nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒07‒03
twenty-one papers chosen by
J. David Brown
Heriot-Watt University

  1. Pollution Control in a Transition Economy: Do Firms Face Economies and/or Diseconomies of Scale? By Dietrich Earnhart; Lubomir Lizal
  2. China's high saving rate: myth and reality By Guonan Ma; Wang Yi
  3. Market Power in the Russian Banking Industry By Zuzana Fungacova; Laura Solanko; Laurent Weill
  4. Rising Wages: Has China Lost Its Global Labor Advantage? By Yang, Dennis; Chen, Vivian; Monarch, Ryan
  5. The Impact of Agricultural Technology Adoption of Income Inequality in Rural China By Shijun Ding; Laura Meriluoto; W. Robert Reed; Daoyun Tao; Haitao Wu
  6. The Determinants of Corruption in Transition Economies By Iwasaki, Ichiro; Suzuki, Taku
  7. Les banques étrangères dans les pays d’Europe Centrale et Orientale : source de vulnérabilité ou facteur de stabilisation By BEURAN, Monica; BRACK, Estelle
  8. The Chinese pension system - First results on assessing the reform options By Heikki Oksanen
  9. Residual Wage Inequality in Urban China, 1995-2007 By Xing, Chunbing
  10. Formal education, mismatch and wages after transition: Assessing the impact of unobserved heterogeneity using matching estimators By Ana Lamo; Julián Messina
  11. Environmental regulation and revealed comparative advantages in Europe: is China a pollution haven? By Daniela Marconi
  12. How Market Power Influences Bank Failures Evidence from Russia By Zuzana Fungacova; Laurent Weill
  13. Corruption and Productivity Firm-level Evidence from the BEEPS Survey By Donato De Rosa; Nishaal Gooroochurn; Holger Görg
  14. Some Socio-Economic Effects of Labour Migration on the Sending Country. Evidence from Romania By Roman, Monica; Voicu, Cristina
  15. Bi-currency versus Single-Currency Targeting: Lessons from the Russian Experience By Sokolov, Vladimir
  16. The Concentric-Circle Model of FDI Spillover Effects: Estimation Using Hungarian Panel Data By Iwasaki, Ichiro; Csizmadia, Péter; Illéssy, Miklós; Makó, Csaba; Szanyi, Miklós
  17. From Russia with Love: The Impact of Relocated Firms on Incumbent Survival By Oliver Falck; Christina Guenther; Stephan Heblich; William R. Kerr
  18. Foreign Direct Investment, Information Spillover, and Export Decision : The Concentric-Circle Model with Application to Hungarian Firm-Level Data By Iwasaki, Ichiro; Csizmadia, Péter; Illéssy, Miklós; Makó, Csaba; Miklós Szanyi
  19. Demographic Situations and Development Programs in the Russian Far East and Zabaikalye By Kumo, Kazuhiro
  20. Economic Reform in North Korea: A Dynamic General Equilibrium Model By Bradford, Scott C.; Kim, Dong-jin; Phillips, Kerk L.
  21. Emergence and Development of Industry Clusters in Hungary : Searching for a 'Critical Mass' of Business via Cluster Mapping By Szanyi, Miklós; Iwasaki, Ichiro; Csizmadia, Péter; Illéssy, Miklós; Makó, Csaba

  1. By: Dietrich Earnhart; Lubomir Lizal
    Abstract: We empirically assess whether firms face economies and/or diseconomies of scale with respect to air pollution control by evaluating the effects of production on firmlevel air emission levels using a panel of Czech firms during the country’s transitional period of 1993 to 1998. By estimating a separate set of production-related coefficients for each individual sector, the analysis permits economies/diseconomies of scale to differ across sectors. More important, the analysis allows these scale effects to vary over time, which seems critical in the context of a transition economy, as the Czech government was tightening air protection polices by imposing more stringent emission limits and escalating emission charge rates. To assess whether these tighter policies expanded economies of scale, the analysis controls for heterogeneity across individual firms by examining intrafirm variation in emissions and production
    Keywords: Czech Republic, environmental protection, pollution, production, economies of scale.
