nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒07‒11
twenty-one papers chosen by
J. David Brown
Heriot-Watt University

  1. Does Labor Supply Respond to a Flat Tax? Evidence from the Russian Tax Reform By Duncan, Denvil; Sabirianova Peter, Klara
  2. TFP Growth in Old and New Europe By Michael C. Burda; Battista Severgnini
  3. Honor Thy Creditors Beforan Thy Shareholders: Are the Profits of Chinese State-Owned Enterprises Real? By Giovanni Ferri; Li-Gang Liu
  4. Understanding China?s historical development: The profit and the risk that China?s stock market provides investors By Ronald Jean Degen
  5. Political Determinants of Economic Reforms in the Post-Communist Transition Countries By Staehr, Karsten; Tamazian, Artur; Vadlamannati, Krishna Chaitanya
  6. The Empirics of China's Outward Direct Investment By Yin-Wong Cheung; XingWang Qian
  7. Are all migrants really worse off in urban labour markets: new empirical evidence from China. By Gagnon, Jason; Xenogiani, Theodora; Xing, Chunbing
  10. Job Satisfaction and the Labor Market Institutions in Urban China By Heywood, John S.; Siebert, W. Stanley; Wei, Xiangdong
  11. Harrod, Balassa and Samuelson (Re)Visit Eastern Europe By Robert J. Sonora; Josip Tica
  12. Oil Price Shocks and Their Short- and Long-Term Effects on the Chinese Economy By Weiqi Tang; Libo Wu; ZhongXiang Zhang
  13. How should fiscal policy respond to the economic crisis in the low income commonwealth of independent states ? some pointers from Tajikistan By Brownbridge, Martin; Canagarajah, Sudharshan
  14. WHAT MOVES BOND YIELDS IN CHINA? By Fan, Longzhen; Johansson, Anders C.
  15. Asymmetric Information and Loan Spreads in Russia: Evidence from Syndicated Loans By Fungáová, Zuzana; Godlewski , Christophe J.; Weill, Laurent
  16. Large Demographic Shocks and Small Changes in the Marriage Market By Brandt, Loren; Siow, Aloysius; Vogel, Carl
  18. China's Current Account and Exchange Rate By Yin-Wong Cheung; Menzie D. Chinn; Eiji Fujii
  19. System-wide impacts of hospital payment reforms : evidence from central and eastern Europe and central Asia By Moreno-Serra, Rodrigo; Wagstaff, Adam
  20. Real Exchange Rate, Output and Oil: Case of Four Large Energy Producers By Korhonen, Iikka; Mehrotra, Aaron
  21. Forestland Reform in China: What do the Farmers Want? A Choice Experiment on Farmers’ Property Rights Preferences By Qin, Pin; Carlsson, Fredrik; Xu, Jintao

  1. By: Duncan, Denvil (Georgia State University); Sabirianova Peter, Klara (Georgia State University)
    Abstract: We exploit the exogenous change in marginal tax rates created by the Russian flat tax reform of 2001 to identify the effect of taxes on labor supply of males and females. We apply the weighted difference-in-difference regression approach and instrumental variables to the labor supply function estimated on individual panel data. The mean regression results indicate that the tax reform led to a statistically significant increase in male hours of work but had no effect on that of females. However, we find a positive response to tax changes at both tails of the female hour distribution. We also find that the reform increased the probability of finding a job among both males and females. Despite significant variation in individual responses, the aggregate labor supply elasticities are trivial and suggest that reform-induced changes in labor supply were an unlikely explanation for the amplified personal income tax revenues that followed the reform.
    Keywords: labor supply, personal income tax, flat tax, labor supply elasticity, difference-in-difference, regression discontinuity, wage endogeneity, employment participation, Russia, transition
    JEL: H3 J2 J3 P2
    Date: 2009–06
  2. By: Michael C. Burda; Battista Severgnini
    Abstract: Using Solow-Tornqvist residuals as well as two alternative measurements, we present estimates of total factor productivity (TFP) growth in a sample of 30 European economies for the period 1994-2005. In most of Western Europe, we find a deceleration of TFP growth since 2000. However, the economies of New Europe exhibit a higher level of TFP growth overall and have slowed less than those of Old Europe. In the new market economies of Central and Eastern Europe, we nd both high TFP growth as well as acceleration in the second half of the sample. Regression evidence from Western Europe suggests that product market regulation may adversely aect TFP growth and may thus impair convergence.
