nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒10‒10
twenty-two papers chosen by
J. David Brown
Heriot-Watt University

  1. What Drives China's Interbank Market? By Nathaniel John Porter; TengTeng Xu
  2. Employment Effects of Growth Rebalancing in China By Kai Guo; Papa M'B. P. N'Diaye
  3. Rural to urban migration in China: an overall view. By Paul Frijters; Xin Meng
  4. Anatomy of Regional Disparities in the Slovak Republic By Mariusz Jarmuzek; Biswajit Banerjee
  5. Economic Roles of Farmer's Specialized Cooperatives under Agro-industrialization in Rural China: An Empirical Analysis based on Household and Administrative Village Surveys By Hisatoshi Hoken; Hiroshi Sato
  6. Competitiveness in Central-Europe: What Has Happened Since EU Accession? By Céline Allard
  7. Does Good Financial Performance Mean Good Financial Intermediation in China? By Tarhan Feyzioglu
  8. Spillovers of the U.S. Subprime Financial Turmoil to Mainland China and Hong Kong SAR: Evidence from Stock Markets By Tao Sun; Xiaojing Zhang
  9. (In)Efficiency of Matching - the Case of a Post-transition Economy By Tomasz Jeruzalski; Joanna Tyrowicz
  10. Firm Performance and Managerial Turnover: The Case of Ukraine By Muravyev, Alexander; Talavera, Oleksandr; Bilyk, Olga; Grechaniuk, Bogdana
  11. Is China's Export-Oriented Growth Sustainable? By Kai Guo; Papa M'B. P. N'Diaye
  12. Social Networks and Labor Market Entry Barriers: Understanding Inter-industrial Wage Differentials in Urban China By Zhao Chen; Ming Lu; Hiroshi Sato
  13. Broad Money Demand and Asset Substitution in China By Ge Wu
  14. Industrial Restructuring and Innovation Policy in Central and Eastern Europe since 1990 By Erik S. Reinert; Rainer Kattel; Margit Suurna
  15. Healthcare access for migrants in China : A new frontier By Carine Milcent
  16. Interest Rate Liberalization in China By Nathaniel John Porter; Elöd Takáts; Tarhan Feyzioglu
  17. Substitution Effects in Parental Investments By Brandt, Loren; Siow, Aloysius; Wang, Hui
  18. The Forgotten Property Rights: Restrictions on Land Use in Vietnam By Thomas Markussen; Finn Tarp; Katleen Van den Broeck
  19. Decoupling from the East Toward the West? Analyses of Spillovers to the Baltic Countries By Kingsley I. Obiora
  20. Microinsurance, Trust and Economic Development: Evidence from a Randomized Natural Field Experiment By Hongbin Cai; Yuyu Chen; Hanming Fang; Li-An Zhou
  21. Does the IV estimator establish causality? Re-examining Chinese fertility-growth relationship By Tilak Abeysinghe; Jiaying Gu
  22. The Copying Paradox: Why Converging Policies but Diverging Capacities for Development in Eastern European Innovation Systems? By Erkki Karo; Rainer Kattel

  1. By: Nathaniel John Porter; TengTeng Xu
    Abstract: Interest rates in China comprise a mix of both market determined interest rates (interbank rates and bond yields), and regulated interest rates (lending and deposit rates), reflecting China's gradual process of interest rate liberalization. We argue, using a theoretical model and empirical analysis, that the regulation of key retail interest rates diminishes the ability of the market determined rates to act as independent price signals, or as benchmarks for use in asset pricing and monetary policy. Further interest rate liberalization should, therefore, strengthen the information conveyed by movements in interest rates, allowing for the better pricing of risk and capital.
