nep-tra New Economics Papers
on Transition Economics
Issue of 2008‒12‒07
twenty-two 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. How Corruption Affects Bank Lending in Russia By Laurent Weill
  3. Rank, Income and Income Inequality in Urban China By Gustafsson, Björn; Sai, Ding
  4. China's exporters and importers: firms, products, and trade partners By Kalina Manova; Zhiwei Zhang
  5. Political Alternation as a Restraint on Investing in Influence: Evidence from the Post-Communist Transition By Milanovic, Branko; Hoff, Karla; Horowitz, Shale
  6. Gazprom’s export strategies under the institutional constraint of the Russian gas market By Catherine Locatelli
  7. Learning and sharing in a Chinese high-technology cluster: A study of inter-firm and intra-firm knowledge flows between R&D employees By Matias Ramirez; Xibao Li
  8. How do Heterogeneous Social Interactions affect the Peer Effect in Rural–Urban Migration?:Empirical Evidence from China By Zhao Chen; Shiqing Jiang; Ming Lu; Hiroshi Sato
  9. Non-agricultural Employment Determinants and Income Inequality Decomposition By Xiaoyun Liu; Terry Sicular
  10. Wage Differentiation and Unemployment in the Districts of the Czech Republic By Kamila Fialová
  11. Central Bank Losses and Economic Convergence By Martin Cincibuch; Tomas Holub; Jaromir Hurnik
  12. Government-business relations in post-Soviet space: The case of Central Asia By Libman, Alexander
  13. Trade liberalization and economic geography in transition countries: Can FDI explain the adjustment patterns of regional wages? By Jože P. Damijan; Crt Kostevc
  14. Happiness in the dual society of urban China:Hukou identity, horizontal inequality and heterogeneous reference By Shiqing Jiang; Ming Lu; Hiroshi Sato
  15. Testing for Service-Led and Investment-Led Hypothesis: Evidence from ‘Chindia’ By Baharom, A.H.; Habibullah, M.S.
  16. Productivity of Czech Small and Medium Entreprises: Lagging Behind Their Potential By Jan Průša
  17. Credit market and prediction of its future development By Vodová, Pavla
  18. General view regarding the recent contribution of the World Bank in Europe and Central Asia By Popescu, Ramona Florina
  19. Welfare Implications of International Financial Integration By Lee, Jong-Wha; Shin, Kwanho
  20. Social Security and Retirement during Transition:Microeconometric Evidence from Slovenia By Aleš Ahcan; Sašo Polanec
  21. Liquidity Constraints and Linkages with Multinationals By Beata S. Javorcik; Mariana Spatareanu
  22. Establishment and analysis of the credit risk profile in a Romanian retail bank By Popescu, Ramona Florina; Clipici, Emilia

  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: Central and Eastern Europe, house prices, housing market, OECD countries, transition economies.
    JEL: E20 E39 P25 R21 R31
    Date: 2008–10
  2. By: Laurent Weill (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg)
    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 K4 P2
    Date: 2008
  3. By: Gustafsson, Björn (Göteborg University); Sai, Ding (Chinese Academy of Social Sciences)
    Abstract: While some workers in China attain senior professional level and senior cadre level status (Chuzhang and above), others attain middle rank including middle rank of professional and cadre (Kezhang). This aspect of the Chinese labor force has attracted surprisingly little attention in the literature, a fact which this paper aims to rectify. We define various segments of the urban population in work-active ages and use data from the Chinese Income Project (CHIP) covering eastern, central and western China for 1995 and 2002. For 2002, persons of high rank make up 3 percent and persons of middle rank make up 14 percent of persons in work-active ages. Factors that affect a person's likelihood of having high or middle rank are investigated by estimating a multinomial probit model. We find that education, age and gender strongly affect the probability of being employed as a worker of high rank. There is relatively little income inequality among workers of high rank as well as among workers of middle rank. Mean income and household wealth per capita of highly-ranked workers developed more favorably than for other segments of the population studied, and personal income is more polarized by segment in 2002 than in 1995. Workers of high rank, and to a lesser degree, workers of middle rank, are among the winners in economic terms while the increasingly large category of non-workers are the losers. Rates of return to education have increased but income function analysis indicates that this provides only a partial explanation for the increased favorable income situation for workers of high and middle ranks.
