nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒03‒28
29 papers chosen by
J. David Brown
Heriot-Watt University

  1. Pension Reform Options for Russia and Ukraine: A Critical Analysis of Available Options and Their Expected Outcomes (with a Focus on Labour Market, Industrial Restructuring and Public Finance) By Marek Góra; Oleksandr Rohozynsky; Oxana Sinyavskaya
  2. Crisis Is Over, but Problems Loom Ahead By Mario Holzner; Sebastian Leitner; Josef Pöschl; Anton Mihailov; Waltraut Urban; Hermine Vidovic; Leon Podkaminer; Sándor Richter; Olga Pindyuk; Vladimir Gligorov; Gábor Hunya; Vasily Astrov; Peter Havlik; Zdenek Lukas; Michael Landesmann
  3. The Fight for the Middle: Upgrading, Competition, and Industrial Development in China By Loren Brandt; Eric Thun
  4. New Co-operatives in China: An Indigenous Model of Social Enterprises By Li Zhao; Patrick Develtere
  5. Mortality Crisis in Russia Revisited: Evidence from Cross-Regional Comparison By Popov, Vladimir
  6. Separation of Control and Cash-Flow Rights of State Owned Listed Enterprises: Channels of Expropriation following Discriminated Share Reform in China By Watanabe, Mariko
  7. Entrepreneurship in Transition Economies: The Role of Institutions and Generational Change By Estrin, Saul; Mickiewicz, Tomasz
  8. Yield Curve Dynamics and Spillovers in Central and Eastern European Countries By Anita Tuladhar; Alexander W. Hoffmaister; Jorge Roldos
  9. The Effects of Relative Food Prices on Obesity â Evidence from China: 1991-2006 By Lu, Yang; Goldman, Dana
  10. Direct and indirect state ownership on banks in Russia By Vernikov, Andrei
  11. Evaluation of the Oil Fiscal Regime in Russia and Proposals for Reform By Daria Zakharova; Brenton Goldsworthy
  12. China's Ongoing Agricultural Moderniztion: Challenges Remain After 30 Years of Reform By Lohmar, Bryan; Gale, Fred; Tuan, Francis; Hansen, Jim
  13. Intergenerational Income Mobility in Urban China By Gong, Cathy Honge; Leigh, Andrew; Meng, Xin
  14. Public Expenditures on Social Programs and Household Consumption in China By David Coady; Giovanni Callegari; Jaejoon Woo; Pietro Tommasino; Emanuele Baldacci; Manmohan S. Kumar
  15. Investigating the Effect of Exchange Rate Changes on the People’s Republic of China’s Processed Exports By Willem Thorbecke
  16. Income convergence and inflation in Central and Eastern Europe : does the sun always rise in the East By Staehr, Karsten
  17. The effects of focus versus diversification on bank performance: Evidence from Chinese banks By Berger, Allen N.; Hasan, Iftekhar; Zhou, Mingming
  18. The Determinants of the Fundraising Structure of Listed Companies in Vietnam : Estimation of the Effects of Government Ownership By Okuda, Hidenobu; Nhung, Lai Thi Phuong
  19. Fiscal Decentralization and Economic Growth in Central and Eastern Europe. By Andrés Rodríguez-Pose; Anne Krøijer
  20. Financial Distress in Chinese Industry: Microeconomic, Macroeconomic and Institutional Influences By Arnab Bhattacharjee; Jie Hany
  21. The Effect of Corporate Environmental Performance on Financial Outcomes – Profits, Revenues and Costs: Evidence from the Czech Transition Economy By Dietrich Earnhart; Ludomir Lizal
  22. The global financial crisis and public finances in the New EU Countries from Central and Eastern Europe By Karsten Staehr
  23. Financial Crisis, Trade Finance, and SMEs: Case of Central Asia By Gloria O. Pasadilla
  24. The Opening Up of Eastern Europe at 20-Jobs, Skills, and ‘Reverse Maquiladoras’ in Austria and Germany By Marin, Dalia
  25. Is flood insurance feasible? experiences from the People's Republic of China By Walker, George; Lin, Tun; Kobayashi, Yoshiaki
  26. Earthquake Risk and Earthquake Catastrophe Insurance for the People's Republic of China By Wang, Zifa; Lin, Tun; Walker, George
  27. How Much Do We Know about the Impact of the Economic Downturn on the Employment of Migrants? By Dandan Zhang
  28. Potential output and the output gap in Estonia - a macro model based evalutaion By Rasmus Kattai
  29. Interrelations between consumption and wealth in Poland By Magdalena Zach³od-Jelec

  1. By: Marek Góra; Oleksandr Rohozynsky; Oxana Sinyavskaya
    Abstract: Russia and Ukraine are in the process of many changes stemming from economic transition, restructuring, demographic change and other various ongoing challenges. In terms of the ongoing challenges in each country, there are specific problems related to historical developments, such as large scale heavy industry, but also potential opportunities that rarely occur in other countries such as the significant additional income from the countries' abundant natural resources. Both countries have good prospects for the future despite the many challenges. Among the challenges is industrial restructuring taking into account the social dimension, which includes adjusting the current arrangements of pension systems. In the best scenario this could mean a pension reform. The term 'pension reform' can be understood in various ways. In this paper we analyse a wide variety of possible pension system designs. The designs vary by target as well as the various ways to reach those targets. In all cases there may be costs and/or savings problems (as well as liquidity problems, which are not a "cost" from the economic viewpoint as liquidity is accounted as if additional cost were created) and various positive and/or negative economic, financial, and social externalities associated with the pension system designs.
