nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒06‒30
nine papers chosen by
J. David Brown
Heriot-Watt University

  1. FDI, Market Structure and R&D Investments in China By Lundin, Nannan; Sjöholm, Fredrik; He, Ping; Qian , Jinchang
  2. How to Increase R&D in Transition Economies? Evidence from Slovenia By Polona Domadenik; Janez Prasnikar; Jan Svejnar
  3. The Social Construction of Markets in a Transitional Economy: The Example of the Sugar Industry in China By Louis Augustin-Jean
  4. On the Dynamics of Ethnic Fractionalization By Campos, Nauro F; Kuzeyev, Vitaliy
  5. The relation between private transfers and household income on looking at altruism, exchange and risk-sharing hypotheses. An empirical analysis applied to Russia (In French) By Matthieu CLEMENT (GREThA-GRES)
  6. Public finance, governance, and growth in transition economies : empirical evidence from 1992-2004 By Varoudakis, Aristomene; Tiongson, Erwin R.; Pushak, Taras
  7. Does reform work? An econometric examination of the reform-growth puzzle By Babetskii, Ian; Campos, Nauro F.
  8. The structure of import tariffs in the Russian Federation : 2001-05 By Tarr, David; Shepotylo, Oleksandr
  9. Estimating the Size of Underground Economy in Romania By Albu, Lucian Liviu

