nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒05‒29
sixteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Entrepreneurship in transition economies: the role of institutions and generational change. By Estrin, S.; Mickiewicz, T.
  2. Can Social Security Boost Domestic Consumption in the People’s Republic of China? By Wang Dewen
  3. Economic Reform, Education Expansion, and Earnings Inequality for Urban Males in China, 1988-2007 By Xin Meng; Kailing Shen; Sen Xue
  4. Chinese Overseas M&A Performance and the go Global Policy By Lulu Gu; W. Robert Reed
  5. Russian banking: a comeback of the state. By Vernikov, A.
  6. Booms and busts in China's stock market: Estimates based on fundamentals By Gabe J. de Bondt; Tuomas A. Peltonen; Daniel Santabárbara
  7. Inflation Dynamics in the New EU Member States: How Relevant Are External Factors? By Alexander Mihailov; Fabio Rumler; Johann Scharler
  8. EU accession: A road to fast-track convergence? By Uwe Böwer; Alessandro Turrini
  9. Mass privatisation and the post-communist mortality crisis: is there really a relationship. By Earle, J.S.; Gehlbach, S.
  10. Assessing the fiscal costs and benefits of A8 migration to the UK. By Halls, C.; Dustmann, C.; Frattini, T.
  11. Heterogeneity in Bank Pricing Policies: The Czech Evidence By Roman Horvath; Anca Maria Podpiera
  12. Legitimacy of inequality and the stability of income distributions in Poland. By Karpiński, Z.
  13. Housing Price Bubbles and their Determinants in the Czech Republic and its Regions By Michal Hlavacek; Lubos Komarek
  14. Are systems of innovation in Eastern Europe efficient?. By Kravtsova, V.; Radošević, S.
  15. House Price Determinants in Selected Countries of the Former Soviet Union By Vahram Stepanyan; Tigran Poghosyan; Aidyn Bibolov
  16. Did Mass Privatisation really increase Post-Communist male mortality?. By Gerry, C.J.; Mickiewicz, T.M.; Nikoloski, Z.

  1. By: Estrin, S.; Mickiewicz, T.
    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.
    Date: 2010–03
  2. By: Wang Dewen
    Abstract: This paper reviews the development of the social security system and trends in the urban labor market in the People’s Republic of China (PRC). Despite its remarkable economic achievement, the PRC faces a difficult path before it can reform and improve its social security system and provide basic support for all of its people. The unemployment shock has caused rural and urban household income to decrease and has thus slowed down household consumption growth. The provision of broader social security would not only mitigate unemployment shocks in the short term, but it would also guarantee individuals and households more security for spending that could reduce the high savings rate and help achieve a balanced growth path in the long run. [ADBI WP 215].
    Keywords: people, unemployment, households, income inequality, children, insurance, medial, injury, Housing Security, consumption, growth, rural, individuals, savings rate, spending, public transfers, income distribution, development, social security system, urban labour market, China, PRC, economic, reform,
    Date: 2010
  3. By: Xin Meng; Kailing Shen; Sen Xue
    Abstract: In the past 20 years the average real earnings of Chinese urban male workers have increased by 350 per cent. Accompanying this unprecedented growth is a considerable increase in earnings inequality. Between 1988 and 2007 the variance of log earnings increased from 0.27 to 0.48, a 78 per cent increase. Using a unique set of repeated cross-sectional data this paper examines the causes of this increase in earnings inequality. We find that the major changes occurred in the 1990s when the labour market moved from a centrally planned system to a market oriented system. The decomposition exercise conducted in the paper identifies the factor that drives the significant increase in the earnings variance in the 1990s to be an increase in the within-education-experience cell residual variances. Such an increase may be explained mainly by the increase in the price of unobserved skills. When an economy shifts from an administratively determined wage system to a market-oriented one, rewards to both observed and unobserved skills increase. The turn of the century saw a slowing down of the reward to both the observed and unobserved skills, due largely to the college expansion program that occurred at the end of the 1990s.
    Keywords: Earnings inequality, China
    JEL: J31 P2 P3
    Date: 2010–04
  4. By: Lulu Gu; W. Robert Reed (University of Canterbury)
    Abstract: This paper investigates whether stock markets view Chinese OMAs as increasing shareholder wealth. The subject is of interest given the influential role that the government plays in Chinese firms’ overseas activities, and the fact that the government may have objectives other than maximization of shareholder wealth. We examine 145 OMAs by Chinese acquiring firms over the year 1994-2008. We find some evidence that markets positively responded to news of Chinese OMAs. However, we also find that markets responded less favorably after China implemented its Go Global policy encouraging overseas investment. We hypothesize two reasons for this: First, the expansion of OMAs under Go Global resulted in Chinese firms pursuing less attractive targets, on average. Second, Go Global re-directed investment towards industries having national strategic value but diminished profit value. Using a Blinder-Oaxaca decomposition procedure, we find no evidence to support this latter hypothesis. Thus, to whatever extent strategic interests may motivate China’s Go Global policy, it does not appear that their pursuit has come at the expense of shareholder wealth.
