nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒10‒31
eighteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Strategic tax collection and fiscal decentralization: the case of Russia By Alexander Libman; Lars P. Feld
  2. Brain Drain and Brain Return: Theory and Application to Eastern-Western Europe By Karin Mayr; Giovanni Peri
  3. Evaluating inflation determinants with a money supply rule in four Central and Eastern European EU member states By Mehrotra, Aaron; Slacik, Tomas
  4. Internationalization of Chinese firms in Europe By Zhang, Ying; Filippov, Sergey
  5. China as a regulatory state By Du, Julan; Tao, Zhigang
  6. Market Structure, Welfare, and Banking Reform in China By Hoy, Chun-Yu
  7. Alliance-based Network View on Chinese Firms' Catching-up: Case Study of Huawei Technologies Co.Ltd By Zhang, Ying
  8. Eastern Europe and the former Soviet Union since the fall of the Berlin Wall: Review of the changes in the environment and natural resources By Markandya, Anil; Chou, Wan Jung
  9. Emerging Multinationals from India and China: Origin, Impetus and Growth By Pradhan, Jaya Prakash
  10. Climate Change and China: Technology, Market and Beyond By Dale Jiajun Wen
  11. Are there industrial and agricultural convergence clubs in China? By Pääkkönen, Jenni
  12. Firm behavior under production uncertainty: Evidence from Russia By Leppänen, Simo; Solanko, Laura; Linden, Mikael
  13. Efficiency of commercial banks in Bulgaria in the wake of EU accession By Kiril Tochkov; Nikolay Nenovsky
  14. Contract Enforcement and Family Control of Business: Evidence from China By Yi, Lu; Zhigang, Tao
  15. Inflation Dynamics in the New EU Member States: How Relevant Are External Factors? By Alexander Mihailov; Fabio Rumler; Johann Scharler
  16. Wavelet Analysis of Central European Stock Market Behaviour During the Crisis By Jozef Barunik; Lukas Vacha
  17. Analysis of reaching the Lisbon Strategy targets at the national level: the EU-27 and Slovenia By Aristovnik, Aleksander; Andrej, Pungartnik
  18. The Belarusian Case of Transition: Whither Financial Repression? By Korosteleva, J; Lawson, Colin

  1. By: Alexander Libman (University of Mannheim); Lars P. Feld (University of Heidelberg)
    Abstract: In a centralized federation, where tax rates and taxation rules are set by the federal government, manipulating the thoroughness of tax auditing and the effectiveness of tax collection could be attractive for regional authorities because of a variety of reasons. These range from tax competition to principal-agent problems, state capture and benefits of fiscal equalization. In this paper we discuss strategic tax auditing and collection from the perspective of fiscal federalism and test for strategic tax collection empirically using data of the Russian Federation. Russia’s regional authorities in the 1990s have always been suspect of tax auditing manipulations in their favor. However, in the 2000s increasing bargaining po¬wer of the centre seems to induce tax collection bodies in the regions to manipulate tax auditing in favor of the federal centre. Our findings confirm the existence of strategic tax collection for the Yeltsin period after exclusion of outliers; the results for the Putin period are however rather ambiguous.
    Keywords: fiscal federalism, tax arrears, transition economies
    JEL: H26 H77
    Date: 2009
  2. By: Karin Mayr; Giovanni Peri (Department of Economics, University of California, Davis, USA)
    Abstract: Recent empirical evidence seems to show that temporary migration is a widespread phenomenon, espe- cially among highly skilled workers who return to their countries of origin when these begin to grow. This paper develops a simple, tractable overlapping generations model that provides a rationale for return migra- tion and predicts who will migrate and who returns among agents with heterogeneous abilities. The model also incorporates the interaction between the migration decision and schooling: the possibility of migrating, albeit temporarily, to a country with high returns to skills produces positive schooling incentive effects. We use parameter values from the literature and data on return migration to simulate the model for the Eastern-Western European case. We then quantify the effects that increased openness (to migrants) would have on human capital and wages in Eastern Europe. We find that, for plausible values of the parameters, the possibility of return migration combined with the education incentive channel reverses the brain drain into a significant brain gain for Eastern Europe.
