nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒01‒12
eighteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Determinants of Poverty during Transition: Household Survey Evidence from Ukraine By Tilman Brück; Alexander M. Danzer; Alexander Muravyev; Natalia Weißhaar
  2. Determinants of Entrepreneurial Activities in China By Lu, Jiangyong; Tao, Zhigang
  3. Agglomeration of Economic Activities in China: Evidence from Establishment Censuses By Lu, Jiangyong
  4. How Does Privatization Work in China? By Bai, Chong-En; Lu, Jiangyong; Tao, Zhigang
  5. Informal Employment Relationships and Labor Market Segmentation in Transition Economies: Evidence from Ukraine By Hartmut Lehmann; Norberto Pignatti
  6. The limits of self-governance when cooperators get punished: Experimental evidence from urban and rural Russia By Simon Gaechter; Benedikt Herrmann
  7. Formal versus informal finance : evidence from China By Maksimovic, Vojislav; Demirguc-Kunt, Asli; Ayyagari, Meghana
  8. More Men, More Crime: Evidence from China’s One-Child Policy By Lena Edlund; Hongbin Li; Junjian Yi; Junsen Zhang
  9. Trends and Determinants of China’s Industrial Agglomeration By Lu, Jiangyong; Tao, Zhigang
  10. Earnings Instability and Earnings Inequality in Urban China: 1989-2006 By Zhong Zhao
  11. The failed promise of foreign direct investment: some remarks on ‘malign’ investment and political instability in former Soviet states By Beck, Matthias; Acc-Nikmehr, Nataliya
  12. Growth of the Firm and Economic Backwardness: A Case Study and Analysis of China's Mobile Handset Industry By Kimura, Koichiro
  13. Revolution and Family in Rural China: Influence of Family Background on Current Family Wealth By Hiroshi Sato; Li Shi
  14. Economic growth across space and time: subprovincial evidence from Mainland China By Curran, Declan; Funke, Michael; Wang, Jue
  15. Deeper, wider and more competitive? Monetary integration, eastern enlargement and competitiveness in the European Union By Gianmarco Ottaviano; Daria Taglioni; Filippo di Mauro
  16. Determinants and Impacts of Migration in Vietnam By Nguyen Thu Phuong; Tran Ngo Thi Minh Tam; Nguyen Thi Nguyet; Remco Oostendorp
  17. Credit Constraints as a Barrier to the Entry and Post-Entry Growth of Firms By Philippe Aghion; Thibault Fally; Stefano Scarpetta
  18. The Effects of Corporate Governance and Institutional Environments on Export Behaviour: Evidence from Chinese Listed Firms By Lu, Jiangyong; Xu, Bin; Liu, Xiaohui

  1. By: Tilman Brück (DIW Berlin, Humboldt University Berlin, PRUS and IZA); Alexander M. Danzer (DIW Berlin and Humboldt University Berlin); Alexander Muravyev (DIW Berlin and European University Institute); Natalia Weißhaar (DIW Berlin and Humboldt University Berlin)
    Abstract: The paper analyzes the incidence, the severity and the determinants of household poverty in Ukraine during transition using two comparable surveys from 1996 and 2004. We measure poverty using income and consumption and contrast the effects of various poverty lines. Poverty in both periods follows some of the determinants commonly identified in the literature, including greater poverty among households with children and with less education. We also identify specific 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 the experience of transition and restructuring.
    Keywords: poverty, transition, survey, Ukraine
    JEL: P20 I32 J20 O15
    Date: 2007–12
  2. By: Lu, Jiangyong; Tao, Zhigang
    Abstract: The institutional environment – including protection of private properties and contract enforcement – has been rather unfavorable for the emergence and development of China’s private enterprises. This is in sharp contrast to the case of the developed economies where the institutional environment is conductive to the entrepreneurial activities and only the personal attributes of would-be entrepreneurs determine their entrepreneurship decision. We thus propose a theoretical framework for the entrepreneurship decision in China with a focus on the role of institutional environment. Using a life-histories survey data of 2,854 respondents from twenty cities in China, we find strong support for the impacts of the institutional environment and its interactions with other determinants of entrepreneurship decision.
