nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒02‒09
ten papers chosen by
J. David Brown
Heriot-Watt University

  1. Globalization and Innovation in Emerging Markets By Gorodnichenko, Yuriy; Svejnar, Jan; Terrell, Katherine
  2. Does the Chinese Banking System Promote the Growth of Firms? By Panicos O. Demetriades; Jun Du; Sourafel Girma; Chenggang Xu
  3. Profiting from Government Stakes in a Command Economy: Evidence from Chinese Asset Sales By Charles Calomiris; Raymond Fisman; Yongxiang Wang
  4. The transition generation: young people in school and work in Central and Eastern Europe and the Commonwealth of Independent States By Sheila Marnie; Leonardo Menchini
  5. The Impact of Banks and Non-Bank Financial Institutions on Local Economic Growth in China By Cheng , Xiaoqiang; Degryse, Hans
  6. Contrasting the dynamic patterns of manufacturing and service FDI: Evidence from transition economies By Aleksandra Riedl
  7. What Accounts for the Rising Sophistication of China's Exports? By Zhi Wang; Shang-Jin Wei
  9. Firm Performance and Privatization in Ukraine By Galyna Grygorenko; Stefan Lutz
  10. Trade Liberalization in Latin America and Eastern Europe: The Cases of Ecuador and Slovenia By Sang-Wook Stanley Cho; Julian P. Diaz

