nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒02‒23
twelve papers chosen by
J. David Brown
Heriot-Watt University

  1. The Impact of EU Enlargement on Economic Restructuring in Russia and Future Relations between Russia and the European Union By Svetlana; Natalia Kulikova
  2. Economic Geography, Spatial Dependence and Income Inequality in China By Laura Hering; Sandra Poncet
  3. Reconciling the Chinese Financial Development with its Economic Growth: A Discursive Essay By Maswana, Jean-Claude
  4. Romania and foreign direct investment By Ciobanu, George
  5. Models financing regional development of Eastern Croatia By Matić, Branko; Serdarušić, Hrvoje
  6. Institutional change, regional features and aggregate performance in eight EU’s transition countries By Marcello Signorelli; Enrico Marelli
  7. Rapid Growth in the CIS: Is It Sustainable? By Garbis Iradian
  8. Determinants of corporate financing decisions: a survey evidence from Czech firms By Irena Jindøichovská; Pavel Körner
  9. Restructuring of Energy-intensive Industrial Branches in Romania and Proposals for Industrial Policy Measures By Gábor Hunya; Waltraut Urban
  10. Privatization Disputes in Romania - the Petrom Case By Gábor Hunya
  11. The Consequences of WTO Accession for Belarus By Kiryl Kurilionak; Stanislav Vassilevsky; Vitaly Medvedev
  12. Foreign direct investment in Vietnam: Is there any evidence of technological spillover effects By Nguyen, Anh Ngoc; Nguyen, Thang; Le, Dang Trung; Pham, Quang Ngoc; Nguyen, Dinh Chuc; Nguyen, Duc Nhat

  1. By: Svetlana; Natalia Kulikova
    Abstract: Russia is shown to have every reason to seek special consideration of, as well as express its concerns over, the impact of the European Union¿s (EU) eastern enlargement. The latter relate, in particular, to the current and expected negative repercussions of the changes in the political and economic situation in Europe. Closer study of crucial EU enlargement issues arising as a result of the new member states (NMS) having shifted to the EU common customs tariffs and preferential systems, their adoption of the EU foreign trade regime and the standardization of cargo transit rules and regulations applicable across the EU-25 as a whole demonstrate the need for a comprehensive approach to EU enlargement. That would make for a better understanding of the multifaceted and controversial impact that enlargement will have on the economic transition and industrial restructuring processes in Russia. As the EU penetrates more deeply into the markets of the countries of Central and Eastern Europe, Russia's share in bilateral and multilateral trade as well as other joint economic activities could be reduced still further. Russia is trying to promote its own specific vision of European integration based on two pillars: the European Union in the West and Russia-initiated integration models in the East (e.g. a Single Economic Space). By taking that route, Russia could retain its political and economic influence in those post-Soviet European countries, where its strategic interests lie. The EU subscribes to a markedly different approach. In late 2002 it began pursuing its European Neighbourhood Policy (ENP) that was specifically aimed at the eastern neighbours of the enlarged EU. It has demonstrated its growing political and economic engagement with those CIS member states that are now part of the ENP. The ENP transmits a clear message to Russia; it clearly signals the European Union's specific interests and objectives in Eastern Europe. The policy is quite explicit; it reveals that the EU intends to discuss all issues directly with the counties concerned, while the mediation of Moscow is totally or mostly ignored. As a result, a conflict of interest is becoming increasingly apparent in Eastern Europe, with the EU adhering to its ENP and Russia promoting its integration model. Numerous indicators of the state of relations between Russia and the EU show that however important it may be, economic cooperation is increasingly fraught with ambiguity and competition, which, in the final analysis, can but have a negative impact on the efficiency of that joint relationship.
    Keywords: economic restructuring, trade integration, EU¿Russia relations, Russia, EU enlargement
    JEL: F14 F15 F59 L60 P52
    Date: 2007–03
  2. By: Laura Hering; Sandra Poncet
    Abstract: This paper contributes to the analysis of growing income disparities within China. Based on a structural model of economic geography using data on per capita income, we evaluate the extent to which market proximity and spatial dependence can explain growing income inequality between Chinese cities. We rely on a data set of 195 Chinese cities between 1995 and 2002. Our econometric specification incorporates an explicit consideration of spatial dependence effects in the form of spatially lagged per capita income. We provide evidence that the geography of access to markets is statistically significant in explaining variation in per capita income in China, especially so in provinces with low migration inflows which is coherent with NEG theory.
