nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒09‒19
28 papers chosen by
J. David Brown
Heriot-Watt University

  1. Social Monitor 2009: Child Well-Being at a Crossroads: Evolving challenges in Central and Eastern Europe and the Commonwealth of Independent States By UNICEF Innocenti Research Centre. MONEE project
  2. Poverty and Vulnerability in Rural China: Effects of Taxation By Katsushi S. Imai; Xiaobing Wang; Woojin Kang
  3. Regional determinants of FDI in China: A new approach with recent data By Hein Roelfsema; Martijn Boermans; Yi Zhang
  4. Reform and Competitive Selection in China: An Analysis of Firm Exits By Qing Gong Yang; Paul Temple
  5. China : urban services and governance By Brixi, Hana
  7. The quest for monetary integration – the Hungarian experience By Zoican, Marius Andrei
  8. Are the Central European Stock Markets Still Different? A Cointegration Analysis By Rousova, Linda
  9. Do we really know that flexible exchange rates facilitate current account adjustment?: some new empirical evidence for CEE countries By Herrmann, Sabine
  10. Semi-subsistence farm households and the non-farm rural economy - Perspectives and challenges By Buchenrieder, Gertrud; Fritzsch, Jana; Wegener, Stefan; Curtiss, Jarmila; Gomez y Paloma, Sergio
  11. Transmission of nominal exchange rate changes to export prices and trade flows and implications for exchange rate policy By Hoffmann, Mathias; Holtemöller, Oliver
  12. A Robust Assessment of the Romanian Business Cycle By Moisa Altar; Ciprian Necula; Gabriel Bobeica
  13. Kulturelle Hybridisierung und Wirtschaftstransformation in China By Herrmann-Pillath, Carsten
  14. Survival and Growth of Family Farms in a Transition Country â The Hungarian Case By Bakucs, Zoltan L.; Ferto, Imre
  15. Subsistence and Semi-subsistence Farming in Selected EU New Member States By Davidova, Sophia; Fredriksson, Lena; Bailey, Alastair
  16. Small farmers in the Romanian dairy market: Do they have a future? By Pieniadz, Agata; Hanf, Jon H.; Voicilas, Dan Marius; Wegener, Stefan; Götz, Linde
  17. Subsistence agriculture in Romania- a modus vivendi? By Alboiu, Cornelia
  18. Russia’s Real National Income: The Great War, Civil War, and Recovery, 1913 to 1928 By Markevich, Andrei; Harrison, Mark
  19. On Flexibility in the Polish Farming Sector By Renner, Swetlana; Hockmann, Heinrich; Pieniadz, Agata; Glauben, Thomas
  20. The Economics of Land Consolidation in Family Farms of Moldova By Cimpoies, Dragos; Lerman, Zvi; Racul, Anatol
  21. New modes of governance of cooperative arrangements in agricultural markets: The case of Polish producer groups By Beckmann, Volker; Banaszak, Ilona
  22. Collective action of small farmers: A case study of Ruoheng farmer watermelon cooperative in China By Huang, Zuhui; Liang, Qiao; Hendrikse, G.W.J.
  23. Dairy supply chain modernisation in Poland â what about those not keeping the pace? By FaÅkowski, Jan; Malak-Rawlikowska, Agata; Milczarek-Andrzejewska, Dominika
  24. Effects of rural non-farm employment on economic vulnerability and income distribution of small farms in Croatia By Möllers, Judith; Buchenrieder, Gertrud
  25. Optimal Farm Size under an Uncertain Land Market: the Case of Kyrgyz Republic By Scandizzo, Pasquale Lucio; Savastano, Sara
