nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒04‒13
nineteen papers chosen by
J. David Brown
Heriot-Watt University

  1. The Finnish Great Depression: From Russia with Love By Yuriy Gorodnichenko; Enrique G. Mendoza; Linda L. Tesar
  2. Finance-growth Nexus in China: A Channel Decomposition Analysis By Li, Jia
  3. Foreign Exchange Market Pressure and Monetary Policy: An Empirical Study Based on China’s Data By Liu, L.; Ni, Y.J
  4. The Role of the State in China's Industrial Development: a Reassesment By Gabriele, Alberto
  5. Current Account Deficits in European Emerging Markets By Robert Shelburne
  6. Une explication des motivations rationnelles de la Chine au surendettement de l'économie américaine. By Jambu, Marc-Antoine
  7. Capital Account Liberalization and Currency Crisis - The Case of Central Eastern European Countries By Malgorzata Sulimierska
  8. What Students of the Global Economy Should Know About Chinese Capital Flows: More Questions Than Answers By Jannett Highfill; Raymond Wojcikewych; Joshua Lewer
  9. Trade Specialisation and Economic Convergence : Evidence from Two Eastern European Countries By Guglielmo Maria Caporale; Christophe Rault; Robert Sova; Anamaria Sova
  10. Domestic Plant Productivity and Incremental Spillovers from Foreign Direct Investment By Altomonte, C.; Pennings, H.P.G.
  11. The three waves of the fordist model of growth and the case of China By Valli Vittorio
  12. The Effect of IFRS Adoption on Trade and Foreign Direct Investments By Laura Márquez-Ramos
  13. Industrielle Konzentration und regionale Innovationskraft – Empirische Ergebnisse für Ostdeutschland – By Christoph Hornych; Michael Schwartz
  14. Finding the "right moment" for the first baby to come: A comparison between Italy and Poland By Anna Matysiak; Daniele Vignoli
  15. Contribution of Foreign Investment in Some Enlargement Countries: Structural Change, Collateral Effects on Local Manufacturing Sytems By Albert Puig
  16. Supporting the free and competitive market in China and India: differences and evolution over time By Migheli Matteo
  17. Remittances and Chain Migration: Longitudinal Evidence from Bosnia and Herzegovina By Dimova, Ralitza; Wolff, François-Charles
  18. Patterns of Discrimination in the Romanian Labor Market: The Impact of Gradual Exposure to Various Labor Markets within the European Union By Mihaela Dobre; Dorel Ailenei; Coralia Angelescu
  19. Western Balkan Countries: Adjustment Capacity to External Shocks, with a Focus on Labour Markets By Michael Landesmann; Hermine Vidovic; Vladimir Gligorov; Robert Stehrer; Anna Iara

  1. By: Yuriy Gorodnichenko; Enrique G. Mendoza; Linda L. Tesar
    Abstract: During the period 1991-93, Finland experienced the deepest economic downturn in an industrialized country since the 1930s. We argue that the culprit behind this Great Depression was the collapse of Finnish trade with the Soviet Union, because it induced a costly restructuring of the manufacturing sector and a sudden, large increase in the cost of energy. We develop and calibrate a multi-sector dynamic general equilibrium model with labor market frictions, and show that the collapse of Soviet-Finnish trade can explain key features of Finland’s Great Depression. We also show that Finland’s Great Depression mirrors the macroeconomic dynamics of the transition economies of Eastern Europe. These economies experienced a similar trade collapse. However, as a western democracy with developed capital markets and institutions, Finland faced none of the large institutional adjustments that other transition economies experienced. Thus, by studying the Finnish experience we isolate the adjustment costs due solely to the collapse of Soviet trade.
    JEL: E32 F41 P2
    Date: 2009–04
  2. By: Li, Jia
    Abstract: This study aims to reassess the finance-growth nexus debate in China, and consequently illustrate the channels through which financial development gives impact on China’s economic growth after 1978. Specifically, this study addresses two channels through which the effects operate, i.e., physical capital accumulation and productivity improvement. The study adopts an approach called channel decomposition which combines the conventional accounting framework and regression analysis. The empirical analysis, using a panel dataset of Chinese provinces between 1980 and 2004, argues that: (1) the relationship between financial development and economic growth in China tends to be a long-run one; (2) the direction of causality between financial development and economic growth has presumably run from the former to the latter in China; (3) the impacts induced by various measures of financial system exert on economic growth are different, and the channels through which they give impact on the growth are different as well; (4) the existence of inter-regional heterogeneity in the context of China’s finance-growth nexus tends to be sensitive to the selection of financial variables.