    Keywords: Asset prices , Bank regulations , Banking sector , Bond markets , Capital markets , Central bank policy , China, People's Republic of , Economic models , Interest rates , Interest rates on deposits , Interest rates on loans , Liquidity , Monetary policy , Pricing policy ,
    Date: 2009–09–08
  2. By: Kai Guo; Papa M'B. P. N'Diaye
    Abstract: This paper gauges the potential effects on employment of rebalancing China's exportoriented growth model toward domestic demand, particularly private consumption. Shifting to a private consumption-led growth likely means more demand for existing and new services as well as reorienting the production of tradable goods toward domestic markets. In China's case, this would also imply moving a large number of less skilled labor from the tradable sector to the nontradable sector. The paper shows that while rebalancing China's growth toward a domestic-demand-led economy would likely raise aggregate employment and employment opportunities in the longer term, there could be employment losses in the short run as the economy moves away from the tradable sector toward the nontradable sector. Mitigating these costs will require active labor market policies to cushion the employment impact in the transition, particularly in meeting the skills gap of associated with this transition.
    Keywords: Agricultural sector , China, People's Republic of , Cross country analysis , Demand , Economic growth , Economic models , Employment , Labor market policy , Manufacturing sector , Private consumption , Services sector ,
    Date: 2009–08–12
  3. By: Paul Frijters; Xin Meng (School of Economics and Finance, Queensland University of Technology)
    Abstract: China is not merely growing at double the rate of the European countries during the Industrial Revolution, it is also urbanising at double the speed. Using a unique dataset of rural-to-urban migrants in 15 major Chinese cities, we give preliminary answers to some of the most pressing policy questions: how many migrants are there and what are their attributes? Are they dissatisfied or are their kids doing worse than the kids of others? Are they discriminated on the labour market and, if so, what are the mechanisms via which this discrimination works and where are the market forces to undo the discrimination?
    Keywords: migration, economic growth, urbanisation, Tiebout, political economy, discrimination
    Date: 2009–09–28
  4. By: Mariusz Jarmuzek; Biswajit Banerjee
    Abstract: This paper examines economic growth and various dimensions of regional disparities in Slovakia. We find that regional disparities in the levels of GDP per capita, labor productivity, and labor utilization have widened since 2000, coinciding with the time that Slovakia initiated negotiations on EU accession. Notwithstanding ?-divergence in the levels, there was conditional ?-convergence in the growth rates of GDP per capita and labor productivity. Improvements in total factor productivity were the main engine of growth of GDP in all regions. Sustaining growth and reducing disparities will require increasing the labor utilization ratio and improving the structural and policy determinants of productivity in the eastern regions. The main policy priorities are to improve transportation infrastructure, enhance cost competitiveness through greater regional differentiation in wages and further decentralization of collective bargaining, and increase accumulation of human capital.
    Keywords: Cross country analysis , Economic growth , Economic models , European Union , Labor market policy , Labor productivity , Slovak Republic ,
    Date: 2009–07–14
  5. By: Hisatoshi Hoken; Hiroshi Sato
    JEL: D21 Q12 Q13
    Date: 2009–09
  6. By: Céline Allard
    Abstract: Since EU accession, trade flows have exhibited strong dynamics in Central-Eastern Europe (CEE). During the period leading to the current global turmoil, the region has also experienced continuous exchange rate appreciation and rapid FDI inflows, both likely to have affected these countries' competitiveness. This paper describes how the determinants of exports and imports have evolved in CEE countries over 2002-07 and econometrically derives their contribution to trade, with a view to assessing competitiveness developments. The analysis reveals that the global and domestic upswings, along with rising trade market shares, go a long way toward accounting for trade developments in CEE countries until 2007, pointing to continuous nonprice competitiveness gains. It also finds that exchange rate appreciation did not unduly weigh on export and import growth, suggesting that most of it reflected an upward movement in its equilibrium value. While the region entered the current period of global slowdown from a strong competitiveness position, the crisis also exposed the vulnerability of its heavy reliance on global demand to a trade shock.
