nep-tra New Economics Papers
on Transition Economics
Issue of 2007‒12‒15
fifteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Currency crises in transition economies: some further evidence By Panagiotis Liargovas; Dimitrios Dapontas
  2. Russian WTO accession : what has been accomplished, what can be expected By Tarr, David
  3. Wirtschaftswachstum in den MOEL zunehmend durch heimische Nachfrage getragen By Vasily Astrov
  4. Mind the Gap! Social Capital, East and West By Jan Fidrmuc; Klarita Gërxhani
  5. Institutions and Entrepreneurship Development in Russia:A Comparative Perspective By Ruta Aidis; Saul Estrin; Tomasz Mickiewicz
  6. Mind the Break! Accounting for Changing Patterns of Growth during Transition By Jan Fidrmuc; Ariane Tichit
  7. Infrastructure endowment and corporate income taxes as determinants of Foreign Direct Investment in Central- and Eastern European Countries By Christian Bellak; Markus Leibrecht; Joze P. Damijan
  8. Options, Futures, and Other Derivatives in Russia: An Overview By Rotfuß, Waldemar
  9. Does Economic Integration Affect the Structure of Industries? Empirical Evidence from the CEE By d'Artis Kancs
  10. Technological Change and Transition : Relative Contributions to Worldwide Growth during the 1990s By Oleg Badunenko; Daniel J. Henderson; Valentin Zelenyuk
  11. The new Tourism Communication: from 3S to 3E with case study on Romania By rotariu, ilie
  12. Path-following or Leapfrogging in Catching-up: the Case of Chinese Telecommunication Equipment Industry. By Liu, Xielin
  13. Will the Renminbi become a world currency? By Wndy Dobson; Paul R. Masson
  14. Evaluating the evidence on electricity reform: Lessons for the South East Europe (SEE) market By Pollitt, M.
  15. Companies’ Financial Decisions under the Distributed Profit Taxation Regime of Estonia By Aaro Hazak

  1. By: Panagiotis Liargovas; Dimitrios Dapontas
    Abstract: This paper seeks to explain the causes of turbulence in foreign exchange markets in selected transition Economies (Albania, Belarus, Bulgaria, Croatia, FYROM, Moldova, Romania and Ukraine), by using a set of CATREG models and introducing explanatory variables, not directly associated with the official exchange rate. It considers the influence of macroeconomic, social development, institutional and external variables, by providing an integrated framework beyond first, second or third generation previous released theoretical models, bringing a new innovative and wider approach to the field.
    Keywords: currency crisis, transition economies, Eastern European countries
    Date: 2007
  2. By: Tarr, David
    Abstract: This paper summarizes the principal reform commitments that Russia has undertaken as part of its World Trade Organization (WTO) accession negotiations, providing detailed assessments in banking, insurance, and agriculture. The paper assesses the gains to the Russian economy from these commitments, based on a summary of several modeling efforts undertaken by the author and his colleagues. The author compares Russian commitments with those of other countries that have recently acceded to the WTO to assess the claim that the demands on Russia are excessive due to political considerations. He explains why Russian WTO accession will result in the elimination of the Jackson-Vanik Amendment against Russia. Finally, he discusses the remaining issues in the negotiations and the time frame for Russian accession as of the fall of 2007.
    Keywords: World Trade Organization,Debt Markets,Emerging Markets,Economic Theory & Research,Free Trade
    Date: 2007–12–01
  3. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: GERMAN: Die Konjunkturbelebung in der EU 15 trug 2006 zu einer Beschleunigung des Wirtschaftswachstums in den MOEL bei. Während in den neuen EU-Ländern in Mitteleuropa der Außenhandel kräftig wuchs und eine weitere Aufwertung bewirkte, geht die Dynamik in den meisten anderen MOEL vor allem auf die hohe Verschuldungsbereitschaft der privaten Haushalte zurück. Die Lage auf dem Arbeitsmarkt entspannte sich in den neuen EU-Ländern weiter, der Strukturwandel ist dort weitgehend abgeschlossen. In den Westbalkanländern verschlechterte sich die Situation jedoch zum Teil sogar. Die Performance der russischen Wirtschaft hat sich von der Entwicklung der Weltmarktpreise für Energie weitgehend entkoppelt; in der Ukraine schwankt das Wachstum dagegen erheblich und nicht zuletzt durch politische Faktoren bedingt. ---- ENGLISH: The economic recovery in the EU 15 in 2006 resulted in an acceleration of growth in Central and Eastern European countries (CEECs), particularly in the new EU member states of Central Europe. Helped by the recent massive inflows of FDI, these countries have become serious competitors on the European markets, particularly those of manufactured goods. The continuous nominal currency appreciations in Poland, the Czech Republic and Slovakia reflect their gains in international competitiveness and will not affect their economic growth. In contrast, the contribution of foreign trade to growth was decidedly negative in most other CEECs, including the Baltics and the new EU members in Southeast Europe. Their growth rates - quite high in some instances - were first of all due to a boom in private consumption, largely financed by external borrowing facilitated by the dominance of foreign-owned banks. In some cases, the credit boom is about to overheat and produce ¿bubbles¿, especially in real estate. However, the available policy options are limited: while monetary policy is constrained by fixed exchange rate regimes, fiscal policy is already quite restrictive in general. In the new EU member states, the labour market situation is continuing to improve given that their industrial restructuring is nearing completion, and not least due to the sizeable outward migration flows. In the West Balkan countries, on the other hand, unemployment rates are generally high and rising. Their recent progress towards EU integration has been generally modest, even though greater political stability and growing foreign trade both support their economic recovery. With the exception of Hungary (where large-scale efforts at fiscal consolidation have induced a noticeable economic slowdown), short- and medium-term economic prospects for the CEECs are positive, whereas growth in Serbia and Ukraine remains relatively vulnerable to political risks.