  26. Is Happiness Infectious? By John Knight; Ramani Gunatilaka
  27. Reforms, Globalization, and Endogenous Agricultural Structures By Swinnen, Johan F.M.
  28. The distributional implications of income underreporting in Hungary By Benedek, Dora; Lelkes, Orsolya

  1. By: UNICEF Innocenti Research Centre. MONEE project
    Abstract: This study examines the evolving and diverging challenges for the well-being of children after two decades of transition. Following a long period of sustained economic growth and gradual improvements in living standards, the global economic crisis is now threatening to reverse some of the recent positive achievements and plunge households and children into another phase of uncertainty.<br /> <br /> The Innocenti Social Monitor 2009 uses information from administrative and survey sources, some of it not previously available, to identify critical economic and social trends and assess the impact of policies on children in the period immediately preceding the current crisis. It also looks at changes in the economic and demographic context in which children are growing up as well as at trends of public social expenditure, all influencing policy choices that affect children. While acknowledging the important improvements in living standards which growth brought to children in the region, the report highlights persistent disparities in the distribution of benefits and in particular the vulnerability of children to the process of change. This has been partly due to the difficulties of policy to reach population groups most at risk and to provide adequate support to reduce inequalities and exclusion.<br /><br /> Providing a comprehensive overview of the decade up to 2008 and discussing monitoring and data challenges for the region, the report aims to help support and guide policy debate and decisions in a period of economic crisis. It is hoped to encourage policy makers to have a greater focus on child well-being, guided by human rights principles, to support those children most in need, to promote social inclusion and to give all children the opportunity to develop to their full potential.<br /><br />
    Keywords: child poverty; child protection; child well-being; economic growth; economic transition; education; health; social indicators; social policy;
    JEL: P3 P36
    Date: 2009
  2. By: Katsushi S. Imai; Xiaobing Wang; Woojin Kang
    Date: 2009
  3. By: Hein Roelfsema; Martijn Boermans; Yi Zhang
    Abstract: We empirically investigate the factors that drive the uneven regional distribution of foreign direct investment (FDI) inflows to China.s 31 provinces from 1995 to 2006. The aim of this paper is to explain the investment patterns in (partly) foreign funded firms across these provinces. We use factor analysis and derive four factors that may drive FDI: institutions, labor costs, market potential, and geography. The factor analysis then structures our dataset to concentrate on these four clusters consisting of 42 province specific and time-varying items. Factor analysis not only helps us to identify the latent dimensions which are not apparent from direct study, but also facilitates econometrics with reduced number of variables. We apply fixed effects panel estimation and GMM to account for endogeneity. In line with theoretical predictions we find that foreign investors choose and invest more in provinces with better institutions, lower labor costs, and larger market size. Nonlinear results denote that the positive effects of infrastructure and market potential on FDI are complementary to each other, which is in line with the economic geography literature. In particular the effect of market size on FDI is larger in provinces with better institutions. Sub-sample study confirms the existences of a large disparity between East and West. In the poorer large western provinces FDI is strongly driven by the geographical factor in contrast to the east of China where institutions play a significant role to build the .factory of the world.. Robustness tests indicate that two sub-dimensions of institutions, namely infrastructure and governance, are important to determine the location choice of FDI in China.
    Keywords: FDI, China, factors analysis, regional and spatial distribution of FDI, location choice
    JEL: F21 F23 O18 O53 R11
    Date: 2009–09
  4. By: Qing Gong Yang (New Zealand Commerce Commission); Paul Temple (University of Surrey)
    Abstract: This paper considers aspects of the competitive selection process in China - firm entry, survival, and exit - in an important sector of manufacturing, looking in particular for changes resulting from the latest stage of reforms. Using industry survey data from a province in North-East China, we find substantial differences in the process between ownership types. By conducting a simple decomposition of the aggregate productivity growth and exploring the determinants of firm’s exit using a hazard rate model, we observe a substantial rate of churning of enterprises in the sector, and find that the competitive selection processes operate, for small and collectively owned enterprises (COEs), in a manner consistent with a private market economy. In contrast, such processes appear not to be functioning for state owned enterprises (SOEs). We conclude that competitive selection in China is not providing a sufficiently strong substitute for corporate governance based on ownership.
