nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒02‒07
fourteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Post-Subprime Crisis: China Banking and GATS Liberalization By Killion, M. Ulric
  2. Taxation and Capital Structure: evidence from a transition economy By Leora Klapper; Konstantinos Tzioumis
  3. The Value of Business Networks; an Analysis of Firm Financing in Transition Economies By Oluwarotimi Owolabi; Sarmistha Pal
  4. Technology Spillovers from Multinationals to Local Firms: Evidence from Automobile and Electronics Firms in China By MOTOHASHI Kazuyuki; YUAN Yuan
  5. Current account benchmarks for central and eastern Europe - a desperate search? By Michele Ca’ Zorzi; Alexander Chudik; Alistair Dieppe
  6. Russian Election Reform and the Effect of Social Conformity on Voting and the Party System: 2007 and 2008 By Coleman, Stephen
  7. Autoregressive models for analysis of foreign investment in Romania By Sipos, Ciprian; Boleantu, Mihai
  8. Changes in the Earnings Distribution in Slovenia during Rapid Growth, 1991-2005 By Stanovnik, Tine; Verbic, Miroslav
  9. Altruism, Favoritism, and Guilt in the Allocation of Family Resources: Sophie's Choice in Mao's Mass Send Down Movement By Li, Hongbin; Rosenzweig, Mark; Zhang, Junsen
  10. The Determinants of Private Transfers in Rural Vietnam By Patrick Eozenou
  11. Current Legal and Institutional Frameworks for Investing in Lower Carbon Electricity in China By Lang, X.; Reiner, D.; Neuhoff, K.
  12. Multiplier Decomposition, Poverty and Inequlity in Income Distribution in a SAM Framework: the Vietnamese Case By Pansini, Rosaria Vega
  13. Marriage, childbearing, and migration in Kyrgyzstan: exploring interdependencies By Lesia Nedoluzhko; Victor Agadjanian
  14. The Politics of Differentiated Integration: the case of the Balkans By Spyros Economides

  1. By: Killion, M. Ulric
    Abstract: The Article first presents a brief history or survey of the some of the earlier problems that associate with China’s banking and financial institutions. The Article then addresses specific problems, in the context of the rules, procedures, and practices of the banking and finance sector, which widely range from non-performing loans, to China’s money market and interbank lending business. These problems also directly associate with the liberalization of the banking and finance sector of the economy, and the requirements of both the WTO rules and China’s WTO Protocol on accession. The Article also briefly explores the US sub-prime mortgage crisis and its contagion effect throughout the world, including the Asian region. In the context of China and the subprime crisis, the Article summarizes some of the problems that associate with China banking and financial institutions, by focusing on the policy implications of the history of banking and finance in China, and what this means in terms of both WTO compliance and greater liberalization of banking and financial institutions, especially pursuant to the WTO GATS, as service industries. All of this, eventually, allows for the presentation of certain conclusions concerning China banking and finance in the new era of a global subprime crisis.
    Keywords: China; banking; finance; WTO; GATT; GATS; subprime crisis; Interbank lending
    JEL: F10 F30 G21
    Date: 2009–01–30
  2. By: Leora Klapper; Konstantinos Tzioumis
    Abstract: We examine the effect of taxation on financing policy using the corporate tax reform in 2001 in Croatia as a natural experiment. Since the extant literature on tax effects on capital structure studies listed firms in developed countries, it is worth investigating whether the same results apply to privately-held, small and medium sized firms (SMEs) in transition economies. The findings provide significant evidence that lower taxes affected the capital structure of Croatian firms, which resulted in increased equity levels and decreased long-term debt levels. We also find that smaller and more profitable firms were more likely to reduce their debt levels. These findings are consistent with the trade-off theory of capital structure, which suggests that lower taxes decrease the incentive to hold debt due to decreasing interest tax deductibility.
    Keywords: Capital structure; Taxation; Transition Economies.
