nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒05‒15
twenty-one papers chosen by
J. David Brown
Heriot-Watt University

  1. Interprovincial disparities in China since the reforms: convergence or divergence? By Farhad Noorbakhsh; Zhikai Wang
  2. Gender, Wages and Social Security in China’s Industrial Sector By Rickne, Johanna
  3. Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter? By Michał Brzoza-Brzezina; Tomasz Chmielewski; Joanna Niedźwiedzińska
  4. Return migrants: The rise of new entrepreneurs in rural China By Sylvie Démurger; Hui Xu
  5. Drivers of Private Equity Investment in CEE and Western European Countries By Kerstin Bernoth; Roberta Colavecchio; Magdolna Sass
  6. The transition of China and Ussr: A political economy perspective By Digdowiseiso, Kumba
  7. The Impact of the 1999 Education Reform in Poland By Maciej Jakubowski; Harry Anthony Patrinos; Emilio Ernesto Porta; Jerzy Wiśniewski
  8. Economic Growth, Energy demand and Atmospheric Pollution: Challenges and Opportunities for China in the future 30 years By Jie He; David Roland-Holst
  9. Oil dependency of the Russian economy: an econometric analysis By Andreas Benedictow, Daniel Fjærtoft and Ole Løfsnæs
  10. Vertical Trade and China's Export Dynamics By Wei Liao; Kang Shi; Zhiwei Zhang
  11. The European Rescue of the Washington Consensus? EU and IMF Lending to Central and Eastern European Countries By Susanne Lütz; Matthias Kranke
  12. Rates of Return to University Education: the Regression Discontinuity Design By Elliott Fan; Xin Meng; Zhichao Wei; Guochang Zhao
  13. Organizational Culture and Corporate Governance in Russia : A Study of Managerial Turnover By Abe, Naohito; Iwasaki, Ichiro
  14. Challenges and Trajectories of Fiscal Policy and PFM Reform in CEE/CIS By Branka Andjelkovic; Alexander Chubrik; Marek Dabrowski; Roman Mogilevsky; Irina Sinitsina; Przemyslaw Wozniak
  15. Corporate Debt Maturity Choice in Emerging Financial Markets By Andreas Stephan; Oleksandr Talavera; Andriy Tsapin
  16. Marx, Globalization, and the Falling Rate of Profit: A Critical Study. By Miguel D. Ramirez
  17. Can Stated Preference Methods Accurately Predict Responses to Environmental Policies? The Case of a Plastic Bag Regulation in China By He, Haoran
  18. Foreign Investments and Institutional Convergence in Southeastern Europe By Eleni A. Kaditi
  19. Langfristige Wachstumsaussichten der ukrainischen Wirtschaft : Potenziale und Barrieren By Michael Knogler; Volkhart Vincentz; Miriam Frey
  20. Modelling anti-inflationary monetary targeting: with an application to Romania By Marcelo Sánchez
  21. When Foreign Direct Investment is Good for Development: Bulgaria’s accession, industrial restructuring and regional FDI By Diana Bozhilova

  1. By: Farhad Noorbakhsh; Zhikai Wang
    Abstract: This paper investigates the extent of disparities amongst the provinces of China since the economic reform in 1978 up to the most recent year for which data is available. After a brief review of theoretical and in particular recent empirical literature on regional inequality in China it investigates whether or not the dynamic economic growth in China has been coupled with increasing disparities amongst the Chinese provinces. The paper utilises a few models of convergence along the lines of those hypothesised by neoclassical economists. It employs per capita income and per capita consumption to identify the possible absolute and conditional convergence since the economic reforms. The coverage and impact of the disparities in terms of the relative size of population affected are then taken into account in the analysis of inequality in income and consumption.
    Keywords: China, Regional disparities, inequality, convergence
    Date: 2010–03
  2. By: Rickne, Johanna (Department of Economics)
    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: 2010–05–10
  3. By: Michał Brzoza-Brzezina (National Bank of Poland, ul. Świętokrzyska 11/21, 00-919 Warszawa, Poland.); Tomasz Chmielewski (Warsaw School of Economics, al. Niepodległości 162, 02-554 Warszawa, Poland.); Joanna Niedźwiedzińska (National Bank of Poland, ul. Świętokrzyska 11/21, 00-919 Warszawa, Poland.)
