nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒07‒07
eighteen papers chosen by
J. David Brown
Heriot-Watt University

  1. A Survey of Corporate Governance in Russia By Olga Lazareva; Andrei Rachinsky; Sergey Stepanov
  2. Market Reform, Regional Energy and Popular Representation: Evidence from Post-Soviet Russia By Theocharis N. Grigoriadis; Benno Torgler
  3. Exchange Rate Regimes and the Transition Process in the Western Balkans By Ansgar Belke; Albina Zenkic
  4. Money demand in post-crisis Russia: De-dollarisation and re-monetisation By Korhonen, Iikka; Mehrotra, Aaron
  5. Sub-federal administrative regulation of entry in Russia By Kolomak Evgeniya
  6. Access to Higher Education and Inequality: The Chinese Experiment By Xiaojun Wang; Belton M. Fleisher; Haizheng Li; Shi Li
  7. On the Dynamics of Ethnic Fractionalization By Nauro F. Campos; Vitaliy S. Kuzeyev
  8. Equilibrium exchange rates in the new EU members: external imbalances vs. real convergence By Enrique Alberola; Daniel Navia
  9. Decomposition of Changes in Earnings Inequality in China: A Distributional Approach By Chi, Wei; Li, Bo; Yu, Qiumei
  10. Is Russia's Growth a 'Flash in the Pan'? By Daniel Berkowitz; Yadiviga Semikolenova
  11. How depositors discipline banks: the case of Russia By Semenova Maria
  12. Estimating the Size of Underground Economy in Romania By Albu, Lucian Liviu
  13. Job Destruction, Job Creation and Unemployment in Transition Countries: What Can We Learn? By Giulia Faggio
  14. European Eastern Enlargement as Europe's Attempted Economic Suicide? By Erik S. Reinert; Rainer Kattel
  15. The gender wage gap in the Republic of Belarus By Pastore Francesco; Verashchagina Alina
  16. Modeling International Trade Flows Between Eastern European Countries and OECD Countries By Christophe Rault; Robert Sova; Ana Maria Sova
  17. R&D offshoring and technology learning in emerging economies: Firm-level evidence from the ICT industry By Huang, Can; Qu, Zhe; Zhang, Mingqian; Zhao, Yanyun
  18. Should Market Liberalization Precede Democracy? Causal Relations between Political Preferences and Development By Pauline Grosjean; Claudia Senik

  1. By: Olga Lazareva (Centre for Economic and Financial Research (CEFIR) and Stockholm School of Economics); Andrei Rachinsky (Centre for Economic and Financial Research (CEFIR)); Sergey Stepanov (New Economic School and CEFIR)
    Abstract: In this survey, we describe the current state of corporate governance in Russia and discuss its dynamics and prospects. We review the main mechanisms of corporate governance in the country and relate them to firms’ ownership structures, financial market development and government influence. Finally, we discuss the current trends in Russian corporate governance and its prospects.
    Keywords: corporate governance, ownership, expropriation, predatory state, property rights
    JEL: G32 G34 G38
    Date: 2007–06
  2. By: Theocharis N. Grigoriadis; Benno Torgler
    Abstract: This article investigates the relative impact of regional energy production on the energy voting choices of State Duma deputies between 1994 and 2003, controlling for other factors such as party affiliation, electoral mandate, committee membership and socio-demographic parameters. We apply Poole’s optimal classification method of roll call votes using an ordered probit model to explain energy market reform in the first decade of Russia’s democratic transition. Our main finding is that the gas production factor is inter temporally important in the formation of the deputies’ legislative choices and shows Gazprom’s strategic position in the post-Soviet Russian economy. The oil production factor is variably significant in the two first Dumas, when the main legislative debates on oil privatization occur. The energy committee membership tends to consistently explain pro-reform voting choices. The pro-and anti-reform poles observed in our Poole-based single dimensional scale are not necessarily connected with liberal and state-oriented policies respectively.
    Keywords: energy regulation, market reform, energy resources, roll call votes, legislative politics, State Duma, Russia
    JEL: Q40 D72 K23 P27 P37 P31 R11
    Date: 2007–06–28
  3. By: Ansgar Belke; Albina Zenkic
    Abstract: In the academic literature some criteria have been identified which could have an impact on the success of the transition process, such as macroeconomic stability, microeconomic restructuring and implementation of legal and institutional reforms. The role of the exchange rate system in general is to foster the stability of the monetary environment characterized by low inflation rates and a stable domestic currency. Although the importance of a sustainable price-level oriented monetary policy for the transition-success has been stressed in the academic literature, there are still further questions to be answered related to the choice of the exchange rate system throughout the different phases of the transition process. This paper intends to contribute to close this gap in the literature. The guiding research question is how the choice of an exchange rate system influences the economic success of a country in transition and its gradual integration within the European Union (EU) and the European Monetary Union (EMU). For this purpose, the study focuses on the transition process of South-eastern Europe (SEE). In particular and for the first time in a joint study, we will take a look at the following South-eastern European Countries (SEECs), often referred to as the “West Balkans”: Bosnia and Herzegovina (BiH), Croatia, Former Yugoslav Republic of Macedonia (FYRM), Serbia and Montenegro, as these five countries share certain common characteristics: they were part of the Former Yugoslav Republic (FYR); they are countries in transition; they are members of the Stability Pact for South-eastern Europe and they are all potential EU-accession candidates.
