nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒11‒10
eighteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Russia between transition and globalization By Olga Garanina
  2. Institutional Transition and Local Self-Government in Russia By Adrian Campbell; Satoshi Mizobata; Kazuho Yokogawa; Elena Denezhkina
  3. Sectoral Distortions and Service Protection in Russia. A Comparison with Benchmark Emerging Markets and EU Accession Candidates By Rolf J. Langhammer
  4. The Impact of Social and Tax Policies on Families with Children: Comparative Study of the Czech Republic, Hungary, Poland and Slovakia By Natálie Švarcová; Petr Švarc
  5. Financing for Development in the Emerging Markets of the ECE Region: A 2007 Perspective By Robert Shelburne
  6. Horizontal and Vertical FDI Spillovers: Recent Evidence from the Czech Republic By Juraj Stancik
  7. When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies By Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell
  8. The Economic Situation and Outlook in Mid-2007 for the ECE Economies -- Europe, North America, and the CIS By Robert Shelburne
  10. The Effects of Monetary Policy in the Czech Republic: An Empirical Study By Magdalena Morgese Borys; Roman Horvath
  11. Does Financial Openness Promote Economic Integration? By Fabrizio Carmignani; Abdur Chowdhury
  12. Evaluating the Impure Chinese VAT Relative to a Pure Form in a Simple Monetary Trade Model with an Endogenous Trade Surplus By John Whalley; Li Wang
  13. Inflation convergence in central and eastern European economies By Alina Spiru
  14. Effective Foreign Aid, Economic Integration and Subsidiarity: Lessons from Europe By Abdur Chowdhury; Paolo Garonna
  15. Aging of a giant: a stochastic population forecast for China, 2001-2050 By Qiang Li; Mieke Reuser; Cornelia Kraus; Juha Alho
  16. Trade and Migration in an Enlarged European Union: A Spatial Analysis By Justin B. May
  17. Multi-interregional economic impact analysis based on multiinterregional input output model consisting of 7 regions of Vietnam, 2000 By Bui Trinh; Mai Quynh Nga; Duong Manh Hung; Kwang Moon Kim
  18. Labour Market Institutions and Their Contribution to Labour Market Performance in the New EU Member Countries By Ondřej Schneider; Kamila Fialová

  1. By: Olga Garanina (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: The research aims to understand the impact of the internal factors on the formulation of a policy of selective opening of the Russian economy since the beginning of the transition. We study the politico-economic configuration in Russia in terms of (i) its "vertical" dimension (relations federal centre - regions) and (ii) the "horizontal" one (relations between state and firms). We show the fragmentation of the central state as regards to both dimensions during the first period (1991-1999). During the second period (since 2000), the reforms aim to reinforce the "vertical of power" and to institutionalize the state-enterprises relations. Nevertheless, questions emerge as to the effectiveness and continuity of the state's return strength. This evolution also appears through the study of Russian trade policy, which has submitted to private interests in 1991-1998 and stabilized afterwards. Meanwhile, the economic (and hence political) equilibrium in Russia remains extremely dependent on hydrocarbons exports.
    Keywords: globalization ; economic transition ; hydrocarbon ; trade policy ; Russia
    Date: 2007–09
  2. By: Adrian Campbell (The International Development Department, University of Birmingham); Satoshi Mizobata (Institute of Economic Research, Kyoto University); Kazuho Yokogawa (Institute of Economic Research, Kyoto University); Elena Denezhkina (European Research Institute, Birmingham University)
    Abstract: This paper includes the following parts: 1) gVertical or Triangle? Local, regional and federal government in the Russian Federation after Law 131.h, by Adrian Campbell, and 2) comments to the paper gSoftness and hardness of the institutions in Russian ocal self-governmenth by Satoshi Mizobata, 3) gLocal budget and local self-government in Russiah by Kazuho Yokogawa and 4) gThe Struggle for Power in the Uralsh by Adrian Campbell and Elena Denezhkina.
    Date: 2007–10
  3. By: Rolf J. Langhammer
    Abstract: Recent empirical research on efficiency gains for Russia from WTO membership concludes that service trade liberalization especially through allowing foreign suppliers to invest in Russian service industries promises the largest gains. This points to sizable efficiency deficits in the Russian service sector. This paper departs from the question whether both the Russian sectoral protection structure and the effective rates of protection (ERPs) differ from structures and rates in benchmark countries if tax equivalents for intermediate services are taken into account. The result is that almost all Russian service industries get effectively taxed and not protected once not only tax equivalents of intermediate goods but also those of intermediate services are included in ERP calculation. Variance among industries and peak taxes in service industries are significantly higher than in a median emerging country taken as benchmark. These findings support the key role of intermediate services liberalization for the expansion of a viable Russian service sector. Results from comparing Russian effective rates of protection with those of the EU accession countries Bulgaria and Romania are not inclusive. Tax levels of the two accession countries are also high and variant and thus cannot serve as a proxy for the “economic distance of Russia to Brussels”. Lessons for European Neighborhood Policy point to the requirement for the EU to liberalize bilateral service trade (through mode 3 supply: commercial presence ) on a quid pro quo base: without opening EU markets for Russian companies in specific services (i.e., energy distribution), Russia will probably not open its service sector for EU suppliers more than is required in order to comply with minimum WTO accession prerequisites.
