nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒09‒03
nine papers chosen by
J. David Brown
Heriot-Watt University

  1. The Long-Run Weight of Communism or the Weight of Long-Run History? By Roland, Gerald
  2. Stock market reaction to debt financing arrangements in Russia By Godlewski, Christophe J.; Fungacova, Zuzana; Weill, Laurent
  3. Does news on real Chinese GDP growth impact stock markets? By Franses, Ph.H.B.F.; Mees, H.
  4. Why Are the Elite in China Motivated to Promote Growth By Zang, Xiaowei
  5. Currency substitution in the economies of Central Asia: How much does it cost? By Isakova, Asel
  6. Has China's Interregional Capital Mobility Been Low? A Spatial Econometric Estimation of the Feldstein-Horioka Equation By Hashiguchi, Yoshihiro; Chen, Kuang-hui
  7. Central Bank Transparency: Another Look By Pierre L. Siklos
  8. The Fight against income evasion in Hungary By Dr. Imre Zoltán Nagy
  9. Choosing between foreign investment and subcontracting: Strategies of Italian firms By Giuseppe Tattara

  1. By: Roland, Gerald
    Abstract: This study provides evidence that culture understood as values and beliefs moves very slowly. Despite massive institutional change, values and beliefs in transition countries have not changed much over the last 20 years. Evidence suggests that culture is affected by the long run historical past, in particular the participation in empires for over 100 years. Current institutional evolutions in transition countries might be more affected by their long run past than by the communist experience of the twentieth century.
    Keywords: culture, institutional change, transition, economic history
    Date: 2010
  2. By: Godlewski, Christophe J. (BOFIT); Fungacova, Zuzana (BOFIT); Weill, Laurent (BOFIT)
    Abstract: This paper investigates stock market reaction to debt arrangements in Russia. The analysis of the valuation of debt arrangements by stock markets provides information about the use of debt by Russian companies. We apply the event study methodology to check whether debt announcements lead to abnormal returns using a sample of Russian listed companies that issued syndicated loans or bonds between June 2004 and December 2008. We find a negative reaction of stock markets to debt arrangements that can be explained by moral hazard behavior of shareholders at the expense of debtholders. Further, we observe no significant difference between announcements of syndicated loans and bonds. Thus, our findings support the view that Russian companies could have incentives to limit their reliance on external debt.
    Keywords: corporate bonds; event study; Russia; stock returns; syndicated loans
    JEL: G14 G20 P30
    Date: 2010–08–25
  3. By: Franses, Ph.H.B.F.; Mees, H.
    Abstract: Real GDP growth in China follows a random walk. Also, it has often been suggested that China “cooks its booksâ€, that is to say that governmental officials in China manipulate economic statistics such as GDP growth rate to present the outside world a rosy picture (Foreign Policy, September 3, 2009). If such unreliability is known to stock traders, news on GDP should not impact stock market fluctuations or their volatility. We test this hypothesis for 12 series with daily stock market returns for the years 2006 to and including 2009.
    Keywords: Gross Domestic Product;China
    Date: 2010–07–28
  4. By: Zang, Xiaowei
    Abstract: Rapid economic development in China in the post-1978 era has been considered ‘intriguing’ and ‘puzzling’ since it occurred under the dominance of the Chinese Communist Party – the fusion of politics and economics is supposed to be a powerful impediment to market growth. Scholars have proposed different accounts to explain this paradox, with particular emphasis on the role of the political elite in economic progress. This paper contributes to this literature by studying why the political elite are motivated to promote economic development in China. It argues that like politicians in other types of political regimes, autocratic leaders are interested in high growth rates. It also studies the historical development of China’s developmental elites to understand their motivations for economic growth in the reform era. To better understand whether or not elites in developing countries promote economic growth, scholars should focus on factors such as historical experience, political stability, leadership turnover, or elite perceptions about the impact of growth on their hold on power rather than the differences between autocracy and democracy.
    Keywords: China, democracy, autocracy, development, growth, elites
    Date: 2010
  5. By: Isakova, Asel (BOFIT)
