nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒03‒25
nineteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Resource abundance and regional development in China: By Zhang, Xiaobo; Xing, Li; Fan, Shenggen; Luo, Xiaopeng
  2. The Economic Effects of Croatia’s Accession to the EU By Lejour, Arjan Marcel; Mervar, Andrea; Verweij, Gerard
  4. Agricultural policies in Bulgaria in post Second World War years By Bachev, Hrabrin
  5. The role of clustering in rural industrialization: A Case Study of the Footwear Industry in Wenzhou By Huang, Zuhui; Zhang, Xiaobo; Zhu, Yunwei
  6. Russian market power on the EU gas market: can Gazprom do the same as in Urkaine? By Joris Morbée; Stef Proost
  7. Risk governance in agriculture By Bachev, Hrabrin
  8. Can the Augmented Solow Model Explain China's Economic Growth? A Cross-Country Panel Data Analysis By Sai Ding; John Knight
  9. Trade Growth, Production Fragmentation, and China's Environment By Judith M. Dean; Mary E. Lovely
  10. Tax and Welfare Reforms in the Czech Republic - Structural Implications and Challenges By Thomas Dalsgaard
  11. The Higher Educational Transformation of China and Its Global Implications By Yao Li; John Whalley; Shunming Zhang; Xiliang Zhao
  12. Environmental management in Bulgarian agriculture By Bachev, Hrabrin
  13. Migration Experiences of North Korean Refugees: Survey Evidence from China By Yoonok Chang; Stephan Haggard; Marcus Noland
  14. Realities and perspectives of Romanian knowledge-based economy in the context of EU integration By Burja , Camelia; Burja, Vasile
  15. A Test of the Balassa-Samuelson Effect Applied to Chinese Regional Data By Stephen G Hall; Qian Guo
  16. Is economic growth sustainable in Romania? By Ciobanu, George; Ciobanu, Andreea Maria
  17. Post-communist Transformation in Bulgaria – Implications for Development of Agricultural Specialization and Farming Structures By Bachev, Hrabrin
  18. Aspirations, Adaptation and Subjective Well-Being of Rural-Urban Migrants in China By John Knight; Ramani Gunatilaka
  19. Impact of institutional modernization and EU integration on Bulgarian farms By Bachev, Hrabrin

  1. By: Zhang, Xiaobo; Xing, Li; Fan, Shenggen; Luo, Xiaopeng
    Abstract: "Over the past several decades, China has made tremendous progress in market integration and infrastructure development. Demand for natural resources has increased from the booming coastal economies, causing the terms of trade to favor the resource sector, which is predominantly based in the interior regions of the country. However, the gap in economic development level between the coastal and inland regions has widened significantly. In this paper, using a panel data set at the provincial level, we show that Chinese provinces with abundant resources perform worse than their resource-poor counterparts in terms of per capita consumption growth. This trend that resource-poor areas are better off than resource-rich areas is particularly prominent in rural areas. Because of the institutional arrangements regarding property rights of natural resources, most gains from the resource boom have been captured either by the government or state owned enterprises. Thus, the windfall of natural resources has more to do with government consumption than household consumption. Moreover, in resource-rich areas, greater revenues accrued from natural resources bid up the price of non-tradable goods and hurt the competitiveness of the local economy." from Authors' Abstract
    Keywords: Regional inequality, Resource curse, Dutch disease, Property rights, Rural-urban linkages,
    Date: 2007
  2. By: Lejour, Arjan Marcel; Mervar, Andrea; Verweij, Gerard
    Abstract: We explore the economic implications of the possible accession of Croatia to the European Union. We focus on two main changes associated with the EU-membership: accession to the internal European Market and institutional reforms in Croatia triggered by the EU-membership. consumption per capita in Croatia is estimated to rise by about 2.5% as a result of accession to the internal market. In particular the textile and wearing apparel sectors expand. If Croatia succeeds in reforming its domestic institutions in response to the EU-membership, income levels in Croatia could increase even more. In particular, tentative estimates suggest that GDP per capita in Croatia could even rise by additional 8%. Overall, the macroeconomic implications for the existing EU countries are negligible.
    Keywords: Regional economic integration, General equilibrium model, Gravity equations, Institutional reform, Croatia
    JEL: F13 F15
    Date: 2008
  3. By: Badulescu, Daniel; Bac, Dorin
    Abstract: The paper deals with the foreign penetration in the capital of bank sector in the countries in Central and Eastern Europe. We start with some methodological issues regarding the real measure of foreign penetration, including both the physical presence of foreign banks in the region and cross-border operations of foreign banks. Then we analyze the foreign, international and local claims of all banks reporting to Bank for International Settlements in relation with Central and Eastern Europe, as well as the distribution of these claims: by the currency of claims denomination (local vs. foreign), by country of capital origin, by sector of destination (public sector, private sector, banks), by destination country. The paper ends with some considerations on the foreign banks’ presence in Central and Eastern Europe countries: evolution and present penetration level.
