nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒01‒30
nineteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Development and Transition- Idea, Strategy, and Viability By Justin Yifu Lin
  2. Inherited or Earned? Performance of Foreign Banks in Central and Eastern Europe By Emilia Magdalena Jurzyk; Olena Havrylchyk
  3. Building Up and Improvement of the Institution of the Socialist Oriented Market Economy in Vietnam By Dinh Van An
  4. Determinants of bank interest margins in Russia: Does bank ownership matter? By Fungacova , Zuzana; Poghosyan, Tigran
  5. Estimating Poland's Potential Output: A Production Function Approach By Natan P. Epstein; Corrado Macchiarelli
  6. Chinese Foreign Trade Performance and the China-US Trade 1995 – 2004 - A Graphical Analysis Based on China Customs Statistics By Shunli Yao
  7. Important Lessons from Studying the Chinese Economy By Gregory C. Chow
  8. Chinese Agricultural Reform, the WTO and FTA Negotiations By Shunli Yao
  9. Building Up A Market-oriented Research and Education Institution in A Transitional Economy - The Experience of the China Center for Economic Research at Peking University By Justin Yifu Lin
  10. Poverty and Vulnerability in rural China: Effects of Taxation By Katsushi S Imai
  11. Russian banking: The state makes a comeback? By Vernikov, Andrei
  12. Development Strategies and Regional Income Disparities in China By Justin Yifu Lin; Peilin Liu
  13. The Location Decisions of Foreign Logistics Firms in China- Does Transport Network Capacity Matter? By Anthony Chin; Hong Junjie
  14. China’s Economic Progress and its Role in Strengthening Cooperation between East and South Asia By Zhang Yunling
  15. Vietnam Economy 2001-2005 and Socio-Economic Development Plan 2006-2010 By Dinh Van An
  16. Openness of China’s Manufacturing Sectors and its APEC Policy By Zhao Jianglin
  17. China: Does Government Health and Education Spending Boost Consumption? By Ray Brooks; Steven Barnett
  18. Vietnam's Trade Policy Dilemmas By David Vanzetti; Pham Lan Huong
  19. Macroeconomic announcements, communication and order flow on the Hungarian foreign exchange market By Michael Frömmel; Norbert Kiss M.; Klára Pintér

  1. By: Justin Yifu Lin (China Center for Economic Research)
    Abstract: Professor Justin Yifu Lin presented his ideas on approaches to development and transition at a distinguished speaker seminar on 5 December 2007. The seminar explored the reasons underlying both the dynamic economic growth of some countries—such as Japan, newly industrialized economies (NIEs) in East Asia, and recently the People's Republic of China (PRC) and Viet Nam—and the lack of such success in many other developing and transition countries. The seminar started with an overview of the industrial revolution and the subsequent division of the world into industrialized and non-industrialized countries and asked, "Why are some countries rich and others not?"
    Keywords: China, Development, Transition, Transitional Economy
    JEL: O1 O53 P21
    Date: 2010–01
  2. By: Emilia Magdalena Jurzyk; Olena Havrylchyk
    Abstract: Using a combination of propensity score matching and difference-in-difference techniques we investigate the impact of foreign bank ownership on the performance and market power of acquired banks operating in Central and Eastern Europe. This approach allows us to control for selection bias as larger but less profitable banks were more likely to be acquired by foreign investors. We show that during three years after the takeover, banks have become more profitable due to cost minimization and better risk management. They have additionally gained market share, because they passed their lower cost of funds to borrowers in terms of lower lending rates. Previous studies failed to pick up the improvements in performance of takeover banks, because they did not account for the performance of financial institutions before acquisitions.
    Keywords: Bank restructuring , Banking sector , Central and Eastern Europe , Economic models , Foreign investment , Profits , Risk management ,
    Date: 2010–01–08
  3. By: Dinh Van An (Central Institute for Economic Management)
    Abstract: The market oriented economic reform direction has been officially affirmed since the VI Congress of the Vietnamese Communist Party (1986) with the approval of the economic reform plan towards �doi moi�. This direction was then legalized in the Constitution (1992) and further developed in official documents of Communist Party Congresses and legal documents of the Government of Vietnam . In the past years, to specify this political direction, the Government and people of Vietnam have made endless efforts to establish a new economic institution system called the socialist oriented market economy.