    Keywords: China, rank, income, income inequality
    JEL: J21 J31 J41 P31
    Date: 2008–11
  4. By: Kalina Manova; Zhiwei Zhang
    Abstract: This paper provides a detailed overview of China's participation in international trade using newly available data on the universe of globally engaged Chinese firms over the 2003-2005 period. We document the distribution of trade flows and product- and trade-partner intensity across both exporting and importing firms and study the relationship between firms' intensive and extensive margins of trade. We also compare trade patterns across firms of different organizational structure, distinguishing between domestic private firms, domestic state-owned firms, foreign-owned firms, and joint ventures. We explore the variation in foreign ownership across sectors, and find results consistent with recent theoretical and empirical work on the role of credit constraints and contractual imperfections in international trade and investment. Finally, we examine the rapid expansion of China's trade over the 2003-2005 period, and decompose it into its extensive and intensive margins. We also use monthly data and study the frequent churning and reallocation of trade flows across firms and across products and trade partners within firms.
    Date: 2008
  5. By: Milanovic, Branko; Hoff, Karla; Horowitz, Shale
    Abstract: We develop and implement a method for measuring the frequency of changes in power among distinct leaders and ideologically distinct parties that is comparable across political systems. We find that more frequent alternation in power is associated with the emergence of better governance in postcommunist countries. The results are consistent with the hypothesis that firms seek durable protection from the state, which implies that expected political alternation is relevant to the decision whether to invest in influence with the governing party or, alternatively, to demand institutions that apply predictable rules, with equality of treatment, regardless of the party in power.
    Keywords: Governance; transition; political alternation
    JEL: P37 P3
    Date: 2008–08–30
  6. By: Catherine Locatelli (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: Russia and its main gas company Gazprom, essential suppliers for the European gas market, are today at the centre of the debate surrounding the security of the European Union's gas supply. A variety of factors have focussed interest on the question of Gazprom's industrial strategies and more precisely :the Gazprom's ability to meet its future contractual commitments. The gas market liberalisation in Europe is bringing about some significant changes in the relations (especially contractual ones) that the EU had established with its main natural gas suppliers. The aim of this paper is to throw some light on how European gas market liberalisation is affecting and changing the strategies of one of the EU's essential gas suppliers, namely Russia. The export policies developed by Gazprom are however largely conditioned by the particular characteristics (essentially institutional) of its domestic market, not only in terms of supply and demand but also prices". It is important to take into account this aspect in order to understand the Russian gas export strategy.
    Date: 2008–09
  7. By: Matias Ramirez (SPRU, University of Sussex); Xibao Li (School of Economics & Management, Tsinghua University)
    Keywords: learning, China, knowledge work, knowledge transfer
    JEL: D83 J24
    Date: 2008–01–09
  8. By: Zhao Chen; Shiqing Jiang; Ming Lu; Hiroshi Sato
    Abstract: In this paper, we use the “2002 Chinese Household Income Project Survey” (CHIPS2002) data to examine how heterogeneous social interactions affect the peer effect in the rural–urban migration decision in China. We find that the peer effect, measured by the village migration ratio, significantly increases the individual probability of outward migration. We also find that the magnitude of the peer effect is nonlinear, depending on the strength and type of social interactions with other villagers. Interactions in information sharing can increase the magnitude of the peer effect, while interactions in mutual help in labor activities, such as help in housing construction, nursing and farm work in busy seasons, will impede the positive role of the peer effect. Being aware of the simultaneity bias caused by the two-way causality between social interaction strengths and migration, we utilize “historical family political identity in land reform” as an instrumental variable for social interactions. However, the hypothesis that probit and instrumental-variable probit results are not significantly different is not rejected. The existence of a nonlinear peer effect has rich policy implications. For policy makers to encourage rural–urban migration, it is feasible to increase education investment in rural areas or increase information sharing among rural residents. However, only an increase in the constant term in the regression, i.e. a “big push” in improving institutions for migration, can help rural Chinese residents escape the low equilibrium in migration.
