nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒04‒04
27 papers chosen by
J. David Brown
Heriot-Watt University

  1. Monitoring Managers: Does it Matter? By Francesca Cornelli; Zbigniew Kominek; Alexander Ljungqvist
  2. Federalism in Russia By Ekaterina Zhuravskaya
  3. Excess Leverage and Productivity Growth in Emerging Economies: Is There A Threshold Effect? By Coricelli, Fabrizio; Driffield, Nigel; Pal, Sarmistha; Roland, Isabelle
  4. The Dynamics of the Trade Balance and the Terms of Trade in Central and Eastern European Countries By Alexandra Ferreira-Lopes; Tiago Neves Sequeira
  5. The Causes of Corruption: Evidence from China By Bin Dong; Benno Torgler
  6. Chinese state’s economic cooperation related investment: An investigation of its direction and some implications for outward investment By Sumon Kumar Bhaumik; Catherine Yap Co
  7. Inflation dynamics and the New Keynesian Phillips curve in EU-4 By Borek Vasicek
  8. Estimating the Growth Attributes of Mainland China and Hong Kong SAR By Kui-Wai Li; Tung Liu; Hoi Kuan Lam; Liang Wang
  9. The effects of focus versus diversification on bank performance: Evidence from Chinese banks By Berger, Allen N.; Hasan, Iftekhar; Zhou, Mingming
  10. Market power in the Russian banking industry By Fungacova, Zuzana; Solanko, Laura; Weill, Laurent
  12. Pension Reform Options for Russia and Ukraine: A Critical Analysis of Available Options and Their Expected Outcomes By Marek Gora; Oleksandr Rohozynsky; Oksana Sinyavskaya
  13. Global Integration of Central and Eastern European Financial Markets – The Role of Economic Sentiments By Ansgar Belke; Joscha Beckmann; Michael Kühl
  14. An Analysis on the Growth Attributes of Manufacturing Industries in China By Kui-Wai Li; Tung Liu
  15. The periphery paradox in innovation policy: Latin America and Eastern Europe Compared By Rainer Kattel; Annalisa Primi
  16. The composition and interests of Russia’s business lobbies: A test of Olson’s “encompassing organization” hypothesis By Weill, Laurent; Solanko, Laura
  18. Regional integration and economic convergence in the post-Soviet space: Experience of the decade of growth By Libman, Alexander; Vinokurov, Evgeny
  19. Cointegration and conditional correlations among German and Eastern Europe equity markets By Guidi, Francesco; Gupta, Rakesh
  20. Structural Change, Specialization and Growth in EU 25 By Paul J.J. Welfens; Jens K. Perret
  21. CAPITAL INFLOWS, HOUSEHOLD DEBT AND THE BOOM BUST CYCLE IN ESTONIA By Zuzana Brixiova; Laura Vartia; Andreas Woergoetter
  22. Central Bank Communication and Exchange Rate Volatility: A GARCH Analysis By roman Horvath; Radovan Fiser
  23. Monetary policy rules and inflation process in open emerging economies: evidence for 12 new EU members By Borek Vasicek
  25. Searching for the parallel growth of cities By Chen, Zhihong; Fu, Shihe; Zhang, Dayong
  26. Direct and Indirect Effects of FDI in Emerging European Markets: A Survey and Meta-analysis By Jan Hanousek; Evzen Kocenda; Mathilde Maurel

  1. By: Francesca Cornelli (London Business School and CEPR); Zbigniew Kominek (European Bank for Reconstruction and Development (EBRD)); Alexander Ljungqvist (Stern School of Business, New York University, ECGI and CEPR)
    Abstract: We test under what circumstances boards discipline managers and whether such interventions improve performance. We exploit exogenous variation due to the staggered adoption of corporate governance laws in formerly Communist countries coupled with detailed ‘hard’ information about the board’s performance expectations and ‘soft’ information about board and CEO actions and the board’s beliefs about CEO competence in 473 mostly private-sector companies backed by private equity funds between 1993 and 2008. We find that CEOs are fired when the company underperforms relative to the board’s expectations, suggesting that boards use performance to update their beliefs. CEOs are especially likely to be fired when evidence has mounted that they are incompetent and when board power has increased following corporate governance reforms. In contrast, CEOs are not fired when performance deteriorates due to factors deemed explicitly to be beyond their control, nor are they fired for making ‘honest mistakes.’ Following forced CEO turnover, companies see performance improvements and their investors are considerably more likely to eventually sell them at a profit.
