nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒02‒27
sixteen papers chosen by
J. David Brown
Heriot-Watt University

  1. The Evolution of Labor Relations inside a Russian Firm during Late Transition: Evidence from Personnel Data By Hartmut Lehmann
  2. Political Objectives and Privatization Decisions - Selection of Firms into Privatization or Long-Term State Ownership in Romania By Adam Szentpeteri; Almos Telegdy
  3. Innovation and Rent Sharing in Corporate Wage Setting in Hungary By Gabor Korosi
  4. Agglomeration Premium and Trading Activity of Firms By Gabor Bekes; Peter Harasztosi
  5. Standard and Non-standard Employment in Russia: How Large is the Wage Gap? By Tatiana Karabchuk
  6. Accounting for China's Growth By Loren Brandt; Xiaodong Zhu
  7. Framework for understanding environmental policy in Romania By Sova, Robert; Stancu, Ion; Sova, Anamaria; Fratila, Lauretiu; Sava, Valentin
  8. Maintaining New Markets: Determinants of Antitrust Enforcement in Central and Eastern Europe By Robert M. Feinberg; Mieke Meurs; Kara M. Reynolds
  9. Reinvestment Decisions by Small Businesses in Emerging Economies By Sugato Chakravarty; Meifang Xiang
  10. Providing Greater Old-Age Security in China By Richard Herd; Hu-Wei Hu; Vincent Koen
  11. Rates of Return to University Education: The Regression Discontinuity Design By Fan, Elliott; Meng, Xin; Wei, Zhichao; Zhao, Guochang
  12. Improving China's Health Care System By Richard Herd; Yu-Wei Hu; Vincent Koen
  13. Accessibility of Professional Education in Russia By Yana Roshchina
  14. A Detailed Decomposition of Changes in Wage Inequality in Reunified Post-Transition Germany 1999-2006: Accounting for Sample Selection By Usamah Al-farhan
  15. Long-term Nexus of Industrial Pollution and Income in China By Duo Qin
  16. Long-range dependence in returns and volatility of Central European Stock Indices By Ladislav Kristoufek

  1. By: Hartmut Lehmann
    Abstract: This paper surveys three studies on the internal labor market of one Russian firm spanning the years 1997 to 2002 and focusing on three different issues. The studies use unique personnel data that were collected by us and that include the work history of each employee as well as annual averages of monthly wages and total compensation. Since the three studies are part of a larger project on internal labor markets in Russia and Ukraine during transition, the paper starts off with a general assessment of how the analysis of personnel data from transition countries can contribute to the general literature on internal labor markets. After short descriptions of the investigated firm and the personnel data at our disposal, the motivation and the pertinent results of the three studies are presented. While the first study looks at the question how the costs of a financial crisis are spread over the workforce and whether incumbent employees are sheltered from negative shocks in the economy, the second study is tied to the discussion of wage determination in Russia and analyzes the narrower question whether local labor market conditions are an important factor in the wage determination process of the firm at hand or whether stable internal labor market structures are of primary concern for its human resource managers. The third study contributes to the literature on the labor market experience of women in transition by analyzing the evolution and the determinants of the gender earnings gap in the firm.
    Date: 2010
  2. By: Adam Szentpeteri (Central European University of Budapest, Eotvos Lorand University); Almos Telegdy (Institute of Economics - Hungarian Academy of Sciences)
    Abstract: With the help of a peculiar institutional feature of early Romanian privatization, when a group of firms was explicitly banned to become private, we test which factors contributed to the selection of firms into long-term state ownership. We find that politicians sheltered large and inefficient firms from privatization, which paid low wages and had high overdue payments. These results are consistent with minimization of employment losses, even if efficiency enhancement of privatization or revenue maximization had to be sacrificed. We hypothesize that this behavior was induced by the unfavorable economic conditions in Romania which brought about large employment losses during the first several years of economic transition.