    Abstract: In this paper we analyse the impact of monetary policy on total bank lending in the presence of a developed market for foreign currency denominated loans and potential substitutability between domestic and foreign currency loans. Our results, based on a panel of four biggest Central European countries (the Czech Republic, Hungary, Poland and Slovakia) confirm significant and probably strong substitution between these loans. Restrictive monetary policy leads to a decrease in domestic currency lending but simultaneously accelerates foreign currency denominated loans. This makes the central bank’s job harder. JEL Classification: E44, E52, E58.
    Keywords: Domestic and foreign currency loans, substitution, monetary policy, Central Europe.
    Date: 2010–05
  4. By: Sylvie Démurger (Université de Lyon, Lyon, F-69003, France; CNRS, GATE Lyon St Etienne, UMR 5824, 93, chemin des Mouilles, Ecully, F-69130, France; ENS-LSH, Lyon, France ; CNRS, CEFC, USR 3331 Asie Orientale, Hong Kong); Hui Xu (Université de Lyon, Lyon, F-69003, France; CNRS, GATE Lyon St Etienne, UMR 5824, 93, chemin des Mouilles, Ecully, F-69130, France; ENS-LSH, Lyon, France ; Center for Modern Chinese City Studies (CCMC), East China Normal University, Shanghai, China)
    Abstract: This paper analyzes return migrants' occupational choice upon their return to their home village, by using an original rural household survey conducted in Wuwei county (Anhui province, China) in 2008. We apply two complementary approaches : a horizontal comparative analysis of occupational choice between non-migrants and return migrants, and a vertical investigation of the impact of migration experience on returnees only. Two main findings are drawn up from the estimation of probit models which account for potential selection bias and endogeneity. First, return migrants are more likely to be self-employed and to opt for higher ability jobs than non-migrants. Second, both return savings and the frequency of job changes during migration increase the likelihood for return migrants to become self-employed. These findings suggest that (a) working experience during migration enhances individual's human capital and entrepreneurial ability, and (b) repatriated migration experience is a key stimulating factor in promoting rural entrepreneur activity.
    Keywords: Return migrants, occupational change, entrepreneurship, Asia, China
    JEL: O15 J62 L26 O53
    Date: 2010
  5. By: Kerstin Bernoth; Roberta Colavecchio; Magdolna Sass
    Abstract: A strong private equity market is a cornerstone for commercialization and innovation in modern economies. However, substantial differences exist in the relative amounts raised and invested in private equity across European countries. We investigate the macro-determinants of private equity investment in Europe, focusing on the comparison between CEE and Western European countries. Our estimations are based on a data set running from 2001 to 2008 and covers 14 Western European and three CEE countries. Applying robust estimation techniques we identify a 'robust' set of determinants of private equity activity in both regions. We find similarities as well as differences in the driving forces of private equity investments in Western European and CEE countries. Our results suggest that commercial bank lending, equity market capitalization, unit labour costs and corporate tax rates are significant determinants of private equity activity.
    Keywords: Private Equity, Extreme Bounds Analysis, Central and Eastern European Countries
    JEL: C23 C52 E22 G24
    Date: 2010
  6. By: Digdowiseiso, Kumba
    Abstract: This paper will focus on how the transition in China differs from that of USSR in terms of the Big Bang (shock therapy) and the Gradualist approach. While many econometric studies show that nations which apply both shock therapy and or gradualism end up at the same point, making the debate unnecessary, the author believes that gradualism was far more successfully implemented than the latter. When reforming the structure of the economy, it has to be remembered that a market based solution is a means not an end and it is more important “getting it right” than transitioning as fast as possible to ensure a level of playing field and long term sustainable growth.