    JEL: D21 D62 Q53
    Date: 2010–02
  2. By: Guonan Ma; Wang Yi
    Abstract: The saving rate of China is high from many perspectives - historical experience, international standards and the predictions of economic models. Furthermore, the average saving rate has been rising over time, with much of the increase taking place in the 2000s, so that the aggregate marginal propensity to save exceeds 50%. What really sets China apart from the rest of the world is that the rising aggregate saving has reflected high savings rates in all three sectors - corporate, household and government. Moreover, adjusting for inflation alters interpretations of the time path of the propensity to save in the three sectors. Our evidence casts doubt on the proposition that distortions and subsidies account for China's rising corporate profits and high saving rate. Instead, we argue that tough corporate restructuring (including pension and home ownership reforms), a marked Lewis-model transformation process (where the average wage exceeds the marginal product of labour in the subsistence sector) and rapid ageing process have all played more important roles. While such structural factors suggest that the Chinese saving rate will peak in the medium term, policies for job creation and a stronger social safety net would assist the transition to more balanced domestic demand.
    Keywords: corporate, household and government saving, Chinese economy
    Date: 2010–06
  3. By: Zuzana Fungacova (BOFIT, Bank of Finland); Laura Solanko (BOFIT, Bank of Finland); Laurent Weill (LaRGE Research Center, Université de Strasbourg)
    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 t the nonlinear influence of size.
    Keywords: Market power, bank competition, Russia.
    JEL: G21 P34
    Date: 2010
  4. By: Yang, Dennis (Chinese University of Hong Kong); Chen, Vivian (The Conference Board); Monarch, Ryan (University of Michigan)
    Abstract: We document dramatic rising wages in China for the period 1978-2007 based on multiple sources of aggregate statistics. Although real wages increased seven-fold during the period, growth was uneven across ownership types, industries and regions. Since the late 1990s, the wages of state-owned enterprises have increased rapidly and wage disparities between skill-intensive and labor-intensive industries have widened. Comparisons of international data show that China's manufacturing wage has already converged to that of Asian emerging markets, but China still enjoys enormous labor cost advantages over its neighboring developed economies. Our analysis suggests that China's wage growth will stabilize to a moderate pace in the near future.
    Keywords: wage growth, aggregate statistics, China, international comparison
    JEL: J31 J21 O5
    Date: 2010–06
  5. By: Shijun Ding; Laura Meriluoto (University of Canterbury); W. Robert Reed (University of Canterbury); Daoyun Tao; Haitao Wu
    Abstract: This study analyzes the impact of government efforts to increase agricultural incomes on income inequality in rural China. It collects and analyzes survey data from 473 households in Yunnan, China in 2004. In particular, it investigates the effects of government efforts to promote improved upland rice technologies. Our analysis shows that farmers who adopted these technologies had incomes approximately 32 percent higher than non-adopters. While much of this came from increased incomes from the selling of upland rice, adopters also enjoyed higher incomes from other cash crops. We attribute this to technology spillovers. Despite substantial increases associated with the adoption of improved upland rice technologies, we estimate that the impact on income inequality was relatively slight. This is primarily due to the fact that low income farmers had relatively high rates of technology adoption.
    Keywords: Rural economic development; Chinese economic development; upland rice; rural-urban income inequality; agricultural income policy
    JEL: O13 O18 O53 Q12
    Date: 2010–06–10
  6. By: Iwasaki, Ichiro; Suzuki, Taku
    Abstract: This paper examines the determinants of corruption in transition economies.We found that the progress of structural reform, comprising marketization, rule of law, and democratization had a crucial impact on the extent of corruption control in former socialist countries.
    Keywords: transition economies, corruption, marketization, rule of law, democratization
    JEL: K42 O17 O57 P26 P52
    Date: 2010–04
  7. By: BEURAN, Monica; BRACK, Estelle
    Abstract: We study the impact of foreign banks' presence in Central and Eastern Europe's countries on their economic development and on the financial crisis they went through. We show that, despite a certain vulnerability of the domestic banking systems, the consequences of the opening of the banking markets to the foreign banks was globally positive. Thanks to local acquisitions by foreign investors, domestic banks have been recapitalized and transformed into effective and profitable banks with modern methods of risk management. Their access to international financial markets allowed the increase of credit supply and returned this supply less sensitive to domestic shocks. Without this opening the existing financing methods would not have been adequate to the economic development these countries knew the last years. The presence of foreign banks is so identified as a factor of stabilization.
