nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒01‒10
eleven papers chosen by
J. David Brown
Heriot-Watt University

  1. Rural finance reform in China By Chen Xiang Liu
  2. The East German Wage Structure after Transition By Robert Orlowski; Regina T. Riphahn
  3. Credit constraints, organizational choice, and returns to capital: Evidence from a rural industrial cluster in China By Ruan, Jianqing; Zhang, Xiaobo
  4. Navigating the trilemma: capital flows and monetary policy in China By Reuven Glick; Michael Hutchison
  5. Market force of institutional investors on the Romanian capital market By Corduneanu, Carmen; Milos, Laura Raisa
  6. Post-Soviet countries in global and regional institutional competition: The case of Kazakhstan By Libman, Alexander; Ushkalova, Daria
  7. Improving Risk Adjustment in the Czech Republic By Radovan Chalupka
  8. Steps in the development of the Romanian financial system and the corellation with the level of economical growth By Corduneanu , Carmen; Iovu, Laura Raisa
  9. 中小投资者保护、股权结构与公司价值 By Chen, Yan
  10. Opportunities offered by the capital market for financing public administration By Pirtea, Marilen; Iovu, Laura Raisa
  11. Charakteristics and significance of the sum insured in the Czech Republic By Přečková, Lenka

  1. By: Chen Xiang Liu
    Abstract: China’s current financial structure does not give sufficient support to rural areas, leaving many farmers and rural businesses without the capital they need to develop. Rural finance is the weakest point in the country’s entire financial system. Low profits for rural financial institutions, a lack of rural financial products and services and the difficulty many farmers experience in securing loans are the main problems plaguing the rural financial system. Accelerating rural financial reform and making it easier for rural people to access capital are key parts of the country’s effort to reform its overall financial system, to resolve “Three Rural Issues (San Nong)(1)” (Agriculture, Countryside, Farmers), and to create “new socialist countryside”. The main objectives of this paper are to (i) examine the current status of rural finance’s demand and supply and identify existing issues and constraints; (ii) evaluate ongoing rural financial reform and explore suitable roadmaps to develop a well-functioning and sustainable rural finance system, which would address the diverse needs of “new socialist countryside” construction. (1) San nong literally means three “nong”. The word “nong” in Chinese is combined with other words to form phrases such as nongye (agriculture), nongcun (villages or countryside), and nongmin (farmers or peasants).
    Keywords: banks, microcredit institutions, agricultural insurance, informal finance
    JEL: G21 G22 Q14
    Date: 2008
  2. By: Robert Orlowski; Regina T. Riphahn
    Abstract: We extend the literature on transition economies¿ wage structures by investigating the returns to tenure and experience. This study applies recent panel data and estimation approaches that control for hitherto neglected biases. We compare the life cycle structure in East and West German wages for fulltime employed men in the private sector. The patterns in the returns to seniority are similar for the two regional labor markets. The returns to experience lag behind in the East German labor market, even almost 20 years after unification. The results are robust when only individuals are considered who started their labor market career in the market economy and they hold across skill groups.
    Keywords: wage structure, life cycle earnings, returns to tenure, returns to experience
    JEL: J31 J24
    Date: 2008
  3. By: Ruan, Jianqing; Zhang, Xiaobo
    Abstract: "Traditional economic theory posits that a well-functioning capital market is a necessary condition for industrialization and economic growth. In reality, micro and small enterprises are ubiquitous because entrepreneurs can undertake low-return activities with minimal barriers to entry. Using a cashmere sweater cluster in China as an example, this paper shows that organizational choice can overcome the prohibitive cost of investment. When facing credit constraints, firms are more likely to concentrate in divisible production technologies in the form of industrial clusters. Within clusters, a vertically-integrated production process can be decomposed into many small incremental stages that are more accessible for the small entrepreneurs widely available in rural China, thereby supporting industrialization even in the absence of a well-functioning capital market. The observed rate of returns to capital is closely related to the organizational choice under credit constraints." from authors' abstract
    Keywords: Industrialization, Entrepreneurship, Credit, Capital markets, organizational choice, Non-farm development,
    Date: 2008
  4. By: Reuven Glick; Michael Hutchison
    Abstract: In recent years China has faced an increasing trilemma—how to pursue an independent domestic monetary policy and limit exchange rate flexibility, while at the same time facing large and growing international capital flows. This paper analyzes the impact of the trilemma on China’s monetary policy as the country liberalizes its goods and financial markets and integrates with the world economy. It shows how China has sought to insulate its reserve money from the effects of balance of payments inflows by sterilizing through the issuance of central bank liabilities. However, we report empirical results indicating that sterilization dropped precipitously in 2006 in the face of the ongoing massive buildup of international reserves, leading to a surge in reserve money growth. We estimate a vector error correction model linking the surge in China’s reserve money to broad money, real GDP, and the price level. We use this model to explore the inflationary implications of different policy scenarios. Under a scenario of continued rapid reserve money growth (consistent with limited sterilization of foreign exchange reserve accumulation) and strong economic growth, the model predicts a rapid increase in inflation. A model simulation using an extension of the framework that incorporates recent increases in bank reserve requirements also implies a rapid rise in inflation. By contrast, model simulations incorporating a sharp slowdown in economic growth lead to less inflation pressure even with a substantial buildup in international reserves.
