nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒10‒13
thirteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Economic role of public administration in Central Asia: Decentralization and hybrid political regime By Libman, Alexander
  2. Enhancing technological progress in a market-socialist context:China's national innovation system at the crossroads By Gabriele, Alberto; Khan, Ali Haider
  3. Regional integration in Central Asia: A firm-centered view By Libman, Alexander
  4. Interaction of the European and post-Soviet economic integration in Eastern Europe By Libman, Alexander
  5. The Challenge of Rapidly Improving Transport Infrastructure in Poland By Rafal Kierzenkowski
  6. The Changing Intra-Household Resource Allocation in Russia By Lacroix, Guy; Radtchenko, Natalia
  7. Institutional Determinants of New Firm Entry in Russia: A Cross Regional Analysis By Bruno, Randolph Luca; Bytchkova, Maria; Estrin, Saul
  8. Population Ageing, Labour Market Reform and Economic Growth in China - A Dynamic General Equilibrium Analysis By Xiujian Peng; Yinhua Mai
  9. Bridging the Housing Gap in Poland By Rafal Kierzenkowski
  10. Corporate Governance, Ownership Structures and Investment in Transition Economies: the Case of Russia, Ukraine and Kyrgyzstan By Olga Lazareva; Andrei Rachinsky; Sergey Stepanov
  11. Tournaments and Managerial Incentives in China's Listed Firms: New Evidence By Kato, Takao; Long, Cheryl
  12. Paradoxes of Traffic Flow and Economics of Congestion Pricing By Chengri Ding; Shunfeng Song; Yiling Zhang
  13. Offshoring, Relocation and the Speed of Convergence in the Enlarged European Union By Kari E.O. Alho; Ville Kaitila; Mika Widgrén

  1. By: Libman, Alexander
    Abstract: The aim of the paper is to understand how the organization of public administration in Central Asia shapes the results of economic development in the region. It discusses the main factors of bad quality of public administration in the region, paying particular attention to the link between political regimes and public administration. Moreover, it provides an overview of decentralization and devolution of power in Central Asian countries as one of the main channels of transformation of administration. The paper covers both formal decentralization and informal distribution of power between levels of government.
    Keywords: Public administration; hybrid regimes; decentralization
    JEL: D73 P26
    Date: 2008
  2. By: Gabriele, Alberto; Khan, Ali Haider
    Abstract: This paper analyzes the available evidence of China's S&T, R&D, and innovative capabilities, to provide an assessment of the effectiveness and potentialities of its national system of innovation (NSI) ), and to formulate some preliminary policy suggestions aimed at improving China's overall innovation strategy. Our approach focuses particularly on the evolving relationship between China's NSI and the country's overall market socialist social and economic system - both of which are developing fast and undergoing deep qualitative changes - and on related policy challenges. China's innovation strategy aims at embodying world-class best practices from technological world leaders and successful late industrializers, but is also peculiarly Chinese in at least two crucial aspects. The first is China's sheer size, which has allowed her to leapfrog to rank 2 worldwide in terms of the absolute quantitative magnitude of its NSI, at a stage when it still far lags behind all technological leaders in terms of per capita educational, technological, and research achievements. The second is China's specific form of market socialism, which has the potential of conferring her leaders an outstanding advantage in the crucial area of strategic planning, i.e. the capability to master national resources and to earmark them towards key goals accordingly to a clear set of priorities. China's goal is to engineer in a relative short period a decisive qualitative leap in her NSI, developing a systemic ability to generate world-class indigenous innovations. In addition to fostering technical progress, China's development strategy shall also take into account the challenge of establishing a model of innovation compatible with an equitable pattern of income distribution and environmental sustainability, thereby paving the way to the eventual evolution towards a higher and more developed form of socialism. This is the expressed aim of the Chinese leadership. However, the simple NSI approach is not necessarily sensitive to these strategic requirements, and therefore there is a need for more advanced analytical and planning tools. In this context, we propose to consider the utility of nonlinear models of the POLIS (positive feed back loop innovation system) class, which are suitable to chart strategically the market socialist course, as their internal logic is consistent with China's unique catch up strategy.
    JEL: P36 P27 O33
    Date: 2008–09–22
  3. By: Libman, Alexander
    Abstract: Regional integration remains among the main topics of international discourse in Central Asia, though the progress of international cooperation is very limited. Our aim is to understand the connection between the organization of economic institutions in Central Asia and the regional integration. The existing literature has explored the state level of integration in great detail: varying from rational choice explanations of security dilemma to the studies of social construction of the region in Central Asia. This paper, however, provides a firm-centered perspective on the regional integration. Thus, it first considers how varieties of political economies of Central Asian countries influence the regionalization process in the region through economic networks established by private actors, and how institutions are shaped by regionalization. Second, it considers how political institutions determine the impact of informal networks on formal regional integration initiatives, and looks at the potential effect of formal regionalism on regionalization process in Central Asia.