    Keywords: Total factor productivity growth, Solow residual, product and labor market regulation
    JEL: D24 O47 P27
    Date: 2009–06
  3. By: Giovanni Ferri (University of Bari); Li-Gang Liu (BBVA)
    Abstract: The Chinese state owned enterprises (SOEs) have become quite profitable recently. As the largest shareholder, the state has not asked SOEs to pay dividends in the past. Therefore, some have suggested that the state should ask SOEs to pay dividends. Indeed, the Chinese government has adopted this policy advice and started to demand dividend payment starting from 2008. While we do not question the soundness of the dividend policy, the point we raise is whether those profits are real if all costs owned by SOEs are properly accounted for. Among other things, we are interested in investigating whether the profits of SOEs would still be as large as they claim if they were to pay a market interest rate. Using a representative sample of corporate China, we find that the costs of financing for SOEs are significantly lower than for other companies after controlling for some fundamental factors for profitability and individual firm characteristics. In addition, our estimates show that if SOEs were to pay a market interest rate, their existing profits would be entirely wiped out. Our findings suggest that SOEs are still benefiting from credit subsidies and they are not yet subject to the market interest rates. In an environment where credit rights are not fully respected, dividend policy, though important, should come second and not first.
    Keywords: State Owned Enterprises, Soft Budget Constraint, Dividend Policy
    JEL: G32 O16 O53
    Date: 2009–04
  4. By: Ronald Jean Degen (International School of Management Paris)
    Abstract: The purpose of this paper is to describe China?s unique historical development that transformed the Celestial Empire into the largest economy in the world in the beginning of the nineteenth century, with a GDP that exceeded that of Western Europe, Japan, the US and Russia combined, and the decline during the ?Century of Humiliation?, and Mao Zedong?s communism that culminated in the ?Three Bitter Years? from 1958 to 1961 that produced the large famine with an estimated death of 20 to 30 million people. After this disaster, aggravated by the ?Cultural Revolution? that followed, came the amazing growth started by Deng Xiaoping?s economic reforms in 1978, that is only comparable to the United States emergence as an economic giant during the nineteenth century. China?s sustained growth, at an astounding 10 percent per year over the last 30 years, is without precedent. Many economists predict this growth rate will continue at 7 to 8 percent per year for several decades. This extraordinary sustained growth was partially fueled by the formation of its rapidly expanding financial market, and the profit and risks that its stock marked provides investors.
    Keywords: China?s historical development, China?s social-capitalism, China?s economic growth, Risks to China?s growth, China?s remaining poverty, China?s bureaucracy and corruption, China?s stock market, China?s mutual funds China?s unsustainable growth
    JEL: M0 M1 M2
    Date: 2009–07–05
  5. By: Staehr, Karsten; Tamazian, Artur; Vadlamannati, Krishna Chaitanya
    Abstract: This paper examines how political institutions and electoral outcomes have affected the economic reform process in the post-communist transition countries. Panel data estimations on annual data for 26 transition economies from 1992 to 2006 suggest that the institutional structure of the economy has been of importance, at least for the western-most transition countries. Democratisation and a relatively short exposure to communist rule have been conducive to economic reform, while the timing of elections and whether the government commands a majority in parliament appear to have been unimportant. Governments with right-wing ideology have implemented more market-economic reforms than governments with other ideologies. A high development level but also high inflation have proved conducive to reforms, while unemployment has had the opposite effect.
    Keywords: Economic reforms; political economy; political institutions; economic development
    JEL: P21 H11 P26
    Date: 2009–05–01
  6. By: Yin-Wong Cheung (University of California, Santa Cruz); XingWang Qian (SUNY, Buffalo State College)
    Abstract: We investigate the empirical determinants of China¡¦s outward direct investment (ODI). It is found that China¡¦s investments in developed and developing countries are driven by different sets of factors. Subject to the differences between developed and developing countries, there is evidence that a) both market seeking and resources seeking motives drive China¡¦s ODI, b) the Chinese exports to developing countries induce China¡¦s ODI, c) China¡¦s international reserves promote its ODI, and d) the Chinese capital tends to agglomerate among developed economies but diversify among developing economies. Similar results are obtained using alternative ODI data. We do not find substantial evidence that China invests in African and oil-producing countries mainly for their natural resources.