    Keywords: Corporate Governance, Large Shareholders, Boards of Directors, CEO Turnover, Legal Reforms, Transition Economies, Private Equity
    JEL: G34 G24 G32 K22 O16 P21
    Date: 2010–03
  2. By: Ekaterina Zhuravskaya (New Economic School, CEFIR, and CEPR)
    Date: 2010–03
  3. By: Coricelli, Fabrizio (Paris School of Economics); Driffield, Nigel (Aston University); Pal, Sarmistha (Brunel University); Roland, Isabelle (London School of Economics)
    Abstract: The paper examines the relationship between leverage and growth in a group of emerging central and eastern European countries, who are at different levels of financial market development. We hypothesize a non-linear relationship in that moderate leverage could boost growth while very high leverage could lower it by increasing the likelihood of financial distress and bankruptcy. Estimates of a Threshold model confirm the non-linear relationship in our sample, after controlling for various firm, industry and financial market characteristics. We also endogenously determine a threshold level of leverage beyond which further increases in leverage could lower TFP growth.
    Keywords: excess leverage, bank efficiency, market capitalization, TFP growth, Threshold model, non-linear relationship, transition experience
    JEL: G32 O16
    Date: 2010–03
  4. By: Alexandra Ferreira-Lopes (ISCTE - Lisbon University Institute - Department of Economics, UNIDE-ERC and DINÂMIA); Tiago Neves Sequeira (UBI and INOVA-UNL)
    Abstract: In this work we assess the existence of a S-Curve pattern in ten Central and Eastern European Countries (CEEC-10) for the relation between the trade balance and the terms of trade. Empirical results support the existence of this curve for Slovenia, Czech Republic, Hungary, and also for an aggregate of the ten transition countries. In the case of Lithuania, Poland, Romania, and Slovakia the pattern is weaker than in the mentioned countries but it stills prevails. We then document this property of business cycles in the dynamic general equilibrium trade model of Backus, Kehoe, and Kydland (1994) calibrated specifically to match the CEEC-10 aggregate economy. Results support the existence of a S-Curve, except when technology shocks are absent and domestic and imported goods are perfect substitutes.
    Keywords: Central and Eastern European Countries, Current Account Dynamics, Terms of Trade, S-Curve.
    JEL: C68 F32 F41
    Date: 2010
  5. By: Bin Dong; Benno Torgler
    Abstract: In this study we explore in detail the causes of corruption in China using two different sets of data at the regional level (provinces and cities). We observe that regions with more anti-corruption efforts, histories of British rule, higher openness, more access to media and relatively higher wages of government employees are markedly less corrupt; while social heterogeneity, regulation, abundance of resource and state-owned enterprises substantially breed regional corruption. Moreover, fiscal decentralization is discovered to depress corruption significantly, while administrative decentralization fosters local corruption. We also find that there is currently a positive relationship between corruption and economic development in China that is mainly driven by the transition to a market economy.