    Keywords: Regionalization; informal integration; transition
    JEL: F15 F21
    Date: 2008
  4. By: Libman, Alexander
    Abstract: The aim of the paper is to understand the specifics of the interaction of two models of regional economic integration co-existing in Eastern Europe: the post-Soviet integration and the cooperation with the EU. The paper claims that institutional competition between integration projects may generally improve the quality of international institutions; however, the post-Soviet integration model should be seriously re-designed for this purpose.
    Keywords: Post-Soviet integration; european integration; Eastern Europe
    JEL: F15
    Date: 2008
  5. By: Rafal Kierzenkowski
    Abstract: Following many years of underinvestment, renovating and building new transport infrastructure is an important policy priority that would increase labour mobility and improve Poland’s competitiveness. This goal is all the more feasible given that the country is going to benefit from substantial EU structural and cohesion funds over the programming period 2007-13. On top of the limited timeframe for the absorption of EU funds, the European soccer championship that Poland is going to co-host with Ukraine in 2012 imposes an additional time constraint on many investment projects. The country is heavily reliant on road transport but is lacking an efficient high-speed road network. It needs important renovation investments both in the rolling stock and infrastructure network of the railway sector. It also faces the challenges of revitalising maritime transport as well as extending and upgrading airport facilities to cope with the fastest growing air market in Europe. However, many obstacles remain and hinder the implementation of investment plans and thus need to be resolved rapidly. From the macroeconomic perspective, these are related to rising prices of scarce labour and intermediate inputs, while from the microeconomic standpoint the main difficulties lie in the area of the regulatory framework underlying the provision of physical infrastructure. <P>Le défi d’une amélioration rapide des infrastructures de transport en Pologne <BR>Après des années de sous-investissement, la rénovation des infrastructures de transport existantes et la construction d’infrastructures nouvelles représentent une importante priorité d’action en vue d’accroître la mobilité de la main-d’oeuvre et d’améliorer la compétitivité de la Pologne. Cet objectif est d’autant plus réalisable que le pays va bénéficier d’un volume substantiel de fonds structurels et de fonds de cohésion de l’UE au cours de la période de programmation 2007-13. Outre que l’utilisation des fonds européens est soumise à un calendrier restreint, le championnat d’Europe de football que la Pologne organisera conjointement avec l’Ukraine en 2012 impose une contrainte temporaire supplémentaire sur de nombreux projets d’investissement. Lourdement tributaire du transport routier, la Pologne est dépourvue d’un réseau autoroutier efficace. Dans le secteur ferroviaire, le matériel roulant comme le réseau d’infrastructure nécessitent d’importants investissements de rénovation. De surcroît, il faut revitaliser les transports maritimes mais aussi agrandir et moderniser les installations aéroportuaires afin de faire face à une croissance du marché des transports aériens sans équivalent en Europe. Cependant, de nombreux obstacles subsistent et entravent la mise en oeuvre des plans d’investissement ; il faut donc y porter remède sans tarder. Sur un plan macroéconomique, ces freins résident dans la hausse des prix de ressources limitées en main-d’oeuvre et en intrants intermédiaires, tandis que d’un point de vue microéconomique, les principales difficultés tiennent au cadre réglementaire qui sous-tend la fourniture d’infrastructures physiques.
    JEL: H54 H57 L91 L92 L93 P20
    Date: 2008–09–29
  6. By: Lacroix, Guy (Université Laval); Radtchenko, Natalia (University of Paris 1)
    Abstract: During the transition toward a market economy, Russian workers have had to face important structural changes in the labour market as well as dramatic changes in their real earnings. In the process, the wage gap between men and women has varied wildly over that period. In recent years, young women have embraced professional careers, are more mobile on the labour market, and tend to delay the birth of their first child. All these trends are likely to influence intra-household relations and consequently the family decision process. To investigate this matter, we estimate a household collective labour supply model. We generalize the specification so as to allow the sharing rule to change in a discrete manner between the pre and post 1998 financial crisis periods. The parameters of the sharing-rule indicate that the households have shifted to a new equilibrium in the post-1998 period. Indeed, husbands have become more egotistic and wives more altruistic: An increase in their relative wage translates into a smaller/larger transfer to their spouse.
    Keywords: collective model, sharing rule, Russian economic crisis
    JEL: D1 J22 C5
    Date: 2008–09
  7. By: Bruno, Randolph Luca (University of Bologna); Bytchkova, Maria (London School of Economics); Estrin, Saul (London School of Economics)
    Abstract: We analyse a three-year panel data set of Russian firms spanning from 2000 to 2002 and we investigate the effect of regional institutional and economic factors on entry rates across time, industries and regions. The paper builds on a novel database and exploits inter-regional variation in a large number of institutional variables. We find entry rates in Russia are not especially low by international standards and are correlated with natural entry rates, institutions and firm size. Furthermore, industries that ─ for scale and technological reasons ─ are characterised by higher entry rates will experience lower entry within regions affected by higher business risk. In other words industries that naturally have low entry barriers are most affected by business constraints.