    Keywords: Monetary policy - China
    Date: 2008
  5. By: Corduneanu, Carmen; Milos, Laura Raisa
    Abstract: The role of institutional investors in developing domestic capital markets and not only is well known in the economy. They support the financing process of different economical entities with deficits within the economy, providing long-term capital resources to the capital market. Therefore, they play a crucial role in the development of the country’s private sector. In this paper, the authors analyse the current situation of the institutional investors on the Romanian capital market and show their contribution to the economical development of a country from a theoretical point of view. The offered statistical information complete the general analysis made about the current position of institutional investors on the market.
    Keywords: institutional investors; capital market; pension funds; investment companies
    JEL: G20
    Date: 2008–11–24
  6. By: Libman, Alexander; Ushkalova, Daria
    Abstract: The paper approaches the problem of differentiation of strategies implemented by individual countries in the institutional competition for foreign investments by looking at the experience of Kazakhstan. It basically focuses on the contradiction between political bias and political survival effects as driving forces for development and implementation of formal economic institutions. Kazakhstan demonstrates how the shift of relative importance of these two aspects significantly influenced the country’s position in competing for FDI. Moreover, the paper looks at the relative importance of individual levels of institutional competition in a globalizing economy.
    Keywords: Institutional competition; FDI policy; post-Soviet transition
    JEL: P26
    Date: 2009–01
  7. By: Radovan Chalupka (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper analyses possible options how to improve the risk adjustment of the health insurance system in the Czech Republic. Out of possible options it argues for including Pharmaceutical Cost Groups (PCGs) as additional risk factors since it is an improvement that can be implemented almost instantaneously. On real data from an anonymous sickness fund it confirms that predictive performance of PCGs models is consistently better than the performance of the demographic model that is currently used. The study also describes and examines the Czech health insurance market and implications of proposed changes of the current government. Based on experience from other countries we point to a problem of risk selection if the changes are not accompanies by a tighter regulation, specifically in the form of improved risk adjustment formula.
    Keywords: Risk adjustment, Managed competition, Health insurance, Pharmaceutical Cost Groups, Czech Republic
    JEL: C10 D82 G22 I10 I11 I18
    Date: 2009–01
  8. By: Corduneanu , Carmen; Iovu, Laura Raisa
    Abstract: Along the history it has been asserted that among the determinant agents of the economical growth can be also cited the conservation and the endowment with physical, technological and human capital. This thing involves the realization of certain investigations in the infrastructure, development, and innovation, as well as in the education and the formation, that can raise the existent level of these resources in every country and to lead to a growth in the productivity, and in the competition of that country materialized through a higher GDP of a capital. But there is an extremely important factor like the way of financing, the degree of development of the financial system of the economy that leads to economical growth. On a microeconomic level, in what concerns the economical agents, financing is the most important for the development. All in all, no matter how good the product or how efficient the commercialization channels or the correlation level between technology and the human factor may be, if the business does not have an efficient financing politics, regarding the liquidity as well as the solvency and the profitableness, it will crash minimizing the other successfully realized aspects. Except the fact that it offers an efficient allocation and a reduced cost of the financial services, a well developed financial compartment identifies the potential investors, monitors and gives information regarding the behavior of the beneficiaries of the chartered capital. The financial system unifies the capital demand and the offer through banks, capital markets, and other financial mediates like mutual funds or pension funds. An efficient financial system mobilizes the collected saving by the unities that, after they satisfy their own objectives of investment and consumption, have a financing capacity for channeling it towards those units that, for realizing their investing objectives, need financing, offer an efficient payment and clearing system, in this way facilitating the financial transactions. An efficient system is the one that realizes an optimum getting in and allocation of the resources, that it has realized in a satisfying manner the remuneration conditions, assurance, and liquidity of the equivalent deposits or the instruments of collecting the resources, and on the other hand, the cost conditions and financing term for the allocated resources. Until short time ago, it was believed that the financial system develops after the contracting sector, channeling towards investments, at the request of the undertaker, the over pluses obtained as a consequence of the economies of the population. Following what Schumpeter first expressed in 1912, recent theories showed that an efficient financial system is a stimulus for the technological innovation identifying and financing the undertakers capable to successfully innovate the product and the production process. One of those who have opted for this kind of thought is Ross Levine who assures the fact that “a theoretical as well as an empirical constant work volume tends to make even the most skeptical to believe that the development of the financial system is a determinant of the economical growth, and not only a passive