    Keywords: labor migration, urbanization, peer effect, social integration, social multiplier
    JEL: J61 O15 R23
    Date: 2008
  9. By: Xiaoyun Liu (China Agricultural University); Terry Sicular (University of Western Ontario)
    Abstract: Non-agricultural income has become an important source of rural household income and has brought with a wide inequality in rural China. This paper investigates the determinants of non-agricultural employment as well as non-agricultural income and then assesses the contribution of these determinants to income inequality with the Chinese Academy of Social Science 2003 survey data and a three-step decomposition approach. Our results indicate that education inequality accounts for 9% and 36% wage and self-employment income inequality respectively which implies that education inequality plays substantial roles in non-agricultural income inequalities. The community characteristics collectively accounts for 46% and 32% of the wage and self-employment income inequality respectively which in turn suggests that regional development is of great importance in the determination of non-agricultural income inequality.
    Keywords: non-agricultural income; employment; inequality
    JEL: J23 J43 D63
    Date: 2008
  10. By: Kamila Fialová (Komerční Banka, Prague; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper concerns the labour market differences among the 77 districts of the Czech Republic. There was a remarkable trend of increasing regional labour market differentiation in the 1990’s, however, the patterns of differentiation have stabilised since then. The first part of the paper aims to describe the regional differentiation in wages and unemployment on the descriptive method basis. The other part of the study attempts to explain the differences in wages by an econometric model. We focus on the effect of unemployment rate, representing an exogenous factor of the region itself. The model’s specification arises out of the general concept of wage differentiation and the concept of the wage curve. According to our analysis there were several factors of influence on the regional wage differentiation in 2001: educational structure of the population, employment structure of the regional economy, degree of economic concentration, and district rate of unemployment. The coefficient of the unemployment elasticity of wages equals –0.08, which can be considered as evidence of the existence of the wage curve in the districts of the Czech Republic. Moreover, the relationship is stronger in the low-unemployment districts.
    Keywords: regional disparities, wages, unemployment, wage curve
    JEL: E24 J31 J64 R23
    Date: 2008–11
  11. By: Martin Cincibuch; Tomas Holub; Jaromir Hurnik
    Abstract: This paper discusses the issue of central bank losses, developing a framework for assessing the ability of a central bank to keep its balance sheet sustainable without having to default on its policy objectives. Compared to the earlier literature, it analyses in more depth the consequences of economic convergence for the evolution of the central bank’s balance sheet and the important role played in this process by the risk premium and equilibrium real exchange rate appreciation. A combination of a closed-form comparative-static analysis and numerical solutions of the future evolution of the central bank’s own capital is used. Applying the framework to the Czech National Bank’s case, the paper concludes that the CNB should be able to repay its accumulated loss in about 15 years without any transfer from public budgets.
    Keywords: Balance sheet, central bank, economic convergence, monetary policy, real appreciation, risk premium, seigniorage, transition.
    JEL: E52 E58
    Date: 2008–10
  12. By: Libman, Alexander
    Abstract: The aim of the paper is to understand how the structure of government-business relations influences the quality of institutions and economic development in Kazakhstan and Uzbekistan. The paper identifies the key elements of the business community engaged in negotiations with the state, explores the consistency of formal and informal institutions and the balance of power between the state and the business and analyzes how these particular power relations and inconsistencies influence the economic development via both designing formal institutions and affecting strategies of private and public actors.
    Keywords: Government-business relations; Central Asia; consistency of institutions
    JEL: D72 P26
    Date: 2008
  13. By: Jože P. Damijan; Crt Kostevc
    Abstract: Present paper studies the within-country regional effects of trade liberalization in transition countries. We argue that FDI inflows can be an important factor to accelerate the regional adjustment process in the home country. In order to underspin this theoretically, we first augment the new economic geography models by breaking the implied regional symmetry and by introducing capital as a second factor of production. Major contribution of our approach is that it allows for inter-regional as well as international capital mobility while labor is assumed to be immobile. Numerical simulations of our model indicate that this should contribute to faster convergence of relative regional wages in the smaller region. In addition, we examine the exact adjustment pattern of relative regional wages in five transition countries in the period 1990-2004 after they have liberalized their trade with the EU. First, we show that in four out of five transition countries there is a significant u-shaped adjustment pattern of regional wages after they opened up to foreign trade. And second, we find robust econometric confirmation that in three of the five countries FDI has contributed significantly to faster adjustment of relative regional wages.