    Keywords: privatization, government objectives, Romania
    JEL: L33 P26
    Date: 2009–11
  3. By: Gabor Korosi (Institute of Economics Hungarian Academy of Sciences)
    Abstract: Skill biased technical change arrived to Hungary with the transition to market economy. As Hungary integrated into the international economy, technical change progressed much faster in some sectors than in mature market economies. That lead to increasing skill premia, intensive rent sharing, and additional benefits for workers at innovative firms. This paper analyses wage setting at Hungarian firms after the micro-economic restructuring and stabilisation period, in the years 1998-2006, with a special regard to wage determination at innovative firms. Wage setting is characterised by intensive rent-sharing. Premium at innovative firms varies with the way of measuring it, and also changes with the sector and over time.
    Keywords: innovation, rent sharing, corporate wage setting
    JEL: J31 L10 O30 C23
    Date: 2009–12
  4. By: Gabor Bekes (Institute of Economics - Hungarian Academy of Sciences); Peter Harasztosi (Phd Student - Central Europan University)
    Abstract: Firms may benefit from proximity to each other due to the existence of several externalities. The productivity premia of firms located in agglomerated regions an be attributed to savings and gains from external economies. However, the capacity to absorb information may depend on activities of the firm, such as involvement in international trade. Importers, exporters and two-way traders are likely to employ a different bundle of resources and be organised differently so that they would appreciate inputs and information from other firms in a different fashion and intensity. Getting a better understanding of such external economies by looking at various types of firms is the focus of present paper. Using Hungarian manufacturing data from 1992-2003, we confirm that firms perform better in agglomerated areas and show that traders gain more in terms of productivity than non-traders when agglomeration rises. Firms that are stable participants of international trade gain 16 % in terms of total factor productivity growth as agglomeration doubles while non-traders may not benefit from agglomeration at all. Results also suggest that traders' productivity premium is most apparent in urbanised economies.
    Keywords: agglomeration, international trade, firm heterogeneity
    JEL: F14 R12 R30
    Date: 2010–01
  5. By: Tatiana Karabchuk
    Abstract: The paper examines incidence and earnings of non-standard workers in Russia. We focus on two main types of non-standard arrangements: non-permanent and part-time employment. First we identify determinants of incidence of these types of non-standard employment and find out that such personal characteristics as education level, age and marital status have strong impact on it. Secondly we explore wage differentials between permanent and non-permanent and full-time and part-time employees and demonstrate that the observed wage gap went down substantially when we apply advanced econometric techniques and control for various other factors. The analysis was done with the help of large-scale representative data set Household Survey of Welfare, conducted by Rosstat and World Bank in 2003.
    Date: 2010
  6. By: Loren Brandt; Xiaodong Zhu
    Abstract: China has achieved impressive growth over the last three decades. However, there has been debate over the sources of the growth, and the role of the intensive versus extensive margin. Growth accounting exercises at the aggregate level (Rawski and Perkins, 2008; Bosworth and Collins, 2008) suggest an equal role for both. But for the non-agricultural sector, there have been doubts about the contribution of TFP improvements to growth. For the period between 1978 and 1998, Young (2003) stresses the role of labor deepening, including the reallocation from agriculture, while more recent analysis point to the role of rising rates of investment. Because labor reallocations across sectors, TFP growth at the sector level and investment are all inter-related, simple growth decompositions that are often used in the literature are not appropriate for quantifying their contributions to growth. In this paper, we develop a three sector model to quantify the sources of China's growth. The sectors include agriculture, and within non-agriculture, the state and non-state components. We find only a modest role for labor reallocation and capital deepening, and identify rising TFP in the non-state nonagricultural sector as the key driver of growth. We also find significant misallocation of capital: The much less efficient state sector continues to absorb more than half of all fixed investment. If capital had been allocated efficiently, China could have achieved the same growth performance without any increase in the rate of aggregate investment. This has important implications for China as it tries to rebalance its growth. Finally, in light of important concerns over data, we examine the robustness of our key results to alternative data
    Keywords: China, Growth, TFP, Investment, intensive vs extensive margins
    JEL: E2 O4
    Date: 2010–02–16
  7. By: Sova, Robert; Stancu, Ion; Sova, Anamaria; Fratila, Lauretiu; Sava, Valentin
    Abstract: The aim of the present study is to shed some light on the framework for Understanding Environmental Policy in Romania, in contrast to the existing literature which mostly focuses on developed economies. Specifically, we use the Pigovian and Coasian Externality Theory. For the empirical analysis we use a survey data of the Romanian National Institute of Statistics and estimate Multilevel Regression Model (MRM) to investigate the determinants of environmental behaviour at plant level. Our results reveal some important differences vis-à-vis the developed countries, such as a less significant role for collective action and environmental taxes, which suggests some possible policy changes to achieve better environmental outcomes.
