nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒03‒24
nine papers chosen by
J. David Brown
Heriot-Watt University

  1. Do Institutions, Ownership, Exporting and Competition Explain Firm Performance? Evidence from 26 Transition Countries By Simon Commander; Jan Svejnar
  2. Inflation in Poland: How Much Can Globalization Explain? By Celine Allard
  3. Comparing the evolution of spatial inequality in China and India: a fifty-year perspective By Gajwani, Kiran; Kanbur, Ravi; Zhang, Xiaobo
  5. Minimum Wage: Development and Economic Consequences in the Czech Republic / Minimální mzda: vývoj a ekonomické souvislosti v Èeské republice [available in Czech only] By Kamila Fialová
  6. Purchasing Power Parity among developing countries and their trade-partners. Evidence from selected CEECs and Implications for their membership of EU. By Nikolaos Giannellis; Athanasios Papadopoulos
  7. Foreign Exchange Intervention and Equilibrium Real Exchange Rates By Dimitrios A. Sideris
  8. Long-Run Effects of Training Programs for the Unemployed in East Germany By Bernd Fitzenberger; Robert Völter
  9. Does Reform Work? An Econometric Examination of the Reform-Growth Puzzle By Ian Babetskii; Nauro F. Campos

  1. By: Simon Commander (EBRD, London Business School and IZA); Jan Svejnar (University of Michigan, CERGE-EI, CEPR and IZA)
    Abstract: We analyze a large stratified random sample of firms that provide us with measures of performance and each firm’s top manager’s perception of the severity of business environment constraints faced by his/her firm. Unlike most existing studies that rely on external and aggregated proxy measures of the business environment, defined to include legal and institutional features, we have information from each surveyed firm. Specifically, we use the 2005 and 2002 Business Environment and Enterprise Performance Survey (BEEPS) to assess the effect on performance of ownership, competition, export orientation and the business environment of the firm. We employ a variety of approaches to deal with the problem of omitted variables, errors in variables and endogeneity that plague studies in this area. We find that foreign ownership and competition have an impact on performance – measured as the level of sales controlling for inputs. Export orientation of the firm does not have an effect on performance once ownership is taken into account. When we analyze the impact of perceived constraints, we show that few retain explanatory power once they are introduced jointly rather than one at a time, or when country, industry and year fixed effects are introduced. Indeed, country fixed effects largely absorb the explanatory power of the constraints faced by individual firms. Replicating the analysis with commonly used countrylevel indicators of the business environment, we do not find much of a relationship between constraints and performance. Our analysis brings into question an important part of the conventional wisdom in this area. It indicates that country fixed effects, reflecting timeinvariant differences in the business environment but also other factors, matter for firm performance, but that differences in the business environment observed across firms within countries do not. Moreover, the limited firm- and country-level variations in the business environment over time do not appear to affect performance either. This suggests that the effect of business environment on performance and the analysts’ ability to identify this effect are more limited than has been assumed to date.
    Keywords: firm performance, productivity, competition, institutions, business environment, export orientation, firm ownership, subjective data
    JEL: D24 L21 O12 O57
    Date: 2007–02
  2. By: Celine Allard
    Abstract: This paper analyses how globalization has affected inflation in the New EU Members States (NMS), and Poland in particular, since 1995. It finds prices have become less sensitive to domestic economic conditions as trade integration rose, possibly because monetary policy incentives increasingly shifted toward meeting price stability objectives. Quantitatively, globalization appears to have lowered Polish prices by ½ to 1 percentage point annually since 1995, substantially more than in advanced economies. However, future inflation-dampening effects in the NMS are likely to be smaller as the pace of increases in trade openness moderates.
    Keywords: Globalization , inflation , transition , Inflation , Poland , Globalization , Trade policy ,
    Date: 2007–02–26
  3. By: Gajwani, Kiran; Kanbur, Ravi; Zhang, Xiaobo
    Abstract: "In the second half of the last century, both India and China have undergone major transitions and have moved to more liberalized economies. This paper relates the observed patterns in regional inequality to major events during this period. Because of China's institutional barriers to migration, regional inequality is much higher than in India. Also, China's decentralization and opening up are closely related to the observed regional inequality – particularly the inland-coastal disparity – since the reform period. From the Green Revolution age to the period of economic liberalization in India, the evolution of regional comparative advantage has shifted from the quality of land to the level of human capital as India integrates with the international market. Therefore, India's states have become clustered into two clubs: more educated and less educated ones." Authors' Abstract
    Keywords: Liberalization, Liberalized economies, Regional inequality, Migration, Decentralization, Green Revolution, Economic conditions, International economic relations, Human capital, Spatial inequality,
    Date: 2006
  4. By: P Tridico
    Abstract: The aim of this paper is to analyse regional difference yield in terms of Human Development (HD) in Poland. During transition, western Polish regions grew more than eastern regions, and differences in terms of GDP per capita are evident. Nevertheless, higher GDP per capita in the West did not produce a higher level of non-income dimension indicators (i.e., Education and Life expectancy). On the contrary eastern regions, although they have a lower level of GDP per capita, have a higher level of non-income dimension indicators. This contradicts a neoclassical argument of considering HD as a proxy of GDP per capita. GDP growth is not a sufficient condition for HD. Along with GDP growth HD requires investments in social dimensions.
