nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒09‒25
eighteen papers chosen by
J. David Brown
Heriot-Watt University

  1. The contagion effect: evidences from former Soviet Economies in Eastern Europe By Insel, Aysu; Korkmaz, Abdurrahman
  2. Can Social Security Boost Domestic Consumption in the People’s Republic of China? By Wang Dewen
  3. Toward a harmonious countryside: rural development survey results of the People’s Republic of China By Lin, Tun
  4. Monetary policy, asset prices and consumption in China By Tuuli Koivu
  5. Return to schooling in Vietnam during economic transition: Does return to schooling in Vietnam reach its peak? By Doan, Tinh; John, Gibson
  6. Informal Economy Activities and Entrepreneurship: Evidence from Russia By Kim, Byung-Yeon
  7. A new wave of modernization of the manufacturing system, a new role of the country in the global value chain: Chinese economists’ remarks on post-crisis strategies By Marisa Siddivò
  8. Trade with central and eastern Europe: is it really a threat to wages in the west? By Éva Katalin Polgár; Julia Wörz
  9. Higher water tariffs for less river pollution—evidence from Min River and Fuzhou City, People’s Republic of China By Jiang, Yi; Jin, Leshan; Lin, Tun
  10. Rural biomass energy 2020: People's Republic of China By Zhang, Qingfeng; Watanabe, Makiko; Lin, Tun
  11. The R&D activity of multinational enterprises in peripheral economies: evidence from the EU new member states By Narula, Rajneesh; Guimon, Jose
  12. Expenditure Patterns of Migrant Households: Evidence from Moldova By Poppe, Robert
  13. Foreign Currency Loans - Demand or Supply Driven? By Brown, Martin; Kirschenmann, Karolin; Ongena; Steven
  14. Land reform and the formalization of houshold credit in rural Vietnam By Kemper, Niels; Klump, Rainer
  15. The impact of environmental performance rating and disclosure: an empirical analysis of perceptions by polluting firms'managers in China By Jin, Yanhong; Wang, Hua; Wheeler, David
  16. Changes in the Czech wage structure: Does immigration matter? By Kamil Dybczak; Kamil Galuščák
  17. The value of statistical life : a contingent investigation in China By Wang, Hua; He, Jie
  18. Guanxi Management in Chinese Entrepreneurs: a Network Approach By Arribas Fernández Iván; Vila Gisbert José E.

  1. By: Insel, Aysu; Korkmaz, Abdurrahman
    Abstract: This paper analyzes whether or not the contagion effect exists among the seven former-Soviet economies in Eastern Europe: Belarus, Estonia, Latvia, Lithuania, Moldova, Russia and Ukraine throughout the period from November 1996 to December 2009. The evolution of the EU memberships of Estonia, Latvia and Lithuania has been assessed over the membership period (2004:05-2009:12) in comparison to the non-membership period (1995:11-2004:04). Additionally, the economies and the sample period employed in this research give an opportunity to test for two hypotheses on the contagion effect: First, the “flight to quality” hypothesis suggested by Favero and Giavazzi (2002) and second, the “political contagion” hypothesis offered by Drazen (1999). The contagion effect hypotheses for each economy have been tested using the “Threshold Test” proposed by Pesaran and Pick (2007). The econometric method employed in this paper examines only the contagion effect, not the interdependence although the seven economies or groups in the analysis can have interdependence relations. Empirical analysis has highlighted that: (i) the contagion effect exists in the region; (ii) the structure of the contagion mechanism in the region is not stable during the estimation period; (iii) there is an evidence for the validity of “flight to quality” hypothesis; (iv) there is no evidence for the validity of the “political contagion” hypothesis. These results are consistent with the different regional patterns of the former Soviet countries.
    Keywords: contagion; threshold test; Eastern Europe; political contagion; flight to quality
    JEL: G15 C30
    Date: 2010–09–14
  2. By: Wang Dewen (Asian Development Bank Institute)
    Abstract: This paper reviews the development of the social security system and trends in the urban labor market in the People’s Republic of China (PRC). Despite its remarkable economic achievement, the PRC faces a difficult path before it can reform and improve its social security system and provide basic support for all of its people. The unemployment shock has caused rural and urban household income to decrease and has thus slowed down household consumption growth. The provision of broader social security would not only mitigate unemployment shocks in the short term, but it would also guarantee individuals and households more security for spending that could reduce the high savings rate and help achieve a balanced growth path in the long run. The author’s findings argue that households with social security coverage spend more and income distribution among urban households is improved through public transfers.