    Keywords: pollution abatement and control expenditure; transition economy;
    JEL: Q52 C23
    Date: 2009–12–10
  8. By: Robert M. Feinberg; Mieke Meurs; Kara M. Reynolds
    Abstract: While others have examined the implementation and/or the stringency of enforcement of antitrust laws in post-socialist economies, this paper is the first study that attempts to explain the determinants of antitrust enforcement activity across post-socialist countries using economic and political variables. Using a panel of ten European post-socialist countries over periods ranging from 4 to 11 years, we find a number of significant determinants of enforcement in these countries. For example, larger economies engage in more antitrust enforcement, and countries have tended to increase their enforcement efforts over time. Our results also suggest that countries characterized by more unionization and less corruption tend to engage in greater antitrust enforcement of all types. Countries more successful in privatizing have filed fewer cases, while more affluent or developed countries investigate fewer cases of all types, consistent with an income-shifting motivation for antitrust.
    Keywords: Antitrust Enforcement, Central and Eastern Europe, Competition Policy JEL classification: L4, P3
    Date: 2010–02
  9. By: Sugato Chakravarty (Purdue University); Meifang Xiang (University of Wisconsin, Whitewater)
    Abstract: We investigate the cross-country determinants of profit reinvestment decisions, using data compiled by the World Bank from around 7,000 businesses in 34 countries. We find that, compared to the security of property rights, it is a firm’s access to external financing that plays a significant role in a firm’s reinvestment decision in emerging economies. The extent of private ownership and the level of competition faced by firms are additional significant factors correlated with the reinvestment decision. Furthermore, we uncover a firm size effect in that the above factors driving firm reinvestment decision appears to impact small firms more than the relatively larger firms. Our findings complement, as well as build on, those from China and a few Eastern European countries.
    Keywords: Reinvestment; investment; external financing; property rights; competition
    Date: 2010–01
  10. By: Richard Herd; Hu-Wei Hu; Vincent Koen
    Abstract: China’s population is set to age fast, owing to low fertility and rising life expectancy. With ongoing migration of the younger cohorts to urban areas the increase in the old-age dependency ratio will be even more pronounced in rural than in urban areas. Very different pension arrangements exist across the country, with diverse and segmented systems in urban areas, belated retirement and low replacement ratios in rural areas, and special rules governing public sector pensions. Labour mobility is impeded by some of features of the current pension system, not least limited benefit portability. Various reforms have been initiated or proposed over the past decade. Some add to the existing fragmentation, while others, notably those providing for greater geographical pooling, have only partly been implemented. Also, under current rules, effective replacement rates are fairly low and projected to decline further, both for rural and urban residents, which may be difficult to sustain with the elderly living less and less with their descendants. Furthermore, as the countryside ages, much of the additional burden will be shouldered by local governments with insufficient resources. These challenges can be addressed by gradually consolidating the various regimes, raising retirement ages and shifting more of the cost of rural pensions to the central government. Even if different schemes for different categories of workers were to persist, each should be unified over time, first provincially and then nationally, phasing out the urban-rural distinction.