    Keywords: Balkans, exchange rate mechanism, optimum currency areas, economic transition, trade integration
    JEL: E44 F33 P21
    Date: 2007
  4. By: Korhonen, Iikka (BOFIT); Mehrotra, Aaron (BOFIT)
    Abstract: Estimating money demand functions for Russia following the 1998 crisis, we find a stable money demand relationship when augmented by a deterministic trend signifying falling velocity. As predicted by theory, higher income boosts demand for real rouble balances and the income elasticity of money is close to unity. Inflation affects the adjustment towards equilibrium, while broad money shocks lead to higher inflation. We also show that exchange rate fluctuations have a considerable influence on Russian money demand. The results indicate that Russian monetary authorities have been correct in using the money stock as an information variable and that the strong influence of exchange rate on money demand is likely to continue despite de-dollarisation of the Russian economy.
    Keywords: money demand; vector error correction models; dollarisation; Russia
    JEL: E31 E41 E51 P22
    Date: 2007–06–29
  5. By: Kolomak Evgeniya
    Abstract: The project assesses the sub-federal regulation of market entry around Russian regions by addressing two problems: what are the consequences of the regulation and what determines the variation of the market entry regulation among the regions. Assumptions of public interest regulation and public choice theories are tested. Empirical base of the project is the constructed data set, describing the administrative regulation of entry by start-up companies in Russian regions.
    JEL: K2 K4
    Date: 2007–05–10
  6. By: Xiaojun Wang (University of Hawaii at Manoa); Belton M. Fleisher (Ohio State University and IZA); Haizheng Li (Georgia Tech); Shi Li (Chinese Academy of Social Sciences and IZA)
    Abstract: We apply a semi-parametric latent variable model to estimate selection and sorting effects on the evolution of private returns to schooling for college graduates during China’s reform between 1988 and 2002. We find that there were substantial sorting gains under the traditional system, but they have decreased drastically and become negligible in the most recent data. We take this as evidence of growing influence of private financial constraints on decisions to attend college as tuition costs have risen and the relative importance of government subsidies has declined. The main policy implication of our results is that labor and education reform without concomitant capital market reform and government support for the financially disadvantaged exacerbates increases in inequality inherent in elimination of the traditional "wage-grid".
    Keywords: return to schooling, selection bias, sorting gains, heterogeneity, financial constraints, comparative advantage, China
    JEL: J31 J24 O15
    Date: 2007–06
  7. By: Nauro F. Campos (Brunel University, CEPR, WDI and IZA); Vitaliy S. Kuzeyev (Ak-Bidai Ltd.)
    Abstract: Does fractionalization change over time? If so, are there any substantial implications for economic performance? To answer such questions, we construct a new panel data set with fractionalization measures 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 little 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, polarization, growth, transition economies
    JEL: O11 Z12 O55 H1
    Date: 2007–06
  8. By: Enrique Alberola (Banco de España); Daniel Navia (Banco de España)
    Abstract: New EU members share two very marked features which have conflicting implications for the evolution of their real exchange rates in the long run: accelerated growth and systematic current account imbalances, which would anticipate, respectively an appreciation and a depreciation of their currencies, according to different theories of exchange rate determination. Furthermore, both elements are intertwined, for current account imbalances are the other side of capital inflows which have been central in boosting potential output and productivity convergence in these economies. In this paper, we aim at achieving some insight on the role of persistent and substantial capital inflows and the consequent accumulation of net foreign liabilities in improving competitiveness and in the determination of the exchange rate for the three largest new EU members: Poland, Hungary and the Czech Republic. We adopt a sequential approach that sheds light on the role of capital flows and their interaction with the Balassa-Samuelson hypothesis. We start by noting in a bivariate cointegration analysis that the accumulation of net foreign liabilities, far from depressing the exchange rate in the long-run, has gone hand-in-hand with exchange rate appreciation. We claim that this may be due to the induced effect that capital inflows are expected to have on productivity and competitiveness. After testing that foreign direct investment is cointegrated with productivity trends, we show that a extended empirical model comprising relative productivity and net foreign assets is well-suited in general to capture this indirect, opposite effect of liabilities accumulation on the real exchange rate. Finally, the model makes it possible to estimate for the considered countries equilibrium exchange rates and misalignments and perform some simulations on their expected future path.
