nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒11‒14
twenty-one papers chosen by
J. David Brown
Heriot-Watt University

  1. The Social Construction of Successful Market Reforms By David Stuckler; Lawrence King; Greg Patton
  2. Maternity leave in turbulent times: effects on labor market transitions and fertility in Russia, 1985-2000 By Theodore P. Gerber; Brienna Perelli-Harris
  3. Mergers and Acquisitions in Vietnam’s Emerging Market Economy, 1990-2009 By Quan-Hoang Vuong; Tran Tri Dung; Thi Chau Ha NguyenN
  4. Fiscal variables and bond spreads – Evidence from Eastern European countries and Turkey. By Christane Nickel; Philipp C. Rother; Jan C. Rülke
  5. Real Convergence, Capital Flows, and Competitiveness in Central and Eastern Europe By Ansgar Belke; Gunther Schnabl; Holger Zemanek
  6. FDI, R&D and Innovation Output in the Chinese Automobile Industry By Chen, Fang; Mohnen, Pierre
  7. The role of foreign firms in domestic exporting By Sun, Sizhong
  8. Stock return seasonalities and investor structure: Evidence from China's B-share markets By Bohl, Martin T.; Schuppli, Michael; Siklos, Pierre L.
  9. Unemployment hysteresis, structural changes, non-linearities and fractional integration in Central and Eastern Europe By Juan Carlos Cuestas; Luis A. Gil-Alana
  10. Russia’s Long and Winding Road to a more Efficient and Resilient Banking Sector By Geoff Barnard
  11. Migration and Trade: Theory with an Application to the Eastern-Western European Integration By Peri, Giovanni; Iranzo, Susana
  12. Measuring Inequality of Well-Being with a Correlation-Sensitive Multidimensional Gini Index By Koen Decancq; Maria Ana Lugo
  13. OCA cubed: Mundell in 3D By Michaela Krčílková; Jan Zápal
  14. Determination of the real exchange rate of rouble and assessment of long-rum policy of real exchange rate targeting By Sossounov, Kirill; Ushakov, Nikolay
  15. Financial Development and Economic Growth: Evidence from Ten New EU Members By Guglielmo Maria Caporale; Christophe Rault; Robert Sova; Anamaria Sova
  16. News and Correlations of CEEC-3 Financial Markets By David Büttner; Bernd Hayo
  17. The Redistributive Effects of Tax Benefit Systems in the Enlarged EU By Fuest, Clemens; Niehues, Judith; Peichl, Andreas
  18. The Chinese Warrants Bubble By Wei Xiong; Jialin Yu
  19. More Or Better ? Measuring Quality Versus Quantity In Food Consumption By Corinna Manig; Alessio Moneta
  20. The accounting profession and professionist in romania By Bunget, Ovidiu-Constantin; Farcane, Nicoleta; Dumitrescu, Alin-Constantin; Popa, Adina
  21. How firm characteristics affect the level of constrain to growth : An empirical analysis of micro and small firms in Vietnam. By Thi Quynh Trang Do

  1. By: David Stuckler; Lawrence King; Greg Patton
    Abstract: The transition from socialism to capitalism has spawned a large literature on comparative policy reforms. While many sociologists using qualitative data have concluded that neo-liberal reforms led to negative outcomes, a large body of cross-national literature, mostly from economics and political science, claims that more neo-liberal reforms produced better economic and political outcomes. These latter studies almost all use measures of policy reform constructed by economists at the European Bank for Reconstruction and Development (EBRD). We show, using the EBRD’s own data, that their indices of progress in market reforms are biased in the direction of positive growth. That is, the EBRD’s bureaucracy over-codes the more successful countries. When one accounts for this bias, the relationship between the EBRD’s transition indicators and growth significantly weakens or disappears. These findings have implications for social scientific research using statistics constructed by <span> </span>international organizations, like the World Bank and the IMF.
