nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒06‒07
seventeen papers chosen by
J. David Brown
Heriot-Watt University

  1. Determinants of House Prices in Central and Eastern Europe By Balazs Egert; Dubravko Mihaljek
  2. Mind the Gap! Social Capital, East and West By Jan Fidrmuc; Klarita Gerxhani
  3. Factors Influencing Corporate Governance in post-Socialist Companies: an Analytical Framework By Andreas Heinrich; Aleksandra Lis; Heiko Pleines
  4. Do Foreign Direct Investments Increase the Economic Growth of Southeastern European Transition Economies? By Stanisic, Nenad
  5. Migrants as second-class workers in urban China? A decomposition analysis By Sylvie Démurger; Marc Gurgand; Li Shi; Yu Ximing
  6. Macroeconomic Sources of Foreign Exchange Risk in New EU Members By Tigran Poghosyan; Evzen Kocenda
  7. Real Convergence, Price Level Convergence and Inflation Differentials in Europe By Balazs Egert
  8. Cross-border Investment and Economic Integration: The Case of Guangdong Province and Hong Kong SAR By Sharif, Naubahar; Huang, Can
  9. Consumption Smoothing and Vulnerability in Russia By Christopher Gerry; Carmen A Li
  10. Does Regulation Hurt Pension Funds' Performance? Evidence from Strongly Regulated Pension Fund Industries By Martin T. Bohl, Judith Lischewski and Svitlana Voronkova
  11. Finance and cluster-based industrial development in China: By Ruan, Jianqing; Zhang, Xiaobo
  12. Policy Risk in Action: Pension Reforms and Social Security Wealth in Hungary, Czech Republic, and Slovakia By Libor Dušek; Juraj Kopecsni
  13. Firm Concentration,Technology Promotion and Economic Performance:An Empirical Study on the Nature and Dynamics of Industrial Clusters in China’s Development Zones along the Down Reaches of Yangtze River By ZHENG , Jianghuai; GAO, Yanyan; Hu, Xiaowen
  14. Entrepreneurship, Innovation and Economic Growth:The Case of Yangtze River Delta in China By Zheng, Jianghuai; Hu, Zhining; Wang, Jialing
  15. Industrial Upgrade, Adverse Employment Shock and Land Centralization By Zheng, Jianghuai; Wang, Chengsi; Song, Shunfeng
  16. FDI and the Consequences: Towards more complete capture of spillover effects By Ken Schoors; Bruno Merlevede
  17. Social Costs of Mass Privatization By David Stuckler; Lawrence P. King

  1. By: Balazs Egert; Dubravko Mihaljek
    Abstract: This paper studies the determinants of house prices in eight transition economies of central and eastern Europe (CEE) and 19 OECD countries. The main question addressed is whether the conventional fundamental determinants of house prices, such as GDP per capita, real interest rates, housing credit and demographic factors, have driven observed house prices in CEE. We show that house prices in CEE are determined to a large extent by the underlying conventional fundamentals and some transition-specific factors, in particular institutional development of housing markets and housing finance and quality effects.
    Keywords: house prices, housing market, transition economies, central and eastern Europe, OECD countries
    JEL: E20 E39 P25 R21 R31
    Date: 2007–10–01
  2. By: Jan Fidrmuc; Klarita Gerxhani
    Abstract: Recent Eurobarometer survey data are used to document and explain the stock of social capital in 28 European countries. Social capital in Central and Eastern Europe – measured by civic participation and access to social networks – lags behind that in Western European countries. Using regression analysis of determinants of individual stock of social capital, we find that this gap persists when we account for individual characteristics and endowments of respondents but disappears completely after we control for aggregate measures of economic development and quality of institutions. Informal institutions such as prevalence of corruption in post-communist countries appear particularly important. With the enlargement of the European Union, the gap in social capital should gradually disappear as the new member states catch up (economically and institutionally) with the old ones.
    Keywords: social capital, institutions, capitalism, transition
    JEL: O17 O57 P37 Z13
    Date: 2007–06–01
  3. By: Andreas Heinrich; Aleksandra Lis; Heiko Pleines
    Abstract: In explaining the corporate governance performance of post-socialist companies, this article identifies four factors of influence: (1) pressure from majority shareholders, (2) pressure from outside minority shareholders, (3) pressure resulting from internationalization/ globalization and (4) pressure exerted by the state in the form of legal regulation. If all four factors have an impact on corporate governance performance, their interaction has to be explained. On the basis of research conducted thus far, this article suggests an analytical framework for the examination of corporate governance performance of postsocialist companies. Case studies of oil and gas firms from Central and Eastern Europe illustrate how the above factors influence a company’s corporate governance performance.