    Keywords: transitional economies, comparative study, macroeconomic forecast, macroeconomic analysis, Macroeconomic Analysis and Forecasts; Labour and Migration; International Trade and Competitiveness; Foreign Direct Investment; EU Integration; Fiscal and Monetary Policy
    JEL: P2 O57 E17
    Date: 2007–05
  4. By: Jan Fidrmuc; Klarita Gërxhani
    Abstract: Recent Eurobarometer survey data are used to document and explain the stock of social capital in 28 European countries. Social capital in Central and Eastern Europe – measured by civic participation and access to social networks – lags behind that in Western European countries. Using regression analysis of determinants of individual stock of social capital, we find that this gap persists when we account for individual characteristics and endowments of respondents but disappears completely after we control for aggregate measures of economic development and quality of institutions. Informal institutions such as prevalence of corruption in post-communist countries appear particularly important. With the enlargement of the European Union, the gap in social capital should gradually disappear as the new member states catch up (economically and institutionally) with the old ones.
    Date: 2007–06
  5. By: Ruta Aidis; Saul Estrin; 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 to study 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 suggest that Russia’s institutional environment is important in explaining its relatively low levels of entrepreneurship development, where the latter is measured in terms of both number of startups and of existing business owners. In addition, Russia’s business environment and its consequences for the role of business networks contribute to the relative advantage of entrepreneurial insiders (those already in business) to entrepreneurial outsiders (newcomers) in terms of new business start-ups.
    Date: 2007–06
  6. By: Jan Fidrmuc; Ariane Tichit
    Abstract: We argue that econometric analyses based on transition countries’ data can be vulnerable to structural breaks across time and/or countries. We demonstrate this argument by identifying structural breaks in growth regressions estimated with data for 25 countries and 16 years. Our method allows identification of structural breaks at a-priori unknown points in space or time. The only prior assumption is that breaks occur in relation to progress in implementing market-oriented reforms. We find robust evidence that the pattern of growth in transition has changed at least two times, yielding thus three different models of growth associated with different stages of reform. The speed with which individual countries progress through these stages differs considerably.
    Date: 2007–06
  7. By: Christian Bellak; Markus Leibrecht; Joze P. Damijan
    Abstract: This paper analyzes the importance of taxes on corporate income and production-related tangible infrastructure as determinants of Foreign Direct Investment (FDI) in Central- and Eastern European Countries (CEECs). We operationalize taxes using effective average tax rates on the bilateral level and employ indices derived from principal component analysis as a proxy for the infrastructure endowment. In the empirical analysis we control for a possible interrelation between taxes and infrastructure as determinants of FDI – an issue usually neglected in the literature. Thus, we posit that there are likely to be interaction effects between taxes and infrastructure as determinants of FDI. Specifically, a favorable infrastructure endowment may compensate for relatively high taxes. Hence, higher taxes may not deter FDI. The results from our panel econometric analysis of bilateral outward FDI flows of 7 home in 8 CEE host countries for the 1995-2004 period in an augmented gravity model setting show that (i) both taxes and infrastructure play a role in the location decisions made by Multinational Enterprises; (ii) telecommunication and transport infrastructure are of special significance to FDI; and (iii) the tax-rate sensitivity of FDI indeed decreases with the level of infrastructure endowment.