    Keywords: Service Trade, Liberalization, Russia, European Neighborhood
    JEL: F13 F15
    Date: 2007–10
  4. By: Natálie Švarcová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Petr Švarc (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The paper compares the impact of government measures focused on families with children in the Czech Republic, Hungary, Poland and Slovakia. The ageing of population and the decline in fertility rates will in future importantly influence economic as well as social environment in the European countries. One of the responses on declining fertility rates is the promotion of demographic renewal in Europe through various kinds of policy measures ranging from better availability of quality provisions for combining child care and work, child care facilities and family support. We focus on the overall financial impact of governmental policies on families with children in the four examined countries. The paper evaluates impact of government subsidies and tax systems in the Czech Republic, Hungary, Poland and Slovakia on the net income of families with children compared to the childless couples.
    Keywords: family policy, income taxation, subsidies, fertility
    JEL: H24 J13
    Date: 2007–11
  5. By: Robert Shelburne (United Nations Economic Commission for Europe)
    Abstract: This report was prepared as an input into the addendum of the Report of the U.N. Secretary-General on Financing for Development for the 2007 General Assembly High Level Review of the Monterrey Consensus. It evaluates the progress that has been made in the transition economies in terms of increasing internal and external sources of development finance.
    Keywords: FfD, financing, development, transition economies, MDG, Monterrey consensus
    JEL: F01 O10 O11 O16 P27 P33
    Date: 2007–03
  6. By: Juraj Stancik
    Abstract: This paper analyzes the effects of foreign direct investment on the sales growth rate of domestic companies in the Czech Republic. Using firm- level panel data from 1995 to 2003, it studies both horizontal and vertical spillovers. The study allows for the lagged nature of spillovers and pays at- tention to the potential endogeneity of FDI with respect to future industry growth. The results suggest that domestic companies are mostly su®ering in the presence of foreign companies, especially in upstream sectors. Negative horizontal and forward spillovers are present mainly in recent years. Time sensitivity is revealed for horizontal spillovers.
    Keywords: Productivity, growth, spillovers, FDI, ownership.
    JEL: C23 D24 D57 L6
    Date: 2007–09
  7. By: Yuriy Gorodnichenko (University of California, Berkeley); Jan Svejnar (University of Michigan and IZA); Katherine Terrell (University of Michigan and IZA)
    Abstract: We use firm-level data and national input-output tables from 17 countries over the 2002-2005 period to test new and existing hypotheses about the impact of foreign direct investment (FDI) on the efficiency of domestic firms in the host country (i.e., spillovers). Providing evidence from a larger sample of countries and greater variety of firms than existing studies, with separate estimates by firm size, age, and sector, we show: a) backward spillovers (stemming from supplying a foreign firm in the host country or exporting to a foreign firm) are consistently positive; b) horizontal spillovers are mostly insignificant but positive for older firms and firms in the service sector; d) forward spillovers (from purchasing from foreign firms or importing) are also positive only for old and service sector firms. We find no support for the hypothesis that spillovers are greater for FDI with more advanced technology. While efficiency of domestic firms’ is affected by the business environment, the strength of FDI spillovers is not, either when measured by the degree of corruption, bureaucratic red tape or by differences across regions that vary in terms of development. Testing whether spillovers vary with the firm’s "absorptive capacity" we find: i) distance from the efficiency frontier tends to dampen horizontal spillovers in manufacturing and backward spillovers among old firms; ii) whereas firms with a larger share of university educated workforce are more productive, they do not enjoy greater FDI spillovers than firms with less educated workers. FDI spillovers hence vary by sectors and types of firms.
    Keywords: FDI, spillovers, transition economies, efficiency
    JEL: F23 O16 P23
    Date: 2007–09
  8. By: Robert Shelburne (United Nations Economic Commission for Europe)
    Abstract: This paper provides an assessment of the economic situation and outlook for Europe, North America and the CIS economies as of mid-2007.