    JEL: H53 H55 H69 J11 J18 J32 J P36
    Date: 2010
  2. By: Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Josef Pöschl (The Vienna Institute for International Economic Studies, wiiw); Anton Mihailov; Waltraut Urban (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sándor Richter (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Gábor Hunya (The Vienna Institute for International Economic Studies, wiiw); Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Zdenek Lukas (The Vienna Institute for International Economic Studies, wiiw); Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: After a long period of convergence, Central, East and Southeast Europe experienced a deep recession in 2009. The relatively moderate GDP decline (-3.6%) on average for the new EU member states (NMS) reflects Poland's weight in the group, the only EU country to have recorded positive GDP growth last year (Albania and Kazakhstan registered positive growth rates as well - see Table). In most other countries the catching-up process was interrupted, in particular the Baltic States were thrown several years back - more than Russia and Ukraine. The most conspicuous response to the crisis was a radical depletion of inventories and, closely related to this, a dramatic improvement in net exports since the contraction of imports was much larger than that of exports. This, together with less profit realized by foreign companies operating in the region, resulted in a sizeable reduction of current account deficits. Most countries in the region have emerged from the trough of the crisis already at the end of 2009. Several leading indicators point to a modest upswing. Poland's growth will once again boost the NMS average in 2010, while the rate of expansion in the Czech Republic, Slovakia and Slovenia will be meagre. Hungary, Romania and Bulgaria are still expected to stagnate in 2010, the Baltic States will record further negative growth rates - just as Croatia, Bosnia and Herzegovina and Montenegro. Russia, Ukraine and Kazakhstan will rebound more strongly. We expect all countries in the region to be growing again only by 2011. That growth may accelerate slightly in 2012, but will in general be slower than in the pre-crisis period. The main prerequisite of an upturn is a marked recovery in global trade, including a rise in demand for imports from the region. Increases in private consumption are not likely to be very pronounced as long as employment fails to grow. Investment will not act as a strong engine of growth either. Given the generally weak rebound of economic activities, unemployment will continue to rise, probably peaking in 2010, before falling slowly to pre-crisis levels. The most vulnerable group of workers affected by the crisis are again those with low skills. China's economy expanded at a rate of 8.7% in 2009, more than earlier expected. This fast growth despite a slump in exports was due to massive government stimulus measures driving investment and supporting private consumption. With the expansionary fiscal policy still in place and foreign demand picking up, the Chinese economy may grow even faster in the coming years. There are several downward risks to our forecast. The revival of financial intermediation may turn out to be sluggish. With the upturn of economic activities more firms may find it difficult to secure funding. Withdrawal of demand-supporting schemes and the need to consolidate fiscal balances may delay or weaken recovery in the EU and put a brake on export-driven growth of the region. A possible revival of cross-border capital flows would again exert strong pressure on exchange rate appreciation - with all the familiar negative effects. The main risk associated with the current problems in Greece is that the extension of the euro area may be delayed. That may well cross the plans of those NMS that have based their medium-term economic strategy on the earliest possible adoption of the euro. 'Redirecting the growth model?' Until the recent economic crisis, the countries of Central, East and Southeast Europe benefited for a long period from a process of 'catching-up' based on two pillars: (i) a high degree of liberalization of trade, capital movements and financial market integration, and (ii) membership in the EU or the prospects of either accession or a strong association with the EU. Both these two sets of factors will still be in operation also after the crisis, but there will be some significant changes in the way the 'integration growth model' will function. A combination of both changed external conditions (for example slow growth in main export markets, more difficult EMU entry) as well as internal behavioural responses to the crisis (for example more difficult financing conditions, increasing savings rates of the household sector, constraints of fiscal spending) will shape the growth paths of the region. The paper elaborates on policy issues that arise from the necessary 'redirecting of the growth model': the need for countercyclical fiscal policy, the importance of an adjustment in the real exchange rate and getting the credit system going in the short and medium run, as well as the issue of changes in regulatory frameworks and shared responsibilities in an integrated financial market context. The EU can play important roles in assisting these economies in their adjustments to the new situation and allowing them to return as quickly as possible to a sustainable catching-up growth path.