    Keywords: People's Republic of China, social security, unemployment shock, savings rate
    JEL: D12 H55 J26 D63
    Date: 2010
  3. By: Lin, Tun
    Abstract: The construction of a New Socialist Countryside (NSC) is among the highlights in the People's Republic of China’s (PRC) 11th Five-Year Plan (2006–2010). The NSC aims to accelerate the development and modernization of the agricultural and rural economy in order to close the widening rural–urban income gap. In an effort to better understand the priorities of and binding constraints to the PRC's rural development, and to aid the development of the NSC, two surveys were undertaken by the Asian Development Bank in six rural areas—Chongqing, Inner Mongolia, Jiangsu, Liaoning, Shaanxi, and Shangdong. The 2007 survey collected village and household information on the first year of the NSC program, and the 2010 survey captured the possible changes after a few years of the program's implementation. A special feature of these surveys is that they allow for comparison of villagers' and village cadres' views on the priorities of the PRC's rural development. This paper summarizes the findings emerging from these surveys, particularly with respect to the challenges and priority areas of the PRC's rural development in 2007 and 2010. Among the key findings are (i) income growth remains the highest priority in the PRC’s rural development agenda; and (ii) lack of capital and lack of necessary job skills are the most binding constraints for growth in agricultural income and nonagricultural income, respectively.
    Keywords: China; new socialist countryside; rural development; village survey
    JEL: P36 O18 Q12 P32 R2
    Date: 2010–08
  4. By: Tuuli Koivu (Bank of Finland.)
    Abstract: This paper studies the wealth channel in China. Using the structural vector autoregression method, we find that a loosening of China’s monetary policy indeed leads to higher asset prices, which in turn are linked to household consumption. However, the importance of the wealth channel as a part of the monetary policy transmission mechanism in China is still limited. JEL Classification: E52, P24.
    Keywords: China, monetary policy, asset prices.
    Date: 2010–09
  5. By: Doan, Tinh; John, Gibson
    Abstract: A common phenomenon about transition economies is that the return to schooling improves as economic reform progresses. Existing research suggests that Vietnam is not an exception to the pattern. However, the rate of return in period from 1992 to 1998 is still relatively low, below 5 percent, relative to that of the world and other transitional economies. And it is hard to see a clear trend in the current literature due to different methods applied and sets of variables controlled in the earnings equations (see Appendix B). The low returns may result from the gradual economic reforms applied in Vietnam, whilst in Eastern European countries the “Big Bang” transformation was conducted. Therefore, to test whether the return to schooling in Vietnam is rising and reaches other transitional economies’ rate of returns, we re-examine the trend in the rate of return to schooling in Vietnam over the 1998-2008 period, when the reforms have had a longer time to have an effect. We apply the OLS and Heckman selection estimator (Maximum Likelihood approach) and find that the return has increased quickly during the later economic reform but its pace has slowed down when the return reached the global average rate of returns at somewhere between 9 and 10 percent.
    Keywords: economic transition; returns to schooling; Vietnam
    JEL: J31 O15
    Date: 2010–04–21
  6. By: Kim, Byung-Yeon
    Abstract: This paper uses the Russian Longitudinal Monitoring Survey (RLMS) from 1998 to 2004 to analyze the effect of previous informal economy activities on the creation of official entrepreneurship. We find that previous participation in the informal economy is positively associated with the probability to become registered entrepreneurs in the present. We also find that that self-employment is used as a transition mechanism to entrepreneurship and moonlighters in the past are more active in actual job changes. Furthermore, a survival function analysis suggests that previous experience as self-employed moonlighters enhances the probability of success as official entrepreneur. Workers who moonlighted as selfemployed in the past represent 16-22% of the new entrepreneurs. --
    Keywords: Informal economy,entrepreneurs,Russia
    JEL: J22 J24 O17 P20
    Date: 2010
  7. By: Marisa Siddivò (Department of Asian Studies Università degli studi di Napoli, l’Orientale)
    Abstract: The government’s plan to stimulate domestic demand and boost economic growth provided China with tools to face the serious impact of the international crisis. The proactive fiscal measures and the easier monetary policy adopted by the government in 2009, however, risked weakening Wen Jiabao’s project to transform the current economic growth pattern which is excessively reliant on investment and exports of low price, low added-value goods. To support the goal of transforming China from a “large industrial country” to a “powerful industrial country”, the government has issued some plans for restructuring the manufacturing system and selecting some efficient players which would lead economic growth along new lines.
