nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒12‒05
nine papers chosen by
J. David Brown
Heriot-Watt University

  1. Monitoring Managers: Does it Matter? By Cornelli, Francesca; Kominek, Zbigniew; Ljungqvist, Alexander P.
  2. Career Concerns in a Political Hierarchy: A Case of Regional Leaders in Soviet Russia By Andrei Markevich; Ekaterina Zhuravskaya
  3. Innovation, Productivity and Export: the case of Hungary By László Halpern; Balázs Muraközy
  4. Growth and Survival Determinants of Chinese Private Firms: Fieldwork evidence and econometric estimates By Gavin C Reid; Zhibin Xu
  5. Growth, Foreign Direct Investment and the Environment: Evidence From Chinese Cities By Matthew A Cole; Robert J R Elliott; Jing Zhang
  6. Corruption, Governance and FDI Location in China: A Province-Level Analysis By Matthew A Cole; Robert J R Elliott; Jing Zhang
  7. Urban Public Pension, Replacement Rates and Population Growth Rate in China By Yang, Zaigui
  8. Should we stay or should we go? Irregular Migration and duration of stay: the case of Moldovan Migrants By Ariane TICHIT MINISCLOUX; Daniela BORODAK
  9. On the Way to Modernization: The 'Good Enough' Governance Making in Romania By Matei, Lucica; Iancu, Diana Camelia

