nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒05‒02
seventeen papers chosen by
J. David Brown
Heriot-Watt University

  1. The two sides of a ghost: Twenty years without the wall By Migheli, Matteo
  2. Regional disparities and investment-cash flow sensitivity: Evidence from Chinese listed firms By Sun, Jianjun; Yamori, Nobuyoshi
  3. An Empirical Evaluation of New Socialist Countryside Development in China By Guo, X.; Yu, Z.; Schmit, Todd; Henehan, Brian M.; Li, D.
  4. Foreign Banks in the CESE Countries: In for a Penny, in for a Pound? By Andrea M. Maechler; Li L. Ong
  5. Measuring Changes in Competitiveness in Chinese Manufacturing Industries Across Regions in 1995-2004: an Unit Labor Cost Approach By Vivian W. Chen; Harry X. Wu; Bart van Ark
  6. Assessing Active Labor Market Policies in Transition Economies By H. Lehmann; J. Kluve
  7. Consumer Preferences for U.S. Pork in Urban China By Ortega, David L.; Wang, H. Holly; Wu, Laping
  8. The Second Transition: Eastern Europe in Perspective By Ashoka Mody; Daniel Leigh; Stefania Fabrizio
  9. Health Human Capital, Height and Wages in China By Wenshu Gao; Russell Smyth
  10. China's exchange rate policy and Asian trade By Alicia García-Herrero; Tuuli Koivu
  11. Five Years After: European Union Membership and Macro-Financial Stability in the New Member States By Martin Cihák; Wim Fonteyne
  12. Behavioral and Permanent Zloty/Euro Equilibrium By Joanna Beza-Bojanowska
  13. Forces Driving Inflation in the New EU10 Members By Emil Stavrev
  14. The dynamics of spatial agglomeration in China: an empirical assessment By Ana Isabel Moreno-Monroy
  15. Structural Reforms and the Benefits of the Enlarged EU Internal Market: Much Achieved and Much to Do By Jens Arnold; Peter Hoeller; Margaret Morgan; Andreas Wörgötter
  16. Shadow Employment in Transition - A Matter of Choice or No Choice? By Cichocki, Stanislaw; Tyrowicz, Joanna
  17. The Economic Effects of Land Reform in Central Asia: The Case of Tajikistan By Lerman, Zvi; Sedik, David

  1. By: Migheli, Matteo
    Abstract: This paper compares individual preferences for a market economy in Western and Eastern Europe over more than one decade, since the fall of Berlin Wall. The aim is to understand whether preferences in the two blocks have converged towards the current orientation of the EU's economic policy: a market economy, where the Government decides the rules, but does not enter the game directly. This is important as in a democratic system the approved guidelines need the support of the population to be fully effective and not reversed by a change of the government. In the EU the integration process is still going on, especially since the entrance of several Eastern countries. This paper shows that Eastern and Western Europeans have different preferences: the first would like a larger direct intervention of the public hand in the economy, while the second prefer a more private-oriented market than their Eastern peers. In addition for the citizens of ex-soviet countries, the concept of "competition" seems to represent more the new ideology that defeated the communism rather than a real market mechanism. Nevertheless some convergence emerges from data, especially during the last years, i.e. after the negative impact of transition over Eastern economies left the place to a beneficial recovery.
    Keywords: transition, Eastern Europe, Western Europe, people's support, market economy
    JEL: D40 O57 P36
    Date: 2009–04
  2. By: Sun, Jianjun; Yamori, Nobuyoshi
    Abstract: In China, regional disparities are important. We examine the difference in the sensitivity of investment to cash flow between firms in inland regions and those in coastal regions. By using the financial data of Chinese listed firms, we found that firms in inland regions rely more on their internal funds in terms of their investment activities than those in coastal regions and that the sensitivity gap between inland and coastal firms widened in the recent contractionary monetary policy period. This suggests that firms in inland regions are harder to obtain outside funds due to unfavorable social and economic environments for inland firms. Our findings suggest that capital markets in China respond rationally to the potential impact of regional disparities on a firm’s performance.
    Keywords: sensitivity of investment to cash flow; sensitivity gap; regional disparities; Chinese economy
    JEL: G14 G31 O16
    Date: 2009–04–25
  3. By: Guo, X.; Yu, Z.; Schmit, Todd; Henehan, Brian M.; Li, D.
    Abstract: China prioritized a New Socialist Countryside reform policy in 2005 to address the growing disparities in incomes and living standards between rural and urban populations. These policies are evaluated to provide a base line index of reform concerning farmer, agricultural, and rural economic development. Aggregate index scores are computed to rank provincial progress. Rankings indicate the progression of rural economic reform is moderate, at best, and mostly isolated to well-developed eastern provinces. Reform growth is also uneven across similarly, rural provinces indicating a need for continued attention in these poorer areas. More importantly, as reform efforts continue, the empirical framework established can be used to track relative performance over time.