    Keywords: Competition; Exit; Productivity, Hazard Models
    JEL: C5 D2 L6 P5
    Date: 2009–09
  5. By: Brixi, Hana
    Abstract: The study addresses governance challenges in public service delivery in China. It builds on the citizen scorecard survey conducted in five Chinese cities in 2006 to gauge citizens’ experience with public services, and demonstrates the usefulness of citizens’ feedback for policy development and implementation. The survey found that citizens were generally pleased with urban public services, but worried about the associated fees. Compared with the official urban residents, the urban poor and rural migrants in cities reported sharper utilization constraints, lower readiness to complain or pay informal fees, and a much larger income share spent on public services. The reported citizens’ perceptions sometimes diverged from the evidence and pointed to significant information asymmetries. Explaining the survey results, the study reveals problems of inadequacy, inequality and misaligned incentives in public resource allocation. The study presents several successful experiments reducing the dependence on user fees in basic education and primary healthcare. It recognizes that China has been undertaking comprehensive reforms to enhance equity and quality in public service delivery. Such reforms have included measures to strengthen the regulatory, monitoring, and enforcement systems and accountability relationships. In the context of the ongoing reforms, this study highlights the need to: a) hold the provincial governments accountable for public service delivery performance; b) develop effective mechanisms to align public resources and incentives at each level of government with the national priorities; and c) develop proper means to empower the citizens. In this context, the study affirms that the Chinese government is rightly placing reforms in the intergovernmental, administrative, and public finance systems at the top of its agenda.
    Date: 2009–09–01
  6. By: Csaki, Csaba; Forgacs, Csaba
    Keywords: Agribusiness, Agricultural and Food Policy, Consumer/Household Economics, Land Economics/Use,
    Date: 2009–08–20
  7. By: Zoican, Marius Andrei
    Abstract: From 1990 onwards, Eastern European countries have had as a primary economic goal the convergence with the traditionally capitalist states in Western Europe. The usage of various exchange rate regimes to accomplish the convergence of inflation and interest rates, in order to create a fully functional macroeconomic environment has been one of the fundamental characteristics of states in Eastern Europe for the past 20 years. Among these countries, Hungary stands out as having tried a number of exchange rate regimes – from the adjustable peg in 1994‐1995 to free float since 2008. In the first part, this paper analyses the macroeconomic performance of Hungary during the past 15 years as a function of the exchange rate regime used. I also compare this performance, where applicable, with two similar countries which have used the most extreme form of exchange rate regime: Estonia (with a currency board) and Romania, who never officialy pegged its currency and used a managed float even since 1992. The second part of this paper analyzes the overall Hungarian performance from the perspective of the Optimal Currency Area theory, therefore trying to establish if, after 20 years of capitalism, and a large variety of monetary policies, Hungary is indeed prepared to join the European Monetary Union.
    Keywords: exchange rate regimes; free float; Eastern Europe; Optimal Currency Area Theory
    JEL: F15 E42 F41 F31
    Date: 2009–04–05
  8. By: Rousova, Linda
    Abstract: The Central European countries became members of the European Union (EU) in May 2004. Has their accession into the EU also resulted in a stronger financial integration with the global economy in general and with the "old" EU countries in particular? Based on a cointegration analysis applied to stock market movements, I detect for the period after the EU enlargement two new long-run equilibrium relations that indeed suggest a stronger inter-dependence of the markets, whereas no such relations can be observed before this date. In particular, one new relation links the Central European markets to the Western European market, reflecting tighter co-movements of the "new" and the "old" EU markets. The second relation points at the role of the US market for both the Central and the Western European markets.
    Keywords: Transition Economies; Emerging stock markets; Central Europe; European integration; Cointegration; Long-run stock market linkages
    JEL: C5 F36 G11 G15
    Date: 2009–09–08
  9. By: Herrmann, Sabine
    Abstract: This paper examines the relationship between the exchange rate regime and the pace of current account adjustment. The panel data set we refer to includes 11 catching-up countries from central, eastern and south-eastern Europe between 1994 and 2007. The exchange rate regime is measured by a continuous z-score measure of exchange rate volatility proposed by Gosh, Gulde and Wolf (2003). Based on a basic autoregression estimation, the results indicate that a more flexible exchange rate regime significantly enhances the rate of current account adjustment.