    Keywords: Vietnam, Transitional Economy, Socialist Oriented Market Economy
    JEL: P20 P30
    Date: 2010–01
  4. By: Fungacova , Zuzana (BOFIT); Poghosyan, Tigran (BOFIT)
    Abstract: This paper analyzes interest margin determinants in the Russian banking sector with a particular emphasis on the bank ownership structure. Using a unique bank-level data covering Russia’s entire banking sector for the 19992007 period, we find that the impact of a number of commonly used determinants such as market structure, credit risk, liquidity risk and size of operations differs across state-controlled, domestic-private and foreign-owned banks. At the same time, the influence of operational costs and bank risk aversion is homogeneous across ownership groups. The results overall suggest the form of bank ownership needs to be considered when analyzing interest margin determinants.
    Keywords: bank interest margins; financial intermediation; Russia
    JEL: G21 P34
    Date: 2010–01–21
  5. By: Natan P. Epstein; Corrado Macchiarelli
    Abstract: The paper develops a methodology based on the production-function approach to estimate potential output of the Polish economy. The paper concentrates on obtaining a robust estimate of the labor input by deriving Poland's natural rate of unemployment. The estimated unemployment gap is found to track well pressures on resource constraints. Moreover, the overall results show that, prior to the recent global financial crisis, Poland's output and employment were both growing above potential. The production function is also used to derive medium-term projections of the output gap. According to our methodology, in the aftermath of the global crisis, Poland is not expected to experience a sizable and persistent negative output gap.
    Date: 2010–01–14
  6. By: Shunli Yao (China Center for Economic Research)
    Abstract: Using detailed Chinese Customs data, this paper prepares a series of graphsto illustrate the changing patterns of the Chinese foreign trade during theyears 1995 and 2004. Combined with discussions on related literature andpolicy development during the same period, the graphs are organized (1) to establish links between FDI inflow and Chinese trade expansion, (2) toidentify the regional and sectoral power horses of Chinese trade growth, (3)to sketch a picture of production sharing among China, its Asian neighborsand the United States, and (4) to highlight the institutional innovation of theChinese customs regime that helps facilitate the process of globaloutsourcing to China. Special attention is given to the China-US tradewhen it differs significantly from the China world trade.
    Keywords: trade, production fragmentation, FDI
    JEL: F14 F15
    Date: 2010–01
  7. By: Gregory C. Chow (Princeton University)
    Abstract: In 1979 the United States and China established normal diplomatic relations, allowing me to visit China and study the Chinese economy. After doing so for thirty years since and advising the government of Taiwan in the 1960s and the 1970s and the government of the People’s Republic of China in the 1980s and the 1990s this is an opportune moment for me to summarize the important lessons that I have learned. The lessons will be summarized in four parts: on economic science, on formulating economic policy and providing economic advice, on the special characteristics of the Chinese economy and on the experience of China’s economic reform. At the beginning I should comment on the quality of Chinese official data on which almost all quantitative studies referred to in this article were based. Chow (2006(a)) has presented the view that by and large the official data are useful and fairly accurate. The main justification is that every time I tested an economic hypothesis or estimated an economic relation using the official data the result confirmed the well-established economic theory. It would be a miracle if I had the power to make the Chinese official statisticians fabricate data to support my hypotheses. Even if I had had the power, most of the data had already been published for years before I conceived the ideas of the studies reported in this article.