    Keywords: Central and East European new EU member states, Southeast Europe, future EU member states, Balkans, former Soviet Union, China, Turkey, economic forecasts, growth model, employment, competitiveness, exchange rates, inflation, EU integration, foreign trade, fiscal policy
    JEL: G18 O52 O57 P24 P27 P33 P52
    Date: 2010–02
  3. By: Loren Brandt; Eric Thun
    Abstract: When China acceded to WTO in 2001, there were fears that Chinese firms would lose market share in key sectors to foreign-invested enterprises (FIEs). Although aggregate data often indicate a shift in favour of FIEs, indigenous firms in many cases have slowly increased market share and deepened their technical capabilities. Through an analysis of aggregate data and three sectors, we show how the dynamics of competition between Chinese and FIEs in China’s domestic market enhance the upgrading prospects for Chinese firms. China represents a new model of development in several important respects: industrial upgrading efforts are often domestically-driven, within this domestic market there is intense competition between both domestic and foreign firms, and this competition is driving and stimulating the upgrading efforts of domestic firms.
    Keywords: China, industrialization, FDI, upgrading, value-chains, emerging markets, automotive
    JEL: L1 L6
    Date: 2010–03–16
  4. By: Li Zhao (HIVA, Catholic University of Leuven); Patrick Develtere (HIVA, Catholic University of Leuven)
    Abstract: This paper aims to fill the academic gaps in the study of the new co-operative movement in China and its innovative mechanisms, and to get a more comprehensive idea of new co-operatives operating as home-grown Chinese social enterprises, by exploring the dynamic process of co-operative practice and social innovation in rural China. As an alternative to the popularly ideal-co-operative perspective, the paper develops a conceptual model from the perspective of a real-type co-operative concept, by employing a historical neo-institutional perspective combined with power-and-resource-related theory. Using this model it shows how institutional legacies from the past as well as resources and environments in the present can influence and shape co-operative development in rural China. By providing a consistent, systematic analysis with an emphasis on the bottom-up institutional innovation process, the paper helps to explain some of the conceptual and practical difficulties that hamper the understanding of new co-operative development in China.
    Keywords: China, Social enterprise, Land-based shareholding co-operative, Real type co-operative model, Path-depency, Resource-depency
    JEL: N45 N55 O13 P13 P26 P32 P35
    Date: 2010–01
  5. By: Popov, Vladimir
    Abstract: This paper provides evidence from cross-regional comparisons that the Russian mortality crisis (mortality rate increased from 1.0% to 1.6% in 1989-94 and stayed at a level of 1.4-1.6% thereafter) was caused mostly by stress factors (increased unemployment, labor turnover, migration, divorces, income inequalities), and by the increase in unnatural deaths (murders, suicides, accidents), but not so much by the increase in alcohol consumption (even though it also increased due to the same stress factors). Health infrastructure of a region had a positive impact on life expectancy only in regions with high income inequalities (large share of highest income group).
    JEL: P36 I12 P27 J11
    Date: 2009–05
  6. By: Watanabe, Mariko
    Abstract: Literature on agency problems arising between controlling and minority owners claim that separation of cash flow and control rights allows controllers to expropriate listed firms, and further that separation emerges when dual class shares or pyramiding corporate structures exist. Dual class share and pyramiding coexisted in listed companies of China until discriminated share reform was implemented in 2005. This paper presents a model of controller to expropriate behavior as well as empirical tests of expropriation via particular accounting items and pyramiding generated expropriation. Results show that expropriation is apparent for state controlled listed companies. While reforms have weakened the power to expropriate, separation remains and still generates expropriation. If the “one share, one vote†principle were to be realized, asset inflation could be reduced by 13 percent.