    Keywords: Central and Eastern Europe , Cross country analysis , Economic models , European Union , Exchange rate appreciation , Exports , Foreign direct investment , Global competitiveness , Imports , Trade ,
    Date: 2009–06–02
  7. By: Tarhan Feyzioglu
    Abstract: Chinese banks generate large profits and have relatively low nonperforming loans. However, good financial performance does not, in itself, guarantee that banks efficiently intermediate the economy's financial resources. This paper first examines how efficient Chinese banks are in financial intermediation, using the stochastic production frontier approach. Quality of loans are controlled for by focusing on net loans and correcting for nonperforming loans; Hong Kong SAR banks are included in the sample to have a more universally representative production frontier. The results suggest that Chinese banks indeed became more efficient during 2001-07. Nevertheless, a majority of banks remain quite inefficient, including several large state owned banks and many city banks. Large banks tend to hoard deposits and operate beyond the point of diminishing returns to scale, while smaller banks operate at increasing returns to scale. This suggests that reallocating deposits from large to smaller banks would increase overall efficiency. The paper finds no significant correlation between bank efficiency and profitability. Possible factors leading to large profits in the banking system, despite wide-spread inefficiencies, are low deposit interest rates, large interest margins, and high market concentration. Moving to indirect monetary policy and deepening capital markets to channel some of the savings to productive investment would help improve the efficiency of financial intermediation. This may spur loan growth, however, which will need to be handled with monetary policy and regulatory/supervisory tools.
    Keywords: Bank supervision , Banking , Banking sector , Banks , China, People's Republic of , Depositories , Economic models , Financial intermediation , Financial management , Loans , Monetary policy , Performance indicators , Profits ,
    Date: 2009–08–12
  8. By: Tao Sun; Xiaojing Zhang
    Abstract: This paper focuses on evidence from stock markets as it investigates the spillovers from the United States to mainland China and Hong Kong SAR during the subprime crisis. Using both univariate and multivariate GARCH models, this paper finds that China's stock market is not immune to the financial crisis, as evidenced by the price and volatility spillovers from the United States. In addition, HK's equity returns have exhibited more significant price and volatility spillovers from the United States than China's returns, and past volatility shocks in the United States have a more persistent effect on future volatility in HK than in China, reflecting HK's role as an international financial center. Moreover, the impact of the volatility from the United States on China's stock markets has been more persistent than that from HK, due mainly to the United States as the origin of the subprime crisis. Finally, as expected, the conditional correlation between China and HK has outweighed their conditional correlations with the United States, echoing increasing financial integration between China and HK.
    Keywords: Asset prices , Capital markets , China, People's Republic of , Credit risk , Economic integration , Economic models , External shocks , Financial crisis , Financial sector , Hong Kong Special Administrative Region of China , Spillovers , Stock markets , Stock prices , United States ,
    Date: 2009–08–07
  9. By: Tomasz Jeruzalski (Faculty of Economic Sciences, University of Warsaw); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw)
    Abstract: This paper approaches the question of efficiency in job placement using regional data for Polish regions (policy-relevant NUTS 4 level) over the time span of 2000-2008. Using a unique data set we estimate the matching function using stochastic frontier as well as difference-in-difference estimators. We have also combined this unique data set with another unique source of data on the ALMPs coverage, unemployment structure across time and regions as well as the individual capacity of local labour offices. We use these data to explain the exceptional variation in estimated efficiency scores. Our findings suggest that matching abilities are highly driven by demand fluctuations, while unemployment structure, ALMPs and individual labour office capacities have little explanatory power. Although without individual data it is fairly impossible to provide a reliable counterfactual, we raise some arguments to support the claim of job placement inefficiency by public employment services in Poland.
    Keywords: matching function, stochastic frontier, Poland
    JEL: P3 J64 J69 C33
    Date: 2009
  10. By: Muravyev, Alexander (IZA); Talavera, Oleksandr (University of East Anglia); Bilyk, Olga (Kyiv School of Economics); Grechaniuk, Bogdana (Kyiv School of Economics)
    Abstract: The paper studies whether and how CEO turnover in Ukrainian firms is related to their performance. Based on a novel dataset covering Ukrainian joint stock companies in 2002-2006, the paper finds statistically significant negative association between the past performance of firms measured by return on sales and return on assets, and the likelihood of managerial turnover. While the strength of the turnover-performance relationship does not seem to depend on factors such as managerial ownership and supervisory board size, we do find significant entrenchments effects associated with ownership by managers. Overall, our analysis suggests that corporate governance in Ukraine operates with a certain degree of efficiency, despite the well-known lacunas in the country's institutional environment.