    Keywords: Macroeconomic, transition economies, Europe, CIS, North America
    JEL: E60 F01 P20 O52 O51 O50
    Date: 2007–03
  9. By: Juan Carlos Cuestas (Universidad de Alicante)
    Abstract: The aim of this paper is to analyse the empirical fulfilment of PPP in a number of Central and Eastern European countries. For this purpose we apply two different unit root tests in order to control for two sources of nonlinearities, i.e. Bierens (1997) and Kapetanios, Shin and Snell (2003). We find that PPP holds in most of these countries once account has been taken of nonlinear deterministic trends and smooth transitions.
    Keywords: PPP, Real Exchange Rate, Unit Roots, nonlinearities, Central and East Europe
    JEL: C32 F15
    Date: 2007–10
  10. By: Magdalena Morgese Borys; Roman Horvath
    Abstract: In this paper, we examine the effects of Czech monetary policy on the economy within VAR and the structural VAR framework. 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: Monetary policy transmission, VAR, real-time data, sectoral prices.
    JEL: E52 E58 E31
    Date: 2007–09
  11. By: Fabrizio Carmignani (United Nations Economic Commission for Africa); Abdur Chowdhury (United Nations Economic Commission for Europe)
    Abstract: The effect of financial openness on economic integration for two clusters of countries is estimated: the formerly planned economies of Eastern Europe and central Asia (emerging market economies) and some western advanced economies. We focus on two dimensions of economic integration: convergence of per-capita incomes across countries and trade integration. We employ both single equation estimation and system estimation to account for endogenous links between trade integration and income convergence. Results show that in the cluster of emerging market economies, financial openness is a powerful instrument of economic integration. In the group of advanced economies, financial openness effectively facilitates income convergence, but its impact on trade integration is ambiguous.
    Keywords: financial openness, economic integration, transition economies, east Europe
    JEL: F36 P33
    Date: 2007–06
  12. By: John Whalley; Li Wang
    Abstract: China's VAT while seemingly conventional has two major impurities. One is that a separate export rebate system exists where rebate rates are linked from rates paid on creditable inputs. The other is the use of an income base for which there is no crediting of taxes on capital good, rather than the more conventional consumption base with expensing of investment expenditures. Here we argue that in a conventional competitive model both impurities would typically involve a welfare loss, but if we use a numerical calibrated equilibrium model with a monetary structure capturing by these Chinese features in which the trade surplus is endogenously determined and the exchange rate is exogenously set, things are different. These impurities effectively act as added taxes on domestic production (lowed export rebate rates, taxes on a larger VAT base) and tax exporting. Tax exporting reduces exports which lowers the surplus and accumulation of foreign currency. In a static model, a reduced surplus is welfare improving. Using 2002 data, we thus find that China's impure VAT system yields welfare gains in contrast to what a conventional model would show. These results are important since there are arguments being made inside and outside China for changes to be made and move closer to a pure VAT. Our results suggest that unless there are wider changes first in macro-structure, such changes may not be welfare preferred.
    JEL: H2 O11
    Date: 2007–11
  13. By: Alina Spiru
    Abstract: In this study, the degree of convergence of inflation rates of Central and East European economies to a variety of measures of European norm inflation is assessed using a range of techniques. These include unit root testing based upon panels of data and - an innovation to the pertinent literature - tests of nonlinear convergence. The results suggest that while convergence can be revealed in a number of cases, there is some sensitivity associated with the testing framework, in particular whether time series or panel methods are used. Furthermore, the inflation convergence performance of the CEE countries is conditional on the chosen inflation benchmark, the composition of the panel and the correlations among members. Moreover, by conducting a battery of linearity tests, it is found that nonlinear inflation convergence is virtually ubiquitous for the period that includes the accession of the Central and Eastern European former transition economies into the EU.
    Keywords: inflation convergence, panel data, linearity tests
    Date: 2007
  14. By: Abdur Chowdhury (United Nations Economic Commission for Europe); Paolo Garonna (United Nations Economic Commission for Europe)
    Abstract: This paper argues that the most important question regarding the efficacy of development assistance is not how much but rather for what. Economic integration and subsidiarity provides the conditions necessary for ODA to produce higher rates of economic growth on a sustained basis.
