nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒02‒28
twelve papers chosen by
J. David Brown
Heriot-Watt University

  1. Financial Constraints in China: Firm-Level Evidence By Poncet, Sandra; Steingress, Walter; Vandenbussche, Hylke
  2. Growing like China By Song, Zheng Michael; Storesletten, Kjetil; Zilibotti, Fabrizio
  3. Towards a System of Open Cities in China: Home Prices, FDI Flows and Air Quality in 35 Major Cities By Siqi Zheng; Matthew E. Kahn; Hongyu Liu
  4. Scale, Diversity and Determinants of Labour Migration in Europe By Zaiceva, Anzelika; Zimmermann, Klaus F
  5. The Russian Regional Convergence Process : Where Does It Go? By Konstantin A. Kholodilin; Aleksey Oshchepkov; Boriss Siliverstovs
  6. The Impact on IPO Performance of Reforming IPO Allocation Regulations: An Event Study of Shanghai Stock Exchange A-Shares By Fei Jiang; Lawrence Leger
  7. The Current State of Research on Networks in China’s Business System By Meuer, J.; Krug, B.
  8. Offshoring, Relocation and the Speed of Convergence in the Enlarged European Union By Alho, Kari; Kaitila, Ville; Widgrén, Mika
  9. Reforming Pensions in Europe: Economic Fundamentals and Political Factors By Ondřej Schneider
  10. Liquidity Constraints and Linkages with Multinationals By Smarzynska Javorcik, Beata; Spatareanu, Mariana
  11. Is Poland at Risk of a Boom-and-Bust Cycle in the Run-Up to Euro Adoption? By Eichengreen, Barry; Steiner, Katharina
  12. Are Your Firm's Taxes Set in Warsaw? Spatial Tax Competition in Europe By Crabbé, Karen; Vandenbussche, Hylke

  1. By: Poncet, Sandra; Steingress, Walter; Vandenbussche, Hylke
    Abstract: This paper uses a unique micro-level data-set on Chinese firms to test for the existence of a 'political-pecking order' in the allocation of credit. Our findings are threefold. Firstly, private Chinese firms are credit constrained while State-owned firms and foreign-owned firms in China are not; Secondly, the geographical and sectoral presence of foreign capital alleviates credit constraints faced by private Chinese firms. Thirdly, geographical and sectoral presence of state firms aggravates financial constraints for private Chinese firms ('crowding out'). Therefore it seems that ongoing restructuring of the state-owned sector and further liberalization of foreign capital inflows in China can help to circumvent financial constraints and can boost the investment of private firms.
    Keywords: China; firm level data; foreign direct investment; Investment-cashflow sensitivity; pecking-order
    JEL: E22 G32
    Date: 2009–01
  2. By: Song, Zheng Michael; Storesletten, Kjetil; Zilibotti, Fabrizio
    Abstract: This paper constructs a growth model that is consistent with salient features of the Chinese growth experience since 1992: high output growth, sustained returns on capital investments, extensive reallocation within the manufacturing sector, falling labor share and accumulation of a large foreign surplus. The theory makes only minimal deviations from a neoclassical growth model. Its building blocks are financial imperfections and reallocation among firms with heterogeneous productivity. Some firms use more productive technologies than others, but low-productivity firms survive because of better access to credit markets. Due to the financial imperfections, high-productivity firms - which are run by entrepreneurs - must be financed out of internal savings. If these savings are sufficiently large, the high-productivity sector outgrows the low-productivity sector, and attracts an increasing employment share. During the transition, low wage growth sustains the return to capital. The downsizing of the financially integrated sector forces a growing share of domestic savings to be invested in foreign assets, generating a foreign surplus. We test some auxiliary implications of the theory and find robust empirical support.
    Keywords: China; Economic Growth; Entrepreneurs; Foreign Surplus; Investment; Productivity Heterogeneity; Rate of Return on Capital; Reallocation; State-Owned Firms.
    JEL: G18 O11 O16 O47 O53 P31
    Date: 2009–01
  3. By: Siqi Zheng; Matthew E. Kahn; Hongyu Liu
    Abstract: Over the last thirty years, China's major cities have experienced significant income and population growth. Much of this growth has been fueled by urban production spurred by world demand. Using a unique cross-city panel data set, we test several hypotheses concerning the relationship between home prices, wages, foreign direct investment and ambient air pollution across major Chinese cities. Home prices are lower in cities with higher ambient pollution levels. Cities featuring higher per-capita FDI flows have lower pollution levels.