    Keywords: corporate governance, transition, managerial labor market, Ukraine
    JEL: G34 J40 L29
    Date: 2009–08
  11. By: Kai Guo; Papa M'B. P. N'Diaye
    Abstract: This paper assesses the sustainability of China's export-oriented growth over the medium to longer term. It shows that maintaining the current export-oriented growth would require significant gains in market share through lower prices in a range of industries. This, in turn, could be achieved through a combination of increases in productivity, lower profits, and higher implicit or explicit subsidies to industry. However, the evidence suggest that it will prove difficult to accommodate such price reductions within existing profit margins or through productivity gains. Moving up the value-added chain, shifting the composition of exports, diversifying the export base, and increasing domestic value added of exports could give room to further export expansion. However, experiences from Asian economies that had similar export-oriented growth suggest there are limits to the global market share a country can occupy. Rebalancing growth toward private consumption would provide a large impetus to output growth and reduce the need for gaining further market share.
    Keywords: China, People's Republic of , Cross country analysis , Economic growth , Export markets , Export performance , Export prices , Export sector , Exports , Fiscal reforms , Global competitiveness , Industrial sector , Private consumption , Productivity ,
    Date: 2009–08–12
  12. By: Zhao Chen; Ming Lu; Hiroshi Sato
    Abstract: An entry barrier in the labor market can be an important source of wage inequality. This paper finds that social networks, father's education and political status, and urban household registration status (hukou identity), as well as their own education, experience, age, and gender, help people enter high-wage industries. When contrasting coastal and inland samples, after instrumenting social networks by household political identity (based on classifications during the land reform in the 1950s), we find that social networks are more helpful for entering high-wage industries. The implication of this paper is: breaking industrial entry barriers in the urban labor market is an essential policy in order to control inter-industrial wage inequality in urban China.
    Keywords: inter-industrial wage differentials, industry monopoly, entry barrier, labor market, social networks, CHIPS data
    JEL: J31 J42 Z1
    Date: 2009–09
  13. By: Ge Wu
    Abstract: Recent changes to China's financial system, in particular ongoing interest rate liberalization, gradual movement toward a more flexible exchange rate regime, and rapid development of capital markets, have changed substantially the environment in which monetary policy operates. In light of these changes, we estimate an error correction model using a General-to-Specific methodology and confirm that a stable broad money demand function exists taking proper account of asset substitution, with an income elasticity of less than unity. Current inflation is found to have a significant negative impact on the real money demand. However, money demand does not appear very sensitive to interest rates, possibly reflecting their partial liberalization. Changes in the exchange rate also do not affect money demand significantly, but expectations of a further renminbi appreciation since 2005 appears to induce more money demand. Stock prices are statistically insignificant despite recent investors' interest in equity markets.
    Keywords: Capital markets , Central bank policy , China, People's Republic of , Demand for money , Economic models , Exchange rate regimes , Exchange rates , Financial assets , Financial systems , Interest rates , Monetary policy , Private investment ,
    Date: 2009–06–23
  14. By: Erik S. Reinert; Rainer Kattel; Margit Suurna
    Abstract: The paper aims to show that, first, innovation policies deployed in Central and Eastern European (CEE) countries since 1990s have been a double-edged sword: on the one hand enabling fast and furious industrial restructuring while, on the other hand, locking CEE economies into economic activities with low value added/productivity growth and thus undermining future sustainable growth. However, the impact of accession into the European Union (EU) has been equally pivotal for industrial restructuring and innovation policy making in CEE countries in the 2000s and this process can be summed up as a strong Europeanization of innovation policy in CEE. The paper proceeds to show, second, that also Europeanization has been largely a double-edged sword for CEE countries. Since joining the EU in 2004 or 2007, and already during the accession process, there is a strong change in innovation policies in many CEE countries towards a much more active role of the state. In this change there is a clear and strong role of EUÿs structural funding, particularly the negotiations and planning that comes with it. However, these changes come with specific problems: first, there is an over-emphasis in emerging CEE innovation policies on a linear understanding of innovation (from lab to market) that is based on the assumption that there is a growing demand from industry for R&D (which is not the case because of the structural changes that took place in the 1990s via the Washington Consensus policies); and, second, increasing usage of independent implementation agencies in an already weak administrative capacity environment lacking policy skills for networking and long-term planning.