    Keywords: Income inequality; economic geography; spatial dependence; China
    JEL: E1 O1 O5 R1
    Date: 2007–12
  3. By: Maswana, Jean-Claude
    Abstract: China‘s strong economic performance and its financial development outcomes are extremely difficult to reconcile with the dominant verdict that its financial system is seriously inefficient. Using an evolutionary perspective as a metaphor, this essay offered suggestions that adaptive efficiency criteria may help solve the apparent puzzle. An adaptive efficiency criterion offers conceptual as well as methodological approaches to resolving this puzzle and contradiction. The essay‘s discussions reveal that much of what critics cite as intermediation inefficiencies –non performing loans, directed credit allocation– are, in fact, a dissipative energy generating required spillovers fuelling the entire system. From this perspective, the essay argues that the relevant evaluation criterion for the Chinese financial system would be ―adaptive efficiency, instead of the conventional allocative one. This arises since China is an emerging economic system characterized primarily by state-owned financial institutions and whose goals are developmental.
    Keywords: Financial Development; China; Adaptive Efficiency; Co-evolutionary Perspective
    JEL: O1 P20 O4
    Date: 2005–03
  4. By: Ciobanu, George
    Abstract: Thanks to a level of growth in foreign investment, the gap is narrowing between Romania and other East European countries like the Czech Republic, Poland and Hungary, countries normally considered the preferred choice of foreign investors. In the last years, Romania has become a more appealing target for an increasing number of foreign investors. After its accession in NATO in 2004 and in European Union in 2007, Romania positioned itself very firmly within the Euro - Atlantic zone, with all political, economical and military consequences deriving from it.
    Keywords: foreign direct investment; economic growth; economic integration
    JEL: F15 F23 F21
    Date: 2008–02–20
  5. By: Matić, Branko; Serdarušić, Hrvoje
    Abstract: The paper discusses the reasons for the low development level of Eastern Croatia, as well as possible ways of overcoming this situation. The revenues of local and regional self-government are frequently insufficient to finance development projects. Different characteristics of these fiscalities, such as permanent income and changes in managing this income can reduce the costs and result in more prudent and economical stewardship of local and regional authorities. This refers primarily to concentrating public resources in one commercial bank, which would establish a kind of partnership between the bank and the local community. The paper further examines the influence of ownership structure and bank's domicile on business policies of the banks operating in Eastern Croatia. The proposed changes together with new ways of financing, such as issuing securities, could generate new positive effects in financing regional development.
    Keywords: regional development; financing; banks
    JEL: O1 G2 G3
    Date: 2007
  6. By: Marcello Signorelli; Enrico Marelli
    Abstract: The aim of this paper is to throw some light on the main differences/similarities and dynamics in institutional frameworks, regional/sectoral features and aggregate performances in the eight transition countries that became EU members in May 2004 (8-CEECs). In the second section, a partial review of the main theoretical and empirical literature on the "great transformation" (Kornai, 2006) is presented, with a particular attention to the researches focusing on the relationship between institutional change and economic/employment performance and to the studies considering some regional features of the transition processes. Some stylized facts for the eight CEECs are presented in the third section, by distinguishing (i) initial conditions, (ii) institutional changes and progress in transition and (iii) economic/employment performance (GDP growth, unemployment and employment rates, etc.). In the forth section, the empirical results on some regional (NUTS 3) features (convergence, concentration and specialisation) of the 8-CEECs are discussed. Finally, an attempt to econometrically investigate some determinants of regional income convergence and national GDP and employment dynamics is presented in the fifth section, by highlighting the role of institutional change and some regional features. The main policy implications, concerning both European and national economic policies, are presented in the conclusive section.
    Keywords: Transition countries, institutional change, regional features, aggregate performance
    JEL: P52 R11 P25 P27
    Date: 2007–09–01
  7. By: Garbis Iradian
    Abstract: This paper analyses some of the main factors behind the recent rapid growth in the Commonwealth of Independent States (CIS) and the prospects for its continuation. Two approaches are used. The first approach uses growth accounting exercises to estimate the total factor productivity (TFP) growth of all transition economies and compare them with other fast-growing economies. The second approach uses panel regression to estimate the determinants of per capita and TFP growth for 90 countries. Both short-run and long run coefficients are estimated using fixed effects, random effects, and two stage least squares (2SLS) econometric techniques. The central conclusion of the study is that the rapid growth of the CIS countries over the past six years has been driven primarily by improvement in labour productivity, increases in capacity utilization, recovery of previously lost output, favourable commodity prices, and large increases in remittances. This strong growth may continue over the next few years. Why? First, the still relatively low real GDP base and low average per capita means that there is more catch-up potential. Second, the recent trend of faster capital accumulation is expected to play a more important role in the medium-term growth. Third, education levels are relatively much higher than in other regions. There is a downside risk, however, arising from the high concentration of exports in a few commodities. The undiversified export structure and the terms-of-trade gains may expose the CIS countries to considerable external risks. The challenge, therefore, will be to improve the investment climate in the non-primary sectors. Improving the investment climate will require further progress in implementing structural reform and strengthening institutional development. The undiversified export structure and the terms-of-trade gains may expose the CIS countries to considerable external risks. As time passes, the share of growth derived from improved resource allocation may diminish gradually and long-term rapid growth will be increasingly dependent on physical and human capital accumulation.
