wealth accumulation process. Although at lower rates, the poor and vulnerable have also been able to accumulate wealth.
    Keywords: wealth, distribution, China
    JEL: D31 I30
    Date: 2007–01
  12. By: Böhringer, Christoph; Moslener, Ulf; Sturm, Bodo
    Abstract: Since January 1st the European Union has launched an EU-internal emissions trading scheme (EU ETS) for emission-intensive installations as the central pillar to comply with the Kyoto Protocol. The EU ETS may be linked at some time to a Kyoto emissions market where greenhouse gas emission allowances of signatory Kyoto countries can be traded. In this paper we investigate the implications of Russian market power for environmental effectiveness and regional compliance costs to the Kyoto Protocol taking into account potential linkages between the Kyoto emissions market and the EU ETS. We find that Russia may have incentives to join the EU ETS as long as the latter remains separated from the Kyoto international emissions market. In this case, Russia can exert monopolistic price discrimination between two separated markets thereby maximizing revenues from hot air sales. The EU will be able to substantially reduce compliance costs when it does not restrain itself to EU-internal emission regulation schemes. However, part of the gains from extra-EU emissions trading will come at the expense of environmental effectiveness as (more) hot air will be drawn in.
    Keywords: market power, hot air, climate policy
    JEL: D42 Q25
    Date: 2006
  13. By: Czarnitzki, Dirk; Kraft, Kornelius
    Abstract: We estimate the effects of R&D on firms' credit ratings and on financial distress. The main purpose is the comparison of firms in Western Germany and Eastern Germany as a transitional economy. Innovative activity has a positive impact on firm value proxied by ratings in Western Germany, but a negative impact in Eastern Germany. We also consider future financial distress, and find that R&D in Eastern German firms leads to higher default risk, in contrast to Western Germany. There, R&D enhances future performance. This result is highly politically relevant, since the high level of subsidies present in Eastern Germany may be subject to misallocation.
    Keywords: Transitional Economy, Credit Rating, Bankruptcy, Innovation, Policy
    JEL: L33 O12 O31 O38 P27
    Date: 2006
  14. By: Philip Abbott (Purdue University); Jeanet Bentzen (Department of Economics, University of Copenhagen); Finn Tarp (Department of Economics, University of Copenhagen)
    Abstract: This paper examines Vietnam’s experience with bilateral trade agreements and compares subsequent outcomes with predictions from existing computable general equilibrium (CGE) models. Those model based assessments have greatly underestimated the impact of past agreements. Tariff reform is not the main factor driving economic adjustments, and market imperfections mean there is potential for greater output and trade expansion. The key questions to ask in future research are what critical new institutional reforms WTO accession will bring, and what incentives will be put in place to determine the evolution of investment by sector.
    Keywords: trade liberalization; bilateral trade agreements; WTO accession; Vietnam
    JEL: F13 F14 O24 O53
    Date: 2007–02
  15. By: Köhler, Matthias; Hommel, Judith; Grote, Matthias
    Abstract: The paper empirically investigates the monetary transmission mechanism in the Baltic States. The analysis of the transmission channels through which monetary policy shocks are transmitted is particularly important for the European Central Bank that makes monetary policy in an enlarged European Monetary Union. The paper focuses on the bank lending channel of monetary transmission due to the importance of banks in the financial system of the Baltic countries. The existence of this transmission channel is tested by using a panel structural approach that distinguishes banks according to size, capitalization, liquidity and ownership structure. The results indicate that a bank lending channel is present in the Baltic States and mainly caused by differences in liquidity.
    Keywords: Monetary Transmission, Bank Lending Channel, Transition Countries
    JEL: E43 E44 G15 G21
    Date: 2006
  16. By: Terry McKiley (International Poverty Centre)
    Abstract: This Country Study was part of a comprehensive UNDP-supported national report on Economic Policies for Growth, Employment and Poverty Reduction in Moldova. This study focuses on analysing Moldova’s public finances, including mobilizing more domestic revenue, reducing its external and domestic debt and re-allocating its public expenditures. It counsels against lowering rates on direct taxes, which it predicts will be not only inequitable but also ineffectual; instead, it offers alternative recommendations on how to raise more revenue and make the tax system more progressive. While commending the government of Moldova for being able to unilaterally reduce its external debt burden, it sharply criticizes international donors for not having provided the country with concessional lending during the difficult transition years of the 1990s. Had the country’s income per person been correctly calculated, it would have qualified for such lending and not been saddled with such an onerous debt burden. Lastly, the study recommends that the government devote more resources to economic services, and public investment in general, in order to stimulate a more rapid rate of growth and employment generation and focus more economic resources on poor households.
    JEL: B41 D11 D12 E31 I32 O54
    Date: 2006–07

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