nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒03‒15
fifteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Regional Unemployment and Human Capital in Transition Economies By Stepan Jurajda; Katherine Terrell
  2. Wage Policies of a Russian Firm and the Financial Crisis of 1998: Evidence from Personnel Data – 1997 to 2002 By Dohmen, Thomas; Lehmann, Hartmut; Schaffer, Mark
  3. Growth Resurgence, Productivity Catching-up and Labour Demand in CEECs By Peter Havlik; Sebastian Leitner; Robert Stehrer
  4. Economic Growth—Human Capital Nexus in Post-Soviet Ukraine, 1989-2009 By Osipian, Ararat
  5. Growing export performance of transition economies: EU market access versus supply capacity factors By Joze P. Damijan; Matija Rojec; Maja Ferjancic
  6. Economic Growth: Education as a Factor of Production By Osipian, Ararat
  7. China's Exchange Rate Policy: A Survey of the Literature By Robert Lafrance
  8. Decomposition of external capital inflows and outflows in the small open transition economy (The case analysis of the Slovak republic) By Mirdala, Rajmund
  9. Drivers of national innovative systems in transition: an Eastern European cross-country analysis By Krammer, Marius /S.S.
  10. Ecological Economics of Water in China: Towards A Strategy for Sustainable Development By Khan, Haider; Liu, Yibei
  11. Information and communication technologies and geographic concentration of manufacturing industries: Evidence from China By Hong, Junjie; Fu, Shihe
  12. Performance and financing of the corporate sector: the role of foreign direct investment By Adam Geršl
  13. IT Management of Chinese Firms: Quantitative Analysis by Using Survey Data By Xiaoyang FENG; MOTOHASHI Kazuyuki
  14. The Impact of Territorially Concentraced FDI on Local Labor Markets: Evidence from the Czech Republic By Marian Dinga
  15. Exchange Rate Forecasting: Evidence from the Emerging Central and Eastern European Economies By Ardic, Oya Pinar; Ergin, Onur; Senol, G. Bahar

  1. By: Stepan Jurajda; Katherine Terrell
    Abstract: Differences in regional unemployment in post-communist economies are large and persistent. We show that inherited variation in human-capital endowment across the regions of four such economies explains the bulk of regional unemployment variation there and we explore potential explanations for this outcome through related capital and labor mobility patterns. The evidence suggests that regions with high inherited skill endowments attract skilled workers as well as FDI. This mobility pattern, which helps explain the lack of convergence in regional unemployment rates, is consistent with the presence of complementarities in skill and capital. Nevertheless, we find no supporting evidence of human capital wage spillovers implied by the complementarities story. Unemployment of the least-skilled workers appears lower in areas with a higher share of college-educated labor and future research is needed to see if this finding as well as the observed migration pattern arise from different adjustments to regional shocks by education level brought about in part by Central European labor-market institutions, such as guaranteed welfare income raising effective minimum wages.
    Keywords: Unemployment, Human capital, Regional labor markets, Transition economies, Labor Mobility, Complementarities, Spillovers, Czech Republic, Hungary, Romania, Ukraine.
    JEL: E24 J0 J61
    Date: 2007–12
  2. By: Dohmen, Thomas (ROA, Maastricht University); Lehmann, Hartmut (University of Bologna); Schaffer, Mark (Heriot-Watt University, Edinburgh)
    Abstract: We use a rich personnel data set from a Russian firm for the years 1997 to 2002 to analyze how the financial crisis in 1998 and the resulting change in external labor market conditions affect the wages and the welfare of workers inside a firm. We provide evidence that large shocks to external conditions affect the firm’s personnel policies, and show that the burden of the shock is not evenly spread across the workforce. The firm takes advantage of a high-inflationary environment and of a fall in workers’ outside options after the financial crisis and cuts real wages. Earnings are curbed most for those who earned the highest rents, resulting in a strong compression of real wages. The fact that real wages and real compensation levels never recovered to pre-crisis levels even though the firm’s financial situation was better in 2002 than before the crisis and the differential treatment of employee groups within the firm can be taken as evidence that market forces strongly influence the wage policies of our firm.