    Keywords: sociology of knowledge, transition, bias
    Date: 2009
  2. By: Theodore P. Gerber; Brienna Perelli-Harris (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: Maternity leave policies are designed to ease the tension between women’s employment and fertility, but whether they actually play such a role remains unclear. We analyze the individual-level effects of maternity leave on employment outcomes and on second conception rates among Russian first-time mothers from 1985-2000 using retrospective job and fertility histories from the Survey of Stratification and Migration Dynamics in Russia. During this period Russia experienced tremendous economic and political turbulence, which many observers believed would undermine policies like maternity leave and otherwise adversely affect the situation of women. Nevertheless, we find that maternity leave helped women maintain a foothold in the labor market, especially during the more turbulent post-transition period. Also, women who took extended leave in connection with their first birth had elevated rates of second conceptions once they returned to the workforce.
    Keywords: Russia, employment, fertility, maternity leave
    JEL: J1 Z0
    Date: 2009–11
  3. By: Quan-Hoang Vuong (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.); Tran Tri Dung (Dan Houtte, Vuong & Partners, Economic Research, Hanoi, Vietnam.); Thi Chau Ha NguyenN (Dan Houtte, Vuong & Partners, Economic Research, Hanoi, Vietnam.)
    Abstract: This paper is the first major and thorough study on the M&A activities in Vietnam’s emerging market economy, covering almost entirely the M&A history after the launch of Doi Moi. The surge in these activities since mid-2000s by no means incidentally coincides with the jump in FDI and FPI inflows into the nation. M&A industry in Vietnam has its socio-cultural traits that could help explain economic happenings, with anomalies and transitional characteristics, far better than even the most complete set of empirical data. Proceeds from sales of existing assets and firms have mainly flowed into the highly speculative industries of securities, banking, non-bank financials, portfolio investments and real estates. The impacts of M&A on Vietnam’s long-term prosperity are, thus, highly questionable. An observable high degree of volatility in the M&A processes would likely blow outthe high ex ante expectations by many speculators, when ex post realizations finally arrive. The effect of the past M&A evolution in Vietnam has been indecisively positive or negative, with significant presence of rent-seeking and likelihood of causing destructive entrepreneurship. From a socio-economic and cultural view, the degree of positive impacts it may result in for domestic entrepreneurship will perhaps be the single most important indicator.
    Keywords: Capital Market, Emerging Market, Entrepreneurship, Mergers and Acquisitions, Transition Economy, Vietnam.
    JEL: G34 G38 O16
    Date: 2009–11
  4. By: Christane Nickel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Philipp C. Rother (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jan C. Rülke (WHU – Otto Beisheim School of Management, Burgplatz 2, D-56179 Vallendar, Germany.)
    Abstract: We investigate the impact of fiscal variables on bond yield spreads relative to US Treasury bonds in the Czech Republic, Hungary, Poland, Russia and Turkey from May 1998 to December 2007. To account for the importance of market expectations we use projected values for fiscal and macroeconomic variables generated from Consensus Economics Forecasts. Moreover, we compare results from panel regressions with those from country (seemingly unrelated regression) estimates, and conduct analogous regressions for a control group of Latin American countries. We find that the role of the individual explanatory variables, including the importance of fiscal variables, varies across countries. JEL Classification: C33, E43, E62, H62.
    Keywords: Budget deficits, determination of interest rates, fiscal policy, Eastern European countries.
    Date: 2009–10
  5. By: Ansgar Belke; Gunther Schnabl; Holger Zemanek
    Abstract: The paper scrutinizes the role of wages and capital flows for competitiveness in the new EU member states in the context of real convergence. For this purpose it extends the seminal Balassa-Samuelson model by international capital markets. The augmented Balassa-Samuelson model is linked to the monetary overinvestment theories of Wicksell and Hayek in order to trace cyclical deviations of real exchange rates from the productivity-driven equilibrium path. Panel estimations for the period from 1993 to 2008 reveal mixed evidence for the role of capital markets for both the economic catch-up process and international competitiveness of the Central and Eastern European countries.