    Keywords: Corruption; China; Government; Decentralization; Deterrence; Social Heterogenity
    JEL: D73 H11 K42
    Date: 2010–03
  6. By: Sumon Kumar Bhaumik; Catherine Yap Co
    Abstract: The Chinese state undertakes large scale investments in a number of countries under the auspices of economic cooperation related investment (ECI). While there are suggestions that it is an extension of China‟s soft power aimed at facilitating Chinese FDI in those countries, often for access to natural resources, there is no systematic analysis of this in the literature. In this paper, we examine this investment of the Chinese state over time. Our results suggest that the pattern of investment is indeed explained well by factors that are used in the stylised literature to explain directional patterns of outward FDI. They also demonstrate that the (positive) relationship between Chinese ECI and the recipient countries‟ natural resource richness is not economically meaningful. Finally, while there is some support for the popular wisdom that China‟s willingness to do business with a country is not strongly affected by its level of corruption, there is much weaker support, if any, for the hypotheses that China favours doing business with countries where political rights are limited.
    Keywords: China; Economic cooperation related investment; Foreign direct investment; Natural resources; Institutional quality
    JEL: F21 F23 F59
    Date: 2009–08–01
  7. By: Borek Vasicek
    Abstract: The paper seeks to shed light on inflation dynamics of four new EU member states (the Czech Republic, Hungary, Poland and Slovakia). To this end, the New Keynesian Phillips curve augmented for open economies is estimated and additional statistical tests applied. We find the following. (1) The claim of New Keynesians that the real marginal cost is the main inflation-forcing variable is fragile. (2) Inflation seems to be driven by external factors. (3) Although inflation holds forward-looking component, the backward-looking one is substantial. An intuitive explanation for higher inflation persistence may be rather adaptive than rational price setting of local firms.
    Keywords: Inflation dynamics, New Keynesian Phillips curve, CEE countries, GMM estimation
    JEL: C32 E31
    Date: 2009–10–01
  8. By: Kui-Wai Li (City University of Hong Kong, Hong Kong SAR); Tung Liu (Department of Economics, Ball State University); Hoi Kuan Lam (City University of Hong Kong, Hong Kong SAR); Liang Wang (City University of Hong Kong, Hong Kong SAR)
    Abstract: Since Hong Kong’s reversion of political sovereignty to Mainland China in 1997, the pace of economic integration between the two economies has increased. This paper first examines the economic benefits and institutional differences between Mainland China and Hong Kong. The empirical section of the paper used a stochastic frontier model with the incorporation of a human capital variable to decompose the economic and productivity growth of Mainland China and Hong Kong into the four attributes of input growth, adjusted scale effect, technical progress, and efficiency growth.
    Keywords: technical progress, technical efficiency, returns to scale, human capital, China economy, Hong Kong economy
    JEL: O47 R11
    Date: 2010–02
  9. By: Berger, Allen N. (BOFIT); Hasan, Iftekhar (BOFIT); Zhou, Mingming (BOFIT)
    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 indices, which are 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: 2010–03–25
  10. By: Fungacova, Zuzana (BOFIT); Solanko, Laura (BOFIT); Weill, Laurent (BOFIT)
    Abstract: The aim of this paper is to analyze bank competition in Russia by measuring the market power of Russian banks and its determinants over the period 2001-2007 with the Lerner index. Earlier studies on bank competition have focused on developed countries whereas this paper contributes to the analysis of bank competition in emerging markets. We find that bank competition has only slightly improved during the period studied. The mean Lerner index for Russian banks is of the same magnitude as those observed in developed countries, which suggests that the Russian banking industry is not plagued by weak competition. Furthermore, we find no greater market power for state-controlled banks nor less market power for foreign-owned banks. We would consequently qualify the procompetitive role of foreign bank entry and privatization. Finally, our analysis of the determinants of market power enables the identification of several factors that influence competition, including market concentration and risk as well as the nonlinear influence of size.