    Keywords: China, Factor Analysis, New Socialist Countryside, Policy Evaluatino, International Development, Political Economy, Public Economics,
    Date: 2009–04–15
  4. By: Andrea M. Maechler; Li L. Ong
    Abstract: The aim of this paper is to construct a comprehensive and consistent dataset to analyze the potential risks from foreign bank lending, for both the creditor and borrower countries of Central, Eastern and South-Eastern Europe (CESE). We develop a picture of bank claims on 13 CESE countries by combining credit statistics from several sources. Our constructed data suggest that some of these host countries have become more at risk from a sudden withdrawal of short-term external funding, while home countries have significant aggregate exposures to the region. Overall, we find that data on banking activity remain largely inadequate for surveillance and policymaking purposes, and that a concerted effort to improve data collection is needed at the international level.
    Keywords: Banks , Central and Eastern Europe , Southern Europe , Banking , Foreign investment , Private sector , Emerging markets , Economic integration , Spillovers , Data collection , Cross country analysis ,
    Date: 2009–03–19
  5. By: Vivian W. Chen (The Conference Board); Harry X. Wu (The Hong Kong Polytechnic University); Bart van Ark (The Conference Board and University of Groningen)
    Abstract: Using an industry-by-region data set, based on China’s Third Industrial Census for 1995 and First Economic Census for 2004, and covering 28 industries and 30 provinces, this paper examines the trend of labor compensation (ALC), labor productivity (ALP) and unit labor cost (ULC) by manufacturing industry across regions (provinces or groups of provinces). At the aggregate level, it shows that productivity growth was generally faster than that of labor compensation and hence resulted in a significant decline in unit labor cost for all regions in China. Furthermore, compared to more developed regions, less developed regions exhibited even stronger productivity growth relative to compensation, thus leading to a convergence across regions over this period. However, we observe a substantial variation in growth rates and convergence trends across regions for individual industries. Logit regression shows that labor intensive industries are more likely to converge in productivity, compensation and unit labor cost while skill intensive industries tend to increase inequality in unit labor cost. This is confirmed by estimating a growth regression, which shows that in provinces characterized by higher skill levels of the labor force, skill intensive industries experienced faster decline in ULC.
    Keywords: Labor productivity, average labor compensation, unit labor cost, and regional convergence
    JEL: J30
    Date: 2008–06
  6. By: H. Lehmann; J. Kluve
    Date: 2008–10
  7. By: Ortega, David L.; Wang, H. Holly; Wu, Laping
    Abstract: Chinaâs transition into a developed economy is driving changes in consumer preferences and demand for foods. To evaluate consumer preferences for U.S. pork in urban China, primary data were collected in two metropolitan areas- Beijing and Shanghai. Estimated logit models revealed that an individualâs age, shopping location and food safety concerns significantly influenced their willingness-to-pay for U.S. pork. A proportional linear model was developed to evaluate factors affecting purchasing behavior of western-style pork cuts vs. traditional Chinese cuts. Food safety concerns were linked to a previous lean-meat additive scare and a lack of consumer confidence on the Chinese food inspection system.
    Keywords: China, U.S. Pork, Willingness-to-pay, Ordered Logit, food safety, Agricultural and Food Policy, Consumer/Household Economics, Marketing, D120, D190, M390, Q130, Q180,
    Date: 2009
  8. By: Ashoka Mody; Daniel Leigh; Stefania Fabrizio
    Abstract: The countries of Eastern Europe achieved two remarkable transitions in the short period of the last two decades: from plan to market and, then, in the run-up to and entry into the European Union, they rode a wave of global trade and financial market integration. Focusing on the second transition, this paper reaches three conclusions. First, by several metrics, East European and East Asian growth performances were about on par from the mid-1990s; both regions far surpassed Latin American growth. Second, the mechanisms of growth in East Europe and East Asia were, however, very different. East Europe relied on a distinctive-often discredited-model, embracing financial integration with structural change to compensate for appreciating real exchange rates. In contrast, East Asia contained further financial integration and maintained steady or depreciating real exchange rates. Third, the ongoing financial turbulence has, thus far, not had an obviously differential impact on emerging market regions: rather, the hot spots in each region reflect individual country vulnerabilities. If the East European growth model is distinctive, is it sustainable and replicable? The paper speculates on the possibilities.