    Keywords: China, Government Enterprises, Corporate Governance, Concentrated Owner, Expropriation, State Owned enterprises, China
    JEL: G32 G34 K22 O31 P34 P31
    Date: 2010–02
  7. By: Estrin, Saul (London School of Economics); Mickiewicz, Tomasz (University College London)
    Abstract: The transition economies have lower rates of entrepreneurship than are observed in most developed and developing market economies. The difference is even more marked in the countries of the former Soviet Union than those of Central and Eastern Europe. We link these differences partly with the legacy of communist planning, which needs to be replaced with formal market-supporting institutions. But many of these developments have now taken place, yet entrepreneurial activity still remains low in many places. To analyse this longer term issue, we highlight the necessarily slow pace of development of new informal institutions and the corresponding social attitudes, notably rebuilding the generalised trust. We argue that changes are even slower in the former Soviet Union than Central and Eastern Europe because communist rule was much longer, leading to a lack of institutional memory. We posit that changes in informal institutions may be therefore delayed until after full generational change.
    Keywords: entrepreneurship, formal and informal sectors, shadow economy, institutional arrangements, comparative studies of countries
    JEL: L26 O17 O57
    Date: 2010–03
  8. By: Anita Tuladhar; Alexander W. Hoffmaister; Jorge Roldos
    Abstract: This paper applies the models used to study yield curve dynamics and spillovers in the U.S. and other countries to Central and Eastern European countries (CEE countries). Using the Diebold, Rudebusch, and Aruoba (2006) dynamic version of the Nelson-Siegel representation of the yield curve, the paper finds that the two-way relationship between macroeconomic and financial variables in the CEE countries is similar to the one in mature economies. However, inflation shocks have very little persistence in the CEE countries, owing to the strong convergence trends in these countries-which tend to re-anchor expectations faster. Increased convergence in policies and market integration over time are associated with a stronger correlation between the levels of the yield curves, while the curves slopes are more driven by idiosyncratic factors. Shifts in the euro yield curve are transmitted both to interest rates and inflation expectations in the CEE countries-and transmission is stronger after 2004.
    Keywords: Central and Eastern Europe , Cross country analysis , Economic integration , Economic models , International bond markets , Regional shocks , Spillovers ,
    Date: 2010–02–26
  9. By: Lu, Yang; Goldman, Dana
    Abstract: This paper explores the effects of relative food prices on body weight and body fat over time in China. We study a cohort of 15,000 adults from over 200 communities in China, using the longitudinal China Health and Nutrition Survey (1991-2006). While we find that decreases in the price of energy-dense foods have consistently led to elevated body fat, this price effect does not always hold for body weight. These findings suggest that changes in food consumption patterns induced by varying food prices can increase percentage body fat to risky levels even without substantial weight gain. In addition, food prices and subsidies could be used to encourage healthier food consumption patterns and to curb obesity.
    Keywords: Agricultural and Food Policy, Consumer/Household Economics, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, Health Economics and Policy,
    Date: 2010–02
  10. By: Vernikov, Andrei
    Abstract: This paper uses the banking industry case to show that the boundaries of public property in Russia are blurred. A messy state withdrawal in 1990s left publicly funded assets beyond direct reach of official state bodies. While we identify no less than 50 state-owned banks in a broad sense, the federal government and regional authorities directly control just 4 and 12 institutions, respectively. 31 banks are indirectly state-owned, and their combined share of state-owned banks’ total assets grew from 11% to over a quarter between 2001 and 2010. The state continues to bear financial responsibility for indirectly owned banks, while it does not benefit properly from their activity through dividends nor capitalization nor policy lending. Such banks tend to act as quasi private institutions with weak corporate governance. Influential insiders (top-managers, current and former civil servants) and cronies extract their rent from control over financial flows and occasional appropriation of parts of bank equity.
    Keywords: Russian banks; state; government; public sector; state-owned banks; state-controlled banks
    JEL: P43 P31 G28 G21
    Date: 2010–03
  11. By: Daria Zakharova; Brenton Goldsworthy
    Abstract: Oil revenue plays a central role in Russia's economic development. Thus, the recent decline in oil production and investment, and the possible contribution of the current fiscal regime to these developments, have prompted a reassessment of the oil tax system in Russia. Some important changes have already been made, while others are underway. This paper uses a simulation model to evaluate Russia's current oil fiscal regime. Based on these simulations, the paper proposes ways to make the fiscal regime more supportive of investment, while ensuring an appropriate share of oil sector profits for the government.