    Date: 2008–07
  3. By: Oluwarotimi Owolabi; Sarmistha Pal
    Abstract: The paper argues that the networked firms have an advantage in securing bank finance in countries with weak legal and judicial institutions. An analysis of recent BEEPS data from sixteen CEE transition countries lends some support to this hypothesis. Firms affiliated to business associations are more likely to have bank finance while small and medium firms are less likely to secure it. Importance of being associated with business networks is particularly evident among firms who borrow from foreign banks, as the latter attempt to hedge risk in an uncertain environment. Significance of business networking however vanishes if institutional quality improves.
    Date: 2009–01
  4. By: MOTOHASHI Kazuyuki; YUAN Yuan
    Abstract: This study compares knowledge spillovers from multinationals to local firms in China between the automobile and electronics industries. In the automobile industry we find that multinationals in the assembly industry affect vertical spillovers to domestic parts supply firms, and horizontal spillovers also exist between domestic parts suppliers. In contrast, we cannot find vertical spillover effects of multinationals in the assembly industry to domestic suppliers in the electronics industry, only horizontal spillover effects from multinationals to domestic supply firms can be found. A different pattern of technology spillover suggests the importance of customization of FDI policy by industry.
    Date: 2009–05
  5. By: Michele Ca’ Zorzi (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Alexander Chudik (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Alistair Dieppe (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper examines two competing approaches for calculating current account benchmarks, i.e. the external sustainability approach á la Lane and Milesi-Ferretti (LM) versus the structural current accounts literature (SCA) based on panel econometric techniques. The aim is to gauge the medium term adjustment in current account positions that may be required in some central and eastern European countries. As regards the LM approach, we show how the outcome is especially sensitive to (i) the normative choice for external indebtedness and (ii) the decision to exclude the foreign direct investment subcomponent from the NFA aggregate. Turning our search to the SCA approach, we assess its sensitivity to model and parameter uncertainty by setting different selection criteria to choose amongst the over 8000 possible combinations of fundamentals. Furthermore, to test the robustness of our findings we combine all models, attaching to each a probability (Bayesian Averaging of Classical Estimates). We show both the LM and SCA methodologies are not immune from severe drawbacks and conceptual difficulties. Nevertheless pulling together the results of both approaches point to the countries that may need a current account adjustment over a medium term horizon. JEL Classification: C11, C33, F15, F32, F34, F41, O52.
    Keywords: Current account, capital flows, financial integration, central and eastern Europe, panel data, model uncertainty, model combination.
    Date: 2009–01
  6. By: Coleman, Stephen
    Abstract: In 2007 Russian voters elected representatives to the State Duma under new electoral procedures that President V. Putin had instituted. A presidential election followed in 2008 leading to Putin’s new role as Prime Minister. To many observers, the reforms and the election campaigns resulted in a party system manipulated to the advantage of the government, although Putin’s reported goal was to reduce the number of political parties. Earlier research [1,2,6] reported that social conformity exerted a strong, persistent, and predictable influence on voting in national elections from 1991 to 2003. This analysis examines how the effect of social conformity on Russian voters might have changed from earlier elections as a result of the electoral reforms and campaign practices. Specific questions addressed are how well the political party system now aligns with the interests of voters, and whether this type of analysis can speak to fairness of the elections.
    Keywords: Russia; voting; elections; mathematical model; social norms; social conformity; political party system; entropy
    JEL: C51 D7 Z1 Z13 D72 C21
    Date: 2009–01–30
  7. By: Sipos, Ciprian; Boleantu, Mihai
    Abstract: On the base of significant fluctuations of the international financial markets, the international investment position of Romania has an increasing importance in assuring the financial stability. The Romanian National Bank reserves are increasing as a result of exchanging the minimum reserves into foreign currencies made by banks and of the privatization revenues. The international reserve has been negatively influenced by the payments made in the foreign debt service account and by the foreign payment forms redeemed by the Public Finance Ministry. This paper offers to analyze the evolution and impact of the foreign investments in any form whatsoever, on the Romanian economy with the help of autoregressive econometrical models. These models shall refer to all foreign investments elements: direct investments of non-residents, portfolio investment and other categories of foreign investments as well as bank deposits or external short-term, medium and long-term credits.