    Keywords: China; Industrial ristructuring
    JEL: L16
    Date: 2010–08
  8. By: Éva Katalin Polgár (European Central Bank, EU Neighbouring Regions Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Julia Wörz (Oesterreichische Nationalbank, Foreign Research Division, Otto WW agner Platz 3, 1011 Vienna, Austria.)
    Abstract: This paper analyses the relationship between openness to trade and wages at the industry level (15 manufacturing industries) in 25 EU countries over the period from 1995 to 2005. By applying a cross-country and industry-specific approach, it is possible to control for unobserved heterogeneity at both country and industry levels. We also differentiate between intra and inter-industry trade as well as between trade from western and eastern Europe and we try to assess the relative importance of foreign wages versus domestic productivity developments in an open environment. We find that trade is not an important driver of wages, since the wage response to trade is small. Moreover, in line with the Stolper-Samuelson reasoning, imports from the west generally benefit wages in central and eastern Europe, while imports from the east rather tend to harm wages in the west. The overall wage response is still negative in some sectors, particularly in more resource-based industries. Nevertheless, increased trade reinforces the productivity-wage link and weakens the co-movement of wages particularly in the west, while at the industry level there is little evidence of such a wagedisciplining effect of trade. JEL Classification: F14, F15, F16, J31.
    Keywords: openness, wages, bilateral trade, European integration, wage discipline, industry level.
    Date: 2010–09
  9. By: Jiang, Yi; Jin, Leshan; Lin, Tun
    Abstract: Upstream nonpoint source pollution has become a significant threat to urban drinking water safety in the People’s Republic of China. Payment for environmental services (PES) is seen as a promising mechanism to deal with the situation. In designing a sound PES, it is crucial to determine the willingness to pay (WTP) of urban beneficiaries for upstream water pollution controls. An analysis of household data from a contingent valuation survey conducted in Fuzhou in 2009 reveals that household income is the most important factor in determining respondents’ positions on water tariff increases as well as WTP under a PES scheme. Mean WTP varies from Yuan (CNY) –0.45 per cubic meter to CNY0.86 for different income groups. The overall mean WTP is estimated to be CNY0.21, which is equivalent to a 10% increase in the current tariff, with the 95% confidence interval at (CNY0.12, CNY0.31). The point estimate implies a total annual WTP of Fuzhou City equal to CNY22 million, which is 27% less than the contribution of Fuzhou to an ongoing government-financed PES. However, with continuous water tariff increases, affordability among low-income households might arise as an issue. This calls for subsidies targeting low-income households to be incorporated in water tariff reform.
    Keywords: water tariff; river pollution; upstream nonpoint source pollution; payment for environmental services; willingness to pay; Min River; Fuzhou City; China
    JEL: Q53 Q25
    Date: 2010–05
  10. By: Zhang, Qingfeng; Watanabe, Makiko; Lin, Tun
    Abstract: The developing world is looking for effective, creative ideas for upscaling clean, renewable energy. No place will gain more socially, economically, and environmentally from increased access to clean, reliable energy than poor, rural areas. Biomass energy, produced from animal and crop wastes, is a sensible renewable energy option for rural areas and it can be cost-effective at community and industry scales if guided effectively by governments. This publication explores the potential of biomass energy to close the urban–rural energy gap, raise farmer incomes, and mend the environment in the People’s Republic of China (PRC). Its findings are instructive for other developing and medium-income countries exploring energy-for-all strategies. The report examines the promises and limitations of leading biomass energy technologies and resources for various distribution scales, including but not limited to household biogas digesters. The information is based on lessons learned and experiences from the Asian Development Bank–financed Efficient Utilization of Agricultural Wastes Project in the PRC, as well as findings and conclusions from a technical assistance grant to assist the government draft a national strategy for developing rural biomass energy.
