nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒09‒30
six papers chosen by
J. David Brown
Heriot-Watt University

  1. Institutions and Foreign Investment: China versus the World By Joseph P.H. Fan; Randall Morck; Lixin Colin Xu; Bernard Yeung
  2. Can the Market Fix a Wrong Administrative Decision? Massive Delisting on the Prague Stock Exchange By Zuzana Fungacova
  3. Structure and performance of the services sector in transition economies By Fernandes, Ana M.
  4. Political Risk of Social Security: The Case of the Indexation of Benefits in the Czech Republic By Libor Dusek
  5. Property rights in a very poor country : tenure insecurity and investment in Ethiopia By Gautam, Madhur; Dercon, Stefan; Ali, Daniel Ayalew
  6. Testing Limits to Policy Reversal: Evidence from Indian Privatizations By Siddhartha G. Dastidar; Raymond Fisman; Tarun Khanna

  1. By: Joseph P.H. Fan; Randall Morck; Lixin Colin Xu; Bernard Yeung
    Abstract: Weak institutions ought to deter foreign direction investment (FDI), and mass media stories highlight China's institutional deficiencies, yet China is now one of the world's largest FDI destinations. This incongruity characterizes China's paradoxical growth. Cross-country regressions show that China's FDI inflow is not exceptionally large, given the quality of its institutions and its economic track record. Institutions clearly determine a country's allure as an FDI destination, but standard measures of institutional quality can be problematic for countries undergoing rapid institutional development, and can usefully be augmented by economic track record measures. Deng Xiaoping's 1993 "southern tour" heralded sweeping reforms, and this regime shift is insufficiently reflected in commonly used measures of institutional quality. China's FDI inflow surge after these reforms resembles similar post-regime shift surges in the East Bloc, and so is also unexceptional. Recent arguments that China's FDI inflow is inefficiently large because weak institutions deter domestic investment while special initiatives attract FDI are thus either unsupported or not unique to China.
    JEL: F21 F23 G15 G38 O19 O43 O53 P34
    Date: 2007–09
  2. By: Zuzana Fungacova
    Abstract: This research contributes to the investigation of the emerging stock markets in transition economies, namely in the Czech Republic. We estimate the impact of the various determinants of shares delisting e.g. exclusion from public trading on the Prague Stock Exchange (PSE) during the period 1993 – 2004. Unlike its counterparts in Poland or Hungary, exceptionally large amounts of shares were delisted from the PSE. Using the data on listed and delisted companies we show that the pre-privatization and privatization characteristics of the companies were decisive for delisting. This further indicates that it would have been possible to prevent massive delisting if these factors had been taken into account when deciding which companies to place on the stock exchange for public trading. Moreover, therefore companies that were not suitable for public trading were also not suitable for voucher privatization.
    Keywords: Mass privatization, stock market, delisting, transition economy.
    JEL: G15 G28 P34
    Date: 2007–08
  3. By: Fernandes, Ana M.
    Abstract: This paper examines the structure and performance of the services sector in Eastern European and Central Asian countries during 1997-2004. Services represent an increasing share of total value added and employment with the major sub-sectors being wholesale trade, retail trade, inland transport, telecommunications, and real estate activities. A clear divide separates EU-5 countries from South Eastern European countries and Ukraine in terms of services labor productivity. Although a large gap in productivity also separates EU-8 countries from EU-15 countries, that gap was reduced from 1997 to 2004 as most services sub-sectors experienced fast productivity growth. High skill intensive sub-sectors and information and communications technology producers and users have exhibited higher productivity levels and growth rates relative to other sub-sectors since 2000. The author finds a positive effect of services liberalization on the productivity growth of services sub-sectors. The author also finds a positive and significant effect of services liberalization in both finance and infrastructure on the productivity of downstream manufacturing.
    Keywords: Labor Policies,E-Business,Labor Markets,Economic Theory & Research,Transport Economics Policy & Planning
    Date: 2007–09–01
  4. By: Libor Dusek
    Abstract: We contribute to the literature on the political risk of social security by extending Feldstein and Ranguelova's (2001) methodology for measuring risk in a funded pension system to a pay-as-you-go system. We use the methodology to assess the risk over indexation of benefits in the Czech Republic during the 1990's and early 2000's. The government's discretion over indexations creates both aggregate and individual risk and makes the Czech Republic a particulary interesting case to study. Using data on the actual evolution of benefits for people who retired between 1988 and 1995, we find that retirees faced fairly large volatility in the changes in real benefits - while the mean percentage change was 1.2, its standard deviation was 4.3. This volatility reduces the expected utility of retirees by 0.8 to 1.3 percent of equivalent consumption.
    Keywords: Social security, political risk, pension reform.
    JEL: H55 D72
    Date: 2007–03
  5. By: Gautam, Madhur; Dercon, Stefan; Ali, Daniel Ayalew
    Abstract: This paper provides evidence from one of the poorest countries of the world that the property rights matter for efficiency, investment, and growth. With all land state-owned, the threat of land redistribution never appears far off the agenda. Land rental and leasing have been made legal, but transfer rights remain restricted and the perception of continuing tenure insecurity remains quite strong. Using a unique panel data set, this study investigates whether transfer rights and tenure insecurity affect household investment decisions, focusing on trees and shrubs. The panel data estimates suggest that limited perceived transfer rights, and the threat of expropriation, negatively affect long-term investment in Ethiopian agriculture, contributing to the low returns from land and perpetuating low growth and poverty.
    Keywords: Common Property Resource Development,Forestry,Municipal Housing and Land,Rural Development Knowledge & Information Systems,Urban Housing
    Date: 2007–09–01
  6. By: Siddhartha G. Dastidar; Raymond Fisman; Tarun Khanna
    Abstract: We examine the effect of regime change on privatization using the 2004 election surprise in India. The pro-reform BJP was unexpectedly defeated by a less reformist coalition. Stock prices of government-controlled companies that had been slated for definite privatization by the BJP dropped by 3.5 percent relative to private firms. Surprisingly, government-controlled companies that were only under study for possible privatization fell by 7.5 percent relative to private firms. We interpret this as evidence of investor belief of policy irreversibility, where reforms may reach a stage beyond which future regimes have difficulty reversing those policies. Further analysis suggests that layoffs, combined with the privatization announcement, served as a credible commitment to the government's privatization agenda.
    JEL: G15 G38 H11 L33
    Date: 2007–09

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