nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒01‒17
fifteen papers chosen by
J. David Brown
Heriot-Watt University

  1. China’s provincial disparities and the determinants of provincial inequality By Thomas Gries; Magarete Redlin
  2. When a good science base is not enough to create competitive industries: Lockin and inertia in Russian systems of innovation By Irina Jormanainen; Rajneesh Narula
  3. Common Influences, Spillover and Integration in Chinese Stock Markets By Enzo Weber; Yanqun Zhang
  4. New policy challenges from financial integration and deepening in the emerging areas of Asia and Central and Eastern Europe By Valeria Rolli
  5. Economic value added as an instrument of the efficiency´s evaluation in the conditions of the Czech capital market By Růčková, Petra
  6. FDI and productivity convergence in central and eastern Europe - an industry-level investigation By Martin Bijsterbosch; Marcin Kolasa
  7. EU enlargement and consequences for FDI assisted industrial development By Christian Bellak; Rajneesh Narula
  8. Measures of compliance with sustainable development objectives adopted by Romania in the pre-and post-accession By Duduiala-Popescu, Lorena
  9. Applying Basel II Requirements in Romania By Miru, Oana Maria; Hetes-Gavra , Roxana; Nicolescu, Ana Cristina
  10. The Most Efficient Czech SME Sectors: An Application of Robust Data Envelopment Analysis By Jan Průša
  12. Migration in an Enlarged EU : A Challenging Solution? By Martin Kahanec; Klaus F. Zimmermann
  13. Offshoring, Relocation and the Speed of Convergence: Convergence in the Enlarged European Union By Kari E. O. Alho; Ville Kaitila; Mika Widgrén
  14. Vertical Integration, Institutional Determinants and Impact: Evidence from China By Joseph P.H. Fan; Jun Huang; Randall Morck; Bernard Yeung
  15. Supporting Measures for Research & Development as a Stimulus for Technology Transfer and Academic Entrepreneurship in Estonia By Indrek Jakobson; Valter Ritso

  1. By: Thomas Gries (University of Paderborn); Magarete Redlin (University of Paderborn)
    Abstract: The paper explains the growth — inequality nexus for China’s provinces. The theoretical model of provincial development consists of two regions and studies the interactions of a mutually depending development process. Due to positive externalities, incoming trade and FDI induce imitation and hence productivity growth. The regional government can influence the economy by changing international transaction costs and providing public infrastructure. Due to mobile domestic capital, disparity effects are reinforced. The implications of the theoretical model are tested. As the central intention of the paper is to explain provincial disparity we directly relate income disparity (indicated by the contribution to the per capita income Theil index) to the disparity of selected income determining factors (indicated by the contribution to every other Theil index of the determinants). We examine the determinants of income and inequality for 28 Chinese provinces over the period 1991-2004 and apply a fixed effects panel estimation. Our analysis is based on revised GDP and investment data from Hsueh and Li (1999) and various sources of Chinese official statistics provided by the National Bureau of Statistics (NBS). The results confirm the theoretical framework and suggest a direct linkage between the factors that determine regional income and regional disparity. More specific, it is apparent that trade, foreign and domestic capital and government expenditure have an impact on the provincial inequality. Moreover, it is the success of the coastal regions and hence potentially geography with the low international transaction costs that drives the provincial inequality of China.