    Keywords: Market Seeking, Resources Seeking, Servicing Exports, International Reserves, Agglomeration Effect
    JEL: F21 F36 O53
    Date: 2009–05
  7. By: Gagnon, Jason; Xenogiani, Theodora; Xing, Chunbing
    Abstract: The rapid and massive increase in rural-to-urban worker flows to the coast of China has drawn recent attention to the welfare of migrants working in urban regions, particularly to their working conditions and pay; serious concern is raised regarding pay discrimination against rural migrants. This paper uses data from a random draw of the 2005 Chinese national census survey to shed more light on the discrimination issue, by making comparisons of earnings and the sector of work between rural migrants on one hand, and urban residents and urban migrants on the other. Contrary to popular belief, we find no earnings discrimination against rural migrants compared to urban residents. However, rural migrants are found to be discriminated in terms of the sector in which they work, with a vast majority working in the informal sector lacking adequate social protection.
    Keywords: Migration; China; Discrimination; Informal Employment
    JEL: O15 J71 J24 R23
    Date: 2009–06
  8. By: Ljungwall, Christer (China Economic Research Center); Xiong, Yi (Peking University National School of Development, China Center for Economic Research); Zou, Yutong (Peking University National School of Development, China Center for Economic Research)
    Abstract: This paper investigates the current monetary policy regime of China’s Central Bank, the People’s Bank of China (PBoC). This is done from the specific viewpoint of PBoC financial strength and the cost of its monetary policy instruments. The result shows that PBoC is constrained by the costs of its monetary policy instruments. PBoC tend to use less costly but market-distorting instruments such as deposit interest rate cap and reserve-ratio requirements, rather than more market-oriented but more costly instruments such as central bank note issuance. These costs remain under control today, but may rise in the future as PBoC accumulates more foreign assets. This, in turn, will jeopardize the Chinese monetary authority’s capability to maintain price stability.
    Keywords: Central banking; Monetary policy; China
    JEL: E51 E52 E58 E63 O53
    Date: 2009–05–01
  9. By: Johansson, Anders C. (China Economic Research Center)
    Abstract: It is commonly argued that China's financial markets are effectively insulated from the rest of the world. To see if this is true and to better understand China's financial development, we analyze China's integration with major financial markets. Using conditional copulas, we show that China has experienced an increasing level of integration with several major financial markets during the last decade, even though the country's financial markets are commonly seen as being insulated. Furthermore, the level of integration has increased with several major markets during the current financial crisis. The results and possible reasons for the increasing integration are analyzed and the implications for policymakers and market participants are discussed.
    Keywords: China; financial market integration; codependence; copula
    JEL: F30 G15
    Date: 2009–06–01
  10. By: Heywood, John S. (University of Wisconsin, Milwaukee); Siebert, W. Stanley (University of Birmingham, UK); Wei, Xiangdong (Lingnan University)
    Abstract: The determinants of worker job satisfaction are estimated using a representative survey of three major cities in China. Legally segregated migrants, floaters, earn significantly less than otherwise equivalent non-migrants but routinely report greater job satisfaction, a finding not previously reported. We confirm a positive role for membership in the communist party but find that it exists only for non-migrants suggesting a club good aspect to membership. In contrast to earlier studies, many controls mirror those found in western democracies including the "paradox of the contented female worker."
