nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒04‒11
twenty papers chosen by
J. David Brown
Heriot-Watt University

  1. Financial integration and financial development in transition economies : what happens during financial crises ?. By Arjana Brezigar-Masten; Fabrizio Coricelli; Igor Masten
  2. Direct and indirect effects of FDI in emerging European markets : a survey and meta-analysis. By Jan Hanousek; Evžen Ko?enda; Mathilde Maurel
  3. Economic Crime and Punishment in North Korea By Stephan Haggard; Marcus Noland
  4. Fiscal decentralisation and the quality of public services in Russian regions By Alexander Plekhanov; Lev Freinkman
  5. Entrepreneurship Propelling Economic Changes in China By Gregory C. Chow
  6. Gender, Wages, and Social Security in China’s Industrial Sector By Rickne, Johanna
  7. Russian trade and foreign direct investment policy at the crossroads By Tarr, David; Volchkova, Natalya
  8. What explains the low profitability of Chinese Banks? By Alicia García-Herrero; Sergio Gavilá; Daniel Santabárbara
  9. Growth and crisis in transition : a comparative perspective By Fabrizio Coricelli; Mathilde Maurel
  10. Migration, remittances and the current economic crisis: implications for Central and Eastern Europe By Barbara Dietz
  11. Decomposing a decade's growth of Central and Eastern Europe's trade By Katharina Eck
  12. A survey on European integration, offshoring and trade By Ekaterina Sprenger
  13. The financial crisis hits the real and social sector : Russia in spring 2009 By Manuela Troschke
  14. South-eastern Europe: lessons from the global economic crisis By Peter Sanfrey
  15. Estimation of a Dynamic Model of Weight By Shu Wen Ng; Edward C. Norton; David K. Guilkey; Barry M. Popkin
  16. China’s Exchange Rate Policy and Asian Trade By Alicia Garcia-Herrero; Tuuli Koivu
  17. In the wake of the crisis: dealing with distressed debt across the transition region By Ralph De Haas; Stephan Knobloch
  18. Tail Behavior of the Central European Stock Markets during the Financial Crisis By Jozef Barunik; Lukas Vacha; Miloslav Vosvrda
  19. Nonuniversal distributions of stock returns in an emerging market By Guo-Hua Mu; Wei-Xing Zhou
  20. Microfinance in Uzbekistan : market overview and impact assessment needs By Nargiza Maksudova

  1. By: Arjana Brezigar-Masten (Institute for Macroeconomic Analysis and Development); Fabrizio Coricelli (Centre d'Economie de la Sorbonne and CEPR); Igor Masten (European University Institute and University of Ljubjana)
    Abstract: This papers provides an empirical analysis of the role of financial development and financial integration in the growth dynamics of transition countries. We focus on the role of financial integration in determining the impact of financial development on growth, distinguishing "normal times" from periods of financial crises. In addition to confirming the significant positive effect on growth exerted by financial development and financial integration, our estimates show that a higher degree of financial openness tends to reduce the contractionary effect of financial crises, by cushioning the effect on the domestic supply of credit. Consequently, the high reliance on international capital flows by transition countries does not necessarily increase their financial fragility. This implies that financial protectionism is a self-defeating policy, at least for transition countries.
    Keywords: Transition economies, financial integration, financial crises, economic growth, threshold effects.
    JEL: F33 F36 G15
    Date: 2010–02
  2. By: Jan Hanousek (CERGE-EI and CEPR); Evžen Ko?enda (CERGE-EI and CEPR); Mathilde Maurel (Centre d'Economie de la Sorbonne)
    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
  3. By: Stephan Haggard (University of California, San Diego Graduate School of International Relations and Pacific Studies); Marcus Noland (Peterson Institute for International Economics)
    Abstract: The penal system has played a central role in the North Korean government's response to the country's profound economic and social changes. As the informal market economy has expanded, so have the scope of economic crimes. Two refugee surveys--one conducted in China, one in South Korea--document that the regime disproportionately targets politically suspect groups, and particularly those involved in market-oriented economic activities. Levels of violence and deprivation do not appear to differ substantially between the infamous political prison camps, penitentiaries for felons, and labor camps used to incarcerate individuals for a growing number of economic crimes. Such a system may also reflect ulterior motives. High levels of discretion with respect to arrest and sentencing and very high costs of detention, arrest and incarceration encourage bribery; the more arbitrary and painful the experience with the penal system, the easier it is for officials to extort money for avoiding it. These characteristics not only promote regime maintenance through intimidation, but may facilitate predatory corruption as well.