    Keywords: financial development; economic growth; nexus; channel decomposition
    JEL: C02 E44 C01
    Date: 2009–03–23
  3. By: Liu, L.; Ni, Y.J
    Abstract: The reform of exchange rate system in 2005 has settled down the floating exchange rate system with management in China. Until August this year, RMB/USD has appreciated about 16.65%. This paper measures the exchange market pressure (EMP) on RMB/USD, and use VAR model to analyze the relationship between EMP and domestic monetary policy . And from the results we find that the increase of China’s domestic interest rate of is the main cause of RMB pressure of appreciation, but the foreign interest rate has little effects on the pressure and it can affect the growth rate of China’s domestic credit. So,we deem that the theory of "ternary paradox" may not applicable to China, at least in the period of our investigation.
    Keywords: EMP Monetary Policy Foreign Exchange Intervention VAR Model
    JEL: C32 E50 C22 F31
    Date: 2009–01–10
  4. By: Gabriele, Alberto
    Abstract: In this paper, we argue that the role of the State (to be understood as a holistic term referring to the public sector as whole), far from being withering out, is in fact massive, dominant, and crucial to China's industrial development. Actually, it has been strengthened by the successful implementation of the "keep the big dump the small" policy, which in turn is consistent with a more general strategy shift towards re-centralization in many areas of economic and social policies. This trend that not only is still going on, but is inevitably bound to be further accelerated by the massive package of fiscal and other interventions made necessary as a response to the world financial and economic crisis. State-owned and state-holding enterprises are now less numerous, but much larger, more capital- and knowledge-intensive, more productive and more profitable than in the late 1990s. Contrary to popular belief, especially since the mid-2000s, their performance in terms of efficiency and profitability compares favourably with that of private enterprises. The state-controlled sub-sector constituted by state-holding enterprises, in particular, with at its core the 149 large conglomerates managed by SASAC, is clearly the most advanced component of China's industry and the one where the bulk of in-house R&D activities take place. The role of the public sector, moreover, goes beyond that of those enterprises which are owned or controlled by the State. In the specific Chinese context, many of the most advanced formally private industrial enterprises are in fact related to the public domain by a web of ownership, financial, and other linkages, to an extent that is qualitatively different and deeper than that of their counterparts in capitalist countries. The role public sector is paramount in engineering an extraordinary boom in S&T and R&D activities (both inside the industrial sector and outside, in universities and research centers), and in fuelling a massive investment drive aimed at enhancing China's infrastructural and human capital environment. These processes also generate major systemic external economies, which are reaped by public and private enterprises alike, contributing to abating their operative costs and to sustain their competitiveness and profitability. Contrary to many other analysts, we do not view the dominant role of the state in China's industry (and, more generally, in China's economy) as a possibly necessary - albeit wasteful - evil, which will be superseded once the transition from a centrally-planned to a fully capitalist modern economy will be completed. We rather see it as a primitive, embryonic, ever-evolving but permanent form of strategic planning aimed at fostering industrial development, and as a key distinctive, structural, and pioneering characteristic of market socialism.
    Keywords: market socialism; China's Economy
    JEL: O16 O21 O14
    Date: 2009–04–05
  5. By: Robert Shelburne (United Nations Economic Commission for Europe)
    Abstract: Many of the emerging market economies in Europe are presently running current account deficits which are quite high relative to any global or historical standard and are fundamentally unsustainable. This includes the three poorer European Union (EU) members of the old Europe (Greece, Portugal, and Spain), many of the EU's new member states (largely the former transition economies which have joined since 2004), most of those non-EU members in south-east Europe, and a number of the CIS economies in eastern Europe and the Caucasus. The unweighted average current account deficit for this group has more than doubled from under four percent of GDP in 2003 to well over eight percent in 2007. This trend is significantly different than what has evolved in many of the world's other emerging markets; these other economies have generally been running current account surpluses. This paper documents this development, describes the underlying factors that have brought it about, assesses the underlying vulnerability that has been created, and discusses the implications of this development for other emerging markets and global financial stability more generally. In addition, how these risks have evolved since the appearance of the global credit crisis beginning in the summer of 2007 is examined. This paper was presented May 22, 2008, at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, Lisbon, Portugal.