    JEL: F21 Q53 R31
    Date: 2009–02
  4. By: Zaiceva, Anzelika; Zimmermann, Klaus F
    Abstract: While global migration is increasing, internal EU migration flows have remained low. This paper contributes to a better understanding of the determinants and scale of European migration. It surveys previous historical experiences and empirical findings including the recent Eastern enlargements. The determinants of migration before and after the 2004 enlargement and in the EU15 and EU10 countries are analysed using individual data on migration intentions. In addition, perceptions about the size of migration after the enlargement are studied. The potential emigrant from both old and new EU member states tends to be young, better educated and to live in larger cities. People from the EU10 with children are less likely to move after enlargement in comparison to those without family. There exists a correlation between individual perceptions about the scale of migration and actual flows. Better educated and left-oriented individuals in the EU15 are less likely to perceive these flows as important.
    Keywords: determinants of labour migration; EU Eastern enlargement; migration; migration intentions
    JEL: F22 J15 J61
    Date: 2008–07
  5. By: Konstantin A. Kholodilin; Aleksey Oshchepkov; Boriss Siliverstovs
    Abstract: This paper investigates the income convergence among Russian regions in the period 1998-2006. It makes two major contributions to rather extensive literature on the regional convergence in Russia. First, it identifies spatial regimes using the exploratory spatial data analysis. Second, it examines the impact of spatial effects on the convergence process. Our results show that the overall speed of regional convergence in Russia, being low by international standards, becomes even lower after controlling for spatial effects. However, when accounting for the spatial regimes, we find a strong regional convergence among high-income regions located near other high-income regions. Our results indicate that estimation of speed of convergence using aggregate data may result in misleading conclusions regarding the nature of convergence process among Russia's regions.
    Keywords: Regional convergence; d-convergence; ß-convergence; spatial regimes; spatial effects
    JEL: C21 O47 R12
    Date: 2009
  6. By: Fei Jiang (Department of Economics, Loughborough University); Lawrence Leger (Department of Economics, Loughborough University)
    Abstract: Initial public offerings in China are distinguished from IPOs in other markets by their extremely high abnormal initial returns and so-called 'Chinese Characteristics'. We examine the effect on IPO underpricing and short-run performance of significant changes in Chinese IPO regulations implemented in May 2002. The significant event was a regulatory change in the method of allocating IPO shares. Event study analysis reveals that abnormal initial returns decreased by 43.3% after the change in regulations, that beta risks of the IPOs increased and that an evenly-upward trend of cumulative abnormal initial returns was reversed to become evenly-downward. The results appear to be consistent with Information Cascades (Welch 1992) and Bandwagon (Ritter 1998) models of underpricing.
    Keywords: IPO underpricing, IPO allocation, Policy impact, Chinese stock market, Shanghai Stock Exchange A-shares.
    JEL: G14 G28
    Date: 2009–02
  7. By: Meuer, J.; Krug, B. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The purpose of the paper is to assess the current state of network research in China’s business system. Research on networks has developed significantly during the last decades in regards to analytic techniques, number of research projects, and accumulated findings. While research on networks in China has always received much attention – not least because networks are (still) considered one of the major forces behind the country’s socio-economic change – this development has also had an effect on how research on generic networks in China is being conducted. How Chinese networks are modelled, which aspects remain controversial in the academic debate, and which conclusions the different studies offer asks for a systematic comparison. The paper, based on an extensive literature research, therefore relies on a framework of theoretical concepts underlying the study of networks which allows a categorization of the dominant (generic) forms of Chinese networks as discussed in major journals. The study on the one hand is descriptive by filtering the diverse literature of network research on China’s business system. On the other hand, it serves to identify gaps and shortcomings of the current literature in this field pointing to future research directions. We identify four generic types of networks, Chinese business groups (qiyejituan), Overseas Chinese Communities, networks of social relations (guanxi), and Network Capitalism, as an alternative economic model. As the study shows, the research approaches to these networks are extremely diverse both in description and analysis. A focus on the identified gaps within each type of network and a convergence between the types of networks should yield to further insights into the study of networks as well as their implications for economic systems.