    Keywords: economic geography, trade costs, wages, transition countries, foreign direct investment
    JEL: F16 P23 R13
    Date: 2008
  14. By: Shiqing Jiang; Ming Lu; Hiroshi Sato
    Abstract: This paper studies the impact of income inequality on the subjective well-being of different social groups in urban China. We classify urban social groups according to their hukou status: rural migrants, “born” urban residents, and “acquired” urban residents who once changed their hukou identity from rural to urban. We focus on how the horizontal inequality—income disparity between migrants and urban residents—affects individual happiness. The main results are as follows. First, migrants suffer from unhappiness when the horizontal inequality increases, but urban residents show a much smaller aversion to the horizontal inequality. Second, migrants will not be happier if their relative incomes within their migrant group increase, while urban residents do become happier when their incomes increase within their group’s income distribution. Third, “acquired” urban residents have traits of both migrants and “born” urban residents. They have an aversion to the horizontal inequality like migrants, and they also favor higher relative income among urban residents. Fourth, “born” urban residents have lower happiness scores when they are old. People who are Communist Party members strongly dislike the horizontal inequality. Our findings suggest that migrants, “acquired” urban residents, elderly people and Party members from “born” urban residents are the potential proponents of social integration policies in urban China.
    Keywords: Horizontal inequality, Happiness, Hukou identity, Migration, Social integration; horizontal inequality, happiness, Houku identity, migration, social integration
    JEL: I31 O15 R23
    Date: 2008
  15. By: Baharom, A.H.; Habibullah, M.S.
    Abstract: This study examines the meaningful relationship between economic growth, and service sector contribution and domestic investment in two major Asian economies, namely India and China. Autoregressive Distributed Lag (ARDL) bounds testing procedure is employed to analyze the impact of the selected variables namely (1) contribution by the service sector, (2) (4) domestic investment on economic growth and vice versa. The period of interest is 1960-2005 using annual data. The empirical results demonstrate that for the case of India, there is (1) a unidirectional causality from domestic investment to economic growth and (2) from economic growth to services. As for China, only unidirectional causality from services sector to economic growth is detected, while no meaningful relationship was found between domestic investment and economic growth.
    Keywords: Service-led; investment-led; growth; China; India
    JEL: E22 E01
    Date: 2008–10–17
  16. By: Jan Průša (Faculty of Economics, University of Cambridge; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper analyzes microeconomic production functions of Czech small medium enterprises. We use the data from 2002 to 2005 of thirty manufacturing industries (agriculture and services are not included), each divided into five subgroups according to the number of employees. We employ stochastic frontier analysis (SFA) to make statistical inference on the production process. Our results demonstrate that Czech SME depend in their functioning more on labour than on capital. The impact of investment or intangible assets such as software or patents is negligible. SFA strongly supports the presence of a systematic gap between common practice and best practice: the majority of firms significantly differ from top performers. Finally a simple test for time effect shows that between 2003 and 2005 Czech SME moved towards higher efficiency.
    Keywords: production, efficiency measurement, stochastic frontier analysis, small and medium enterprises
    JEL: D24 L25
    Date: 2008–11
  17. By: Vodová, Pavla
    Abstract: This study focuses on the credit market in the Czech Republic. The aim of this paper is to carry out an econometric investigation of supply and demand on the credit market and to predict the development in the future. The first part of the paper briefly characterizes the credit market in the Czech Republic. As a result of banking crisis, the growth rate of credits provided to private sector has decreased sharply and is recovering only gradually. It has caused many problems especially to nonfinancial companies. Next chapter discuss the essence of disequilibrium model. Credit markets are very often characterized by the fact that the interest rate does not clean the market and the discrepancy between credit demand and credit supply occurs. The fact that it is impossible to measure credit demand and credit supply quantities can be solved by the use of disequilibrium model. In the framework of disequilibrium model, the credit demand and credit supply functions are estimated under the restriction that the minimum of the two determines credit. The last chapter describes the data used and the empirical findings. The analysis is based on quarterly data covered the period from the first quarter of 1994 to the fourth quarter of 2006. Based on parameter estimates, the volume of credit demand and credit supply is calculated and compared with the actual volume of credit. The future development of the Czech credit market is predicted.
