nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒12‒01
eight papers chosen by
J. David Brown
Heriot-Watt University

  1. How corruption affects bank lending in Russia By Weill, Laurent
  2. Wage Differentials across Sectors in Europe: An East-West Comparison By Magda, Iga; Rycx, Francois; Tojerow, Ilan; Valsamis, Daphné
  3. Banking financing for Romanian SMEs – challenges and opportunities By Pirvu, Cerasela; Giurca Vasilescu, Laura; Mehedintu, Anca
  4. Liquidity matters: Evidence from the Russian interbank market By Kares, Alexei; Schoors , Koen; Lanine, Gleb
  5. McCallum rule and Chinese monetary policy By Mehrotra, Aaron; Koivu, Tuuli; Nuutilainen, Riikka
  6. The Evolution of the Foreign Direct Investments in Romania By Hagiu, Alina; Avramescu, Tiberiu Cristian
  7. Strain and Inflation-Unemployment Relationship in Transitional Economies: A theoretical and empirical investigation By Albu, Lucian Liviu
  8. Unreported employment and tax evasion in mid-transition : comparing developments and causes in the Baltic States By Jaanika Meriküll; Karsten Staehr

  1. By: Weill, Laurent (BOFIT)
    Abstract: The aim of this study is to investigate the impact of corruption on bank lending in Russia. This issue is of major interest in order to understand the causes of financial underdevelopment and the effects of corruption in Russia. We use regional measures of corruption and bank-level data to perform this investigation. Our main estimations show that corruption hampers bank lending in Russia. We investigate whether this negative role of corruption is influenced by the degree of bank risk aversion, but find no effect. The detrimental effect of corruption is only observed for loans to households and firms, in opposition to loans to government. Additional controls confirm the detrimental impact of corruption on bank lending. Therefore, our results provide motivations to fight corruption to favor bank lending in Russia.
    Keywords: corruption; bank; Russia; financial development; economic transition
    JEL: G20 K40 P20
    Date: 2008–11–21
  2. By: Magda, Iga (Polish Ministry of Labour and Social Policy); Rycx, Francois (Free University of Brussels); Tojerow, Ilan (Free University of Brussels); Valsamis, Daphné (Free University of Brussels)
    Abstract: This study compares the structure and determinants of inter-industry wage differentials in Eastern and Western European countries (namely Belgium, Italy, the Netherlands, Norway, Portugal and Spain compared with Latvia, Lithuania, the Czech Republic, Poland and Slovakia). To do so, we use a unique harmonised, linked employer-employee data set, the 2002 European Structure of Earnings Survey. Findings show substantial differences in earnings across sectors in all countries, even when controlling for a wide range of employee, job and employer characteristics. The hierarchy of sectors in terms of wages appears to be quite similar in Eastern and Western European countries. Among high-wage sectors, we find the energy (coke, petroleum, gas, electricity and nuclear power), chemical, financial and computer industries. In contrast, it is in the traditional sectors (wood and cork industry, textile, clothing and leather industry, hotels and restaurants, and retailing) that wages are lowest. Further results suggest that the dispersion of inter-industry wage differentials fluctuates considerably across countries. It is relatively small in Norway and Belgium, large in the Netherlands, Italy, Spain, Poland and the Czech Republic, and very large in Portugal, Latvia, Lithuania and Slovakia. Our findings support the hypothesis of a negative relationship between the dispersion of inter-industry wage differentials and a country's degree of corporatism.
    Keywords: inter-industry wage differentials, collective bargaining, Europe, matched employer-employee data
    JEL: J31 J51
    Date: 2008–11
  3. By: Pirvu, Cerasela; Giurca Vasilescu, Laura; Mehedintu, Anca
    Abstract: Nowadays, the importance of the SME field becomes more and more a real basis for establishing and developing a modern, dynamic knowledge-based economy because their capacity to stimulate private ownership and entrepreneurial skills; to be flexible and to adapt quickly to a changing market; to generate new jobs. The accession of Romania to the European Union involve a lot of challenges and among them, the SME development plays a central role. So, the Romanian Government settled up the main priorities regarding the development of the small business sector: creating a business environment supportive of SME development and growth; developing SME competitiveness; improving SME access to financing; improving SME export performance; promoting an entrepreneurial culture and strengthening management performance. An intrinsic constituent of this process is represented by the access of the companies to the financing which must be made in correlation with the adopted strategy of development, because this development needs time and, necessarily, the existence of the financing sources. The choice of these sources depends on the financial structure of the enterprise, on its financial situation. So, enterprises can choose between the internal sources and the external sources, the difference between these both being represented by their stability, their independence, their cost and the priority of the owners of capital in the situation of a bankruptcy. Even if the internal sources are most often preferred by the managers because they assure the independence of the enterprise, these are not always sufficient. In that case, companies use the external financing sources which also have advantages as the deductibility of the expenses with the interests, what makes them less expensive.
    Keywords: SMEs; financing; credit banking; risks; Romania
    JEL: O16 G32 G21
    Date: 2008–11–27
  4. By: Kares, Alexei (BOFIT); Schoors , Koen (BOFIT); Lanine, Gleb (BOFIT)
    Abstract: We suggest an additional transmission channel of contagion on the interbank market - the liquidity channel. Examining the Russian banking sector, we and that the liquidity channel contributes significantly to understanding and predicting interbank market crises. Interbank market stability Granger causes the interbank market structure, while the opposite causality is rejected. This bolsters the view that the interbank market structure is endogenous. The results corroborate the thesis that prudential regulation at the individual bank level is insufficient to prevent systemic crises. We demonstrate that liquidity injections of a classical lender of last resort can effectively mitigate coordination failures on the interbank market both in theory and practice. Apparently, liquidity does matter.