    Keywords: entry rate, business environment, Tobit model
    JEL: D21 L26 P31
    Date: 2008–09
  8. By: Xiujian Peng; Yinhua Mai
    Abstract: The dramatic fertility decline since the beginning of 1970s has decelerated the growth of China's working age population. From 2015, this growth will turn sharply negative, resulting declining labour force in China. This has caused concerns about the sustainability of China's economic growth. This paper sheds lights on the view that a more efficient allocation of labour between sectors is likely counter balance the negative effect of populating ageing. Using a dynamic CGE model of China, we analyse the effects of removing labour market distortions that hinder the movement of labour from agricultural to manufacturing and services sectors over the period 2008 to 2020 in the context of declining growth of labour supply in China. Simulation results shows that removing the discriminations against rural workers in urban area will increase the labour shift from agricultural to non-agricultural sectors. The resulting increase in the movement of rural labour will mitigate the adverse effects of population ageing by raising not only the growth rate of total output but also household living standard. China can enjoy continued growth in its manufactured exports even with a slower growth in its labour force.
    Keywords: population ageing, labour market reform, rural migration, CGE model, China
    JEL: J21 J61 E17
    Date: 2008–05
  9. By: Rafal Kierzenkowski
    Abstract: Despite a high level of homeownership, the housing market in Poland is suffering from an important shortage. The difference between the number households and available dwellings, the number of dwellings per thousand inhabitants, and the availability of basic amenities (especially in rural areas) all indicate that significant improvements are needed to catch up to the most affluent OECD and EU countries. The formal rental segment of the market is also underdeveloped, contributing to low labour mobility and persistent disparities in regional unemployment. Given the social, economic and political dimensions of the problem, various housing policies implemented since the beginning of the transition process have aimed to fill the housing gap, though they have been either narrow in scope or have led to unclear results. However, the housing market has been buoyant in recent years, spurred by rising levels of GDP per capita, lower interest rates and the emergence of a competitive mortgage market. Yet a brisk price appreciation has also occurred at the same time, while households’ exposure to interest- and exchange-rate risks has significantly increased and banks’ funding capabilities have shrunk. Although the market has not been directly affected by the recent global financial turmoil, recent information shows that a turn-around is underway, with prices declining in several major cities as sentiment has plunged. This raises concerns about the capacity of the market to achieve a smooth adjustment in the face of a possible downturn. <P>Combler le déficit de logements en Pologne <BR>Malgré la place importante qu’occupe la propriété, le marché immobilier polonais pâtit d’une importante pénurie de logements. La différence entre le nombre de ménages et le nombre de logements disponibles, la densité de logements par millier d’habitants et l’équipement en éléments de confort de base (en particulier dans les zones rurales) sont autant de facteurs qui témoignent des progrès que la Pologne doit encore accomplir pour se hisser au niveau des pays les plus riches de l’OCDE et de l’Union européenne. Le segment locatif formel est également sous-développé, ce qui contribue à une faible mobilité de la main-d’oeuvre et à la persistance de disparités régionales du chômage. La question du logement ayant une dimension sociale, économique et politique, la plupart des politiques du logement mises en oeuvre depuis le début du processus de transition visaient à combler le déficit de logements, mais avaient une portée insuffisante ou ont eu des résultats mitigés. Il n’en reste pas moins que le marché immobilier a été dynamique ces dernières années, notamment en raison de la hausse du PIB par habitant, de la baisse des taux d’intérêt et de l’apparition d’un marché hypothécaire concurrentiel. Toutefois, dans le même temps, les prix se sont fortement appréciés, tandis que l’exposition des ménages aux risques de taux de change et de taux d’intérêt s’est fortement accrue, ce qui a réduit les capacités de financement des banques. Par ailleurs, bien que le marché polonais n’ait pas été directement touché par les turbulences financières qui ont secoué l’économie mondiale ces derniers temps, de récentes données montrent que le retournement du marché est en cours, les prix ayant baissé dans plusieurs grandes villes à mesure que le climat des affaires se dégradait. Cette situation amène à s’interroger sur la capacité des marchés à réussir un ajustement en douceur en cas de retournement.