<P>Offrir davantage de sécurité aux personnes âgées en Chine<BR>La population de la Chine devrait vieillir rapidement, en raison d’une faible fécondité et de l’allongement de l’espérance de vie. Dans un contexte de migration des cohortes plus jeunes vers les agglomérations, la hausse du taux de dépendance économique des personnes âgées sera encore plus soutenue en milieu rural que dans les zones urbaines. Des mécanismes de retraite très variés co-existent: systèmes divers et segmentés en ville, retraite tardive et faibles taux de remplacement dans les campagnes, et règles spécifiques régissant les retraites du secteur public. La mobilité de la main d’oeuvre est freinée par certains aspects du système de retraite actuel, notamment une portabilité restreinte des prestations. Des réformes ont été initiées ou proposées au cours de la décennie écoulée. Certaines accentuent la fragmentation existante, alors que d’autres, en particulier celles visant à intensifier le regroupement géographique, n’ont été que partiellement mises en oeuvre. De plus, d’après les règles en vigueur, les taux de remplacement effectifs sont assez bas et devraient poursuivre leur repli, pour les ruraux comme pour les citadins, ce qui pourrait entraîner une situation difficilement tenable puisque les plus âgés vivent de moins en moins souvent avec leurs descendants. De surcroît, en raison du vieillissement de la population rurale, une grande partie du surcoût devra être supporté par des collectivités locales dotées de ressources insuffisantes. Il est possible de remédier à ces difficultés en fusionnant progressivement les différents régimes, en relevant l’âge de la retraite et en reportant une plus grande fraction du coût des retraites en milieu rural sur le gouvernement central. Même si différents régimes devaient subsister pour différentes catégories de travailleurs, il faudra les fusionner au fil du temps, tout d’abord à l’échelon provincial, puis sur le plan national, en supprimant peu à peu la distinction entre les villes et les campagnes.
    Keywords: ageing, labour mobility, pension system, replacement ratios, demographic projections, China, poverty, benefit portability, retirement age, vieillissement, taux de remplacement, système de retraite, pauvreté, Chine, projections démographiques, âge du départ en retraite, mobilité de la main d’oeuvre
    JEL: H55 J11 J13 J14 J32 J61 N35 O15 O53 P21 P25 P26 P36
    Date: 2010–02–01
  11. By: Fan, Elliott (Australian National University); Meng, Xin (Australian National University); Wei, Zhichao (Brown University); Zhao, Guochang (Australian National University)
    Abstract: Estimating the rate of return to a university degree has always been difficult due to the problem of omitted variable biases. Benefiting from a special feature of the University Admission system in China, which has clear cutoffs for university entry, combined with a unique data set with information on individual National College Entrance Examination (NCEE) scores, we estimate the Local Average Treatment Effects (LATE) of university education based on a Regression Discontinuity design. To the best of our knowledge, this is the first study to use RD design to estimate the causal effect of a university education on earnings. Our results show that the rates of return to 4-year university education relative to 3-year college education are 40 and 60 per cent for the compliers in the male and female samples, respectively, which are much larger than the simple OLS estimations revealed in previous literature. Since in our sample a large proportion of individuals are compliers (45 per cent for males and 48 per cent for females), the LATEs estimated in this paper have a relatively general implication. In addition, we find that the LATEs are likely to be larger than ATEs, suggesting that the inference drawn from average treatment effects might understate the true effects of the university expansion program introduced in China in 1999 and thereafter.
