nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒03‒10
seventeen papers chosen by
J. David Brown
Heriot-Watt University

  1. Deregulation of Business By Evgeny Yakovlev; Ekaterina Zhuravskaya
  2. Wage Growth and Inequality Change During Rapid Economic Transition By Ira N. Gang; Robert C. Stuart; Myeong-Su Yun
  3. An "almost-too-late" warning mechanism for currency crises By Crespo Cuaresma, Jesýs; Slacik, Tomas
  4. Currency substitution in a de-dollarizing economy: The case of Russia By Harrison , Barry; Vymyatnina, Yulia
  5. China’s Trade and Growth: Impact on Selected OECD Countries By Malory Greene; Nora Dihel; Przemyslaw Kowalski; Douglas C. Lippoldt
  6. Rational Inefficiency and non-performing loans in Chinese Banking: A non-parametric Bootstrapping Approach. By Matthews, Kent; Guo, Jianguang; Zhang, Nina
  7. Transition to modern contraception in Russia: evidence from the 1996 and 1999 Women’s Reproductive Health Surveys By Irina Troitskaia; Gunnar Andersson
  8. Bank Efficiency in China, Rent Seeking versus X-inefficiency: A non-parametric Bootstrapping Approach. By Matthews, Kent; Guo, Jianguang; Zhang, Nina; Wang, Lina
  9. Hard or Soft? Institutional Reforms and Infrastructure Spending as Determinants of Foreign Direct Investment in China By K. C. Fung; Alicia García-Herrero; Hitomi Iizaka; Alan Siu
  10. A Note on Poverty in Kosovo By Sumon Kumar Bhaumik; Ira N. Gang; Myeong-Su Yun
  11. Ethnic Conflict and Economic Disparity: Serbians and Albanians in Kosovo By Sumon Kumar Bhaumik; Ira N. Gang; Myeong-Su Yun
  12. Where to Work? The Role of the Household in explaining Gender Differences in Labour Market Outcomes By Ira N. Gang; John Landon-Lane; Ralitza Dimova
  13. Exchange Rate Arrangements in Central and Eastern European Countries – Evolutions and Characteristics By Toma, Ramona
  14. Estimating Hedonic Price Indices for Personal Computers in Russia By Parkhomenko, Alexander; Redkina, Anastasia
  15. Fiscal policies and business cycles in an enlarged euro area By Karsten Staehr
  16. 'Solange, chapter 3': Constitutional Courts in Central Europe – Democracy – European Union By Wojciech Sadurski
  17. Two Views on Institutions and Development: The Grand Transition vs. the Primacy of Institutions By Martin Paldam; Erich Gundlach

  1. By: Evgeny Yakovlev (UC Berkeley); Ekaterina Zhuravskaya (NES, CEFIR. CERP)
    Abstract: What determines the enforcement of deregulation reform of business activities? What are the outcomes of deregulation? We address these questions using an episode of a drastic reform in Russia between 2001 and 2004 which liberalized registration, licensing, and inspections. Based on the analysis of micro-level panel data on regulatory burden, we find that: 1) The reform reduced administrative costs of firms, on average; but, the progress of reform had substantial geographical variation. 2) The enforcement of deregulation reform was better in regions with a transparent government,low corruption, strong fiscal incentives (i.e., reliance of local budgets on local taxes rather than fiscal transfers) and a powerful industrial lobby. 3) Using the exogenous variation in regulation generated by the interaction of reform and its institutional determinants, we find a substantial positive effect of deregulation on entry and small business employment and no effect on pollution and morbidity. The results support the “tollbooth” theory of the nature of regulation and are inconsistent with either the public interest theory or the regulatory capture theory.
    Date: 2007–02
  2. By: Ira N. Gang (Rutgers University); Robert C. Stuart (Rutgers University); Myeong-Su Yun (Tulane University)
    Abstract: East Germany, a unique socialist command economy prior to the 1990s, underwent rapid transition to a market-oriented economic system. This transition has been of intense interest given the environment of Eastern Germany vis-a-vis Western Germany, a setting different from most other transition economies. However, changes in the Eastern wage structure during transition demonstrates considerable similarity to that occurring in other transition economies. During the course of this transition, East Germany experienced big increases in both its wage level and wage dispersion. From 1990 to 2000 real wages in East Germany for men aged 20-60 rose by 118%, while various inequality measures indicate an increase in wage inequality of 25 to 61%. This paper studies the causes of this growth in wages and the changes in wage inequality, the first two moments of the wage distribution. We find that changes in the wage structure due to the transition explains most of wage growth and inequality change in East Germany. Most of the increases occur at the beginning of the transition. We compare our 1990-2000 results for East Germany to West German wage earners during the same period in order to investigate whether convergences took place in terms of mean (level) and dispersion (inequality).
