nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒10‒13
twelve papers chosen by
J. David Brown
Heriot-Watt University

  1. Entry rates and risks of the misalignment in EU8 By Tatiana Fic; Ray Barrell; Dawn Holland
  2. Industrial Policy for North Korea: Lessons from Transition By Paul G. Hare
  3. this is a test By Moreno-Serra, Rodrigo; Wagstaff, Adam
  4. The role of clustering in rural industrialization: A Case Study of the Footwear Industry in Wenzhou By Huang, Zuhui; Zhang, Xiaobo; Zhu, Yunwei
  7. Acquisition versus greenfield: The impact of the mode of foreign bank entry on information and bank lending rates By Claeys, Sophie; Hainz, Christa
  8. The Effects of Monetary Policy in the Czech Republic: An Empirical Study By Magdalena Morgese Borys; Roman Horváth
  9. Sustainability of healthcare financing in the Western Balkans : an overview of progress and challenges By Gragnolati, Michele; Bredenkamp, Caryn
  10. An Empirical Investigation of the Determinants of the Location of Foreign Direct Investment in the Central and Eastern European Countries Using Multilevel Data By Simona Rasciute; Eric J. Pentecost; Helena I. Marques
  11. Threshold Autoregressive Model of Exchange Rate Pass through Effect: The Case of Croatia By Petra Posedel; Josip Tica
  12. What Drives Stock Market Development in the Middle East and Central Asia--Institutions, Remittances, or Natural Resources? By Andreas Billmeier; Isabella Massa

  1. By: Tatiana Fic (National Bank of Poland); Ray Barrell (National Institute of Economic and Social Research, London); Dawn Holland (National Institute of Economic and Social Research, London)
    Abstract: New member states will join the EMU in the coming years. Setting the central parity has been and will be a challenging task, as there is a considerable amount of uncertainty, both from a theoretical and an empirical perspective, surrounding the determination of the optimal exchange rate. In effect, the probability of misalignment of the entry rate can be a non-zero one. Given the possible - if not inevitable - misspecification of the equilibrium rate it is thus advisable to focus on the effects of a misalignment of the entry rate for the economy, as it has implications for countries’ both real and nominal convergence. An overvalued exchange rate would have an adverse impact on a country’s competitiveness and its growth, while an undervalued currency would contribute to an overheating of the economy and an excessive inflation. The objective of this paper is to better understand the role of the entry rates for short run inflation and GDP developments and their implications for the inflation criterion and the real convergence process. Having estimated equilibrium exchange rates for the eight out of ten countries that entered the EU in May 2004: Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Slovenia and Slovakia we conduct simulations showing what their adjustments to equilibrium would be if their entry rates deviated from the optimal ones.
  2. By: Paul G. Hare
    Abstract: Possible directions of industrial policy for North Korea are developed in this paper, drawing on the experience of the European transition economies and focusing on privatisation and restructuring, new business formation, and export promotion. North Korea at present is largely closed, and its agriculture is over-developed. Through export promotion and other measures of industrial policy the country will be able to raise living standards and greatly improve food security.
    Keywords: North Korea, economic reform, export promotion, industrial policy
    JEL: P21 P31 L50
    Date: 2007
  3. By: Moreno-Serra, Rodrigo; Wagstaff, Adam
    Abstract: The post-communist transition to social health insurance in many of the Central and Eastern European and Central Asian countries provides a unique opportunity to try to answer some of the unresolved issues in the debate over the relative merits of social health insurance and tax-financed health systems. This paper employs a regression-based generalization of the difference-in-differences method and instrumental variables on panel data from 28 countries for the period 1990-2004. The authors find that, controlling for any concurrent provider payment reforms, adoption of social health insurance increased national health spending and hospital activity rates, but did not lead to better health outcomes. The authors also find that adoption of social health insurance reduced employment in the economy as a whole and increased unemployment, although it did not apparently increase the size of the informal economy.