    Keywords: rural biomass energy; rural development; biomass resources; biomass technologies; China
    JEL: O1 O13 Q42 Q4
    Date: 2010–06
  11. By: Narula, Rajneesh (John H. Dunning Centre for International Business, Henley Business School, University of Reading); Guimon, Jose (Department of Economic Structure and Development Economics, Faculty of Economics, Universidad Autónoma de Madrid)
    Abstract: This paper explores the impact of MNEs on innovation systems and the policy options available for peripheral economies to attract and embed the R&D activities of MNEs. After developing the conceptual and policy framework, we discuss the case of the new member states from Central and Eastern Europe that joined the EU between 2004 and 2007. We analyse the evolution of the R&D activity of MNE subsidiaries since the 1980s, contrasting the new member states with the core and Mediterranean countries of the EU. This analysis is useful to illustrate some common challenges for peripheral economies, including the difficulty of building linkages with MNEs in high value adding activities; the risk of crowding-out of domestic R&D following cross-border acquisitions; the risk of external dependency; and the limitations of protectionist policies. We recommend that governments of peripheral economies focus their efforts on fostering a demand-oriented upgrading of technological capabilities and on stimulating domestic linkages and clusters around MNEs, rather than seeking to attract supply-driven R&D.
    Keywords: European Union, FDI, investment, innovation systems, innovation policies, linkages, MNE, multinational enterprises, new member states, peripheral economies, R&D
    JEL: O32 F23 P33
    Date: 2010
  12. By: Poppe, Robert
    Abstract: This paper examines the effect of temporary and permanent migration on household expenditures and on asset/durables ownership. Using household survey data from Moldova, this paper relies on the matching approach for identification. It is shown that temporary migrant and permanent migrant households have additional expenditures for food compared to non-migrant households. Concerning the ownership of goods or assets compared to the regional crisis in 1998, temporary and permanent migrant households are more likely to own more goods or assets than non-migrant households. Migration has stronger effects on ownership in rural areas. Overall, the findings indicate that temporary migration has a stronger effect on household expenditures than permanent migration. --
    Keywords: Expenditures,Remittances,Migration,Propensity Score Matching
    Date: 2010
  13. By: Brown, Martin; Kirschenmann, Karolin; Ongena; Steven
    Abstract: Motivated by current concerns over foreign currency exposures in emerging economies, we examine the currency denomination of business loans made in Bulgaria prior to the current crisis. We analyze information on the requested and granted currency for more than hundred thousand loans granted by one bank to sixty thousand different firms during the period 2003- 2007. This unique data set allows us to disentangle demand-side from supply-side determinants of foreign currency loans. We find that the bank in our sample often grants loans in foreign currency even when a firm requests a loan in local currency. The bank lends in foreign currency, not only to less risky firms, but also when the firm requested a large or long-term loan and after the bank itself received more funding in euro. These results suggest that foreign currency borrowing in Eastern Europe is not only be driven by borrowers who try to benefit from lower interest rates but may be partly supply-driven with banks hesitant to lend long-term in local currency and eager to match the currency structure of their assets and liabilities. --
    Keywords: foreign currency debt,banking
    JEL: G21 G30 F34 F37
    Date: 2010
  14. By: Kemper, Niels; Klump, Rainer
    Abstract: This article evaluates the impact of land-use certificate (LUC) issuance on credit market outcomes of households in rural Vietnam. Given the absence of appropriate data for the creation of a baseline (e.g. for difference-in-difference estimation), we propose an alternative regression-based evaluation procedure hinging on two pivotal steps: Firstly, we express the covariates related to a change in LUC status in terms of the household specific economic, social and geographic environment at the time the change occurred. Secondly, we estimate the propensity score to account for systematic pretreatment differences between households in the observational data. Conditional on the propensity score, we estimate the causal effect of LUC status on borrowing outcomes. We find that LUCs have a strong positive effect on formal borrowing, while households without LUCs collect loans in the informal credit sector. --
    Keywords: Credit,consistency,land reform,program evaluation,Vietnam
    JEL: O16 C13
    Date: 2010
  15. By: Jin, Yanhong; Wang, Hua; Wheeler, David
    Abstract: Environmental performance rating and disclosure has emerged as a substitute or complement for traditional pollution regulation, especially in developing countries. Using data from China's Green Watch program, this study extends previous research on performance rating and disclosure by considering firms'perceptions of public and market responses to their ratings. The results suggest that the Green Watch has significantly increased market and stakeholder pressures on managers to improve their firms’ environmental performance. More specifically, controlling for the characteristics of locations, firms, and individual managers, the analysis finds that firms with better ratings perceive positive impacts on market competitiveness, overall market value, and relationships with different stakeholders, while the firms with bad ratings are more likely to perceive deterioration. Among these factors, managers perceive a more active role for markets than for stakeholder relations.