    Keywords: internal labor markets, wage policies of a firm, personnel data, Russia
    JEL: J23 J31 P23
    Date: 2008–02
  3. By: Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The collapse of communist regimes in Central and Eastern Europe marked a historical event for the countries on both sides of the iron curtain. Using the recently released EU KLEMS database on detailed sectoral growth and employment measures, we analyse the productivity performance in the period after 1995 for five transition economies, i.e. the Czech Republic, Hungary, Poland, the Slovak Republic and Slovenia, and compare their performance with a group of European core economies and partly Austria as a neighbouring small open economy. Our analysis reveals a strong catching-up process with the Western European economies in terms of productivity and sectoral structures. The factors driving this convergence process, however, differ across countries and industries. Apart from an analysis at the aggregate or broad sectoral performance we devote special emphasis to the detailed industry level and in particular to the manufacturing industry, which has served as the main driver in growth and productivity. We demonstrate that the Central and Eastern European countries have successfully specialized in higher-tech industries while maintaining gaps, albeit diminishing, in services. As the strong productivity catching-up was accompanied by low employment growth in the period 1995-2004 - despite high unemployment levels - we also investigate the labour market structures and the changes in patterns of employment.
    Keywords: economic transition, restructuring, growth, multifactor productivity, labour demand
    JEL: D24 P52
    Date: 2008–02
  4. By: Osipian, Ararat
    Abstract: This book presents theoretical and empirical investigation of economic growth and the possible impact of human capital on economic growth in Ukraine, the Russian Federation, Poland, and Hungary during the period of 1989-2009. This research defines place and role of human capital in the process of transition from the exogenous to the endogenous forms of growth and socio-economic development. It research presents an extended statistical analysis of transition economies. Substantial part of the book is devoted to the integrative scholarly synthesis with the special emphasis on theoretical aspects of economic growth.
    Keywords: economic growth; human capital; transition
    JEL: O47 P24 J24
    Date: 2008–01–01
  5. By: Joze P. Damijan; Matija Rojec; Maja Ferjancic
    Abstract: Remarkable growth of export performance of transition economies has been one of the most outstanding features of the transition and EU integration processes. The paper looks at the reasons behind this phenomenon. Following Redding and Venables (2003, 2004), and Fugazza (2004), we distinguish between foreign/EU market access and internal supply capacity factors. EU market access has been of great importance for export performance but does not explain the inter country differences. Inter country differences in export performance are explained by internal supply capacity factors, where stable institutional setup, structural reforms, and targeted FDI are in the forefront.
    Keywords: export performance, transition economies of Central and Eastern Europe, (EU) market access, supply capacity, institutional setup, FDI
    JEL: F12 F15 F21 O10 P30
    Date: 2008
  6. By: Osipian, Ararat
    Abstract: This book presents theoretical and empirical investigation of the possible impact of human capital on economic growth in transition economies of Ukraine, Russia, Poland, and Hungary during the period of 1990-2007. This research defines place and role of human capital in the process of transition from the exogenous to the endogenous forms of growth and socio-economic development. Substantial part of the book is devoted to the integrative scholarly synthesis with the special emphasis on theoretical aspects of economic growth. The research presents both exogenous and endogenous models of growth, including Harrod-Domar, Solow, Solow-Swan, Leontief, Mankiw, Barro, and other models.
    Keywords: economic growth; human capital; transition
    JEL: O47 P24 J24
    Date: 2007–12–01
  7. By: Robert Lafrance
    Abstract: China's integration into the world economy has benefited its people by reducing poverty and raising living standards, and it has benefited the industrialized world by producing manufactured goods at lower cost. It has also raised geopolitical concerns as China's power grows, economic concerns as the manufacturing base in many industrialized countries erodes, and polemics as proposals of protectionist measures to counter China's export growth are put forward. The author reviews the literature on how China's exchange rate regime could evolve and contribute, through greater flexibility, to tempering domestic inflationary pressures and to facilitating an orderly resolution of global imbalances. His main conclusions are that China would benefit from moving towards a more flexible exchange rate regime and allowing the People’s Bank of China greater independence to pursue an inflation-control objective. In a transition phase, a managed float would be useful to limit volatility as firms adapt to the new system and the banking system is put on a sounder footing, a monetary policy framework is put in place, and capital controls are progressively eased. Shock therapy (a quick and pronounced revaluation) would be ill advised.