    Keywords: Health Monitoring & Evaluation,Health Systems Development & Reform,Population Policies,Health Economics & Finance,Disease Control & Prevention
    Date: 2007–10–01
  4. By: Huang, Zuhui; Zhang, Xiaobo; Zhu, Yunwei
    Abstract: "Wenzhou used to be one of the poorest regions in eastern China. With limited arable land, poor road access to major cities, and little support from the upper level governments, this region seemed to lack all the conditions necessary for economic growth. However, over the past several decades Wenzhou has developed the most dynamic private sector in China, and has accordingly achieved one of the fastest growth rates. In particular, the footwear industry in Wenzhou has grown from a negligible market share to the largest in China. Here, we report a survey of 140 Wenzhou-based footwear enterprises of various scales, and use this information to examine the driving forces behind the dramatic rural industrial growth seen in this region. Our results show that clustering deepens the division of labor in the production process and makes it possible for small entrepreneurial firms to enter the industry by focusing on a narrowly defined stage of production. Therefore, Wenzhou represents an example of how clustering plays a significant role in helping fledgling rural industries overcome the growth constraints of capital and technology in the incipient stage of industrialization." from Authors' Abstract
    Keywords: Cluster analysis, Industrialization, Finance, Economic development, Nonfarm economy,
    Date: 2007
  5. By: Strawinski, Pawel
    Abstract: In the article private rate of return to higher education in the 1998-2004 period is considered. The model is based on comparative advantage theory and extended Mincerian wage equation. The extension is made to account for non-random decision to undertake studies at university level. The estimate of private rate of return in Poland is roughly 9.5%, and it is among the highest in Europe. In addition, the unexpected rise in rate of return is observed. This change has been linked to labour market transformation and Skill Bias Technological Change phenomenon. Also the influence of financing tertiary education is considered. The rate of return to higher education has risen and graduation has positively affected the obtained wages.
    Keywords: Return to education; private returns; skill biased technical change; sample selection
    JEL: I22
    Date: 2007–08–15
  6. By: Anneli Kaasa; Eve Parts
    Abstract: This paper investigates the effect of various individual-level determinants on social capital in Europe, in order to find out whether there are differences between the transition and non-transition countries. The novelty lies in more comprehensive sets of both determinants and dimensions of social capital covered. Data from World Values Survey for 31 European countries (including 16 transition countries) are analysed. Based on the estimation results of the measurement and structural model for all countries separately, the countries are clustered into three groups to complement the comparison of transition and non-transition countries. Differently from the previous results, the findings of this study provide support for the argument that the sources of social capital are remarkably different in transition and non-transition countries. Moreover, the results indicate that within both of these country groups subgroups have to be distinguished.
    Keywords: social capital, European regions
    Date: 2007
  7. By: Claeys, Sophie (Research Department, Central Bank of Sweden); Hainz, Christa (Department of Economics, University of Munich)
    Abstract: Policy makers often decide to liberalize foreign bank entry but put limitations on the mode of entry. We study how different entry modes affect the lending rate set by foreign and domestic banks. Our model captures two essential features of banking competition in emerging markets: Domestic banks possess private information about their incumbent clients and foreign banks have better screening skills. Our model predicts that competition is stronger if foreign entry occurs through a greenfield investment and domestic banks' interest rates are thus lower. We find empirical support for this differential competition effect for a sample of banks from ten Eastern European countries for the period 1995-2003.
    Keywords: Banking; Foreign Entry; Mode of Entry; Interest Rate; Asymmetric Information
    JEL: D40 G21 L31
    Date: 2007–06–01
  8. By: Magdalena Morgese Borys (CERGE-EI); Roman Horváth (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank)
    Abstract: In this paper, we examine the effects of Czech monetary policy on the economy within VAR and the structural VAR framework. We document well-functioning transmission mechanism similar to the euro area countries, especially in terms of persistence of monetary policy shocks. Subject to various sensitivity tests, we find that contractionary monetary policy shock has a negative effect on the degree of economic activity and price level, both with a peak response after one year or so. Regarding the prices at the sectoral level, tradables adjust faster than non-tradables, which is in line with microeconomic evidence on price persistence. There is a rationale in using the real-time output gap instead of current GDP growth as using the former results in much more precise estimates. There is no evidence for price puzzle within the system. The results indicate a rather persistent appreciation of domestic currency after monetary tightening with a gradual depreciation afterwards.