    Keywords: China;organizational networks;social networks
    Date: 2009–02–18
  8. By: Alho, Kari; Kaitila, Ville; Widgrén, Mika
    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; EU-15; new member states; relocation
    JEL: F15 F21 F43
    Date: 2008–10
  9. By: Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; CESifo, Munich, Germany; Georgetown University)
    Abstract: This paper analyzes pension reforms in Europe and their determinants. As pension reforms are intrinsically difficult to define and pinpoint, we introduce an alternative measure of pension reforms by comparing long-term forecasts of pension expenditures for seventeen European countries. The larger the decrease in expected spending on public pensions in 2050 between two base years, the more successful a pension reform the country achieved (after controlling for other factors, such as demography). Our analysis shows that the reform effort varies widely across countries and over time. Indeed, only three countries in the EU managed to reduce their expected spending on pensions in both reference periods. In the second part of the paper, we analyze factors that may facilitate or hamper pension reform – quality of fiscal institutions, public debt, trade unions’ influence, and also demographic factors. Only the measure of trade union power proves to be significant in explaining pension reforms. Other factors, such as quality of fiscal institutions, size of the existing funded pillar, public debt or recent demographic developments, do not seem to play a significant role. However, specific pension system factors – most significantly the lagged change in pension expenditures – are significant and suggest that European governments do reform their pension systems when faced with the threat of escalating pension expenditures. In conclusion, we propose a hypothesis of “bounded” economic rationale of European governments, as they seem to react to expectations of an increase in pension spending, but they seem to be content with the current spending levels. The appendix gives detailed information on pension reforms in the ten Central and Eastern European countries that became EU members in 2004 and 2007 (EU-10).
    Keywords: pension system, European Union, pension reform, fiscal institutions
    JEL: D72 H55 P26
    Date: 2009–02
  10. By: Smarzynska Javorcik, Beata; Spatareanu, Mariana
    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: cash flow; FDI spillovers; foreign direct investment; liquidity constraints
    JEL: F21 F23 F36
    Date: 2008–11
  11. By: Eichengreen, Barry; Steiner, Katharina
    Abstract: We ask whether Poland is at risk of the boom-bust problem that has afflicted economies around the time of euro adoption. Our answer, inevitably, is mixed. On the one hand the fact that Poland is an outlier, credit-growth wise, accentuates the danger of a boom if one believes in mean reversion. Our econometrics indicate that the fall in interest rates that will flow from expectations of euro adoption will further feed that boom. On the other hand the fact that interest rates have already converged part way to euro-area levels (and more extensively than in earlier adopters that experienced a sharp fall in rates and a pronounced credit boom), especially in the case of lending to firms, suggests that this shock may be less intense in Poland. And it is certainly conceivable that the same policies and country characteristics (not always visible to the econometrician) that have restrained credit growth in the past may continue to do so in the future. The broader literature also points to two set of factors, the first of which makes the danger of an unsustainable credit boom more immediate, the second of which makes it more remote. In the first category are the continuing limitations of the supervisory framework and the weakness of the finance minister in the budget-making process. In the second are a record of rigorous prudential supervision and the existence of relatively competitive labor markets.
    Keywords: euro; Poland
    JEL: F0
    Date: 2008–10
  12. By: Crabbé, Karen; Vandenbussche, Hylke
    Abstract: Tax competition within the EU is fiercer than in the rest of the OECD with tax rates falling rapidly. This paper analyzes tax responses of EU-15 countries to corporate tax changes in the EU-10 new member states as a function of their proximity to these new member states. The average corporate tax rate in the new member states has always been considerably lower than the average in the EU-15 countries. Their entry into the EU eliminated capital barriers, allowing firms to locate in one of the new EU-10 with full access to the European Market. Our results indicate that EU-15 countries geographically closer to the new member states respond stronger to corporate tax changes in these new member states. We use a theoretical and a spatial regression framework to test the hypothesis that distance to a low tax region intensifies countries' tax reaction functions.
    Keywords: corporate taxes; fiscal reaction function; Spatial tax competition
    JEL: H25 H39 H77
    Date: 2009–02

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