  1. By: Gorodnichenko, Yuriy (University of California, Berkeley); Svejnar, Jan (University of Michigan); Terrell, Katherine (University of Michigan)
    Abstract: Globalization brings opportunities and pressures for domestic firms in emerging market economies to innovate and improve their competitive position. Using recent data on firms in 27 transition economies, we test for the effects of globalization through the impact of increased competition and foreign direct investment on domestic firms’ efforts to raise their capability (innovate) by upgrading their technology or their product/service (improving quality or developing a new one), taking into account firm heterogeneity. We find support for the prediction that competition has a negative effect on innovation, especially for firms further from the frontier, and that the supply chain of multinational enterprises and international trade are important channels for domestic firm innovation. We do not find support for the inverted U effect of competition on innovation. There is partial support for the hypothesis that firms in a more pro-business environment invest more in innovation and are more likely to display the inverted U relationship between competition and innovation.
    Keywords: competition, innovation, emerging markets, spillovers
    JEL: F23 O16
    Date: 2008–01
  2. By: Panicos O. Demetriades; Jun Du; Sourafel Girma; Chenggang Xu
    Abstract: Using a large panel dataset of Chinese manufacturing enterprises during 1999-2005, which accounts for over 90% of China’s industrial output, and robust econometric procedures we show that the Chinese banking system has helped to support the growth of both firm value added and TFP. We find that access to bank loans is positively correlated with future value added and TFP growth. We also find that firms with access to bank loans tend to grow faster in regions with greater banking sector development. While the effects of bank loans on firm growth are more pronounced in the case of purely private-owned and foreign firms, they are positive and statistically significant even in the case of state-owned and collectively-owned firms. We show that excluding loss-making firms from the sample does not change the qualitative nature of our results.
    Keywords: Chinese banking system development; value added and TFP growth; panel dataset
    JEL: E44 O53
    Date: 2008–02
  3. By: Charles Calomiris; Raymond Fisman; Yongxiang Wang
    Abstract: We document the market response to an unexpected announcement of proposed sales of government-owned shares in China. In contrast to the "privatization premium" found in earlier work, we find a negative effect of government ownership on returns at the announcement date and a symmetric positive effect in response to the announced cancellation of the government sell-off. We argue that this results from the absence of a Chinese political transition to accompany economic reforms, so that the positive effects on profits of political ties through government ownership outweigh the potential efficiency costs of government shareholdings. Companies with former government officials in management have positive abnormal returns, suggesting that personal ties can substitute for the benefits of government ownership. The "privatization discount" is higher for firms located in Special Economic Zones, where local government discretionary authority is highest. This is consistent with the view that firms in these locations are more dependent on government connections. We also find that companies with relatively high welfare payments to employees, which presumably would fall with privatization, benefit disproportionately from the privatization announcement.
    JEL: G15 G38 H11 L33
    Date: 2008–02
  4. By: Sheila Marnie; Leonardo Menchini
    Abstract: Young people go through several transitions in their path from childhood to adulthood: in education, work, family formation, health and citizenship. This paper focuses on the transition from school to labour market for the generation of young people in CEE/CIS who experienced the most turbulent years of the transition in their formative years.
    Keywords: transition from school to work; transitional economies; youth;; Baltic States; Eastern Europe; Russia;
    JEL: I31 P36
    Date: 2007
  5. By: Cheng , Xiaoqiang (BOFIT); Degryse, Hans (BOFIT)
    Abstract: This paper provides evidence on the relationship between finance and high growth in China. Employing data for 27 Chinese provinces over the period 1995–2003, we assess the impact of banks and non-bank financial institutions on local economic growth. We argue that banks have had a larger impact than non-banks on local economic growth as they benefited earlier and more profoundly from China’s financial reforms than their non-bank counterparts.
    Keywords: growth; financial development; Chinese provinces; banks
    JEL: E44 G21
    Date: 2008–02–04
  6. By: Aleksandra Riedl (Department of Economics, Vienna University of Economics & B.A.)
    Abstract: We contribute to the foreign direct investment (FDI) literature by providing _rst empirical evidence on the relative importance of location factors for service and manufacturing FDI. This is of particular interest as the global stock of inward FDI in the service sector has become predominant in the last ten years. Based on a sectoral panel of eight new European member states in the period of 1998 to 2004 we perform a dynamic panel analysis allowing for individual adjustment periods across sectors. Results support our assumption that investment into the service sector, which is characterized by low installation costs, adjusts much faster to its desired level than manufacturing FDI. Furthermore, since services are mostly non-tradable, FDI into this sector is largely based on market-seeking motives while manufacturing FDI is also driven by international price competitiveness measured via real unit labor costs.
    JEL: C23 F21 P33
    Date: 2008–01
  7. By: Zhi Wang; Shang-Jin Wei
    Abstract: Chinese exports have become increasingly sophisticated. This has generated anxiety in developed countries as competitive pressure may increasingly be felt outside labor-intensive industries. Using product-level data on exports from different cities within China, this paper investigates the contributing factors to China's rising export sophistication. Somewhat surprisingly, neither processing trade nor foreign invested firms are found to play an important role in generating the increased overlap between China’s export structure and that of high-income countries. Instead, improvement in human capital and government policies in the form of tax-favored high-tech zones appear to be the key to the country's evolving export structure. On the other hand, processing trade, foreign invested firms, and government-sponsored high-tech zones all have contributed significantly to raising the unit values of Chinese exports within a given product category.
    JEL: F1 O1
    Date: 2008–02
  8. By: Marković, Branimir; Matić, Branko; Karačić, Domagoj
    Abstract: In the modern world, a legal framework has been set up and a market regulator has been defi ned so that payment as a relation between the debtor and creditor can not be put in question regarding the realization of their integral rights. Countries in transition, including Croatia (the Republic of Croatia), are still trying to defi ne not only the shortterm, but also the long-term regulators that would clarify all open questions both in the economic and in the legal segment. Promissory note as the payment security instrument has in practice become operative only through a consistent use of Distraint law. A theoretical and an implementation mechanism merge into one functional mechanism, on the basis of which it can be said that in this segment the Republic of Croatia has truly overcome the transitional barriers.
    Keywords: promissory note; collection of claims; payment insurance; blank promissory notes; Distraint procedure; Distraint law.
    JEL: K2 H5 G3 E6 H2 G2 E5 O4 E4 P4 E3
    Date: 2007
  9. By: Galyna Grygorenko; Stefan Lutz
    Date: 2007
  10. By: Sang-Wook Stanley Cho (School of Economics, The University of New South Wales); Julian P. Diaz (Bowdoin College)
    Abstract: This paper analyzes the potential effects of two ongoing trade liberalization experiences: Ecuador signing a Free Trade Agreement with the United States and Slovenia joining the European Union as a full member. We construct a static Applied General Equilibrium Model and perform a numerical experiment that consists on eliminating all import tariffs that Ecuador and Slovenia impose on the United States and European Union, respectively. To calibrate our models, we work with Input-Output tables and construct a Social Accounting Matrix for each country. We perform additional numerical experiments, such as sensitivity analysis on the import and export elasticities of substitution, a partial liberalization scenario, the fiscal impact of eliminating the tariff revenues and how this loss can be compensated with other taxes, and an alternative trade liberalization framework for Slovenia. We find that both countries benefit from these trade liberalization reforms, with prices falling in the import sector and production rising in the export sector. However, different forms of trade liberalization (free trade agreement vs. customs union) have different implications on the patterns of trade and welfare.
    Keywords: Trade Liberalization; Free Trade Agreement; Customs Union; Fiscal Policy; Social Accounting Matrix; Ecuador; Slovenia
    JEL: F14 F15
    Date: 2007–08

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