nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒03‒06
eleven papers chosen by
J. David Brown
Heriot-Watt University

  1. Learning from the Chinese miracle : development lessons for Sub-Saharan Africa By Zafar, Ali
  2. Labor Market Segmentation and the Gender Wage Gap in Ukraine By Norberto Pignatti
  3. Accounting for China's Growth By Brandt, Loren; Zhu, Xiaodong
  4. Mortgage Finance in Central and Eastern Europe: Opportunity or Burden? By Beck, Thorsten; Kibuuka, Katie; Tiongson, Erwin R.
  6. Europe's gas supplies : diversification with Caspian gas and the “Russian risk” By Catherine Locatelli
  7. Risk premium shocks, monetary policy and exchange rate pass-through in the Czech Republic, Hungary and Poland By Balázs Vonnák
  8. State Aid and Competition in Banking: The Case of China in the Late Nineties By Xiaoqiang Cheng; Patrick VAN CAYSEELE
  9. A Productivity analysis of Eastern European banking taking into account risk decomposition and environmental variables By Karligash Kenjegalieva; Richard Simper
  10. Bank cost efficiency in Kazakhstan and Russia By Peresetsky, Anatoly
  11. The EurAsEC Transport Corridors By Vinokurov, Evgeny; Dzhadraliyev, Murat; Shcherbanin, Yuriy

  1. By: Zafar, Ali
    Abstract: A notable contrast in modern economic history has been the rapid economic growth of China and the slower and volatile economic growth in Sub-Saharan Africa. As the engagement between the two continues to grows, there will be a greater cross-fertilization of experiences. Total factor productivity comparisons suggest that capital accumulation in China coupled with more efficient factor usage explains the differential with Africa. Although the two have similar populations and patterns of inequality, their growth trajectories have been divergent. What can Africa learn from China? Although the lessons vary depending on country location and resource endowment, seven basic lessons are visible. First, the political economy of Chinese reforms and the shared gains between political elites and the private sector can be partially transplanted to the African context. Second, the Chinese used diaspora capital and knowledge in the early reform years. Third, rural reforms in China helped accelerate economic takeoff through a restructuring of property rights and a boost to both savings rates and output. Fourth, Chinese growth has taken place in the context of a competitive exchange rate. Five, port governance in China has been exemplary, and African landlocked economies can benefit significantly from port reform in the coastal countries. Six, China has experimented with a degree of decentralization that could yield benefits for many Sub-Saharan African countries. Seventh, Africa can learn from China’s policies toward autonomous areas and ethnic minorities to stave off conflict. Africa can learn from China’s experiences and conduct developmental experiments for poverty alleviation goals.
    Keywords: Economic Theory&Research,Access to Finance,Debt Markets,Emerging Markets,Banks&Banking Reform
    Date: 2010–02–01
  2. By: Norberto Pignatti
    Abstract: Ukrainian women are on average much more educated than women in developing countries and they also tend to show higher participation rates, albeit smaller than men's. They are also at least as educated as Ukrainian men. Women and men with identical characteristics might show different patterns of participation to informality. This result reflects in different probabilities of women and men to move across states between the two periods under exam. This emerges clearly from the analysis of the transition matrices. Both men and women show higher propensity to go to the formal sector from the informal one than vice versa. However, contrary to what is predicted by segmented labor market theories we find a higher concentration of women in the informal sector. On average, Ukrainian women do earn less than men and this is true both in the formal and in the informal sector. However, when we decompose the gender earnings differential we find evidence of two very different patterns between the formal and the informal sectors. In the formal sector, the earnings differential is entirely due to the unexplained component, usually indicated as an indicator of wage discrimination. In the informal sector, on the contrary, when the earnings differential is significantly different from zero, it is entirely due to differences in the explained component (personal, household and job characteristics). Overall, these results can be interpreted as the evidence that the Ukrainian labor market is indeed segmented and that women suffer some sort of discrimination. This discrimination is not taking place through the segregation of women in the informal sector but, more likely, through different remuneration of characteristics in the formals sector and different career opportunities and the exclusion of women from the better remunerated jobs at the top of the hierarchy. This might also explain why women in the upper tier of the wage distribution experience higher earnings when they are self-employed compared than when they are salaried, both in the formal and in the informal sector.
    Date: 2010
  3. By: Brandt, Loren (University of Toronto); Zhu, Xiaodong (University of Toronto)
    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. 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 points to the role of rising rates of investment. Because labor reallocation 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 dynamic 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 from agriculture and capital deepening, and identify rising TFP in the non-state non-agricultural sector as the key driver of growth. We also find significant misallocation of capital: The 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 re-balance its growth. Finally, in light of important concerns over data, we examine the robustness of our key results to alternative data sets.
