nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒12‒01
fourteen papers chosen by
J. David Brown
Heriot-Watt University

  1. High Growth Continues, with Risks of Overheating on the Horizon By Vladimir Gligorov; Sándor Richter
  2. Property Tax in Urban China By Dan Li; Shunfeng Song
  3. FDI Spillovers in the Chinese Manufacturing Sector: Evidence of firm heterogeneity By Abraham, Filip; Konings, Jozef; Slootmaekers, Veerle
  4. Changes in Determinants of Poverty and Inequality during Transition: Household Survey Evidence from Ukraine By Brück, Tilman; Danzer, Alexander M.; Muravyev, Alexander; Weißhaar, Natalia
  5. Romania and European Union Membership By van der Hoek, M. Peter
  6. Strategic Partnering with Chinese Companies: Hidden Motives and Treasures By Duysters, Geert; Saebi, Tina; Dong, Qinqin
  7. Do Multinationals' R&D Activities Stimulate Indigenous Entrepreneurship? Evidence from China's "Silicon Valley" By Hongbin Cai; Yasuyuki Todo; Li-An Zhou
  8. Non-Performing Loans and Productivity in Chinese Banks: 1997-2006 By Matthews, Kent; Guo, Jianguang; Zhang, Nina
  9. How are Wages set in Beijing? By Jose De Sousa; Sandra Poncet
  10. Fiscal Decentralization, Chinese Style: Good for Health Outcomes? By Uchimura, Hiroko; Jütting, Johannes P.
  11. The Productivity Effects of Privatization in Ukraine: Estimates from Comprehensive Manufacturing Firm Panel Data, 1989–2005 By J. David Brown; John S. Earle
  12. A SURVEY OF THE ROMANIAN ENVIRONMENTAL FUND By Dănuleţiu, Dan-Constantin; Teiuşan, Sorin-Ciprian
  13. Urban Poor in China: A Case Study of Changsha By Erqian Zhu; Shunfeng Song
  14. Wages, Prices, and Living Standards in China,1738-1925: in comparison with Europe, Japan, and India By Robert Allen; Jean-Pascal Bassino; Debin Ma; Christine Moll-Murata; Jan Luiten van Zanden

  1. By: Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Sándor Richter (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The 1st of May 2007 marked the third anniversary of the accession of the new member states (NMS) to the European Union: the economic balance of the first three years is a clear success for the whole EU. Over the period 2001-2003 GDP in the NMS had increased by 3.1% per year on average; over the period 2004-2006, however, it expanded by 5.3% per year - an increase of the annual growth rate by 2.2 percentage points. In part, this growth acceleration is attributable to the more favourable international environment and the distinctly better growth performance in the 'old' EU; nevertheless the NMS substantially increased their lead in terms of growth over the EU-15: up from 1.7 p.p. in 2001-2003 to 3.1 p.p. in 2004-2006. The catching-up process to the level of development of the 'old' EU has thus accelerated. In the field of investments the difference between the pre- and post-accession period was even more spectacular: while in 2001-2003 both the EU-15 and the NMS recorded an only marginal expansion, in 2004 2006 investment growth in the NMS was 4.7 p.p. higher than in the 'old' EU member states. The NMS also became more attractive targets for FDI. And their export growth rates nearly doubled after EU accession: import growth lagged behind export growth, yielding better trade balances. The stronger economic growth reduced unemployment: the aggregate unemployment rate in the NMS declined by 1.7 p.p. in the post-accession period. However, three macroeconomic stability indicators - inflation, current account status and fiscal balance - reveal a more differentiated and less favourable picture than those measuring changes in the real economy. Given the expected continuation of the favourable international environment, the period of high growth in the NMS will continue in 2007 and 2008, except for Hungary. Nevertheless, in all but two countries (the Czech Republic and Hungary) growth rates in 2008 will be somewhat lower than, or only as high as, in 2007, thus hinting at constraints on further growth acceleration. Household consumption remains the engine of growth in the Czech Republic, Poland, Bulgaria and Romania, as well as in the Baltic States. Investments will boom in Poland, Slovenia, Bulgaria, Romania and the Baltic States. Supply-side constraints on a very rapid expansion of the economy will be felt in more and more countries of the region, especially in terms of the tight labour market. There are clear signs of overheating in Bulgaria, Romania and the Baltic States where the external balance has been deteriorating and no turnaround is in sight. Inflation will remain relatively low. This is the outcome of the contradicting effect of inflationary pressures from an increasingly tight labour market and its consequences, and the considerable appreciation of the national currencies. High export growth will reflect the favourable international environment and the growing import demand of the region's main trading partner countries. Economic developments