    Keywords: decomposition, transition, wages, inequality
    JEL: D30 J30
    Date: 2006–12–01
  3. By: Crespo Cuaresma, Jesýs (BOFIT); Slacik, Tomas (BOFIT)
    Abstract: We propose exploiting the term structure of relative interest rates to obtain estimates of changes in the timing of a currency crisis as perceived by market participants. Our indicator can be used to evaluate the relative probability of a crisis occurring in one week as compared to a crisis happening after one week but in less than a month. We give empirical evidence that the indicator performs well for two important currency crises in Eastern Europe: the crisis in the Czech Republic in 1997 and the Russian crisis in 1998.
    Keywords: currency crisis; term structure of interest rates; transition economies
    JEL: E43 F31 F34
    Date: 2007–03–02
  4. By: Harrison , Barry (BOFIT); Vymyatnina, Yulia (BOFIT)
    Abstract: Currency substitution, the use of foreign money to finance transactions between domestic residents, is a common feature of emerging market economies. Currency substitution re-duces the stability of money demand functions in ways that can seriously undermine cen-tral bank credibility and its efforts to implement monetary policy. Most transition econo-mies, including Russia, experienced widespread currency substitution in the early phase of transition. Following Russia’s financial meltdown in 1998, its monetary authorities intro-duced a raft of changes that substantially improved the stability and performance of the macroeconomy and reduced currency substitution. This paper investigates currency substi-tution in the Russian economy in the post-crisis period of 1999–2005. Several measures of currency substitution and different modelling frameworks consistently suggest an on-going decline in currency substitution, a shift that has important implications for Russian mone-tary policy.
    Keywords: currency substitution; transition economies; de-dollarization
    JEL: E58 F31 F41
    Date: 2007–03–02
  5. By: Malory Greene; Nora Dihel; Przemyslaw Kowalski; Douglas C. Lippoldt
    Abstract: This paper examines China's emergence as a global player in international markets over the last few decades. It provides an overview of China's trade policy environment following the country's process of market opening and joining the WTO. The report analyses China’s role in international processing activities and moving up the global value chain. It also examines China’s impact on world prices and the deterioration of its own terms of trade. The paper looks at China's two-pronged export...
    Keywords: telecommunications, investment, trade and growth, trade policy, insurance, banking, intellectual property rights, computable general equilibrium, value chain, China, services trade, trade restrictiveness index
    Date: 2006–11–28
  6. By: Matthews, Kent (Cardiff Business School); Guo, Jianguang; Zhang, Nina
    Abstract: The existing Chinese banking system was born out of a state-planning framework focussed on the funding of state-owned enterprises. Despite the development of a modern banking system, numerous studies of Chinese banking point to its high level of average inefficiency. Much of this inefficiency relates to the high level of non-performing loans held on the banks books. This study argues that a significant component of inefficiency relates to a defunct bureaucratic incentive structure. Using bootstrap non-parametric techniques the paper decomposes cost-inefficiency into X-inefficiency and rational inefficiency caused by bureaucratic rent seeking. In contrast to other studies of the Chinese banking sector, the paper argues that a change in the incentive structure and the competitive threat of the opening up of the banking market in 2007 has produced reduced inefficiency and improved performance.
    Keywords: Bank Efficiency; China; X-inefficiency; DEA
    JEL: D23 G21 G28
    Date: 2007–02
  7. By: Irina Troitskaia (Max Planck Institute for Demographic Research, Rostock, Germany); Gunnar Andersson (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: During the 1990s in Russia both abortion and fertility rates declined rapidly. In the present paper, we shed some light on the extent to which these developments were related to increased use of modern contraception. Two surveys with retrospective information on contraceptive calendars reveal increasing transitions to modern contraception during the 1990s and show how these transitions were related to basic demographic control variables for women in Russia.
