nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒03‒07
eleven papers chosen by
J. David Brown
Heriot-Watt University

  1. What drives firm productivity growth ? By Anos-Casero, Paloma; Udomsaph, Charles
  2. Investor protection and share prices: Evidence from statutory rules governing variations of shareholders’ class rights in Russia By Muravyev, Alexander
  3. Firm Performance and Managerial Turnover: The Case of Ukraine By Muravyev, Alexander; Bilyk, Olga; Grechaniuk, Bogdana
  4. Interest Margins Determinants of Czech Banks By Roman Horváth
  5. Financial Dollarization: Short-Run Determinants in Transition Economies By Kyriakos C. Neanidis; Christos S. Savva
  6. The Elasticity of Taxable Income: Estimates and Flat Tax Predictions using the Hungarian Tax Changes in 2005 By Péter Bakos; Péter Benczúr; Dora Benedek
  7. Spatial Interdependence of Local Public Expenditures: Selected Evidence from the Czech Republic By Lenka Gregorová
  8. Central and East European countries: innovation leapfrog versus “path dependence”? By Boyko, Irina
  9. The impact of EU accession on human capital formation : can migration fuel a brain gain ? By Farchy, Emily
  10. The Health Penalty of China's Rapid Urbanization By E. Van de Poel; O. O'Donnell; E. Van Doorslaer
  11. The Latin American experience in pension system reform: Coverage, fiscal issues and possible implications for China By Titelman, Daniel; Vera , Cecilia; Perez Caldentey, Esteban

  1. By: Anos-Casero, Paloma; Udomsaph, Charles
    Abstract: This paper presents new evidence on the causal links between changes in the business environment and firm productivity growth. It contributes to the literature in three important aspects. First, it constructs a unique database merging information from two large firm-level databases. The samples of both databases are merged on four criteria-country, sub-national location, firm size, and year-producing a panel of 22,004 firms in eight economies of Eastern Europe and the former Soviet Union: Bulgaria, Croatia, Czech Republic, Estonia,, Poland, Romania, Serbia, and Ukraine. Second, the paper addresses shortcomings of earlier studies, namely reverse causation, multicollinearity, and unreliable productivity estimates. Firm productivity growth is estimated drawing on corporate financial data from manufacturing firms included in the AMADEUS database. Changes in the business environment are estimated from the World Bank Enterprise Surveys conducted in 2002 and 2005. Multicollinearity problems in the full model regression are mitigated by constructing a set of six aggregate indicators of the business environment (using principal component analysis). The paper finds that, over the period 2001 to 2004, an increase of one standard deviation in infrastructure quality, financial development, governance, labor market flexibility, labor quality, and market competition raises the total factor productivity of the average firm by 9.8, 7.8, 3.2, 3.4, 5.8, and 3 percent, respectively. Lastly, the paper decomposes firm productivity growth and ranks the relative impact of changes in these six aspects of the business environment by country, by firm size, and by industry.
    Keywords: E-Business,Banks&Banking Reform,Labor Policies,Governance Indicators,Economic Theory&Research
    Date: 2009–02–01
  2. By: Muravyev, Alexander
    Abstract: This paper uses a quasi-experimental framework provided by recent changes in Russian corporate law to study the effect of investor protection on the value of shares. The legal change analyzed involves the empowerment of preferred (non-voting) shareholders to veto unfavorable changes in their class rights. Based on a novel hand-collected dataset of dual class stock companies in Russia and using the difference-in-difference estimator, the study finds a statistically and economically significant effect of improved protection of preferred shareholders on the value of their shares. The result is robust to several changes in the empirical specification.
    Keywords: investor protection; company law; dual class stock; class rights; Russia
    JEL: G38 K22 G30
    Date: 2009–01–22
  3. By: Muravyev, Alexander; Bilyk, Olga; Grechaniuk, Bogdana
    Abstract: The paper studies whether and how CEO turnover in Ukrainian firms is related to their performance. Based on a novel dataset covering Ukrainian joint stock companies in 2002-2006, the paper finds statistically significant negative association between the past performance of firms measured by return on sales and return on assets, and the likelihood of managerial turnover. While the strength of the turnover-performance relationship does not seem to depend on factors such as managerial ownership and supervisory board size, we do find significant entrenchments effects associated with ownership by managers. Overall, our analysis suggests that corporate governance in Ukraine operates with a certain degree of efficiency, despite the well-known lacunas in the country’s institutional environment.