    Keywords: growth, TFP, remittances, institutions
    JEL: F1 O47 F20 N7
    Date: 2007–02
  8. By: Irena Jindøichovská (Department of Accounting, Business School, The University of Buckingham, United Kingdom); Pavel Körner (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper investigates the empirical evidence on determinants of financing decisions on the pool of respondents among financial managers of Czech firms. The theoretical section provides an overview of prominent contemporary theories on capital structure. Employing Chi-square Sign Test and Logit regression the empirical analysis provides the evidence how the financial managers perceive particular instruments of internal and external financing. We find, that firms follow pecking order theory for working capital financing, however the arguments for pecking order theory in investment financing are not that strong. Firms prefer retained earnings among internal financing instruments and bank loans and leasing among external financing instruments. Finally, the paper discusses the links with practice and some limitations of the results.
    Keywords: corporate finance, capital structure, trade-off theory, pecking order theory, transition economies, survey
    JEL: G32
    Date: 2008–01
  9. By: Gábor Hunya (The Vienna Institute for International Economic Studies, wiiw); Waltraut Urban (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Part 1 of the report provides an overview of the position of energy-intensive industries in Romania as compared to other Central and East European economies. The industries identified as particularly 'energy-intensive' are the paper industry, the chemical, the non-metallic mineral products and the basic metals industries. The countries selected for benchmarking are the Czech Republic, Hungary, Poland, Slovakia and Bulgaria. The comparison includes production, employment, productivity and investment including foreign direct investment in the respective branches. Part 2 presents a more detailed analysis of the most energy-intensive sub-branches (pulp & paper, basic chemicals, glass, ceramics, cement, iron & steel and aluminium) focusing on major performance indicators such as value added and foreign trade developments; also included is information on the ownership structure, status of modernization, compliance with the acquis and the further demand for restructuring. Part 3 points out the demand for and possibilities of policy support for the energy-intensive branches in Romania with a view to EU membership. A special focus is on sectoral issues (steel and basic chemicals), energy pricing (electricity, gas), regional, labour market and environmental issues.
    Keywords: Romania, energy intensity, industrial policy, foreign trade, competitiveness
    JEL: L1 L52 L61 L65 H32 Q43 Q48 Q58
    Date: 2007–04
  10. By: Gábor Hunya (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In 2004 the Austrian-based OMV acquired in a privatization process 51% of the Romanian national oil company Petrom. Two and a half years later this privatization is again in the focus of political attention in Romania. The current government and the media consider the selling price and the royalties too low in view of the high international oil and gas prices. The whole issue of privatization is on the agenda. This paper investigates the privatization of Petrom in its historical context and deals with its consequences. In 2003-2004 the privatization of large companies was seen as a prerequisite to put an end to non-transparent subsidization, rent-seeking and favouritism in the Romanian economy. The Petrom sale was urged by the necessity to obtain from the EU Commission the ¿functioning market economy status¿ and to close all negotiation chapters by the end of 2004. Fair and open bidding resulted in selecting the winner and setting the sales price. The conditions of privatization, the sales price and other stipulations of the privatization process reflected the then level of knowledge and the risks associated with a Romanian company. Meanwhile, due to high international oil prices and the improved business conditions in Romania, an EU member as of 2007, the value of the company is now certainly higher than it was two years ago ¿ which also benefits the Romanian state as (direct and indirect) holder of 40% of Petrom's shares. It is debatable how far the recent increases in international oil prices could be foreseen in 2003, but it is quite certain that the International Energy Agency and large oil companies did not expect such a development. Still, the high oil prices benefit Petrom, and the large one-time profits finance investments. The sale of Petrom to OMV and its subsequent restructuring stabilized the company. New technologies, management techniques and organizational structures have increased efficiency. The company envisages the production decline to come to an end in 2007; explorations in Kazakhstan will add to Romania¿s supply in the future. As a further advantage, Petrom is the OMV subsidiary in charge of the company¿s business in the CIS and in Southeast Europe, Bucharest becoming the regional headquarters. The discussions around the OMV'Petrom case should have no relevance for greenfield investments in Romania, but large-scale privatizations particularly in the energy sector suffer delays. The government has stalled a number of important privatizations thus nurturing potential hotbeds of corruption.