    Keywords: econometric analysis; foreign investment; autoregressive models
    JEL: F21 C22
    Date: 2008–04
  8. By: Stanovnik, Tine; Verbic, Miroslav
    Abstract: This paper analyses the dynamics of income inequality of wage earners in Slovenia from 1991 to 2005, using two different datasets. Both are derived from the personal income tax files. The first is obtained by the Statistical Office of Slovenia, extracting all full-time employees from these files by using the central registry of the active population and tabulating the results. The second source is a large simple random sample from this same personal income tax file; for the purpose of our analysis, employees were suitably extracted from this sample. Our results show that income inequality of wage earners has increased dramatically in the very first years of transition (1991-1993), followed by less spectacular increases up to 1999. Since 1999 changes have only been small. Our analysis also shows that important increases in income have been achieved by the top wage earners.
    Keywords: income inequality; income distribution; wages; Slovenia
    JEL: D31 J31
    Date: 2008–08
  9. By: Li, Hongbin (Tsinghua U); Rosenzweig, Mark (Yale U); Zhang, Junsen (The Chinese U of Hong Kong)
    Abstract: In this paper, we use new survey data on twins born in urban China, among whom many experienced the consequences of the forced mass rustication movement of the Chinese "cultural revolution," to identify the distinct roles of altruism and guilt in affecting behavior within families. Based on a model depicting the choices of the allocation of parental time and transfers to multiple children incorporating favoritism, altruism and guilt, we show the conditions under which guilt and altruism can be separately identified by experimental variation in parental time with children. Based on within-twins estimates of affected cohorts, we find that parents selected children with lower endowments to be sent down; that parents behaved altruistically, providing more gifts to the sibling with lower earnings and schooling; but also exhibited guilt--given the current state variables of the two children, the child experiencing more years of rustication received significantly higher transfers.
    JEL: J12 J13 O12
    Date: 2008–09
  10. By: Patrick Eozenou (European University Institute, Villa San Paolo, Via Della Piazzuola 43, 50133 Florence, Italy)
    Abstract: We use the Vietnam Living Standard Survey conducted in 1993 and in 1998 to analyze the determinants of private transfers among rural farmers. Private transfers are widespread and important relative to pre-transfer income levels of recipients in both years. Conducting parametric and semiparametric analysis of single-index models for transfer status, we find that private transfers help smoothing income across the life cycle and across states of nature. Pre-transfer income is positively related to the net donor status and negatively associated with the net recipients status, especially for low levels of income. These results suggest that crowding-out of public redistributive policies targeted to the rural poor might be an issue to take into account in Vietnam.
    Keywords: Private Transfers; Single-Index Model; Probit; Semiparametric Estimation; Vietnam.
    JEL: D63 D64 I30
    Date: 2009
  11. By: Lang, X.; Reiner, D.; Neuhoff, K.
    Abstract: The economic and policy framework for investment decisions in the power generation sector in China are investigated. Our analysis combines a review of the existing legal framework with a survey of stakeholders in industry and government. Based on interviews with over 60 stakeholders, we find a consistent picture emerges of the role of the major institutions and the decision criteria used in investment decisions for conventional thermal power technologies. In contrast, the evolving legal framework for investment in lower-carbon technologies, as reflected primarily in the renewable energy law, produces no clear consensus regarding decision criteria from either government or industry stakeholders. The overall objectives are widely acknowledged, but there is considerable disagreement amongst stakeholders over its implementation. From an investment analysis of risks versus returns, most respondents perceive advanced thermal power investments and small hydro as being more attractive than lower carbon alternatives such as wind power and solar photovoltaic (PV) power.