    Keywords: Cross country analysis , Economic models , Fiscal policy , Natural gas sector , Oil production , Oil revenues , Oil sector , Reserves , Resource mobilization , Russian Federation , Tax policy , Tax systems ,
    Date: 2010–02–16
  12. By: Lohmar, Bryan; Gale, Fred; Tuan, Francis; Hansen, Jim
    Abstract: Thirty years ago, China began implementing a series of reforms to improve effi ciency in agricultural production. These, and subsequent, reforms reshaped Chinaâs position in the world economy. Chinaâs rapid economic development and transformation from a planned to a market-oriented economy, however, has reached a stage where further efficiency gains in agricultural production will likely hinge on the development of modern market-supporting institutions. The development of market-supporting institutions in China will bring about long-term and sustainable benefits to producers and consumers in China and the global agricultural economy. This report provides an overview of current issues in Chinaâs agricultural development, policy responses to these issues, and the effects of these policies on Chinaâs growing role in international markets.
    Keywords: China, economic reform, economic development, agricultural production, agricultural trade, Agricultural and Food Policy, International Relations/Trade, Production Economics,
    Date: 2009–04
  13. By: Gong, Cathy Honge (University of Canberra); Leigh, Andrew (Australian National University); Meng, Xin (Australian National University)
    Abstract: This paper estimates the intergenerational income elasticity for urban China, paying careful attention to the potential biases induced by income fluctuations and life cycle effects. Our preferred estimates are that the intergenerational income elasticities are 0.74 for father-son, 0.84 for father-daughter, 0.33 for mother-son, and 0.47 for mother-daughter. This suggests that while China has experienced rapid growth of absolute incomes, the relative position of children in the distribution is largely determined by their parents’ incomes. Investigating possible causal channels, we find that parental education, occupation, and Communist Party membership all play important roles in transmitting economic status from parents to children.
    Keywords: intergenerational mobility, transgenerational persistence, political party membership
    JEL: D10 D31
    Date: 2010–03
  14. By: David Coady; Giovanni Callegari; Jaejoon Woo; Pietro Tommasino; Emanuele Baldacci; Manmohan S. Kumar
    Abstract: This paper shows that increasing government social expenditures can make a substantive contribution to increasing household consumption in China. The paper first undertakes an empirical study of the relationship between the savings rate and social expenditures for a panel of OECD countries and provides illustrative estimates of their implications for China. It then applies a generational accounting framework to Chinese household income survey data. This analysis suggests that a sustained 1 percent of GDP increase in public expenditures, distributed equally across education, health, and pensions, would result in a permanent increase the household consumption ratio of 1¼ percentage points of GDP.
    Date: 2010–03–18
  15. By: Willem Thorbecke (Asian Development Bank Institute)
    Abstract: Many argue that the yuan needs to appreciate to rebalance the People’s Republic of China’s trade. However, empirical evidence on the effects of a CNY appreciation on the People’s Republic of China’s exports has been mixed for the largest category of exports, processed exports. Since much of the value-added of these goods comes from parts and components produced in Japan, the Republic of Korea, and other East Asian supply chain countries, it is important to control for exchange rate changes in these countries. Employing dynamic ordinary least squares, or DOLS, techniques and quarterly data, this paper finds that exchange rate appreciations across supply chain countries would cause a much larger drop in processed exports than a unilateral appreciation of the yuan.
    Keywords: China, exchange rate policy, exchange rate appreciations, trade
    JEL: F32 F41
    Date: 2010
  16. By: Staehr, Karsten
    Abstract: This paper investigates the process of price convergence in the 10 new EU countries from Central and Eastern Europe. The analyses are based on panel data from 1995 to 2008 of the common currency price relative to the EU15 average. The lagged income level exhibit little explanatory power towards relative inflation, while the lagged price level has some explanatory power. In the long term the relative income and price levels are closely correlated implying concurrent nominal and real convergence. Deviations from the long-term relation between price and income levels are gradually closed by changes in relative inflation and GDP growth, but the process of convergence appears to be rather slow. In the short term the capital inflows associated with current account deficits put substantial upward pressure on the relative price inflation, while the Balassa-Samuelson effect appears to be subdued
    Keywords: real convergence, nominal convergence, real exchange rate, inflation, transition economies
    JEL: E31 O57 P24
    Date: 2010–03–22
  17. By: Berger, Allen N.; Hasan, Iftekhar; Zhou, Mingming
    Abstract: This paper investigates the effects of focus versus diversification on bank performance using data on Chinese banks during the 1996-2006 period. We construct a new measure, economies of diversification, and compare the results to those of the more conventional focus index, which is based on the sum of squares of shares in different products or regions. Diversification is captured in four dimensions: loans, deposits, assets, and geography. We find that all four dimensions of diversification are associated with reduced profits and higher costs. These results are robust regardless of alternative measures of diversification and performance. Furthermore, we observe that banks with foreign ownership (both majority and minority ownership) and banks with conglomerate affiliation – are associated with fewer diseconomies of diversification, suggesting that foreign ownership and conglomerate affiliation play an important mitigating role. This analysis may provide important implications for bank managers and regulators in China as well as in other emerging economies.