    Date: 2009–05
  15. By: Carine Milcent
    Abstract: How to improve healthcare access for Chinese migrants? We show that the social network is a major key. It uses a 2006 dataset from a survey of rural migrant workers conducted in five cities amongst the most economically advanced. We use a fixed effect logit model and we control for the non-exogeneity of the health insurance. The empirical findings support the hypothesis of return to the hometown for migrant workers with deteriorated health. The residence registration system and the importance of family/relative support in the outcome of the treatment incent them to then leave the city. Besides the level of income, the social integration of migrant workers is such a decisive criteria of the access to healthcare. Politicies aiming at improving the latter should involve organisations working at the local level, such as the resident committees.
    Date: 2009
  16. By: Nathaniel John Porter; Elöd Takáts; Tarhan Feyzioglu
    Abstract: What might interest rate liberalization do to intermediation and the cost of capital in China? China's most binding interest rate control is a ceiling on the deposit rate, although lending rates are also regulated. Through case studies and model-based simulations, we find that liberalization will likely result in higher interest rates, discourage marginal investment, improve the effectiveness of intermediation and monetary transmission, and enhance the financial access of underserved sectors. This can occur without any major disruption. International experience suggests, however, that achieving these benefits without unnecessary instability, requires vigilant supervision, governance, and monetary policy, and a flexible policy toolkit.
    Keywords: Banking , Banking sector , Banks , Capital markets , China, People's Republic of , Credit controls , Credit demand , Cross country analysis , Economic models , Financial intermediation , Interest rates , Loans , Monetary policy ,
    Date: 2009–08–12
  17. By: Brandt, Loren (University of Toronto); Siow, Aloysius (University of Toronto); Wang, Hui (University of Toronto)
    Abstract: The paper estimates how parents adjust bride-prices and land divisions to compensate their sons for differences in their schooling investments in rural China. The main estimate implies that when a son receives one yuan less in schooling investment than his brother, he will obtain 0.7 yuan more in observable marital and post-marital transfers as partial compensation. Controlling for unobserved household heterogeneity, planned consumption differences across sons, and a fuller accounting of lifetime transfers are quantitatively important. The empirical findings strongly support the unitary model as a model of resource allocation for sons in traditional agricultural families.
    Keywords: household model, parental investment, marriage market, transfers
    JEL: D13 J12 J13
    Date: 2009–09
  18. By: Thomas Markussen (Department of Economics, University of Copenhagen); Finn Tarp (Department of Economics, University of Copenhagen); Katleen Van den Broeck (Department of Economics, University of Copenhagen)
    Abstract: Studies of land property rights usually focus on tenure security and transfer rights. Rights to determine how to use the land are regularly ignored. However, in transition economies such as Vietnam and China, user rights are often limited. Relying on a unique Vietnamese panel data set at both household and plot level, we show that crop choice restrictions are widespread and prevent crop diversification. Restrictions do not decrease household income, but restricted households work harder, and there are indications that they are supplied with higher quality inputs. Our findings are consistent with the view that the Vietnamese government has managed to intervene effectively in agricultural (rice) production to promote output and food security. At the same time, it is now time to carefully consider the potential benefits of a more diversified crop pattern.