    Keywords: Transition economies , Eastern Europe , Emerging markets , Economic growth , International trade , Economic integration , European Union , Cross country analysis ,
    Date: 2009–03–17
  9. By: Wenshu Gao; Russell Smyth
    Abstract: We estimate the returns to height using data from 12 Chinese cities. We present both ordinary least squares (OLS) and two-stage least squares (TSLS) estimates. In the latter height is instrumented using proxies for health human capital accumulated in childhood and adolescence, which influence adult height. The OLS estimates suggest that an additional centimetre of adult height is associated with wages being 1.1 per cent higher for males and 0.9 per cent higher for females. The TSLS estimates suggest each additional centimetre of adult height is associated with wages being 4.8 per cent higher for males and 10.8 per cent for females. The difference reflects the fact that the OLS estimates are predominantly determined by the random genetic factors influencing height, while the TSLS estimates also take into account returns from investment in health human capital during childhood and adolescence. These results imply considerable returns to investment in health human capital.
    Keywords: China, health, height, wages
    JEL: I10 J15 J31 J71
    Date: 2009–04
  10. By: Alicia García-Herrero; Tuuli Koivu
    Abstract: This paper shows empirically that China's trade balance is sensitive to fluctuations in the real effective exchange rate of the renminbi. However, the current size of the trade surplus is such that exchange rate policy alone will probably not be able to address the imbalance. The potential reduction in the trade surplus resulting from an increase in the renminbi exchange rate is limited mainly because Chinese imports do not react as expected to a renminbi appreciation - they tend to fall rather than increase. By estimating bilateral import equations for China and its major trade partners, we find that the reaction for imports is generally confirmed for China's trade with Southeast Asian countries. That result might be attributable to Asia's vertical integration, as a large share of Chinese imports from Southeast Asia are re-exported. We also find that total exports from a number of Asian countries react negatively to a renminbi appreciation, which points to a dependence of Asian countries' exports on those of China.
    Keywords: China, trade, exports, real exchange rate
    Date: 2009–04
  11. By: Martin Cihák; Wim Fonteyne
    Abstract: The proximity of the European Union, the prospect of membership, and actual entry by the New Member States (NMS) increased economic and financial integration in the region, leading to fast economic growth based on sizeable capital inflows. EU membership helped in developing sound macroeconomic and financial stability frameworks in the NMS. However, these frameworks remain work in progress and as such could not safeguard against private sector exuberance or risky policies, especially in the face of an unprecedented global financial crisis. Hence, more prudent policies and further strengthening of policy frameworks, especially with respect to financial stability, seem warranted.
    Keywords: Financial stability , European Union , Eastern Europe , Economic integration , Economic growth , Exchange rates , Price stabilization , Payments imbalances , Financial crisis , Crisis prevention , Cross country analysis ,
    Date: 2009–03–27
  12. By: Joanna Beza-Bojanowska (National Bank of Poland)
    Abstract: Poland is expected to enter the Exchange Rate Mechanism II (ERM II). The European Central Bank recommends that the ERM II central rate should reflect the best possible assessment of the equilibrium exchange rate. Since the equilibrium rate is changing in time, it is important to identify the pushing and pulling forces of the exchange rate. This knowledge will let the authorities to defend only the exchange rate that is in equilibrium and to assess outcomes of their actions. We use the VEC approach of Johansen to estimate the behavioral equilibrium exchange rate and to identify the pushing forces of the Polish zloty/euro rate. We apply the Gonzalo-Granger decomposition to calculate the permanent equilibrium exchange rate and to identify the pulling forces of the zloty exchange rate. We demonstrate that this approach may be useful for Polish authorities while entering the ERM II as well as within that mechanism.
    Keywords: equilibrium exchange rate, cointegration analysis, Gonzalo- Granger decomposition, ERM II
    JEL: C32 C51 F31
    Date: 2009–02–25
  13. By: Emil Stavrev
    Abstract: The paper analyzes the forces driving inflation in the new EU10 member countries. A significant part of headline inflation in these countries is due to common factors, such as price level convergence and EU integration. However, idiosyncratic factors have also played a role in the inflation process. These factors are related to the country-specific financial conditions, pass-through from foreign prices, and demand-supply situation in each country, although administered price adjustments and increases of indirect taxes associated with EU accession are also likely to have played a role.
    Keywords: Inflation , European Union , Economic integration , Economic models , Cross country analysis ,
    Date: 2009–03–19
  14. By: Ana Isabel Moreno-Monroy (University of Groningen)
    Abstract: In this paper, I complement the application of New Economic Geography "NEG" models for the explanation of wage disparities in China by estimating the Helpman Hason model, which focuses on the role of consumer markets as an attraction force and housing prices as a dispersion force for economic agglomeration. I estimate the structural parameters of the model for 2000 and 2005 and devote special attention to the multiple estimation problems of the Helpman-Hanson equation. I find that the market potential is slightly lower for 2005 than for 2000, as a direct product of a higher value of the elasticity of substitution for the last year. I also find that the share of income spent on manufactures increases between the two periods, and that transport costs decrease. I show how these effects may cause dispersion or agglomeration of economic activity according to the original Helpman (1998) model. An application of income shock experiments on different economic centers across China shows that spatial externalities are not homogeneous across prefectures, so that income shocks may have different effects across the country. Based on these results, I argue that the size of existent agglomerations will increase in the near future, but with marked differences across regions. As China moves to a market economy, prices should reflect more the forces pulling for dispersion, which not only include housing and land prices, but also congestion, pollution and many other problems that come along with urbanization.