    Keywords: Russia, contraception, contraceptive usage
    JEL: J1 Z0
    Date: 2007–02
  8. By: Matthews, Kent (Cardiff Business School); Guo, Jianguang; Zhang, Nina; Wang, Lina
    Abstract: This study demarcates cost-inefficiency in Chinese banks into X-inefficiency and inefficiency caused by rent seeking behaviour. A protected banking market not only encourages weak management and X-inefficiency but also public ownership and state directed lending encourages moral hazard and bureaucratic rent seeking. This paper uses bootstrap non-parametric techniques to estimate measures of X-inefficiency and rent-seeking inefficiency for the 4 state owned banks and 11 joint-stock banks over the period 1997-2004. In contrast to other studies of the Chinese banking sector, the paper argues that reduced inefficiency is an indicator that the competitive threat of the opening up of the banking market in 2007 has produced tangible benefits in improved performance.
    Keywords: Bank Efficiency; China; X-inefficiency; DEA; Bootstrapping
    JEL: D23 G21 G28
    Date: 2007–02
  9. By: K. C. Fung (University of California at Santa Cruz); Alicia García-Herrero (Banco de España); Hitomi Iizaka (University of California at Santa Cruz); Alan Siu (University of Hong Kong - School of Economics and Finance)
    Abstract: In this paper, we examine empirically whether hard infrastructure, in the form of more highways and railroads, or soft infrastructure, in the form of more market oriented institutions through deeper reform, lead to more foreign direct investment (FDI) in China. We use data of outward FDI from the United States, Japan, Hong Kong, Taiwan and Korea to various regions of China from 1990 to 2002. We control for the standard determinants of FDI, namely regional market size, wage rates, human capital and tax policies. We add indices of hard and soft infrastructure and find that soft infrastructure, in the form of more market oriented institutions through deeper structural reform, consistently outperforms hard infrastructure as a determinant of FDI.
    Keywords: china, fdi determinants
    JEL: F21 F23
    Date: 2006–06
  10. By: Sumon Kumar Bhaumik (Brunel University); Ira N. Gang (Rutgers University); Myeong-Su Yun (Tulane University)
    Abstract: Kosovo is a war-torn corner of the former Yugoslavia, where a civil war between ethnic Albanians and ethnic Serbs raged during most of the 1990s. We examine the incidence and depth of poverty and some of its correlates in post-conflict Kosovo using the Living Standards Measurement Survey.
    Keywords: poverty, ethnicity, transition
    JEL: I32 O12 J15
    Date: 2006–12–01
  11. By: Sumon Kumar Bhaumik (Brunel University); Ira N. Gang (Rutgers University); Myeong-Su Yun (Tulane University)
    Abstract: Using the Living Standards Measurement Study (LSMS) household survey from post-conflict Kosovo we investigate the comparative economic well-being of Serbs and Albanians. An Oaxaca decomposition shows Serb households are both better endowed with income generating characteristics, such as education, and receive higher returns to these characteristics than Albanian households. Despite these advantages, Serb households have lower living standards, on average, than Albanian households. Most of the difference in living standards between Serb and Albanian households is on account of unobserved non-economic factors. This has serious implications for the political economy of policymaking in post-conflict Kosovo.
    Keywords: poverty, ethnicity, transition, consumption
    JEL: I32 O12 J15
    Date: 2006–12–01
  12. By: Ira N. Gang (Rutgers University); John Landon-Lane (Rutgers University); Ralitza Dimova (Brunel University)
    Abstract: With the use of panel data constructed from the 1995 and 1997 Bulgarian Integrated Household Surveys, this paper explores the sectoral reallocation of labour by gender. In Bulgaria, men and women started the transition on an almost equal standing, allowing us to concentrate our attention on the impact of individual and household characteristics in explaining gender differences in the labour market. We find that household characteristics, rather than alternative explanations such as differences in individual characteristics or pure gender discrimination, better explain the observed gender differences in labour market outcomes.