in the future member states (FMS) of the EU - the candidate and potential candidate countries of the Balkans - continue to surprise positively. All countries report respectable growth rates of their GDPs, and the growth looks sustainable. Industrial production, a weak sector traditionally, grows faster than GDP, except in Montenegro. Tourism - an important sector in the Balkans - is attracting investments, private as well as public. In general, investments are proving to be an important driver of growth, though consumption is still the dominant contributor. In addition, exports are growing rather fast though so are imports too. These positive developments are supported by the belief in the political and policy stability in these countries. Though external and internal imbalances, i.e. in the labor markets, are still quite large, price stability does not seem threatened. Even in countries such as Turkey or Serbia, where exchange rates and prices are more volatile, the risks of serious crisis are rather low. In addition to macroeconomic stability, the underlying political stability seems to have improved as well. Though no breakthrough has been achieved in the longstanding political problems, progress in democratization is bringing the security and political risks down. Though economies are doing better in the FMS, public and corporate governance as well as structural reforms are not necessarily contributing decisively to that. The most commonly used indices of progress in reforms, business climate and public governance, do not give a consistent picture and certainly do not unequivocally report improvement. The prospects of EU integration have improved during the German presidency and will add to the positive outlook. Growth should stay between 5% and 6%, investments and exports should grow even faster and macroeconomic stability should be sustained in the medium run. Russia's economic growth accelerated in 2007, driven by booming consumption and investments (including FDI). More expenditures on state-sponsored priority programmes and industrial policy measures focusing on public-private partnership projects should foster restructuring and innovations. The wiiw forecast reckons with ongoing reliance on energy revenues and an average annual GDP growth of 5.3% in the coming years. With more money and power consolidation at home, Russian self-confidence will grow further - and this may lead to more conflicts with the West. In Ukraine, strong consumer demand, vigorous investment activity and solid exports have all contributed to impressive GDP growth of 7.9% in January-May 2007. Rising consumption and housing construction are increasingly driven by expanding consumer credit, not least due to the growing presence of foreign banks. However, we expect economic growth for the year as a whole to be somewhat lower, between 6.5% and 7%. Imports growing faster than exports will translate into a rising current account deficit, possibly up to 4% of GDP in 2007 and even higher next year. The prospects for greater political stability in the country remain bleak. GDP grew by 11.1% in China in the first quarter of 2007, faster than expected by most experts. Obviously, the official efforts to contain growth have so far not been successful. The economy was driven by a rebound of investment and by a ballooning trade surplus, but supported by a certain acceleration of consumer demand as well. Recent data point to a continuation of the rapid expansion, which may result in a growth rate for the whole year between 10.5% and 11%.
    Keywords: Central and East European new EU member states, Southeast Europe, Balkans, former Soviet Union, China, Turkey, GDP, industry, productivity, labour market, foreign trade, exchange rates, inflation, fiscal deficits, EU integration
    JEL: O52 O57 P24 P27 P33 P52
    Date: 2007–07
  2. By: Dan Li (First Independent Bank of Nevada, Reno, NV); Shunfeng Song (Department of Economics, University of Nevada, Reno)
    Abstract: This paper examines the urban housing sector of China and proposes a property tax reform. Over the past decade, housing price in urban China has been increasing dramatically because of strong demand for self-use, investment and speculation. The booming housing market, however, has brought several challenges for further development, such as housing affordability, inequality, and possible housing bubble. One strategy is to reform the current property tax system. Specifically, this paper proposes that China significantly reduces taxes in circulation but levies property tax during possession. Doing so will increase housing affordability because of lower transaction costs, reduce speculation because of higher cost of holding, stabilize fiscal system because of more sustainable tax revenues, and improve the efficiency and fairness of the property tax system because of the implementation of “ability-to-pay” and “who use who pay” principles.