    Keywords: job satisfaction, internal migrants, party membership, China
    JEL: J28 J61 O17 D73
    Date: 2009–06
  11. By: Robert J. Sonora (Department of Economics, School of Business Administration, Fort Lewis College); Josip Tica (Faculty of Economics and Business, University of Zagreb)
    Abstract: In this paper we investigate Harrod Balassa Samuelson (HBS) effect in 11 transition countries. A large number of empirical papers based on quite limited datasets has already been published on HBS in Eastern Europe. The major contribution of this paper is the fact that we estimate HBS with NACE6 quarterly national account data which enables us to divide data into tradable and nontradable sector as suggested by De Gregorio, Giovannini and Wolf (1994) without any unrealistic assumptions. Following Bergstrand (1991) together with relative productivity we also employ share of government consumption in GDP as an explanatory variable. Unlike in previous studies, results have indicated that it is possible to find univariate cointegrating vectors only in Bulgaria, Croatia and Lithuania, and panel cointegration test has indicated that it is possible to find strong evidence of cointegration in post 2000 sample. For the post 1995 period, rejection of the null hypothesis is dependent on the inclusion of government consumption as independent variable and methodology used (DOLS vs. OLS cointegration test).
    Keywords: Harrod Balassa Samuelson effect, Price convergence, Transition countries, panel cointegration tests
    JEL: F15 F21 F43
    Date: 2009–06–24
  12. By: Weiqi Tang (Fudan University); Libo Wu (Fudan University); ZhongXiang Zhang (East-West Center)
    Abstract: A considerable body of economic literature shows the adverse economic impacts of oil-price shocks for the developed economies. However, there has been a lack of empirical study of this kind on China and other developing countries. This paper attempts to fill this gap by answering how and to what extent oil-price shocks impact China's economy, emphasizing on the price transmission mechanisms. To that end, we develop a structural vector auto-regressive model. Our results show that an oil-price increase negatively affects output and investment, but positively affects inflation rate and interest rate. However, with the differentiated price control policies for materials and intermediates on the one hand and final products on the other hand in China, the impact on real economy, represented by real output and real investment, lasts much longer than that to price/monetary variables. Our decomposition results also show that the short-term impact, namely output decrease induced by the cut of capacity-utilization rate, is greater in the first one to two years, but the portion of the long-term impact, defined as the impact realized through an investment change, increases steadily and exceeds that of short-term impact at the end of the second year. Afterwards, the long-term impact dominates, and maintains for quite some time.
    JEL: F
    Date: 2009–04
  13. By: Brownbridge, Martin; Canagarajah, Sudharshan
    Abstract: The paper analyses how the global economic crisis will affect the economies of the low income Commonwealth of Independent States (CIS) and discusses the fiscal measures which can be taken to help mitigate the adverse impact of the crisis. It focuses on Tajikistan, the poorest member of the CIS but also highlights similarities with the economies of Armenia, the Kyrgyz Republic and Moldova. The main channels through which the global economic crisis will affect the low income CIS economies is through a sharp reduction in remittances from migrant workers in Russia and lower export earnings. The adjustment to this external shock will involve a reduction in imports, private consumption, domestic output and government revenue. Fiscal policy, constrained by very limited macroeconomic and fiscal space, faces acute challenges. Maintaining budget targets for fiscal deficits and domestic borrowing in the face of revenue shortfalls will lead to a tightening of the fiscal stance, exacerbating recessionary pressures and making it very difficult to protect priority social expenditures from cuts. To avoid these outcomes, external support from donors, preferably in the form of quick disbursing budget support, is required. If additional external budget support can be mobilized, the priorities for fiscal policy should be to protect spending on budgeted social sector programs and, if sufficient budget resources are available, to implement a program of labor intensive repair and maintenance of public infrastructure to provide employment for returning migrant workers. Tax cuts are unlikely to be an effective use of scarce budget resources, either to stimulate the economy or protect the incomes of the poor. Up scaling existing social assistance programs may be a feasible way to protect the poor in some low income CIS countries provided they are not as poorly targeted as in Tajikistan.
    Keywords: Debt Markets,Currencies and Exchange Rates,,Access to Finance,Banks&Banking Reform
    Date: 2009–06–01
  14. By: Fan, Longzhen (School of Management, Fudan University); Johansson, Anders C. (China Economic Research Center)
    Abstract: This paper analyzes the joint dynamic processes of macroeconomic and monetary variables and bond yields in China. We show that macroeconomic variables as well as monetary policy variables have a significant impact on two factors that capture the variation in yields. An increase in the inflation rate and economic growth result in a rise in the yield curve. Similarly, an increase in the money supply causes a rise in the yield curve, albeit with a delayed effect. Finally, when official rates are raised, the long yield shows signs of a delayed decline. Overall, the long yield is more sensitive to most changes in macroeconomic and monetary variables. These results differ from an earlier study on bond yields by Ang and Piazzesi (2003), who show that the U.S. short-term rate is more sensitive to changes in macroeconomic variables. Possible explanations for the difference include certain unique structural features in the domestic financial system and the way monetary policy is conducted in China.