    Keywords: Transition; Reform; Economics; Politics
    JEL: P11 P30 P51
    Date: 2010–05–04
  7. By: Maciej Jakubowski (Faculty of Economic Sciences, University of Warsaw; Organisation for Economic Co-operation and Development (OECD)); Harry Anthony Patrinos (World Bank); Emilio Ernesto Porta (World Bank); Jerzy Wiśniewski (Center for Social and Economic Research (CASE), Poland)
    Abstract: Increasing the share of vocational secondary schooling has been a mainstay of development policy for decades, perhaps nowhere more so than in formerly socialist countries. The transition, however, led to significant restructuring of school systems, including a declining share of vocational students. Exposing more students to a general curriculum could improve academic abilities. This paper analyzes Poland’s significant improvement in international achievement tests and the restructuring of the education system that expanded general schooling to test the hypothesis that delayed vocational streaming improves outcomes. Using propensity score matching and differences-in-differences estimates, the authors show that delayed vocationalization had a positive and significant impact on student performance on the order of one standard deviation.
    Keywords: education, streaming, tracking, curriculum
    JEL: I21 I28
    Date: 2010
  8. By: Jie He (GREDI, Faculte d'administration, Université de Sherbrooke); David Roland-Holst (Mills College, UC Berkeley, and RDRC)
    Abstract: This paper uses a dynamic CGE model, calibrated to detailed Chinese emissions data, to assess two important questions. What can we reasonably expect Chinese emissions trends to look like over the next three decades? Secondly, what would be the appropriate policy interventions to flatten Chinese emissions trajectories and reduce the risk of local, regional, and even global adversity? This research is original in its direct use of the new industrial sector-level emissions and energy using data from China to estimate the energy-specific emission effluent rate and its detailed treatment of policies taking account of the three main determinants of pollution intensity: growth, output composition, and technological change. Our results indicate that, without further effective emission control measures, China’s economic growth over the next two decades will contribute significantly to SO2 emission problems, in which the emission firstly increase from the rapid expansion of the transportation service sectors until 2018, then from the heavy industrialization process after 2018. With the potential technical progress, the emission burden will be centralized back to two energy sectors: electricity generation and petrol and coke refining during these two periods. Detailed examination of the structural and technological components of pollution shows that efficient pollution mitigation can be realized by focused abatement activities, cleaner production, and advances in cleaner fuel products and their use technologies.
    Keywords: China, Global warming, CGE modeling
    JEL: Q53 D58 Q54 Q58
    Date: 2010–04–26
  9. By: Andreas Benedictow, Daniel Fjærtoft and Ole Løfsnæs (Statistics Norway)
    Abstract: A macro econometric model of the Russian economy is developed, containing 13 estimated equations – covering major national account variables, government expenditures and revenues, interest rates, prices and the labour market. The model is tailored to analyze effects of changes in the oil price and economic policy variables. The model has good statistical properties and tracks history well over the estimation period, which runs from 1995Q1 to 2008Q1. Model simulations indicate that the Russian economy is vulnerable to large fluctuations in the oil price, but we also find evidence of significant economic growth capabilities in the absence of oil price growth.
    Keywords: Russia; macro econometric model; oil price dependency; fiscal and monetary policy
    JEL: C51 E17 E52 E63 Q43
    Date: 2010–05
  10. By: Wei Liao (Hong Kong Institute for Monetary Research); Kang Shi (The Chinese University of Hong Kong and Hong Kong Institute for Monetary Research); Zhiwei Zhang (China International Capital Corporation)
    Abstract: This paper examines how China's exports are affected by exchange rate shocks from countries who supply intermediate inputs to China. We build a simple small open economy model with intermediate goods trade to show that due to the intraregional trade in intermediate goods, a devaluation of other Asian currencies does not necessarily damage China's exports, as imported intermediate goods could become cheaper. This channel through the cost of intermediate goods depends critically on the share of intermediate goods used in China's export goods production and the degree of exchange rate pass-through in imported intermediate goods prices. If prices for intermediate goods are not very sticky, the effect through this channel could be large and China's exports could even benefit. We find the above findings do not depend on China's choice of currency invoicing between RMB and the US dollar or the choice between fixed and flexible exchange rate regimes.