    Keywords: corporate governance, Russia, Central Eastern Europe, oil and gas industry
    JEL: G34 L71 M14 P21 P31
    Date: 2007–10–01
  4. By: Stanisic, Nenad
    Abstract: There are two important effects of foreign direct investments (FDI) on a host economy: the effect on economic growth and the effect on export performances. Both economic features are important for the transition economies' prospects of European Union (EU) accession. After a short review of relevant research, this paper examines the statistical relationship between FDI inflow and economic growth. Results do not reveal any positive correlation between these two variables. Lack of correlation between FDI inflows and economic development is rather the consequence of methodological imperfections, than the real absence of positive influences of FDI. The problem arises from the fact that the observed countries are in the transition process. Due to structural reforms, there is production and employment decrease in inefficient domestic firms. This can neutralize or even outweigh the positive effect of FDI on economic growth of host sectors.
    Keywords: Foreign Direct Investments; Economic Growth; Transition Economies; Southeast Europe
    JEL: C10 F21 O52
    Date: 2008–05–15
  5. By: Sylvie Démurger (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France); Marc Gurgand (Paris School of Economics and Crest,France); Li Shi (School of Economics and Business, Beijing Normal University, China); Yu Ximing (School of Finance,Renmin University of China, Beijing, China)
    Abstract: In urban China, urban resident annual earnings are 1.3 times larger than long term rural migrant earnings as observed in a nationally representative sample in 2002. Using microsimulation, we decompose this difference into four sources, with particular attention to path dependence and statistical distribution of the estimated effects: (1) different allocation to sectors that pay different wages (sectoral effect); (2) hourly wage disparities across the two populations within sectors (wage effect); (3) different working times within sectors (hours effect); (4) different population structures (population effect). Although sector allocation is extremely contrasted, with very few migrants in the public sector and very few urban residents working as self-employed, the sectoral effect is not robust to the path followed for the decomposition. We show that the migrant population has a comparative advantage in the private sector: increasing its participation into the public sector does not necessarily improve its average earnings. The opposite holds for the urban residents. The second main finding is that population effect is significantly more important than wage or hours effects. This implies that the main source of disparity is pre-market (education opportunities) rather than on-market.
    Keywords: chinese labor market, discrimination, earnings differentials, migration
    JEL: J31 J71 O15 P23
    Date: 2008
  6. By: Tigran Poghosyan; Evzen Kocenda
    Abstract: We address the issue of foreign exchange risk and its macroeconomic determinants in several new EU members. The joint distribution of excess returns in the foreign exchange market and the observable macroeconomic factors is modeled using the stochastic discount factor (SDF) approach and a multivariate GARCH-in-mean model. We find that in post-transition economies real factors play a small role in determining foreign exchange risk, while nominal and monetary factors have a significant impact. Therefore, to contribute to the further stability of their domestic currencies, the central banks in the new EU member countries should continue stabilization policies aimed at achieving nominal convergence with the core EU members, as nominal factors play a crucial role in explaining the variability of the risk premium.
    Keywords: foreign exchange risk, time-varying risk premium, stochastic discount factor, multivariate GARCH-in-mean, post-transition and emerging markets
    JEL: C22 F31 G15 P59
    Date: 2007–11–01
  7. By: Balazs Egert
    Abstract: This paper provides a comprehensive review of the factors that can cause price levels to diverge and which are at the root of different inflation rates in Europe including the EU-27. Among others, we study the structural and cyclical factors influencing market and non-marketbased service, house and goods prices, and we summarise some stylised facts emerging from descriptive statistics. Subsequently, we set out the possible mismatches between price level convergence and inflation rates. Having described in detail the underlying economic factors, we proceed to demonstrate the relative importance of these factors on observed inflation rates first in an accounting framework and then by relying on panel estimations. Our estimation results provide the obituary notice for the Balassa-Samuelson effect. Nevertheless, we show that other factors related to economic convergence may push up inflation rates in transition economies. Cyclical effects and regulated prices are found to be important drivers of inflation rates in an enlarged Europe. House prices matter to some extent in the euro area, whereas the exchange rate plays a prominent (but declining) role in transition economies.