    Keywords: China; yield curve; macroeconomic factors; monetary policy
    JEL: E43 E44 E52 E58 G12
    Date: 2009–06–01
  15. By: Fungáová, Zuzana (BOFIT); Godlewski , Christophe J. (BOFIT); Weill, Laurent (BOFIT)
    Abstract: This paper considers whether local bank participation exerts an impact on the spreads for syndicated loans in Russia. Following Berger, Klapper and Udell (2001), we test whether local banks possess a superior ability to deal with information asymmetries. Using a sample of 528 syndicated loans to Russian borrowers, we perform regressions of the spread on a set of variables including information on local bank participation and the characteristics of loans and borrowers. Unlike earlier studies, we distinguish foreign banks with a local presence from those without such presence. The intuition here is that a local presence may influence a foreign bank’s monitoring ability and access to information about borrowers. We observe no significant impact on the spread when there is local bank participation in a syndicated loan, nor do we find any significant influence of the presence of domestic-owned banks or foreign-owned banks on the spread. Additional estimations considering subsamples with exacerbated information asymmetries provide similar results. Therefore our conclusion is that local banks do not benefit from an advantage in monitoring ability and in information in Russia.
    Keywords: bank; information asymmetry; loan; syndication; Russia
    JEL: G21 P34
    Date: 2009–07–01
  16. By: Brandt, Loren (University of Toronto); Siow, Aloysius (University of Toronto); Vogel, Carl (affiliation not available)
    Abstract: This paper provides non-parametric estimates of the total effects of famine in China on marital behavior of famine affected cohorts in rural areas of Sichuan and Anhui. The reduced form estimates incorporate general equilibrium and heterogeneous treatment effects, two important components of equilibrium marital behavior. Next the paper uses a structural model of the marriage market to decomposed observed marital outcomes into quantity and quality effects. The structural estimates show that the famine reduced the marital attractiveness of the famine-born cohort. The conclusion is that the small observed changes in marriage rates of the famine born cohort are due to a significant decline in marital attractiveness.
    Keywords: marriage market, famine
    JEL: J12
    Date: 2009–06
  17. By: Ljungwall, Christer (China Economic Research Center); Gao, Xu (World Bank, China Group, Beijing Office)
    Abstract: This paper investigates the sources of business cycle fluctuations in China and India since 1978/81. Under the framework of a standard neoclassical open economy model with time-varying frictions (wedges), we study the relative importance of efficiency, labor, investment and government consumption wedges on the business cycle phenomenon. This enables us to contrast and compare the two countries’ experience in a way remarkably different from previous studies. The results for both China and India show that efficiency wedge is the main source of economic fluctuations, while the investment wedge and government consumption wedge played minor roles in generating business cycles.
    Keywords: Business cycle fluctuations; Business cycle accounting; China; India
    JEL: E32 E37 O47 O53
    Date: 2009–05–01
  18. By: Yin-Wong Cheung (University of California, Santa Cruz); Menzie D. Chinn (University of Wisconsin, Madison, NBER); Eiji Fujii (University of Tsukuba)
    Abstract: We examine whether the Chinese exchange rate is misaligned and how Chinese trade flows respond to the exchange rate and to economic activity. We find, first, that the Chinese currency, the renminbi (RMB), is substantially below the value predicted by estimates based upon a cross-country sample, when using the 2006 vintage of the World Development Indicators. The economic magnitude of the misalignment is substantial ¡V on the order of 50 percent in log terms. However, the misalignment is typically not statistically significant, in the sense of being more than two standard errors away from the conditional mean. However, this finding disappears completely when using the most recent 2008 vintage of data; then the estimated undervaluation is on the order of 10 percent. Second, we find that Chinese multilateral trade flows respond to relative prices ¡V as represented by a trade weighted exchange rate ¡V but the relationship is not always precisely estimated. In addition, the direction of the effects is sometimes different from what is expected a priori. For instance, Chinese ordinary imports actually rise in response to a RMB depreciation; however, Chinese exports appear to respond to RMB depreciation in the expected manner, as long as a supply variable is included. In that sense, Chinese trade is not exceptional. Furthermore, Chinese trade with the United States appears to behave in a standard manner ¡V especially after the expansion in the Chinese manufacturing capital stock is accounted for. Thus, the China-US trade balance should respond to real exchange rate and relative income movements in the anticipated manner. However, in neither the case of multilateral nor bilateral trade flows should one expect quantitatively large effects arising from exchange rate changes. And, of course, these results are not informative with regard to the question of how a change in the RMB/USD exchange rate would affect the overall US trade deficit. Finally, we stress the fact that considerable uncertainty surrounds both our estimates of RMB misalignment and the responsiveness of trade flows to movements in exchange rates and output levels. In particular, the results for trade elasticities are sensitive to econometric specification, accounting for supply effects, and for the inclusion of time trends.