    Keywords: Exchange rate regime, wages, Central and Eastern Europe, EMU accession, panel model
    JEL: E24 F16 F31 F32
    Date: 2009
  6. By: Chen, Fang (Chinese Academy of Sciences); Mohnen, Pierre (UNU-MERIT, Maastricht University, and CIRANO)
    Abstract: After joining the World Trade Organization (WTO), China witnessed a major inflow of Foreign Direct Investment (FDI). Many famous automobile firms of developed countries were attracted to invest in China to cooperate with domestic firms. This paper uses firm-level data of the Chinese automobile industry to analyze the determinants of, and the interrelationships between, innovation input and innovation output, and in particular whether FDI had any influence on these two aspects of innovation. A generalized tobit model will be estimated for both R&D and the share of innovative sales for 2002/2003 and 2005/2006. The findings show that FDI firms are less R&D intensive but, when they innovate in new products, they are more product innovative than domestic-funded firms.
    Keywords: FDI, China, R&D, innovation, automobile industry
    JEL: O14 L62 F21
    Date: 2009
  7. By: Sun, Sizhong
    Abstract: This paper investigates the impact of foreign firms on exports of domestic exporting firms. We show that domestic firms respond to an increase in the presence of foreign firms by increasing their exports, despite the increase in foreign presence can drive up the production cost and make domestic market more profitable. This hypothesis is then tested in China, where we find a 1 per cent increase in foreign presence causes domestic firms to increase their exports by 0.74 per cent. This finding sheds light on understanding China’s massive exports and fast inflow of foreign investment observed in the past three decades.
    Keywords: Export; Foreign Firm; FDI; Spillovers; China
    JEL: D21 F10 L20
    Date: 2009–11
  8. By: Bohl, Martin T. (BOFIT); Schuppli, Michael (BOFIT); Siklos, Pierre L. (BOFIT)
    Abstract: This paper investigates whether seasonalities in daily stock returns are related to the trading behavior of individual and institutional investors. The change in the investor structure of B-share markets in Shanghai and Shenzhen after the abolition of ownership restrictions in 2001 provides a unique testing environment. We show that day-of-the-week effects are attenuated after the market entrance of Chinese individual investors, who had previously not been allowed to trade in B-shares. Our empirical results suggest that institutional rather than individual investors are a main driving force behind such anomalies. In addition, we find evidence of reduced index return autocorrelation and US spillover effects in the post-liberalization period.
    Keywords: institutional investors; individual investors; stock return seasonalities; Chinese stock markets; GARCH model
    JEL: G12 G14 G18
    Date: 2009–10–30
  9. By: Juan Carlos Cuestas; Luis A. Gil-Alana
    Abstract: In this paper we aim to analyse the dynamics of unemployment in a group of Central and Eastern European Countries (CEECs). The CEECs are of special importance for the future of the European Union, given that most of them have recently become member states, and labour flows have been seen to rise with their accession. By means of unit root tests incorporating structural changes and nonlinearities, as well as fractional integration, we find that the unemployment rates for the CEECs are mean reverting processes, which is consistent with the NAIRU hypothesis, although shocks tend to be highly persistent.