    Keywords: Foreign direct investment, transition economies, infrastructure, taxation
    JEL: F15 F21 F23
    Date: 2007
  8. By: Rotfuß, Waldemar
    Abstract: This work provides a descriptive overview of Russian markets for financial derivatives. Available figures for the exchange-traded and over-the-counter-traded derivatives in Russia show that the Russian derivatives markets experienced enormous growth rates since the financial crisis in 1998. Starting from a very low level, turnover of exchange-traded derivatives in Russia rose from 2000 to 2006 on average 168 percent per year and reached a total turnover of EUR 102 billion in 2006. Among futures, equity futures, followed by currency futures, are the most traded exchange-traded derivatives in Russia. Turnover of exchange-traded derivatives on interest rates, bonds or even commodities represent only a very small fraction of the total turnover. Available figures for the Russian OTC foreign exchange derivatives market suggest for the period between April 2004 and 2007 an annual turnover growth rate of 47 percent. Foreign exchange swaps in RUR against USD and in USD against EUR and other currencies were the most popular OTC foreign exchange derivatives in April 2004 and 2007.
    Keywords: Russia, Financial Derivatives Market, Russian Financial Derivatives Markets
    JEL: G1 G15
    Date: 2007
  9. By: d'Artis Kancs
    Abstract: In this paper we study how European integration would a¤ect the industry location and sectoral specialisation of local economies in the CEE accession countries. The theoretical framework of our study is based on the new eco- nomic geography, which allows us to predict not only the post-integration spe- cialisation patterns, but captures also other general equilibrium e¤ects, such as transition to market economy, which turn out to be highly significant in CEE. Our empirical results suggest that the CEE specialisation pattern would be distinct from the old EU member states. First, the EU integration would reduce regional specialisation in CEE. Second, the bell-shaped specialisation pattern predicted by the underlying theoretical framework is inverse in CEE. We could explain a large portion of these di¤erences by CEE-specific processes, such as integration of the CMEA. These distortions are higher in those regions, which were more integrated in the CMEA. Our simulation results also suggest a convergence in the specialisation across the CEE regions.
    Keywords: Economic geography, transport costs, European integration, monop- olistic competition.
    JEL: F15 R12 R13
    Date: 2007
  10. By: Oleg Badunenko; Daniel J. Henderson; Valentin Zelenyuk
    Abstract: In this paper we used the procedures developed in the Kumar and Russell (2002) growth-accounting study to examine cross-country growth during the 1990's. Using a data set comprising developed, newly industrialized, developing and transitional economies, we decomposed the growth of output per worker into components attributable to technological catch-up, technological change and capital accumulation. In contrast to the study by Kumar and Russell (2002), which concluded that capital deepening was the major force of growth and change in the world income per worker distribution over the 1965-1990 period, our analysis showed that, during the 1990's, the major force in the further divergence of the rich and the poor was due to technological change, whereas capital accumulation played a lesser and opposite role. In further contrast, we found that efficiency changes (insignificantly) led (on average) to regress rather than progress. Finally, although on average we found that transitional economies performed similar to the rest of the world, the procedure was able to discover some interesting patterns within the set of transitional countries.
    Keywords: Data Envelopment Analysis, Growth, Convergence, Transitional Economies
    JEL: O47 P27 P52
    Date: 2007
  11. By: rotariu, ilie
    Abstract: It is obvious that tourism has changed and keeps transforming itself deeply. We prove that tourism is under mutation and this process is only an earlier symptom of the renascence of the economic structures, a new human life stile, in fact a real rebirth of the human existence. The microelectronics and the biotechnologies have separated the socialist system from the capitalist one and segregate the last. In the developed countries a few 3-4% of the population yield the whole agricultural production and overfill the domestic and export needs; 10-12% of it fabricate all the merchandises required on the market. As a result, the majority of the population might be considered as throwaway for production, valuable only as consumers. More, it might be a menace for the society if it does not manage fruitfully its resulted “free time”. To “keep peace under the olives” the new post-industrial societies have had to develop the “management of the disposal time” that has turn on the course of the tourism from 3S to 3E, and further more to the life style concept that was extended over the hole individual and social life, not only its economic side. The former socialist countries were the losers of the huge challenge started after the 2 nd WW as the socialist system’s economy has remained on the classic bases. They have integrated the EU, a post-industrial economy. Their people expect to join the Western life style, the 3E tourism. Is it possible? How? What are the costs? Can they find the required resources? What are the preliminary results? Romania is a fascinating case. “The transition” as a manner of conversion highlights peculiar situations that might be found unusual for a Western. Some examples (the Black See Coast, the Fagaras mountains and the new agro tourism) will bring particular explanations. Classical economics operate with its overall accepted concepts such as: capital, labour force, offer, demand, money, unemployment, market, development, crises, equilibrium, productivity, monopole, liberalism, interventionism, global economy, etc. The real life of the last years, may be the last decade proves that the classic concepts do not fit, are not suitable for workable explanations and proper procedures to keep the economies in a durable development, the poor and the rich peoples in peace, people save and healthy and conserve the “hand made environment” workable for future generations. The cause might be we are handling old tools for a new reality: the Ancients use to say that doctor, in order to save the patience, has to cure not only the disease but his whole body and mind. The new Life can not be broken down on “slides” - for researches or scientific purposes – but has to be understood as a whole in order to control its transformation, as the entropy or the bio structural theory have proved. We need an appropriate apparatus, suitable insights to handle the nearly future: to rewrite the economics. As we have done in tourism theory!