    Keywords: Vertical Trade, Exchange Rates, Export Dynamics, Currency Invoicing
    JEL: F3 F4
    Date: 2010–04
  11. By: Susanne Lütz; Matthias Kranke
    Abstract: The latest global financial crisis has allowed the International Monetary Fund (IMF) a spectacular comeback. But despite its notorious reputation as a staunch advocate of restrictive economic policies, the Fund has displayed less preference for austerity in recent crisis lending. Though widely welcomed as overdue, the IMF’s shift away from what John Williamson coined the ‘Washington Consensus’ was met with resistance from the European Union (EU) where it concerned Central and Eastern European (CEE) countries. The situation of hard-hit Hungary, Latvia, and Romania propelled unprecedented cooperation between the IMF and the EU, in which the EU has very actively promoted orthodox measures in return for loans. We argue that this represents a European rescue of the Washington Consensus. The case of Latvia is paradigmatic for the profound disagreements between an austerity-demanding EU and a less austere IMF. The IMF’s stance contradicts conventional wisdom about the organization as the guardian of economic orthodoxy. To solve this puzzle, we shed light on three complementary factors of (non)learning that have shaped the EU’s relations vis-à-vis CEE borrowing countries in comparison to the IMF’s: (1) a disadvantageous institutional setting; (2) vociferous creditor coalitions; (3) the precarious eurozone project.
    Keywords: International Monetary Fund (IMF); European Union (EU); Washington Consensus; lending; learning; Central and Eastern Europe (CEE); Latvia
    Date: 2010–05
  12. By: Elliott Fan; Xin Meng; Zhichao Wei; Guochang Zhao
    Abstract: Estimating the rate of return to a university degree has always been difficult due to the problem of omitted variable biases. Benefiting from a special feature of the University Admission system in China, which has clear cutoffs for university entry, combined with a unique data set with information on individual National College Entrance Examination (NCEE) scores, we estimate the Local Average Treatment Effects (LATE) of university education based on a Regression Discontinuity design. To the best of our knowledge, this is the first study to use RD design to estimate the causal effect of a university education on earnings. Our results show that the rates of return to 4-year university education relative to 3-year college education are 40 and 60 per cent for the compliers in the male and female samples, respectively, which are much larger than the simple OLS estimations revealed in previous literature. Since in our sample a large proportion of individuals are compliers (45 per cent for males and 48 per cent for females), the LATEs estimated in this paper have a relatively general implication. In addition, we find that the LATEs are likely to be larger than ATEs, suggesting that the inference drawn from average treatment effects might understate the true effects of the university expansion program introduced in China in 1999 and thereafter.
    Keywords: Rate of return to education, Regression Discontinuity Design, China
    JEL: I21 I28 J24
    Date: 2010–03
  13. By: Abe, Naohito; Iwasaki, Ichiro
    Abstract: In this paper, we investigate the possible impacts of ownership structure and corporate performance on managerial turnover using a unique dataset of Russian corporations. We argue that Russia is regarded as a country with a highly authoritarian and collectivism-oriented national culture and this peculiarity is the key to disentangling the puzzle of the statistically weaker relationship between firm performance and CEO renewal in Russian firms. Standing on this viewpoint, we deal with not only CEO dismissal, but also managerial turnover within a company as a whole. By conducting multinomial analysis that incorporates both factors, we found significant relationship between firm performance and CEO dismissal, while, consistent with most previous studies, a standard logit analysis of CEO turnover revealed no clear relationships. We also found that the presence of a dominant shareholder significantly increases the likelihood of turnover of whole management team, while foreign ownership tends to cause partial (CEO only) turnover. Our empirical result is consistent with the "cultural view" of management practice as put forward by House et al. (2004).