    Keywords: Property tax; China
    JEL: R23 R21 H20
    Date: 2007–11
  3. By: Abraham, Filip; Konings, Jozef; Slootmaekers, Veerle
    Abstract: We use a new longitudinal data set of more than 15,000 Chinese manufacturing plants to show that the direct and indirect effects of foreign direct investment on measured firm level productivity depend on a number of firm specific features and institutional factors. We find that domestic firms engaged in a joint-venture with a foreign partner are on average more productive, as well as exporting plants and plants located in special economic zones. In addition, domestic firms benefit from horizontal spillovers from foreign firms on average. However, these spillovers depend on the structure and origin of ownership as well as on specific characteristics of the special economic zones. First, spillovers are less likely to occur from fully foreign owned firms than from joint-ventures. Second, spillovers from foreign direct investment originating from oversees Chinese (Hong Kong, Macau and Taiwan) are stronger than from the rest of the world. Third, spillovers are higher in the special economic zone aimed at attracting foreign capital to fasten the development of China’s own high tech industries.
    Keywords: China; firm heterogeneity; Productivity; Spillovers
    JEL: F21 L2
    Date: 2007–11
  4. By: Brück, Tilman; Danzer, Alexander M.; Muravyev, Alexander; Weißhaar, Natalia
    Abstract: The paper analyzes the scale and the determinants of household poverty in Ukraine during transition. We derive estimates of poverty incidence and severity and estimate the determinants of poverty in 1996 and 2004 using two comparable surveys. Poverty in both periods follows some of the determinants commonly identified in the poverty literature, including greater poverty among households with children and with less education. We also identify features of poverty in transition, including the relatively low importance of unemployment and the existence of poverty even among households with employment. Poverty determinants change over time in line with emerging labor markets.
    Keywords: poverty, transition, Ukraine
    JEL: I32 J20 P20
    Date: 2007
  5. By: van der Hoek, M. Peter
    Abstract: This paper looks both backward and forward. It starts by comparing the accession countries with the EU and by comparing the EU’s 2004 eastern enlargement with previous enlargements. It appears that the EU became poorer by every single enlargement. The EU’s GDP per capita decreased each time relative to GDP per capita of the six founding member states. There appear to be good economic reasons for the postponement of Roma-nia's accession until 2007. Romania did not achieve macro-economic stability as fast as the other accession countries, its welfare level was lower and its progress in establishing a market economy was slower compared to the countries that joined the EU in 2004. In addition, it has realized little progress in the fight against corrup-tion. A possible explanation for Romania’s poor economic performance in the 1990s is the partial reform paradox. The paper also looks at the EU’s prospect in view of the rejection of the draft constitutional treaty by the French and Dutch voters. It presents four options. The most likely seems that the EU will proceed on the basis of the Nice Treaty and political agreements. Further enlargements will be much more difficult to realize than in the past.
    Keywords: European Union; enlargement; Romania
    JEL: P3
    Date: 2007
  6. By: Duysters, Geert (UNU-MERIT); Saebi, Tina (UNU-MERIT); Dong, Qinqin (Wuhan University of Technology)
    Abstract: In this paper we aim to investigate the key drivers of international alliance formation from the perspective of Chinese companies. Our results indicate that Chinese companies enter into alliances with Western companies mainly to get accesses to international markets and to develop their technological and managerial competences further. Therefore we can say that Chinese companies particularly value task-related criteria when selecting Western partners. Nevertheless we also find that Chinese companies also include 'soft' factors such trust, compatibility or reputation in their partner selection process. We therefore conclude that in searching for Western partners, Chinese companies try to find a combination of 'hard' competencies such as technology and other resources as well as more 'soft' attributes such as trust, mutual understanding and commitment.