    Keywords: Current account adjustment,exchange rate regime,Central and Eastern Europe
    JEL: F32 F31 O52
    Date: 2009
  10. By: Buchenrieder, Gertrud; Fritzsch, Jana; Wegener, Stefan; Curtiss, Jarmila; Gomez y Paloma, Sergio
    Abstract: Semi-subsistence farm households (SFHs) have persevered in Central and Southeastern Europe. An outlook on future perspectives of SFHs asks for reliable information on the phenomenon of SFHs and the impact of policy measures on their development options: (1) intensifying farming, (2) diversifying income creating activities, or (3) exiting farming for waged employment. This article focuses on SFHs and rural non-farm employment (RNFE). On the basis of a comparative 2007-survey of 489 SFHs in Bulgaria, Poland and Romania, three countries with particularly many SFHs, four major types of SFHs (rural pensioners, farmers, rural diversifiers, rural newcomers) were identified. For policy analysis, a multiobjective linear programming household model was developed. In the model, labour can be devoted to (1) farming, (2) self-employment and (3) waged employment. The policy scenarios reflect different development options for SFHs: (1) farm development, (2) start selfemployment, (3) farm development and start self-employment, and (4) stop agriculture. Policy can foster the structural change but the modeling results show that fine targeting to the various types of semi-subsistence farms and country specificities is a strong precondition for success.
    Keywords: Semi-subsistence, rural non-farm economy, policy analysis, transition countries, Agribusiness, Agricultural and Food Policy, Community/Rural/Urban Development, Consumer/Household Economics, Land Economics/Use, Political Economy, C61, P27, Q12,
    Date: 2009–08–20
  11. By: Hoffmann, Mathias; Holtemöller, Oliver
    Abstract: We discuss how the welfare ranking of fixed and flexible exchange rate regimes in a New Open Economy Macroeconomics model depends on the interplay between the degree of exchange rate pass-through and the elasticity of substitution between home and foreign goods. We identify combinations of these two parameters for which flexible and for which fixed exchange rates are superior with respect to welfare as measured by a representative household's utility level. We estimate the two parameters for six non-EMU European countries (Czech Republic, Hungary, Poland, Slovakia, Sweden, United Kingdom) using a heterogeneous dynamic panel approach.
    Keywords: Elasticity of substitution between home and foreign goods,exchange rate pass-through,exchange rate regime choice,expenditure switching effect,heterogeneous dynamic panel,New Open Economy Macroeconomics
    JEL: F41 F31 F14
    Date: 2009
  12. By: Moisa Altar (Faculty of Finance and Banking, Bucharest University of Economics); Ciprian Necula (Faculty of Finance and Banking, Bucharest University of Economics); Gabriel Bobeica (Faculty of Finance and Banking, Bucharest University of Economics)
    Abstract: The paper provides potential output and output gap estimates for the Romanian economy in the period 1998 - 2008. Our approach consists in combining the structural method of the production function with several non-structural statistical detrending methods: Hodrick-Prescott, Kalman, band-pass, and wavelet transform filters. In this way, the obtained results benefit both from the economic foundations the production function method is relying on, as well as from the flexibility of the detrending techniques. The contribution of our analysis to the scarce literature dealing with the estimation of the cyclical position of the Romanian economy is twofold. First, we identify the contribution of the production factors to the potential output growth. Second, we aggregate the results obtained through filtering techniques in a consensus estimate ascribing to each method a weight inversely related to its revision stability. Our results suggest for the period 2000-2008 an average annual growth rate of the potential output equal to 5.8%, but on a descendant slope at the end of the analyzed period, due to the adverse developments in the macroeconomic context.