    Keywords: China, Chinese economy, Taiwan, economic reforms, data
    JEL: C01 E01 H00 N25 O53
    Date: 2009–12
  8. By: Shunli Yao (China Center for Economic Research)
    Abstract: China's early industrialization created distortions. This paper identifies major distortions in the Chinese economy in the pre-reform era and brings agricultural distortions into perspective. Comparison is made of the reform experience in Chinese industry and agriculture. It suggests that with limited arable land, it is difficult to align Chinese agricultural production fully with its comparative advantage without also reforming China's grain policy. Reform has substantially freed up agricultural production but border distortions serve as one of a few remaining effective measures to ensure the grain self-sufficiency target. Unlike agricultural protection in rich countries, China's grain self-sufficiency policy ahs much weaker institutional underpinnings and is susceptible to the influence of interest groups. The patterns of Chinese agricultural trade explain its ambiguous positions in WTO agriculture negotiations. In terms of grain sectoral adjustment, a possible comprehensive China-Australia FTA is consistent with the multilateral process, while the China-ASEAN FTA is not. There is no evidence that the China-ASEAN FTA helps with the WTO agriculture negotiations, particularly when rice is excluded from the deal; but China-Australia FTA could generate competitive liberalization in grain trade, and thus help with the global agricultural liberalization.
    Keywords: agricultural trade, WTO, Free Trade Agreement
    JEL: Q17 F13 F14
    Date: 2010–01
  9. By: Justin Yifu Lin (China Center for Economic Research)
    Abstract: At the beginning of transition from the socialist planning economy to a market economy, China did not have a modern economics profession and the contribution of modern economics to China's transition was little. However, there has been increasing needs for modern economics education and research, as Chinese economy becomes more market oriented. To meet the needs, the China Center for Economic Research (CCER) at Peking University was built in 1994 with the initial supports and endorsement from the Ford Foundation and the World Bank. In the past 11 years, the CCER has expanded from six faculty members to 27 members, all with PhD training in economics from universities abroad, and become an important education and policy as well as academic research institution in China. Currently, the CCER provides undergraduate double-degree, MA and PhD in economics, MA in finance, and international MBA program to over 2,500 students each year. The CCER is also active in policy consultations with the Chinese government and international organizations, in addition to its excellent academic publication records domestically and internationally. The CCER's success is attributable to its members' devotion, personal qualifications, democratic arrangements, commitment to education and independent research, outreaching, networking, continuous innovation, and service culture. In the coming years, the CCER plans to strengthen its PhD program by student exchanges with other universities abroad, initiate a NBER/CERP type network, and a consortium of similar institutions in other transition and developing countries.
    Keywords: China, Education, Research, Market-oriented, CCER, China Center for Economic Research
    JEL: I22 I23
    Date: 2010–01
  10. By: Katsushi S Imai
    Abstract: This paper studies the impact of taxation on poverty and ex ante vulnerability of households in rural China based on national household survey data in 1988, 1995 and 2002. [CPRC working paper 156].
    Keywords: poverty, vulnerability, taxation, rural China, inequality, household, survey data,
    Date: 2010
  11. By: Vernikov, Andrei (BOFIT)
    Abstract: The purpose of this paper is to carefully assess the size of public sector within the Russian banking industry. We identify and classify at least 78 state-influenced banks. For the state-owned banks, we distinguish between those that are majority-owned by federal executive authorities or Central Bank of Russia, by sub-federal (regional and municipal) authorities, by state-owned enterprises and banks, and by ‘state corporations’. We estimate their combined market share to have reached 56% of total assets by July 1, 2009. Banks indirectly owned by public capital are the fastest-growing group. Concentration is increasing within the public sector of the industry, with the top five state-controlled banking groups in possession of over 49% of assets. We observe a crowding out and erosion of domestic private capital, whose market share is shrinking from year to year. Several of the largest state-owned banks now constitute a de facto intermediate tier at the core of the banking system. We argue that the direction of ownership change in Russian banking is different from that in CEE countries.
    Keywords: Russian banks; transition; banking; state; government; public sector; state-owned banks; state-controlled banks; state-influenced banks
    JEL: G21 G28 P31 P43
    Date: 2010–01–21
  12. By: Justin Yifu Lin; Peilin Liu (China Centre for Economic Research)
    Abstract: Since the economic reforms began in 1978, China has achieved remarkable economic results. Real GDP per capita grew at an average annual rate of 8.1% in the period of 1978-2001. Maintaining such a high growth rate over such a long period of time with a population of more than one billion truly is a miracle in world economy history (Lin et. al. 1994 and 1999).