    Keywords: Diversification, Focus, Efficiency, Chinese Banking
    JEL: G21 G28 G34
    Date: 2009–11
  18. By: Okuda, Hidenobu; Nhung, Lai Thi Phuong
    Abstract: This study investigates the factors determining the debt-ratios of listed companies on the Hanoi and Ho Chi Minh stock exchange markets. Estimation analysis using panel data covering the three-year period from 2006 to 2008 reveals the following results. (1) The debt-ratios of listed companies may be well explained by adjusted Modigliani and Miller theory combined with agency cost theory. (2) In order to borrow long-term outside funds, the ability to provide collateral is very important, even for qualified and listed companies. (3) Government controlled companies have weak incentives to save corporate tax payments by using debt financing. (4) In term of long-term fundraising, government controlled companies are perceived to present less risk than other companies. (5) In the determinants of fundraising, there is almost no difference in the determinants of fundraising between companies listed on the Ho Chi Minh stock exchange and those on the Hanoi stock exchange. (6) Compared to the fundraising activities of small- and medium-sized companies analyzed by Nguyen (2006) and Biger et al. (2008), those of listed companies could be better explained by using standard corporate financing theory. These observations suggest several policy implications. (1) Economic reform (Doi Moi) policies have successfully built up market based corporate financing systems for listed companies in Vietnam; however, (2) the protection of outside creditors should be further enhanced, as should be the disclosure of corporate information. (3) Further liberalization and privatization of the banking sector is urgently needed.
    Keywords: Corporate Finance, Capital Structure, Transition Economy, Vietnam
    JEL: G32 G34 G38
    Date: 2010–01
  19. By: Andrés Rodríguez-Pose; Anne Krøijer
    Abstract: The majority of the literature on fiscal decentralization has tended to stress that the greater capacity of decentralized governments to tailor policies to local preferences and to be innovative in the provision of policies and public services, the greater the potential for economic efficiency and growth. There is, however, little empirical evidence to substantiate this claim. In this paper we examine, using a panel data approach with dynamic effects, the relationship between the level of fiscal decentralization and economic growth rates across 16 Central and Eastern European countries over the 1990-2004 period. Our findings suggest that, contrary to the majority view, there is a significant negative relationship between two out of three fiscal decentralization indicators included in the analysis and economic growth. However, the use of different time lags allows us to nuance this negative view and show that long term effects vary depending on the type of decentralization undertaken in each of the countries considered. While expenditure at and transfers to subnational tiers of government are negatively correlated with economic growth, taxes assigned at the subnational level evolve from having a significantly negative to a significantly positive correlation with the national growth rate. This supports the view that subnational governments with their own revenue source respond better to local demands and promote greater economic efficiency.
    Keywords: Fiscal decentralization, economic growth, efficiency, devolution, Central and Eastern Europe
    Date: 2010–01
  20. By: Arnab Bhattacharjee; Jie Hany
    Abstract: TWe study the impact of both microeconomic factors and the macroeconomy on the financial distress of Chinese listed companies over a period of massive economic transition, 1995 to 2006. Based on an economic model of financial distress under the institutional setting of state protection against exit, and using our own firm-level measure of distress, we find important impacts of firm characteristics, macroeconomic instability and institutional factors on the hazard rate of financial distress. The results are robust to unobserved heterogeneity at the firm level, as well as those shared by firms in similar macroeconomic founding conditions. Comparison with related studies for other economies highlights important policy implications.
    Keywords: Financial Distress, Macroeconomic Instability, Cox Proportional Hazards Model, Unobserved Heterogeneity, Emerging Economies.
    JEL: E32 D21 C41 L16
    Date: 2010–03
  21. By: Dietrich Earnhart; Ludomir Lizal
    Abstract: This empirical study analyzes the effect of corporate environmental performance on financial performance in a transition economy. In particular, it assesses whether good environmental performance affects profits, and if so, in which direction. Then the study decomposes profits into revenues and costs in order to identify the channel(s) of any identified effect of environmental performance on profits. For example, as environmental performance improves, do revenues rise and costs fall so that profits increase? For this assessment, our study analyzes the links from environmental performance to revenues, costs, and profits using an unbalanced panel of Czech firms from the years 1996 to 1998. The empirical results indicate strongly and robustly that better environmental performance improves profitability by driving down costs more than it drives down revenues. The strong reduction in costs is consistent with the substantial regulatory scrutiny exerted by environmental agencies during the sample period in the forms of prevalent monitoring (i.e., inspections) and enforcement and escalating emission charge rates.