    JEL: E22 E51 P33 R21 R31
    Date: 2008–09–29
  10. By: Olga Lazareva (CEFIR (Moscow), SSE (Stockholm)); Andrei Rachinsky (MTS (Moscow)); Sergey Stepanov (CEFIR and NES (Moscow))
    Abstract: In this paper we analyze interrelations between ownership structures, corporate governance and investment in three transition countries: Russia, Ukraine and Kyrgyzstan. In contrast to most empirical papers on corporate governance, we study companies with very little exposure to public financial markets. Our empirical analysis is based on two years of data obtained through large-scale surveys of firms. Ukrainian companies appear to have the best corporate governance practices, while Russian companies – the worst. We find that the relationship between ownership concentration and corporate governance is non-linear. In Russia, the relationship between the share of the largest non-state shareholder and corporate governance is either positive or insignificant when the blockholder’s stake is below a certain threshold; however, a further increase in the blockholder’ share is associated with worsening corporate governance. We find a similar effect in Ukraine, but only for managerial ownership. In both countries, corporate governance improves as the combined share of small shareholders grows. No robust effects of the ownership structure are found for Kyrgyz firms. Further we show that the market for corporate control seems to have little relationship to the firms’ corporate governance practices. We find no link between the quality of corporate governance and either the need for outside finance or actual investments financed with outside funds in either of the three countries.
    Keywords: corporate governance, transition, ownership structure, investment
    JEL: G32 G34
    Date: 2008–04
  11. By: Kato, Takao (Colgate University); Long, Cheryl (Colgate University)
    Abstract: The promotion tournament as a potentially important incentive mechanism for top management in transition economies has not been examined by the emerging literature on managerial incentives in transition economies. This paper is the first attempt to fill this important gap in the literature. The paper begins with modifying the previously-derived empirical predictions from the tournament theory to the context of transition economies in which state ownership still plays a significant role in publicly-traded firms. Specifically, we test the following two hypotheses. First, the winner's prize will need to increase in order to prevent each contestant from lowering his/her effort level in the face of expanding contestant pool. Such an optimal response of the winner's prize to the size of the contestant pool is more evident for China's listed firms that are less controlled by the state. Second, the winner's prize will also need to rise in order to prevent each contestant from reducing his/her effort level in the face of greater market volatility (or more noise in performance measure used to decide on the tournament winner). Using comprehensive financial and accounting data on China's listed firms from 1998 to 2002, augmented by unique data on executive compensation and ownership structure, we find evidence in support of both hypotheses. Finally, we also find evidence suggesting that an increase in the winner's prize will result in enhanced managerial effort and hence improved firm performance, and that the performance effect of the winner's prize is greater for China's listed firms that are less controlled by the state. As such this paper provides yet another piece of evidence that ownership restructuring may be needed for China to successfully transform its SOEs to efficient modernized corporations and reform its overall economy.
    Keywords: tournaments, managerial incentives, ownership structure, China, transition economies
    JEL: M51 P3
    Date: 2008–09
  12. By: Chengri Ding (Urban Studies and Planning Program, University of Maryland); Shunfeng Song (Department of Economics, University of Nevada, Reno); Yiling Zhang (Department of Economics, University of Nevada, Reno)
    Abstract: This paper utilizes a unique county-level dataset to examine technical efficiency and technology gap in China’s agriculture. We classify the counties into four regions with distinctive levels of economic development, and hence production technologies. A meta-frontier analysis is applied to the counties. We find that although the eastern counties have the highest efficiency scores with respect to the regional frontier but the northeastern region leads in terms of agricultural production technology nationwide. Meanwhile, the mean efficiency of the northeastern counties is particularly low, suggesting technology and knowledge diffusion within region might help to improve production efficiency and thus output.
    Keywords: China’s grain production; County-level; Metafrontier; Stochastic production frontier; Technical efficiency
    JEL: D24 N55 O13
    Date: 2008–09
  13. By: Kari E.O. Alho; Ville Kaitila; Mika Widgrén
    Abstract: ABSTRACT : Economic convergence of the new member states (NMS) of the EU towards the old EU countries (EU-15), not only in terms of real income, but also in nominal terms, is of paramount importance for the whole of the EU. We build a dynamic CGE model, starting from the Balassa-Samuelson two-sector framework, but modify and enlarge it with forward-looking investment, consumption, and labour mobility behaviour to address several other issues like welfare and sustainability in terms of foreign indebtedness. At the same time we evaluate the impact of convergence on the EU-15 countries also, by endogenising offshoring and the related FDI flows from them to the NMS. Thereby we identify various effects of relocation and globalisation on the EU-15 enlarging the standard set of effects of globalisation and demonstrate the key role of their dynamic nature in the process of convergence. We find that in a general equilibrium setting fears of large adverse effects of a relocation of EU-15 manufacturing to the NMS are not well founded. In contrast, offshoring appears to be a win-win case for both the EU-15 and the NMS in terms of real income. The convergence of the NMS is fairly rapid, but will involve a persistent rapid inflation rate.
    Keywords: convergence, relocation, new member states, EU-15
    JEL: F15 F21 F43
    Date: 2008–10–03

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