    Keywords: China, Regional income disparities, income distribution
    JEL: D33 E64 O15
    Date: 2010–01
  13. By: Anthony Chin; Hong Junjie (Singapore Centre for Applied and Policy Economics)
    Abstract: In recent years the logistic needs have created tremendous pressure on the ‘hard’ transport infrastructure. Logistics and the harness of information technology are the key facilitators of mobility. The Chinese logistics market is still in its infancy and creates tremendous opportunities for investors. It recognized as one of important driving forces both for national economy and business. Beijing, Tianjin, Shanghai, Shenzhen and Guanzhou aspire to be regional or international logistics hubs and have adopted preferential policies in attracting FDIs in logistics. From 1996 to 2001, foreign capital invested in transportation, storage, post and telecommunications increased from USD6.96 billion to USD15.16 billion. This study looks at the location decisions of foreign logistics firms and identifies with the aid of a multinomial logit model factors that are crucial in attracting them to China. This is important as they have an important role to play in filling in the gap left by traditional Chinese firms, which largely concentrate, on warehousing and distribution. The results suggest that location of logistics firms depends on transport infrastructure, market size, labor quality and cost, agglomeration economies, communication cost, economic privatization degree, as well as government incentives. The importance of the above factors varies by source of region. European and North American firms favor higher population densities, lower labor cost, convenient airway transport and large cities while logistics firms from Hong Kong, Macao and Taiwan put more emphasis on communication infrastructure.
    Keywords: logistics, transport infrastructure, investment,
    JEL: H54 P33
    Date: 2010–01
  14. By: Zhang Yunling (Institute of Asia-Pacific Studies)
    Abstract: China has achieved great success in its economic development since it has conducted economy-wide reforms and opened itself to the outside world. Within less than three decades, China has now become a leading economy in the world, the second largest in FDI inflow, the third largest in foreign trade, the fourth largest in GDP, and an important engine for the global economic growth. One of the key factors for China’s success is its integration into the world economic system, enabling it to utilize the global market resources (market, capital and technology). The WTO accession has made the Chinese economy more open, more transparent and more integrated into the world economic system. China’s new regional strategy, i.e. forming FTAs with its partners, as well as its “foreign investment strategy�, have deepened and will continue to further intensify its economic integration and cooperation with its partners. In a regional perspective, the Asia-pacific is the major region from which China receives the most FDI inflows, as well as the principal destination of its exports, with the US and Japan being the two largest markets. East Asia accounts for half of China’s foreign trade and more than 70% of FDI inflow. China’s trade with South Asia is still small in volume, but high in growth rate. With the emergence of the Indian economy, trade and services between China and India have increased very rapidly in the recent years. Economic relations between East Asia and South Asia used to be very weak. But this now seems to change with Indian economic dynamism and its active “Eastward strategy�. Considering its geographical location and its further economic expansion, China can play an important and special role in bridging East and South Asian regions through trade, investment, service, technology, as well as broad economic cooperation activities.
    Keywords: China, Trade, Economic Integration, International Agreements, East West Cooperation
    JEL: F10 F13 F15 F53 O19
    Date: 2010–01
  15. By: Dinh Van An (Central Institute for Economic Management)
    Abstract: In 2005, Vietnam’s GDP growth rate attained 8.4%, far exceeding the 2004 figure of 7.8%. This is the highest growth rate that Vietnam has experienced since 1997. Vietnam also scored the second highest growth rate (preceded by China) compared to other East Asian countries. High economic growth rate in 2005 enabled Vietnam to fulfill its targeted average growth rate of 7.5% per annum set in the 2001-2005 Five-year Plan.