    Keywords: post-modern economy; experiences; transformation; transition; economics; 3S; 3E
    JEL: O52
    Date: 2006
  12. By: Liu, Xielin
    Abstract: In this paper, by reviewing the development of telecommunication equipment industry from fixed phone switches to later 3G, TD-SCDMA, we conclude that the degree of matching between existing foreign products with Chinese market is the primary incentive for Chinese companies to catch-up. The possibility to redesign the existing foreign product to match the market needs in China leads to further opportunity to catch-up. The accessibility of knowledge through government support, alliance with foreign companies or R&D work shapes the capability of Chinese companies to catch-up. The government support is important but not dominated. Leapfrogging strategy will meet more tough problems than path-following. Government plays a more important role in the leapfrogging than the path-following catching-up process. Open to the world and encouraging the collaboration and alliance activity can give companies in the developing countries more opportunity to access the latest knowledge. In the dynamic and advanced industry, FDI can be a very important factor for the technology transfer and catching-up.
    JEL: O31 O32 O33 O34 O38 N5 O47 R58
    Date: 2007
  13. By: Wndy Dobson; Paul R. Masson (Wendy Dobson, Rotman School of Management Paul R. Masson, Rotman School of Management.)
    Abstract: China has emerged as a major power in the world economy, so it seems natural to consider whether its currency will also have a major role. However, at present it is not used internationally. We look at the factors that contribute to the international use of currencies, and focus on the aspects of China’s financial system that would have to change before the renminbi emerged as an important regional or world currency. Even with important reforms, two important questions would remain: whether the authorities would want to encourage its international use, and whether an economy with substantial party control could gain international acceptance for its currency.
    Date: 2007
  14. By: Pollitt, M.
    Abstract: This paper discusses the evidence on electricity reform and relates it to the current situation of the South East Europe (SEE) electricity market. We begin by discussing the main elements of the European Union (EU) electricity reform model. Then we go on to discuss emerging good practice in the regulation of national electricity markets in the EU. This is important because it reflects the key role placed on independent regulation of the electricity sector in the EU reform model. Next, we evaluate the empirical evidence on the success of the EU reform model in particular before and the success of electricity reforms more generally. This leads on to a discussion of the particular context of SEE electricity reform and what specific issues this raises. We conclude with a discussion of the importance of more general institutional context of SEE electricity reform. The paper suggests that it will be a substantial, but worthwhile, challenge to create a workable supra-national electricity market in the region.
    Keywords: Electricity reform, South East Europe, European single electricity market.
    JEL: L94 P31
    Date: 2007–09
  15. By: Aaro Hazak (School of Economics and Business Administration, Tallinn University of Technology)
    Abstract: This paper presents an empirical analysis of companies’ capital structure and dividend decisions under distributed profit taxation (DPT), the corporate taxation regime of Estonia since 2000. The survey is based on the financial information available from the Estonian Commercial Registry in respect of a sample of 51 thousand Estonian companies over a ten-year period. For the purposes of cross-country comparison, the Amadeus database information of 0.7 million companies from the European Union countries is used. The results give support to the hypothesis that the share of external financing in total capital of Estonian companies is lower in the conditions of DPT in comparison to that under the traditional gross profit taxation system. The DPT system has led companies to distribute lower portions of profit as dividends. The undistributed profits appear to be largely retained as surplus cash, instead of being reinvested into long term productive assets. DPT appears to have a positive impact on companies’ liquidity and sustainability, however the downside being the allocation of available funds into potentially inefficient investments. The results of the study may lead to discussions on introducing a similar system in other jurisdictions or on modifying the corporate taxation principles in Estonia.
    Keywords: capital structure, dividend policy, corporate taxation
    JEL: G32 G35 K34
    Date: 2007

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