    JEL: J2
    Date: 2007–01
  3. By: Lu, Jiangyong
    Abstract: In this paper, we document spatial distribution of economic activities in China based on two recent nationwide censuses of establishments. This paper provides the whole picture of agglomeration of economic activities in China for the first time in the literature. The robust increasing trend of agglomeration supports the argument that interregional trade barriers in China decreased during the period of 1996-2001. We extend the agglomeration literature by studying agglomeration patterns of establishments with various ownership types. We find that non-public owned establishments are more spatially concentrated compared with public owned establishments. We also examine determinants of agglomeration economies with multivariate regressions. Results show that micro-foundations of agglomeration work well in explaining agglomeration of non-public owned establishments, but not for public owned establishments in China.
    Keywords: Geographic Concentration; Micro-foundations; Ownership
    JEL: R10
    Date: 2008–01–06
  4. By: Bai, Chong-En; Lu, Jiangyong; Tao, Zhigang
    Abstract: Using a comprehensive panel data set of China’s state-owned enterprises, we investigate the impacts of privatization, of different time sequences and extent of non-state ownership, on social welfare and firm performance. Attention has been focused on the sources of gain in firm performance and the long-run impacts of privatization. It is found that the privatization of China’s state-owned enterprises was achieved with limited compromise on social welfare responsibilities, and significant gain in firm performance was obtained by motivating the management and reducing agency cost at the management level.
    JEL: L2
    Date: 2007–08
  5. By: Hartmut Lehmann (DARRT, University of Bologna, CERT, Heriot-Watt University Edinburgh, DIW Berlin and IZA); Norberto Pignatti (DARRT, University of Bologna and IZA)
    Abstract: Research on informal employment in transition countries has been very limited because of a lack of appropriate data. A new rich panel data set from Ukraine, the Ukrainian Longitudinal Monitoring Survey (ULMS), enables us to provide some empirical evidence on informal employment in Ukraine and the validity of the three schools of thought in the literature on the role of informality in the development process. Apart from providing additional evidence with richer data than usually available in developing countries, the paper investigates to what extent the informal sector plays a role in labor market adjustment in a transition economy. The evidence points to some labor market segmentation since the majority of informal salaried employees are involuntarily employed and workers seem to queue for formal salaried jobs. We also show that the dependent informal sector is segmented into a voluntary "upper tier" and an involuntary lower part where the majority of informal jobs are located. Our contention that informal self-employment is voluntary is confirmed by the substantial earnings premia associated with movements into this state.
    Keywords: labor market segmentation, transition economies, Ukraine
    JEL: J31 J40 P23
    Date: 2007–12
  6. By: Simon Gaechter (University of Nottingham); Benedikt Herrmann (University of Nottingham)
    Abstract: We report evidence from public goods experiments with and without punishment which we conducted in Russia with 566 urban and rural participants of young and mature age cohorts. Russia is interesting for studying voluntary cooperation because of its long history of collectivism, and a huge urban-rural gap. In contrast to previous experiments we find no cooperation-enhancing effect of punishment. An important reason is that there is substantial punishment of high contributors in all four subject pools. Thus, punishment can also undermine the scope for self-governance in the sense of high levels of voluntary cooperation that are sustained by sanctioning free riders only.
    Keywords: social norms, free riding, misdirected punishment, experiments
    JEL: H41 C91 D23 C72
    Date: 2007–11
  7. By: Maksimovic, Vojislav; Demirguc-Kunt, Asli; Ayyagari, Meghana
    Abstract: China is often mentioned as a counterexample to the findings in the finance and growth literature since, despite the weaknesses in its banking system, it is one of the fastest growing economies in the world. The fast growth of Chinese private sector firms is taken as evidence that it is alternative financing and governance mechanisms that support China ' s growth. This paper takes a closer look at firm financing patterns and growth using a database of 2,400 Chinese firms. The authors find that a relatively small percentage of firms in the sample utilize formal bank finance with a much greater reliance on informal sources. However, the results suggest that despite its weaknesses, financing from the formal financial system is associated with faster firm growth, whereas fund raising from alternative channels is not. Using a selection model, the authors find no evidence that these results arise because of the selection of firms that have access to the formal financial system. Although firms report bank corruption, there is no evidence that it significantly affects the allocation of credit or the performance of firms that receive the credit. The findings suggest that the role of reputation and relationship based financing and governance mechanisms in financing the fastest growing firms in China is likely to be overestimated.
