nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒10‒06
nine papers chosen by
J. David Brown
Heriot-Watt University

  1. The Sector Bias of Skill-biased Technical Change and the Rising Skill Premium in Transition Economies By Piero Esposito; Robert Stehrer
  2. Uncertainty and growth: the case of transition economies By Andrej Susjan; Tjasa Redek
  3. Institutions and Entrepreneurship Development in Russia: A Comparative Perspective By Saul Estrin; Ruta Aidis; Tomasz Mickiewicz
  4. Electronics Production Upgrading: Is China Exceptional? By Ari Van Assche; Byron Gangnes
  5. Economic-Social Interaction in China By Lindbeck, Assar
  6. The role of the exchange rate for adjustment in Boom and Bust episodes. By Reiner Martin; Ludger Schuknecht; Isabel Vansteenkiste
  7. The Endogeneity of Association Agreements and their Impact on Trade for Eastern Countries: Empirical Evidence for Romania By Christophe RAULT; Ana Maria SOVA; Robert SOVA
  8. Improving Employment Prospects in the Slovak Republic: Building on Past Reforms By Andrés Fuentes
  9. The Impact of Outward FDI on Home-Country Employment in a Low-Cost Transition Economy By Jaan Masso; Urmas Varblane; Priit Vahter

  1. By: Piero Esposito (University of Rome "La Sapienza"); Robert Stehrer (The Vienna Institute for International economic Studies, wiiw)
    Abstract: In this paper we test the hypothesis that the sector bias of skill-biased technical change is important in explaining the rising relative wage of skilled workers in the manufacturing sector in three Central and Eastern European transition countries. The evidence for Hungary and Poland is consistent with the sector bias being important in explaining the rising wage premium; the hypotheses is however not confirmed for the Czech Republic.
    Keywords: skill premium, factor prices, biased technical change, transition
    JEL: C62 C68 F16 O33
    Date: 2007–05
  2. By: Andrej Susjan (Faculty of Economics, University of Ljubljana, Slovenia); Tjasa Redek (Faculty of Economics, University of Ljubljana, Slovenia)
    Abstract: The paper investigates the relationship between fundamental uncertainty, a recurrent theme in post-Keynesian economic literature, and economic performance in transition economies. Uncertainty in the transitional economic environment is enhanced by factors such as institutional transformation, political and social instability, and legacies of the past. To capture the changes in the levels of uncertainty, the authors have designed the uncertainty index, based on a weighted selection of Heritage Foundation and Freedom House data. The correlation between the uncertainty index and growth is strong and clearly negative. Panel data analysis based on a growth model, supplemented by variables to simulate transitional cycle, and performed on a sample of transition economies for the period 1995-2002, confirms that uncertainty has a negative impact on economic growth.
    Keywords: uncertainty, economic transition, institutions, economic growth, foreign direct investment
    JEL: B52 O57 P27 P30
    Date: 2007–01
  3. By: Saul Estrin; Ruta Aidis; Tomasz Mickiewicz
    Abstract: In this paper we use a comparative perspective to explore the ways in which institutions and networks have influenced entrepreneurial development in Russia. We utilize Global Entrepreneurship Monitor (GEM) data collected in 2001 and 2002 to investigate the effects of the weak institutional environment in Russia on entrepreneurship, comparing it first with all available GEM country samples and second, in more detail, with Brazil and Poland. Our results provide strong evidence that Russia’s institutional environment is important to explain its relatively low levels of entrepreneurship development, where the latter is measured in terms of both number of start-ups and of existing business owners. In addition, Russia’s business environment contributes to the relative advantage of entrepreneurial insiders (those already in business) to entrepreneurial outsiders (newcomers) in terms of new business startups.
    Keywords: Entrepreneurship, Institutions, Networks, Russia, Poland, Brazil
    JEL: P36 O17 M13
    Date: 2007–02–01
  4. By: Ari Van Assche (HEC Montr´eal and CIRANO); Byron Gangnes (University of Hawaii at Manoa)
    Abstract: In this paper, we make use of a unique world electronics production data set to assess China’s upgrading trajectory in the global electronics industry. Contrary to existing studies, we find no evidence that China’s electronics production activities are more sophisticated than one would expect from its level of development. We also find little evidence that China is rapidly upgrading into more sophisticated production activities.
    Keywords: China, industrial upgrading, electronics
    JEL: O10 O14 L63
    Date: 2007–08–17
  5. By: Lindbeck, Assar (Research Institute of Industrial Economics (IFN))
    Abstract: This paper analyzes economic-social interaction in China in connection with the country’s change of economic system. I define an economic system in terms of a multidimensional vector of broad institutional characteristics, and I emphasize that important features of the social development are closely related to specific changes in these various dimensions. I classify China’s options for future social improvements into three broad categories: policies that improve the stability and distribution of factor income; government-created wedges between factor income and disposable income; and improvements in the quantity, quality and distribution of human services, such as education and health care.
    Keywords: China; Economic transition; Typology of economic systems; Social reforms
    JEL: H00 I00 P20
    Date: 2007–09–28
  6. By: Reiner Martin (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.); Ludger Schuknecht (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.); Isabel Vansteenkiste (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.)
