nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒07‒31
six papers chosen by
J. David Brown
Heriot-Watt University

  1. Foreign and Domestic Growth Drivers in Eastern Europe By Weber, Enzo
  2. FDI and Economic Development in China 1970-2006: A Cointegration Study By J L Ford; S Sen; Hongxu Wei
  3. The Effects of Aging on Migration in a Transition Economy: The Case of China By Bodvarsson, Örn B.; Hou, Jack W.
  4. Rethinking Agricultural Production Collectivities: The case for a group approach to energize agriculture and empower poor farmers By Bina Agarwal
  5. Vietnam: Bayesian Estimation of Output Gap By Wojciech Maliszewski

  1. By: Weber, Enzo
    Abstract: This paper analyses the growth effects of capital formation, exports and FDI as major drivers of economic development in Eastern Europe. The fundamental innovations are identified by empirically and theoretically motivated short- and long-run restrictions in structural cointegrated vector autoregressions. Impulse responses and variance decompositions reveal quite different growth effects in various Eastern European countries. Generally, strong reliance on exports goes along with higher GDP, and FDI bears substantial potential for fostering economic growth. It is shown that the recent worldwide recession clearly hit Eastern Europe through the export channel, whereas the recovery is mainly supported by positive demand shocks.
    Keywords: Eastern Europe; Growth; Exports; Investment; Identification
    JEL: O11 C32
    Date: 2010–07–22
  2. By: J L Ford; S Sen; Hongxu Wei
    Abstract: The relationship between high levels of FDI and of economic growth has been of enduring interest in the development literature, particularly in the context of economies like China which have enjoyed exception inflows of foreign capital as well as experiencing unprecedented economic growth. The specific literature on China has failed to come to a definite conclusion as to whether FDI does increase growth mainly because they focus on one or several different channels through which FDI might affect the macro-economy. A more comprehensive framework is necessary to investigate the overarching relationships between economic development and FDI, as identified by endogenous growth theory, by including the potential influences on them, and vice-versa, of domestic capital stock, human capital, the state of technology, the openness of the economy and its gradual liberalisation. Although we investigate those influences in a VAR framework, our main focus is the presence of long-run cointegration, between the relevant variables and aggregate output in long-run equilibrium. We find, and then identify, such long run structural relationships; one of which identifies a long-run "production function". In the long-run FDI reduces economic growth; but the latter increases the former. There are important impacts on variables such as employment, from FDI and other factors such as openness and technology transfer, which have both indirect or direct spill-over effects from FDI.
    Keywords: Economic growth, FDI, endogenous growth theory, spill-over effects, VAR, impulse reponses, VEC, identified cointegration vectors, long-run relationships between growth and FDI
    JEL: O23 O24 F43
    Date: 2010–07
  3. By: Bodvarsson, Örn B. (St. Cloud State University); Hou, Jack W. (California State University, Long Beach)
    Abstract: China has been experiencing two major demographic sea changes since the late 1970s: (i) Internal migration, primarily rural-to-urban, on a scale that dwarfs all other countries at any time in history; and (ii) a shift in its age distribution. The basic question posed in this paper is: How are aging and migration related in post-reform China? We argue that there is probably two-way causality: Shifts in the origin region's age distribution induce changes in the scale and structure of migration, but out- (in-) migration shifts the origin's (destination's) age distribution. We examine theoretically and empirically the relationship between origin age distribution and interprovincial migration in China using province-level census data for 1985-2005. The goal of the paper is two-fold: (i) To develop a more refined theoretical model that explains how a migrant's age affects his/her likelihood of migration; and (ii) to obtain unbiased estimates of the effect of age on the interprovincial migration rate. Our theory section is motivated by the observation that, while most researchers recognize the importance of including age in theoretical and empirical models of migration, the exact reasons for why age affects migration have not been analyzed very thoroughly. We model the migration decision and demonstrate that there is an ambiguous relationship between age and the likelihood of migration. Implications of the theory are tested with an extended modified gravity model using OLS and 2SLS.
    Keywords: internal migration, age distribution, reforms
    JEL: J61 J11
    Date: 2010–07
  4. By: Bina Agarwal (Institute of Economic Growth)
    Abstract: In the face of persistent rural poverty, an incomplete agrarian transition, the predominance of small and marginal farms and an emerging feminization of agriculture, this paper argues for a new institutional approach to poverty reduction, agricultural revival and social empowerment. It makes a strong case for a group approach to agricultural investment and production through promoting collectivities of the poor which, it argues, would be much more effective on all these counts than the traditional individual-oriented approaches. The collectivities proposed here, however, are small-sized, voluntary, socio-economically homogeneous, and participatory in decision-making, and in keeping with the principles emphasized in a human-rights approach to development. This is in sharp contrast to the largely failed historical efforts at early socialist collectivization, and some similar thrusts in non-socialist developing countries in the 1960s and 1970s, which were massive in scale, top-down, and typically coercive and non-participatory. The paper outlines the potential benefits of bottom-up agricultural production collectivities and describes a range of successful cases from the transition economies and South Asia. It also reflects on the contexts in which such collectivities may be expected to succeed, and how these efforts could be replicated for wider geographic coverage and impact.
    Keywords: Agricultural production collectivities, food security, women farmers, self-help groups, transition economies, group farming
    JEL: I38 J16 P32 Q15
    Date: 2010
  5. By: Wojciech Maliszewski
    Abstract: The paper constructs a new output gap measure for Vietnam by applying Bayesian methods to a two-equation AS-AD model, while treating the output gap as an unobservable series to be estimated together with other parameters. Model coefficients are easily interpretable, and the output gap series is consistent with a broader analysis of economic developments. Output gaps obtained from the HP detrending are subject to larger revisions than series obtained from a suitably adjusted model, and may be misleading compared to the model-based measure.
    Date: 2010–06–25
  6. By: Peter Friedrich; Janno Reiljan
    Abstract: In order to develop the necessary Estonian measures and policies the prevailing distribution of expenditures for these purposes are presented. Although the share of GDP used for financing education in Estonia is somewhat above the EU average the nominal amount of per capita education funds is comparatively low due to a low level of economic development. Moreover, because of thin population per square km many small schools exist in Estonia without a sufficient number of pupils, which makes the education system more costly. We consider two different basic strategies to improve the situation. The first strategy is an extension of a reform approach that was performed since January 2008 that refers mainly to the prevailing educational and spatial organization. We discuss the consequences and regional impacts of that policy. Criteria for a SWOT-analysis such as expenditure distribution, preserving regionally clear investment criteria, source of investment, etc. are used. The first strategy refers to improvements into the current system of financing schools that shows a state investment program for schools that considers the number of pupils per school and special educational needs. However, the performance of this policy is not based on a fair equal treatment of cases. Therefore a second strategy of improvement is discussed. It is based on the idea of Functional Overlapping Competitive Jurisdictions (FOCJ). The municipalities form FOCJ that are operating schools. In this way municipalities may form a school jurisdiction that can negotiate with central government institutions for the loan and the school equipment etc. A municipality can act individually or the FOCJ negotiates for the municipal members in total. Theories of FOCJ-establishment, FOCJ-contribution determination and FOCJ-negotiations with central government are demonstrated. The FOCJ can supplement positively the first strategy of reform.
    Keywords: funding of education, central government budget policy, local governments finance
    JEL: H52 I22
    Date: 2010

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