    Keywords: foreign capital; bank sector; Central and Eastern Europe
    JEL: G32 G21
    Date: 2007–09–15
  4. By: Bachev, Hrabrin
    Abstract: This paper analyzes evolution, implementation and impacts of state agricultural policies in Bulgaria during post Second World War years now. Firstly, it presents agricultural policies development during 1950s and 1960s (post war nationalization, cooperation of peasants, central planning and price control, support to agriculture) and its impacts on farming modernization and improvement of peasants welfare. Second, it analyzes reforms in 1970s and 1980s (concentration of farming in large agro-industrial complexes, experimentations with “economic” mechanisms of governance) and their effects on agriculture. Third, it evaluates policies during post-communist transition and EU integration, and their consequences for agricultural development.
    Keywords: State agricultural policies; impacts on agriculture; Post Second World War; Communist system; post-communist transition; Bulgaria
    JEL: N54 Q18
    Date: 2008–03
  5. By: Huang, Zuhui; Zhang, Xiaobo; Zhu, Yunwei
    Abstract: "Wenzhou used to be one of the poorest regions in eastern China. With limited arable land, poor road access to major cities, and little support from the upper level governments, this region seemed to lack all the conditions necessary for economic growth. However, over the past several decades Wenzhou has developed the most dynamic private sector in China, and has accordingly achieved one of the fastest growth rates. In particular, the footwear industry in Wenzhou has grown from a negligible market share to the largest in China. Here, we report a survey of 140 Wenzhou-based footwear enterprises of various scales, and use this information to examine the driving forces behind the dramatic rural industrial growth seen in this region. Our results show that clustering deepens the division of labor in the production process and makes it possible for small entrepreneurial firms to enter the industry by focusing on a narrowly defined stage of production. Therefore, Wenzhou represents an example of how clustering plays a significant role in helping fledgling rural industries overcome the growth constraints of capital and technology in the incipient stage of industrialization." from Authors' Abstract
    Keywords: Cluster analysis, Industrialization, Finance, Economic development, Nonfarm economy,
    Date: 2007
  6. By: Joris Morbée; Stef Proost
    Abstract: In the course of 2006, Gazprom sharply increased gas prices for Ukraine, Belarus, Georgia and Moldova. This paper assesses (i) to what extent Europe is vulnerable to similar use of market power by Russia, and (ii) to what extent the construction of strategic gas storage could help Europe to reduce its vulnerability. The European market for imported gas is described by differentiated Cournot competition between Russia and other – potentially more reliable – suppliers, in particular LNG imports. The results show that Russian market power is limited, because demand is not completely inelastic even in the short run. Moreover, if Russia’s unreliability increases (or if European short-run demand elasticity decreases) Russia gives away more and more of its expected profits to the other suppliers. For Europe, buying gas from more reliable suppliers at a price premium turns out to be more attractive than building storage capacity.
    Date: 2008–03
  7. By: Bachev, Hrabrin
    Abstract: This paper identifies and assesses the efficiency of major modes for risk governance in agriculture on the base of Bulgarian dairy farming. Firstly, the New Institutional and Transaction Costs Economics is incorporated and a framework for analysis of the governance of natural, market, private, and social (institutional) risks presented. Next, the pace and challenges of the dairy farming development during the post-communist transition and EU integration is outlined. Third, major types of risks faced by the dairy farms are specified, and the dominant market, private, public and hybrid modes of risk governance assessed. Finally, principal forms of risks caused by the dairy farms are identified, and efficiency and impacts of governing structure assessed. Development of Bulgarian dairy farming has been associated with quite specific risk structures facing by and causing from this important sector of agriculture. The huge market and institutional instability and uncertainty, and the high transaction costs, have blocked evolution of effective market and collective modes for risk protection. A great variety of private modes (internal organization, vertical integration, interlinking etc.) has emerged to deal with the significant natural, market, private, and social risks faced by the dairy farms and other affected agents. Nevertheless, diverse risks associated with the dairy farming have not been effectively governed and persist during the transition now. That has been a consequence of ineffective public (Government, international assistance) intervention to correct market and private sector failures in risk governance. The later has had considerable negative impacts on evolution of size, productivity, and sustainability of farms, development of markets, structure of production and consumption, state of environment etc. What is more, certain risks related to the dairy sector have “disappeared” due to the lack of effective risk governance and declining dairy farming. That would lead to further deformation in development of dairy and related sectors unless effective public (regulations, assistance, control etc.) measures are taken to mitigate the existing problems and risks.