    Keywords: Prison camps, corruption, North Korea, refugees
    JEL: P37 K42 F22
    Date: 2010–03
  4. By: Alexander Plekhanov (European Bank of Reconstruction and Development); Lev Freinkman (World Bank)
    Abstract: The paper provides empirical analysis of the relationship between fiscal decentralisation and the quality of public services in the Russian regions. The analysis suggests that fiscal decentralisation has no significant effect on the key inputs into secondary education, such as schools, computers, or availability of pre-schooling, but has a significant positive effect on average examination results, controlling for key observable inputs and regional government spending on education. Decentralisation also has a positive impact on the quality of municipal utilities provision. Both effects can be attributed to strengthened fiscal incentives rather than to superior productive efficiency of municipal governments.
    Keywords: decentralisation, education, utilities, public services, Russian regions
    JEL: H72 H73 H75 H77
    Date: 2009–11
  5. By: Gregory C. Chow (Princeton University)
    Abstract: The most important aspect of the Chinese economy today is its rapid changes. The changes are propelled by the Chinese entrepreneurs. This essay is an attempt to understand who the entrepreneurs are, the environment in which they work, whether the dynamic changes will continue and what policies can be proposed to improve the changes.
    Keywords: China, entrepreneurship, economic reform
    JEL: D12 F14 H32 L26 N85
    Date: 2010–03
  6. By: Rickne, Johanna (Research Institute of Industrial Economics (IFN))
    Abstract: This study compares average earnings and productivities for men and women employed in roughly 200,000 Chinese industrial enterprises. Women’s average wages lag behind men’s wages by 11%, and this result is robust to the inclusion of non-wage income in the form of social insurance payments. The gender-wage gap is wider among workers with more than 12 years of education (28%), mainly because of the higher relative wages received by skilled men in foreign-invested firms. Women’s average productivity falls behind men’s productivity by a larger margin than the gap in earnings, and the null-hypothesis of earnings discrimination is thereby rejected. Equal average wages between men and women are found among firms located in China’s Special Economic Zones, and also among some light industrial sectors with high shares of female employees. Market reform hence appears to have improved women’s relative incomes.
    Keywords: China; Gender Wage Gap; Non-wage Compensation
    JEL: I30 J16 J71 O10
    Date: 2010–03–30
  7. By: Tarr, David; Volchkova, Natalya
    Abstract: This paper summarizes the estimates of what Russia will get from World Trade Organization accession and why. A key finding is the estimate that Russia will gain about $53 billion per year in the medium term from World Trade Organization accession and $177 billion per year in the long term, due largely to its own commitments to reform its own business services sectors. The paper summarizes the principal reform commitments that Russia has undertaken as part of its World Trade Organization accession negotiations, and compares them with those of other countries that have acceded to the World Trade Organization. It finds that the Russian commitments represent a liberal offer to the members of the World Trade Organization for admission, but they are typical of other transition countries that have acceded to the World Trade Organization. The authors discuss the outstanding issues in the Russian World Trade Organizaiton accession negotiations, and explain why Russian accession will result in the elimination of the Jackson-Vanik Amendment against Russia. They discuss Russian policies to attract foreign direct investment, including an assessment of the impact of the 2008 law on strategic sectors and the increased role of the state in the economy. Finally, the authors assess the importance of Russian accession to Russia and to the international trading community, and suggestions for most efficiently meeting the government’s diversification objective.
    Keywords: Economic Theory&Research,World Trade Organization,Emerging Markets,Debt Markets,Free Trade
    Date: 2010–03–01
  8. By: Alicia García-Herrero; Sergio Gavilá; Daniel Santabárbara
    Abstract: This paper analyzes empirically what explains the low profitability of Chinese banks for the period 1997-2004. We find that better capitalized banks tend to be more profitable. The same is true for banks with a relatively larger share of deposits and for more X-efficient banks. In addition, a less concentrated banking system increases banks profitability, which basically reflects that the four state-owned commercial banks –China’s largest banks- have been the main drag for system’s profitability. We find the same negative influence for China’s development banks (so called Policy Banks), which are fully state-owned. Instead, more market oriented banks, such as joint-stock commercial banks, tend to be more profitable, which again points to the influence of government intervention in explaining bank performance in China. These findings should not come as a surprise for a banking system which has long been functioning as a mechanism for transferring huge savings to meet public policy goals.