    Keywords: Regional Disparities, Human Development, Transition economics, Poland.
    JEL: R11 I10 I21 P25
  5. By: Kamila Fialová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The paper summarises the results of various economic concepts of minimum wage. Consecutively, it presents an analysis of the minimum wage development in the Czech Republic since its introduction in 1991 and of the impact of substantial changes in its level, which can be observed since 1999. The attention is focused on both its potential benefits in sense of reducing poverty and increasing the incomes of the poorest households, and on its potential negative impact on regional labour markets in sense of increasing unemployment. The results of the econometric analyses suggest that while there is a significant impact on increasing regional unemployment, potential benefits on raising incomes of the poor households seem to be insignificant. Therefore it seems valid to claim that minimum wage in the Czech Republic has not been a very purposeful instrument effective in decreasing poverty so far.
    Keywords: wage; poverty; regional unemployment
    JEL: I38 J31 J38
    Date: 2007–03
  6. By: Nikolaos Giannellis (Department of Economics, University of Crete, Greece); Athanasios Papadopoulos (Department of Economics, University of Crete, Greece)
    Abstract: The purpose of the paper is twofold. Firstly, we test the validity of the PPP hypothesis for selected CEEC (Czech Republic; Hungary; Poland and Slovak Republic). Secondly, we attempt to define those countries’ trade linkages between Euro Area; US and the rest of the world. By applying univariate unit root tests as well as a multivariate cointegration test, we find stronger evidence of PPP from the latter test. Moreover, any failure to accept PPP cannot be attributed to structural breaks, apart from one case (between Czech Republic and EU). In overall, there is evidence of strong-form PPP in 6 out of the 8 cases, while for the rest two, weak-form PPP is accepted. Thus, we confirm PPP as a long run equilibrium baseline for these exchange rates per EURO. Furthermore, the fact that PPP holds between these countries and Euro Area indicates absence of trade frictions and other barriers. The implied well-developed trade relations are consistent with those countries’ entry into EMU.
    Keywords: PPP, Unit Root, Structural Breaks, Cointegration, Developing Countries
    JEL: C22 C32 C52 F31
    Date: 2006–10–01
  7. By: Dimitrios A. Sideris (Bank of Greece and University of Ioannina)
    Abstract: Monetary authorities intervene in the currency markets in order to pursue a monetary rule and/or to smooth exchange rate volatility caused by speculative attacks. In the present paper we investigate for possible intervention effects on the volatility of nominal exchange rates and the estimated equilibrium behaviour of real exchange rates. The main argument of the paper is that omission of intervention effects -when they are significant- would bias the ability to detect any PPP-based behaviour of the real exchange rates in the long run. Positive evidence for this argument comes from the experience of six Central and Eastern European economies, whose exchange markets are characterised by frequent interventions.
    Keywords: Foreign Exchange Market Intervention; Real Exchange Rates; PPP.
    JEL: F31 C32 E58
    Date: 2007–02
  8. By: Bernd Fitzenberger (Goethe University Frankfurt, ZEW, IFS and IZA); Robert Völter (Goethe University Frankfurt and CDSEM, University of Mannheim)
    Abstract: Public sector sponsored training was implemented at a large scale during the transition process in East Germany. Based on new administrative data, we estimate the differential effects of three different programs for East Germany during the transition process. We apply a dynamic multiple treatment approach using matching based on inflows into unemployment. We find positive medium- and long-run employment effects for the largest program, Provision of Specific Professional Skills and Techniques. In contrast, the programs practice firms and retraining show no consistent positive employment effects. Furthermore, no program results in a reduction of benefit recipiency and the effects are quite similar for females and males.
    Keywords: multiple treatments, training programs, East Germany
    JEL: C14 J68 H43
    Date: 2007–02
  9. By: Ian Babetskii (Czech National Bank, CERGE-EI, and CES-ROSES, University of Paris 1); Nauro F. Campos (Brunel University, CEPR, WDI and IZA)
    Abstract: Why are socially beneficial reforms not implemented? One simple answer to this question (which has received little attention in the literature) is that this may be caused by generalized uncertainty about the effectiveness of reforms. If agents are unsure about whether a proposed reform will work, it will be less likely to be adopted. Despite the numerous benefits economists assign to structural reforms, the empirical literature has thus far failed to establish a positive and significant effect of reforms on economic performance. We collect data from 43 econometric studies (for more than 300 coefficients on the effects of reform on growth) and show that approximately one third of these coefficients is positive and significant, another third is negative and significant, and the final third is not statistically significant different from zero. In trying to understand this remarkable variation, we find that the measurement of reform and controlling for institutions and initial conditions are main factors in decreasing the probability of reporting a significant and positive effect of reform on growth.
    Keywords: structural reforms, economic growth
    JEL: O11 P21 C49
    Date: 2007–02

This nep-tra issue is ©2007 by J. David Brown. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.