    Keywords: rate of return to education, regression discontinuity design, China
    JEL: I21 I28 J24
    Date: 2010–02
  12. By: Richard Herd; Yu-Wei Hu; Vincent Koen
    Abstract: Overall, health outcomes in China have improved tremendously over the past three decades, especially thanks to the reduction in some traditional infectious diseases. However, death rates from chronic diseases have been on the rise, not least owing to changes in life styles and deteriorating environmental conditions. Supply of health care is overwhelmingly provided publicly and hospitals have been absorbing a growing share of the resources. The number of doctors has increased fast but the level of qualification of incumbent doctors is often modest. Demand for care has risen rapidly, in line with incomes, and the relative price of care soared through the early 2000s. Hospital budgets and their doctors’ pay are partly based on the pharmaceuticals they prescribe and sell, whose prices are regulated and involve considerable cross-subsidisation. Faced with these problems, the government has launched a number of reforms. New insurance schemes have been rolled out both in rural and urban areas. As a result, coverage and use of medical facilities has increased a lot, except for migrants. In practice, however, catastrophic but also chronic illnesses continue to push people into poverty, especially in the poorer regions, given limited risk pooling at the national level. A new set of reforms was announced in 2009, aiming at universal, safe, affordable and effective basic health care by 2020. They involve investment in medical infrastructure, generalising coverage, more focus on prevention, a new essential drugs system and far-reaching reorganisation, including hospital reform. It will be important to make sure that primary care plays a greater role and that hospitals are managed more efficiently with less of a hierarchical structure. Progress will also require changes in the relative prices of treatments and higher doctors’ wages and tobacco prices.<P>Améliorer le système de santé chinois<BR>Dans l’ensemble, les résultats de la Chine en matière de santé se sont considérablement améliorés au cours des trente dernières années, surtout par suite du recul de certaines maladies infectieuses classiques. Toutefois, les taux de mortalité par maladies chroniques sont en progression, en particulier à cause de l’évolution des modes de vie et de la détérioration de l’environnement. L’offre de soins de santé est essentiellement publique et les hôpitaux absorbent une part grandissante des ressources. Le nombre de médecins a vite augmenté, mais leur niveau de formation est souvent peu élevé. La demande de soins s’est rapidement accrue, parallèlement aux revenus, et leur prix relatif s’est envolé jusqu’au début des années 2000. Les budgets des hôpitaux et la rémunération de leurs médecins dépendent en partie des produits pharmaceutiques qu’ils prescrivent et vendent, dont les prix sont réglementés et donnent lieu à un important financement croisé. Face à ces problèmes, les pouvoirs publics ont lancé des réformes. De nouveaux dispositifs d’assurance ont été mis en place dans les zones rurales et urbaines. Par conséquent, la population couverte et l’utilisation des équipements médicaux se sont beaucoup accrues, sauf dans le cas des migrants. Toutefois, dans les faits, les maladies catastrophiques, mais aussi les affections chroniques, continuent de faire tomber dans la pauvreté ceux qu’elles touchent, surtout dans les régions déshéritées, la mutualisation des risques à l’échelle nationale demeurant limitée. En 2009 a été annoncée la mise en oeuvre d’une nouvelle série de réformes dont le but est d’assurer un accès universel à des soins de santé de base à la fois sûrs, d’un coût abordable et efficaces d’ici à 2020. Ces mesures prévoient des investissements dans les infrastructures médicales, la généralisation de la couverture maladie, une intensification des efforts de prévention, l’instauration d’un nouveau dispositif pour les médicaments essentiels et des restructurations d’envergure, dont une réforme des hôpitaux. Il importera de faire en sorte que le rôle des soins primaires soit renforcé et que les hôpitaux soient gérés de façon plus rationnelle dans le cadre d’un système moins hiérarchisé. Il faudra en outre modifier les prix relatifs des traitements et augmenter la rémunération des médecins, ainsi que le prix du tabac.