    Date: 2008–12
  15. By: Jens Arnold; Peter Hoeller; Margaret Morgan; Andreas Wörgötter
    Abstract: High expectations surrounded the two waves of eastward EU enlargement in 2004 and 2007, with the extension of the EU Internal Market being expected to deliver a substantial boost to economic growth in new and old member States alike. Indeed, considerable progress has been made, with existing evidence pointing to increased trade and FDI flows, enhanced east-west migration and a more stable macroeconomic environment. However, completion of the internal market is progressing at an uneven pace, and comparatively less progress can be seen in services industries, which provide over two-thirds of jobs and value added in the economy. Empirical estimates suggest that competition and trade-enhancing reforms in services industries could generate substantial productivity improvements across EU member economies. Over a period of 10 years, the predicted increase in labour productivity resulting from a bold reform package is around 10% for the average EU country, and new member States stand to gain even more. In addition to service-sector reform, priorities towards a more integrated EU internal market should include removing remaining barriers to labour mobility, improving transport infrastructure, mutual recognition of qualifications, and enhanced market integration of network industries. Finally, a more explicit use of benchmarking may help to enhance the momentum of future internal market reforms.<P>Les réformes structurelles et les avantages du marché intérieur élargi de l’UE : Beaucoup a été fait, mais beaucoup reste à faire<BR>On attendait beaucoup des deux vagues d’élargissement de l’UE à l’est en 2004 et 2007, et le développement du marché intérieur de l’UE devait grandement dynamiser la croissance économique dans les nouveaux et dans les anciens États membres. Effectivement, d’énormes progrès ont été accomplis, les données actuelles indiquant une intensification des échanges et des flux d’IDE, un renforcement des migrations est-ouest et un environnement macroéconomique plus stable. Mais l’achèvement du marché intérieur progresse à un rythme inégal et on a comparativement moins avancé dans les activités de services, qui représentent plus des deux tiers des emplois et de la valeur ajoutée dans l’économie. Les simulations effectuées à partir d’un modèle empirique montrent que des réformes qui amélioreraient la concurrence et renforceraient les échanges dans les activités de services pourraient se traduire par des gains substantiels de productivité dans les États membres de l’UE. Sur une période de dix ans, la croissance prédite de la productivité du travail qui résulterait d’un ambitieux programme de réformes est de l’ordre de 10 % pour le pays moyen de l’UE, et les nouveaux États membres tireraient encore davantage profit de ces réformes. De plus, les priorités de la réforme structurelle en vue d’un marché intérieur de l’UE plus intégré devraient être les suivantes : l’élimination des obstacles qui subsistent à la mobilité des travailleurs, l’amélioration des infrastructures de transport, la reconnaissance mutuelle des qualifications et une intégration plus étroite des marchés dans les industries de réseau. Enfin, une utilisation plus explicite de l’évaluation comparative pourrait contribuer à accélérer les réformes futures concernant le marché intérieur.
    Keywords: productivity, croissance économique, productivité, réglementation, réforme structurelle, regulation, integration, intégration, structural reforms, economic growth
    JEL: D24 E23 F15 K23 L11 L51
    Date: 2009–04–24
  16. By: Cichocki, Stanislaw; Tyrowicz, Joanna
    Abstract: Shadow employment may follow from two main market failures. In the first, official market distortions make it ineective for agents to engage in registered employment (revenues from shadow employment are higher than the corresponding official ones). Consequently, shadow market pays eectively more than would have been within the reach of an individual in registered forms. The alternative explanation draws to labor market tightness from the side of an employee - for a particular group of workers regular employment may be unattainable, which results in seeking earning opportunities beyond the boundaries of official markets. Depending on the sources, very dierent policy recommendations are raised to address the problem of undeclared work. We use a unique dataset from survey on undeclared employment. Individuals declaring employment in the shadow economy are matched with their statistical twins declaring official employment. Using propensity score matching and decomposition techniques we demonstrate that actually workers of the shadow economy are characterized by slightly higher endowments, while their revenues are lower than among the matched counterparts. Although unobservable heterogeneity is considerable, results are robust and demonstrate that eectively shadow economy pays less than the regular market, which points to social exclusion and market segmentation hypotheses.
    Keywords: undeclared employment; propensity score matching; transition
    JEL: O17 P37 J22
    Date: 2009
  17. By: Lerman, Zvi; Sedik, David
    Date: 2008–11

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