    Keywords: corporate governance; managerial labor market; transition; Ukraine
    JEL: J40 G34 L29
    Date: 2009–01
  4. By: Roman Horváth (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank)
    Abstract: We examine the determinants of interest rate margins of Czech banks employing bank-level dataset at the quarterly frequency in 2000-2006. Our main results are as follows. We find that more efficient banks exhibit lower margins and there is no evidence that the banks with lower margins would compensate themselves with higher fees. Price stability contributes to lower margins. There are some economies of scale, as larger banks tend to charge lower margins. Higher capital adequacy is associated with lower margins contributing to the banking stability. Overall, the results indicate that the determinants of interest rate margins of Czech banks are largely similar to those reported in other studies for developed countries.
    Keywords: commercial banks, interest rate margins, bank efficiency
    JEL: G21 D40 P27
    Date: 2009–02
  5. By: Kyriakos C. Neanidis; Christos S. Savva
    Abstract: This paper examines the determinants of financial dollarization in transition economies from a short-run perspective. Using monthly data of deposit and loan dollarization we study the drivers of short-term fluctuations in dollarization and test their importance at different levels of dollarization. The results provide evidence that (a) the positive short-run effects of depreciation on deposit dollarization are exacerbated in high-dollarization countries; (b) short-run loan dollarization is mainly driven by banks matching of domestic loans and deposits, international financial integration, and institutional quality; and (c) both types of dollarization are affected by interest rate differentials and deviations from desired dollarization.
    Date: 2009
  6. By: Péter Bakos; Péter Benczúr; Dora Benedek
    Abstract: Many Central and Eastern European countries are adopting flat tax schemes in order to boost their economies and tax revenues. Though there are signs that some countries do manage to improve on both fronts, it is in general hard to distinguish the behavioral response to tax changes from the effect of increased tax enforcement. This paper addresses this gap by estimating the elasticity of taxable income in Hungary, one of the outliers in terms of not having a flat tax scheme. We analyze taxpayer behavior using a medium-scale tax reform episode in 2005, which changed marginal and average tax rates but kept enforcement constant. We employ a Tax and Financial Control Office (APEH) panel dataset between 2004 and 2005 with roughly 215,000 taxpayers. Our results suggest a relatively small but highly significant tax price elasticity of about 0.06 for the population earning above the minimum wage (around 70% of all taxpayers). This number increases to around 0.3 when we focus on the upper 20% of the income distribution, with some income groups exhibiting even higher elasticities (0.45). We first demonstrate that such an elasticity substantially modifies the response of government revenues to the 2004-2005 tax changes, and then quantify the impact of a hypothetical flat income tax scheme. Our calculations indicate that though there is room for a parallel improvement of budget revenues and after-tax income, those gains are modest (2% and 1.4%, respectively). Moreover, such a reform involves important adverse changes in income inequality, and its burden falls mostly on lower-middle income taxpayers.
    Keywords: elasticity of taxable income, tax reform, behavioral response, revenue estimation, flat tax
    JEL: H24 H31
    Date: 2008–08–04
  7. By: Lenka Gregorová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Local expenditures in neighbouring municipalities can be spatially interdependent due to spillovers, cooperation effects, competition effects or mimicking. In this paper, we aim to test the spatial interdependence of local public expenditures using data on 205 Czech municipalities. We found positive spatial interdependence in expenditures on housing and culture and negative spatial interdependence for expenditures on industry and infrastructure and environmental protection. Additionally, we observed that political characteristics affect the size of spending; left-wing parties tend to increase expenditures on culture and decrease expenditures on industry and infrastructure; and higher party fragmentation decreases overall capital expenditures and expenditures on housing.