    Keywords: Skilled Migration, Return Migration, Returns to Education, Eastern-Western Europe
    JEL: F22 J61 O15
    Date: 2009–10
  3. By: Mehrotra, Aaron (BOFIT); Slacik, Tomas (BOFIT)
    Abstract: We evaluate the monetary determinants of inflation in the Czech Republic, Hungary, Poland and Slovakia by using the McCallum rule for money supply. The deviation of actual money growth from the rule is included in the estimation of Phillips curves for the four economies by Bayesian model averaging. We find that money provides information about price developments over a horizon of ten quarters ahead, albeit the estimates are in most cases rather imprecise. Moreover, the effect of excessive monetary growth on inflation is mixed: It is positive for Poland and Slovakia, but negative for the Czech Republic and Hungary. Nevertheless, these results suggest that money does provide information about future inflation and that a McCallum rule could potentially be used in the future as an additional indicator of the monetary policy stance once the precision of the estimation improves with more data available.
    Keywords: determinants of inflation; McCallum rule; Phillips curve; Bayesian model averaging; Central and Eastern Europe
    JEL: C11 C22 E31 E52 O52
    Date: 2009–10–21
  4. By: Zhang, Ying (UNU-MERIT); Filippov, Sergey (UNU-MERIT)
    Abstract: Since end of the 1990s, the world has been witnessing a phenomenon of internationalisation of Chinese companies. This internationalisation is often understood through FDI inflows, whereby multinational companies establish their presence in a form of subsidiaries overseas. However, lately many companies (and Chinese firms in particular) started to use strategic alliances and M&As as a pair of tools of internationalisation. Despite the growing body of literature on this topic in the context of advanced western economies, use of strategic alliances in the internationalisation of Chinese firms remains an under-researched topic. In the paper we investigate the potential benefits for Chinese companies to internationalise through strategic alliances and M&As, and specifically in comparison to the traditional forms of outward FDI. By using the data from Thomson SDC database, we specifically focus on the Single European market as a new prospective location for Chinese companies and provide a quantitative overview of Chinese firms' alliances as well as M&As in Europe. To illustrate the optimal pattern of internalisation of Chinese firms in Europe, we additionally use a case study of Chinese automotive manufacturer Chery Automobile Co. Ltd.
    Keywords: strategic alliances, emerging economies, China, Europe, internationalisation
    JEL: F23 M10 L62 O32
    Date: 2009
  5. By: Du, Julan (BOFIT); Tao, Zhigang (BOFIT)
    Abstract: Market economy models differ in the degree of the power of the government vis-à-vis the market in the economy. Under the classications set forth by Glaeser and Shleifer (2002, 2003), and Djankov et al. (2003), these market models range from those emphasizing low government intervention in the market (private orderings and private litigation through courts) to those where the state is an active participant (regulatory state). This paper, using data from a survey of 3,073 private enterprises in China, constructs an index to quantify the power of the government vis-à-vis the market. Regional government power is found to vary considerably across China's regions. Notably, enterprises located in regions where government exerts more power in the market perform better, suggesting that the regulatory state model of the market economy is appropriate for China.
    Keywords: regulatory state; disorder costs; dictatorship costs; market economy models; China's economic reform
    JEL: D02 L25 P30
    Date: 2009–10–21
  6. By: Hoy, Chun-Yu (BOFIT)
    Abstract: This paper examines the effects of market deregulation on consumers and state commercial banks in China, a large developing country. I jointly estimate a system of differentiated product demand and pricing equations under alternative market structures. While China's banking reforms overall have achieved mixed results, the consumer surplus of the deposit market has increased. The welfare effects from reforms are unevenly distributed, with losses skewed toward inland provinces and certain consumer groups. There is no clear evidence that the pricing of banking services has become more competitive after the reform, and such pricing remains subject to government intervention. Encouragingly, the price-cost margins of some state commercial banks have fallen over time.
    Keywords: banking reform; banks in China; demand estimation; market structure
    JEL: G21 L11
    Date: 2009–10–21
  7. By: Zhang, Ying (UNU-MERIT)
    Abstract: With China's rapid economic growth in recent years, many Chinese firms especially in high-tech industries have started to technically lead in the international market. In this study, we aim to uncover the root causes that lead to Chinese firms' catching up from network perspective. By taking Huawei Technologies Co. Ltd. as a case, we integrate absorptive capacity development and firm-level catching up into an alliances-based network framework. We found that network alliances with firms and universities complement each other at different catching up stages; and alliances-based network provides a springboard for Chinese firms to shorten catching up path. We argue that in Chinese context, impact of FDI on firms' performance comes into effect only if partnership is carried out; alliances with universities facilitate development of absorptive capacity at an early stage; Partnering with leading players stimulate R&D investment at a late stage and simultaneously enhance firm's innovation performance as well.