    Keywords: Unemployment, NAIRU, hysteresis, unit roots, fractional integration
    JEL: C32 E24
    Date: 2009–11
  10. By: Geoff Barnard
    Abstract: In the decade following the 1998 financial crisis Russia’s banking system grew much larger and stronger – indeed, growth rates were dangerously high – but even before the onset of the current global crisis it continued to play a limited role in intermediating savings and investment, especially for small and medium-sized enterprises. Moreover, despite important improvements, some weaknesses in prudential supervision remained, and the Russian banking sector continued to have too many very small banks doing little if any banking business. This paper discusses the policy imperatives in the short term, in the face of the ongoing economic crisis, and reforms that could be implemented over the longer term to improve the efficiency and resilience of the financial system and raise Russia’s potential growth rate. While the current crisis is painful for the banking sector as well as the broader economy, it may facilitate a restructuring of the system that will be positive in the long run, as well as new approaches to regulation that will make banking less crisis-prone.<P>Vers un secteur bancaire russe plus efficace et résilient en Russie<BR>Pendant la décennie après la crise de 1998 le système bancaire russe est devenu beaucoup plus grand et fort – les taux de croissance étaient même inquiétants – mais même avant le début de la crise mondiale actuelle il a continué à jouer un rôle limité dans l’intermédiation de l’épargne et l’investissement, surtout pour les petites et moyennes entreprises. D’ailleurs, malgré des pas en avant importants, il restait des faiblesses dans la surveillance prudentielle, et le secteur bancaire avait toujours trop de banques minuscules qui avaient très peu de vraies activités bancaires. Cette étude aborde les principaux défis pour la politique envers les banques à court terme étant donné le contexte de crise économique, et les réformes qui pourraient être mises en œuvre à plus long terme afin d’augmenter l’efficacité et la stabilité du secteur bancaire et de hausser le taux de croissance de la production potentielle. La crise actuelle, tout en étant douloureuse pour le secteur bancaire et l’économie, pourrait faciliter une restructuration du système qui serait positive à long terme, ainsi que des nouvelles approches à la réglementation qui aideront à diminuer la vulnérabilité du système aux crises.
    Keywords: corruption, transition, transition, transparency, transparence, assurance, banking, deposit insurance, banque, assurance des dépôts, Russia, economy, state ownership, Russie, économie, prudential supervision, international financial reporting standards, Sberbank, surveillance prudentielle, comptabilité, norme comptable internationale, corruption, Sberbank, accountability, propriété de l’État
    JEL: E58 G21 G28 O52 P29
    Date: 2009–11–03
  11. By: Peri, Giovanni (Universitat Rovira Virgili); Iranzo, Susana (University of California, Davis and CESifo, Munich)
    Abstract: The remarkable increase in trade flows and in migratory flows of highly educated people are two important features of globalization of the last decades. This paper extends a two-country model of inter- and intra-industry trade to a rich environment featuring technological differences, skill differences and the possibility of international labor mobility. The model is used to explain the patterns of trade and migration as countries remove barriers to trade and to labor mobility. We parameterize the model to match the features of the Western and Eastern European members of the EU and analyze first the effects of the trade liberalization which occurred between 1989 and 2004, and then the gains and losses from migration which are expected to occur if legal barriers to labor mobility are substantially reduced. The lower barriers to migration would result in significant migration of skilled workers from Eastern European countries. Interestingly, this would not only benefit the migrants and most Western European workers but, via trade, it would also benefit the workers remaining in Eastern Europe.
    JEL: F12 F22 J61
    Date: 2009–03
  12. By: Koen Decancq; Maria Ana Lugo
    Abstract: We propose to measure inequality of well-being with a multidimensional generalization of the Gini coefficient. We derive two inequality indices from their underlying social evaluation functions. These functions are conceived as a double aggregation functions: one across the dimensions of well-being, and another across the individuals. They differ only with respect to the sequencing of aggregations. We argue that the sequencing that does not exclude the Gini index to be sensitive to the correlation between the dimensions is more attractive. We illustrate both Gini indices using Russian household data on three dimensions of well-being: expenditure, health and education.