    Keywords: price level, inflation, Balassa-Samuelson, tradables, house prices, regulated prices, Europe, transition
    JEL: C22 E43 E50 E52 G21 O52
    Date: 2007–11–01
  8. By: Sharif, Naubahar (Hong Kong University of Science and Technology); Huang, Can (UNU-MERIT)
    Abstract: In this paper, we undertake a comparative study of the performance of local and foreign competitors’ manufacturing firms in a FDI-recipient region—Guangdong Province, China—and analyzes the policy implications of the comparison for the advanced, FDI-outflow region—Hong Kong Special Administrative Region (HKSAR). By highlighting changes in productivity that vary with changes in manufacturing firm ownership, we reveal that domestic firms have been catching up with their foreign counterparts, including Hong Kong-based firms, though foreign firms have successfully strengthened their dominating position in Guangdong’s manufacturing industry.
    Keywords: Total Factor Productivity, Manufacturing Sectors, Asia, China, Guangdong, Hong Kong
    JEL: D24 L60 O47
    Date: 2008
  9. By: Christopher Gerry; Carmen A Li
    Abstract: Applying bootstrapped quantile regression to the Russian Longitudinal Monitoring Survey (RLMS) data, we examine the channels through which individuals experience and seek to cope with changes in consumption. We find that married individuals living in small households, with educated heads in urban areas are better equipped to smooth consumption. Investigating the impact of idiosyncratic shocks, we find that the labour market is an important transmission mechanism allowing households to smooth their consumption but also exposing them to risk, mainly through job loss. Outside of pension payments the formal social safety net does not facilitate consumption smoothing, thus heightening the importance of informal coping institutions. It transpires that both support from relatives/friends and home production act as important insurance mechanisms for the most vulnerable.
    Keywords: Russia, economics, vulnerability, consumption smoothing, quantile regression
    JEL: I31 P20
    Date: 2007–07–01
  10. By: Martin T. Bohl, Judith Lischewski and Svitlana Voronkova
    Abstract: This paper presents an analysis of pension funds’ performance in Poland and Hungary as representative Eastern Central European countries. In the theoretical literature it is argued that investment limits and performance regulations may have a negative influence on the performance of funds. In particular for Poland, our empirical findings do not support this prediction. Consequently, strict regulations do not necessarily harm the performance of the pension funds.
    Date: 2008–05–06
  11. By: Ruan, Jianqing; Zhang, Xiaobo
    Abstract: "The traditional literature emphasizes the causal role of finance in promoting industrial growth. China's rapid industrialization over the past several decades, which has occurred in the absence of well-functioning financial markets, seems to defy the conventional wisdom. By studying a cashmere sweater cluster in China, this paper argues that rural industrial clustering, as a new business model, lowers the entry barriers of initial capital investment through the division of labor. Within these clusters, enterprises can often acquire trade credits from upstream or downstream firms and obtain informal financing from friends and relatives, and use these funds to mitigate constraints of working capital. These findings help explain China's rapid industrialization in the absence of an efficient financial market." from Author's Abstract
    Keywords: Industrialization, Cluster, Finance, Growth, industrial development,
    Date: 2008
  12. By: Libor Dušek (CERGE-EI, Prague); Juraj Kopecsni (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: We provide evidence on the policy risk of social security in Hungary, Czech Republic and Slovakia by computing the changes in the social security wealth induced by the pension reforms undertaken since the 1990s. Methodologically we follow upon McHale’s (2001) study of selected reforms in G7 countries. However, as we measure the differential impact of the reform on workers of different genders, ages, and levels of education, we are able to capture the aggregate, intergenerational, and intragenerational aspects of the policy risk. Overall, the paper documents that also a pay-as-you-go system is not a secure source of retirement income since pension reforms do change the future contributions and benefits in different directions for different workers, and the magnitude of the reductions in social security wealth sometimes exceeds several years’ worth of the workers’ earnings.