    Keywords: Strategic alliances, Network, Chinese firms, absorptive capacity, catching up
    JEL: M13 O32 O19 L24
    Date: 2009
  8. By: Markandya, Anil; Chou, Wan Jung
    Abstract: This paper reviews the environmental record of the transition countries of Eastern Europe and Central Asia since the fall of the Berlin Wall, with a focus on areas of key concern to public policy at the present time. With the impacts of environment on public health being given the highest priority, we examined several associated health indicators at the national level, as well as looking at important environmental issues at the local level. In this respect, we focus on environmental problems related to air and water quality, land contamination, and solid waste management. Despite showing a highly differentiated performance across the region, the results suggest that inadequate environmental management seen in several of the transition countries in the past 20 years has put people’s health and livelihood under huge threats. Moreover, this paper looks at the development of policy responses and resources, i.e. environmental expenditures, in these countries, during the process of transiting from centrally planned economies to market-based one. Similarly, we identify various degrees of progress across the region. The findings reinforce the need for better coherence between national environmental expenditure and international environmental assistance, as well as the actual enforcement of national regulations and international agreements in those non-EU transition countries.
    Keywords: transition countries; environmental issues; public health; land contamination; air pollution; water pollution; policy; environmental expenditure
    Date: 2009
  9. By: Pradhan, Jaya Prakash
    Abstract: This study deals with the outward FDI (OFDI) behaviours of the emerging multinationals from India and China. In the backdrop of changing public policies and economic performance of the home country, it traces the evolution of OFDI by these emerging multinationals over a long period, from early 1950s to the present decade. Indian and Chinese multinationals, in addition to their similarity of achieving high growth rates of OFDI with long term sectoral and geographical diversification, are observed to have a number of important differences in terms of characteristics of outward investing firms and their locational motivations.
    Keywords: Outward FDI; Emerging multinationals; India; China
    JEL: F23 O53 F21
    Date: 2009–10–23
  10. By: Dale Jiajun Wen
    Abstract: The paper discusses the impacts of climate change to the environment of China and most especially to the livelihood of Chinese people there. It analyzed the Chinese government’s position and enumerates the measures that China has taken so far, as well as the commitments and concrete targets that it pledged to undertake. It explains China’s stance on the climate change negotiations; its arguments and considerations concerning its role to the international community; and its responsibilities to address its many domestic pressures in relation to geopolitics, the financial crisis, as well as global trade and technology issues. [FGS OP No. 6].
    Keywords: china, climate change, chinese, negotiations, international community, global trade, financial crisis, geopolitics, livelihood
    Date: 2009
  11. By: Pääkkönen, Jenni (BOFIT)
    Abstract: This paper discusses growth differentials of Chinese provinces geared to agricultural activities and those focusing on industrial production over three decades of economic reform. Following trade theory and endogenous growth theory, we suggest that the fundamental differences between regions arise from their resource allocations at the start of reforms. Thus, capital-abundant regions have tended to specialize in industrial production, while the labor-abundant regions have concentrated on labor-intensive production (agriculture). Many of China's agricultural provinces suffer from oversupplies of labor, which has led large numbers of people to migrate within the country to work in non-farming sectors of economy. We show that provinces with high shares of industrial production (the industrial club) have converged, and that agricultural provinces shifting to industrial production have been catching up to initially industrialized provinces. Provinces that have stayed with an agricultural strategy (the agricultural club) show no evidence of convergence and appear to have been left behind in terms of economic development.
    Keywords: growth; agriculture; convergence
    JEL: O17 O40 O57
    Date: 2009–10–21
  12. By: Leppänen, Simo (BOFIT); Solanko, Laura (BOFIT); Linden, Mikael (BOFIT)
    Abstract: Enterprises in post-socialist and transition economies often participate in providing infrastructure and social services to the surrounding community. We argue that this bundling of social and infrastructure goods provision with an enterprise’s core operations is a fully rational choice in an uncertain environment. Using a stylized model, we show that this activity can be largely related to efforts by firms to increase their operational reliability. Our unique survey data suggest that this manifests itself through provision of more reliable infrastructure, stronger employee attachment to the firm, and better relations with the authorities.