  1. By: Cornelli, Francesca; Kominek, Zbigniew; Ljungqvist, Alexander P.
    Abstract: We test under what circumstances boards discipline managers and whether such interventions improve performance. We exploit exogenous variation due to the staggered adoption of corporate governance laws in formerly Communist countries coupled with detailed ‘hard’ information about the board’s performance expectations and ‘soft’ information about board and CEO actions and the board’s beliefs about CEO competence in 473 mostly private-sector companies backed by private equity funds between 1993 and 2008. We find that CEOs are fired when the company underperforms relative to the board’s expectations, suggesting that boards use performance to update their beliefs. CEOs are especially likely to be fired when evidence has mounted that they are incompetent and when board power has increased following corporate governance reforms. In contrast, CEOs are not fired when performance deteriorates due to factors deemed explicitly to be beyond their control, nor are they fired for making 'honest mistakes.' Following forced CEO turnover, companies see performance improvements and their investors are considerably more likely to eventually sell them at a profit.
    Keywords: boards of directors; CEO turnover; Corporate governance; large shareholders; legal reforms; private equity; transition economies
    JEL: G24 G32 G34 K22 O16 P21
    Date: 2009–11
  2. By: Andrei Markevich (New Economic School and the University of Warwick); Ekaterina Zhuravskaya (New Economic School, CEFIR and CEPR)
    Abstract: We study the nature of career concerns of regional leaders in Soviet Russia under Khrushchev and Brezhnev. We document a substantial over-time variation in career concerns associated with reforms of Soviet governing hierarchy. We demonstrate that Khrushchev’s “Sovnarkhoz” system—a unique episode in Soviet history, when a traditional Soviet unitary-form (U-form) hierarchy was replaced by a multidivisional-form (M-form) organization—created yardstick competition in industrial performance of regional leaders. High-powered career incentives, however, did not result in faster industrial growth on average. We find that only two groups of regional leaders performed better in response to increased incentives. 1) Leaders appointed during “Sovnarkhoz” were able to learn new rules better. 2) Leaders with good connections to their neighbors were able to overcome negative inter-regional externalities, a common byproduct of M-form. The lack of success of the “Sovnarkhoz” system triggered the separation of regional units along production branch lines, which, as we show, led to a substantial decrease of industrial growth rates. The failure of Khrushchev's management reforms together with the U-form lobby contributed to his dismissal and reinstatement of the U-form hierarchy under Brezhnev.
    Keywords: Career Concerns, Political Hierarchy, Yardstick Competition, Soviet Economy
    JEL: D73 H7 J63 N44 P3
    Date: 2009–11
  3. By: László Halpern; Balázs Muraközy
    Abstract: This paper estimates the relationship between innovation and firm performance by using Community Innovation Survey data for Hungary. It exploits the possibility of linking the innovation data to ownership and disaggregated trade data. Innovative firms are more productive, more likely to trade and export into more countries. Foreign firms are more likely to innovate compared to similar domestic firms, but the amount of R&D is a weaker predictor of the innovative output of foreign firms.
    Date: 2009–12–02
  4. By: Gavin C Reid; Zhibin Xu
    Abstract: This paper reports on one of the first empirical attempts to investigate small firm growth and survival, and their determinants, in the Peoples’ Republic of China. The work is based on field work evidence gathered from a sample of 83 Chinese private firms (mainly SMEs) collected initially by face-to-face interviews, and subsequently by follow-up telephone interviews a year later. We extend the models of Gibrat (1931) and Jovanovic (1982), which traditionally focus on size and age alone (e.g. Brock and Evans, 1986), to a ‘comprehensive’ growth model with two types of additional explanatory variables: firm-specific (e.g. business planning); and environmental (e.g. choice of location). We estimate two econometric models: a ‘basic’ age-size-growth model; and a ‘comprehensive’ growth model, using Heckman’s two-step regression procedure. Estimation is by log-linear regression on cross-section data, with corrections for sample selection bias and heteroskedasticity. Our results refute a pure Gibrat model (but support a more general variant) and support the learning model, as regards the consequences of size and age for growth; and our extension to a comprehensive model highlights the importance of location choice and customer orientation for the growth of Chinese private firms. In the latter model, growth is explained by variables like planning, R&D orientation, market competition, elasticity of demand etc. as well as by control variables. Our work on small firm growth achieves two things. First, it upholds the validity of ‘basic’ size-age-growth models, and successfully applies them to the Chinese economy. Second, it extends the compass of such models to a ‘comprehensive’ growth model incorporating firm-specific and environmental variables.
    Keywords: Chinese private firms, models of small firm growth, choice of location, customer orientation
    JEL: D21 M13 L25 L26
    Date: 2009–11
  5. By: Matthew A Cole; Robert J R Elliott; Jing Zhang
    Abstract: In this paper we investigate the relationship between economic growth and industrial pollution emissions in China using data for 112 major cities between 2001 and 2004. Using disaggregated data we separate FDI inflows from Hong Kong, Macao and Taiwan from those of other foreign economies. We examine two industrial water pollution indicators (wastewater and petroleum-like matter) and four industrial air pollution indicators (waste gas, sulphur dioxide, soot and dust). Our results suggest that most air and water emissions rise with increases in economic growth at current income levels. The share of output of domestic and foreign owned firms increases several pollutants in a statistically significant manner while output of firms from Hong Kong, Macao and Taiwan either reduces pollution or is statistically insignificant.
    Keywords: FDI, economic growth, pollution, cities
    Date: 2009–11
  6. By: Matthew A Cole; Robert J R Elliott; Jing Zhang
    Abstract: China's rapid growth in recent years has been matched by large increases in exports and foreign direct investment (FDI). However, within China considerable regional disparities in FDI flows exist. In this paper we use detailed province level data for China to examine the determinants of intra-country FDI flows. Specifically, we investigate whether FDI is attracted to those regions that exhibit good governance and are most strongly engaged in the fight against corruption. We first construct proxies for provincial government efficiency and the extent of a region's anti-corruption effort. Our subsequent regression results confirm that FDI is attracted to provinces with relatively high levels of government efficiency and those that are actively involved in the fight against corruption.
    Keywords: FDI, corruption, governance
    JEL: O13 L60 Q21 Q25 Q28
    Date: 2009–11
  7. By: Yang, Zaigui
    Abstract: This paper uses an overlapping generations model to investigate the urban public pension in China. It examines the effects of the replacement rates and population growth rate on the capital-labor ratio, pension benefits, consumption and utility, and finds the optimal replacement rate. It is shown that raising the individual account benefit replacement rate only induces the increase in the individual account benefits. Raising the social pool benefit replacement rate induces the increase in the social pool benefits and retirement-period consumption, while the decrease in the capital-labor ratio, individual account benefits, working-period consumption and utility. The fall in the population growth rate leads to the increase in the capital-labor ratio, social pool benefits, individual account benefits, working-period consumption and utility, and leads to a decrease in the retirement-period consumption. The optimal social pool benefit replacement rate depends on the individual discount factor, social discount factor, capital share of income and population growth rate, and it decreases in the case of falling population growth rates. It will do more good than harm to raise the individual account benefit replacement rate, reduce the social pool benefit replacement rate and strictly implement China's population policy.
    Keywords: Urban public pension; Replacement rate; Population growth rate
    JEL: H55
    Date: 2009–10
  8. By: Ariane TICHIT MINISCLOUX (Centre d'Etudes et de Recherches sur le Développement International); Daniela BORODAK (Ecole Supérieure de Commerce (Clermont-Ferrand))
    Abstract: This paper investigates the motivations behind the trip duration in the destination country for Moldovan migrants. The New Economics of Labour Migration (NELM) asserts that preference for the home country; wage differential and migration costs drive the choice of the timing of return. Within this framework, we focus on the influence of the legal status of migrants (as part of the migration costs) and on the potential push or pull effects of the characteristics of the migrant's region of origin (influencing the choice of the migrant both in terms of wage differential and preference for the origin country). The central proposition is that undocumented migrants face higher migration costs than legal migrants and therefore have an incentive to stay in destination countries longer than migrants with documents in order to increase the amount of savings relative to the costs of entry on a given trip. To test this hypothesis we run a duration model using a national household dataset on migration in the Republic of Moldova collected in 2006 complemented with a regional dataset from Roscovan and Galer (2006). Evidence from parametric survival models supports our proposition and therefore recommends enforcing international laws as regards to the free movement of labor. In addition, the social regional development of the departure zone acts as a pull factor, claiming for more public development aid.
    Keywords: Moldova, duration, migration
    Date: 2009
  9. By: Matei, Lucica; Iancu, Diana Camelia
    Abstract: ‘To be or not to be good governance' has probably been a question of interest to scholars for many centuries now; the issue of how to measure it as to offer alternatives for governmental actions however became of interest only recently. In this respect, this paper explores the concept of 'good enough' governance in the context provided by Robert Dahl's theory on democratization. In doing so, it elaborates the idea according to which good enough governance may be interpreted as a minimal democratic system in need of a minimal democratic administrative practice. The validation of this theoretical tool is to be completed against the Romanian administrative reform as assessed by the national strategic documents and the European Commission Regular and Monitoring Reports of 1998-2006. The larger scope of the paper is to offer a comprehensive image of the 'good enough' governance inside the spectrum of the building of a consolidated democracy
    Keywords: good enough governance; policy making; European integration
    JEL: G18 H83
    Date: 2009–04–25

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.