    Keywords: regional development, FDI, international integration, China
    JEL: J24 O14 O18 O33 O40
    Date: 2008–08
  2. By: Irina Jormanainen (Department of International Business, Helsinki School of Economics.); Rajneesh Narula (School of Management, University of Reading)
    Abstract: Despite a well-developed science and technology base and considerable industrial capacity during the soviet era, Russia has largely failed to create a competitive industrial sector despite two decades of transition. This paper seeks to understand why Russia has not succeeded despite having relatively favourable initial conditions. We develop an understanding of its innovation system and the interplay between the firm and the nonfirm sector. We argue that – in any economy - when political and economic regimes were rapidly reformed, there is considerable structural inertia associated with complex interdependencies between the state, domestic firms and the formal and informal institutions that bind them together. In the case of Russia, this inertia has resulted in a system-wide lock-in, and industrial enterprises continued to engage in routines that generated a suboptimal outcome. Market forces did not result in the western-style innovation system, but a hybrid one, with numerous features of the soviet system. A significant segment of industry maintains a Soviet-style dependence on ‘top-down’ supply-driven allocation of resources and a reliance on external (but domestic) network of sources for innovation and capital. At the same time, ‘new’ firms and industries have also evolved which undertake their own R&D, and utilise foreign sources of capital and technology, and at least partly determine their production and innovative activities on the basis on market forces.
    Keywords: innovation systems, R&D, Russia, inertia, institutions, lock-in, transition, competitiveness
    Date: 2008
  3. By: Enzo Weber; Yanqun Zhang
    Abstract: The Chinese stock market features an interesting history of divided market segments: domestic (A), foreigners' (B) and overseas (H). This puts forth questions of market integration as well as cross-divisional information transmission. We address these issues in a structural DCC framework, an econometric technique capable of identifying common factor in uences from (bi-directional) spillovers as constituents of contemporaneous correlations. We find initial dominance of transmission from A to B and to a lesser extent from H to B and A to H. However, since the opening of the B-market for Chinese citizens in 2001, common factors have largely replaced direct spillovers.
    Keywords: China, Stock Market, Integration, Causality, Correlation
    JEL: C32 G10
    Date: 2008–12
  4. By: Valeria Rolli (Banca d'Italia)
    Abstract: Since the mid-nineties international financial integration has advanced gradually in the emerging areas of Asia, while it has progressed rapidly in Central and Eastern Europe. This process has helped provide long-term benefits for the economies of the two regions in terms of faster productivity growth and deepening of domestic financial markets. The strong surge of international capital inflows since the early years of the current decade has, however, also potentially increased the financial vulnerability and the external sources of contagion for a number of countries, particularly those in Central and Eastern Europe that have seen a significant increase in their foreign borrowing, and also those with still relatively underdeveloped financial systems. We thus analyze the risks of financial instability and asset bubbles in the emerging economies of the two regions, taking into account the degree of development of their domestic financial systems. We conclude by discussing possible policy responses to these challenges by the monetary authorities of the concerned countries.
    Keywords: Asian economies, Central and Eastern European economies, capital markets, international financial integration
    JEL: F36 O16 O52 O53
    Date: 2008–10
  5. By: Růčková, Petra
    Abstract: This paper defines economic value added as an instrument of the efficiency’s evaluation in the Czech capital market. EVA is a new evaluation criterion of efficiency in the Czech Republic and in practice it is not much applied in the Czech companies. EVA is just used for big companies. Typical representatives of these companies are companies on the Prague Stock Exchange. The intention of this paper is to evaluate companies on the Prague Stock Exchange according to the way how they embody EVA and whether these companies have a larger ROE than the costs of equity.
    Keywords: economic value added; economic profit; book profit; costs of a shareholders´s capital; profitability of a shareholders´s capital; risk free interest rate
    JEL: G31 G32
    Date: 2008
  6. By: Martin Bijsterbosch (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marcin Kolasa (National Bank of Poland, Economic Institute, ul. Swietokrzyska 11/21, 00-919 Warsaw, Poland.)
    Abstract: This paper presents empirical evidence of the effect of FDI inflows on productivity convergence in central and eastern Europe, using industry-level data. Four conclusions stand out. First, there is a strong convergence effect in productivity, both at the country and at the industry level. Second, FDI inflow plays an important role in accounting for productivity growth. Third, the impact of FDI on productivity critically depends on the absorptive capacity of recipient countries and industries. Fourth, there is important heterogeneity across countries, industries and time with respect to some of the main findings. JEL Classification: C23, F21, O33.
