nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒07‒10
nine papers chosen by
J. David Brown
Heriot-Watt University

  1. How Would an Appreciation of the Yuan Affect the People's Republic of China's Surplus in Processing Trade? By Willem Thorbecke
  2. The impact of the global economic and financial crisis on central, eastern and south-eastern Europe - A stock-taking exercise By Fédéric Holm-Hadulla; Sándor Gardó; Reiner Martin
  3. Copenhagen and Beyond: Reflections on China's Stance and Responses By ZhongXiang Zhang; ;
  4. China's marriage market and upcoming challenges for elderly men By Das Gupta, Monica; Ebenstein, Avraham; Sharygin, Ethan Jennings
  5. Business Cycles, Consumption and Risk-Sharing: How Different Is China? By Chadwick C. Curtis; Nelson Mark
  6. Financial Turmoil in the Banking Sector and the Asian Lamfalussy Process: The Case of Four Economies By Hsu, Chen-Min; Liao, Chih-Feng
  7. The Determinants of Vertical Integration in Export Processing: Theory and Evidence from China By Ana Fernandes; Heiwai Tang
  8. Security of supply in the European Gas Market A model-based analysis By Ibrahim Abada; Olivier Massol
  9. The Merton Approach to Estimating Loss Given Default: Application to the Czech Republic By Jakub Seidler; Petr Jakubik