    Keywords: Czech Republic, environmental protection, pollution, financial performance
    JEL: D21 G39 Q53
    Date: 2010
  22. By: Karsten Staehr
    Abstract: This paper discusses the public finances of the 10 new EU Countries from Central and Eastern Europe, with particular emphasis on the effects of the global financial crisis that started in 2008. The budget outcomes have differed markedly across the new EU countries, both before and during the crisis. The direct impact of the crisis on public finances was limited, but the severe downturns have strained public finances and increased debt ratios considerably. Estimations of budget reaction functions reveal that the budget balance has, in general, been moderately counter-cyclical, but also that the counter-cyclicality derives entirely from the revenue side. The medium-term fiscal outlook rests, to a large extent, on growth prospects. The uncertainties regarding future economic
    Keywords: global financial crisis, fiscal policy, budget reaction functions, Central and Eastern Europe
    JEL: H6 E62 P27
    Date: 2010–02–04
  23. By: Gloria O. Pasadilla (Asian Development Bank Institute)
    Abstract: This paper surveys studies of the importance of Central Asian small- and medium-sized enterprises (SME) in the economy and their experience during the Russian financial crisis. It also uses survey data from the European Bank for Reconstruction and Development’s Business Environment and Enterprise Performance Surveys to infer noteworthy characteristics, features, and dependencies on financing of Central Asian SMEs and, consequently, derive the potential impact of the crisis on the sector. The paper also assesses government support for SMEs and the necessary market reforms that will give a boost to the sector’s development in the region.
    Keywords: SME, market reforms, central Asia, government policy, global financial crisis
    JEL: E44 G18 G28 G38
    Date: 2010
  24. By: Marin, Dalia
    Abstract: Many people in the European Union fear that Eastern Enlargement leads to major job losses. More recently, these fears about job losses have extended to high skill labor and IT jobs. The paper examines with unique firm level data whether these fears are justified for the two neighboring countries of Eastern Enlargement Austria and Germany. We find that Eastern Enlargement leads to surprising small job losses of less than 0.5 percent of total employment in Germany and of 1.5 percent in Austria, because jobs in Eastern Europe do not compete with jobs in Austria and Germany. Low cost jobs of affiliates in Eastern Europe help Austrian and German firms to stay competitive in an increasingly competitive environment. However, we also find that multinational firms in Austria and Germany are outsourcing skill intensive activities to Eastern Europe taking advantage of cheap abundant skilled labor there. We find that the firms’ outsourcing activities to Eastern Europe are a response to a human capital scarcity in Austria and Germany which has become particularly severe in the 1990s. We indeed find a reverse pattern of ‘Maquiladoras’ emerging with Eastern Enlargement in Austria and Germany compared to what economists have found for the North American Free Trade Agreement. Skilled workers in Austria and Germany are losing from outsourcing. In both countries outsourcing contributes 35 percent and 41 percent, respectively, to changes in relative wages for skilled workers in Austria and Germany. To address the skill exodus to Eastern Europe we suggest liberalizing the movement of high skill labor.
    Keywords: human capital; intra-firm trade; multinationals and jobs; outsourcing to Eastern Europe; R&D policy
    JEL: F21 F23 J24 J31 L24 O3 P33
    Date: 2010–03
  25. By: Walker, George; Lin, Tun; Kobayashi, Yoshiaki
    Abstract: Flood insurance, a component of catastrophe insurance, is universally available in only a few countries. In many countries, it is available in a restricted form and its conditions vary greatly. Coverage is usually denied to those regarded as relatively high risk for flooding. This working paper analyzes the feasibility of providing flood insurance vis-à-vis the experience in the People's Republic of China (PRC). Specifically, it presents the findings of an ADB-funded pilot study on the feasibility of flood insurance in the Xinhua County Town. Based on a sample building survey of Xinhua, a technical analysis of flood insurance risk in terms of location, construction type, and occupancy at each floor level was conducted, and the study determined premium rates based on both indemnity insurance and parametric insurance approach. A survey of affordability, undertaken in conjunction with the building survey, enabled an assessment of the technical feasibility of flood insurance. Operational feasibility was investigated by examining several alternative systems, ranging from a fully reinsured self-supporting commercial approach to a system subsidized, managed, and guaranteed by the government. Although this study was based on a relatively small rural city in a relatively poor region, the results as far as the feasibility of normal indemnity flood insurance is concerned are little different from the experience with flood insurance in the developed world. In this time when the PRC is experiencing rapid urbanization and a surge in building construction, a particularly relevant policy direction arising from the study is for the government to provide a policy package and an enabling environment to ensure the implementability and sustainability of flood insurance, including flood maps and building codes.
