nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒04‒12
ten papers chosen by
J. David Brown
Heriot-Watt University

  1. Does Interbank Borrowing Reduce Bank Risk? By Dinger, Valeriya; von Hagen, Jürgen
  2. Bad Luck or Bad Management? Emerging Banking Market Experience By Jiri Podpiera; Laurent Weill
  3. Financial Integration of Stock Markets among New EU Member States and the Euro Area By Ian Babetskii; Lubos Komarek; Zlatuse Komarkova
  4. Foreign Direct Investment and Productivity Spillovers: Updated Evidence from Central and Eastern Europe By Adam Gersl; Ieva Rubene; Tina Zumer
  5. Market Power and Efficiency in the Czech Banking Sector By Anca Pruteanu-Podpiera; Laurent Weill; Franziska Schobert
  6. The Innovativeness of Foreign Firms in China By Urem, Branka; Alcorta, Ludovico; An, Tongliang
  7. Does access to credit improve productivity? Evidence from Bulgarian firms By Gatti, Roberta; Love, Inessa
  8. Impact of the Debt Ratio on Firm Investment: A case study of listed companies in China By YUAN Yuan; MOTOHASHI Kazuyuki
  9. Interest Group Politics in a Federation By Guriev, Sergei; Yakovlev, Evgeny; Zhuravskaya, Ekaterina
  10. Choice of Exchange Rate Regime in Central and Eastern European Countries: an Empirical Analysis By Agnieszka Markiewicz

