nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒02‒16
six papers chosen by
J. David Brown
Heriot-Watt University

  1. Effective Demand, Local Governments and Economic Growth in Post-Mao China: A Spatial Econometrics Perspective By Yongbok Jeon
  2. Moldova: Structural Change, Trade Specialization and International Integration By Alexander Libman
  3. Structural Change and Trade Integration on EU-NIS Borders By Peter Havlik
  4. Business Cycle Accounting for the Chinese Economy By Gao, Xu
  5. Currency Denomination of Bank Loans: Evidence from Small Firms in Transition Countries By Brown, M.; Ongena, S.; Yesin, P.
  6. Standardisation Processes in China and the European Union explained by Regional Innovation Systems By Quirine van Voorst tot Voorst; Ruud Smits; John van den Elst

  1. By: Yongbok Jeon
    Abstract: The purpose of this study is to empirically test the validity of Kaldor’s laws of economic growth in China between 1978 and 2004 and to provide an alternative explanation of sources of Chinese economic growth in a Kaldorian perspective. First, in a spatial econometrics perspective using a regional data set, the present paper empirically verifies that Kaldorian hypotheses on economic growth hold in China during the sample period. Second, it suggests the empirical findings as proving the validity of a demand-side approach. Third, taking this implication, this study provides a more detailed alternative explanation of the sources and processes of economic growth in China during the sample period. Finally, considering a striking finding of the lack of spatial (regional) dependence among Chinese provinces, it also discusses the role of local governments in the development process in China. This study is expected to contribute to the literature as being one of the first studies that identifies sources of Chinese economic growth in demand side.
    Keywords: Economic growth in China, Kaldor’s laws, effective demand, Chinese local governments
    JEL: O11 O14 O53 R58
    Date: 2008–04
  2. By: Alexander Libman
    Abstract: After fifteen years of economic transformation, Moldova still remains a mostly agrarian country. The industrial sector is only successful in connection with agriculture (such as the production of food or beverages). The country's agrarian structure seems to be a legacy of Moldova's former role in the division of labour within the Soviet Union. Although the absence of the 'resource curse' facilitated Moldova's relative success in economic and political institutional reforms, there are still significant drawbacks in the quality of the economic order which prevent the institutional factor from compensating the 'geographical' deficits. An additional problem is the Transdniestrian conflict, which has resulted in the existence of a 'split state' and a 'split society'. High labour emigration in the wake of rising poverty, deficits of the labour market and the advantages of social integration within the post-Soviet space have a twofold effect on economic transformation: they reduce internal demand and workforce potential, but also create a permanent and significant inflow of migrants' transfers and establish opportunities for learning effects. Moldova's geographical structure of trade is still dominated by the CIS. The European vector of its foreign trade remains underdeveloped, partly because of EU agricultural trade restrictions, but to a great extent because of internal trade barriers. Moldova's major comparative advantage (with respect to both the CIS and the EU, as well as globally) lies in agricultural production - food, beverages, tobacco, animal and vegetable oils - which is reflected in a very low diversification of exports. Imports are by far more diversified; the major imported goods are fuels, machinery and equipment. The energy intensity of the Moldovan economy makes the country extremely dependent on Russian gas and oil. In order to achieve positive structural shifts and move away from agricultural specialization, Moldova needs to continue economic and political reforms and improve the quality of the investment climate in order to attract FDI. A peaceful resolution of the Transdniestrian conflict is of vital importance from the point of view of investment risks. Further consolidation of democracy could help to reduce rent-seeking and state capture (which is still very high in the republic). The evolution of the Communist administration since 2001 has been very promising in this respect. Moldova seems to be a natural benefactor of 'open regionalism' solutions in the Eurasian space, which could give it an opportunity to simultaneously improve its trade relations with the EU, the CIS and Southeast Europe. The EU Neighbourhood Policy could act as a trigger for internal reforms and as a factor of external re-orientation (if major problems such as Transdniestria could be resolved). On the other hand, Moldova could benefit from a redesigning of post-Soviet integration to make it compatible with the Western vector of integration, reduce political aspects of the 'protective integration' currently inherent in the CIS and similar groups, and focus on the opportunities of open regionalism solutions.
    Keywords: economic transition, restructuring, foreign trade, integration
    JEL: F14 F5 J21 J61 L66 O11 P5
    Date: 2007–12