    Keywords: market power; bank competition; Russia
    JEL: G21 P34
    Date: 2010–03–25
  11. By: Zuzana Brixiova; Balazs Egert
    Abstract: The transition paths from plan to market have varied markedly across countries. Central and Eastern European and the Baltic countries, which opted for a fast and profound transformation of their institutions including business climates, rapidly narrowed the productivity gap with advanced economies. In contrast, in countries of the Commonwealth of Independent States, which embarked on reforms later and contented with less depth, the productivity gap remains substantial. While the literature has focused mainly on empirical studies, this paper develops a dynamic search model of the firm start-ups that is consistent with the above trends. The model shows that an enabling institutional set up stimulates start-ups of highly productive firms at an earlier stage of transition, underscoring the importance of reforms. The role of the state sector as an employer during transition rises in countries where reforming institutions is particularly costly.
    Keywords: Start-ups, dynamic search model, business climate, productivity, transition
    JEL: O43 O14 O57 C61 C63
    Date: 2010–02–01
  12. By: Marek Gora; Oleksandr Rohozynsky; Oksana Sinyavskaya
    Abstract: This paper provides the results of analyses of key problems related to pension systems and their reforms in Russia and Ukraine. The pension systems and their reforms in both countries are compared. They are also compared with the general picture observed in the OECD or selected countries belonging to that area. The analysis focuses on long-term trends rather than short-term shocks. The recent economic crisis is not covered since the analysis was mostly completed by 2008. First, we present the general picture which describes the current demographic and economic situations as well as the challenges that are being faced. Then we turn to reform options and actions already taken. We particularly focus on issues that are specific to the countries analyzed.
    Keywords: pension reform, pension system, labour market, transition, industrial restructuring, social security, public finance, Russia, Ukraine
    JEL: H53 H55 H69 J11 J18 J32 J38 P36
    Date: 2010
  13. By: Ansgar Belke; Joscha Beckmann; Michael Kühl
    Abstract: This paper examines the importance of diff erent economic sentiments, e.g. consumer moods, for the Central and Eastern European countries (CEECs) during the transition process. We fi rst analyze the importance of economic confi dence with respect to the CEECs’ fi nancial markets. Since the integration of formerly strongly-regulated markets into global markets can also lead to an increase in the dependence of the CEECs’ domestic market performance on global sentiments, we also investigate the relationship between global economic sentiments and domestic income and share prices. Finally, we test whether the impact of global sentiments and stock prices on domestic variables increases proportionally with the degree of integration. We also account for eff ects stemming from global income. For these purposes, we apply a restricted cointegrating VAR (CVAR) framework based upon a restricted autoregressive model which allows us to distinguish between the long-run and the short-run dynamics. For the long run we fi nd evidence supporting relationships between sentiments, income and share prices in the case of the Czech Republic. Our results for the short run suggest that economic sentiments in general are infl uenced by share prices but also off er some predictive power with respect to the latter. What is more, European sentiments play an important role in particular for the CEECs’ share prices and income. The signifi cance of this link increases with economic integration.
    Keywords: Cointegration; European integration; fi nancial markets; restricted autoregressive model; sentiments
    JEL: E44 G15 P2
    Date: 2010–03
  14. By: Kui-Wai Li (City University of Hong Kong, Hong Kong SAR); Tung Liu (Department of Economics, Ball State University)
    Abstract: This paper examines the growth attributes of manufacturing industries in China for the sample period of 1999-2007. A revised Solow’s growth decomposition method is used to consider four growth attributes of input growth, scale effect, technical progress, and technical efficiency change. For the aggregates of all industries, we found no technical efficiency change. The technical progress, input growth, and scale effect explain 45%, 38%, and 17% of output growth, respectively. When all manufacturing industries are disaggregated into four major groups and twenty-nine sub-manufacturing industries, we find that estimates exhibit increasing returns to scale and positive scale effect. When the manufacturing industries data are aggregated in different provinces and regions, we find that input growth is more significant in the Southern region than in other regions. Only the Southern region shows an increase in technical efficiency. Technical progress is more important in the Western and Northeastern regions than the other two regions.