    Keywords: potential GDP, output gap, NAIRU, business cycle
    JEL: C32 E24 E32
    Date: 2009–09
  13. By: Herrmann-Pillath, Carsten
    Abstract: In many analyses of the Chinese so-called economic miracle, cultural factors loom large. This paper offers a brief overview of recent economic approaches to culture and puts these into an analytical framework that highlights the dynamic and creative aspects of culture. I argue that China is a model case for the role of cultural hybridization in economic change. Culture is conceived as an arrangement of non-cultural elements into a meaningful pattern. With regard to this pattern, abstract categories can be defined which allow for the identification of stable cultural features in the longer run. The paper was prepared for a GTZ workshop on the impact of culture on economic development and institutional change (Kultur, institutioneller Wandel und Wachstum), held on January 28, 2009 at GTZ Eschborn.
    Keywords: cultural determinants of growth,cultural hybridization,guanxi,localism
    JEL: O10 P3 Z1
    Date: 2009
  14. By: Bakucs, Zoltan L.; Ferto, Imre
    Abstract: The paper investigates the validity of Gibratâs Law in Hungarian agriculture. We use FADN data between 2001 and 2007 and employ quantile regression techniques to test the validity of Gibratâs Law across quantiles. The Law is strongly rejected for all quantiles, providing strong evidence that smaller farms tend to grow faster than larger ones. We provide a number of socio-economic factors that can explain farm growth. Of these we found that total subsidies received by farm and far operatorâs age are the most significant factors.
    Keywords: Gibratâs Law, family farm, quantile regression, transition agriculture, Community/Rural/Urban Development, Consumer/Household Economics, P32, Q12, Q19,
    Date: 2009–08–20
  15. By: Davidova, Sophia; Fredriksson, Lena; Bailey, Alastair
    Abstract: Factor and cluster analysis are used to analyse the attitudes and perceptions of agricultural households in five EU New Member States towards farming, commercialisation, and barriers to and drivers for an increased integration in agricultural markets. The contribution of unsold output to the total household income is valued. A stepwise linear regression is employed to detect important variables explaining the degree of agricultural market integration of farm households. The analysis indicates that subsistence farming is of utmost importance for the rural poor, and particularly in Bulgaria and Romania. The proportion of consumption from own production, manual cultivation techniques and distance to an urban centre negatively affect output sales. Rural development policies targeted at rural physical and market infrastructure might relieve some of these constraints.
    Keywords: agricultural households, subsistence, commercialisation, incomes, cluster analysis, stepwise regression, Community/Rural/Urban Development, Consumer/Household Economics, Crop Production/Industries, Q12,
    Date: 2009–08–20
  16. By: Pieniadz, Agata; Hanf, Jon H.; Voicilas, Dan Marius; Wegener, Stefan; Götz, Linde
    Abstract: This paper investigates various modes of vertical coordination, with the focus on small farm integration in the Romanian dairy chain. It draws on results from a World Bank study based on semi-structured interviews conducted in spring 2009. The findings indicate that large and prosperous dairy chains fortify their chain efficiency by partner selection and provision of sophisticated assistance to relatively larger farmers. On the contrary, many barriers exist for small and medium-sized dairy chains (processors and farmers). The main factors hampering their potential exploitation are restricted access to inputs markets (capital, know-how) as well as poor quality of input service (agricultural service delivery, veterinary issues). The majority of cow's milk in Romania is still delivered by small farmers who have difficulties fulfilling the requirements of the modern procurement systems. However, small farmers are a relatively heterogeneous group. Hence, different development paths can be expected. In addition to working with retail chains via strengthening horizontal integration, another opportunity for small dairy famers is to occupy a market niche. Nevertheless, some small farmers will have to leave the dairy market.