    Keywords: natural; market; private; and institutional risk management; governance; dairy farming; transition; CAP implementation; new institutional economics; Bulgaria
    JEL: D23 Q10
    Date: 2008–03
  8. By: Sai Ding; John Knight
    Abstract: China’s economy grew at an average annual real growth rate of 9 percent over the last three decades. Despite the vast empirical literature on testing the neoclassical model of economic growth using data on various groups of countries, very few cross-country regressions include China and none of them particularly focuses on the explanation of China’s remarkable economic growth. We attempt to fill this gap by utilizing panel data on 146 countries over the period 1980-2000 to examine the extent to which the growth difference between China and other countries can be explained by the augmented Solow model. The estimates are based on system GMM estimation which allows for unobserved country-specific effects, measurement error, and endogeneity problems of regressors. We find that, in spite of the restrictive assumptions involved, the Solow model augmented by both human capital and structural change provides a fairly good account of international variation in economic growth. In particular, physical capital investment, changes in the structure of employment, conditional convergence, and population growth are the main sources of the growth difference between China and many other countries.
    Keywords: China, Augmented Solow Model, Cross-Country Growth Regression
    JEL: O11 O47
    Date: 2008
  9. By: Judith M. Dean; Mary E. Lovely
    Abstract: Trade growth for a relatively poor country is thought to shift the composition of industrial output towards dirtier products, aggravating environmental damage. China's rapidly growing trade and serious environmental degradation appear to be no exception. However, much of China's trade growth is attributable to the international fragmentation of production. This kind of trade could be cleaner, if fragmented production occurs in cleaner goods, or if China specializes in cleaner stages of production within these goods. Using Chinese official environmental data on air and water pollution, and official trade data, we present evidence that (1) China's industrial output has become cleaner over time, (2) China's exports have shifted toward relatively cleaner, highly fragmented sectors, and (3) the pollution intensity of Chinese exports has fallen dramatically between 1995 and 2004. We then explore the role of fragmentation and FDI in this trend toward cleaner trade. Beginning with a standard model of the pollution intensity of trade, we develop a model that explicitly introduces production fragmentation into the export sector. We then estimate this model using pooled data on four pollutants over ten years. Econometric results support the view that increased FDI and production fragmentation have contributed positively to the decline in the pollution intensity of China's trade, as has accession to the WTO and lower tariff rates.
    JEL: F1 F14 F18 F2
    Date: 2008–03
  10. By: Thomas Dalsgaard
    Abstract: The paper provides an analysis and discussion of key structural implications of the 2007 and 2008 welfare and tax reforms in the Czech Republic. Based on a detailed micro-study of marginal and average effective tax rates for individuals at various points along the earnings curve, it concludes that while incentives to save and invest have improved, work incentives are being severely hampered by high marginal effective tax rates for low- and middle income individuals. The reforms also fail to address the most pressing fiscal concern: to put government finances on a sustainable path.
    Keywords: Welfare reform , Czech Republic , Tax reforms , Tax rates , Labor markets , Income distribution ,
    Date: 2008–03–04
  11. By: Yao Li; John Whalley; Shunming Zhang; Xiliang Zhao
    Abstract: This paper documents the major transformation of higher education that has been underway in China since 1999 and evaluates its potential global impacts. Reflecting China's commitment to continued high growth through quality upgrading and the production of ideas and intellectual property as set out in both the 10th (2001-2005) and 11th (2006-2010) five-year plans, this transformation focuses on major new resource commitments to tertiary education and also embodies significant changes in organizational form. This focus on tertiary education differentiates the Chinese case from other countries who earlier at similar stages of development instead stressed primary and secondary education. The number of undergraduate and graduate students in China has been grown at approximately 30% per year since 1999, and the number of graduates at all levels of higher education in China has approximately quadrupled in the last 6 years. The size of entering classes of new students and total student enrollments have risen even faster, and have approximately quintupled. Prior to 1999 increases in these areas were much smaller. Much of the increased spending is focused on elite universities, and new academic contracts differ sharply from earlier ones with no tenure and annual publication quotas often used. All of these changes have already had large impacts on China's higher educational system and are beginning to be felt by the wider global educational structure. We suggest that even more major impacts will follow in the years to come and there are implications for global trade both directly in ideas, and in idea derived products. These changes, for now, seem relatively poorly documented in literature.