    Abstract: Underdeveloped financial markets and periods of high inflation have stimulated dollarization and currency substitution in the economies of Central Asia. Some authors argue that the latter can pose serious obstacles for the effective conduct of monetary policy and can affect households’ welfare.This study uses a model with money-in-the-utility function to estimate the elasticity of substitution between domestic and foreign currencies in three economies of Central Asia - Kazakhstan, the Kyrgyz Republic and Tajikistan. Utility derived from holding money balances is represented by a CES function with money holdings denominated in two currencies. The residents are assumed to diversify their monetary holdings due to instability of the domestic currency. The steady state analysis reveals that though currency substitution decreases governments’ seigniorage revenue, holding foreign money can be welfare generating if domestic currency depreciates vis-à-vis the currencies in which households’ foreign balances holdings are denominated. De-dollarization can only be achieved through further macroeconomic stabilization that will bring price and exchange rate stability. Financial sector development will also decrease currency substitution through the provision of reliable financial instruments and the gaining of public confidence.
    Keywords: currency substitution; dollarization; monetary policy; seigniorage; welfare; transition
    JEL: E41 E58 P20
    Date: 2010–07–26
  6. By: Hashiguchi, Yoshihiro; Chen, Kuang-hui
    Abstract: We conducted a Feldstein-Horioka test for the degree of China's inter-provincial capital mobility each year from 1978 to 2007 using the spatial error model (SEM), a model of spatial econometrics considering spatial dependence, and a data set reflecting revision of historical national and provincial accounts after China's first economic census in 2004. We found that the likelihood ratio test rejected the null of no spatial error correlation, or the appropriateness of the standard OLS model (OLSM), for 17 out of 30 years and that the Akaike information criterion selected the SEM over the OLSM for 20 years. Our estimations demonstrate that the mobility was high until the late 80's, fell to a bottom in the mid-90's, recovered, peaked in the early 2000's, and has weakened recently, even though it has been argued that mobility has been low since 1978 reform, leaving the impression that it has consistently been low.
    Keywords: fiscal and financial reform; Feldstein-Horioka paradox; spatial econometrics
    JEL: P21 O16 C21
    Date: 2010–08
  7. By: Pierre L. Siklos
    Abstract: This paper extends the Dincer and Eichengreen (2007) index of central bank transparency. Improvements in transparency are notable in Central and Eastern Europe, while the index has shown much smaller rises in most other parts of the world. The pattern observed by Dincer and Eichengreen, consistent with a permanent increase in central bank transparency, is also evident in the updated results. The dramatic enhancements in central bank transparency reported earlier appear to be a feature of the late 1990s and early 2000s. Whether the subsequent data reflects limits to central banks transparency or, to some extent, transparency ‘fatigue’, is unclear.
    JEL: E0 F0
    Date: 2010–08
  8. By: Dr. Imre Zoltán Nagy (Óbuda University)
    Abstract: The evasion of income causes the national budget of Hungary great damage. Just the partial prevention of it would benefit greatly to the state balance and the realization of the economic policy in Hungary. Repelling income evasion can only be achieved by various means. These are the following: To identify and abolish its reasons and causes; to post strict regularizations consistent with the EU legislation; to close legal gaps; not to concentrate on penalties; to reduce high taxes and the exorbitant income centralization of the state; to take the moral education for serious as well as the legal harmonization and effect analysis for the various decisions.
    Date: 2010
  9. By: Giuseppe Tattara
    Abstract: Vertical disintegration in most industries and the globalization of markets has led to significant changes in the pattern of international division of labour among manufacturing firms. At the same time increased competition from low cost producers, exchange rate constraints, the opening up of CEE countries have had huge consequences for the Italian industrial system. This paper deals with the Veneto footwear, furniture and refrigeraion industries and examines the effects of foreign direct investments and subcontracting in Romania. The reorganization of the division of labour, in the most dynamic suppliers induced a change in the “nature of subcontracting”, upgrading along the ladder of the value chain as more and more operations are offshored.
    Keywords: Foreign direct investment, International subcontracting.
    JEL: D82 F23
    Date: 2010–08–09

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