  1. By: Dinger, Valeriya; von Hagen, Jürgen
    Abstract: In this paper we investigate whether banks that borrow from other banks have lower risk levels. We concentrate on a large sample of Central and Eastern European banks which allows us to explore the impact of interbank lending when exposures are long-term and interbank borrowers are small banks. The results of the empirical analysis generally confirm the hypothesis that long-term interbank exposures result in lower risk of the borrowing banks.
    Keywords: bank risk; interbank market; market discipline; transition countries
    JEL: E53 G21
    Date: 2008–01
  2. By: Jiri Podpiera; Laurent Weill
    Abstract: A large number of bank failures occurred in transition countries during the 1990s and at the beginning of the 2000s. These failures were related to increases in non-performing loans and deteriorated cost efficiency of banks. This paper addresses the question of the causality between non-performing loans and cost efficiency in order to examine whether either of these factors is the deep determinant of bank failures. We extend the Granger causality model developed by Berger and DeYoung (1997) by applying GMM dynamic panel estimators on a panel of Czech banks between 1994 and 2005. Our findings support the “bad management†hypothesis, according to which deteriorations in cost efficiency precede increases in non-performing loans, and reject the “bad luck†hypothesis, which predicts the reverse causality.
    Keywords: Bank failures, cost efficiency, non-performing loans, transition countries.
    JEL: G21 G28 D21 P20
    Date: 2007–12
  3. By: Ian Babetskii; Lubos Komarek; Zlatuse Komarkova
    Abstract: The paper considers the empirical dimension of financial integration among stock markets in four new European Union member states (the Czech Republic, Hungary, Poland and Slovakia) in comparison with the euro area. The main objective is to test for the existence and determine the degree of the four states’ financial integration relative to the euro currency union. The analysis is performed at the country level (using national stock exchange indices) and at the sectoral level (considering banking, chemical, electricity and telecommunication indices). Our empirical evaluation consists of (1) an analysis of alignment (by means of standard and rolling correlation analysis) to outline the overall pattern of integration; (2) the application of the concept of beta convergence (through the use of time series, panel and state-space techniques) to identify the speed of integration; and (3) the application of so-called sigma convergence to measure the degree of integration. We find evidence of stock market integration on both the national and sectoral levels between the Czech Republic, Hungary, Poland and the euro area.
    Keywords: Beta convergence, new EU member states, sigma convergence, stock markets.
    JEL: C23 G15 G12
    Date: 2007–12
  4. By: Adam Gersl; Ieva Rubene; Tina Zumer
    Abstract: The paper discusses the inflows of foreign direct investment into the CEE countries and focuses on analysis of productivity spillovers. An overview of the relevance of foreign firms in the CEE economies is presented. Using firm-level data on manufacturing industries for the period 2000–2005, the total factor productivity of domestic firms is estimated using the Petrin and Levinsohn (2003) method and subsequently related within a panel data model to foreign presence in the same industry and in industries linked via the production chain. The presence of productivity spillovers is tested for across several sub-samples to detect possible conditionalities.
    Keywords: Foreign direct investment, productivity, spillovers.
    JEL: F21 D24 L60
    Date: 2007–12
  5. By: Anca Pruteanu-Podpiera; Laurent Weill; Franziska Schobert
    Abstract: Banking competition is expected to provide welfare gains by reducing monopoly rents and cost inefficiencies, favoring a reduction of loan rates and then investment. These expected gains are a major issue for transition countries, in which bank credit represents the largest source of external finance for companies. With the use of exhaustive quarterly data for Czech banks, this paper aims to provide evidence on the effects of banking competition in the Czech Republic. First, we measure the level and evolution of banking competition between 1994 and 2005. Competition is measured by the Lerner index on the loan market, using data on loan prices. The results do not show a clear-cut trend in the evolution of the Lerner index. Second, we investigate the relationship and causality between competition and efficiency. We perform a Granger-causality-type analysis. This supports the ‘banking specificities’ hypothesis, according to which heightened competition can lead to an increase in monitoring costs through a reduction in the length of the customer relationship and due to the presence of economies of scale in the banking sector, in this way reducing the cost efficiency of banks. Therefore, our results reject the intuitive ‘quiet life’ hypothesis and indicate a negative relationship between competition and efficiency in banking.
    Keywords: Banks, competition, efficiency, transition countries.
    JEL: G21 L12 P20
    Date: 2007–12
  6. By: Urem, Branka (UNU-MERIT); Alcorta, Ludovico (Maastricht School of Management); An, Tongliang (School of Business, Nanjing University)
    Abstract: This paper studies the relationship between foreign ownership and innovations of high novelty in context of advanced developing countries. We develop hypotheses about a direct relationship in terms of two dimensions, propensity and intensity of innovations of high novelty, and a contingency hypothesis about the moderating impact of R&D internationalisation on the relationship with propensity. The analysis is based on innovation survey data on manufacturing firms from Jiangsu province of China. Hypotheses are tested using non-parametric methods. We find that foreign firms do not have a higher propensity of innovations of high novelty, not even when they engage in formal R&D. However, the evidence suggests that foreign firms have a higher intensity of innovations of high novelty than domestic firms.
    Keywords: multinational enterprises, foreign firms, innovation, manufacturing, China
    JEL: F23 L60 O31 O32
    Date: 2008
  7. By: Gatti, Roberta; Love, Inessa
    Abstract: Although it is widely accepted that financial development is associated with higher growth, the evidence on the channels through which credit affects growth at the microeconomic level is scant. Using data from a cross section of Bulgarian firms, we estimate the impact of access to credit, as proxied by indicators of whether firms have access to a credit line or overdraft facility on productivity. To overcome potential omitted variable bias of OLS estimates, we use information on firms’ past growth to instrument for access to credit. We find credit to be positively and strongly associated with TFP. These results are robust to a wide range of robustness checks.
    Keywords: access to credit; productivity; transition
    JEL: D24 G21 G32
    Date: 2008–02
  8. By: YUAN Yuan; MOTOHASHI Kazuyuki
    Abstract: In this paper, we analyze whether the total debt ratios and bank loan ratios of Chinese listed companies had any impact on their fixed investment in 2001-2006, and whether this impact, if it existed, differed among companies with differing investment opportunities. Our results are as follows. First, our analysis reveals that the total debt ratio (bank loan ratio) did have a negative impact on fixed investment among Chinese listed companies. Secondly, the total debt ratio (bank loan ratio) had a stronger negative impact on low-growth companies than on high-growth companies, implying that the total debt ratio (bank loan ratio) actually restrained companies from overinvestment. Finally, the analysis led to the interesting result that the bank loan ratio had a stronger impact on fixed investment than the total debt ratio, and actually had the strong effect of restraining investment particularly by low-growth companies, implying that in China, banks supervise the investment activities of companies more strongly than other creditors.
    Date: 2008–04
  9. By: Guriev, Sergei; Yakovlev, Evgeny; Zhuravskaya, Ekaterina
    Abstract: The optimal degree of decentralization depends on the importance of inter-state externalities of local policies. We show that inter-state externalities are determined by spatial distribution of interest groups within the country. Interest groups who have multi-state scope internalize inter-state externalities to a larger extent than the lobbyists with interests within a single state. We use variation in the geographic boundaries of politically-powerful industrial interests to estimate the effect of inter-state externalities on firm performance. Using firm-level panel data from a peripheralized federation, Russia in 1996-2003, we show that, controlling for firm fixed effects, the performance of firms substantially improves with an increase in the number of neighbouring regions under influence of multi-regional business groups compared to the number influenced by local business groups. Our findings have implications for the literatures on federalism and on international trade as trade restrictions are a common source of inter-state externalities.
    Keywords: Federalism; Inter-jurisdictional externalities; Inter-state trade barriers; Interest groups; Multinational firms
    JEL: D78 F15 F23 H77 P26
    Date: 2008–02
  10. By: Agnieszka Markiewicz
    Abstract: This paper identifies the sources of divergences between current exchange rate policies in Central and Eastern European countries (CEECs). We use an ordered logit model for the official (de jure) and the actual (de facto) exchange rate classifications. We find that the differences of the exchange rate strategies among CEECs cannot be explained by these classifications. Financial and trade openness are the major determinants of divergences among exchange rate strategies in CEECs. More financially and trade integrated countries switch to more rigid regimes.
    Date: 2008–03

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