    Keywords: interbank market stability; contagion; liquidity channel; lender of last resort; Russia
    JEL: C80 G21
    Date: 2008–11–21
  5. By: Mehrotra, Aaron (BOFIT); Koivu, Tuuli (BOFIT); Nuutilainen, Riikka (BOFIT)
    Abstract: This paper evaluates the usefulness of a McCallum monetary policy rule based on money supply for maintaining price stability in mainland China. We examine whether excess money relative to rulebased values provides information that improves the forecasting of price developments. The results suggest that our monetary variable helps in predicting both consumer and corporate goods price inflation, but the results for consumer prices depend on the forecasting period. Nevertheless, growth of the Chinese monetary base has tracked the McCallum rule quite closely. Moreover, results using a structural vector autoregression suggest that our measure of excess money supply could be used to identify monetary policy shocks in the Chinese economy.
    Keywords: McCallum rule; monetary policy; China
    JEL: E31 E52
    Date: 2008–11–21
  6. By: Hagiu, Alina; Avramescu, Tiberiu Cristian
    Abstract: Last year, Romania ranked among first countries in the region as receiver of foreign direct investments and the positive signals from those who have a hard word to say regarding business community didn’t delay to appear. Prestigious international companies choose Romania, and today our country is already checked out on the international map of success locations as attractive destination for capital placements. You exist as a country, as destination in the business environment when you prove as country and to those from exterior when they look at you, that you can offer, you can assure the premises and the necessary frame for obtaining profit. 2007 proved not only that Romania exists as a country from the point of view of business destinations, but is situated on a much honorable position in front of the big international “players” which grants Romania today maybe the most valuable country rating: the respect. The present policy of foreign direct investments in Romania was conceived for attracting foreign investors. Romania’s economic potential is attractive through the internal market dimension (second market from Central Europe after Poland), through the high level of qualification of labor force, through the importance of existing resources and not in the last place through the proximity from the Occidental Europe countries, which represents the investment sources. The improvements of the business environment, the effects of introducing the unique quote of taxation and the positive attitude of foreign partners toward Romania conduced to the accented increasing of foreign direct investments in the last years. Each foreign investment represents an investment in Romania, in the people of this country, in its capacity to become a credible partner for the international business environment representatives. Investments are those which locate you on the map. It represents the barometer, the “health” of a nation.
    Keywords: evolution; investments; business environment; competitiveness; risk.
    JEL: E22 F21
    Date: 2008–07
  7. By: Albu, Lucian Liviu
    Abstract: Standard economic theory tells that a command system, like the former eastern economies, allocates resources poorly due to the impossibility of accurate calculation. Therefore, once prices are freed and start to operate at quasi-equilibrium (market-clearing) levels, the hidden inefficiencies come into the open and a possible massive resource reallocation would have to take place. More precisely, the issue refers to the possible and probable intensity of resource reallocation in view of constraints like the balance between exit and entry in the labour market, the size of the budget deficit and the means for its non-inflationary financing, social and political stability, etc. This paper tries to conceptualise the fact that the dynamics of unemployment and inflation are correlated not in a classical sense but in a very complicated mode that suggests the occurrence of some attractors when certain slow parameters are evolving in the neighbourhood of special threshold-values. The start is made with simple models that are based on empirical data and can show to us the traces to discover the steps of transition in eastern economies on the inflation-unemployment relationship space. Then, using economic theory combined with non-linear modelling more refined information is extracted from the statistical standardised data for to evaluate other faces of the eastern transition.
    Keywords: natural rate of unemployment, potential function, Hurst exponent, pitchfork bifurcation, modified Phillips curve, Rössler attractor
    JEL: C61 C65 E24 E27 E32
    Date: 2008–11
  8. By: Jaanika Meriküll; Karsten Staehr
    Abstract: This paper compares the prevalence and determinants of unreported employment in the three Baltic States in 1998 and 2002 using a hitherto little used dataset. The prevalence of unreported employment varies substantially across the three countries and across the two sampling years. Microeconometric estimations show that firm-related characteristics, such as sectoral activity, firm size and employment trends, are important determinants of unreported employment in all three countries, whereas the impact of individual factors varies across countries and time. It is shown that only 10–30 percent of the changes in unreported employment between 1998 and 2002 can be accounted for by changes in individual characteristics and firm-related factors. Provisional calculations suggest that the net gain for individuals undertaking unreported employment is modest, in particular among individuals who regularly engage in such activities
    Keywords: Unreported employment, informal employment, envelope wages, tax evasion
    JEL: H26 H24 D19
    Date: 2008–11–28

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