nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒03‒28
nine papers chosen by
J. David Brown
Heriot-Watt University

  1. Impact of Financial Liberalisation on Stock Market Liquidity: Experience of China By Jess Lee; Alfred Wong
  2. CHINA'S OFFICIAL RATES AND BOND YIELDS By Fan, Longzhen; Johansson, Anders C.
  3. Domestic Grain Market Reform In China: The Contribution of Economic Policy Research Funded by ACIAR Revisited By Mullen, John D.
  4. The Role of Income Growth in Emerging Markets and the BRICs in Agrifood Trade By Haq, Zahoor; Karl, Meilke
  5. How Large Will Be the Effect of China's Fiscal-Stimulus Package on Output and Employment? By Dong He; Zhiwei Zhang; Wenlang
  6. Foreign Languages and Trade By Fidrmuc, Jan; Fidrmuc, Jarko
  8. Comparison of the methodologies for assessing effective tax burden of corporate income used in European Union By Blechova, Beata; Barteczkova, Ivana
  9. Drivers of Exchange Rate Dynamics in Selected CIS Countries : Evidence from a FAVAR Analysis By Christian Dreger; Jarko Fidrmuc

  1. By: Jess Lee (Research Department, Hong Kong Monetary Authority); Alfred Wong (Research Department, Hong Kong Monetary Authority)
    Abstract: This paper assesses the impact of the recent financial reforms in China. Following the country¡¯s accession to the World Trade Organization, financial liberalisation has picked up considerable momentum. Measures introduced encompass deregulation in the banking sector and refinements in various financial markets, as well as allowing more freedom for Chinese and foreign investors to participate and interact domestically and overseas. Compared to other studies on financial liberalisation, this study focuses on a relatively narrower aspect of financial reforms namely, the impact on stock market liquidity. Using a panel data set drawn from the Shanghai stock market, we find a positive and significant liquidity impact associated with the recent round of measures, which reflects not only an improvement in capital allocation efficiency in China¡¯s equity market but, from a financial stability point of view, also a reduction in its vulnerability. The finding also provides evidence on one of the important channels in which financial liberalisation can be transformed into economic growth over time.
    Keywords: Financial liberalisation, liquidity, dual-listed stocks, stock exchanges, fixed-effect panel regression
    JEL: G18 G32 F36 L22 C33
    Date: 2009–01
  2. By: Fan, Longzhen (School of Management, Fudan University); Johansson, Anders C. (China Economic Research Center)
    Abstract: Recent research shows that bond yields are influenced by monetary policy decisions. To learn how this works in an interest rate market that differs significantly from that of the U.S. and Europe, we model Chinese bond yields using the one-year deposit rate as a state variable. We also add the difference between the one-year interest rate and the one-year deposit rate as a factor. The model is developed in an affine framework and closed-form solutions are obtained. It is tested empirically and the results show that the new model characterizes the changing shape of the yield curve well. Incorporating the benchmark rate into the model thus helps us to match Chinese bond yields.
    Keywords: China; deposit rate; bond yields; jump process; affine model
    JEL: E43 E44 E52 E58
    Date: 2009–03–01
  3. By: Mullen, John D.
    Abstract: Mullen (2004,2005) conducted an impact assessment of two ACIAR funded economics research projects enquiring into domestic grain market reform in China. The benefit cost ratio to ACIAR was estimated to be in the range 5:1 to 33:1. The impact assessment was conducted when grain policy was viewed as being in a period of retrenchment rather than reform and hence the assessment was ex ante in nature. Since then the methodology for estimating nominal rates of assistance in China has been modified and the late 90s is now seen as a period when reform continued despite the professed policy stance. It seems opportune to revisit Mullen’s original impact assessment to assess the extent of welfare gains actually achieved.
    Keywords: impact assessment, China grain market reform, welfare analysis,
    Date: 2009
  4. By: Haq, Zahoor; Karl, Meilke
    Abstract: This study develops an import demand model to explore the role of income in explaining the trade performance of low, middle and high-income countries with a special emphasis on Brazil,Russia, India and China – the BRIC economies. The study estimates the impact of the growth in per capita income on the trade of agrifood products using data for 52 countries and 20 agrifood products for the years 1990 to 2006. The results suggest that China, Russia and Brazil have more income elastic import demand than other middle-income countries. Conversely, the income elasticities of import demand in India are similar to other low-income countries and for the most part statistically equal to zero.
    Keywords: Emerging economies, BRIC economies, Food trade, Income elasticities, Economic growth, Agricultural and Food Policy, International Development, International Relations/Trade,
    Date: 2009–02
  5. By: Dong He (Research Department, Hong Kong Monetary Authority); Zhiwei Zhang; Wenlang (Research Department, Hong Kong Monetary Authority)