    Keywords: China, investment, growth, productivity, capital market distortions
    JEL: E2 O4
    Date: 2010–02
  4. By: Beck, Thorsten (Tilburg University); Kibuuka, Katie (World Bank); Tiongson, Erwin R. (Asian Institute of Management)
    Abstract: Household credit, especially for mortgages, has doubled over the past years in the new European Union member countries, raising concerns about the economic and social consequences of household indebtedness in the event of a macroeconomic crisis. Using household survey data for 2005, 2006, and 2007 for both old and new European Union members, this paper assesses the determinants of access to mortgage finance. It also examines whether mortgage holders were more likely to suffer financial distress compared with non-mortgage holders in the period before the global financial crisis. The analysis does not find any systematic evidence that mortgage holders are financially more vulnerable than renters or outright owners; in fact, the incidence of financial vulnerability generally fell between 2005 and 2007, possibly reflecting the strong income growth experienced by these countries over this period. In addition, although tenure status is more difficult to explain in the new European Union member countries, the analysis finds that many of the same drivers of tenure status in the older member countries generally drive tenure status in the newer member countries as well. Finally, there is no evidence that access to mortgage credit is based on expected income in the old or in the new European Union member countries.
    Keywords: household credit, housing finance, financial vulnerability, EU accession
    JEL: D14 D91 G21 R21
    Date: 2010–02
  5. By: Jaan Masso; Tõnu Roolaht; Urmas Varblane
    Abstract: A growing literature is trying to analyse the productivity gap between domestic and foreign firms with differences in innovation indicators. In our paper we analyse the relationship between inward and outward FDI at either company or industry level and the innovation behaviour of companies in Estonia. We use company-level data from three waves of the Community Innovation Surveys, which are combined with financial data from the Estonian Business Register and FDI data from the balance of payments statistics. For the analysis we apply a structural model involving equations on innovation expenditure, innovation outcome and productivity, and also innovation accounting and propensity score matching approaches. Our results show that the higher innovation output of foreign owned companies vanishes after various company characteristics are controlled for, but there were significant differences in innovation inputs such as the higher use of knowledge sourcing and the lower importance of various impeding factors. Outward investment has a positive influence on innovativeness among both domestic and foreign owned companies.
    Keywords: innovation, internationalisation, foreign direct investments, catching-up countries
    JEL: F10 F23 O30
    Date: 2010
  6. By: Catherine Locatelli (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: The issue of EU gas supply security has become more and more important in the 2000s in the context of the gas market liberalisation and the question of reliability of Russian supplier. One answer to these problems is the EU gas diversification, specifically the opening up of a fourth gas corridor to supply the EU via the “Caucasus” or “southern” route with gas from Central Asia. The feasibility of this strategy might now be called into question. The aim of this article is to examine the new strategies that could emerge in the producing countries as well as those of international oil companies, and then look at what the consequences might be as far as the EU's diversification strategy is concerned. The aim of this article is to identify some of the problems and limits for this corridor.
    Date: 2010–02
  7. By: Balázs Vonnák (Magyar Nemzeti Bank)
    Abstract: This paper investigates the role of monetary policy in a small open economy, where exchange rate shocks are important. VAR models are estimated for the Czech Republic, Hungary and Poland. Contemporaneous and sign restrictions are imposed in order to identify the effect of monetary policy and risk premium shocks. Estimates from the same model for Canada, Sweden and the UK are used as benchmark for developed economies with low inflation. The results suggest that the typical size a of risk premium shock renders it almost impossible for the interest rate policy to smooth the exchange rate with the aim of minimising inflationary consequences. On the other hand, low inflation may decrease the exchange rate pass-through, which helps the monetary policy ignore exchange rate shocks.
    Keywords: monetary policy, risk premium shocks, exchange rate pass-through, structural VAR, sign restriction.
    JEL: E31 E52 F31
    Date: 2010
  8. By: Xiaoqiang Cheng; Patrick VAN CAYSEELE
    Abstract: A reduced form model where banks can pursue other goals than profit maximization is presented. This allows us to test for behavioral changes of banks over time. This model provides a framework to evaluate whether moral hazard issues may plague banks receiving state aid, which concerns greatly the recent debate on government intervention in financial markets during the global financial crisis in 2008. To test the impact of state aid, a natural experiment in the banking sector in China in the 1990s is examined. The possibility of receiving state aid triggers moral hazard prone conduct cannot be rejected.