    Keywords: Strategic alliances, China, Innovation, Internationalization
    JEL: F23 L24 O31
    Date: 2007
  7. By: Hongbin Cai; Yasuyuki Todo; Li-An Zhou
    Abstract: Using a unique firm-level dataset from China's "Silicon Valley," we investigate how multinational enterprises (MNEs) affect local entrepreneurship and R&D activities upon entry. We find that R&D activities of MNEs in an industry stimulate entry of domestic firms into the same industry and enhance R&D activities of newly entering domestic firms. By contrast, MNEs' production activities or domestic firms' R&D activities do not have such effect. Since MNEs are technologically more advanced than domestic firms, our findings suggest that diffusion of MNEs' advanced knowledge to potential indigenous entrepreneurs through MNEs' R&D stimulates entry of domestic firms.
    JEL: F23 L26 O33
    Date: 2007–11
  8. By: Matthews, Kent (Cardiff Business School); Guo, Jianguang; Zhang, Nina
    Abstract: This study examines the productivity growth of the nationwide banks of China over the ten years to 2006. Using a bootstrap method for the Malmquist index estimates of productivity growth are constructed with appropriate confidence intervals. The paper adjusts for the quality of the output by accounting for the non-performing loans on the balance sheets and test for the robustness of the results by examining alternative sets of outputs. The productivity growth of the state-owned banks is compared with the Joint-stock banks and it determinants evaluated. The paper finds that average productivity of the Chinese banks improved modestly over this period. Adjusting for the quality of loans, by treating NPLs as an undesirable output, the average productivity growth of the state-owned banks was zero or negative while productivity of the Joint-Stock banks was markedly higher.
    Keywords: Bank Efficiency; Productivity; Malmquist index; Bootstrapping
    JEL: D24 G21
    Date: 2007–11
  9. By: Jose De Sousa; Sandra Poncet
    Abstract: Over the last fifteen years, China’s export performance has been phenomenal but some observers assert that this situation is temporary due to rising labor costs. However, large migration across provinces may increase competition on the labor market of export-intensive provinces and allow firms to keep low wages for many years. This paper attempts to shed some light on this debate over wage dynamics in China. We investigate the respective importance of the upward push of world demand and the downward pressure of migration. This investigation is conducted on a sample of 29 Chinese provinces between 1997 and 2004. We find, holding other factors fixed, that provincial wages increase by about 17 percent per year, due to common trends possibly like total factor productivity growth and national increase in prices. Our results show that besides this general trend, market access and internal migration have statistically and economically significant effects on the provincial wage level but of much less importance. We estimate that on average over the 7 year period of our sample, more intense internal migration has slowed down wage growth by 2 percent per year. The wage increasing impact of market access is three times smaller in magnitude.
    Keywords: Wage; China; immigration; economic geography
    JEL: F12 F15 R11 R12
    Date: 2007–07
  10. By: Uchimura, Hiroko; Jütting, Johannes P.
    Abstract: This study analyzes the effect of fiscal decentralization on health outcomes in China using a panel data set with nationwide county-level data. We find that counties in more fiscal decentralized provinces have lower infant mortality rates compared with those counties in which the provincial government retains the main spending authority, if certain conditions are met. Spending responsibilities at the local level need to be matched with county government’s own fiscal capacity. For those local governments that have only limited revenues, their ability to spend on local public goods such as health care depends crucially upon intergovernmental transfers. The findings of this study thereby support the common assertion that fiscal decentralization can indeed lead to more efficient production of local public goods, but also highlights the necessary conditions to make this happen.