    Keywords: Productivity convergence, FDI, absorptive capacity.
    Date: 2009–01
  7. By: Christian Bellak (Department of Economics, University of Economics and Business Administration, Vienna); Rajneesh Narula (School of Management, University of Reading)
    Abstract: Many of the new member states as well as candidate and accession countries of the EU are confident that membership will result in substantially increased inward foreign direct investment (FDI) in manufacturing. This paper discusses the policy issues and challenges that cohesion and accession countries face, applying lessons that by now have become mainstream in the parallel discussion of FDI-assisted development in the developing economies. We argue that globalisation has attenuated the benefits that accrue from EU membership for latecomers, and they must now compete for FDI not just with other European countries but also with non- EU emerging economies. We posit that they should not base their industrial development strategy on mere passive reliance of FDI flows without considering how to concatenate their industrial development and the nature of the MNE activities they attract.
    Date: 2008
  8. By: Duduiala-Popescu, Lorena
    Abstract: Developing the National Strategy for Sustainable Development (SNDD) is the result of the obligation assumed by Romania, as a member of the European Union, in accordance with the objectives agreed at EU and methodological prescriptions of the European Commission. Defining element of this policy is fully connecting Romania to a new philosophy of development, the European Union and its own widely shared around the world - that of sustainable development.
    Keywords: the rural economy; the National Strategic Framework of Reference; The National Reform Program; the convergence program
    JEL: F00 F15 E32 E24 F41 E44 F43 E60
    Date: 2008–11–30
  9. By: Miru, Oana Maria; Hetes-Gavra , Roxana; Nicolescu, Ana Cristina
    Abstract: The Basel II Agreement is a new stage in the development of prudential regulations. Compared to the initial agreement, Basel I, this one allows a more large and precise analysis of banking risks. The European approach of Basel II requirements aims to offer some common conditions for all the credit institutions. Secondly, in order to achieve the objectives of Basel II, an active implication of the supervisory authorities is needed, as well as a tighter cooperation between them in order to increase the financial integration at the European Union level. In what concerns Romania, that has recently joined the European Union, the implementation of Basel II requirements imply a new series of challenges both for credit institutions and for the Central Bank. These challenges, for the commercial banks, reside in adjusting the risk management techniques and the informational system, training the staff, obtaining the databases, etc. and for the Central Bank in both adapting the surveillance process and elaborating new regulations. This paper tries to analyze the main implications of implementing these requirements, both for the Romanian commercial banks and for the National Bank.
    Keywords: banking; prudential regulations; supervision; capital requirements
    JEL: E5 E50
    Date: 2008
  10. 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 the efficiency of Czech small and medium enterprises. We use the data from 2002 to 2005 of thirty manufacturing industries, each divided into five subgroups according to the number of employees. We employ standard and advanced robust data envelopment analysis (DEA) to obtain cross-sectional rankings of individual industries. The results reveal substantial variance in the efficiency scores, which is only partly removed by the robust DEA specification. We found that the majority of firms operate below full efficiency; with only a few companies (industries) belonging to top performers. Average efficiency lies between 50 to 70 per cent of the best sectors. We conclude that only a minor proportion of Czech SME concentrate on high value added production.
    Keywords: production, efficiency measurement, data envelopment analysis, small and medium enterprises
    JEL: D24 L60 L70
    Date: 2009–01
  11. By: Stegaroiu, Valentin
    Abstract: The EU expansion process is a dynamic one which requires the candidate country to acknowledge the latest developments in communitarian social policy. The dominant economic aspects are currently reinforced by the social ones. Likewise, a consensus must exist regarding the implementation in Romania of the communitarian legislation in this vast domain, but also of the process of re-establishing the differences towards the SM as far as the Romanian social security system is concerned in retrieving them.