    Keywords: Economic Development; China Economy; Overseas Mergers and Acquisitions; Event Study; Go Global
    JEL: O25 O53 G34 F21
    Date: 2010–04–17
  5. By: Vernikov, A.
    Abstract: The purpose of this paper is to assess the size of public sector within the Russian banking industry. We identify and classify at least 78 state-influenced banks. We distinguish between banks that are majority-owned by federal executive authorities or Central Bank of Russia, by sub-federal (regional and municipal) authorities, by state-owned enterprises and banks, and by "state corporations". We estimate their combined market share to have reached 56% of total assets by July 1, 2009. Banks indirectly owned by public capital are the fastest-growing group. Concentration is increasing within the public sector of the industry, with the top five state-controlled banking groups in possession of over 49% of assets. We observe a crowding out and erosion of domestic private capital, whose market share is shrinking from year to year. Several of the largest state-owned banks now constitute a de facto intermediate tier at the core of the banking system. We argue that the direction of ownership change in Russian banking is different from that in CEE countries.
    Date: 2010–02
  6. By: Gabe J. de Bondt (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Tuomas A. Peltonen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Daniel Santabárbara (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper empirically models China’s stock prices using conventional fundamentals: corporate earnings, risk-free interest rate, and a proxy for equity risk premium. It uses the estimated longrun stock price misalignments to date booms and busts, and analyses equity market reforms and excess liquidity as potential drivers of these stock price misalignments. Our results show that China’s equity prices can be reasonable well modelled using fundamentals, but that various booms and busts can be identified. Policy actions, either taking the form of deposit rate changes, equity market reforms or excess liquidity, seem to have significantly contributed to these misalignments. JEL Classification: G12, G18.
    Keywords: China, Stock price, Equity market, Reforms, Liquidity.
    Date: 2010–05
  7. By: Alexander Mihailov (School of Economics, University of Reading); Fabio Rumler (Economic Analysis Division, Oesterreichische Nationalbank); Johann Scharler (Department of Economics, University of Linz)
    Abstract: In this paper we evaluate the relative influence of external versus domestic inflation drivers in the 12 new European Union (EU) member countries. Our empirical analysis is based on the New Keynesian Phillips Curve (NKPC) derived in Gali and Monacelli (2005) for small open economies (SOE). Employing the Generalized Method of Moments (GMM), we find that the SOE NKPC is well supported in the new EU member states. We also find that the inflation process is dominated by domestic variables in the larger countries of our sample, whereas external variables are mostly relevant in the smaller countries.
    Keywords: New Keynesian Phillips Curve, small open economies, inflation dynamics, new EU member countries, GMM estimation
    JEL: C32 C52 E31 F41 P22
    Date: 2010–05–09
  8. By: Uwe Böwer; Alessandro Turrini
    Abstract: This paper investigates the accession-related economic boom in the countries which recently entered the European Union. The analysis tests whether, on top of the standard growth determinants, the period of EU accession made a significant difference to the growth performance of the New Member States (NMS). The paper finds that the period of EU accession is characterised by significantly larger growth rates of per-capita GDP, even after controlling for a wide range of economic and institutional factors. This effect is robust and particularly strong for countries with relatively low initial income levels, weak institutional quality and less advanced financial development, suggesting that EU accession has been speeding up the catching-up process and improved the institutions of the laggards among the NMS. The prospect of EU membership which has triggered large capital inflows seems to have fostered economic growth of those NMS with lower degrees of financial depth.
    Keywords: Economic growth,EU accession,new member states,convergence,Böwer,Turrini,European Economy. Economic Papers
    JEL: O47 F15
    Date: 2009–12
  9. By: Earle, J.S.; Gehlbach, S.
    Abstract: We reexamine the recent, well-publicized claim that "rapid mass privatisation [of state-owned enterprises]... was a crucial determinant of differences in adult mortality trends in post-communist countries" (Stuckler, King and McKee, 2009). Our analysis shows that the estimated correlation of privatization and mortality in country-level data is not robust to recomputing the mass-privatization measure, to assuming a short lag for economic policies to affect mortality, and to controlling for country-specific mortality trends. Further, in an analysis of the determinants of mortality in Russian regions, we find no evidence that privatization increased mortality during the early 1990s. Finally, we reanalyze the relationship between privatization and unemployment in postcommunist countries, showing that there is little support for the proposed mechanism by which privatization might have increased mortality.
    Date: 2010–02
  10. By: Halls, C.; Dustmann, C.; Frattini, T.
    Abstract: This paper assesses the fiscal consequences of migration to the UK from the Central and Eastern European countries that joined the EU in May 2004 (A8 countries). We show that A8 immigrants who arrived after EU enlargement in 2004, and who have at least one year of residence – and are therefore legally eligible to claim benefits - are 60% less likely than natives to receive state benefits or tax credits, and 58% less likely to live in social housing. Even if A8 immigrants had the same demographic characteristics of natives, they would still be 13% less likely to receive benefits and 28% less likely to live in social housing. We then compare the net fiscal contribution of A8 immigrants with that of individuals born in the UK, and find that in each fiscal year since enlargement in 2004, A8 immigrants made a positive contribution to public finance despite the fact that the UK has been running a budget deficit over the last years. This is because they have a higher labour force participation rate, pay proportionately more in indirect taxes, and make much lower use of benefits and public services.