    Keywords: Access to Finance,Banks & Banking Reform,,Debt Markets,Bankruptcy and Resolution of Financial Distress
    Date: 2008–01–01
  8. By: Lena Edlund (Columbia University and IZA); Hongbin Li (Chinese University of Hong Kong and Tsinghua University); Junjian Yi (Chinese University of Hong Kong); Junsen Zhang (Chinese University of Hong Kong and IZA)
    Abstract: Crime rates almost doubled in China between 1992 and 2004. Over the same period, sex ratios (males to females) in the crime-prone ages of 16-25 years rose sharply, from 1.053 to 1.093. Although scarcity of females is commonly believed to be a source of male antisocial behavior, a causal link has been difficult to establish. Sex-ratio variation is typically either small or related to social conditions liable to also affect crime rates. This paper exploits two unique features of the Chinese experience: the change in the sex ratio was both large and mainly in response to the implementation of the one-child policy. Using annual province-level data covering the years 1988-2004, we find that a 0.01 increase in the sex ratio raised the violent and property crime rates by some 5-6%, suggesting that the increasing maleness of the young adult population may account for as much as a third of the overall rise in crime.
    Keywords: male-biased sex ratios, crime, one-child policy, China
    JEL: J12 J13 K42
    Date: 2007–12
  9. By: Lu, Jiangyong; Tao, Zhigang
    Abstract: This paper investigates trends and determinants of the spatial concentration of China’s manufacturing industries using a large firm-level data for the time period of 1998 to 2005. It is found that the overall industrial agglomeration in China has increased steadily in recent years though it is still much lower than those of the well-developed market economies (such as United States, United Kingdom, and France). It is also found that local protectionism among China’s various regions obstructs China’s industrial agglomeration while Marshallian externalities facilitate the process of spatial concentration of manufacturing industries. On an optimistic note, there is evidence that the negative impacts of local protectionism have become less significant over time but those of Marshallian externalities are gaining in importance, which is consistent with the overall trend of China’s industrial agglomeration.
    JEL: R1
    Date: 2007–11
  10. By: Zhong Zhao (IZA)
    Abstract: This paper investigates the evolution of earnings inequality in urban China from 1989 to 2006. After decomposing the variance of log of earnings into transitory and permanent two parts, we find that both components are important contributors to the total variance of earnings. We also find that the share of the transitory part has been decreasing from early 1990 to 2004; however, this decreasing trend is reversed from 2004 to 2006. Compared female to male, though these two populations share similar trends in the changes of transitory and permanent components, changes are more pronounced for female than for male. Our results suggest that the time-invariant part and time related part in permanent earnings are negatively correlated. This implies converge of earnings profile in long run and also implies that there is more mobility within the distribution of long-term earnings.
    Keywords: earnings inequality, covariance structure of earnings, China
    JEL: D31 O15 J31
    Date: 2007–12
  11. By: Beck, Matthias; Acc-Nikmehr, Nataliya
    Abstract: The policy of key international organisation continues to be informed by the assumption that Foreign Direct Investment (FDI) has an unambiguously positive effect on recipient nations. However, there is increasing evidence that, on a global scale, increased trade and investment flows from rich to poorer nations have not contributed to a convergence of levels of income and well-being. This is particularly apparent in the context of former Soviet states, many of which continue to experience a decline, in both relative and absolute terms, in per capita GDP alongside a diminution in the life expectancy of their populations. Examining data on FDI received by former Soviet States from 1997 to 2005, this paper notes, firstly, that these investments have been concentrated on a few, typical natural-resource-rich states. Secondly, it observes that even these resource-rich countries experienced massive fluctuations in terms of the amounts of FDI they received over this time period. Lastly, the paper examines the impact of FDI on a number of country risk indicators via a pooled regression model which includes data for twelve former Soviet countries, namely the Central and Eastern European States of Belarus, Moldova, Russia, and Ukraine, and the Central Asian Republics of Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. This analysis indicates that FDI has either a marginally negative effect on individual country risk measures such as in the case of ‘Overall Country Risk’, or significantly negative effects as in the case of ‘Economic Risk’ and ‘Legal Risk’. The paper concludes that there is strong case for questioning the existing orthodoxy which argues that problems of transition can be overcome via increased FDI and which continues to advise former Soviet states to pursue foreign capital at all cost.