    Keywords: vertical coordination, small farms, Romania, dairy., Livestock Production/Industries,
    Date: 2009–08–20
  17. By: Alboiu, Cornelia
    Abstract: The paper intends to make an analysis at regional level in the South-East region of the country in order to determine the present situation of agriculture in this region compared to the whole country. The paper investigates the crop structure, the irrigated area and the number of irrigation equipment in the region, the market orientation of farms, the type and development level of the non-agricultural activities, the labour force, and the specialization of farms. The objective of this paper is to analyze the regional agricultural characteristics and to determine the level of entrepreneurship in the area, so that farmers and regional policies might better interfere in order to help farmers adjust their production to the market and obtain a benefit. A comparison with the situation at the whole country will be also provided. The paper concludes that Romanian subsistence agriculture is still a âmodus vivendiâ, and most likely only time and the force of new technologies employed by the large commercial companies will partly solve the issue.
    Keywords: subsistence, regional analysis, irrigations, Community/Rural/Urban Development, Consumer/Household Economics,
    Date: 2009–08–20
  18. By: Markevich, Andrei (New Economic School, Moscow and Department of Economics, University of Warwick); Harrison, Mark (Department of Economics, University of Warwick ; Centre for Russian and East European Studies, University of Birmingham ; Hoover Institution on War, Revolution, and Peace, Stanford University)
    Abstract: We are working towards filling the last remaining gap in the historical national accounts of Russia and the USSR in the twentieth century. The gap includes the Great War (1914 to 1917), the Bolshevik Revolution, the Civil War and War Communism (1918 to 1921), and postwar recovery under the New Economic Policy of a mixed economy (1921 to 1928). Our work builds on our predecessors and also returns to a number of original sources. We find that the economic performance of the Russian Empire in wartime was somewhat better than previously thought; that of War Communism was correspondingly worse. We confirm the persistence of losses associated with the Civil War into the postwar period, or the failure of the New Economic Policy to achieve full recovery, or some mixture of both. We conclude that the Great War and Civil War produced the deepest economic trauma of Russia’s troubled twentieth century.
    Keywords: Civil War ; GDP, Russia ; Soviet Union ; World War I
    JEL: E20 N14 N44 O52
    Date: 2009
  19. By: Renner, Swetlana; Hockmann, Heinrich; Pieniadz, Agata; Glauben, Thomas
    Abstract: This paper investigates the flexibility of the Polish farming sector during a transition period. Flexibility is considered to be a farmâs ability to change output by sustaining average costs. We argue that flexibility is a crucial factor in farmersâ competitive advantage, especially under dynamically changing environmental conditions. We propose a flexibility measure that accounts for both input and output flexibility. This measure is used to empirically investigate the magnitude and sources of flexibility in Polish family farming. We also identify the main factors that explain the proposed flexibility indices. The empirical findings reveal that Polish farms use different technologies regarding their input and output flexibility. While small and specialized farms can easily adapt their input structure, the larger and highly diversified producers adjust their output levels according to price changes. Farmers who use more capital-intensive production technologies, i.e. milk producers, are less flexible with regard to input and overall adjustments. Furthermore, access to bank credit increases a farmâs adjustment ability.
    Keywords: Flexibility, Family Farm, Poland, Consumer/Household Economics, Production Economics, D24, Q12,
    Date: 2009–08–20
  20. By: Cimpoies, Dragos; Lerman, Zvi; Racul, Anatol
    Abstract: The paper investigates the current situation with fragmentation of family farms in Moldova and its effects on family well-being and farm productivity. A key hypothesis is that consolidation of agricultural land in Moldova has beneficial effects in terms of productivity and is desirable in the long run. We examine the case for market-driven land consolidation using data from several recent surveys in Moldova. We show that, in the individual sector, larger farms consume less of their output and attain higher levels of commercialization. Larger individual farms thus have higher revenues from commercial sales and generate higher family incomes. Farm augmentation accordingly makes a positive contribution to the well-being of the rural population. The extent of parcel consolidation is directly correlated with the relative efficiency of farms: consolidated family farms are more efficient than those with fragmented holdings. Hence, land consolidation leads to better economic performance of family farms.