    Keywords: health, insurance, hospital, pharmaceuticals, China, life expectancy, diseases, doctors, migrants, tobacco, santé, assurance, espérance de vie, Chine, hôpital, maladies, médecins, migrants, tabac, médicaments
    JEL: D19 H41 H51 I18 J61 J71 O15 O53 P21 P36
    Date: 2010–02–01
  13. By: Yana Roshchina
    Abstract: In this paper, on the basis of data of RLMS and of Monitoring of economics of education, it is shown that factors of the family capital (first of all, incomes and the educational level of parents) represent an essential obstacle for educational options for Russian high schools graduates. The inequity in accessing professional education was strong in 1961-1990 as well as in 1991-2000. Some of the factors disappeared (parents' membership in the Communist Party, respondent's age), some became less influential (village as the birthplace). However, the importance of some parameters such as parents' human capital, increased. The existing social inequality of pupils' families becomes fixed and aggravated at high school level as children of poorer and less educated parents study at the worst schools and have lower progress. Therefore, the considerable inequality of educational intentions between pupils of 8- 9 classes exists: children from families with higher social positions are going to receive full secondary education and will most likely be enrolled to the university courses while children from families with low level of the family capital are going to have only primary or secondary professional education. Subsequently, this self-restriction of intentions results in the social differentiation of students in three levels of professional education (primary, secondary and higher): university's students once studied at better schools and their parents have higher social positions.
    Date: 2010
  14. By: Usamah Al-farhan
    Abstract: In this article, I analyze the changes in wage inequality in the eastern region, western region and reunified Germany a decade after reunification. For that purpose, I use data from the German Socio-Economic Panel for the period 1999 – 2006, and implement the decomposition methodologies of Fields (2003) and Yun (2006). I find that during the sub-period 1999-2002 each of the characteristics effect, coefficient effect and residual<br /> effect contributed to the increasing levels of wage inequality in Germany. On the other hand, the relative stability in wage inequality during the sub-period 2002-2006 was caused by the fact that the characteristics effect and the residual effect influenced wage inequality negatively, whereas the coefficient effect maintained a positive influence in both the western region, eastern region and in reunified Germany alike. Hence, I conclude that after 1999, changes in wage inequality in Germany can be explained by both; changes in workers characteristics and changes in the wage structure, and not by changes in the wage structure alone, as the case has been during the transition process in the first decade after reunification
    Keywords: Wages, Inequality, Decomposition, Transition, Characteristics effect, Coefficient effect, Residual effect, Selection bias, Maximum Likelihood
    JEL: D30 J31
    Date: 2010
  15. By: Duo Qin (Queen Mary, University of London)
    Abstract: This study examines the long-run relationship between industrial pollution and income in China using provincial panel data. Four types of pollutants are modelled: waste water, solid wastes, soot and SO<sub>2</sub> emission. Two types of income effects are considered: the scale and growth effects. The study finds little evidence of inverse U shape curves as postulated by EKC models; pollutant emissions may go positively or negatively with income irrespective of income levels whereas certain sign of alleviation in pollutant concentration due to income growth is discernible; trade is found to be insignificant while the hazardous nature of pollutants appears to be an important factor for heterogeneity in the income effect estimates; the heterogeneity cautions us against simple panel model specification.
    Keywords: Environmental Kuznets curve, Pollution, Economic growth, Trade, Heterogeneity
    JEL: C51 O53 Q53 Q56
    Date: 2010–02
  16. By: Ladislav Kristoufek (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 research on the presence of long-range dependence in returns and volatility of BUX, PX and WIG between years 1997 and 2009 with use of classical and modified rescaled range. Moving block bootstrap with pre-whitening and post-blackening is used for the construction of confidence intervals for the hypothesis testing. We show that there is no significant long-range dependence in returns of all examined indices. However, significant long-range dependence is detected in volatility of all three indices. The results for returns are contradictory with several studies which claim that developing markets are persistent. However, majority of these studies either do not use the confidence intervals at all or only the ones based on standard normal distribution. Therefore, the results of such studies should be reexamined and reinterpreted.
    Keywords: long-range dependence, rescaled range, modified rescaled range, bootstrapping
    JEL: C4 C5 G15
    Date: 2010–02

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