    Keywords: technical progress, technical efficiency, economies of scale, human capital, China economy
    JEL: C2 D24 O4 O53
    Date: 2010–03
  15. By: Rainer Kattel; Annalisa Primi
    Abstract: In this paper we are interested in analyzing the dynamics of the innovation policy in non-frontier countries, and their relationship with structural change and development.
    Date: 2010–03
  16. By: Weill, Laurent (BOFIT); Solanko, Laura (BOFIT)
    Abstract: Why are some lobby groups less benign in their external effects than others? Nearly three decades ago, Mancur Olson (1982) proposed that less-encompassing lobby groups with their constituents collectively representing a narrow range of sectors are more apt to seek the types of subsidies, tariffs, tax loopholes, and competition-limiting regulations that impose costs on the rest of society. To the best of our knowledge, Olson’s oft-cited hypothesis has yet to be actually tested, due perhaps to the absence of adequate data on general policy preferences of various types of lobbies. Thus, we examine a pair of surveys from 2003 and 2004 which were targeted at managers of business associations (lobby groups) and their enterprise constituents to directly test Olson’s hypothesis. Managers from a diverse array of Russian industrial firms and business associations were asked similar questions regarding their attitudes to policies that explicitly benefit well-defined sectoral or regional interests and, implicitly, impose external costs. The pattern of responses is striking. Managers of less-encompassing associations and the constituent firms of such groups are much more apt to see such policies in a favorable light. In contrast, more-encompassing associations and their member display greater skepticism toward narrowly targeted government interventions. Our results strongly support Olson’s hypothesis.
    Keywords: business associations; encompassing interests; Russia; Olson
    JEL: D02 D70 L31
    Date: 2010–03–25
  17. By: Christophe Rault; Guglielmo Maria Caporale; Robert Sova; Anamaria Sova
    Abstract: This paper analyses trade specialisation dynamics in two Eastern European countries (Romania and Bulgaria - EEC-2) vis-à-vis the core EU member states (EU-15) over the period 1990-2006. Specifically, we focus on whether there is a shift towards intra-industry trade leading to economic convergence and technological catch-up. We use recently developed static (FEM, REM and FEVD) and dynamic (GMM) panel data methods which take into account possible heterogeneity. Our empirical results indicate that intra-industry trade has indeed increased, but it is of the vertical rather than the horizontal type, resulting in complementary rather than competitive production patterns.
    Keywords: gravity models, panel data models, trade specialisation, comparative advantage
    JEL: F13 F15 C23
    Date: 2009–06–01
  18. By: Libman, Alexander; Vinokurov, Evgeny
    Abstract: This paper examines the dynamics of regional integration and economic convergence in the post-Soviet world during the period 1999-2008. This is the period, when FSU countries experienced rapid economic growth, following the “Big Bang” of the disintegration of the Former Soviet Union (FSU) and the deep economic recession of the 1990s. It starts by discussing a set of indicators reflecting various aspects of interaction of post-Soviet countries (trade, labor migration, integration in key functional markets and economic convergence in different areas) and examines the dynamics of these indicators for the whole region and sub-groups of countries, as well as potential causes and conclusions to be drawn. In addition, it looks at the clusters of regional integration and economic convergence using the hierarchical cluster analysis and attempts to identify the reasons for their formation. We find that during the period studied the trade integration experienced a negative trend, but at the same time we observe an unprecedented expansion of labor migration – thus suggesting that integration of factor flows can outperform integration of markets for goods and services. Finally, clustering processes of the post-Soviet states for the economic convergence and for the economic integration seems to be unaffected by each other.
    Keywords: regional integration; economic convergence; post-Soviet space; integration clubs
    JEL: F15 P27
    Date: 2010
  19. By: Guidi, Francesco; Gupta, Rakesh
    Abstract: This paper aims to examine the long term relationship between German and three Central and Eastern Europe (CEE) equity markets. Application of Johansen as well as Engle-Granger cointegration tests show that there is no long-term relationship among these markets while the Gregory-Hansen cointegration test rejects the null hypothesis of no cointegration with structural break. An additional objective is to capture the time-varying correlation among these markets through the dynamic conditional correlation models. Empirical results suggest that correlations increased after the accession of the CEE countries into the European Union.