    Keywords: credit market; lending activity; disequilibrium model; credit demand and supply
    JEL: C13 G21
    Date: 2008
  18. By: Popescu, Ramona Florina
    Abstract: The World Bank is the institution that assumed the role of economic and social catalyser through its structures and affiliated organisms. The article is a review of the Bank’s contribution to the development of Europe and Central Asia, as reflected by statistics. The paper presents the multiple roles the World Bank carries out in the specified regions, and the figures showing the level of preocupation for these regions on the Bank’s agenda. The author uses charts to illustrate the recent evolution of the allocations, considering both the origin and the destination of the funds (IBRD, IDA, IFC and MIGA). Last, the article refers to Romania, which beneficiates of theBank’s support in its effort to integrate in the EU and to create a viable market economy.
    Keywords: World Bank;lending activity;analitical work;allocations;committments
    JEL: F34 F01
    Date: 2008–05–24
  19. By: Lee, Jong-Wha (Asian Development Bank); Shin, Kwanho (Department of Economics, Korea University)
    Abstract: Focusing on technology spillover from foreign direct investment (FDI) inflows, this paper investigates the welfare implications of financial integration. Calibrations of a neoclassical growth model with international technology diffusion show that when technology catch-up due to FDI inflows is considered, the welfare gains from financial integration substantially increase, which contrasts with the small gains from additional, capital-accumulation effects of financial integration. The estimates suggest that by further enhancing financial integration, emerging Asian economies, such as the People's Republic of China (PRC) and the largest four Association of Southeast Asian Nations (ASEAN) countries, will experience substantial welfare gains.
    Keywords: Foreign direct investment; financial integration; technology diffusion
    JEL: F21 F36 O33
    Date: 2008–11–01
  20. By: Aleš Ahcan; Sašo Polanec
    Abstract: In this paper we analyse old-age retirement decisions of Slovenian men and women eligible to retire in the period 1997-2003. In comparison to established market economies, we find relatively high hazard rates of retirement that decline with age. This peculiar pattern can be partly attributed to weak incentives to work inherent in the design of Social Security, and is reflected in predominantly negative values of accruals, and to transition-specific increase in wage inequality in the late 1980s and early 1990s. This is reflected in low wages and relativily high pensions of less productive (skilled) workers and vice versa. We also find that the probability of retirement increases with social security wealth and decreases with net wages, although the response to option value to work, when controlling for wage differences, is rather weak. Our results also imply that less educated persons, persons with greater private wealth, and persons entitled to severance payment are more likely to retire.
    Keywords: retirement, option value, social security wealth, transition
    JEL: J26
    Date: 2008
  21. By: Beata S. Javorcik; Mariana Spatareanu
    Abstract: Using a unique data set from the Czech Republic for 1994-2003, this study examines the relationship between a firm’s liquidity constraints and its supply linkages with multinational corporations (MNCs). The empirical analysis indicates that Czech firms supplying MNCs are less credit constrained than non-suppliers. A closer inspection of the timing of the effect, however, suggests that this result is due to less constrained firms self-selecting into becoming MNC suppliers rather than the benefits derived from the supplying relationship. As recent literature finds that productivity spillovers from foreign direct investment (FDI) are most likely to take place through contacts between MNCs and their local suppliers, our finding suggests that well-developed financial markets may be needed in order to take full advantage of the benefits associated with FDI inflows.
    Keywords: foreign direct investment, cash flow, liquidity constraints
    JEL: F21 F23 F36
    Date: 2008
  22. By: Popescu, Ramona Florina; Clipici, Emilia
    Abstract: In order to protect its stakeholders and clients interests, a bank assumes a cautious credit risk profile, correlated to the objectives established in its business strategy. This article presents the credit risk profile and the analysis of the factors involved in the estimation of the probability and the impact of the credit risk upon the loan portfolio in a Romanian retail bank. In the final part, the authors show how the analysis results affect the bank’s credit policy.
    Keywords: credit risk profile;loan portfolio;credit policy
    JEL: G32 G21
    Date: 2008–11–24

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