  1. By: Willem Thorbecke
    Abstract: Enormous trade surpluses are problematic for the People’s Republic of China (PRC) and the rest of the world. They primarily stem from processing trade. This paper investigates how exchange rate changes would affect the PRC’s imports for processing and processed exports. The results indicate that an appreciation throughout East Asian supply chain countries would reduce the PRC’s surplus in processing trade, while an appreciation of the yuan alone might not. Even for an appreciation throughout East Asia, however, the sum of the exchange rate elasticities is not large. Thus, to rebalance the PRC’s trade, exchange rate appreciations must be accompanied by other changes such as factor market liberalization and greater enforcement of environmental regulations.[ Working Paper 219]
    Keywords: trade surpluses, People’s Republic of China, exchange rate changes, East Asian, environmental regulations, liberalization
    Date: 2010
  2. By: Fédéric Holm-Hadulla (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Sándor Gardó (Oesterreichische Nationalbank, Foreign Research Division, Otto-Wagner-Platz 3, A - 1090 Wien, Austria); Reiner Martin (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main)
    Abstract: The paper first reviews the main drivers of the growth and real convergence process in central, eastern and south-eastern Europe (CESEE) since 2000 and assesses the key macro-financial strengths and vulnerabilities of the region at the beginning of the global economic and financial crisis. The main part of the paper reviews financial and real economic developments in these countries since the crisis started to impact the CESEE region. The paper finds that developments have been rather heterogeneous in the region. CESEE countries with the largest economic imbalances tended to be most affected. National and international support measures appear to have helped to stabilise financial markets, and parent banks of foreign bank subsidiaries in CESEE were committed to sustaining their exposure to the region. The degree to which CESEE governments were able to use policy instruments to counter the real effects of the crisis is rather heterogeneous, depending inter alia on the exchange rate regime in place and the initial fiscal positions. JEL Classification: F15, F32, G01, G15, G18, H40
    Keywords: Financial crisis, vulnerability indicators, central, eastern and south-eastern Europe
    Date: 2010–06
  3. By: ZhongXiang Zhang (East-West Center); ;
    Abstract: China had been singled out by Western politicians and media for dragging its feet on international climate negotiations at Copenhagen, the accusations previously always targeted on the U.S. To put such a criticism into perspective, this paper provides some reflections on China's stance and reactions at Copenhagen. While China's reactions are generally well rooted because of realities at home, some reactions could have been handled more effectively for a better image of China. The paper also addresses the reliability of China's statistics on energy and GDP, the issue crucial to the reliability of China's carbon intensity commitments. The paper discusses flaws in current international climate negotiations and closes with my suggestion that international climate negotiations need to focus on 2030 as the targeted date.
    JEL: Q41 Q43 Q48 Q52 Q54 Q58 Q53
    Date: 2010–06
  4. By: Das Gupta, Monica; Ebenstein, Avraham; Sharygin, Ethan Jennings
    Abstract: Fertility decline has fueled a sharp increase in the proportion of'missing girls'in China, so an increasing share of males will fail to marry, and will face old age without the support normally provided by wives and children. This paper shows that historically, China has had nearly-universal marriage for women and a very competitive market for men. Lower-educated men experience higher rates of bachelorhood while women favor men with better prospects, migrating if needed from poorer to wealthier areas. The authors examine the anticipated effects of this combination of bride shortage and hypergamy, for different regions of China. Their projections indicate that unmarried males will likely be concentrated in poorer provinces with low fiscal ability to provide social protection to their citizens. Such geographic concentration of unmarried males could be socially disruptive, and the paper’s findings suggest a need to expand the coverage of social protection programs financed substantially by the central government.
    Keywords: Population Policies,Population&Development,Demographics,Gender and Law,Gender and Health
    Date: 2010–06–01
  5. By: Chadwick C. Curtis; Nelson Mark
    Abstract: Can standard business-cycle methodology be applied to China? In this chapter, we address this question by examining the macroeconomic time series and identifying dimensions in which China differs from economies (such as Canada and the U.S.) that are typically the subject of business-cycle research. We show that naively applying the standard business-cycle tools to China is no more ridiculous than applying it to Canada, although the dimensions along which the model struggles is different. For China, the model cannot account for the low level of consumption (or high saving) as a proportion of income observed in the data. An examination of provincial level consumption data suggests that the absence of channels for intranational consumption risk sharing may be an important reason why the business-cycle model has trouble accounting for Chinese consumption and saving behavior.
    JEL: E21 E32 F41
    Date: 2010–07
  6. By: Hsu, Chen-Min (Asian Development Bank Institute); Liao, Chih-Feng (Asian Development Bank Institute)
    Abstract: This paper investigates the prevailing financial regulatory structures and impact of the current financial turmoil on banking performance in four economies: the People's Republic of China (PRC); Hong Kong China; Singapore; and Taipei,China. Both the PRC and Hong Kong, China operate under a fragmented financial regulatory structure, while Singapore and Taipei,China have integrated structures. We examine the role of an integrated financial regulatory structure in helping financial institutions mitigate the impact of the financial crisis, using financial indicators of banks' capital structure and operating performance in these four economies between 2003 and 2008. Our analysis of the indicators reveals that banking performance under a fragmented financial regulatory structure is not worse than under integrated regulation. This implies that financial regulatory structure is not the main reason why Asian financial institutions suffered only limited losses from the current global financial crisis. However, given the growing complexity of the global financial system, and the relative weakness of current financial regulatory structures in Asia, this paper suggests that East Asian governments should refer to the Lamfalussy Process in the European Union and set up an Asia Financial Stability Dialogue to facilitate policy coordination for regional financial sector stability and development.
    Keywords: asian financial regulation; global financial crisis; asian banking; prc; asian financial institutions; asian financial sector
    JEL: F42 G18 G21
    Date: 2010–06–28
  7. By: Ana Fernandes; Heiwai Tang
    Abstract: Using detailed product-level export data for China and a variant of the Antràs and Helpman (2004)model that includes investments in component search, we examine the sectoral determinants offoreign direct investment (FDI) versus foreign outsourcing in export processing trade. We exploit thecoexistence of two regulatory export processing regimes in China, which specify who owns andcontrols the imported components for export processing. We find that in the regime that Chineseplants own the imported components, the share of exports from vertically integrated plants isincreasing in the intensity of headquarter inputs across sectors, and is decreasing in the contractibilityof inputs. These results are consistent with the property- rights theory of intra-firm trade. However, inthe regime that foreign firms own the imported components, no significant relationship is foundbetween the prevalence of vertical integration, headquarter intensity and input contractibility acrosssectors. The positive relationship between productivity dispersion and the export share of integratedplants across sectors, as suggested by the existing literature, is found only in the regime that foreignfirms own the imported components. These results are consistent with our model, which considersownership of imported components as an alternative to asset ownership to alleviate the hold-upproblem by the export-processing plant.
    Keywords: Intrafirm trade, vertical integration, export processing, outsourcing
    JEL: F14 F23 L14 L33
    Date: 2010–05
  8. By: Ibrahim Abada; Olivier Massol
    Abstract: This paper introduces a general static Cournot-game model to study the Natural Gas market, taking into account disruption risks from suppliers. In order to most realistically describe the economical situation, our representation divides the market into two stages: the upstream market that links -by means of long-term contracts- local producers in exporting countries (Russia, Algeria, etc.) to foreign retailers who bring gas to the consuming countries to satisfy local demands in the downstream market. Thanks to short-run demand functions, we are able to introduce disruption costs to be paid to the consumers should disruption occur. First we mathematically develop our general model and write the associated KKT conditions, then we propose some case studies -under iso-elasticity assumptions- for the long-short-run inverse-demand curves in order to predict qualitatively and quantitatively the impacts of supply disruptions on Western European gas trade. In the second part, we study in detail the German gas market of the 80 to explain the supply choices of Germany, and we derive interesting conclusions and insights concerning the amounts and prices of Natural Gas brought to the market. The last part of the paper is dedicated to a study of the Bulgarian gas market, which is greatly dependent on the Russian gas supplies and hence very sensitive to interruption risks. Some thought-provoking conclusions are derived concerning the necessity to economically regulate the market, by means of gas amounts control, if the disruption probability is high enough.
    Date: 2010
  9. By: Jakub Seidler; Petr Jakubik
    Abstract: This paper focuses on a key credit risk parameter – Loss Given Default (LGD). We illustrate how the LGD can be estimated with the help of an adjusted Mertonian structural approach. We present a derivation of the formula for expected LGD and show its sensitivity analysis with respect to other company structural parameters. Finally, we estimate the five-year expected LGDs for companies listed on Prague Stock Exchange and find that the average LGD for the analyzed sample is around 20–50%.
    Keywords: Credit risk, loss given default, structural models.
    JEL: C02 G13 G33
    Date: 2009–12

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