    Abstract: Numerous countries have experienced boom-bust episodes in asset prices in the past 20 years. This study looks at stylised facts and conducts statistical and econometric analysis for such episodes, distinguishing between industrialised countries that experienced external adjustment (via real effective exchange rate depreciation during busts) and those that relied on an internal adjustment process (and experienced no depreciation). The study finds that different adjustment experiences are correlated with the degree of macroeconomic imbalances and balance sheet problems. Internal adjustment seems more prevalent when financial vulnerabilities, excess demand and competitiveness loss remain relatively contained in the boom. In the bust, internal adjusters experience more protracted but less deep downturns than external adjusters as imbalances unwind more slowly. Some Central and East European EU Member States are currently experiencing strong credit and asset price growth in conjunction with rapid economic expansion. Against this background the experience of other countries may raise awareness of related policy challenges. JEL Classification: E32, E63, E65.
    Keywords: Booms and busts, external and internal adjustment, exchange rates, financial imbalances, competitiveness.
    Date: 2007–09
  7. By: Christophe RAULT; Ana Maria SOVA; Robert SOVA
    Abstract: The main goal of regionalization is the creation of free trade areas and the guarantee for countries to accede to a widened market. Many studies dealing with the effects of regional free trade agreements on trade flows already exist in the economic literature and the explosion of regional agreements among nations has recently stressed the key role of regionalization. However, the effects of agreements on trade have not yet been clearly determined in those studies. Our research in this paper aims at reassessing the genuine role of associations. For this matter, we particularly study the association of Romania with European Union countries. Our econometric analysis based on qualitative choice models highlights in particular why European countries chose to conclude an association agreement with Romania, and stresses the fact that European Union countries select endogenously the conclusion of association agreements. We also find a 0.29 positive impact of the association agreement on Romanian export performances.
    Keywords: Regionalization, European integration, Qualitative choice models, Probit
    JEL: E61 F13 F15 C25
    Date: 2007–04–01
  8. By: Andrés Fuentes
    Abstract: While employment growth has accelerated, allowing unemployment to fall significantly since 2005, many low-skilled workers are still unemployed and the duration of unemployment spells is still long. The introduction of an in-work benefit for workers in low-income households, subject to a minimum of hours worked, could lower barriers to higher employment which result from a relatively high tax wedge on lowskill workers, as would the elimination of poverty traps in the pension system. Measures to improve mobility of workers across regions, notably housing policy reform, would lower long unemployment durations, as would the provision of more training to the unemployed. Impediments to higher labour market participation of young women and older workers need to be removed. <P>Améliorer les perspectives d’emploi en République Slovaque : faire fond sur les réformes passées <BR>Si la croissance de l’emploi s’est accélérée, permettant un recul notable du chômage depuis 2005, néanmoins il y a encore beaucoup de travailleurs peu qualifiés au chômage et la durée des épisodes de chômage reste longue. L’introduction d’une prestation liée à l’exercice d’une activité pour les travailleurs appartenant à des ménages à faible revenu, sous réserve d’un volume minimum d’heures travaillées, pourrait abaisser les obstacles à l’augmentation de l’emploi qui résultent du fait que le coin fiscal qui pèse sur les revenus des travailleurs peu qualifiés est relativement élevé, et l’élimination des trappes à pauvreté que crée le système de pension devrait avoir le même effet. Des mesures visant à accroître la mobilité des travailleurs entre régions, notamment avec une réforme de la politique du logement, permettraient de réduire les durées de chômage, de même qu’une offre accrue de formation à l’intention des chômeurs. Les éléments qui font obstacle à une plus forte participation des femmes jeunes et des travailleurs seniors à l’activité devraient être supprimés.
    Keywords: unemployment, chômage, prestations liées à l'exercice d'un emploi, employment protection legislation, employment, emploi, pensions, active labour market policies, protection de l'emploi, salaire minimum, minimum wage, in-work benefits, labour market participation, participation au marché du travail, programmes du marché du travail
    JEL: J21 J26 J32 J38 J59
    Date: 2007–09–24
  9. By: Jaan Masso; Urmas Varblane; Priit Vahter
    Abstract: The current extensive literature on the home-country employment effect of FDI focuses almost exclusively on the case of investments from high-income and high labour cost home countries. In our paper we analyse the home-country employment effect in Estonia as a lowcost medium-income transition economy. The data from the population of Estonian firms between 1995 and 2002 was studied with regression analysis and propensity score matching in order to construct an appropriate counterfactual for the firms that have invested abroad. The results indicate that in general, outward FDI had a positive impact on the home-country employment growth. Concerning direct investors (domestic firms investing abroad) and indirect investors (foreign-owned firms investing abroad), the former group had a stronger homecountry employment effect due to their smaller pre-investment size and because the subsidiaries of indirect investors are served from other locations rather than from Estonia. The positive employment effect was much stronger in the case of investments made after 1999 due to the better macro-economic performance of Estonia from the year 2000 onwards. Services firms demonstrated a stronger home-country employment effect than manufacturing firms. Our results imply that the logic of the outward investments from low-cost transition and developing economies differs from that of high-income countries.
    Keywords: outward foreign direct investments, employment effects of FDI, Central- and Eastern Europe, transition.
    JEL: D21 F23 J23
    Date: 2007–05–01

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