    Keywords: new EU members, Balassa-Samuelson, FDI, REER, current account, convergence
    JEL: F21 F31 F32 F36
    Date: 2007–04
  9. By: Chi, Wei; Li, Bo; Yu, Qiumei
    Abstract: Using the nationwide household data, this study examines the changes in the Chinese urban income distributions from 1987 to 1996 and from 1996 to 2004, and investigates the causes of these changes. The Oaxaca-Blinder decomposition method is applied to decomposing the mean earnings increases, and the Firpo-Fortin-Lemieux method based upon a recentered influence function is used to decompose the changes in the income distribution and the inequality measures such as the variance and the 10-90 ratio. The decomposition results show that the wage structure effects such as the widened gender pay gap, the increasing return to college education, and the widened gap in the return to different industries, ownership, and regions, have contributed to most of the overall increases in income inequality. During the different time periods, 1987-1996 and 1996-2004, the impacts of these factors vary at the different points (e.g. the lower half or upper half) of distribution.
    Keywords: Earnings inequality; Unconditional Quantile Regressions; Earnings distribution; Decomposition
    JEL: J3
    Date: 2007–07
  10. By: Daniel Berkowitz; Yadiviga Semikolenova
    Abstract: Russia’s impressive growth record since 2000 is driven largely by high world oil prices (Desai, 2006). This rapid growth, however, may be a “flash in the pan†because high oil prices enable the Russian government to engage in rent-seeking and to postpone deep restructuring (Berglöf, et al, 2003). We use detailed crude oil shipping export data in 2003 and 2005 to test for whether the Russian federal government has used its control over exports primarily to extract rents or to promote efficiency. If the government is engaged in rent seeking, this is suggestive that growth since 2000 is a “flash in the panâ€. But, if the government has restructured its regulation of crude oil exports, then there is reason to be more optimistic. We find that by 2005 the Russian federal government promotes efficient oil exporting. Moreover, in 2005 economic criteria including transport cost, production costs and productivity are more important determinants of export access than at the beginning of the Putin administration in 1999.
    Date: 2007–06
  11. By: Semenova Maria
    Abstract: This paper investigates if there is market discipline in the Russian deposit market, i.e. do depositors react to changes in fundamentals, characterizing banks’ riskiness. Another aim is to test whether depositor discipline disappeared with banks’ admission to deposit insurance system. I use panel bank-specific data over the period June 2004 – September 2005
    JEL: G21
    Date: 2007–05–10
  12. 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. Indeed, beside the actual level of income, the households’ involvement in informal activities is probably influenced by occupation, region, age, education, number of children and many other factors. However, certain conclusions could be outlined: a) People perceive taxation as the main cause of the underground economy; b) Separating the main motivations of operating in the informal sector in two groups, “subsistence” and “enterprise” respectively, the surveys suggest that the subsistence represented a relevant reason for the households’ decision to operate in the informal economy, including its underground segment; c) Informal activities supplied a “safety valve” within the surviving strategies adopted by the poorest households; d) Participation in informal economy seems to be not simply correlated with poverty: in the informal economy are involved poor people (having probably a low educational level), as well as rich persons, but their motivations are quite different. The former are practically “forced” to operate in the informal economy (the “subsistence” criterion), but the latter are “invited” to participate in it (the “enterprise” criterion). In both cases, at least during the first stages of transition to a free market system in Romania, the environment was propitious due to legislative incoherence, feeble penalty system in the cases of fraudulent activities, and existence of some accompanying elements of proper informal activity, such as corruption, bureaucracy, etc. However, the household’s behaviour related to the participation in informal economy is sometimes fundamentally different between the two extreme groups of population. This is why in this study we focused on a deeper investigation of the behavioural aspects of different groups of population related to the implication in the informal sector.
    Keywords: informal economy, secondary income, informal income, decent income
    JEL: C61 D10 E62 H31 J22 O17 P36
    Date: 2007–06
  13. By: Giulia Faggio
    Abstract: Sixteen years into the transition, the problem of high joblessness has not been solved. Of thethree explanations commonly discussed (i.e. ongoing reallocation; finished reallocation withredundant labour; wrong choice of institutional framework), we concentrated on the ongoingreallocation hypothesis.We show that there is a negative correlation between job creation in the private sectorand unemployment. We also show that long-term unemployment depends on current and pastvalues of short-term unemployment and that this path-dependence fades away as soon as wereach time t-3. We interpret this result as an indication that the process of reallocation startedat the beginning of the 1990s still influences today's labour market. We address threecomponents of the transition debate: shock therapy versus gradualism; privatization; andpolitical change. Contrary to Godoy and Stiglitz (2006), we do not find gradualism superiorto shock therapy in terms of private sector growth. In addition, we confirm that fullprivatization is positively associated with job destruction in the state sector. Finally, we showthat during early years of democratization the state sector was dismantled more vigorouslythan in other periods.