    Keywords: Equity markets; Cointegration; Dynamic conditional correlation models.
    JEL: C53 G15 C22
    Date: 2010–01
  20. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (Eiiw)); Jens K. Perret (Europäisches Institut für Internationale Wirtschaftsbeziehungen (Eiiw))
    Abstract: Based on the OECD's classification of goods, we take a closer look at EU 15 countries and EU accession countries in terms of the dynamics of sectoral output growth - with due emphasis on the distinction between labor-intensive and science-intensive products. Sectoral output dynamics are explained by the (modified) revealed comparative advantage (RCA), specialization in terms of input intensity, the growth rate of RCA, past sectoral output dynamics and per capita output. In addition, we consider the development of nominal sectoral output development. Considerable differences between EU 15 and EU 10 countries were found, which point to different production regimes in leading EU countries and the Eastern European accession countries, respectively. This panel-based bottom-up approach to output growth suggests that structural change will affect the responsiveness of the supply side considerably.
    Keywords: RCA, Output Growth, Sektoral Output Analysis
    JEL: C23 O47 O52 R10
    Date: 2010–01
  21. By: Zuzana Brixiova; Laura Vartia; Andreas Woergoetter
    Abstract: From 2000 to 2007, Estonia was one of the fastest growing emerging market economies. A housing boom, fuelled by capital inflows and credit, resulted in skyrocketing house prices and an over-expanded construction sector. However, the currency board limited the Bank of Estonia’s ability to curb credit growth, while the fiscal policy framework amplified the cycle through pro-cyclical spending increases and tax cuts. As credit was mostly financed by cross-border loans from foreign banks, the risks of disruptions to credit flows and financial contagion have increased. Some have already materialised through tightened lending standards and capital outflows. Estonia is now in a severe recession. To restore high and sustainable growth, the country will need to rebalance its resources from non-tradables towards exports. Regaining external competitiveness will be challenging, however, given the fixed exchange rate and recent devaluations in partner countries. Flexibility of the economy will thus be crucial. Over the medium term, policymakers could also strengthen incentives for a better functioning of the housing finance market and gradually remove the pro-cyclical bias of fiscal policy.
    Keywords: capital inflows; credit; household debt; boom-bust cycle; Estonia
    JEL: E3 E62 C2
    Date: 2009–07–01
  22. By: roman Horvath; Radovan Fiser
    Abstract: We examine the effects of the Czech National Bank communication, macroeconomic news and interest rate differential on exchange rate volatility using generalized autoregressive conditional heteroscedasticity model. Our results suggest that central bank communication has a calming effect on exchange rate volatility. The timing of central bank communication seems to matter, too, as financial markets respond more to the communication before the policy meetings than after them. Next, macroeconomic news releases are found to reduce exchange rate volatility, while interest rate differential seems to increase it.
    Keywords: central bank communication, exchange rate, GARCH
    JEL: E52 E58 F31
    Date: 2009–07–01
  23. By: Borek Vasicek
    Abstract: This paper has three objectives. First, it aims at revealing the logic of interest rate setting pursued by monetary authorities of 12 new EU members. Using estimation of an augmented Taylor rule, we find that this setting was not always consistent with the official monetary policy. Second, we seek to shed light on the inflation process of these countries. To this end, we carry out an estimation of an open economy Philips curve (PC). Our main finding is that inflation rates were not only driven by backward persistency but also held a forward-looking component. Finally, we assess the viability of existing monetary arrangements for price stability. The analysis of the conditional inflation variance obtained from GARCH estimation of PC is used for this purpose. We conclude that inflation targeting is preferable to an exchange rate peg because it allowed decreasing the inflation rate and anchored its volatility.