    Keywords: social security, policy risk, pension reforms
    JEL: H55 G32 P35
    Date: 2008–06
  13. By: ZHENG , Jianghuai; GAO, Yanyan; Hu, Xiaowen
    Abstract: Based on micro-firm data of development zones in Jiangsu Province along the Yangtze River, the effects of local factors special to development zones and of technology promotion on firm’s performance are tested, from which we try to illustrate the nature and dynamics of industrial clusters built on development zones. The results show that the primary reasons firms locate into development zones are not clustering benefits in general meaning brought by interactions among firms locally concentrated, but are the attraction of “policy rents” and the scale economy of infrastructure brought by government behaviors. Once located in the zone, the firm is doom to interact with local government as well as industry-related factors, and the clustering effects may emerge. Thus, the key to keep development zones’ competition sustainable, when governments’ bidding wars and policy adjustment fade away “policy rents” and scale economy of infrastructure, is to cultivate clustering effects.
    Keywords: Development Zones along Yangtze River; Firms’ Spatial Concentration; Industrial Clustering Effects; Technology Promotion; Policy Rents
    JEL: R53 R58 R30 R50 O53
    Date: 2008–02
  14. By: Zheng, Jianghuai; Hu, Zhining; Wang, Jialing
    Abstract: This paper firstly discusses why the economic growth in the Yangtze River Delta has been slowed down recently and suggests a need totransform the current input-based economic growth pattern into aninnovation-based one. Next, through our theoretical analysis, we find that the change of current economic growth pattern is just the innovative reallocationof production factors, and the new economic growth driven by innovation is mainly initiated by the transmutation of entrepreneurship. Finally, we test our belief with real-world evidence. It shows that the Delta has formed a mechanism in which entrepreneurship and human capital mutually promote each other. However, the interactive relationship between R&D expenditure and entrepreneurship has not been developed in general. In addition, excessive government interventions will do harm to the growth of entrepreneurs and economic development.
    Keywords: entrepreneurship; innovation and economic growth pattern
    JEL: O31
    Date: 2008–01–07
  15. By: Zheng, Jianghuai; Wang, Chengsi; Song, Shunfeng
    Abstract: Traditional Development Economics defines economic development in the view of transferring rural surplus labor force. It implies the industrialization is in a static state at a certain level while it is in a process of continuous industrial upgrade in reality. Under the circumstances, we analyze phenomenon followed by the upgrading of industrial structure such as return migration and mid-aged rural labors’ difficulty in job-hunting and demonstrated the influence of land centralization based on the practice of industrial upgrade and rural change in Suzhou. Finally it come to the conclusion that because of the extensive competition on simple-labor market, the industrial upgrade will make a adverse employment shock upon mid-aged rural labor which will lead to the more uncertainty of peasants to get jobs in the industrial section . If government takes an improper policy of land centralization, peasants will lose guarantee in the future and resist the land centralization. After the comparison between one-off compensation and land cooperation, a further demonstration show that the method of one-off compensation will depress peasants’ enthusiasm in land centralization while the form of land cooperation can guarantee and promote peasants’ welfare under the given institution of land ownership. As a result, land cooperation allows the smooth operation of land centralization and supports the industrial upgrade to some extent.
    Keywords: Over-confidence,Regional Government Competition,Redundant Construction,Yangzte River Delta
    JEL: O10 O53 O13 O14
    Date: 2008–01
  16. By: Ken Schoors; Bruno Merlevede
    Abstract: We analyze productivity spillovers of FDI on domestic companies, both within and across industries. In the identification of intraindustry spillovers, we separate out labor market effects from other effects. Interindustry spillovers are identified through upstream, downstream, and supply-backward linkage effects. Dynamic input output tables are used to construct the linkages. For a panel of Romanian firms, we find evidence that labor market effects differ from other intraindustry effects. Spillovers across industries dominate those within industries. The supply-backward effect behaves as predicted by theory. Firm-specific level of technology, firm size, and ownership structure are all found to affect spillovers.
    Keywords: FDI, spillovers, absorptive capability, firm size, ownership structure
    JEL: F2
    Date: 2007–08–01
  17. By: David Stuckler; Lawrence P. King
    Abstract: According to leading economic theorists, creating capitalism out of communism requires rapid privatization. In this article we empirically test the welfare implications of privatization policies in Post-Soviet countries by using cross-national panel mortality data as an indicator of social costs. We find that rapid privatization – whether measured by a novel measure of mass privatization program implementation or Enterprise Bank for Reconstruction and Development privatization outcome scores – is a critical determinant of life expectancy losses, and that when privatization policies are reversed, life expectancy improves. Using selection models, we show that endogeneity understates the social costs of rapid privatization.
    Keywords: privatization, postcommunist, mortality crisis
    JEL: I12 J18 L33 P36
    Date: 2007–09–01

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