    Keywords: Multidimensional inequality, Single parameter Gini Index, Correlation increasing majorization, Russia
    JEL: D63 I31 O52
    Date: 2009
  13. By: Michaela Krčílková (Czech University of Life Sciences Prague,Faculty of Economics and Management); Jan Zápal (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; London School of Economics and Political Science)
    Abstract: This paper intends to fill two gaps in the Optimal Currency Area literature. First of all, Mundell's original idea has very little formalmodel theoretical underpinning. Second, it almost exclusively views countries contemplating monetary unification as single economies. We question this view and expand the model to incorporate the division of an economy into three sectors. In the empirical part of the paper, we follow recent OCA empirici literature and investigate the correlation of shocks between the individual new EU member countries and the `EU-core'. Treating the whole economy as one sector this is a standard exercise. However, since the three-sector version of our model provides a natural metric on which to assess the appropriateness of unification, we are able to repeat the exercise treating each country's economy as a collection of three distinct sectors. 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: OCA, supply and demand shocks, VAR decomposition, new EU member states
    JEL: E32 F15 F40
    Date: 2009–10
  14. By: Sossounov, Kirill; Ushakov, Nikolay
    Abstract: The equilibrium real exchange rate of Russian ruble is estimated for the period from the beginning of 1995 to the beginning of 2008. According to the methodological approach proposed by Edwards (1988) the equilibrium real exchange rate is a function of a set of fundamental variables (so-called “reduced form equation”). In order to estimate an equilibrium real exchange rate a set of fundamentals was selected: terms of trade, productivity differential, fiscal policy variable. Estimation was performed in a cointegrated VAR framework using the Johansen cointegration test. The speed of adjustment of the actual real exchange rate to the equilibrium real exchange rate as well as the influence of monetary policy and private capital flows on the short-run dynamics of real exchange rate is explored.
    Keywords: macroeconomics; real exchange rate; Russia
    JEL: C51 E00
    Date: 2009–05–01
  15. By: Guglielmo Maria Caporale; Christophe Rault; Robert Sova; Anamaria Sova
    Abstract: This paper reviews the main features of the banking and financial sector in ten new EU members, and then examines the relationship between financial development and economic growth in these countries by estimating a dynamic panel model over the period 1994-2007. The evidence suggests that the stock and credit markets are still underdeveloped in these economies, and that their contribution to economic growth is limited owing to a lack of financial depth. By contrast, a more efficient banking sector is found to have accelerated growth. Furthermore, Granger causality test indicate that causality runs from financial development to economic growth, but not in the opposite direction.
    Keywords: Financial Development, Economic Growth, Causality Tests, Transition Economies
    JEL: E44 E58 F36 P26
    Date: 2009
  16. By: David Büttner (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Bernd Hayo (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: We investigate conditional correlations between six CEEC-3 financial markets estimated by DCC-MGARCH models. In general, the highest correlations exist between Hungary and Poland in foreign exchange and stock markets. Short-term money markets are rather isolated from each other. We find that the associations of CEEC-3 exchange rates versus the euro are weaker than those versus the US dollar. The persistence of the effect of shocks on the timevarying correlations is strongest for foreign exchange and stock markets, indicating a tendency toward contagion. In searching for the origins of financial market volatility in the CEEC-3, we uncover some evidence of Granger-causality on the foreign exchange markets. Finally, using a pool model, we investigate the impact of euro area, US, and CEEC-3 news on the correlations. Apart from ECB monetary policy news, we observe no broad effects of international news on correlations; instead, local news exerts an influence, which suggests adominance of country- or market-specific circumstances.
    Keywords: Financial markets, Czech Republic, Hungary, Poland, political news, macroeconomic shocks, contagion, DCC-MGARCH
    JEL: G12 G15 F30
    Date: 2009
  17. By: Fuest, Clemens (University of Oxford); Niehues, Judith (University of Cologne); Peichl, Andreas (IZA)
    Abstract: How do different components of the tax and transfer systems affect disposable income inequality? This paper explores the redistributive effects of different tax benefit instruments in the enlarged EU based on two approaches. Inequality analysis based on the standard approach suggests that benefits are the most important factor reducing inequality in the majority of countries. The factor source decomposition approach, however, suggests that benefits play a negligible role and sometimes even contribute slightly positive to inequality. On the contrary, here taxes and social contributions are by far the most important contributors to income inequality reduction. We explain these partly contradictory results with the different normative focus of the two approaches and show that benefits have other aims than redistribution. Finally, our country clustering shows that the Eastern European countries do not form a distinguished group. The Central Eastern European countries group together with the Continental European countries and the Baltic States show similarities with some Southern European countries.