    Keywords: Vietnam, Socio-Economic Development Plan
    JEL: O21 O53
    Date: 2010–01
  16. By: Zhao Jianglin (Institute of Asia-Pacific Studies)
    Abstract: China’s domestic market is finally in the process of being integrated into the international market. Trade liberalization will play an important role in this process. It will expand China’s trade opportunities further, lead China’s manufacturing sectors to participate extensively in the international division of labor and to shift its trade patterns and industrial structure. On the other hand, it will increase the pressure of competition on domestic enterprises from imports and foreign-funded enterprises. If China’s manufacturing sectors can not improve their international competitiveness in time, trade liberalization will not bring benefits, but rather threats, to the development of China’s manufacturing sectors.
    Keywords: China, Manufacturing Sector, Openess, APEC policy
    JEL: F15 F53 L6
    Date: 2010–01
  17. By: Ray Brooks; Steven Barnett
    Abstract: Consumption in China is unusually low and has continued to decline as a share of GDP over the past decade. A key policy question is how to reverse this trend, and rebalance growth away from reliance on exports and investment and toward consumption. This paper investigates whether the sizable increase in government social spending in recent years lowered precautionary saving and increased consumption. The main findings are that spending on health, but not education, had an impact on household behavior. The impact, moreover, is large. A one yuan increase in government health spending is associated with a two yuan increase in urban household consumption.
    Date: 2010–01–15
  18. By: David Vanzetti; Pham Lan Huong (Australian National University and Central Institute for Economic Management)
    Abstract: Vietnam faces alternative options in opening its economy to trade. It is about to join the World Trade Organization; as a member of the ASEAN Free Trade Area it is contemplating extending the regional trade area to include China, Korea and Japan; and it has recently concluded a bilateral agreement with the United States. Opening up to trade is a two-edged sword, with the beneficial effects of improved market access and resource allocation liable to be partially or totally offset by adverse terms of trade effects and significant, albeit one-off, cost of structural adjustment. Simulations of unilateral, bilateral, regional and multilateral liberalization reform and a tariff harmonization scenario are undertaken using a general equilibrium model, GTAP. Results indicate that significant welfare benefits could be obtained from unilateral liberalization without the need to negotiate with others. Harmonization of tariffs at the current average also shows to be beneficial in raising tariff revenues with little need for adjustment. The extension of AFTA brings moderate benefits, as does a multilateral reform which reduces applied tariffs by 50 per cent. There are only limited gains in the agricultural and resources sectors, as these major exports face low tariff barriers. However, the market for Vietnam's textiles and apparel is crucially important.
    Keywords: Vietnam, trade, WTO negotiations
    JEL: F13 Q17
    Date: 2010–01
  19. By: Michael Frömmel (Department of Financial Economics, Ghent University; Institute for Money and International Finance, Leibniz Universität Hannover); Norbert Kiss M. (Magyar Nemzeti Bank (central bank of Hungary)); Klára Pintér (Magyar Nemzeti Bank (central bank of Hungary))
    Abstract: We investigate the relation between the EUR/HUF exchange rate on the one hand and news announcements and order flow on the other hand using intraday data. We extend the existing literature on foreign exchange market microstructure by considering a small open transition economy. We find that the intraday exchange rate – independent from whether we focus on the mean or the volatility – depends on both news announcements and order flow. We conclude that news on the EUR/HUF market are transmitted directly via immediate reactions to news announcements as well as indirectly via order flow. We decompose the news’ total effect on exchange rate and find that order flow accounts for approximately three quarters, compared to one quarter for direct news impact. Although the HUF has been pegged to the EUR, the exchange rate reacts qualitatively very similarly to exchange rates of major currencies as reported in the literature, but quantitatively we observe a remarkable difference: the share of the indirect channel is higher on the EUR/HUF market. Furthermore we extend the commonly used news by communication of central bankers and significantly improve the explanatory power of the regressions. Our results imply that macroeconomic and microstructure variables together can explain a non-negligible part of high frequency exchange rate movements and central bank communication is an important determinant of the EUR/HUF rate.
    Keywords: microstructure, order flow, exchange rate, macroeconomic news, central bank communication.
    JEL: F31 G14 G15
    Date: 2009

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