    Keywords: organizational culture, corporate governance, managerial turnover, Russia
    JEL: D21 G34 G35 P31 P34
    Date: 2010–04
  14. By: Branka Andjelkovic; Alexander Chubrik; Marek Dabrowski; Roman Mogilevsky; Irina Sinitsina; Przemyslaw Wozniak
    Abstract: The purpose of this study is to provide an overview of fiscal policies and PFM reforms in 7 countries in the Western Balkans and 12 countries in the CIS, including major macroeconomic and poverty trends, fiscal policy, the size and role of the public sector, public expenditure management and its linkage to policy development, the organization of budget processes on the central and local levels, the role of various actors and tools in PFM, including civil society and the international donor community. The period of 2003-2007 was characterized by an extraordinary high rate of economic growth, both worldwide and in the CEE/CIS region. This created macroeconomic room for meeting numerous development challenges: reducing poverty and inequality, improving the quality and coverage of public services, upgrading infrastructure, and advancing various reforms, including those related to PFM. However, the economic situation deteriorated dramatically in 2008 as a result of the global financial crisis, with deep recession hitting most of the countries in 2009 and bleak perspectives for subsequent years. It remains to be seen whether the crisis situation will force governments to speed up necessary reforms. In the PFM area major tasks concern lengthening fiscal planning horizon and gradual movement toward performance oriented budgeting (the measure which can allow better expenditure targeting and decrease volatility in expenditure allocation), increasing budget transparency and creating real room for civil society involvement into a budget process. However, the reforms must also involve a broadly defined governance sphere, i.e. improving transparency and accountability of government, modernization of civil service, decentralization, including building a genuine system of local and regional self-government, and other similar measures to improve quality of public services and social policy interventions.
    Keywords: public finance management, fiscal policy, Central and Eastern Europe, Western Balkans, Commonwealth of Independent States, social policies, social services, children and families
    JEL: H51 H52 H53 H61 H62 H63 H77 P36
    Date: 2010
  15. By: Andreas Stephan (Jönköping International Business School); Oleksandr Talavera (School of Economics, University of East Anglia); Andriy Tsapin (Ostroh Academy)
    Abstract: This paper investigates the determinants of liability maturity choice in emerging markets using a unique panel of 4,500 Ukrainian firms during the period 2000-2006. Our estimates confirm the importance of agency costs, liquidity, signaling, and taxes for the liability term structure of firms operating in a transition economy. Companies have a demand for long-term external debt mainly due to the shortage of internal funds. Firm creditworthiness and access to long-term financing at bond markets are the key drivers of corporate debt structure. Overall, this study provides strong evidence that constrained and unconstrained companies react differently on liquidity risk and, hence, pursue different debt maturity strategies. As predicted by the theory, our empirical findings demonstrate an adverse effect of retained earnings on debt maturity but a positive relationship between the tax rate and long-term debt.
    Keywords: debt maturity, capital structure, transition period, Ukraine
    JEL: G32 G30 D24
    Date: 2010–05–03
  16. By: Miguel D. Ramirez (Department of Economics, Trinity College)
    Abstract: This paper argues that Marx’s views on globalization and its supposed inevitability underwent a substantial evolution and revision after the publication of the Communist Manifesto. His writings relating to India, and particularly China and Russia, show that he was no longer certain that “the country that is more developed industrially only shows, to the less developed, the image of its own future” (Vol. I, p. 13). In the case of China, a prime example of the Asiatic mode of production, Marx even doubted whether globalization (capitalism) would ever be able to accomplish its historical mission of developing the forces of production and creating the material conditions for a higher mode of production, viz., Communism. While in the Russian case, he seriously entertained the notion that it could bypass the hardships and vicissitudes of capitalism and forge its own unique path to socialism. If accepted, this interpretation represents a serious challenge to the universality and validity of Marx’s materialist conception of history. The paper also addresses the role of the law of the tendency of the falling rate of profit in the geographic expansion of competitive capitalism. It contends that Marx did not believe there was an iron-clad connection between the falling rate of profit and globalization; in addition, it argues that Marx believed that the capitalists’ insatiable search for colonial markets was driven by their desire to overcome recurrent (and growing) realization problems in the home market arising from deficient aggregate demand on the part of both workers and capitalists.
