nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒06‒02
seven papers chosen by
J. David Brown
Heriot-Watt University

  1. Information Sharing and Credit: Firm-Level Evidence from Transition Countries By Brown, Martin; Jappelli, Tullio; Pagano, Marco
  2. Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China By David Dollar; Shang-Jin Wei
  3. Regional Development in China: Interregional Transportation Infrastructure and Regional Comparative Advantage By Lining He; Faye Duchin
  4. The Chinese Economy from 1997:2015: Developing a Baseline for the MC-HUGE Model By Yin Hua Mai
  5. Enforceability in Trade Credit: Financial Aspects of Transactions with FDI By ITOH Seiro; WATANABE Mariko; YANAGAWA Noriyuki
  6. China: Strengthening Monetary Policy Implementation By Rodolfo Maino; Bernard Laurens
  7. Firm entry and liquidity By Lenno Uuskyla

  1. By: Brown, Martin; Jappelli, Tullio; Pagano, Marco
    Abstract: We investigate whether information sharing among banks has affected credit market performance in the transition countries of Eastern Europe and the former Soviet Union, using a large sample of firm-level data. Our estimates show that information sharing is associated with improved availability and lower cost of credit to firms, and that this correlation is stronger for opaque firms than transparent firms. In cross-sectional estimates, we control for variation in country-level aggregate variables that may affect credit, by examining the differential impact of information sharing across firm types. In panel estimates, we also control for the presence of unobserved heterogeneity at the firm level and for changes in selected macroeconomic variables.
    Keywords: credit access; information sharing; transition countries
    JEL: D82 G21 G28 O16 P34
    Date: 2007–05
  2. By: David Dollar; Shang-Jin Wei
    Abstract: Based on a survey that we designed and that covers a stratified random sample of 12,400 firms in 120 cities in China with firm-level accounting information for 2002-2004, this paper examines the presence of systematic distortions in capital allocation that result in uneven marginal returns to capital across firm ownership, regions, and sectors. It provides a systematic comparison of investment efficiency among wholly and partially state-owned, wholly and partially foreignowned, and domestic privately owned firms, conditioning on their sector, location, and size characteristics. It finds that even after a quarter-of-century of reforms, state-owned firms still have significantly lower returns to capital, on average, than domestic private or foreign-owned firms. Similarly, certain regions and sectors have consistently lower returns to capital than other regions and sectors. By our calculation, if China succeeds in allocating its capital more efficiently, it could reduce its investment intensity by 5 percent of GDP without sacrificing its economic growth (and hence deliver a greater improvement to its citizens' living standard).
    Keywords: Capital , China , Financial systems , Investment , Industry , Resource allocation , Economic reforms ,
    Date: 2007–01–18
  3. By: Lining He (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA); Faye Duchin (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)
    Abstract: Significant economic disparities among China's Eastern, Central, and Western regions pose unequivocal challenges to social equality and political stability in the country. A major impediment to economic development, especially in the poor, remote Western region, is the shortage of transportation infrastructure. The Chinese government has committed to substantial investment for improving the accessibility of this vast, land-locked region as a mechanism for promoting its development. The paper examines the impacts of the intended transportation infrastructure buildup on the Western region's comparative advantage and its interregional trade. The World Trade Model is extended to represent this investment and applied to determine interregional trade in China based on region-specific technologies, factor endowments and prices, and consumption patterns as well as the capacities and costs of carrying goods among regions using the interregional transportation infrastructure in place in the base year of 1997 and that planned for 2010 and 2020. The model is implemented for 3 regions, 27 sectors, and 7 factors. The results indicate that the planned infrastructure buildup will be cost-effective, will increase benefits especially for the Western region, and that it can conserve energy overall at given levels of demand but substitute oil for coal. Based on these and other model results, some recommendations are offered about strategies for regional development in China.
    JEL: L98 O53 C61 C67 O18
    Date: 2007–05
  4. By: Yin Hua Mai
    Abstract: MC-HUGE is a dynamic Computable General Equilibrium model of the Chinese economy. The core CGE part of the MC-HUGE model is based on that of the ORANI model. The dynamic mechanism of MC-HUGE is based on that of the MONASH model. This paper documents how the MC-HUGE model is calibrated to China's economic growth data from 1997 to 2005. It also reports how the model is used to forecast a growth path for the Chinese economy from 2005 to 2015. The historical and the forecast simulation produce a baseline or a business-as-usual scenario with which to compare the effects of any changes in economic policies or environment.
    Keywords: China, CGE modelling, economic growth, oil
    JEL: C68 F14 O10
    Date: 2006–09
  5. By: ITOH Seiro; WATANABE Mariko; YANAGAWA Noriyuki
    Abstract: This paper documents financial aspects of transactions and trade credit supply behavior with foreign direct investment (FDI) among small- and medium-sized enterprises, based on two original surveys. The surveys, conducted in four cities in China in 2003, were designed to uncover the nature of inter-firm transactions, trade credit and other financial conditions. Literature on FDI mainly refers to technology transfer, employment, or investment. This paper focuses on the role/significance of FDI in the supply of trade credit due to its enforcement technology of trade credit. Yanagawa, Ito, and Watanabe (2006) developed an incomplete contract model wherein when the seller has a higher enforcement technology or the buyer has richer liquidity, both trade credit and transaction volume will increase. In this paper we first compute the "enforcement probability" of each seller then test the propositions of the model. We confirm that (1) FDI and G firms provide larger trade credit. (2) This is due to their higher enforcement probability in trade credit. Furthermore, (3) higher enforcement probability has a positive external effect in enhancing the trade credit and transaction volume of indirect transaction partners. However, we also find that (4) in order to raise the probability of "no default," enhancing the ratio of cash on delivery is a necessary measure. (5) A more competitive supplier will prefer cash on delivery payment and consequently will provide less trade credit to the economy. (6) With a shorter transaction period, the supplier will provide larger trade credit. This implies that firms with a stronger bargaining power prefer providing no trade credit though they can expect higher enforcement probability, thus reduces the volume of economic activity. These negative forces against enhancing trade credit and economic activity exist at a substantial level in China. Because of this force, a strategic default problem persists in China even 30 years after the transition began.
    Date: 2007–05
  6. By: Rodolfo Maino; Bernard Laurens
    Abstract: The People's Bank of China (PBC) has made great strides in modernizing its monetary policy frameworks but their effectiveness will diminish as the sophistication of the economy increases. Empirical evidence supports maintaining a reference to money in China's monetary strategy and enhancing the role of interest rates in its conduct. We advocate adoption of an eclectic strategy involving the monitoring of several indicators, and of a short-term interest rate as the operational target. The PBC should be granted discretion to change its policy rate, and there are no technical obstacles for such a move to occur in the near future.
    Keywords: Monetary policy , China , Monetary policy instruments , Demand for money , Economic indicators , Interest rates ,
    Date: 2007–01–25
  7. By: Lenno Uuskyla
    Abstract: This paper shows that fewer firms enter after a contractionary liquidity shock and that firm entry reacts quicker to liquidity than the economic activity indicator. The results are obtained by using Estonian data for the period 1995M1–2006M7. Various structural VAR and VECM models are exploited to identify the liquidity shock.
    Keywords: monetary transmission, firm entry, VAR, VECM, Estonia
    JEL: E52 C32

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