  3. By: Peter Havlik (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper investigates the process of trade integration between the enlarged European Union and the Newly Independent States (NIS), focusing on the new EU member states (NMS) and selected NIS (Russia, Ukraine, Belarus, Moldova and Kazakhstan). The paper analyses the evolution of the regional and commodity composition of trade in the countries concerned. A detailed market share analysis reveals the emerging trade specialization patterns. There has been a general trade reorientation of both NMS and (less so) the NIS towards the West. The recent trade developments on EU¿NIS borders indicate a closer trade integration among the NMS, declining trade integration among the NIS, as well contradictory shifts in NMS¿NIS exports and imports. The importance of the NIS as export markets for the NMS is growing, in particular for the NIS neighbours. The bulk of EU exports is made up of manufacturing products. By contrast, EU imports from the NMS and NIS display a much more diversified pattern. The key NMS manufacturing export commodities to the NIS are chemicals, machinery & equipment, motor vehicles and food products, whereas NMS manufacturing imports from the NIS are dominated by basic metals, refined petroleum, chemicals and fabricated metal products, and there is a high concentration on just a few basic manufactures. The NMS increasingly specialize on high-tech and medium-high-tech products. The wide-ranging modernization and industrial restructuring in the NMS has been facilitated by the process of EU integration and by massive inflows of FDI whereas in the NIS the resource specialization generally increased as reforms and restructuring were delayed. It is questionable whether the NIS will be able to revamp their industrial structure without significantly stepping up reform efforts, trade integration and attracting more FDI.
    Keywords: EU integration, foreign trade, EU New Member States, Newly Independent States, Russia, Ukraine, Belarus, Moldova, Kazakhstan.
    JEL: F14 F15 F59 L60 P52
    Date: 2007–05
  4. By: Gao, Xu
    Abstract: We evaluate sources of business cycle fluctuations in China after 1978 with business cycle accounting method developed by Chari, Kehoe, and McGrattan (2007). We find that efficiency wedge, which represents institutional change and technology advance, was the main source of economic fluctuations in 1978 - 2006. The amplitude of it fluctuation declined after 1992, which resulted in moderation of business cycle fluctuations. We also find that distortions manifest themselves as taxes on investment, which represents frictions in the capital market, became another economic fluctuation source after 1992, which is different from results of business cycle accounting on US and Japan data. Our results also show that government consumption and net exports played minor roles in generating business cycles. Our results point out several promising directions for future research on China’s business cycle.
    Keywords: Business cycle fluctuations; Business cycle accounting; Chinese economy
    JEL: O47 E32 O53 E37
    Date: 2007–11
  5. By: Brown, M.; Ongena, S.; Yesin, P. (Tilburg University, Center for Economic Research)
    Abstract: We examine the firm-level and country-level determinants of the currency denomination of small business loans. We introduce an information asymmetry between banks and firms in a model that also features the trade-off between the cost of debt and firm-level distress costs. Banks in our model don?t know the currency in which firms have contracted their sales. When foreign currency funds come at a lower interest rate, all foreign currency earners and those local currency earners with low distress costs choose foreign currency loans. With imperfect information in the model concerning the currency in which the firms receive their earnings, even more local earners switch to foreign currency loans as they do not bear the full cost of the corresponding credit risk. We test these implications of our model by using a 2005 survey with responses from 9,655 firms in 26 transition countries that contains reports on 3,105 recent bank loans. We find that firms with foreign currency earnings and lower distress costs borrow more in foreign currency, while opaque firms do not. Interest rate advantages on foreign currency funds do explain differences in loan dollarization across countries, but not within countries over time. The presence of foreign banks and reforms related to corporate governance also contribute to differences in foreign currency borrowing across countries. However, stronger foreign bank presence or corporate governance do not lead more local currency earners to choose foreign currency loans. Our results suggest that while the cost and risk of debt do affect the propensity of small firms to take unhedged foreign currency loans, firm opaqueness does not. Hence, we cannot confirm that information asymmetries are a key driving force of the recently observed increase in loan dollarization in Eastern European transition countries.
    Keywords: foreign currency borrowing;competition;banking sector;market structure.
    JEL: G21 G30 F34 F37
    Date: 2008
  6. By: Quirine van Voorst tot Voorst; Ruud Smits; John van den Elst
    Abstract: Standardisation processes and policies demand increased attention due to their contribution to enterprise competitiveness and relation to trade barriers. However, standardisation differs considerably per region. In order to investigate these differences in more detail, the standardisation processes for digital terrestrial television in China and the European Union are compared in terms of actors involved, their roles and relations, and the institutions governing standardisation processes. The structure and underlying dynamics of these regional innovation systems are analysed and compared. The analysis is based on a set of functions describing the underlying dynamics of both systems. For every step in the standardisation process, the influence of innovation functions, actors and institutions is listed and evaluated in detail. Based on the results major differences between standardisation processes in China and the European Union are identified. It further will be pointed out that these differences can be related to major differences in the institutional set up and dynamics of the related innovation systems.
    Keywords: standardisation, regional innovation systems
    Date: 2008–02

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