nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒08‒28
sixteen papers chosen by
J. David Brown
Heriot-Watt University

  1. The effect of deposit insurance on market discipline: Evidence from a natural experiment on deposit flows By Karas, Alexei; Pyle, William; Schoors, Koen
  2. "Why Has China Succeeded-And Why It Will Continue To Do So" By Jesus Felipe; Utsav Kumar; Norio Usui; Arnelyn Abdon
  3. Management of China's foreign exchange reserves: a case study on the state administration of foreign By Yu-Wei Hu
  4. The emergence and spatial distribution of Chinese seaport cities By Funke, Michael; Yu, Hao
  5. Does diversification increase or decrease bank risk and performance? Evidence on diversification and the risk-return tradeoff in banking By Berger, Allen N.; Hasan, Iftekhar; Korhonen, Iikka; Zhou, Mingming
  6. Socioeconomic Status and Overweight and Obesity: How Does the Gradient Change with Age? New Evidence from China. By Bing Ma
  7. Energy Consumption and Carbon Emission-Based Productivity Change and Industrialization in Post-Reform By Chen, Shiyi; Santos-Paulino, Amelia U.
  8. China’s monetary policy and the exchange rate By Mehrotra, Aaron; Sánchez-Fung, José R.
  9. Agricultural water management in Bulgaria By Bachev, Hrabrin
  10. Does the euro dominate Central and Eastern European money markets? By Mario Cerrato; Alexander Kadow; Ronald MacDonald
  11. Earnings Instability and Earnings Inequality in Urban China: 1989–2006 By Zhong Zhao
  12. Russian fiscal policy during the financial crisis By Ponomarenko, Alexey A.; Vlasov, Sergey A.
  13. Mise en oeuvre de la politique des structures roumaines : une nécessaire définition de l’activité agricole pour un ciblage des mesures By Marielle Berrietâ€Solliec; Marie-Luce Ghib
  14. Business Competitiveness after Euro Adoption in Slovakia By Tibor Lalinsky
  15. Structural Policy Challenges in Slovakia By Martin Filko; Stefan Kiss; Ludovit Odor; Matej Siskovic
  16. Les petites exploitations roumaines connaissentâ€elles une évolution sous contraintes de localisation? By Pierre Wavresky; Krystyna Larkham; Lucian Luca; Marie-Luce Ghib

  1. By: Karas, Alexei (BOFIT); Pyle, William (BOFIT); Schoors, Koen (BOFIT)
    Abstract: We explore how the introduction of explicit deposit insurance affects deposit flows into and out of banks of varying risk levels. Using evidence from a natural experiment in Russia, we employ a difference-in-difference estimator to isolate the change in the deposit flows of a newly insured group (households) relative to an uninsured “control” group (firms). This approach improves on earlier studies seeking to identify the effect of deposit insurance on market discipline. We find that the relative sensitivity of households to bank capitalization diminished markedly with the introduction of an insurance program covering their deposits. This was not true for firms, however. We then show the finding is not an artifact of the two groups responding differently to a minor banking crisis that arose at roughly the same time.
    Keywords: deposit insurance; market discipline
    JEL: E65 G21 G28 P34
    Date: 2010–06–19
  2. By: Jesus Felipe; Utsav Kumar; Norio Usui; Arnelyn Abdon
    Abstract: The key factor underlying China’s fast development during the last 50 years is its ability to master and accumulate new and more complex capabilities, reflected in the increase in diversification and sophistication of its export basket. This accumulation was policy induced and not the result of the market, and began before 1979. Despite its many policy mistakes, if China had not proceeded this way, in all likelihood it would be a much poorer country today. During the last 50 years, China has acquired revealed comparative advantage in the export of both labor-intensive products (following its factor abundance) and sophisticated products, although the latter does not indicate that there was leapfrogging. Analysis of China’s current export opportunity set indicates that it is exceptionally well positioned (especially taking into account its income per capita) to continue learning and gaining revealed comparative advantage in the export of more sophisticated products. Given adequate policies, carefully thought-out and implemented reforms, and skillful management of constraints and risks, China has the potential to continue thriving. This does not mean, however, that high growth will continue indefinitely.