    Keywords: Financial crisis contagion economic development regional integration foreign banks
    JEL: F23 E44 G21
    Date: 2009–10
  8. By: Heikki Oksanen
    Abstract: The aim of this paper is to analyse options for reforming the fragmented Chinese pension system that covers only 55 % of urban employees and a very small part of the rural population. After a brief history of pensions in China we present recent reform proposals and then discuss principles of pension reforms, with particular attention to reducing the pension contribution rates so that compliance could improve and coverage increase. As the Chinese population is ageing fast, we are presenting transition to a notional defined contribution (NDC) system as a model for adjusting the pension rules for increasing longevity. Transforming the accrued pension rights into NDC accounts and starting to apply the new NDC-inspired rules on indexation is not necessarily a jump into the unknown for the Chinese pensions system. Rather, it could be a useful and long-awaited clarification to the rules and a way to move towards a more uniform system nationwide. With the help of a simulation model based on Chinese data we produce scenarios for a range of pension reforms and assess their properties.
    Keywords: Oksanen,China, population ageing, pension reforms, notional defined contribution scheme,NDC
    JEL: H11 H55
    Date: 2010–06
  9. By: Xing, Chunbing (Beijing Normal University)
    Abstract: We use three waves of urban household survey data from 1995 to 2007 to investigate the trends of residual inequality and its determinants. First, we describe the change of overall and residual wage inequality over time. One important new pattern is that the rise in both the overall and residual inequality mainly happened at the upper half of the wage distributions (i.e. the rich are getting relatively much richer) from 2002 to 2007. From 1995 to 2002, however, it is truer to say that the poor are getting relatively much poorer. Second, by using two complementary semi-parametric methods, we find that the composition effect is negligible. Instead, the change in skill prices plays a dominant role in the rise of residual inequality. Finally, by constructing a panel data at the city level, we find that ownership restructuring is an important factor that has caused the skill price to rise, especially in the earlier period. Another finding is that China’s export share of GDP has a positive effect on the enlargement of the upper half distributions. This effect is more significant in the latter period from 2002 to 2007, highlighting the impact of China’s entry into the WTO.
    Keywords: urban China, residual inequality, decomposition
    JEL: J3
    Date: 2010–06
  10. By: Ana Lamo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Julián Messina (World Bank, Office of the Chief Economist for Latin America and the Caribbean, 1850 I St, NW 204 33 Washington, DC, USA.)
    Abstract: This paper studies the incidence and consequences of the mismatch between formal education and the educational requirements of jobs in Estonia during the years 1997-2003. We find large wage penalties associated with the phenomenon of educational mismatch. Moreover, the incidence and wage penalty of mismatches increase with age. This suggests that structural educational mismatches can occur after fast transition periods. Our results are robust for various methodologies, and more importantly regarding departures from the exogeneity assumptions inherent in the matching estimators used in our analysis. JEL Classification: J0.
    Keywords: Education mismatch, Wage determination, Matching Estimators.
    Date: 2010–06
  11. By: Daniela Marconi (Bank of Italy)
    Abstract: The relocation of more polluting industries in poorer countries due to gaps in environmental standards is known as the pollution haven effect, whereby the scale and the composition of output change across countries. Changes in the composition of the output mix might translate into changes of comparative advantages across countries, as revealed by trade flows. This paper focus on this issue and looks at the changes of bilateral revealed comparative advantages (RCAs) in the last decade between China and the major fourteen EU countries (EU14). Using industry level data on bilateral trade, air pollution, water pollution and several measures of environmental stringency, we find that, controlling for other factors that may have affected RCAs, such as labor costs, on average our EU14 countries have kept or improved their advantages with respect to China in both water polluting industries (such as paper and agro-based industries) and air polluting industries (such as basic metals and chemicals), while they have lost competitiveness in the more clean industries (such as machinery and fabricated metals).
    Keywords: revealed comparative advantages, environmental regulation, industrial pollution
    JEL: F14 F18
    Date: 2010–06
  12. By: Zuzana Fungacova (BOFIT, Bank of Finland); Laurent Weill (LaRGE Research Center, Université de Strasbourg)
    Abstract: There has been a notable debate in the banking literature on the impact of bank competition on financial stability. While the dominant view sees a detrimental impact of competition on the stability of banks, this view has recently been challenged by Boyd and De Nicolo (2005) who see the reverse effect. The aim of this paper is to contribute to this literature by providing the first empirical investigation of the role of bank competition on the occurrence of bank failures. We analyze this issue based on a large sample of Russian banks over the period 2001-2007 and in line with the previous literature we employ the Lerner index as the metric of bank competition. Our findings clearly support the view that tighter bank competition enhances the occurrence of bank failures. The normative implication of our findings is therefore that measures that increase bank competition could undermine financial stability.
    Keywords: Bank competition, bank failure, Russia.