    Date: 2009–07
  11. By: Roman Horvath; Anca Maria Podpiera
    Abstract: In this paper, we estimate the interest rate pass-through from money market to bank interest rates using various heterogeneous panel cointegration techniques to address bank heterogeneity. Based on our micro-level data from the Czech Republic, the results indicate that the nature of interest rate pass-through differs across banks in the short term (rendering estimators that constrain coefficients across groups to be identical inconsistent) and becomes homogeneous across banks only in the long term, supporting the notion of the law of one price. Mortgage rates and firm rates typically adjust to money market changes, but often less than fully in the long run. Large corporate loans have a smaller mark-up than small loans. Consumer rates have a high mark-up and are not found to exhibit a cointegration relationship with money market rates. Next, we examine how bank characteristics determine the nature of interest rate pass-through in a cross-section of Czech banks. We find evidence for relationship lending, as banks with a stable pool of deposits smooth interest rates and require a higher spread as compensation. Large banks are not found to price their products less competitively. Greater credit risk increases vulnerability to money market shocks.
    Keywords: Bank pricing policies, financial structure, monetary transmission.
    JEL: E43 E58 G21
    Date: 2009–12
  12. By: Karpiński, Z.
    Abstract: The objective of this paper is to apply hypotheses derived from theories of legitimacy and distributive justice to patterns of stability in income distribution in Poland. The hypotheses specify conditions under which income differences become legitimated. The question about the conditions of legitimacy of the differences is especially interesting in the Polish context, given steady increase in the amount of inequality after 1989. Data from Polish General Social Survey are then used to see if the hypotheses are consistent with empirical observation.
    Date: 2010–04
  13. By: Michal Hlavacek; Lubos Komarek
    Abstract: This working paper, based on an empirical analysis, discusses factors affecting property prices and tries to identify periods of property price overvaluation by three approaches: using simple ratios related to house prices (price-to-income and price-to-rent), using time series analysis for the Czech Republic as a whole, and using panel regression for the Czech regions. The time series analysis and the simple indicators of housing price sustainability identified overvalued property prices in 2002/2003 and partly also in 2007/2008. According to the time series analysis, however, the size of the housing price overvaluation in 2007/2008 was relatively low, as the rise in property prices in this period was largely explainable by fundamentals. From the regional perspective, there is a higher degree of overvaluation in regions with higher property prices. The exception is Prague, which seems to be a “specific†region.
    Keywords: Asset price bubbles, Czech Republic and its regions, housing prices, panel regression.
    JEL: R21 R31 C23
    Date: 2009–12
  14. By: Kravtsova, V.; Radošević, S.
    Abstract: This paper explores the determinants of the productivity in the countries of Eastern Europe (EE) through the perspective of ‘narrow’ and ‘broad’ national systems of innovation (NSI). Based on panel econometrics it examines the extent to which systems in EE could be considered ‘(in)efficient’. Our results suggest that the EE countries have lower levels of productivity than might be expected given their research and development (R&D), innovation and production capabilities. The inefficiencies of ‘broad’ NSI are compounded by the inefficiencies of ‘narrow’ NSI in terms of generating numbers of science and technology publications and resident patents relative to R&D employment, compared to the rest of the world. Our results point to an important distinction between technology and production capability as the drivers of productivity improvements, and provide some policy implications.
    Date: 2009–11
  15. By: Vahram Stepanyan; Tigran Poghosyan; Aidyn Bibolov
    Abstract: This paper analyses the recent boom-bust cycle in the housing markets of selected Former Soviet Union (FSU) countries. The analysis is based on a newly constructed database on house prices in the FSU countries. Our estimations suggest that house price developments can largely be explained by the dynamics of fundamentals, such as GDP, remittances, and external financing. Overall, we find that deviations of house prices from their fundamentals have not been pronounced, suggesting that house price bubbles have not been formed in the FSU countries.
    Keywords: Business cycles , Capital inflows , Cross country analysis , Economic growth , External shocks , Former Soviet Union , Housing prices , Price elasticity , Workers remittances ,
    Date: 2010–04–01
  16. By: Gerry, C.J.; Mickiewicz, T.M.; Nikoloski, Z.
    Abstract: A recent article in the Lancet, by David Stuckler, Larry King and Martin McKee, investigated anew the fluctuations in adult male mortality rates that have come to characterise the so-called post-communist mortality crisis. Adopting a cross-country, time-series perspective the authors examined how the economic policy strategies of the 1990s impacted upon observed fluctuations in mortality. They conclude that the adoption of a strategy of rapid (mass) privatisation contributed to the adverse mortality trends. We subject that finding to closer scrutiny using the same data from which the Stuckler et al claim stems. We find that their claim that mass privatisation adversely affected male mortality trends in the post-Communist world does not stand up to closer examination. It is not supported empirically and is at odds with what we know about both transition in the post-communist world and about health trends over time in this region.
    Date: 2010–02

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