    Keywords: Exchange rate regimes
    JEL: F33 F36
    Date: 2008
  8. By: Mirdala, Rajmund
    Abstract: The main objective of the proceeding is to perform a logical decomposition of the structure of external capital inflows and outflows in the Slovak republic in order to analyze the main trends in the external financial integration and its development through the period of 1994-2006. In order to fulfill our objective we observe the changes in the structure of external financial assets and liabilities in order to provide the explanation of main trends in the external capital portfolio of the Slovak republic. Finally, we explore the implications of the accumulated stock of external capital for future trade and current account balances.
    Keywords: financial integration; external capital structure; foreign financial assets; foreign financial liabilities; transition economies
    JEL: F15 F41 F36
    Date: 2007–11
  9. By: Krammer, Marius /S.S.
    Abstract: Innovation plays a crucial role in determining today’s economic growth patterns. But what enables some countries to innovate more than others? This paper employs in premiere a panel of sixteen Eastern European countries throughout their transition period exploring empirically the drivers of their innovative capacity using as a proxy the number of patent granted in the USA. The econometric analysis confirms the importance of R&D commitments and innovative tradition in the form of existing knowledge stock. Increased trade openness and intellectual rights protection determine higher international patenting, while the transition specific factors, such as structural industrial distortions or aggregated output drops, have a significant negative influence. Governmental funding and research performance of universities encourage more innovation at the technological frontier, while the business R&D funding in Eastern Europe is negatively correlated with it.
    Keywords: National innovative systems; Transitional Economies; Patents; Eastern Europe;
    JEL: P2 O57 O3
    Date: 2008–03–07
  10. By: Khan, Haider; Liu, Yibei
    Abstract: The main purpose of this paper is to analyze one important part of the emerging environmental problems in China--- water pollution. The importance of water for any nation is obvious. In case of China it acquires particular salience because of China’s industrial needs as well as human needs. Particularly significant is the rapid deterioration of the water quality and development of water shortages. Unless effective policy interventions are made quickly, this can develop into a major ecological disaster. We present arguments for taking the water resources problem in China seriously. The continuing and rapid deterioration of water quality poses grave health and other types of environmental threats. If these threats are not addressed in a timely manner, the situation will deteriorate even faster. The Chinese 11th five year plan acknowledges many of these problems. The analysis in this paper is consistent with the stated objective of addressing ecological issues via a new development strategy. We consider the institutional and policy-making issues carefully. The complexities of the water resource administration system in China are challenging. Coordination among WMR, SEPA, MOC, MOA, SFA, MoC, MOH and many other branches of the government will tax even the most sophisticated administrative apparatus. Clearly some simplification and streamlining is called for. At the same time, decentralization--- with proper incentives and monitoring mechanisms--- that gives more resources at the local level to fund defensive measures can improve performance on the ground. In the age of globalization, at least a significant part of China’s environmental problems stem from FDI-led production for export markets. Many enterprises have lax environmental management practices. This, of course, applies to many domestic SOEs as well. In all these cases, both market incentives such as effluent fees and better regulations with proper enforcement are needed. Regional and International cooperation and sharing of responsibilities are necessary parts of an overall policy package.
    Keywords: Ecological Economics; Water Pollution; Economic Growth; Development Strategy; China; Coase Theorem; Externalities
    JEL: O25 O13 O32 O33 O21
    Date: 2008
  11. By: Hong, Junjie; Fu, Shihe
    Abstract: Using the 2004 China economic census database, this paper examines the impact of information and communication technologies (ICT) on the geographic concentration of manufacturing industries, controlling for other determinants of industrial agglomeration. Higher geographic concentration is found consistently in industries where ICT are more widely adopted, and the association is stronger at higher geographic levels. Furthermore, young firms that have adopted ICT, although they are more footloose, contribute to industrial agglomeration. High-tech industries with advanced ICT also tend to agglomerate. Contrary to the prevalent argument that ICT lead to more dispersion, our study suggests that ICT promote industrial agglomeration.