    Keywords: employment, gender, household, mobility
    JEL: J21
    Date: 2006–11–23
  13. By: Toma, Ramona
    Abstract: The process of choosing the exchange rate regime for the new EU member states has been influenced by other criteria than the traditional ones, which belong to macroeconomic criteria. This paper make a comparative analyze of the exchange rate arrangements in Central and Eastern European after 1990. These arrangements are dynamic on the one hand due to their permanent diversification and on the other hand because the values established this way are rapidly changing. In essence, they differ according to the degree of flexibility adopted when the exchange rate is established: from more rigid forms – currency board or pegging the currency to a foreign currency – to free floating.
    Keywords: exchange rate; arrangements; Central and Eastern European countries
    JEL: F31 F33 E42
    Date: 2007–03–01
  14. By: Parkhomenko, Alexander; Redkina, Anastasia
    Abstract: Economist have noted for decades that Consumer Price Index (CPI) in the developed countries is overstating inflation by 0,5-2,0% per year. A significant part of such a bias is found to be caused by the presence of technology products and differentiated products in CPI. An increasing weight of these products in the Russian CPI may also lead to a substantial upward bias. Nowadays hedonic indices are believed to be the most efficient way to reduce the bias. Following Triplett we have developed the taxonomy of hedonic price indices within the “direct approach”. This first step is essential in constructing a detailed set of hedonic price indices. They can be used in two ways: to estimate the bias in CPI and to elaborate alternative official price indices for IT-products. We've estimated 11% fall of price for personal computers in 2005 with the usage of hedonic price indices, a 11-23% positive bias in price index for PC in Russia was also calculated. We also have found that Russian CPI could be upward biased by 0,12-0,23% per year due to new goods and quality change effects for PC.
    Keywords: Hedonic; Price index; bias; CPI; PC; inflation; new economy
    JEL: L0 E31 C43
    Date: 2006–06–07
  15. By: Karsten Staehr
    Abstract: This paper compares the cyclical properties of fiscal policies across the 12 original eurozone countries and the future members from Central and Eastern Europe. For the sample period 1995-2005, the fiscal balance exhibits less inertia and is more counter-cyclical in Central and Eastern European countries than in members of the eurozone. The main differences arise from the revenue side. Differences in the formation of fiscal policy between current and future eurozone countries decrease over time. Autonomous fiscal policy has little or no effect on cyclical variability in either of the two groups of countries. Counter-cyclical fiscal policy appears to be effective in Central and Eastern European countries, but largely ineffective in eurozone countries
    Keywords: fiscla policy determinants, fiscal policy effects, eurozone expansion
    JEL: E62 E63 E32
    Date: 2007–03–08
  16. By: Wojciech Sadurski
    Abstract: Soon after the accession of eight post-communist States from Central and Eastern Europe to the EU, the constitutional courts of some of these countries questioned the principle of supremacy of EU law over national constitutional systems, on the basis of their being the guardians of national standards of protection of human rights and of democratic principles. In doing so, they entered into the well-known pattern of behaviour favoured by a number of constitutional courts of the older Europe, which is called a Solange story for the purposes of this article. But this resistance is ridden with paradoxes, the most important of which is a democracy paradox: while accession to the EU was supposed to be the most stable guarantee for human rights and democracy in postcommunist States, how can the supremacy of EU law be now resisted on these very grounds? It is argued that the sources of these constitutional courts’ adherence to the Solange pattern are primarily domestic, and that it is a way of strengthening their position vis-à-vis other national political actors, especially at a time when the role and independence of those courts face serious domestic challenges.
    Keywords: fundamental/human rights; East-Central Europe; European law; democracy; enlargement
    Date: 2006–12–01
  17. By: Martin Paldam; Erich Gundlach
    Abstract: The Grand Transition (GT) view claims that economic development is causal to institutional development, and that many institutional changes can be understood as transitions occurring at roughly the same level (zones) of development. The Primacy of Institutions (PoI) view claims that economic development is a consequence of an exogenous selection of institutions. Our survey of the empirical evidence and our own estimates reveal that it is easy to find con-vincing evidence supporting either of the two views. Property rights do affect development as suggested by the PoI. However, democracy is mainly an effect of development as suggested by the GT. We conclude that the empirical results are far too mixed to allow for a robust assessment that one of the two views is true and the other false. This finding implies that focusing on institutional development is unlikely to be successful as the key strategy for the economic development of poor countries.
    Keywords: Grand transition, primacy of institutions, democracy, corruption, development
    JEL: B25 O1
    Date: 2007–03

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