    Keywords: Land consolidation, land fragmentation, land market, family farms, rural incomes, Moldova, Community/Rural/Urban Development, Land Economics/Use,
    Date: 2009–08–20
  21. By: Beckmann, Volker; Banaszak, Ilona
    Abstract: The cooperative movement in Poland has a long but difficult history. The socialistic regime introduced a command and control system into cooperatives which was destructive to their self-governing functions and eventually led to a lack of member involvement. There was a mass neglecting and abandonment after the transformation in particular of rural cooperatives. Nonetheless, in the early 1990s the first farmersâ cooperative marketing organizations, called agricultural producer groups, appeared on the market. They are bottom-up, voluntary organizations whose main purpose is to jointly sell their membersâ output Although producer groups functions similarly to marketing cooperatives, farmers establishing producer groups have been choosing other legal forms than cooperatives. In the paper we investigate why the new forms of governance of cooperative arrangements are chosen and what are the implication of these choices for the success of the groups on the market. We discuss the impact of invested capital, the impact of advisors, and the impact of institutional environment on this choice. The empirical data was collected on 62 producer groups functioning in one province of Poland.
    Keywords: Co-operatives, Governance, Organizational choice, Poland, Producer groups, Socialist legacy, Agribusiness,
    Date: 2009–10
  22. By: Huang, Zuhui; Liang, Qiao; Hendrikse, G.W.J.
    Abstract: Watermelon production investments, incomes and the access to markets between members of a cooperative and individual small farmers are compared. The results of the case study regarding members of a watermelon cooperative and five individual small farmers in Zhejiang province in China indicate that members of the cooperative are prone to produce food of higher quality, have obvious advantage in accessing modern food supply chains over individual small farmers, and subsequently gain a significantly higher return or income than individual small farmers.
    Keywords: farmer cooperative, benefit, income, Consumer/Household Economics,
    Date: 2009–08–20
  23. By: FaÅkowski, Jan; Malak-Rawlikowska, Agata; Milczarek-Andrzejewska, Dominika
    Abstract: Taking into consideration a significant outflow of Polish farmers from dairy sector, we investigate what factors determine their decision to quit milk sales. We also analyse their current revenues and compare with that of similar households that remained in commercial milk production. Using logit model we find that severing relations with the market is mainly determined by worse endowment of farms with dairy specific assets, smaller cow herds and older age of the farm manager. Based on semi-parametric matching methods we find that in terms of revenues farms that decided for subsistence milk production perform worse than those that maintained commercial dairy business. However, more detailed analysis shows that this difference could be attributed to supply chain modernisation and becomes insignificant once subsistence farmers are compared to commercial farms supplying traditional marketing channel.
    Keywords: milk production, dairy supply chain, subsistence farming, matching methods, Poland, Agribusiness, Livestock Production/Industries, Marketing, Q12, Q13,
    Date: 2009–08–20
  24. By: Möllers, Judith; Buchenrieder, Gertrud
    Abstract: Rural non-farm employment (RNFE) is thought to curtail increases in rural poverty and income inequality. In the Croatian context three key questions arise: (1) Does the uptake of alternative employment actually help to raise the welfare of small family farms? (2) How is the rural income distribution affected by mixed income structures? (3) Will non-farm diversification rather trigger farm exit or inhibit structural change because a large number of tiny farms persist? In this paper we present results on the effect of RNFE on the income structure and inter-household income distribution among Croatian family farms. The analysis draws on a survey of 175 randomly selected family farms in two Croatian regions in 2007. The poorest farm households have little access to land, and â although dependent on farming incomes they cannot live from agriculture alone. The better-off farms receive significantly higher incomes per hectare of land. RNFE affects rural livelihoods positively in two ways: it is the most important income source of middle income farms, and is found to be an important catalyst that helps smoothing income inequality in the rural context.