    Keywords: China; Capabilities; Diversification; Export-led Growth; Leapfrogging; Open Forest; Product Space; Sophistication
    JEL: O20 O25 O53
    Date: 2010–08
  3. By: Yu-Wei Hu
    Abstract: Summary for non-specialistsWith rapid economic growth and continuing economic integration with the outside world, China's foreign exchange (FX) reserves have witnessed considerable accumulation. As of 2009 it amounted to USD 2.4 trillion, accounting for just under 1/3 of the global FX reserves. Rapid growth of FX reserves at this speed has created various problems, e.g. inflationary pressure and huge holding costs.In this paper by analyzing the SAFE - Chinese governmental agency in charge of administering the FX reserves in the country, we review how Chinese FX reserves are currently managed and their performance so far. Then, in the light of these findings and borrowing literature from the current debate on Sovereign Wealth Funds (SWFs), several reform proposals are presented regarding how to better tackle the problems relating to these rapidly accumulated FX reserves in China. It is argued that the proposed reform options not only benefit China, but also help in addressing some wider issues (e.g. global imbalances), therefore contributing to a more harmonious global economy.
    Keywords: Yu-Wei Hu foreign exchange rate policy monetary policy China management of foreign exchange reserves international portfolio investment
    JEL: E5 E58 F31 F34
    Date: 2010–07
  4. By: Funke, Michael (BOFIT); Yu, Hao (BOFIT)
    Abstract: Seaports have historically played a key role in facilitating trade and growth. This paper is the first attempt in the literature to analyse the formation of Chinese seaport cities and the dynamics that drives it. First, we aim to identify theoretically the emergence of urbanized seaports with the help of a formal economic geography model. Second, employing an empirically plausible parameterisation of the model, we calibrate the evolutionary process and spatial distribution of seaports along the Chinese coastline.
    Keywords: seaports; cities; economic growth; China
    JEL: R11 R12 R41
    Date: 2010–07–21
  5. By: Berger, Allen N. (BOFIT); Hasan, Iftekhar (BOFIT); Korhonen, Iikka (BOFIT); Zhou, Mingming (BOFIT)
    Abstract: Conventional wisdom in banking argues that diversification tends to reduce bank risk and improve performance, but the recent financial crisis suggests that aggressive diversification strategies may have resulted in increased risk taking and poor performance. This paper addresses this important question by evaluating the empirical relationship between diversification strategies and the risk-return tradeoff in banking. Our data set covers Russian banks during the 1999-2006 period and finds somewhat mixed results. Specifically, we find that banks’ performance tends to be non-monotonically related to their diversification strategy. The marginal effects of focus indices (inverse measures of diversification) on performance are nonlinearly associated with the level of risk and foreign ownership. A focused strategy is found to be associated with increased profit and decreased risk only up to a certain threshold. Additionally, when foreign ownership is either very high or very low, banks tend to benefit more from being diversified. This analysis provides important strategic and policy implications for bank managers and regulators in Russia as well as in other emerging economies.
    Keywords: banks; diversification; focus; Russia; foreign ownership; scope economies
    JEL: G21 G28 G34
    Date: 2010–06–21
  6. By: Bing Ma (UMBC)
    Abstract: This paper presents a systematic analysis of the impact of socioeconomic status (SES) on overweight and obesity in China and investigates how and why the SES-obesity gradient differs with age. Using a longitudinal sample drawn from the China Health and Nutrition Survey (CHNS), I find that body mass index (BMI) is predicted to increase with age and is positively associated with SES during early childhood but becomes adversely related to childhood SES as children age into adulthood. Estimation results show that children from low SES families are less likely to be overweight or obese than their median and high SES peers. The results from subsamples stratified by living areas (rural vs. urban) reveal that the SES gaps of overweight and obesity are generally larger for urban residents than rural residents. My study indicates that females are significantly less likely to be overweight than males in China. The SES during childhood has independent effects after controlling for respondents’ contemporaneous SES. Interestingly, the relationship between the contemporaneous SES of a male adult and his chance of being overweight or obese is significantly positive. In this instance, early childhood SES becomes insignificant. On the contrary, the contemporaneous SES of a female adult is negatively related with her chance of being overweight or obese.
    Keywords: Overweight and Obesity, Socioeconomic Status, China
    JEL: I10 I18
    Date: 2010–07–15
  7. By: Chen, Shiyi; Santos-Paulino, Amelia U.
    Abstract: The paper investigates the determinants of productivity growth in China. It also analyses the sustainability of the country’s industrial growth by estimating sectoral productivity, accounting for energy usage and emission since the start of the marketoriented reforms in the late 1970s. The growth accounting analysis indicates that productivity is the most significant driver of growth. Energy and capital are also important factors promoting China’s industrial growth. The substantial productivity improvement of China’s industry is attributable more to high-tech light industrial sectors. Heavy industry, characterized by high energy emission levels, lags behind in terms of productivity and overall technical change.