    Keywords: Information and communication technologies; Geographic concentration; Agglomeration
    JEL: R32 R12
    Date: 2008–03–08
  12. By: Adam Geršl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank)
    Abstract: Foreign direct investment has been one of the main drivers of economic developments over the past few years in Central and Eastern Europe (CEE). Within the ongoing globalization and international division of labor, a large number of foreign companies have established production units in CEE countries to benefit from low labor costs and other advantages. This study looks both in theoretical and empirical terms at whether large foreign presence has also affected domestic firms. Foreign firms might both intentionally and unintentionally influence the productivity, financing and export performance of local firms within the same industry or across industries along the production chain via sub-supplier and client linkages. Economic theory does not suggest unambiguous answer to a question whether the influence is positive or negative. For answering the question, both firm-level and industry-level data on performance, financing and exports and interactions of firms within production chain in the Czech Republic are analyzed.
    Keywords: foreign direct investment; productivity; corporate finance; export performance
    JEL: F21 D24 L60 G32 F40
    Date: 2008–03
  13. By: Xiaoyang FENG; MOTOHASHI Kazuyuki
    Abstract: This paper presents quantitative analysis of IT use, management, and organization at Chinese firms, based on the "International Comparative Survey of Firms' IT Strategies" conducted by the Research Institute of Economy, Trade and Industry (RIETI). The results of analysis show that Chinese firms have achieved remarkable progress with regards to the ability of IT to support business and strategies, and they have a clear comprehension of information resources and realize the importance of IT in some degree. However, we cannot find significant impact of IT use on firm profitability. This may be due to the fact that application of IT in Chinese firms is still in transition from the IT support stage of development, and further efforts for improving IT management are needed. In terms of IT organization, the share of firms with a chief information officer (CIO) is quite large, but most of the CIOs are only IT department managers. The status of CIOs in Chinese firms is low, and their power to influence managerial decisions at the company-wide level is still weak.
    Date: 2008–03
  14. By: Marian Dinga
    Abstract: This paper investigates the impact of a large territorially concentrated FDI inflow on local labor market outcomes using district panel data from the Czech Republic. Toyota- Peugeot´s joint investment in Kolín is used to quantify the effect of FDI on the district unemployment outflow and inflow rates, the aggregate unemployment exit hazard rates, and subsequently both the unemployment rate and the employment rate. Using difference-in-differences analysis, labor market performance of `treatment' and `control' districts for two periods (before and after the investment) are compared. Placebo simulations reveal that conventional least squares estimates lead to serious underestimation of standard errors. Therefore, in order to account for serial correlation, the block bootstrapping technique is used to compute consistent standard errors. The results indicate a positive significant impact of the investment on the local unemployment outflow rate driven mainly by increases in the aggregate unemployment hazard rates for durations less than nine months. However, the impact on longer unemployment durations remained negligible. Consequently, the local unemployment rate decreased and the employment rate increased in the `treated' district.
    Keywords: Labor market, unemployment, employment, foreign direct investment.
    JEL: F21 J21 J61 J64
    Date: 2008–02
  15. By: Ardic, Oya Pinar; Ergin, Onur; Senol, G. Bahar
    Abstract: There is a vast literature on exchange rate forecasting focusing on developed economies. Since the early 1990s, many developing economies have liberalized their financial accounts, and become an integral part of the international financial system. A series of financial crises experienced by these emerging market economies ed them to switch to some form of a flexible exchange rate regime, coupled with inflation targeting. These developments, in turn, accentuate the need for exchange rate forecasting in such economies. This paper is a first attempt to compile data from the emerging Central and Eastern European (CEE) economies, to evaluate the performance of versions of the monetary model of exchange rate determination, and time series models for forecasting exchange rates. Forecast performance of these models at various horizons are evaluated against that of a random walk, which, overwhelmingly, was found to be the best exchange rate predictor for developed economies in the previous literature. Following Clark and West (2006, 2007) for forecast performance analysis, we report that in short horizons, structural models and time series models outperform the random walk for the six CEE countries in the data set.
    Keywords: Exchange rate forecasting; Out-of-sample forecast performance
    JEL: C53 F31
    Date: 2008–03–06

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