    Keywords: China; Bank profitability; Bank reform
    JEL: G21 G28
    Date: 2009–04
  9. By: Fabrizio Coricelli (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, CEPR - Centre for Economic Policy Research); Mathilde Maurel (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: The paper provides an empirical analysis of the growth performance of transition countries in a comparative perspective, separating episodes of crises from those of growth. Performance is measured by the output response following recessions, rather than average rates of growth that aggregate periods of recessions and periods of growth. Results highlight significant differences between transition and non-transition countries, and heterogeneity within the transition group. Distinguishing the performance following the so-called "transitional recession" from that of "normal recessions", the analysis allows separating the role of initial conditions, pre-transition, from the effects determined by the economic structure that emerged after the launch of market reforms. The post-recession behavior of output in Central-Eastern Europe resembles that of emerging and developing countries in the aftermath of banking and financial crises, often following significant liberalizations. In contrast, the post-crisis performance of CIS countries resembles the output response observed during episodes of civil wars, and remains significantly different from the normal response of an average market country. Therefore, the ability to rebound after a crisis is a key element of the growth performance of different transition countries. Furthermore, we distinguish three components of the growth performance associated to a crisis, namely the capacity to rebound, the depth and the lenght of the crisis. We observe that such performance depends on economic reforms and especially on the complementarities among different reforms.
    Keywords: Recessions, crises, reform complementarities, transition.
    Date: 2010–02
  10. By: Barbara Dietz (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Abstract: In recent years labour migration from Central and Eastern Europe has increased, resulting in a comparatively stable and high inflow of remittances into these countries. This briefing explores how the current economic crisis impacts on the development of migration and remittance flows into EU-10 and CIS countries. There is evidence for a reduction of migration movements in the short run and a likely decrease of remittance flows into this region.
    Date: 2009–07
  11. By: Katharina Eck (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Abstract: After the breakdown of the central planning system, Central and East European countries (CEECs) took considerable effort in liberalising their economies leading to lasting changes in CEEC trade. As a result, between 1996 and 2004 almost all of these countries displayed very high growth rates of both exports and imports, exceeding OECD and Russian performance. These trade developments are described and interpreted in this note on a descriptive rather than an analytical basis. First, trade volumes by goods categories are examined to account for what kind of goods are the major trade growth drivers. In general, growth in exports and imports is mainly driven by goods used in production rather than consumer goods. Specifically for the Central and East European EU members (EU-8), export and import growth is mainly driven by capital goods and two-way trade in a special subgroup of intermediate goods, i.e., parts and accessories of capital goods. This result can be associated with increasing offshoring activities between the old EU member states and the new EU-8 countries. A closer look at EU-8 exports to and imports from Germany confirms this finding: EU-8 states tend to import parts and accessories of capital goods from Germany to produce and export parts and accessories of capital goods or final capital goods to Germany. Second, the effects of liberalisation on the variety versus the intensity of trade are described. Here as well, CEEC growth in trade at the extensive margin is driven by intermediate rather than consumer goods. Considering the import side this finding has important implications: While more consumer goods “only” have static welfare effects, a higher input variety might signal a change of the economy’s state of technology. The author is a graduate student at the Department of Economics, University of Regensburg and a research assistant at the OEI. I am grateful to Richard Frensch for many helpful discussions and guidance on this note.
    Date: 2009–05
  12. By: Ekaterina Sprenger (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Abstract: This note describes Central and Eastern European countries’ (CEECs) involvement in production and trade in Europe. After having liberalised their economies in the 1990s, CEECs have become a part of international production networks in Europe. International production/distribution networks in East Asia have been developing simultaneously. The paper compares production and trade patterns in Europe and East Asia.
    Date: 2009–11
  13. By: Manuela Troschke (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Date: 2009–05
  14. By: Peter Sanfrey (European Bank of Reconstruction and Development)
    Abstract: This paper shows how the crisis has evolved in south-eastern Europe and why this region was affected by developments that originated elsewhere. It argues that the impact has been better than many feared and that this resilience can be attributed in large part to the mature and sensible reaction of the region itself.
    Keywords: Global Crisis, South-eastern Europe
    Date: 2010–02
  15. By: Shu Wen Ng; Edward C. Norton; David K. Guilkey; Barry M. Popkin
    Abstract: The ongoing debate about the economic causes of obesity has focused on the changing relative prices of diet and exercise. This paper uses a model that explicitly includes time and spatially varying community-level urbanicity and price measures as instruments to obtain statistically correct measures for the endogenous effects of diet, physical activity, drinking, and smoking on weight. We apply a dynamic panel system GMM estimation model to longitudinal (1991–2006) data from China to model weight and find that among adult men in China, about 6.1% of weight gain was due to declines in physical activity and 2.9-3.8% was due to dietary changes over this period. In the long run, physical activity can account for around 6.9% of weight gain, while diet can account for 3.2-4.2% of weight gain.