    Keywords: social insurance ; pensions; public social insurance system; social insurance pension
    JEL: A13
    Date: 2008–11–25
  12. By: Martin Kahanec; Klaus F. Zimmermann
    Abstract: The 2004 and 2007 enlargements of the European Union were unprecedented in a number of economic and policy aspects. This essay provides a broad and in-depth account of the effects of the post-enlargement migration flows on the receiving as well as sending countries in three broader areas: labour markets, welfare systems, and growth and competitiveness. Our analysis of the available literature and empirical evidence shows that (i) EU enlargement had a significant impact on migration flows from new to old member states, (ii) restrictions applied in some of the countries did not stop migrants from coming but changed the composition of the immigrants, (iii) any negative effects in the labour market on wages or employment are hard to detect, (iv) post-enlargement migration contributes to growth prospects of the EU, (v) these immigrants are strongly attached to the labour market, and (vi) they are quite unlikely to be among welfare recipients. These findings point out the difficulties that restrictions on the free movement of workers bring about.
    Keywords: migration, migration effects, EU Eastern enlargement, free movement of workers
    JEL: F22 J15 J61
    Date: 2008
  13. By: Kari E. O. Alho (ETLA and University of Helsinki); Ville Kaitila (ETLA); Mika Widgrén (Department of Economics, Turku School of Economics, and ETLA, CEPR, CESifo and Public Choice Research Centre (PCRC))
    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: 2008–11
  14. By: Joseph P.H. Fan; Jun Huang; Randall Morck; Bernard Yeung
    Abstract: Where legal systems and market forces enforce contracts inadequately, vertical integration can circumvent these transaction difficulties. But, such environments often also feature highly interventionist government, and even corruption. Vertical integration might then enhance returns to political rent-seeking aimed at securing and extending market power. Thus, where political rent seeking is minimal, vertical integration should add to firm value and economy performance; but where political rent seeking is substantial, firm value might rise as economy performance decays. China offers a suitable background for empirical examination of these issues because her legal and market institutions are generally weak, but nonetheless exhibit substantial province-level variation. Vertical integration is more common where legal institutions are weaker and where regional governments are of lower quality or more interventionist. In such provinces, firms led by insiders with political connections are more likely to be vertically integrated. Vertical integration is negatively associated with firm value if the top corporate insider is politically connected, but weakly positively associated with public share valuations if the politically connected firm is independently audited. Finally, provinces whose vertical integrated firms tend to have politically unconnected CEOs exhibit elevated per capita GDP growth, while provinces whose vertically integrated firms tend to have political insiders as CEOs exhibit depressed per capita GDP growth.
    JEL: G38 L22 P14 P16
    Date: 2009–01
  15. By: Indrek Jakobson (Tallinn School of Economics and Business Administration, Tallinn University of Technology); Valter Ritso (Tallinn School of Economics and Business Administration, Tallinn University of Technology)
    Abstract: The main aim of the article is to emphasise the need for governmental support in the process of building knowledge-based economy. The authors focus on the knowledge creating process in the form on R&D activities and also on entrepreneurial process, mostly in participation with universities. That means an analytical description of the survey provided by the Ministry of Economic Affairs and Communications of Estonia, outlining the major barriers to this process, proposes the main directions for development through business development of innovative and knowledge-based companies and also the survey conducted in Tallinn University of Technology about academic entrepreneurship. The authors are going to analyse companies’ cooperation with universities for better utilisation of their R&D possibilities, entrepreneurial attitude of universities and also to find out possibilities how further activate the stronger cooperation with universities in Estonia for better collaborative research. On the contrary, university as a partner for entrepreneurs is getting the possibilities to enhance the awareness of science-intensive entrepreneurship.
    Keywords: Research and development (R&D), innovation, technology transfer, knowledge transfer, academic entrepreneurship, spin-off, supporting measure
    JEL: L26 I23 O32 O38
    Date: 2008

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