    Date: 2008–06–01
  6. By: Jambu, Marc-Antoine
    Abstract: The current financial and economic crisis is not du to the Dollar paradox. That's why the growing "Global Imbalances" remains an interesting issue. By mixing theories from the litterature of Foreign Direct Investment in China and the Collateral theory developped in [Dooley, Folkerts-Landau, Garber, (2004)], webuild a model which give an explanation of the American Tresory Bonds reserve held by the Chinese Central Bank. We show that the Chinese governement doesn't really need to worry about the solvability of the American economy. Moreover Chinese governement has rational intensives for american overindebtness. The main limit of this strategy consist in less human capital accumulation expectations from the FDI positive externalities. Besides we show how inflation pressures, du to incomplete sterilisation of the chinese monetary policy, can be moderate by positive productivity and quality shocks. To finish we conclude that Chinese governement has no insentive to protect intellectual property rights, whereas WTO commitments have to be assumed.
    Keywords: FDI; Global imbalances; Collateral Theory
    JEL: E58 E2 E31 F32 F21
    Date: 2009–04–02
  7. By: Malgorzata Sulimierska (Economics Department, University of Sussex)
    Abstract: The dissertation investigates if Central and Eastern European countries with unregulated capital flows are more vulnerable to currency crises. In order to answer this question properly the paper considers two lines of analysis: single-country and multi-country. Single -country studies look into three cases: Russia, Poland and Latvia. The multi-country analysis is the simple adaptation of Glick, Guo and Hutchison's probit panel model (2004). The results suggest that countries with liberalized capital accounts experience a lower likelihood of currency crises. Moreover, the information from case studies pointed that the speed and sequence of the CAL process needs to be adequate for the country development.This paper, co-winner of the best student paper award, was presented at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, May 22, 2008.
    Date: 2008–10–07
  8. By: Jannett Highfill (Bradley University); Raymond Wojcikewych (Bradley University); Joshua Lewer (Bradley University)
    Abstract: Many developing economies of the world today have been building up massive foreign exchange reserves of industrialized economies. A clear example of this is China. In February of 2005, China surpassed Japan as the world's largest holder of foreign exchange reserves. After the Asian Contagion period of the late 1990's, this buildup as a whole could be seen as a healthy development. But with an accumulation of over $1.4 trillion in 2007, questions have arisen if China's actual reserves are too large relative to "normal demand." The purpose of this paper is to briefly review both the macroeconomic aspects of China's reserve holdings, and to examine the treatment of the subject in contemporary international economics textbooks.This paper was presented May 22, 2008, at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa in Lisbon, Portugal.
    Date: 2008–08–14
  9. By: Guglielmo Maria Caporale; Christophe Rault; Robert Sova; Anamaria Sova
    Abstract: This paper analyses trade specialisation dynamics in two Eastern European countries (Romania and Bulgaria - EEC-2) vis-à-vis the core EU member states (EU-15) over the period 1990-2006. Specifically, we focus on whether there is a shift towards intra-industry trade leading to economic convergence and technological catch-up. We use recently developed static (FEM, REM and FEVD) and dynamic (GMM) panel data methods which take into account possible heterogeneity. Our empirical results indicate that intra-industry trade has indeed increased, but it is of the vertical rather than the horizontal type, resulting in complementary rather than competitive production patterns.
    Keywords: Gravity models, panel data models, trade specialisation, comparative advantage
    JEL: F13 F15 C23
    Date: 2009
  10. By: Altomonte, C.; Pennings, H.P.G. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: We develop a simple test to assess whether horizontal spillover effects from multinational to domestic firms are endogenous to the market structure generated by the incremental entry of the same multinationals. In particular, we analyze the performance of a panel of 10,650 firms operating in Romania in the period 1995-2001. Controlling for the simultaneity bias in productivity estimates through semi-parametric techniques, we find that changes in domestic firms’ TFP are positively related to the first foreign investment in a specific industry and region, but get significantly weaker and become negative as the number of multinationals that enter in the considered industry/region crosses a specific threshold. These changing marginal effects can explain the lack of horizontal spillovers arising in traditional model designs. We also find these effects to vary between manufacturing and service, suggesting as a possible explanation a strategic change in technology transfer decisions by multinational firms as the market structure evolves.
    Keywords: transition economies;productivity;multinational firms
    Date: 2009–03–10
  11. By: Valli Vittorio (University of Turin)
    Abstract: The main thesis of the paper is that, while the US economy has widely adopted a fordist model of growth since 1908, and this has largely contributed to the building and consolidation of its economic pre-eminence, Japan and most Western European countries have adopted it mainly in the 1950-1973 period, the golden age of European and Japanese growth, and China has adopted important aspects of fordist and post-fordist models in the 1980-2008 period.. The Chinese case shows that the crucial elements of the fordist model of growth - the economies of scale or of network, the rise of productivity, the increase in wages and in total wage bill, the increase in consumption, in total profits, in investment and in GDP - can give a great boost to industrial and economic growth and then to exports in certain phases of the economic history of a country, although contributing to determine also some socially undesirable consequences, such as rapidly growing economic and social imbalances and income inequalities.