  1. By: Lundin, Nannan (Research Institute of Industrial Economics (IFN)); Sjöholm, Fredrik (Research Institute of Industrial Economics (IFN)); He, Ping (National Bureau of Statistics of China); Qian , Jinchang (National Bureau of Statistics of China)
    Abstract: FDI can be an important channel for developing countries’ ability to get access to new technology. The impact of FDI on domestically-owned firms’ technology development is less examined but it is frequently argued that technology externalities or demonstration effects could have a positive impact. Another and so far little examined effect of FDI on technology development in domestically-owned firms is through the impact on competition. We examine the effect of FDI on competition in the Chinese manufacturing sector and the effect of competition on firms’ R&D. Our analysis is conducted on a large dataset including all Chinese large and medium sized firms over the period 1998-2004. Our results show that FDI increases competition but there are no strong indications of competition affecting investments in R&D.
    Keywords: China; FDI; Competition; R&D
    JEL: F23 L11 O31
    Date: 2007–06–21
  2. By: Polona Domadenik (University of Ljubljana and Institute for South-East Europe (ISEE)); Janez Prasnikar (University of Ljubljana and Institute for South-East Europe (ISEE)); Jan Svejnar (University of Michigan, CERGE-EI, CEPR and IZA)
    Abstract: Paper addresses the recent initiatives of EU Lisbon Agenda to increase level of R&D expenses in EU Member States by studying firm-level panel data in most advanced transition economy, Slovenia. Previous empirical literature - mainly cross-sectional - has tested the demand-pull hypothesis and found in overall that R&D expenses may be driven by output. Using a panel of over 150 Slovene firms over the 1996-2000 period, and checking for fixed effects, time, industrial and size dummies and for the path-dependent nature of R&D, we also find a significant role of sales in inducing R&D expenditures. Besides that data also confirm that internal funds and (un)successful bargaining for higher wages present significant variables for higher R&D expenses. However, at the micro level, the demand-pull, internal funds and bargaining effects play a varying role for the different sub-samples of firms. In particular, exporting firms, those which are liquidity-constrained, those not receiving public subsidies and those not heading a business group, seem to be particularly sensitive in deciding their R&D expenditures. R&D behavior at the firm level is modeled as errorcorrection model and estimated in system GMM specification.
    Keywords: transition, R&D investment, firms in transition, employee ownership and control, institutions, openness
    JEL: C33 D01 L2 O31 P2
    Date: 2007–05
  3. By: Louis Augustin-Jean
    Abstract: The entry of China into the WTO, in 2001, has generated a lot of research related to the marketization of China’s economy. This debate has overlooked a more important one, which is to analyse the shape taken by the organization of China’s economy, in relation to the reforms introduced by this country since the end of the 1970s and its integration into the world economy. In other words, the changes that are currently occurring, provide a unique chance to understand the role and the interaction of different agents in the (re)construction of a market. For this purpose, a specific industry has been selected. The choice of the sugar industry allows us to understand its organization from the basic producer (the farmer) up to the final consumer (the food industry). It also allows us to take into account the changes that are currently underway in the international market of sugar (due to changes in the sugar regime of the European Union, an increasing production in Brazil, etc.), which exert considerable pressure on an industry that is undergoing complete restructuring in China. Taking into account these changes, the paper makes use of the commodity value chain approach as well as of the sociology of organization. Based on a fieldwork conducted from 2004 to 2006, it shows that, while China’s central government seems committed to further liberalize its economy, the diverging interests of agents involved in the industry (farmers, mills, local and provincial authorities…) have in effect reinforced the role of the various levels of government agencies – despite the partial privatisation. It also shows that all the measures taken to protect the most vulnerable agents have led to increased instabilities and uncertainties in a market which, nonetheless, has been continuously expanding for the last 25 years.
    Date: 2007
  4. By: Campos, Nauro F; Kuzeyev, Vitaliy
    Abstract: Does fractionalization change over (short periods of) time? If so, are there any substantial implications for economic performance? To answer such questions, we construct a new panel data set with measures of fractionalization for 26 former communist countries covering the period from 1989 to 2002. Our fractionalization measures show that transition economies became more ethnically homogenous over such a short period of time, although the same did not happen in terms of linguistic and religious fractionalization. In line with the most recent literature, there seems to be no effect of (exogenous) fractionalization on macroeconomic performance (that is, on per capita GDP growth). However, we find that dynamic ethnic fractionalization is negatively related to growth (although this is still not the case for linguistic and religious fractionalization). These findings are robust to different specifications, polarization measures, instrument sets as well as to a composite index of ethnic-linguistic-religious fractionalization.
    Keywords: ethnic fractionalization; growth; polarization; transition economies
    JEL: H1 O11 O55 Z12
    Date: 2007–06
  5. By: Matthieu CLEMENT (GREThA-GRES)
    Abstract: The aim of this paper is to analyze the impact of household income on private transfers in Russia on the basis of altruism, exchange and risk sharing hypotheses. Econometrical investigations, with Russia Longitudinal Monitoring Survey data for 2002, show that private transfers can’t be explained by altruism but rather by reciprocity. More precisely, in poor households, the idea of risk sharing is central, whereas in richer households, individual interest (exchange hypothesis) is more appropriate to understand private transfers.
    Keywords: Private transfers, well-being, altruism, exchange, risk-sharing, bivariate Tobit, spline regression, Russia
    JEL: C24 C34 D64 I30 P20
    Date: 2007
  6. By: Varoudakis, Aristomene; Tiongson, Erwin R.; Pushak, Taras
    Abstract: This paper revisits the early empirical literature on economic growth in transition economies, with particular focus on fiscal policy variables-fiscal balance and the size of government. The baseline model uses a parsimonious specification, drawn from Fischer and Sahay (2000), of economic growth as a function of initial conditions, stabilization, liberalization, and structural reform. The paper expands the data used in previous analyses by up to 10 years and finds unambiguous evidence that fiscal balance matters for growth, while confirming other previous findings on the correlates of economic growth in transition economies. In addition, the paper extends the baseline model and explores potential sources of nonlinearities in the relationship between growth and public finance. A key finding is that determinants of growth may vary in relative importance, depending on the underlying institutional quality. The evidence indicates that there could be higher growth payoffs from macroeconomic stability and public expenditure in countries characterized by relatively better public sector governance as measured by relevant indicators. In addition, the size of government matters for growth in a nonlinear manner: Beyond indicative thresholds of expenditure levels, public spending has a negative impact, while at levels below the threshold, there is no measurable impact on economic growth.
    Keywords: Public Sector Expenditure Analysis & Management,Governance Indicators,Pro-Poor Growth and Inequality,National Governance,Macroeconomic Management
    Date: 2007–06–01
  7. By: Babetskii, Ian (BOFIT); Campos, Nauro F. (BOFIT)
    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 generalised 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; transition; meta-analysis
    JEL: C49 O11 P21
    Date: 2007–06–26
  8. By: Tarr, David; Shepotylo, Oleksandr
    Abstract: The Russian tariff structure contains over 11,000 tariff lines of which about 1,700 use the so-called " combined " tariff rate system. For the combined system tariff lines, the actual tariff applied by Russian customs is the maximum of the ad valorem or specific tariff. The lack of available data and the difficulty in calculating the ad valorem equivalence of the specific tariffs have resulted in some previous efforts that have simply ignored the specific tariffs. This is the first paper to accurately assess the tariff rates. The authors show that ignoring the specific tariffs results in an underestimate of the actual tariff rates by about 1 to 3 percentage points, depending on the year. The average tariff in Russia has increased between 2001 and 2003 from about 11.5 to between 13 and 14.5 percent, but it has held steady in 2004 and 2005. This places Russia ' s tariffs at a level slightly higher than other middle-income countries and considerably higher than the OECD countries. The trade weighted standard deviation of the tariff approximately doubled from 9.5 percent in 2001 to 18 percent in 2003, but then fell to 15.2 percent by 2005. The food sector and light industry are the aggregate sectors with the highest tariff rates-their tariff rates in 2005 were 23.1 percent and 19.5 percent on a trade-weighted basis, but the increase in their tariffs has not led to an increase in their output.
    Keywords: International Trade and Trade Rules,Free Trade,Export Competitiveness,Trade Policy,Contract Law
    Date: 2007–06–01
  9. By: Albu, Lucian Liviu
    Abstract: Based on two Romanian household surveys, we analyse the structure of households' income by sources: main job, secondary job, and hidden activities. after conceptual clarification and explanation of the methodology we used, we estimate the size of informal economy, analyse the relationship between variables related to different types of income, and explore the dynamics of the informal economy. We find that the main participants in the informal economy are the poor people: the survival motive is dominant in the Romanian informal economy. We estimate that both in September 1996 and in July 2003 the income from the informal economy amounted to about 1/4 of the total household income (23.6% in 1996 and 22.7% in 2003, respectively). Also, we estimate the share of income from the informal economy in the cases of various categories of population (defined according to the dimension of the official declared income per person in the household). The extension of our analysis to the entire year using the household population structure by deciles suggests that the informal economy has increased, on average, by about 2-2.5% over the period 1995-2002.
    Keywords: informal economy, secondary income, informal income, decent income
    JEL: C61 D10 E62 H31 J22 O17 P36
    Date: 2007–06

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