    Keywords: uncertainty; enterprise performance; Russia
    JEL: P30
    Date: 2009–10–21
  13. By: Kiril Tochkov; Nikolay Nenovsky
    Abstract: The paper examines the efficiency of Bulgarian banks and its determinants over the period 1999- 2007. The levels of technical, allocative, and cost efficiency are first estimated using a nonparametric methodology and then regressed upon a number of bank-specific, institutional, and EU-related factors. The findings indicate that foreign banks were more efficient than domestic private banks, although the gap between them narrowed over time. State-owned banks ranked last on average but their privatization resulted in efficiency gains. Capitalization, liquid ity, and enterprise restructuring enhanced bank efficiency, while banking reforms had an adverse effect. The Treaty of Accession and EU membership were associated with significant efficiency improvements.
    Keywords: Transition economies; Banking sector; Efficiency; EU accession
    JEL: C14 G21 P20
    Date: 2009–10
  14. By: Yi, Lu; Zhigang, Tao
    Abstract: Family control of business is prevalent in developing economies, and one of the leading theories suggests that it is a response to weak contract enforcement in such economies. In this paper, we investigate the impacts of contract enforcement on the degree of family control of business using a sample of China's private enterprises. It is found that weaker contract enforcement is associated with the higher degree of family control of business. Our results are robust to the control for omitted variables and reserve causality issues, to the adjustment for the sample attrition bias, to the use of a sub-sample, and to the inclusion of other explanations for the family control of business.
    Keywords: Family Control of Business; Contract Enforcement; China's Private Enterprises
    JEL: D21 P37 K12 L22
    Date: 2009–06
  15. By: Alexander Mihailov; Fabio Rumler; Johann Scharler
    Abstract: In this paper we evaluate the relative influence of external versus domestic inflation drivers in the 12 new European Union (EU) member countries. Our empirical analysis is based on the New Keynesian Phillips Curve (NKPC) derived in Galí and Monacelli (2005) for small open economies (SOE). Employing the Generalized Method of Moments (GMM), we find that the SOE NKPC is well supported in the new EU member states. We also find that the inflation process is dominated by domestic variables in the larger countries of our sample, whereas external variables are mostly relevant in the smaller countries.
    Keywords: New Keynesian Phillips Curve, small open economies, inflation dynamics, new EU member countries, GMM estimation
    JEL: C32 C52 E31 F41 P22
    Date: 2009–10
  16. By: Jozef Barunik (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague); Lukas Vacha (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague)
    Abstract: In the paper we test for the different reactions of stock markets to the current financial crisis. We focus on Central European stock markets, namely the Czech, Polish and Hungarian ones, and compare them to the German and U.S. benchmark stock markets. Using wavelet analysis, we decompose a time series into frequency components called scales and measure their energy contribution. The energy of a scale is proportional to its wavelet variance. The decompositions of the tested stock markets show changes in the energies on the scales during the current financial crisis. The results indicate that each of the tested stock markets reacted differently to the current financial crisis. More important, Central European stock markets seem to have strongly different behaviour during the crisis.
    Keywords: ewavelet analysis, multiresolution analysis, Central European stock markets, financial crisis
    JEL: C14 C22 G15
    Date: 2009–10
  17. By: Aristovnik, Aleksander; Andrej, Pungartnik
    Abstract: Adopted by the European Council in 2000, the Lisbon Strategy is a long-term strategy whose main target is to make Europe the most competitive, dynamic and knowledge-based economy in the world by 2010. During the 2005 mid-term review, the Lisbon Strategy refocused its two main targets on economic growth and employment, and formally integrated the Cohesion policy into its implementation. In spite of the review, the efforts to meet the strategic targets have proven insufficient at both the EU and Slovenian levels. While certain progress has been observed, the strategy should be further adjusted, coordinated and supplemented at the national and pan-European levels so that the Lisbon targets can be attained. The article investigates the current stage of the achievement of the targets, using the time-distance method to calculate the time lead or lag in implementing the Lisbon Strategy targets at the levels of the European Union and Slovenia.
    Keywords: EU, Slovenia, Lisbon Strategy, Lisbon targets, Cohesion policy, time distance
    JEL: P11 C88 C49 O52
    Date: 2009–10–23
  18. By: Korosteleva, J; Lawson, Colin
    Abstract: The present paper examines the financial development of Belarus, with special emphasis on 1996-2002, when the financial sector was restrained by pervasive government controls. Belarus is of particular interest, as, despite no economic restructuring, annual growth has averaged seven per cent since 1997. It has been argued that monetary stimulation of investment activity through interest rate ceilings, directed credit and preferential loans revived growth. This article investigates whether a repressive financial policy, adopted by the authorities in the late 1990s, led to financial deepening and increased the share of savings allocated to investment.
    Keywords: financial repression; financial sector; financial depth
    Date: 2009

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