    Date: 2009–04
  12. By: Laura Márquez-Ramos (Department of Economics and Institute of International Economics, Universitat Jaume I, Castellón (Spain))
    Abstract: This paper focuses on the importance of accounting harmonisation on foreign activities from a macroeconomic perspective. International Financing Reporting Standards (IFRS) adoption is considered to reduce information costs among countries and is, therefore, an important way to encourage international trade flows and investments. Moreover, heterogeneity in trade and FDI determinants among different European countries (well-established capitalist countries in the "West" and post-communist countries in the "East") is analysed since transition economies present a lower development of market institutions and, therefore, of financial systems. The effect of IFRS adoption is analysed from a gravity framework. The fixed-effects vector decomposition (FEVD) procedure, recently proposed by Plumper and Troeger (2007), is used to estimate panel data characterised by the presence of time invariant variables, or variables which vary rarely in time. The results provide evidence that benefits exist in terms of trade and FDI when IFRS are adopted. Furthermore, the positive effect of adopting uniform accounting standards on foreign activities in Europe is higher in transition economies. Finally, this effect also differs in countries because of behavioural factors such as unfamiliarity aversion.This paper was presented at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, Lisbon, Portugal, May 23, 2008.Keywords: IFRS, international trade, FDI, transition countries, FEVD. JEL classification: F40
    Date: 2008–08–13
  13. By: Christoph Hornych; Michael Schwartz
    Abstract: Regarding technological innovativeness, the transformed economy of the former German Democratic Republic (GDR) clearly lags behind the Western part of the country. To face this weakness, a broad mixture of policy measures was carried out in recent years. Particular attention is drawn to the development of industry concentrations and economic ‘clusters’. However, little is known about the effectiveness of these policy measures regarding how industry concentrations in fact promote innovative performance in Eastern Germany. The present study tries to fill this gap by analyzing the relationship between industry concentration in Eastern Germany and regional innovative performance. Our empirical analysis is based upon the number of patent applications of 22 manufacturing industries in 22 Eastern German planning regions. The estimated regression models indicate an inverted U-shaped relationship between the degree of industry concentration and innovative performance. An exceedingly high degree of industry concentration in one region hampers regional innovative output. We discuss policy implications of our findings and give recommendations for future refinement of ‘cluster’-supporting policy schemes in Eastern Germany.
    Date: 2009–04
  14. By: Anna Matysiak (Max Planck Institute for Demographic Research, Rostock, Germany); Daniele Vignoli (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: This goal of this study is to add to our understanding of the impact of women’s human capital accumulation on the timing of first births. Applying intensity regression to national retrospective data, we examined the transition to motherhood in Italy and Poland. These countries share several similarities – Catholicism, strong family ties, and considerable tensions between fertility and work – but also differ in female labor supply developments. Our life-course study illustrates that paid employment clearly discourages childbearing in Italy, at least among low- and medium-educated women. In Poland, by contrast, employment functions as a precondition to childbearing, irrespective of a woman’s educational level.
    Keywords: Italy, Poland, fertility
    JEL: J1 Z0
    Date: 2009–03
  15. By: Albert Puig (Universitat Oberta de Catalunya)
    Abstract: In this work, we shall compare the results on two indicators of structural change (contribution to GDP and exports) between the companies with foreign capital and companies without foreign ownership. The article centres on the hypothesis that FDI has contributed positively to the structural change in six Enlargement Countries, but at the expense of having generated a segmented manufacturing system in which the sector linked to foreign capital clearly stands out as it provides more GDP and exports in manufacturing sectors of high and medium-high technology than the sector linked to domestic capital. The main cause for this seems to lie in the strategy implemented by the multinationals and in the way they integrate local companies into their global production and distribution networks. This paper was presented at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, Lisbon, Portugal, on May 22, 2008.
    Date: 2008–08–06
  16. By: Migheli Matteo
    Abstract: This paper analyzes the support to market competition by Indian and Chinese citizens. In particular I study the individual preferences with respect to some characteristics of a free and competitive market. The paper aims at establishing whether preferences in these countries are different and their evolution over the time. This is an important issue, as the economic literature shows that people’s preferences and policies tend to go hand in hand. This means that the analysis of today’s preferences and of their evolution over the time can be useful to forecast tomorrow’s policies. The main findings of this paper are that Indians and Chinese are different at supporting competition. The Chinese express preferences that are more in line with a free and competitive market, than Indians do. The detected time path reveals that this support has been decreasing over time during the last two decades. The two populations appear to be in favour of a capitalistic, but strictly regulated market. This can mean that the future economic policies of these Asian giants will tend to this direction. Apparently there are no risks for some form of capitalism, but likely the two countries will not adopt completely free and competitive market institutions.