    Date: 2007
  11. By: J. David Brown (Heriot-Watt University); John S. Earle (W.E. Upjohn Institute for Employment Research and Central European University)
    Abstract: This paper estimates the effect of domestic and foreign privatization on multifactor productivity (MFP) using long panel data for nearly the universe of initially state-owned manufacturing firms in Ukraine. The longitudinal dimension of the data is used to measure and control for pre-privatization selection bias and to estimate long-run impacts. The data imply steadily increasing MFP as a result of domestic privatization, reaching about 25 percent relative to state-owned firms after six years. Until recently, Ukraine has had relatively few cases of privatization to foreign investors, and estimates of the MFP impact are more sensitive to controls for selection bias, but the results suggest foreign privatization produces a productivity advantage of about 40 percent in 2004–2005.
    Keywords: productivity, privatization, selection bias, foreign ownership, Ukraine
    JEL: D21 G34 J23 J31 L33 P31
    Date: 2007–05
  12. By: Dănuleţiu, Dan-Constantin; Teiuşan, Sorin-Ciprian
    Abstract: The environment protection is considered to be a legitimate domain of the national policies in Romania since 1990, when the former Ministry of Environment appeared. Later on, the Environment Security National Strategy had been elaborated, being considered the first official document establishing the national objectives of that specific field. But the environment policies will be highly developed starting with 2000, when Romania’s preparation to join the European Union started; and this flourishing flow will take place according to European Union’s elaborated strategy regarding the candidate states within Agenda 2000. Due to the complexity of concerns on the EU acquis in the environment security field, Romania obtained a series of transition steps necessary for the high costs. Therefore, our country created the Environment Funds, namely an economic-financial tool designated to sustain and develop the environment protection projects. The present paper aims to present and analyze the way of creating, managing and using this fund from the perspective of the accomplished goals. So, there are brought into play the modalities and income sources of the Romanian Environmental Fund, the contributions paid to the fund and their payers. The environment protection projects financed by this fund, the norms required and the rewarded fields of this domain are also taken into consideration. In the end, there are exposed some measures that should be taken in order to determine a more active involvement of the potential beneficiaries in accessing grants financed by the Environmental Fund.
    Keywords: environmental fund; polluter pays principle; financing sources; environment protection projects
    JEL: Q50 K32 G38 H23 Q58
    Date: 2007–11–30
  13. By: Erqian Zhu (Department of Resource Economics, University of Nevada, Reno); Shunfeng Song (Department of Economics, University of Nevada, Reno)
    Abstract: Since the late 1970s, many state-owned enterprise employees have been laid off and more and more rural people have migrated to urban areas. In this massive laying-off and migration process, many laid-off workers and migrants have become urban poor. Using data collected from a survey on 1641 relatively low-income households in Changsha in January 2007, this paper compares migrant workers with their city counterpart regarding income, employment, education, and social support. Based on qualitative and regression analysis, we found that worker’s age, Hukou status, education, enterprise ownership, and contract length are significantly affecting the annual income. There exists a big gap in the coverage of social security between urban and migrant workers. This paper provides some policy recommendations.
    Keywords: Urban poor; Hukou; Laid-off workers; Migrant workers; Income determinants; Social insurance
    JEL: R23 I30
    Date: 2007–11
  14. By: Robert Allen; Jean-Pascal Bassino; Debin Ma; Christine Moll-Murata; Jan Luiten van Zanden
    Abstract: The paper develops data on the history of wages and prices in China from thr eighteenth century to the twentieth. These data are used to coompare Beijing, Canton, Suzhou and Shanghai to leading cities in Europe, India, and Japan in terms of nominal wages, the cost of living, and the standard of living. In the eighteenth century, the real income of building workers in Asia was similar to that of workers in the backward parts of Europe and far behind that of workers in the leading economies of northwestern Europe. Industrialization led to rising real wages in Europe and Japan. Real wages declined in China in the eighteenth and early nineteenth centuries and rose slowly in the late nineteenth and early twentieth. There was little cumulative changae in the standard of living or workers in Beijing, Canton, and lower Yangzi cities for two hundred years. The income disparities of the early twentieth century were due to long run stagnation in China combined development in Japan and Europe.
    Keywords: Great Divergence, Preindustrial Real Wages, England, Europe, China, Japan, India
    JEL: N33 N35
    Date: 2007

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