    Keywords: privatization, oil and gas security, gas price, Romania, Petrom, OMV
    JEL: F23 L33 L71 P26 P31 Q38
    Date: 2007–03
  11. By: Kiryl Kurilionak; Stanislav Vassilevsky; Vitaly Medvedev
    Abstract: In this paper we consider the possible consequences that accession to the World Trade Organization (WTO) bears for Belarus. Our approach is based on partial equilibrium. We have applied a method of locating specific 'sensitive' points in the economy and treating them as separate items: specific elements in the economic system on which WTO access will have an appreciable impact. Our research focuses on Belarusian manufacturing. We first determine possible changes in access to foreign markets associated with the cancellation of discriminatory non-tariff, antidumping and other restrictive measures introduced by WTO members. Total losses to the Belarusian manufacturers are currently estimated to be of the order of USD 230-250 million a year. Lifting those barriers will constitute the immediate short-term benefits to Belarus on accession to the WTO. In order to assess the short-term impact of WTO accession on Belarusian manufacturing, the scenario used assumed a reduction of tariffs, complete removal of discriminatory measures and a lowering of market barriers to Belarusian exports. A quantitative assessment was made of the gains and losses by manufacturing branch, followed by a simple sensitivity analysis. The latter revealed the Belarusian manufacturers' ability to withstand increased import competition up until such time as the requisite restructuring measures have been introduced. Summary conclusions are drawn for each branch in the light of those findings. One section of the paper focuses on the implications for Belarus of the Russian Federation's accession to the WTO. Consideration is given to the possible impact on Belarusian exports to the Russian market. The analysis shows, however, that Russia's joining the WTO does not incur the risk of Belarus losing its share of the Russian market. In the final section, consideration is given to state support for agriculture and the development of service markets, with a discussion on possible forms of, and limits to, liberalization. The final conclusion is that liberalizing the imports of certain items is very much in line with the need to revise the current structure of trade specialization in Belarus. Import liberalization should not be seen simply as a trade-off for the non-discrimination of Belarusian exports. If the economy of Belarus is to benefit, the country must pursue a consistent policy of cutting back or closing down those manufacturing activities that are unlikely to evolve into internationally competitive industries. Liberalization of the domestic market in the wake of WTO accession must be in keeping with: (a) the financial viability of specific industries; and (b) the need to provide in a manner compatible with WTO rules and regulations additional protection to those industries with high value-added that are of strategic importance to the country¿s future development.
    Keywords: international trade, WTO accession, manufacturing, services, agriculture
    JEL: F1 F42 F53 L6 L8 O24
    Date: 2007–01
  12. By: Nguyen, Anh Ngoc; Nguyen, Thang; Le, Dang Trung; Pham, Quang Ngoc; Nguyen, Dinh Chuc; Nguyen, Duc Nhat
    Abstract: In the context of integrating more deeply into the world economy the Vietnamese policy makers have undertaken several measures to attract foreign direct investment to the country, with the culmination of FDI inflows in 2007 reaching over USD 20 billion, an increase of 69% over 2006. The policy has been taken on the ground that the FDI inflows will create employment and bring along the much needed technological advances, which will spill over to domestic firms. In this paper, we use a firm-level panel data constructed from the Census 2000-2005 to investigate not only the horizontal spillovers but also the backward and forward linkages. Adding to the current literature which focused mainly on the spillovers in the manufacturing sector, our paper provide the first estimates of the spillover effects in the service sector (at least in the context of developing countries). We also distinguish between the horizontal output spillovers (which capture demonstration effects and competition effects) and the horizontal employment spillover (which captures the labour mobility effect). The results obtained from our regression models are mixed. Different channels of spillovers are at work for the manufacturing and the service sectors. We find evidence of the positive backward technological spillovers for the manufacturing and positive horizontal spillovers for the service sector.
    Keywords: Foreign Direct Investment; Vietnam; technological spillovers;
    JEL: F15 F23 D24
    Date: 2008–01–01

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