    Keywords: Investment decisions, Institutions, Power sector, Lower-carbon electricity, China.
    JEL: N75 L94 Q42 Q58 Q54
    Date: 2008–12
  12. By: Pansini, Rosaria Vega
    Abstract: The aim of this paper is to show how and why is possible to assess both direct and indirect effects of exogenous income injections on mean income of different household groups using a new approach based on the decomposition of SAM-based multipliers. The approach we propose in this paper allows analyzing the level of inequality in the distribution of income linking the formation of individual/family income to the features of each country’s productive structure and it can be used both for structural analysis and for simulations of redistributive and antipoverty policies. The first step in order to link changes in the level of poverty and inequality to policy measures will be to derive the “accounting price multipliers matrix”, which allows considering the effects of policies affecting the labour market, thus changing the level of wages for different workers ‘categories. Using the traditional Pyatt and Round’s multiplicative decomposition method, we will be then able to disentangle the transfer, the open-loop and the closed-loop effects of a change in the income of exogenous SAM’s accounts. The second step will be to use a new technique introduced by Pyatt and Round (2006) to further decompose each element of the total multiplier matrix in order to enlighten in “microscopic detail” the linkages between each household group’s income of and other accounts whose income has been exogenously injected (i.e. Activities account and Factors account). Moreover, this new approach allows assessing the linkages between each household endowment in terms of factors and the features of the productive system and shading light on the most powerful links among different components of the economic system affecting the distribution of income. The empirical results obtained using the Vietnamese SAM for year 2000 show that the highest direct effects are related to exogenous injections to the agricultural sector and to less skilled labour force and that these effects involved not only on rural male headed but also other household groups. At the same time, the new type of multiplier decomposition shows which are the sectors and factors of production whose increase in income will have the greater indirect effects, increasing also the level of income of all household types. For example, investing in the sector of food processing and on female labour force will benefit the most all household groups, thus representing a policy option good for aggregate growth and for improving the distribution of income.
    Keywords: Income distribution; social accounting matrix; multiplier decomposition; growth; labour market; structure of production.
    JEL: D31 D33 D57 O43 O15
    Date: 2008–10
  13. By: Lesia Nedoluzhko (Max Planck Institute for Demographic Research, Rostock, Germany); Victor Agadjanian
    Abstract: In our study we investigate interdependencies between entry into a marital union, childbirth, and migration. We apply event-history techniques to retrospective data on women aged 18-29 from a survey conducted in northern Kyrgyzstan in 2005 to examine how these events can influence one another, with a special focus on the effects of duration of exposure. In addition we analyze the impact of some individual characteristics on the propensity to get married, to become a mother, and to migrate. In our analysis we account for several duration dependences (‘clocks’). The results illustrate that months since marriage formation is the most important duration variable in the first-birth propensities model. Out-of-wedlock conception is associated with increased marriage risks. Migration is often a part of the family building process: high first-birth propensities of recent migrants as well as high migration risks among pregnant women are due to marriage-related migration.
    Keywords: Kyrgyzstan
    JEL: J1 Z0
    Date: 2009–01
  14. By: Spyros Economides
    Abstract: Most studies of differentiated integration are confined within the framework of the European Union (EU). The EU-Balkan relationship provides an opportunity to apply differentiated integration to links between the EU and a cluster of external states. Differentiated integration is at play in the relationship between the EU and the Balkans, especially in terms of time and space. Different states, at different times, have entered into binding contractual agreements with the EU, intended to enhance their ‘European perspective’. Objectives are seemingly common, there is a sequencing of commitments, and territorially we seek to prepare states so we can redraw our boundaries and include them within. Functionally differentiated integration as a concept faces a greater challenge as the Balkans are not part of the EU. Variable geometry and á la carte choices are not readily available to the Balkan states and as such their fate is decided by the existing membership and not by their own choices.
    Keywords: European integration; differentiated integration; enlargement; Western Balkans; South Eastern Europe.
    Date: 2008–09

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