    Keywords: banks, moral hazard, Europe, history, banking, crisis, commercial banks, Panzar –Rosse Model, monopoly environment, revenue maximization , output maximization, revenue elasticity, United Statesgovernment intervention, china, financial markets
    Date: 2010
  9. By: Karligash Kenjegalieva (Dept of Economics, Loughborough University); Richard Simper (Dept of Economics, Loughborough University)
    Abstract: This paper develops a new Luenberger productivity which is applied to a technology where the desirable and undesirable outputs are jointly produced and are possibly negative. The components of this Luenberger productivity index - the efficiency change and the components of the technological shift - are then decomposed into factors determined by the technology, adjusted for ‘risk and environment’, ‘risk management’ and ‘environmental effects’. The method is applied to Central and Eastern European banks operating during 1998–2003 utilising three alternative input/output methodologies (intermediation, production and profit/revenue). Additionally, the comparative analysis of the sensitivity of the productivity indices in the choice of the methodologies is undertaken using statistical and kernel density tests. It is found that the main driver of productivity change in Central and Eastern European banks is technological improvement, which, in the beginning of the analysed period, hinged on the banks’ ability to capitalise on advanced technology and successfully take into account risk and environmental factors. Whereas, in the later sampled periods, we show that one of the most important factors of technological improvement/decline is risk management. Finally, the tests employed confirm previous findings, such as Pasiouras (2008) in this journal, that different input/output methodologies produce statistically different productivity results. Indeed, we also find that external factors, such as a risk in the economy and banking production, and a ‘corruption perception’ affect the productivity of banks.
    Keywords: Luenberger productivity index; DEA; banking; undesirable outputs; negative data.
    JEL: C14 G2 L1
    Date: 2010–01
  10. By: Peresetsky, Anatoly (BOFIT)
    Abstract: The Kazakhstan banking system is increasingly viewed as more advanced than the Russian system. Kazakhstan adopted the International Accounting System (IAS) in 2003 and the Basel II norms in 2005, while Russia has yet to fully adopt either IAS or Basel II. In this paper, bank data for 2002-2006 are used to estimate models of bank cost efficiency. In contrast to most previous papers, no significance difference is found for the average cost efficiency scores of banks for the two countries during 2002-2006. How banks are ranked for efficiency depends upon the chosen model (input and output sets). An interesting insight is the finding that most banks in both countries are below optimal size.
    Keywords: cost efficiency; banks; stochastic frontier approach
    JEL: D21 F30 G21
    Date: 2010–02–26
  11. By: Vinokurov, Evgeny; Dzhadraliyev, Murat; Shcherbanin, Yuriy
    Abstract: The geographic and geo-economic location of EurAsEC countries gives them significant strategic potential for freight transit. EurAsEC has motorway and railway corridors running east-west and north-south, and a number of new corridors are being constructed. However, to handle such huge volumes of cargo, the region’s existing transport infrastructure must be modernised. Sea vs land: 2:1. Transportation of transit cargo by sea (transoceanic service) has some strong advantages, such as low delivery cost, established relationships with customers and high standards of service. This leads us to conclude that sea transit will prevail in the near future. Land transit routes offer only one competitive advantage – speed of delivery, which is two to three times faster compared with the sea routes linking East Asia with Eastern Europe. This advantage must be exploited. A considerable proportion of “time-sensitive” transit (some 16 million tonnes annually, according to the most conservative estimate) can be redirected to ITCs operated by EurAsEC. There are a number of physical and non-physical barriers to the realisation of the EurAsEC’s transit potential. Physical barriers include the poor state of motorways and railways and their related infrastructure, i.e. obsolete rolling-stock, which prevents any increase in transportation speeds and volumes; existing roads do not meet international standards; border crossing points and logistics centres have a low throughput capacity. Non-physical barriers include cumbersome permit systems, unreasonable delays in crossing borders, various charges and additional taxes imposed by regulatory and local authorities, scheduled and spot-check inspections of cargo weight, etc. The non-physical barriers are the most significant obstacles to the development of cargo transit in the region and cause serious delays in cargo delivery. Time lost does not only result in loss of money and customer trust, but also the loss of the main (in fact the only) competitive advantage land transit has over sea transit. Given their geographic position and national economic interests, Russia, Kazakhstan and their neighbours have a direct interest in the Eurasian integration process that extends beyond the boundaries of the post-Soviet space and involves the region’s most important countries. Projects implemented in certain economic sectors provide a reliable basis for regional economic integration. What begins in those key sectors eventually spreads to the institutional level. In this context, therefore, transportation must be among these priority sectors.
    Keywords: Eurasian Economic Community; transport infrastructure; transport corridors; economic integration; post-Soviet space
    JEL: F15 L91
    Date: 2009–03

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