    Date: 2007
  12. By: Kimura, Koichiro
    Abstract: Economic backwardness often influences the growth of firms in developing countries. In this paper, we investigate the growth conditions and paths available for latecomers competing with first movers. Employing the concepts of boundaries of the firm and the disadvantage of backwardness, we present a case study of China's mobile handset industry and proceed to develop a simple model. We find that although significant disadvantage does not allow latecomers to grow, there are possibilities for changing the conditions of growth if latecomers can utilize outside resources and/or indigenous advantages.
    Keywords: Boundaries of the Firm, Backwardness, Mobile Handset, China, Telephone, Information services industry, Business enterprises
    JEL: D23 L63 O12 O53
    Date: 2007–12
  13. By: Hiroshi Sato (Hitotsubashi University); Li Shi (Beijing Normal University and IZA)
    Abstract: This paper examines the influence of family human capital on offspring’s economic status in post reform rural China by concentrating on the father-son relationship. We focus on two indicators of family background: family class origin (jiating chengfen) and occupational experience. The results of a family wealth function for 2002 suggest that, after controlling for other individual and family characteristics, both measures of family background have a significant influence on family wealth. First, parental experience of a nonagricultural family business before collectivization has a positive and statistically significant effect on current family wealth. Second, the offspring of landlord/rich peasant and middle peasant families are more likely to have higher family wealth than poor and lower-middle peasant families. We also find cohort and regional differences in the influence of family background. Our findings suggest that the strength and robustness of the Chinese rural family as a cultural institution preserves family human capital across radical institutional changes.
    Keywords: family human capital, family background, intergenerational correlation, distribution of wealth
    JEL: D31 J24 N35 O15
    Date: 2007–12
  14. By: Curran, Declan (BOFIT); Funke, Michael (BOFIT); Wang, Jue (BOFIT)
    Abstract: This paper considers the persistent differences in economic performance across Chinese regions. We introduce a new county- and city-level dataset that spans all of mainland China and provides a detailed view of Chinese regional growth over the period 1997-2005. Non-parametric kernel density estimation is employed to establish the cross-sectional GDP per capita distribution, and the distributional dynamics are investigated using the probability matrix technique and associated stochastic kernel estimator. A set of explanatory variables is then introduced, and several regressions are run to test for conditional ƒÒ-convergence and to pinpoint influential factors for economic growth across counties and cities.
    Keywords: regional economic growth; China
    JEL: O11 R11
    Date: 2008–01–04
  15. By: Gianmarco Ottaviano (University of Bologna, Via Zamboni 33, 40126 Bologna, Italy.); Daria Taglioni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Filippo di Mauro (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: What determines a country’s ability to compete in international markets? What fosters the global competitiveness of its firms? And in the European context, have key elements of the EU strategy such as EMU and enlargement helped or hindered domestic firms’ competitiveness in local and global markets? We address these questions by calibrating and simulating a conceptual framework that, based on Melitz and Ottaviano (2005), predicts that tougher and more transparent international competition forces less productive firms out the market, thereby increasing average productivity as well as reducing average prices and mark-ups. The model also predicts a parallel reduction of price dispersion within sectors. Our conceptual framework allows us to disentangle the effects of technology and freeness of entry from those of accessibility. On the one hand, by controlling for the impact of trade frictions, we are able to construct an index of ‘revealed competitiveness’, which would drive the relative performance of countries in an ideal world in which all faced the same barriers to international transactions. On the other hand, by focusing on the role of accessibility while keeping ‘revealed competitiveness’ as given, we are able to evaluate the impacts of EMU and enlargement on the competitiveness of European firms. We find that EMU positively affects the competitiveness of firms located in participating economies. Enlargement has, instead, two contrasting effects. It improves the accessibility of EU members but it also increases substantially the relative importance of unproductive competitors from Eastern Europe. JEL Classification: F12, R13.