    Keywords: rural non-farm employment, rural poverty, Croatia, income distribution, Agribusiness, International Development, Labor and Human Capital, Q12, P25, O15, O18,
    Date: 2009–08–20
  25. By: Scandizzo, Pasquale Lucio; Savastano, Sara
    Abstract: The paper illustrates a theoretical model of real option value applied to the problem of land development. Making use of the 1998-2001 Kyrgyz Household Budget Survey, we show that when the hypothesis of decreasing return to scale holds, the relation between the threshold value of revenue per hectare and the amount of land cultivated is positive. In addition to that, the relation between the threshold and the amount of land owned is positive in the case of continuous supply of land and negative when there is discontinuous supply of land. The direct consequence is that, in the first case, smaller farms will be more willing to rent land and exercise the option where, in the second case, larger farms will exercise first. The results corroborate the findings of the theoretical model and suggest three main conclusions: (i) the combination of uncertainty and irreversibility is a significant factor in the land development decisions, (ii) farmersâ behaviour is consistent with the continuous profit maximization model, (iii) farming unit revenue tends to be positively related to farm size, once uncertainty is properly accounted for.
    Keywords: Option value theory, Farm size, Uncertainty, irreversibility, Agricultural and Food Policy, Land Economics/Use, Resource /Energy Economics and Policy, O13, Q12, Q15, Q18,
    Date: 2009–08–20
  26. By: John Knight; Ramani Gunatilaka
    Abstract: The paper uses an appropriate survey from rural China to answer the question: Is happiness infectious, i.e. does the happiness of an individual depend positively on the happiness of their reference group? The evidence is consistent with this hypothesis, but the challenge is to solve the ‘reflection problem’, i.e. is the apparent effect of neighbours’ happiness on own happiness a causal one or merely a reflection? A ‘quasi-panel’ approach is adopted, treating villages as groups and individuals as multiple observations within each group, and using an error components 2SLS estimator. The results suggest that a major part of the relationship is indeed causal: Adam Smith’s insight was correct! The normative and policy implications are briefly considered.
    Keywords: Happiness, Social interaction, Relative deprivation, China
    JEL: D01 D60 D64
    Date: 2009
  27. By: Swinnen, Johan F.M.
    Abstract: In this paper I draw lessons from two quasi-natural experiments (the transition process in former Communist countries and the rapid globalization of food chains) on the optimality of farms and agricultural structures more generally. I argue that (a) the farm structures that have emerged from the transition process are much more diverse than expected ex ante; (b) this diversity is to an important extent determined by economic mechanisms which are influenced by initial conditions (eg technology) and reform policies; (c) non-traditional farm structures have played an important role during transition since they were optimal to address the specific institutional and structural constraints imposed by the transition process; (d) there is more diversity than often argued in the farms that are integrated in global food chains; (e) endogenous institutional (contracting) innovations in food chains may lock existing farm structures in a long-run institutional framework; and (f) indicators based on farm structures are not a good measure of welfare effects of the globalization of food chains.
    Keywords: Agribusiness, Agricultural and Food Policy, Community/Rural/Urban Development,
    Date: 2009–08–20
  28. By: Benedek, Dora; Lelkes, Orsolya
    Abstract: The paper estimates the distributional implications of income tax evasion in Hungary based on a random sample of administrative tax records of 230 thousand individuals. Gross incomes in the administrative tax records are compared with those in a nationally representative household budget survey, assuming that tax-evaders are more likely to report their true incomes in an anonymous interview. Our estimates show that the average rate of underreporting is 11%, which conceals large differences between self-employed (who hide the majority of their incomes) and employees. The estimates are likely to be lower bound, due to measurement error in the income survey. These rates are then used in EUROMOD, a tax-benefit microsimulation model to calculate the fiscal and distributional implications of underreporting, while taking account of all major direct taxes and cash benefits and also their interactions. Tax evasion reduces fiscal revenues from personal income taxes by about 19%. While the occurrence of poverty is not affected, income inequality becomes significantly higher (the Gini coefficient increases by 7%), suggesting that high earners tend to evade proportionately more. Finally, we find that tax evasion largely reduces the progressivity of the tax system.
    Keywords: tax policy; tax evasion; income distribution; self-employed
    JEL: H22 D31 I38 C8 H26
    Date: 2009–09–09

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