    Keywords: Asiatic Mode of Production, Globalization, Law of the Falling Tendency of the Rate of Profit, Materialist Conception of History, Underconsumptionist Tendencies.
    JEL: B10 E24
    Date: 2010–05
  17. By: He, Haoran (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This study investigates the validity of using stated preference (SP) estimates to predict policy effects on plastic bag consumption. Before implementation of a plastic bag regulation, when bags were still free of charge, we utilized an SP survey to elicit consumers’ contingent bag consumption in certain possible pricing scenarios. Following implementation of the regulation mandating charging for bags, we conducted another survey to collect actual consumption information. We thus have unique data to compare stated and revealed consumption. The comparison results show that consumers’ behavioral reactions to a policy change can be predicted reasonably well with SP techniques.<p>
    Keywords: China; contingent behavior; external validity; plastic bags; revealed behavior; stated preference
    JEL: C91 D12 Q53
    Date: 2010–05–06
  18. By: Eleni A. Kaditi
    Abstract: Foreign investments are in the focus of most governments around the world. In order to be able to set a policy agenda which is successful in promoting FDI, it is necessary to understand their determinants. This paper examines whether and to what extent sound institutions and the degree of regulation deter or attract FDI flows in four economies of Southeastern Europe. In a dynamic panel analysis, a broad set of institutional and regulatory variables that may affect the decision of foreign investors to undertake investment projects in this region is examined, using firm-level data. Analysis shows that the quality of the institutional environment significantly influences foreign capital. Governments in this region should, therefore, focus primarily on creating a good legal system, having relatively stable political and economic conditions.
    Keywords: Foreign Investments, Corruption, Transition Economies
    JEL: F23 D73 P3
    Date: 2010
  19. By: Michael Knogler; Volkhart Vincentz; Miriam Frey (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Abstract: This paper investigates patterns and determinants of growth in Ukraine in a medium-term and a long-term perspective. During 2000-2008, high growth in Ukraine was sup-ported by favourable external conditions and was mainly demand-driven. Due to the massive decline of external demand and the reversal of capital flows during the global financial crisis some factors that have underpinned growth since 2000 have been ex-hausted. The terms of trade have already deteriorated and foreign credits granted to households and enterprises, which fuelled the consumption boom, have already strongly declined In addition to capital deepening, long-term growth will therefore require maintaining robust total factor productivity, i.e. transfer of technology and efficient allocation of resources. Poor economic and political framework conditions are the main development barriers in Ukraine. Implicit and explicit subsidies, excessive state ownership, corrup-tion, weak competition and high levels of regulatory uncertainty constitute the principal obstacles to an increase of the level and efficiency of investment. The paper suggests some main areas of reforms to overcome these obstacles.
    Date: 2010–04
  20. By: Marcelo Sánchez (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper attempts to characterise an anti-inflationary monetary targeting (MT) regime. In order to derive a formal representation of this regime, we formulate the central bank’s optimisation problem under the assumption that it is possible for the monetary targeted variable to have an impact on inflation. We apply a rather general framework to the Romanian experience with MT in the period 1999-2005. We find that during this period Romania's MT regime can be characterised by a concern for price stability and an additional role for smoothing of the central bank's instrument (base money growth). Our results suggest that exchange rate variability and output gap stability appear not to have entered the objective function significantly. JEL Classification: E52, E58, C32, C61.
    Keywords: monetary targeting, optimal monetary policy, Romania.
    Date: 2010–05
  21. By: Diana Bozhilova
    Abstract: This article examines the dynamic between the process of Bulgaria’s European Union accession and the flow of Foreign Direct Investments to the country in its industrial base. A critical differentiation between speculative and non-speculative FDI is drawn while determining that the geographic origin of investments matters. Greek FDI, in particular, emerges as a major source of strategic regional investments in Bulgaria’s industry highlighting the significance of regional trade and cooperation for the long-term economic outlook not only for the host country but also for the region by enhancing the area of economic progress and development.
    Keywords: Bulgaria, EU Phare Fund, FDI, regional cooperation, industrial restructuring.
    Date: 2010–03

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