    Keywords: job reallocation, unemployment, transitional economies
    JEL: J63 J64 P20
    Date: 2007–05
  14. By: Erik S. Reinert; Rainer Kattel
    Abstract: We argue that the process of European economic integration has made a qualitative shift: from a Listian symmetrical economic integration to an integrative and asymmetrical integration. This shift started in the early 1990s with the integration of the former Soviet economies into the economies of Europe and the world as a whole, reached its climax with the Eastern enlargement of the Union in 2004, and now forms the foundation of the renewed Lisbon Strategy. This change is measurably threatening European welfare: the economic periphery in the first instance, and potentially the core countries as well. Two parallel processes aggravate this development: the timing of the enlargement at this particular phase of the evolving techno-economic paradigm; and the creation of the European Monetary Union along the so-called Maastricht route towards convergence and fiscal stability.
    Date: 2007–07
  15. By: Pastore Francesco; Verashchagina Alina
    Abstract: The project will provide an evidence on the size of gender wage gap in Belarus and on the extent to which such gap is due to discrimination, which is of interest for policy makers, dealing with wage distribution in the country
    JEL: J31 J16
    Date: 2007–05–10
  16. By: Christophe Rault (LEO, University of Orleans and IZA); Robert Sova (CES, Sorbonne University and A.S.E); Ana Maria Sova (CES, Sorbonne University and A.S.E)
    Abstract: Our paper deals with econometric developments for the estimation of the gravity model which lead to convergent parameter estimates even when a correlation exists between the explanatory variables and the specific unobservable characteristics of each unit. We implement panel data econometric techniques to characterize bilateral trade flows between heterogeneous economies. Our econometric results based on a sample of Eastern European countries (EEC) and OECD countries over a 18 year period highlight the importance of the taking into account of unobservable heterogeneity to obtain a specification in accordance with data properties and unbiased coefficients. The fixed effect factor decomposition (FEVD) technique appears the more suitable for this purpose. We focus more specifically on EEC countries belonging to the last wave of adhesion (Bulgaria and Romania). Since 1990, these countries have moved towards a market economy and more democracy. Our econometric results provide clear evidence in favor of the traditional trade theory based on comparative advantage which suggests a reallocation of labor intensive industry towards EEC generating a complementary specialization.
    Keywords: gravity models, unobserved effects, panel data models, international trade, comparative advantage
    JEL: F13 F15 C23
    Date: 2007–06
  17. By: Huang, Can (UNU-MERIT); Qu, Zhe (College of Management, Georgia Institute of Technology); Zhang, Mingqian (School of Economics, Hebei University of China); Zhao, Yanyun (Center for Applied Statistic and School of Statistics, Renmin University of China)
    Abstract: This paper studies the impact of the R&D offshoring of multinational enterprises on the firms in host emerging economies. We develop a two-stage non-cooperative game to analyze the strategic interaction between multinational and host country enterprises engaged in R&D investment. An empirical analysis of 12,309 manufacturing firms in the ICT industry in China shows that R&D offshoring has a positive effect on the intensity of the R&D of host country firms. However, the magnitude of the impact depends on both the technological and geographical distance between the multinational and host country firms. The policy implications of these findings are that the governments of host country should be cautious about allowing advanced multinational R&D investment in under-developed sectors, but they should encourage such investment in developed sectors; and that local governments should be involved in R&D policy making because the positive impact of multinational R&D offshoring diminishes as the geographical distance between the multinational and host country firms increases.
    Keywords: Research and Development, Offshoring, Spillovers, Emerging Economies
    JEL: F23 L23 O32 O33
    Date: 2007
  18. By: Pauline Grosjean (European Bank for Reconstruction and Development); Claudia Senik (Paris School of Economics, University Paris-IV Sorbonne, IUF and IZA)
    Abstract: This paper is dedicated to the relation between market development and democracy. We distinguish contexts and preferences and ask whether it is true that the demand for democracy only emerges after a certain degree of market development is reached, and whether, conversely, democratization is likely to be an obstacle to the acceptation of market liberalization. Our study hinges on a new survey rich in attitudinal variables: the Life in Transition Survey (LITS) conducted in 2006 by the European Bank for Reconstruction and Development and the World Bank, in 28 post-Transition countries. Our identification strategy consists in relying on the specific situation of frontier-zones. We find that democracy enhances the support for market development whereas the reverse is not true. Hence, the relativist argument according to which the preference for democracy is an endogenous byproduct of market development is not supported by our data.
    Keywords: market and democracy, sequencing of development, transition economies, attitudinal variables, cross-country survey
    JEL: H1 H5 P2 P3 P5 O1 O12 O57
    Date: 2007–06

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