    Keywords: spillovers, fiscal competition, local public finance
    JEL: C72 H77 R12
    Date: 2009–03
  8. By: Boyko, Irina
    Abstract: Strengthening the EU economic and political environment would positively affect the global development. Albeit, building the internal life in the enlarging European society per se represents quite a challenging task. Increasing diversity engenders a huge variety of never seen before problems, which must be responded in appropriate manner. Within this multifold complexity, and despite the variety of issues related to elaboration of a new economic agenda for the member state countries this is specifically innovation path of economic development which would be emphasized as the main underlying route for approaching the prosperous future. This article highlights some problems and prospects of CEEC’ (Central and East European countries) innovation driven development.
    Keywords: EU enlargment; comparative advantage; innovation capabilities; innovation driven path of economic development
    JEL: B40 L52 O14
    Date: 2008–06–05
  9. By: Farchy, Emily
    Abstract: Can a brain drain be good for development? Many studies have established the theoretical possibility of such a brain gain. Yet it is only recently that the relaxation of data constraints has allowed for sound empirical assessments. In utilizing the dramatic policy change that accompanied European Union accession as a natural experiment, this paper is able to assuage fears of reverse causality between migration and human capital formation. The results highlight a significant impact of European Union accession on human capital formation indicating that the prospect of migration can indeed fuel skill formation even in the context of middle-income economies. And, if accompanied by policies to promote return migration, as well as a functioning credit market to enable private investment, international labor mobility could represent a powerful tool for growth.
    Keywords: Population Policies,Economic Theory&Research,Labor Policies,Tertiary Education,Access to Finance
    Date: 2009–02–01
  10. By: E. Van de Poel (Erasmus School of Economics, Erasmus University Rotterdam); O. O'Donnell (University of Macedonia, Thessaloniki, Greece); E. Van Doorslaer (Erasmus School of Economics, Erasmus University Rotterdam)
    Abstract: Rapid urbanization could have positive and negative health effects, such that the net impact on population health is not obvious. It is, however, highly pertinent to the human welfare consequences of development. This paper uses community and individual level longitudinal data from the China Health and Nutrition Survey to estimate the net health impact of China’s unprecedented urbanization. We construct an index of urbanicity from a broad set of community characteristics and define urbanization in terms of movements across the distribution of this index. We use difference-in-differences estimators to identify the treatment effect of urbanization on the self-assessed health of individuals. The results reveal important, and robust, negative causal effects of urbanization on health. Urbanization increases the probability of reporting fair or poor health by 5 to 15 percentage points, with a greater degree of urbanization having larger health effects. While people in more urbanized areas are, on average, in better health than their rural counterparts, the process of urbanization is damaging to health. Our measure of self-assessed health is highly correlated with subsequent mortality and the causal harmful effect of urbanization on health is confirmed using more objective (but also more specific) health indicators, such as physical impairments, disease symptoms and hypertension.
    Keywords: urbanization; health; China; treatment effects; difference-in-differences
    JEL: I12 I18 O18
    Date: 2009–02–19
  11. By: Titelman, Daniel; Vera , Cecilia; Perez Caldentey, Esteban
    Abstract: In the past two decades, Latin American countries reformed their pension systems focusing mainly on addressing the weaknesses of the contributory schemes - fiscal unsustainability, low coverage levels and a high degree of segmentation- and barely addressed the non-contributory element. The reform experiences show however that the intended reforms did not manage to meet their objectives. Firstly, to this day, a large proportion of the population remains inadequately covered by the contributory system. Secondly, the fiscal performance and outcome of the reform was worse than originally planned. The possibilities for the success of these reforms faced several constraints of a structural nature that are independent of the pension system itself and that as a result can not be overcome by a pension reform including mainly the limited savings capacity of some population groups and the instability and precariousness of the labor markets in the region. The Latin American experience shares similarities with that of China in terms of coverage, labor market informality. Both cases attest to the importance of combining contributory and non-contributory components in pension reform design.
    Keywords: Pension reform; contributory schemes; coverage; Fiscal unsustainability; Contributory coverage; contribution density; fragmentation; transition costs; pension reform in Latin America; pension reform in China
    JEL: G23
    Date: 2008–11

This nep-tra issue is ©2009 by J. David Brown. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.