    Keywords: open emerging economies, CEE countries, monetary policy rules, open economy Phillips curve, conditional inflation variance
    JEL: E31 E52 E58 P24
    Date: 2009–09–01
  24. By: Mark Jacobs
    Abstract: This paper examines the emergence of firm-celebrity, both an intangible-asset, and a facilitator of competitive advantage. Institutional approaches have asserted that organizations from the same organizational field and characterized by comparable structural positions face similar structural forces. These result in isomorphic tendencies, and similarities among firms. But, in any organizational field, differences among firms also exist. Apart from research on variations resulting from intra-organization factors, however, firm-differentiating processes have not received much attention. This paper focuses on various firm-external social constructions: legitimacy, reputation, and status, and how they impact the emergence of firm-celebrity, a construct that helps to differentiate one firm from another. The paper adopts a historical, relationally framed approach, which features a firm-celebrity case study.
    Keywords: celebrity, structural change, legitimacy, reputation, status, China, Yiwu
    JEL: L1 L2 M13 N85
    Date: 2009–08–01
  25. By: Chen, Zhihong; Fu, Shihe; Zhang, Dayong
    Abstract: Three urban growth theories predict parallel growth of cities. The endogenous growth theory predicts deterministic parallel growth; the random growth theory implies that city growth follows Gibrat’s law with a steady-state distribution; and the hybrid growth theory suggests the co-movement of random city growth. This paper uses the Chinese city size data from 1984-2006 and time series econometric techniques to test for parallel growth. The results from various types of stationarity tests on pooled heterogeneous cities show that city growth is random. However, once growth trend and structural change are taken into account, certain groups of cities with common group characteristics, such as similar natural resource endowment or policy regime, grow parallel.
    Keywords: Urban growth; Parallel growth; Zipf’s law; Unit root; Structural change
    JEL: C22 R12 R11
    Date: 2010–03–19
  26. By: Jan Hanousek; Evzen Kocenda; Mathilde Maurel
    Abstract: We review a large body of literature dealing with the effects of Foreign Direct Investment (FDI) on economies during their transformation from a command economic system toward a market system. We report the results of a meta-analysis based on the literature on externalities from FDI. The studies on emerging European markets covered in our survey report direct and indirect FDI effects weakening over time, similarly as in other FDI destination countries. This is imputable to a publication bias that is detected and to the fact that more sophisticated methods and more controls can be used once a sufficient time span is available. Panel studies are likely to find relatively lower spillover effects. The choice of the research design (definition of firm performance and foreign firm presence) matters. More specific to the sampled studies is the role played by forward and backward linkages, which dominate other channels in driving FDI externalities.
    Keywords: FDI; productivity spillovers; economic transformation; emerging markets; meta-analysis
    JEL: C42 D62 F21 F23 O3
    Date: 2010–03–01
  27. By: Zuzana Brixiova
    Abstract: In mid-2008, high employment and low unemployment rates characterised the Estonian labour market in comparison with the average of the EU15 countries. While aggregate outcomes improved during 2000 07, large inequalities persisted across regions, ethnic groups, and workers with different skill levels. As Estonia entered recession in 2008, the unemployment rate almost doubled between the 2nd and the 4th quarter, and is expected to rise further in 2009 and 2010. More flexible labour markets will be a key adjustment mechanism during the recession as well as in the medium term if Estonia is to become a knowledge based economy. Given the currency board arrangement and low synchronisation with the euro area, flexibility is also needed to cushion asymmetric shocks. In December 2008, parliament adopted the new Employment Contract Act, deregulating employment protection while increasing income security of the unemployed. This paper discusses options for removing the remaining barriers that impede worker reallocation across jobs, sectors, and regions into more productive activities.
    Keywords: Labour market policies; flexibility; Estonia.
    JEL: J08 J64 E24
    Date: 2009–07–01

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