    Keywords: flood insurance; catastrophe insurance; China; Xinhua pilot study; flood risk
    JEL: G2 Q5 G22 Q54
    Date: 2009–04
  26. By: Wang, Zifa; Lin, Tun; Walker, George
    Abstract: The year 2008 witnessed the renewed interests in earthquake risk management and insurance in the People's Republic of China (PRC), after the Wenchuan earthquake hit the country in May. Located along the southeastern edge of the Euro-Asian Plate, the PRC has a relatively high seismicity, which is manifested by the frequent occurrence of large and disastrous earthquakes. Buildings and infrastructure in the earthquake-prone regions of the PRC have relatively low earthquake resistance levels. Hence, disastrous earthquakes result not only in large numbers of injuries and fatalities but also in huge economic losses from property damages. While the PRC began testing earthquake insurance programs in the late 1980s, the overall penetration rate remains very low. The low penetration rate not only creates disruptions for the government after a major earthquake but also, in some cases, delays the reconstruction efforts. Moreover, as a result of the low penetration of earthquake insurance in the PRC, the government serves as the predominant bearer of financial risk from earthquake catastrophes. This paper discusses historical earthquakes and earthquake risk in the PRC and the recent developments of PRC's earthquake risk reduction efforts. The general principles of earthquake programs are explained and the critical issues of formulating earthquake programs in the PRC are discussed, including lessons from earthquake insurance in other countries and other catastrophe insurance in the PRC, data issues, loss risk modeling issues, financial risk modeling issues, legislative issues, and public awareness issues. The paper concludes with several policy directions that the Asian Development Bank can take to help the PRC in its design and implementation of earthquake insurance.
    Keywords: earthquake insurance; China; earthquake risk; Wenchuan earthquake; catastrophe insurance
    JEL: G2 Q5 G22 Q54
    Date: 2009–06
  27. By: Dandan Zhang (Asian Development Bank Institute)
    Abstract: The employment shock of late 2008 in the People’s Republic of China (PRC) may have been a product of three different events: (i) the contractionary macroeconomic policies introduced by the government and the central bank in 2007 to slow growth, (ii) the introduction of the new Labor Contract Law at the start of 2008, and (iii) the reduction in export orders due to the global financial crisis from the second half of 2008. These three events occurred sequentially, and their impact on employment has been borne most heavily by rural–urban migrants. Using unique data that track 5,000 migrant households in 15 cities from 2008 to 2009, this paper documents the size of the employment impact of the economic downturn, investigates the geographic location and industry distribution of the effect, and examines the types of migrant workers who lost their jobs in 2008 because of the economic downturn. We find that job loss is not confined to export manufacturing industries, nor is it restricted to coastal cities where export industries are located. We interpret this widespread job loss to indicate that the employment shock that took place in the PRC at the end of 2008 and early 2009 was a response to both the global financial crisis and domestic economic policies.
    Keywords: employment shocks, China, labour policy, global financial crisis
    JEL: J64
    Date: 2010
  28. By: Rasmus Kattai
    Abstract: There have been several data revisions to the output statistics in Estonia during the past six years as methodologies have been harmonised. These changes are significant enough to require corrections to the earlier understanding of Estonia\'s potential economic growth rate. In this paper the latest data vintage from 2009 is used to estimate Estonia\'s potential output growth and output gap. The production function approach that has been used shows that the gap varies quite extensively, ranging from -8% in 1999 to +8% in 2007, while the average potential growth rate in 1997-2009 was around 6%. The macro model simulations expect the potential growth rate to fall in the future. The fall in the marginal productivity of production inputs makes growth slow to about 4-5% in the next five years, if there are no additional shocks to the economy
    Keywords: potential output, potential growth, output gap
    JEL: E32 F43
    Date: 2010–02–11
  29. By: Magdalena Zach³od-Jelec (Ministry of Finance, Poland)
    Abstract: This paper studies the long-run relationship between consumption, labour income and asset wealth in Poland. Within cointegrated VAR model dynamic responses of the variables in the system to shocks are studied. In addition series are decomposed into permanent and transitory components. Main conclusion of this paper is that deviations of the three variables from their estimated long-run relationship are better explained with fluctuations of labour income than assets. The paper offers a tentative explanation of this finding. Additionally, the magnitude of the asset wealth effect in Poland is calculated and compared with other studies for European countries and for the U.S.
    Keywords: wealth, cointegration, Beveridge-Nelson decomposition, impulse responses
    JEL: E21 C32
    Date: 2010–01–07

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