    Keywords: European integration, gains from trade, competitiveness, firm-level data, total factor productivity.
    Date: 2007–12
  16. By: Nguyen Thu Phuong (Centre for Analysis and Forecasting, Vietnam Academy of Social Sciences); Tran Ngo Thi Minh Tam (Centre for Analysis and Forecasting, Vietnam Academy of Social Sciences); Nguyen Thi Nguyet (Central Institute for Economic Management (CIEM), Vietnam); Remco Oostendorp (Free University, Amsterdam)
    Abstract: <p>This paper uses the recent Vietnam Household Living Standard Survey 2004 to analyze the determinants and impacts of migration in Vietnam. Most of the previous studies on the determinants and impacts of migration have focused on destination rather than origin areas of migration. This limits our understanding of the determinants of migration and also does not provide evidence on important impacts of migration such as on household inequality in origin areas.</p><p>In terms of determinants of migration, the study shows that migration is a highly selective process and strongly affected by household and commune characteristics, although differently across type of migration and across urban and rural areas. We do find evidence for the existence of a 'migration hump' for economic long-term migration, with an inverted U-shape in the probability of migration with respect to per capita expenditures. The presence of non-farm employment opportunities does reduce short-term migration but not long-term out-migration for economic reasons.</p><p>In terms of impacts the study analyzes the impact of migration on household expenditures and household inequality. Migration is found to have a strong positive impact on household expenditures but increases the Gini coefficient of per capita household expenditures from 0.38 to 0.42 in origin areas compared to the no-migration case.</p>
    Keywords: Migration; Vietnam; Household
    Date: 2008
  17. By: Philippe Aghion (Harvard University); Thibault Fally (Paris-Jourdan Sciences Economiques); Stefano Scarpetta (OECD and IZA)
    Abstract: Advanced market economies are characterized by a continuous process of creative destruction. Market forces and technological developments play a major role in shaping this process, but institutional and policy settings also influence firms’ decision to enter, to expand if successful and to exit if competition becomes unbearable. In this paper, we focus on the effects of financial development on the entry of new firms and the expansion of successful new businesses. Drawing from harmonized firm-level data for 16 industrialized and emerging economies, we find that access to finance matters most for the entry of small firms and in sectors that are more dependent upon external finance. This finding is robust to controlling for other potential entry barriers (labor market regulations and entry regulations). On the other hand, financial development has either no effect or a negative effect on entry by large firms. Access to finance also helps new firms expand if successful. Both private credit and stock market capitalization are important for promoting entry and post entry growth of firms. Altogether, these results suggest that, despite significant progress over the past decade, many countries, including those in Continental Europe, should improve their financial markets so as to get the most out of creative destruction, by encouraging the entry of new (especially small) firms and the post-entry growth of successful young businesses.
    Keywords: financial development, entry, post-entry growth, firm size, micro data
    JEL: D21 D92 L11 G32
    Date: 2007–12
  18. By: Lu, Jiangyong; Xu, Bin; Liu, Xiaohui
    Abstract: The impact of corporate governance on export decisions is an important yet under- explored research issue. This paper examines this issue with respect to Chinese listed firms. We adopt an analytical framework in which the effects of corporate governance on export decisions are associated with institutional environment. We test several hypotheses derived from this framework. The sample firm’s export propensity and export intensity are found to be positively impacted by CEO ownership share and independent director ratio, and negatively impacted by private/family control. The export-promoting effects of CEO ownership share and independent director ratio are found to be positively moderated by a well-established institutional environment.
    JEL: F0
    Date: 2007–12

This nep-tra issue is ©2008 by J. David Brown. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.