    Keywords: Property rights; restrictions; Vietnam
    JEL: D1 O1 Q1
    Date: 2009–09
  19. By: Kingsley I. Obiora
    Abstract: This paper uses VAR models to examine the magnitude and sources of growth spillovers to the Baltics from key trading partners, as well asfrom the real effective exchange rate (REER). Our results show there are significant cross-country spillovers to the Baltics with those from the EU outweighing spillovers from Russia. Shocks to the REER generally depress growth in the Baltics, and this intensifies over time. We also find that financial and trade channels dominate the transmission of spillovers to the region which partly explains the realization of downside risks to the Baltics from the global slowdown.
    Keywords: Commodity prices , Cross country analysis , Economic models , Estonia , European Union , External shocks , Financial crisis , Latvia , Lithuania , Real effective exchange rates , Regional shocks , Russian Federation , Spillovers , Trade integration ,
    Date: 2009–06–10
  20. By: Hongbin Cai; Yuyu Chen; Hanming Fang; Li-An Zhou
    Abstract: We report results from a large randomized natural field experiment conducted in southwestern China in the context of insurance for sows. Our study sheds light on two important questions about microinsurance. First, how does access to formal insurance affect farmers' production decisions? Second, what explains the low takeup rate of formal insurance, despite substantial premium subsidy from the government? We find that providing access to formal insurance significantly increases farmers' tendency to raise sows. We argue that this finding also suggests that farmers are not previously insured efficiently through informal mechanisms. We also provide several pieces of evidence suggesting that trust, or lack thereof, for government-sponsored insurance products is a significant barrier for farmers' willingness to participate in the insurance program.
    JEL: C93 O12 O16
    Date: 2009–10
  21. By: Tilak Abeysinghe (Department of Economics, National University of Singapore); Jiaying Gu (Department of Economics, National University of Singapore)
    Abstract: The instrumental variable (IV) estimator in a cross-sectional or panel regression model is often taken to provide valid causal inference from contemporaneous correlations. In this exercise we point out that the IV estimator, like the OLS estimator, cannot be used effectively for causal inference without the aid of non-sample information. We present three possible cases (lack of identification, accounting identities, and temporal aggregation) where IV estimates could lead to misleading causal inference. In other words, a non-zero IV estimate does not necessarily indicate a causal effect nor does the causal direction. In this light, we re-examine the relationship between Chinese provincial birth rates and economic growth. This exercise highlights the potential pitfalls of using too much temporal averaging to compile the data for cross sectional and panel regressions and the importance of estimating both (x on y and y on x) regressions to avoid misleading causal inferences. The GMM-SYS results from dynamic panel regressions based on five-year averages show a strong negative relationship running both ways, from births to growth and growth to births. This outcome, however, changes to a more meaningful one-way relationship from births to growth if the panel analysis is carried out with the annual data. Although falling birth rates in China have enhanced the country’s growth performance, it is difficult to attribute this effect solely to the one-child policy implemented after 1978.
    Keywords: IV estimator and causality inference, identification, accounting identities, temporal aggregation, spurious causality, Chinese provincial growth and fertility relationship.
    JEL: C23 J13 O53
    Date: 2009–09
  22. By: Erkki Karo; Rainer Kattel
    Abstract: This paper analyses the development of Eastern European innovation systems since the 1990s by looking together at the theoretical and empirical accounts of two discourses that have had a siginificant impact on the development of innovation systems: innovation policy and public administration and management. We propose a framework for analysing the development of innovation policies distinguishing between two concepts - policy and administrative capacity . that are necessary for innovation policy making and implementation. Using the framework we show how the Eastern European innovation systems have, because of past legacies and international policy transfer, developed a highly specific understanding of innovation policy based on the initial impact of the Washington Consensus policies and later the European Union. We argue that because of the interplay between the principles and policy reccomendations of the two international discourses we can see the emergence of a .copying paradoxÿ in Eastern European innovation systems: that is, despite the perception of policy convergence, we can witness a divergence in the policy from the intended results, and as a result can talk about limited and de-contextualised policy-making capacities.
    Date: 2009–08

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