    JEL: G21 P34
    Date: 2010
  13. By: Donato De Rosa; Nishaal Gooroochurn; Holger Görg
    Abstract: Using enterprise data for the economies of Central and Eastern Europe and the CIS, this study examines the effects of corruption on productivity. Corruption is defined as a “bribe tax” and is compared to another form of institutional inefficiency, which is often believed to be closely linked with corruption: the “time tax” imposed on firms by red tape. When testing their effects in the full sample, only the bribe tax appears to have a negative effect on firm-level productivity, while the effect of the time tax is insignificant. At the same time, there is no evidence of a trade-off between the time and the bribe taxes, implying that bribing does not emerge as a second-best option to achieve higher productivity by helping circumvent cumbersome bureaucratic requirements. When the sample is split between EU and non-EU countries, the time tax turns out to have a negative effect only in EU countries and the bribe tax only in non-EU countries. This suggests that the institutional environment influences the way in which firm behaviour affects firm performance. In particular, the impact of bribing for individual firms appears to vary depending on overall institutional quality: in countries where corruption is more prevalent and the legal framework is weaker, bribery is more harmful for firm-level productivity
    Keywords: Keywords: corruption, firm performance, productivity, bribe tax
    JEL: O14 P37
    Date: 2010–06
  14. By: Roman, Monica; Voicu, Cristina
    Abstract: The paper presents the recent labor migration flows and trends and the impacts of these movements on Romanian economic and social life. After Romania joined the EU, the travel of Romanians inside the EU is totally free and they fructified this opportunity. There are important economic consequences of this movement. In the paper we analyze the demographic consequences, since category that emigrated for economic reasons in the last years is composed of youngsters (around 30). There are also important economic consequences on financial aspects and life quality of Romanians, since the volume of remittances was about 7 billion euros in 2007. There is also a social impact particularly on the lives of migrant families. The most problematic issue is the temporary abandonment of minors by their labour migrant parents, and that forced authorities to formulate policies to monitor the situation.
    Keywords: regional labour migration; sending countries; human migration trends; migration impacts; Romania; transition economy
    JEL: J13 F22 I31 R23
    Date: 2010–02
  15. By: Sokolov, Vladimir (BOFIT)
    Abstract: This paper examines the impacts of the 2005 shift in Russian exchange rate policies from single-currency to bi-currency basket targeting on domestic interest rates and sovereign risk premium dynamics. The policy shift disconnected domestic interest rates from US dollar-denominated interest rates, replacing them with a growing positive relationship with the dual-currency basket (USD-EUR) adopted by the Central Bank of Russia, as well as a synthetic interest rate composed of the US dollar LIBOR and the euro LIBOR. The paper also considers the insulating properties of Russian basket targeting policies during the recent global liquidity crisis. I present evidence that the Russian MosIBOR rate was negatively related to the US dollar LIBOR rate and positively related to the synthetic USD-EUR rate during the "decoupling" stage of the crisis. Even with the steep quantitative easing of the US Fed during this period, the finding suggests the Russian money market was more in sync with the monetary policies of the euro area. The central conclusion here is that, in conditions of managed floating exchange rate policies and liberalized capital accounts, the relationship between a country's domestic interest rates and their foreign counterparts depends on the de facto operating target of the central bank of this country, whether it is a single currency or a basket.
    Keywords: exchange rate policy; basket targeting; sovereign CDS; decoupling
    JEL: F31 F33
    Date: 2010–06–15
  16. By: Iwasaki, Ichiro; Csizmadia, Péter; Illéssy, Miklós; Makó, Csaba; Szanyi, Miklós
    Abstract: A new empirical model is presented in this paper with respect to the productivity spillover effects of foreign direct investment (FDI) by focusing on the concentric-circle structure of industrial organizations arising from sectoral differences among firms. In this model, the market presence of horizontal FDI in a host country is expressed using multiple variables with a nested structure corresponding to the aggregated level of industrial classification in order to identify its spillover effects on the productivity of domestic firms according to the industrial sector with different depth. We estimated the model using large-scale firm-level data from Hungary and confirmed horizontal FDI spillover effects simultaneously taking place in sectors with different depth that cannot be captured with the conventional model having a single horizontal variable.