answer to this growth.” Levine and the others that share his opinion believe that there are inherent relations between financial intermediate and productivity and , as the amelioration of the productivity level produces on a long term benefic effects on the level of economic development, it can be said that also the financial intermediate generates economical growth. Moreover, Levine suggests that the development of the financial system has an important positive effect over the economical growth saying that “it can be eliminated a third of the already existent inequality between the countries with an important growth and those with a slow growth through the development of the financial intermediation for the latter ones until they reach a developing level comparable with the one of the countries with a quick development”. The positive association between the degree of development of the financial system and economical growth was at large analyzed also by Demirguc-Kunt (2006), Levine and King (1993), and Levine and Beck (2004). They get to the conclusion that this correlation stays significant even when other factors of influence are taken into consideration. Moreover, they prove that regarding a country with a developing financial system, the degree of financial development is correlated not only with the current growth, but also with the future economical growth. In order to do a thorough analysis of the way in which the Romanian financial system evolved, being correlated with the economical growth of the financing structure of the Romanian economy between 1990 and 2006, we leveled this analysis depending on the mutations that took place during the time in the Romanian economical and financial landscape. We have taken one by one the mutations that took place during this period regarding the Romanian banking system and capital market, as main financial agents, then the macro economical politics and their impact on the development of the financial system, and, least but not last, recent evolutions experienced by the Romanian financial system and regional level (Central and Eastern Europe) and European Union comparisons.
    Keywords: Romanian financial system; capital market; development
    JEL: G20
    Date: 2008–01
  9. By: Chen, Yan
    Abstract: The purpose of this paper is to investigate the relationship between investor protection and corporate valuation. “Tunneling effects” which means that the controlling shareholders enrich themselves by expropriating the rights and interests of minor shareholders are usually referred in recent literatures of corporate finance. In this paper, we build a simple model which combines the firm’s inside ownership structure with outside law and regulation surrounding in order to inhibit “Tunneling effects”, and then we analyze their effects on corporate valuation. Finally, we test the hypothesis obtained from the model using a sample of 110 firms listed in Chinese stock market. The empirical results show that better protection of minority shareholders and appropriate ownership structures can help to elevate the valuation of firms.
    Keywords: Investor protection; Law and regulation; Ownership structure; Corporate valuation; Panel data estimate
    JEL: K22 G32
    Date: 2007–11
  10. By: Pirtea, Marilen; Iovu, Laura Raisa
    Abstract: Nowadays, covering the financial deficit of public administration in Romania is a difficult task, taking into consideration the fact that in a continous way, this institutional sector must implement and manage investment projects, that suit the local needs of Romanian colectivity and dynamize their adaption to the social,economical and political requirements of the integration in the European Union. Therefore, the alternative of financing through the capital market is well received by the public authorities, especially because there is a lack of flexibility and variety of financing possibilities for the public administration. The interest for this type of financing has increased over the time, once with becoming familiar with the mechanisms and advantages of such a type of financing by all entities that operate on the market (issuers, investors, intermediaries).
    Keywords: capital market; T-bonds; public debt management
    JEL: G30
    Date: 2008–05–10
  11. By: Přečková, Lenka
    Abstract: The sum insured of insured assets is one of the basic significant characteristics of insurance policy quality and is the ceiling amount of insurance benefit in the case of an insured loss. It is one of the parameters specified in the policy and affects the premium amount. The sum insured relates to the insured value of the asset. It is the highest possible loss which can occur to an insured loss and it is decisive for determining the sum insured. The policy holder determines the sum insured so that it corresponds to the insured value of the insured asset at the time of insurance policy signing. The policy holder is fully liable for setting the sum insured. The aim of this paper was to analyze the quality of the underwritten insurance according to the determined sum insured. Source data for the paper included critical analysis of literature based on valid Czech legislation and on general terms and conditions of insurance of individual insurance companies. The paper contains an analysis and comparison of types of insured values of assets for insurance needs on the Czech insurance market. An induction method applied to a real-life insurance case was used for explanation of the relationship between the sum insured and paid-out insurance benefit. The paper clarifies the significance and characteristics of the sum insured in the Czech Republic. The conclusion is that viewing insurance only from the angle of the premium amount is completely incorrect. Savings on the premium at the expense of reduction of the sum insured implies a risk of not renewing company operations or a living in a family house in case of an insured loss.
    Keywords: insured value; sum insured; insurance benefit; under-insurance; over-insurance
    JEL: G22
    Date: 2008–05

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