    Keywords: foreign aid, economic integration, transition economies
    JEL: F35 F02 P27 O52
    Date: 2007–06
  15. By: Qiang Li (Max Planck Institute for Demographic Research, Rostock, Germany); Mieke Reuser (Max Planck Institute for Demographic Research, Rostock, Germany); Cornelia Kraus (Max Planck Institute for Demographic Research, Rostock, Germany); Juha Alho
    Abstract: This paper presents a stochastic population forecast for China with a special emphasis on population aging. Stochastic forecasting methods have the advantage of producing a projection of the future population including a probabilistic prediction interval. The socalled scaled model for error was used to quantify the uncertainty attached to the population predictions in this study. Data scarcity was a major problem in the specification of the expected error of the population forecast. Therefore, the error structures estimated for European countries were employed with some modifications taking the large size and heterogeneity of the Chinese population into account. The stochastic forecast confirms the expectation of extremely rapid population aging during the first half of the 21st century in China. The old age dependency ratio (OADR) will increase with certainty. By mid-century, with 80% probability, the OADR will lie between 0.41 and 0.56, with the median of the predictive distribution being 0.48, nearly five-fold its current value of 0.1. In particular, the oldest-old population will grow faster than any other age group. This development has major implications for China: to smoothly adjust current birth control policies to less restrictive ones, strengthen the family support system, and improve the social security system for the elderly.
    Keywords: China
    JEL: J1 Z0
    Date: 2007–10
  16. By: Justin B. May (Department of Economics, College of William and Mary)
    Abstract: One of the most prominent features in the evolution of the European Union (EU) has been its geographical expansion. Using a dynamic general equilibrium approach, this paper predicts the effects of future eastward expansions of the EU on both inter- and intra-national flows of trade and labor. Underlying the simulations is a spatial model of the EU incorporating heterogeneous firms, intra-industry trade, iceberg trade costs, and many possible locations. Locations are populated by a large number of potential firms, and these firms employ labor that varies across countries in its relative skill. The dynamics of the model are such that unprofitable firms are forced to exit in the long run, and workers have the opportunity to migrate in response to steep gradients in real compensation. Novel features of the data used here are that locations are defined in a very precise way and that the simulations take as their starting point a proxy for the actual distribution of economic activity across the European landmass. The model is calibrated to match aggregate trade and migration data from the 2004 enlargement as well as data on exporter characteristics. Simulations of enlargement predict an increase in aggregate exports of potential new members to the previous EU-15 of 4.8 percent of GDP in the five-year period following adoption of the acquis communautaire and net migration flows from potential new members to the previous EU-15 of 1.1 percent of aggregate acceding country population over the same period. Moreover, the simulations deliver many of the stylized facts of economic geography.
    Keywords: Dynamic General Equilibrium, Enlargement, European Union, Migration, Spatial, Trade
    JEL: F12 F15 F16 F22
    Date: 2007–10–31
  17. By: Bui Trinh (Vietnam General Statistical Office - Ministry of Planning and Investment, Vietnam); Mai Quynh Nga (National Centre for Socio-Economic Information and Forecast – Ministry of Planning and Investment, Vietnam); Duong Manh Hung (Vietnam General Statistical Office - Ministry of Planning and Investment, Vietnam); Kwang Moon Kim (Member of AREES, Japan)
    Abstract: I/O model has been widely used to assess the impacts of changes in an economy, it is also an important tool to make forecasts and the results from an I/O model are very helpful in policy-making process. Many scientific findings in economics have to give credit to the I/O approach developed by Leontief and this study is none of the exceptions. This study has gone one step further to develop a new concept, economy-wide multipliers to assess the modernization process in Vietnam’s economy, multi-regional I/O table of 7 regions and 10 aggregated sectors in Vietnam is used for calculation.
    Keywords: Input-Output; Multi-interregional; Vietnam
    Date: 2007–07
  18. By: Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Kamila Fialová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper focuses on the role of labour market institutions in explaining different labour market developments in European countries, with a special attention to the new European Union member countries. Labour market in these two parts of the EU witnessed diverging developments in the late 1990’s. While labour markets indicators generally improved in the “old” EU15, they were exposed to severe shocks in Central Europe. At the same time, Central European labour markets’ institutional background was changing and converging to the EU “standards”. This may allow us to analyse effects of various institutional setups and of their changes on major labour market indicators. We aim at complementing several studies from the late 1990’s by using more recent data that allow us to compare institutional setups from the mid 1990’s and early 2000’s both in “old” and “new” EU member states. We estimate effects of labour market institutions on various performance indicators (unemployment, long-term unemployment, employment, activity rate). While institutional arrangements played relatively minor role in both unemployment measures, they were much more powerful in explaining labour supply decisions. Our results confirm that high taxes and stricter employment protection increase unemployment and depress activity rate. We also show that active labour market policies seem to reduce unemployment and increase activity rate. Statistical tests further do not indicate that there is a difference in the institutional effects between “old” and “new” EU members.
    Keywords: labour market, unemployment, European Union, labour market institutions
    JEL: J48 J51
    Date: 2007–11

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