    Keywords: foreign direct investment, spillover effects, concentric-circle model, Hungary
    JEL: D24 F21 F23 L16 L60 L80 O19 P23
    Date: 2009–11
  17. By: Oliver Falck (Ifo Institute for Economic Research at the University of Munich); Christina Guenther (Max Planck Institute of Economics, Evolutionary Economics Group; WHU- Otto Beisheim School of Management); Stephan Heblich (Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group); William R. Kerr (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: We identify the impact of local firm concentration on incumbent performance with a quasi natural experiment. When Germany was divided after World War II, many firms in the machine tool industry fled the Soviet occupied zone to prevent expropriation. We show that the regional location decisions of these firms upon moving to western Germany were driven by non-economic factors and heuristics rather than existing industrial conditions. Relocating firms increased the likelihood of incumbent failure in destination regions, a pattern that differs sharply from new entrants. We further provide evidence that these effects are due to increased competition for local resources.
    Keywords: Agglomeration, competition, firm dynamics, labor, Germany
    JEL: R10 L10 H25 O10 J20
    Date: 2010–06
  18. By: Iwasaki, Ichiro; Csizmadia, Péter; Illéssy, Miklós; Makó, Csaba; Miklós Szanyi
    Abstract: In this paper, we empirically examine the impact of foreign direct investment (FDI) on the export decision of domestic firms using large-scale panel data from Hungary. In comparison with the conventional model that expresses the export propensity of multinational enterprises (MNEs) with a single variable, the concentric-circle model, considering the nested structure of industrial classification, more precisely specifies the source, extent, and direction of information spillovers from MNEs to indigenous firms. We also confirmed the close relationship between the information spillover effect and the heterogeneity of FDI and domestic firms.
    Keywords: FDI, information spillover, export decision, concentric-circle model, Hungary
    JEL: F14 F21 F23 L16 L60 L80 O19 P23
    Date: 2010–03
  19. By: Kumo, Kazuhiro
    Abstract: This paper describes population problems involved in the Russian Far East and Zabaikalye regions, and the nation as a whole. According to the analysis conducted by the author no notable population growth will emerge in the near future, therefore extensive development strategy can not be taken in planning regional economic projects. In this regard the current "Development Program for the Russian Far East and Zabaikalye" established recently is much to the point.
    Date: 2010–05
  20. By: Bradford, Scott C.; Kim, Dong-jin; Phillips, Kerk L.
    Abstract: This paper examines the impact of hypothetical market reforms in North. We build a dynamic general equilibrium model and simulate multiple reform scenarios. We first construct a baseline model which mimicks the current command economy. In this scenario the government allocates output in an inefficient way and simulated economic growth is negative. We next model a semi-market transition that allows producers choices regarding the distribution of available capital. However, total capital is still chosen by the government. Lastly, we consider two scenarios with full market reform allowing for the usual market mechanisms derived from consumer utility maximization, firm profit maximization, and market clearing prices. In one scenario we keep government investment in public infrastructure unchanged at the low baseline level. In the other we drastically increase the rate of infrastructure investment so that it matches that of South Korea. In all we maintain a closed economy assumption and a constant size for the military. Our simulations show little hope for the North Korean economy without a significant increase in infrastructure. Although all of the reforms raise the level of output and consumption per capita, only with significant increases in infrastructure investment does output growth change from negative to positive.
    Keywords: factor mobility; dynamic general equilibrium; specific-factors; Korea
    JEL: F22 F15 F42
    Date: 2010–01
  21. By: Szanyi, Miklós; Iwasaki, Ichiro; Csizmadia, Péter; Illéssy, Miklós; Makó, Csaba
    Abstract: In the epoch of globalization, small or medium-sized national companies have great difficulties in finding an appropriate place for themselves in global labor division systems. They most frequently apply either strategies that help them becoming part of global value chains as regular suppliers, or they try to locate in which they might cooperate with other small companies in industrial clusters to compete with larger multinational companies. In both cases, communication, knowledge transfer, and cooperative actions among companies are essential for improving competitive capacities. Since this type of cooperation relies heavily on close, regular contact and face-to-face interaction, the spatial concentration of actors can improve the chances for success. Literature on the topic of supplier networks and spillover effects, as well as that on industrial clusters, emphasizes the importance of a "critical mass" of companies and other organizations and institutions. The authors first define and describe the types of synergies that stem from co-location of cooperating market actors. In addition the potential linkages among the two types of networks, supplier chains and clusters are explained. After a brief overview of the related literature, the authors introduce a new, refined measurement method of spatial concentration with empirical survey results from Hungary.
    Keywords: industry cluster, supplier network, foreign direct investment, Hungary
    JEL: D24 F23 L14 L16 P23 R12
    Date: 2010–05

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