    Keywords: productivity growth, industrial sustainability, energy consumption, carbon emission
    Date: 2010
  8. By: Mehrotra, Aaron (BOFIT); Sánchez-Fung, José R. (BOFIT)
    Abstract: The paper models monetary policy in China using a hybrid McCallum-Taylor empirical reaction function. The feedback rule allows for reactions to inflation and output gaps, and to developments in a trade-weighted exchange rate gap measure. The investigation finds that monetary policy in China has, on average, accommodated inflationary developments. But exchange rate shocks do not significantly affect monetary policy behavior, and there is no evidence of a structural break in the estimated reaction function at the end of the strict dollar peg in July 2005. The paper also runs an exercise incorporating survey-based inflation expectations into the policy reaction function and meets with some success.
    Keywords: exchange rate; hybrid McCallum-Taylor monetary policy reaction function; SVAR; survey-based inflation expectations; China
    JEL: E42 E52
    Date: 2010–07–20
  9. By: Bachev, Hrabrin
    Abstract: This paper analyzes evolution and efficiency of water governance in Bulgarian agriculture during post-communist transition and EU integration. First, it defines the water governance and the scope of analysis. Next, it presents the process of transformation of agricultural water governance embracing all mechanisms and modes – institutional environment, market, private, public, and hybrid. Third, it assesses impacts of newly evolved system of governance on efficiency and sustainability. Finally, it suggests recommendations for improvement of public policies.
    Keywords: agricultural water governance; market; private; and public modes; Bulgarian agriculture
    JEL: Q28 Q01 Q25 Q18 Q38 Q53 Q15 Q58
    Date: 2010–08–01
  10. By: Mario Cerrato; Alexander Kadow; Ronald MacDonald
    Abstract: The so-called German Dominance Hypothesis (GDH) claimed that Bundesbank policies were transmitted into other European Monetary System (EMS) interest rates during the pre-euro era. We reformulate this hypothesis for the Central and Eastern European (CEE) countries that are on the verge of accessing the eurozone. We test this "Euro Dominance Hypothesis (EDH)" in a novel way using a global vector autoregressive (GVAR) approach that combines country-specic error correction models in a global system. We find that euro area monetary policies are transmitted into CEE interest rates which provides evidence for monetary integration between the eurozone and CEE countries. Our framework also allows for introducing global monetary shocks to provide empirical evidence regarding the eects of the recent nancial crisis on monetary integration in Europe.
    Keywords: German Dominance Hypothesis, Global VAR, Central and Eastern Europe, monetary integration, European integration.
    JEL: E58 F36 G15
    Date: 2010–06
  11. By: Zhong Zhao
    Abstract: This paper investigates the evolution of earnings inequality in urban China from 1989 to 2006. After decomposing the variance of log of earnings into transitory and permanent two parts, we find that both components are important contributors to the total variance of earnings. We also find that the share of the transitory part has been decreasing from early 1990 to 2004; however, this decreasing trend is reversed from 2004 to 2006. Compared female to male, though these two populations share similar trends in the changes of transitory and permanent components, changes are more pronounced for female than for male. Our results suggest that the time-invariant part and time related part in permanent earnings are negatively correlated. This implies converge of earnings profile in long run and also implies that there is more mobility within the distribution of long-term earnings. [IZA Discussion Paper No. 3270]
    Keywords: earnings inequality, covariance structure of earnings, China
    Date: 2010
  12. By: Ponomarenko, Alexey A. (BOFIT); Vlasov, Sergey A. (BOFIT)
    Abstract: This study examines the expanding role of fiscal policy at a time of financial crisis. It analyses the stimulative fiscal measures of the Russian government in 2008-2010 and compares these with simi-lar actions taken in other countries. The risks and limitations associated with the development and implementation of the measures are analyzed. The macroeconomic effects of the fiscal policy measures are estimated using a structural vector autoregressive (SVAR) model, the fiscal multip-liers are calculated, and factors influencing multiplier size are examined.