    Abstract: This paper studies the effects of the fiscal-stimulus package in Mainland China on its output and employment. Using the input-output table as the analytical framework, we argue that the aggregate effect on output and employment of a given amount of fiscal spending depends on the distribution of such spending across different economic sectors. We estimate that the announced fiscal spending of RMB2 trillion yuan in 2009 could lead to a direct increase in output of RMB1.7 trillion yuan, implying a fiscal multiplier of around 0.84 in the short-run, and could potentially generate 18 million to 20 million new jobs in non-farming sectors. We further argue that the size of the fiscal multiplier also depends on the cyclical conditions of the economy and the policy environment, which we simulate using a dynamic structural model. Model results show that the fiscal multiplier in the medium run is around 1.1 as government fiscal spending leads to higher household consumption and corporate investment, which will take time to fully materialise.
    Keywords: Fiscal policy, Input-output table, Multiplier, Employment coefficient
    JEL: E2 H5
    Date: 2009–03
  6. By: Fidrmuc, Jan; Fidrmuc, Jarko
    Abstract: Cultural factors and especially common languages are well-known determinants of trade. By contrast, the knowledge of foreign languages was not explored in the literature so far. We combine traditional gravity models with data on fluency in the main languages used in EU and candidate countries. We show that widespread knowledge of languages is an important determinant for foreign trade, with English playing an especially important role. Other languages (French, German, and Russian) play an important role mainly in particular regions. Furthermore, we argue that the effect of foreign languages on trade may be non-linear. The robustness of our results is confirmed by quantile regressions.
    Keywords: European integration; foreign trade; Gravity models; language; quantile regression
    JEL: C23 F15 F40 Z10
    Date: 2009–03
  7. By: Johansson, Anders C. (China Economic Research Center)
    Abstract: This study looks at the time-varying nature of systematic risk in the Greater China equity markets. The Shanghai and Shenzhen markets both have a low average systematic risk when measured against the world market. The short outbursts in systematic risk for these two markets seem to be directly related to policy shifts. The Hong Kong and Taiwan markets are more integrated with world markets and they show signs of large variations in systematic risk over time. Furthermore, conditional betas in the Shanghai and Shenzhen markets are stationary, while the Hong Kong and Taiwan betas are integrated of order one. In addition, long memory tests show that all four markets exhibit a long-run dependence in their conditional betas. While the two mainland China market betas are covariance stationary, the Hong Kong and Taiwan betas are not.
    Keywords: China; Taiwan; Hong Kong; time-varying beta; GARCH; unit roots; long memory
    JEL: C32 G12 G15
    Date: 2009–03–01
  8. By: Blechova, Beata; Barteczkova, Ivana
    Abstract: In relationship with the changes of tax regulations in surrounding countries and last but not least in connection with the reform of public finances again the question of the further development of the Czech tax system is getting forward. The primary reason for the existence of taxes is fiscal, i.e. to ensure sufficient sources of public budgets for financing public property, however the tax policy must be provided in parallel with measures on the expenditure side of public budgets, that means it is necessary to perceive the tax policy in the context of the whole financial and economic policy of the state. In the sphere of direct taxes the most important external factor is the tax competition between single countries and that is also in the frame of the expanded European Union. The comparison of the income tax of legal entities shows in the last three years unambiguously the decreasing tax burden of firms. However, beside that economic behaviour of companies in connection with positioning their capital abroad reacts on comparability of tax conditions in single countries. Statutory corporate income tax rates are not the right indicator for the comparison of the real economic tax burden of various companies both in the frame of the one state and between the states. That is why for these purposes are used so-called effective corporate income tax rates discussed in this paper, which describes three methodologies for assessing these rates used in the European Union. These methodologies are using either real data from accounting on the national macro level or on the individual company micro level concerning realized entrepreneurial intentions by now or the hypothetical data concerning investments of these companies planed in the future. In conclusion of this paper are presented main differences between these three approaches.
    Keywords: Statutory corporate tax rate; effective corporate tax rate; implicit tax rate; macro and micro backward-looking methods; micro forward-looking methods; tax wedge; cost of capital; effective marginal tax rate; effective average tax rate
    JEL: H25
    Date: 2008–05–23
  9. By: Christian Dreger; Jarko Fidrmuc
    Abstract: We investigate the likely sources of exchange rate dynamics in selected CIS countries (Russia, Kazakhstan, Ukraine, Kyrgyzstan, Azerbaijan, and Moldova) over the past decade (1999-2008). The analysis is based on country VAR models augmented by a regional common factor structure (FAVAR model). The models include nominal exchange rates, the common factor of exchange rates in the CIS countries, and global drivers such as gold, oil and share prices. Global, regional and idiosyncratic shocks are identified in a standard Cholesky fashion. Based on the decomposition of the variance of forecast errors, their relevance for exchange rates is explored. As a quite robust finding, CIS exchange rates have become more vulnerable to global shocks towards the end of the sample.
    Keywords: Exchange rates, CIS countries, financial crisis, FAVAR models
    JEL: F31 C22 G15
    Date: 2009

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