nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒06‒27
six papers chosen by
J. David Brown
Heriot-Watt University

  1. Building institutions for growth and human developement : an economic perspective applied to transitional countries of Europe and CIS By Zeghni, Sylvain; Fabry, Nathalie
  2. China and Central and Eastern European Countries: Regional networks, global supply chain or international competitors? By Fung, K.C.; Korhonen, Iikka; Li, Ke; Ng, Francis
  3. International linkage of the Russian market and the Russian financial crisis: A multivariate GARCH analysis By Saleem, Kashif
  4. Testing for Expected Return and Market Price of Risk in Chinese A-B Share Market: A Geometric Brownian Motion and Multivariate GARCH Model Approach By Jie Zhu
  5. Extreme Coexceedances in New EU Member States’ Stock Markets By Charlotte Christiansen; Angelo Ranaldo
  6. China in the world economy: Dynamic correlation analysis of business cycles By Fidrmuc, Jarko; Korhonen, Iikka; Bátorová, Ivana

  1. By: Zeghni, Sylvain; Fabry, Nathalie
    Abstract: The collapse of the communist system during the late 1980’s redefined the hierarchy among Central and Eastern European Countries (CEECs) and the former USSR. Some of these countries joined the EU ; some did not ; others formed the CIS . In particular, institutions, mainly market and political one, appear to be a strong foundation for a rapid but irreversible shift from socialism to market-oriented economy. The relationship between economic performance and the quality of domestic institutions has emerged recently as a major subject of interest. The literature shows that the higher the quality of domestic institutions the better the effects on the Human development and growth of a country. The aim of this paper is to analyse in a more qualitative way the role of institutions in transitional countries in the CEECs and CIS. The main question we address is: what kind of institutional arrangement leads to Human development? We propose an analytical pattern where global performance (i.e. Human development) is the final outcome of a new institutional arrangement.
    Keywords: Transition; CIS; Institutions; Human Development; Growth
    JEL: P36 O17 O43 P27
    Date: 2008–05
  2. By: Fung, K.C. (BOFIT); Korhonen, Iikka (BOFIT); Li, Ke (BOFIT); Ng, Francis (BOFIT)
    Abstract: China has emerged as one of the world's leading recipients of foreign direct investment (FDI). Meanwhile, the successful transition experience of many Central and Eastern European countries (CEECs) also enables them to attract an increasing share of global foreign investment, particularly from the European Union (EU). What is the relationship between inward FDI of China and the CEECs? We conceptualize the relationship according to three alternative paradigms: 1) China and the CEECs each exist in its own regional production network, with no linkage between FDI flows into China and into CEECs; 2) China and the CEECs together comprise a global production network, so that FDI into China is positively related to FDI into CEECs; and 3)FDI into China is a substitute for FDI into the CEECs, so that the correlation between them is negative. In this paper, we employ panel data to study this issue in detail. Specifically, we compare empirical estimates for 15 CEECs over the 15-year period 1990-2004 using four different econometric approaches: FGLS with Random effects, FGLS with fixed effects, EC2SLS and GMM. The result supports the conclusion that China's inward FDI does not crowd out CEECs' inward FDI. In fact, it shows that in some circumstances FDI flows in these two regions are moderately complementary. In addition, our analysis confirms the importance for FDI flows of recipient-country characteristics such as market size, degree of trade liberalization and labor quality, as well as a healthy global capital market.
    Keywords: foreign direct investment (FDI); regional networks; global supply chain; China’s FDI; Central and Eastern European Countries’ FDI
    JEL: F20 F21 F43
    Date: 2008–06–17
  3. By: Saleem, Kashif (BOFIT)
    Abstract: This study considers the linkage of the Russian equity market to the world market, examining the international transmission of the Russia’s 1998 financial crisis utilizing the GARCH-BEKK model proposed by Engle and Kroner (1995). We find evidence of direct linkage between the Russian equity market and the world markets with regards to returns and volatility. While the weakness of the linkage suggests that the Russian equity market was only partially integrated into the world market at the time of the crisis, evidence of contagion is clear.
    Keywords: multivariate GARCH; volatility spillovers; Russian Financial crisis; contagion; partial integration
    JEL: C32 G15
    Date: 2008–06–17
  4. By: Jie Zhu (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: There exist dual-listed stocks which are issued by the same company in some stock markets. Although these stocks bare the same firm-specific risk and enjoy identical dividends and voting policies, they are priced differently. Some previous studies show this seeming deviation from the law of one price can be solved due to different ex- pected return and market price of risk for investors holding heterogeneous beliefs. This paper provides empirical evidence for that argument by testing the expected return and market price of risk between Chinese A and B shares listed in Shanghai and Shenzhen stock markets. Models with dynamic of Geometric Brownian Motion are adopted, multivariate GARCH models are also introduced to capture the feature of time-varying volatility in stock returns. The results suggest that the different pric- ing can be explained by the difference in expected returns between A and B shares in Chinese stock markets. However, the difference between market prices of risk is insignificant for both markets if GARCH models are adopted.
    Keywords: China stock market, market segmentation, expected return, market price of risk, GBM, GARCH
    JEL: C1 C32 G12
    Date: 2008–03–05
  5. By: Charlotte Christiansen; Angelo Ranaldo (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: We analyze the financial integration of the new EU member states’ stock markets using the coexceedance variable that counts the number of large negative returns on a given day across the countries. We use a multinomial logit model to investigate which factors influence the coexceedance variable, separately for geographical effects, asset class effects, volatility effects, and persistence effects. The effects differ for negative (large negative returns) and positive (large positive returns) coexceedance variables. The coexceedance variables for the old and the new EU countries are influenced differently. The effects on the new EU coexceedance variables change after the EU enlargement in 2004.
    Keywords: Emerging markets, EU enlargement, EU Member States, Extreme returns, Financial integration, New EU Member States, Stock Markets
    JEL: C25 F36 G15
    Date: 2007–11–07
  6. By: Fidrmuc, Jarko (BOFIT); Korhonen, Iikka (BOFIT); Bátorová, Ivana (BOFIT)
    Abstract: We analyze the business cycles in China and in selected OECD countries between 1992 and 2006 using dynamic correlations. Nearly all OECD countries showpositive correlations of the very hort-run developments which may correspond to intensive supplier linkages. However, dynamic correlations at the business cycle frequencies are negative. Countries facing a comparably longer history of intensive trading links tend to show slightly higher correlations of business cycles with China. Even though trade and financial flows do not really increase correlations of business cycles between China and OECD countries, they lower the degree of business cycle synchronization within the OECD area.
    Keywords: business cycles; synchronization; trade; FDI; dynamic correlation
    JEL: E32 F15 F41
    Date: 2008–06–17

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