    Keywords: fiscal stimulus; fiscal sustainability; SVAR; fiscal multiplier; financial crisis; Russia
    JEL: E62 H30 H60
    Date: 2010–07–22
  13. By: Marielle Berrietâ€Solliec; Marie-Luce Ghib
    Abstract: Like the former member States of the EU in 1962 at the beginning of the CAP, today Romania focuses mainly on the restructuration and the modernisation of its agriculture. In a general context in which OECD advocates the targeting of farm holdings to achieve a better efficiency of agricultural policies, we analyse in this paper the difficulties for a definition for targeting the units in the romanian context. The draws parallels between different types of production structures in Romania, as they can be defined with the current statistical apparatus, and the objectives aimed by the principal measures of the rural development policy. It concludes with an analysis of the adequacy of the system chosen in Romania to accompany the modernisation, the restructuration and the re orientation of farm holdings. - Comme les Etats-membres de l'Union Européenne, lors de la mise en place PAC en 1962, la Roumanie est aujourd'hui principalement préoccupée par la restructuration et la modernisation de son agriculture. Dans un contexte où l'OCDE prône le recours au ciblage des exploitations agricoles pour une plus grande efficacité des politiques agricoles, nous revenons, dans cet article sur les difficultés de définition de telles cibles dans le contexte roumain. L'article met en parallèle d'un côté les différents types de structures de production en Roumanie, telles qu'elles peuvent être définies dans l'état actuel de l'appareil statistique, et de l'autre les objectifs visés par les principales mesures de la politique de développement rural. Il conclut sur une analyse de l'adéquation des dispositifs retenus en Roumanie pour accompagner la modernisation et la restructuration des exploitations agricoles.
    Keywords: Agricultural policies, Evaluation of public policies, Rural development, CAP second pillar
    JEL: Q18 H50 R58
    Date: 2010–04–15
  14. By: Tibor Lalinsky (Research Department, National Bank of Slovakia)
    Abstract: Slovak enterprises recorded significant worsening of economic and financial indicators in the time after euro adoption. Dramatic changes in the results of non-financial corporations were observed in most of the EU countries. The main driving factor was a drop in global demand. Some indicators suggest that the adoption of the euro and consequent effective exchange rate appreciation could have an additional negative effect on selected services. Decrease in price and cost competitiveness was only temporary. Tradable sector represented mainly by manufacturing seems to be sufficiently competitive. With gradual recovery of the global economy we can see a growing importance of previously identified competitiveness factors: support of research and development, education and innovations.
    Keywords: business competitiveness, impact of euro adoption
    JEL: D21 L10 L25 O12
    Date: 2010–04
  15. By: Martin Filko (Ministry of Finance of the SR, Faculty of Social and Economic Sciences, Comenius University.); Stefan Kiss (Ministry of Finance of the SR); Ludovit Odor (National Bank of Slovakia); Matej Siskovic (Ministry of Finance of the SR)
    Abstract: The paper presents possible approaches for measuring the quality of life together with their strengths and weaknesses. We identify 10 outcome indicators, which could help not only to set targets, but also as a quantitative benchmark for structural policy evaluation in Slovakia. In addition to that we present several case studies with best practices mainly from EU countries. Based on these we formulate 33 structural policy recommendations.
    Keywords: Structural Policies, Outcome Indicators, Well-being, Economic Growth
    JEL: E01 H50 O11 O43
    Date: 2010–04
  16. By: Pierre Wavresky; Krystyna Larkham; Lucian Luca; Marie-Luce Ghib
    Abstract: This paper aims to clarify the recent evolution of Romanian small farms. As a result of complex historic process the category of subsistence and semi-subsistence farms is well represented within Romanian Farm structure (Mathijs and al., 2004; Giruca and al., 2006). The recent data collected by the General Census and Farm Structure surveys gave some signs of the recent evolution. We focus specifically on the smallest categories and try to differentiate their evolution among different factors. Farm survival and Farm growth literature is abundant and focuses especially on initial farm size, specialisation or pluriactivity of the farm (Weiss, 1999). In contrast, the role of localization, linked to historical background or physical constraints, as a factor is more limited in the literature. Other institutional factors such as inheritance and succession have not really been approached until now. We choose to investigate those factors using a multiple regression on the 3 recent data collections in Romania.
    Keywords: Small farms, Farm evolution, Romania, Restructuration, Historical and geographical determinants
    JEL: Q15 Q18 P32 J11
    Date: 2010–05–15

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