    Date: 2009–03
  17. By: Dimova, Ralitza (Brunel University); Wolff, François-Charles (University of Nantes)
    Abstract: Most of the literature on remittances has focused on their implications for the welfare of family members in the country of origin and has disregarded the possibility for remittances to trigger chain migration. In this paper, we address this issue with the use of longitudinal data from Bosnia and Herzegovina, one of the primary exporters of migrants and recipients of remittances in the world. Our panel data estimates indicate that remittances have a significant positive impact on the migration prospects of those remaining in the country of origin. Highly educated, healthy and young individuals are those most likely to migrate, suggesting that the implications of prospective migration on both the labor market and the rest of the economy in the origin country are likely to be negative.
    Keywords: emigration intentions, Bosnia and Herzegovina, remittances
    JEL: J61
    Date: 2009–03
  18. By: Mihaela Dobre (Lecturer Ph.D., Academy of Economic Studies, Bucharest, Romania); Dorel Ailenei (Professor Ph.D., Academy of Economic Studies, Bucharest, Romania); Coralia Angelescu (Professor Ph.D., Academy of Economic Studies, Bucharest, Romania)
    Abstract: Discrimination under its various manifestations will always represent a contemporary current issue. Discrimination's expressions emerge when a group of individuals sharing common characteristics (such as religious convictions, certain race or gender, etc) is discriminated regardless their own labor productivity. The empirical data demonstrated that differences in productivity are not entirely explained by the income differences between men and women. G. Becker (1971) was the founder of the modern economic theory of discrimination, which was developed later by Arrow (1973). The two researchers considered that people tend to have different behaviors pattern related to the people they work with, to supervisors and buyers and ultimately they claim compensation in order to work with the members of such a discriminated group. The main focus in the specialized literature was to understand how authority is distributed in accordance with sex, religion, race, ethnic group, age, etc (H.L.Moore-1988). Discrimination may be generated both by employer and employee when the latter refuse to work with a certain group or claim for a supplementary compensation in order to work with it. In Romania, discrimination is still widely spread mainly in rural areas. The occupational ratio for men was 64,6% compared to 53% for women according to data provided by EUROSTAT in 2006. The equality of chances between men and women persist on fairly low levels according to the "The Global Gender Gap Report 2006" issued by World Economic, Forum in 2006. Romania is ranked 46 among a list of 115 countries, having the same score as Ukraine, Uganda and Trinidad-Tobago. Romania is well ranked in the field of education and health areas. In spite of this, Romania registers a low level in case of representation of women at political level, in terms of salary policy, as the authors emphasize that the ratio between woman's salary and man's salary represents 0.64. As stated by the euro barometer of European Commission published in July 2006, the most common forms of discrimination are: ethnic discrimination (64%), disability discrimination (53%), sexual orientation discrimination (50%), age discrimination (46%), religion discrimination (44%), gender discrimination (40%). In terms of worker's gender discrimination Italy and Spain recorded the highest level: 56% in case of Italy and 51% in case of Spain. Romania also registered a high level of discrimination of approximately 32%. Disparities between men's wages and women's wages are determined by level of qualifications and hierarchical position at work place. Statistical data published by EUROSTAT for 2007 showed that women's average income is 13% lower than men's as worked performed is similar to men's. The current paper has as main objective to study the structural changes in Romania, which have influenced the salary differences between men and women on the labor market. Key words: discrimination, labor market, asymmetric information, and occupation rate.JEL: J01, J15, 16This paper was presented on May 23, 2008, at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, Lisbon, Portugal.
    Date: 2008–08–19
  19. By: Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw); Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Anna Iara (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The main question addressed in this study is the performance of the labour markets in the Western Balkans. The aim is to find out whether they can deliver growth of employment and decline of unemployment in the medium run and whether they can withstand short-term shocks due to changes in demand or supply. These questions are particularly pressing in view of the monetary policy based on fixed exchange rates which is followed by the majority of the countries in this region. In terms of the theory of optimal currency areas, if the exchange rate is fixed, labour markets have to be flexible if there are adverse shocks. Otherwise, adjustment would work through a fall in employment levels and an increase in unemployment. The alternative of flexible exchange rates has been abandoned by most monetary authorities in the region for fears of risk of an exchange rate crisis.
    Keywords: Western Balkans, optimum currency area, labour market flexibility, external disequilibria, wage-setting
    JEL: E24 F15 F16 F41 F42 J3 J4 D57
    Date: 2008–12

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