    JEL: I2 I23
    Date: 2008–03
  12. By: Bachev, Hrabrin
    Abstract: This paper presents a new framework for analysis and improvement of environmental management based on the achievements of the New Institutional and Transaction Costs Economics. Following that new framework we first, identify the major environmental problems and risks in Bulgarian agriculture. Next, we access efficiency of market, private and public modes of environmental management employed in the sector. And finally, we give prospects and major challenges of environmental management in conditions of EU Common Agricultural Policy implementation. Our analysis shows that post-communist transition of Bulgarian agriculture has changed the state of the environment and brought some new challenges such as: degradation and contamination of farmland, pollution of surface and ground waters, loss of biodiversity, significant greenhouse gas emissions etc. Badly defined and enforced environmental rights, prolonged process of privatization of agrarian resources, carrying out farming in structures not motivating in long-term investment, low appropriability of certain environmental rights and high uncertainty and assets specificity of environment related transactions, all these factors have been responsible for failure of market and private modes of environmental management. The strong needs for a public intervention have not been met by an effective government, community, international assistance etc. intervention. Consequently agrarian sustainability has been severely compromised. The assessment of likely impact of EU CAP implementation under “Bulgarian” conditions indicates that the main beneficiary of various new support measures will be the biggest operators. Income, technological and environmental discrepancy between different farms, sub-sectors and regions will be further enhanced. Our analysis has been also supported by field survey data from different type dairy farms from two major milk producing regions of the country. We have found out that a great number of farms have no sufficient capacity for adaptation to new EU requirements for the dairy sector. The bulk of milk producers expect no positive impact of CAP measures on their income, volume and technology of production, investment level, product quality, access to public programs, improvement of environmental care, improvement of animal welfare, development of infrastructure, possibilities for new income generation, and social status of farm households.
    Keywords: environmental management; market; private and public governance; agrarian transition; CAP implementation; governing agrarian sustainability; comparative institutional analysis; transaction costs; Bulgaria
    JEL: D23 O13
    Date: 2008–03
  13. By: Yoonok Chang (Hansei University, Foreign Language Education Center, Department of Graduate Education); Stephan Haggard (University of California, San Diego Graduate School of International Relations and Pacific Studies); Marcus Noland (Peterson Institute for International Economics)
    Abstract: Chronic food shortages, political repression, and poverty have driven tens of thousands of North Koreans into China. This paper reports results from a large-scale survey of this refugee population. The survey provides insight not only into the material circumstances of the refugees but also into their psychological state and aspirations. One key finding is that many North Korean refugees suffer severe psychological stress akin to post-traumatic stress disorder. This distress is caused in part by their vulnerability in China, but it is also a result of the long shadow cast by the North Korean famine and abuses suffered at the hands of the North Korean political regime: first and foremost, perceptions of unfairness with respect to the distribution of food aid, death of family members during the famine, and incarceration in the North Korean gulag, where the respondents reported witnessing forced starvation, deaths due to torture, and even infanticide and forced abortions. These traumas, in turn, affect the ability of the refugees to hold jobs in China and accumulate resources for on-migration to third countries. Most of the refugees want to permanently resettle in South Korea, though younger, better-educated refugees prefer the United States as a final destination.
    Keywords: North Korea, China, refugees, migration
    JEL: P2 P3 F22
    Date: 2008–04
  14. By: Burja , Camelia; Burja, Vasile
    Abstract: Developing the knowledge-based economy constitutes one of the strategic priorities of the European Union which aims the increase of the performance and economic competitiveness, and Romania like membership country has assumed this important objective. In the paper are carry out the general features of the knowledge-based economy, the competitiveness of Romania within the European Union from this perspective and there are formulated some directions of action in order to achieve the mentioned objective.
    Keywords: knowledge-based economy; economic competitiveness; European integration; policy innovation; knowledge management
    JEL: O1 O11
    Date: 2008–03–19
  15. By: Stephen G Hall; Qian Guo
    Abstract: In this paper we investigate the relevance of the Balassa-Samuelson effect to the determination of regional inflation in China, for the period 1985 – 2000. To do this, we first construct annual measures of Chinese inflation and industry input on regional and sectoral basis. Then we generalize the Asea and Mendoza (1994) settings to consider asymmetric productivity shocks across sectors. Testing this model on Chinese Regional Data aid of non-stationary panel data techniques, it shows that our extended theoretical model is a good empirical representation of the Chinese data which supports the Balassa- Samuelson effect. Moreover, we are able to test the Asea and Mendoza (1994) version of our general model and find that the restrictions are rejected.