    Keywords: inequality, redistribution, decomposition, tax benefit systems
    JEL: D31 D60 H20
    Date: 2009–10
  18. By: Wei Xiong; Jialin Yu
    Abstract: In 2005-08, over a dozen put warrants traded in China went so deep out of the money that they were certain to expire worthless. Nonetheless, each warrant was traded nearly three times each day at substantially inflated prices. This bubble is unique, because the underlying stock prices make the zero warrant fundamentals publicly observable. We find evidence supporting the resale option theory of bubbles: investors overpay for a warrant hoping to resell it at an even higher price to a greater fool. Our study confirms key findings of the experimental bubble literature and provides useful implications for market development.
    JEL: G1
    Date: 2009–11
  19. By: Corinna Manig; Alessio Moneta
    Abstract: As people become richer they get the opportunity of consuming more but also qualitatively better goods. This holds for a basic commodity like food as well. We investigate food consumption in Russia, taking into account both expenditure and nutrition value in terms of calories. We analyze how food consumption patterns change with increasing income by estimating both "quantity Engel curves" and "quality Engel curves". The former describe the functional dependence of calories consumed on total expenditure. The latter trace out the dependence of price per calorie as a proxy for quality on total expenditure. We compare income elasticities of quantity with income elasticities of quality. In these Russian data for years 2000-2002 the reaction of quality to changes in income is significantly stronger than the reaction of quantity to income changes suggesting that Russian households tend to choose higher quality food items as income rises.
    Keywords: Food consumption patterns, calorie intake, income elasticity decomposition, Engel curves, method of average derivatives
    JEL: D12
    Date: 2009–11–12
  20. By: Bunget, Ovidiu-Constantin; Farcane, Nicoleta; Dumitrescu, Alin-Constantin; Popa, Adina
    Abstract: An overview of the accounting profession’s evolution in Romania can only be a cause for reflection. As far as Romania is concerned, the accounting profession’s development rhythm followed the pace of the economic, social and political development of the country: first, formally speaking, as an association of graduates, subsequently organized as an association of public interest. The character of a liberal profession could occur whenever the market economy worked. The political and social changes of the mid-20th century generated a decrease of the economic importance of professional accounting mechanisms, as well as its position within the socialist system, especially in view of achieving accounting regulation expertise. Actually, the political events of 1989 led to a return to a period interrupted, about 50 years before. But the size and economic specificities were much different. This caused a rethinking of the accounting expert’s position, divisions in the accounting profession (Romanian Body of Experts and Chartered Accountants, Romanian Chamber of Auditors, the Chamber of Tax Consultants, etc.).
    Keywords: accountants; audit; Romanian Chamber of Auditor; Romanian Body of Experts and Chartered Accountants
    JEL: M40
    Date: 2009–11–05
  21. By: Thi Quynh Trang Do (Centre d'Economie de la Sorbonne)
    Abstract: Economic literature has introduced large theories on critical role of micro and small firms (MSEs) in the economic development. Particularly in developing countries, the development of the sectore has become a channel of poverty reduction by providing job opportunities and creating welfares. Besides, MSEs might be seen as embryonic form of sizable firms in the future, then contribute to the innovation process and economic growth. Consequently, promoting the growth of micro and small firms is in the center of interest of many developing countries, so does the case of Vietnam. By investigating the importance of firm characteristics with regard to the barriers that facing MSE in the growth process, this analysis brings some more light into the sector that unfortunately is still an under researched area. Using firm sample drawing from the Survey on Household's Living Standard in 2004 in Vietnam, we find that firms with different characteristics, among them : firm size, firm age, legal status, industrial sector and location, experiencing different levels of constraints. The level of signification of firm characteristics differs from barriers to barriers. In general, more sizable firms have often to face with higher level of constraints. These results enable policymakers to create more suitable MSEs fostering policies which better account for the different obstacles due to firm heterogeneity.
    Keywords: Firm performance, micro-small enterprises, barriers to growth, Vietnam.
    JEL: D21 L25 O53
    Date: 2009–06

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.