    Keywords: transmission, VAR, real-time data, sectoral prices
    JEL: E52 E58 E31
    Date: 2007–10
  9. By: Gragnolati, Michele; Bredenkamp, Caryn
    Abstract: This paper explores the major challenges to the sustainability of health sector financing in the countries of the Western Balkans - Albania, Bosnia and Herzegovina, the Former Yugoslav Republic of Macedonia, Montenegro, Serbia and the province of Kosovo. It focuses on how the incentives created by the different elements of the healthcare financing system affect the behavior of healthcare providers and individuals, and the resulting inefficiencies in revenue collection and expenditure containment. The paper analyzes patterns of healthcare expenditure, finding that there is some evidence of cost containment, but that current expenditure levels - while similar to that in EU countries as a share of GDP - are low in per capita terms and the fiscal space to increase expenditures is extremely limited. It also examines the key drivers of current healthcare expenditure and the most significant barriers to revenue generation, identifying some key health reforms that countries in the sub-region could consider in order to enhance the efficiency and sustainability of their health systems. Data are drawn from international databases, country institutions, and household surveys.
    Keywords: Health Monitoring & Evaluation,Health Economics & Finance,Health Systems Development & Reform,Public Sector Expenditure Analysis & Management,Health Law
    Date: 2007–10–01
  10. By: Simona Rasciute (Dept of Economics, Loughborough University); Eric J. Pentecost (Dept of Economics, Loughborough University); Helena I. Marques (Dept of Economics, Loughborough University)
    Abstract: This paper employs a novel multi-level data set and a multinomial logit model - to examine the factors explaining 1,223 foreign investment location decisions by firms in the EU(15), Japan, Norway, Russia, Switzerland and the US in 12 Central and Eastern European countries (CEECs). The highly significant empirical results, based on a general underlying model of imperfect competition, show that the responsiveness of foreign direct investment in the CEECs to country-level variables differs significantly both across sectors and across firms of different sizes and profitability. In particular, in addition to the traditional importance of market size and distance, firm size and the effective corporate tax rate are also important for the location of investment.
    Keywords: Multi-level data, foreign direct investment, multinomial logit model
    JEL: F23 P33
    Date: 2007–09
  11. By: Petra Posedel (Faculty of Economics and Business, University of Zagreb); Josip Tica (Faculty of Economics and Business, University of Zagreb)
    Abstract: In this paper exchange rate pass-through effect in Croatia is estimated with nonlinear (asymmetric) threshold autoregressive model (TAR). In total 12285 regressions is estimated and a strong case of nonlinearity with single threshold is proven. According to our estimation there is a threshold at 2.69% of monthly change of nominal exchange rate of German mark (Euro) and the way in which nominal exchange rate affects inflation is asymmetric around it. Below the threshold, effect of change in nominal exchange rate on inflation is statistically insignificant and above the threshold the effect is strong and significant.
    Keywords: threshold autoregressive model, pass-through effect, exchange rate, inflation, nonlinear econometrics
    JEL: E31 E58 F31
    Date: 2007–10–01
  12. By: Andreas Billmeier; Isabella Massa
    Abstract: In this paper, we assess the macroeconomic determinants of stock market capitalization in a panel of 17 countries in the Middle East and Central Asia, including both hydrocarbon-rich countries and economies without sizeable natural resource wealth. In addition to traditional variables, we include an institutional variable and remittances among the regressors. We find that (i) both institutions and remittances have a positive and significant impact on market capitalization; and (ii) both regressors matter, especially in countries without significant hydrocarbon sectors; whereas (iii) in resource-rich countries, stock market capitalization is mainly driven by the oil price.
    Keywords: Working Paper , Stock markets , Middle East and Central Asia , Natural resources , Oil prices , Workers remittances , Economic models ,
    Date: 2007–07–13

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