    JEL: I12
    Date: 2010–04
  16. By: Alicia Garcia-Herrero; Tuuli Koivu
    Abstract: This paper shows empirically that China’s trade balance is sensitive to fluctuations in the renminbi real effective exchange rate. However, the current size of the trade surplus is such that exchange rate policy, alone, will probably not be able to address the imbalance. The reduction in the trade surplus is limited mainly because Chinese imports do not react as expected to exchange rate appreciation. In fact, they tend to fall rather than increase. By estimating bilateral import equations for China and its major trading partners, we find that such reaction of imports to exchange rate appreciation is generally confirmed for South-East Asian countries but not for others. This might be a direct consequence of Asia’s vertical integration as a large share of Chinese imports from Southeast Asia is directed to reexporting. We also find that the total exports from a number of Asian countries react negatively to a renminbi appreciation, which points to a dependence of Asian countries’ exports on those of China.
    Keywords: China, trade, exports, real exchange rate
    JEL: F1 F14
    Date: 2009–07
  17. By: Ralph De Haas (European Bank of Reconstruction and Development); Stephan Knobloch (European Bank of Reconstruction and Development)
    Abstract: This paper reviews the origin and spread of the distressed debt problem in the transition region. We argue that while the crisis was triggered abroad, the current high level of distressed debt in various transition countries mainly reflects home-grown vulnerabilities. As in the West, the root causes of the debt problem were abundant and cheap funding and a gradual relaxation of banks’ lending standards – in particular an excessive reliance on rising real estate values.
    Keywords: distressed debt, insolvemcy, financial crisis
    JEL: F34 F36 G21 G28 G33 K0
    Date: 2010–02
  18. By: Jozef Barunik (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague); Lukas Vacha (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague); Miloslav Vosvrda (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague)
    Abstract: In the paper we research statistical properties of the Central European stock markets. We focus mainly on the tail behavior of the Czech, Polish, and Hungarian stock markets and compare them to the benchmark U.S. and German stock markets. We fit the data of the 4-year period from March 2005 to March 2009 with the stable probability distribution model and discuss its tail behavior. As the estimation of the tail exponent is very sensitive to the size of the data set, the estimates can be misleading for short daily samples. Thus, we employ high-frequency 1-minute data, which proves to be a good choice as it reveals interesting findings about the distributional properties. Furthermore, we study the difference in stock market behavior before and during the financial crisis.
    Keywords: financial crisis, tail behavior, stock markets, stable probability distribution
    JEL: G14 C13 C16
    Date: 2010–03
  19. By: Guo-Hua Mu (ECUST); Wei-Xing Zhou (ECUST)
    Abstract: There is convincing evidence showing that the probability distributions of stock returns in mature markets exhibit power-law tails and both the positive and negative tails conform to the inverse cubic law. It supports the possibility that the tail exponents are universal at least for mature markets in the sense that they do not depend on stock market, industry sector, and market capitalization. We investigate the distributions of one-minute intraday returns of all the A-share stocks traded in the Chinese stock market, which is the largest emerging market in the world. We find that the returns can be well fitted by the $q$-Gaussian distribution and the tails have power-law relaxations with the exponents fluctuating around $\alpha=3$ and being well outside the L\'evy stable regime for individual stocks. We provide statistically significant evidence showing that the exponents logarithmically decrease with the turnover rate and increase with the market capitalization, and find that the market capitalization has a greater impact on the tail exponent than the turnover rate. Our findings indicate that the intraday return distributions are not universal in emerging stock markets.
    Date: 2010–03
  20. By: Nargiza Maksudova (CERGE-EI)
    Abstract: Microfinance has a strong footing in Uzbekistan, the most populous country in the Central Asian region with a large fraction of inhabitants living in rural areas. Considered one of the key means of alleviating poverty and generating employment, the Uzbek government gave priority to microfinance initiatives, which resulted in the adoption of several microfinance laws. This paper provides an overview of the microfinance market as it has evolved in Uzbekistan, and calls for more comprehensive types of impact evaluation surveys that could benefit further market development.
    Date: 2009–03

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