    Date: 2008–03
  16. By: Ciobanu, George; Ciobanu, Andreea Maria
    Abstract: The last events which took place after the 1st January 2007 and Romania’s admission in the European Union imply a sustainable and continuous economic growth, in order to reduce economic and social disparities between our country, EU average and other EU members, through a mobilization of the intern capital and labour force potential. Given this context, the paper aims at identifying and explaining, through a retrospective analysis, GDP fluctuations and tries to evaluate, using the aggregate supply-demand model, the contribution of each structural element in GDP formation and increase. Finally, the article proposes directions of action for continuing the sustainable development of Romania and reducing the gaps between this country and other EU members.
    Keywords: nominal GDP; real GDP; aggregate demand; aggregate supply; growth factors
    JEL: F43 O4
    Date: 2008–03–18
  17. By: Bachev, Hrabrin
    Abstract: This paper incorporates a new inter-disciplinary methodology of the New Institutional and Transaction Costs Economics, and examines pace, factors and modes for post-communist agricultural specialization and farming structures development in Bulgaria. Firstly, it outlines the framework for analysis of economic specialization in transitional agriculture. Next, it presents the specific Bulgarian model for farming transformation characterizing with restitution of farmland in real borders and original locations, physical distribution of assets of ancient public farms into individual shares, rapid liberalization of markets and prices, and lack of public support to agriculture. Third, it specify factors for evolution of new farm structures and specialization such as badly specified and enforced property rights; big institutional, market and behavioral uncertainty; high assets specificity and dependency; lack of managerial experience; low incentives for long-term investment; ineffective public interventions etc. Next, it demonstrates how these factors affect organization and specialization of farming in the country explaining the evolution of a huge subsistence and part-time farming, production cooperation at a large scale, unprecedented concentration of resources in few business farms, widespread use of informal and integrated modes etc. Fifth, it analyzes the impact of transition on farm structures and agricultural specialization through changes in structure and share of agricultural GDP and employment, and distribution of activities between different types of farms. Finally, it clarifies efficiency of and extend of specialization in dominating large business farms, production cooperatives, and numerous small-scale unregistered farms.
    Keywords: agricultural specialization; farm governance; transaction costs; comparative institutional analysis; Bulgarian agriculture
    JEL: Q13 Q12
    Date: 2008–03
  18. By: John Knight; Ramani Gunatilaka
    Abstract: This research is among the first to link the literatures on migration and on subjective well-being in developing countries. It poses the question: why do rural-urban migrant households settled in urban China have an average happiness score lower than that of rural households? It examines the hypothesis that migrants have false expectations because they cannot foresee how their aspirations will adapt to their new situation, and draws on research on both psychology and sociology. Estimated happiness functions and decomposition analyses, based on a 2002 national household survey, suggest that their high aspirations in relation to achievement, influenced by their new reference groups, make for unhappiness. The evidence is consistent with the hypothesis.
    Keywords: Rural-Urban Migration, Subjective Well-Being, Happiness, Relative Deprivation, Aspirations, China
    JEL: I32 O15
    Date: 2008
  19. By: Bachev, Hrabrin
    Abstract: This paper incorporates achievements of a new inter-disciplinary methodology of the New Institutional and Transaction Costs Economics (integrating Economics, Organization, Law, Sociology, Behavioral and Political Sciences) into analysis of Bulgarian agriculture, and assess impact of institutional modernization and EU integration on farm structures and sustainability. Firstly, the new institutional and transacting costs economics framework is briefly presented concentrating on: evolution of formal and informal institutions; structure of transacting costs and their institutional, behavioral, dimensional and technological factors; comparative efficiency of alternative market, contract, internal, and hybrid modes of governance; farm as a governance structure with a production and transaction optimization function. Secondly, an analysis is made on development of institutional environment for agrarian sector in Bulgaria, and its impact on newly evolving farming structure and on public readiness to implement EU CAP. Third, pace of evolution, and “high” efficiency and sustainability of dominating agro-firms, production cooperatives, subsistence farming, and small commercial farms are explained, and prospects of their development in conditions of EU integration and CAP implementation determined. Forth, specific modes for governing of land supply, and labor supply, and service supply, and inputs supply, and finance supply, and insurance supply, and marketing in different type and kind commercial farms are identified, and their comparative efficiency assessed. Fifth, feasible pace of CAP implementation and further EU integration is projected, and likely impact on economic, environmental, social and organizational sustainability of farms estimated.
    Keywords: Farm structures; sustainability; impact of EU integration and CAP; Bulgaria
    JEL: Q13 Q12
    Date: 2008–03

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