    Date: 2009–04
  19. By: Moreno-Serra, Rodrigo; Wagstaff, Adam
    Abstract: Although there is broad agreement that the way that health care providers are paid affects their performance, the empirical literature on the impacts of provider payment reforms is surprisingly thin. During the 1990s and early 2000s, many European and Central Asian countries shifted from paying hospitals through historical budgets to fee-for-service or patient-based-payment methods (mostly variants of diagnosis-related groups). Using panel data on 28 countries over the period 1990-2004, the authors of this study exploit the phased shift from historical budgets to explore aggregate impacts on hospital throughput, national health spending, and mortality from causes amenable to medical care. They use a regression version of difference-in-differences and two variants that relax the difference-in-differences parallel trends assumption. The results show that fee-for-service and patient-based-payment methods both increased national health spending, including private (out-of-pocket) spending. However, they had different effects on inpatient admissions (fee-for-service increased them; patient-based-payment had no effect), and average length of stay (fee-for-service had no effect; patient-based-payment reduced it). Of the two methods, only patient-based-payment appears to have had any beneficial effect on"amenable mortality,"but there were significant impacts for only a couple of causes of death, and not in all model specifications.
    Keywords: Health Monitoring&Evaluation,Health Systems Development&Reform,Health Economics&Finance,Health Law,Population Policies
    Date: 2009–07–01
  20. By: Korhonen, Iikka (BOFIT); Mehrotra, Aaron (BOFIT)
    Abstract: We assess the effects of oil price shocks on real exchange rate and output in four large energy-producing countries: Iran, Kazakhstan, Venezuela, and Russia. We estimate four-variable structural vector autoregressive models using standard long-run restrictions. Not surprisingly, we find that higher real oil prices are associated with higher output. However, we also find that supply shocks are by far the most important driver of real output in all four countries, possibly due to ongoing transition and catching-up. Similarly, oil shocks do not account for a large share of movements in the real exchange rate, although they are clearly more significant for Iran and Venezuela than for the other countries.
    Keywords: structural VAR model; oil price; Iran; Kazakhstan; Russia; Venezuela
    JEL: E31 E32 F31
    Date: 2009–07–01
  21. By: Qin, Pin (College of Environmental Sciences and Engineering, Peking University); Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Xu, Jintao (College of Environmental Sciences and Engineering, Peking University)
    Abstract: Various decentralization experiments are currently underway in the Chinese forestry sector. However, a key question often ignored by researchers and policy makers is what farmers really want from reform. This paper addresses this question using a survey-based choice experiment. We investigated farmers’ preferences for various property-rights attributes of a forestland contract. We found that farmers are highly concerned with what types of rights a contract provides. Reducing perceived risks of contract termination and introducing a priority right in the renewal of an old contract significantly increase farmers’ marginal willingness to pay (MWTP) for a forest contract. An extended waiting time for rights to harvest the forest reduces a farmer’s perceived value of a contract. Farmers are also concerned with the tenure length. In one region, the annual willingenss to pay for a 50-year contract is even higher than the annual willingness to pay for 25-year contract.<p>
    Keywords: China; Choice experiment; Forest; MWTP; Property rights
    JEL: D61 Q15 Q23 Q50 Q51
    Date: 2009–06–30

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