    Keywords: Markets and Market Access,Microfinance,Water and Industry,Brown Issues and Health,Green Issues
    Date: 2010–09–01
  16. By: Kamil Dybczak (DG ECFIN, European Commission.); Kamil Galuščák (Czech National Bank, Na Příkopě 28, 115 03 Prague 1, Czech Republic.)
    Abstract: Using the Albrecht et al. (2003) version of the Machado and Mata (2005) decomposition technique along the wage distribution, we find that immigrant workers do not affect changes in the Czech wage structure between 2002 and 2006 despite their substantial inflows. Instead, changes in the wage structure are explained solely by increasing returns of native workers, while changes in the observed characteristics of native workers, particularly a rising level of education, are responsible for increasing wage dispersion. The sizeable inflows of foreign workers in the sample years are concentrated among young workers with primary and tertiary education and are primarily due to rising labour demand. The negative immigrant-native wage gaps are persistent along the wage distribution and are explained mainly by differences in observed characteristics. We provide evidence on increasing returns to education of native workers along the wage distribution. The returns are higher in 2006 than in 2002, in line with the evidence in the previous literature. JEL Classification: J31, J21.
    Keywords: Wage structure, immigration, matched employer-employee data, quantile regression, wage gap decomposition.
    Date: 2010–09
  17. By: Wang, Hua; He, Jie
    Abstract: Economic analyses of development projects and policies often involve assigning an economic value to changes in the risk of loss of human life. A typical term used in the economic analyses is the value of statistical life, which reflects the aggregation of individuals'willingness to pay for fatal risk reduction and therefore the economic value to society to reduce the statistical incidence of premature death in the population by one. Studies on the value of a statistical life have been extensively conducted in the developed world; however, few such studies can be found for developing countries. This paper presents a study that estimates individuals'willingness to pay for cancer risk prevention in three provinces of China. The results imply that the mean value of willingness to pay for a cancer vaccine that is effective for one year is 759 yuan, with a much lower median value of 171 yuan. The estimated income elasticity of willingness to pay is 0.42. Using data on the incidence of cancer illness and death in the population, these willingness to pay figures imply that the marginal value of reducing the anticipated incidence of cancer mortality by one in the population is 73,000 yuan and an average value of 795,000 yuan, which are about six and 60 times average household annual income, respectively. The big difference between the marginal value and the average value of fatal risk reduction corresponds to a very low estimated elasticity of willingness to pay with respect to fatal risk reduction. This finding challenges the validity of previous studies of the value of a statistical life, which are mostly based on average willingness-to-pay values of mortality risk reduction.
    Keywords: Environmental Economics&Policies,Health Monitoring&Evaluation,Labor Policies,Population Policies,Economic Theory&Research
    Date: 2010–09–01
  18. By: Arribas Fernández Iván (University of Valencia; Ivie); Vila Gisbert José E. (University of Valencia)
    Abstract: This working paper analyzes the role played by two dimensions of entrepreneurs’ private social capital in the performance of an entrepreneurial venture: local size and degree of preferential linking. To fulfill this objective, we build a bi-dimensional measure of social capital based on network models and a methodology to estimate this measure for any group of entrepreneurs. Based on a survey of service entrepreneurs who launched their business in the city of Shanghai, we show that social capital or guanxi is relevant for business success. Moreover, we show that roles played by each dimension are quite different. A large local network, i.e. a large set of agents able to advise or support the entrepreneur, increases the chances of survival of the new venture but has no impact to make it go beyond a self-employment business. To reach this level, entrepreneurs need to generate a high degree of preferential attachment; in other words, they need to generate a social network that allows them to get advice and support from those agents placed in critical positions within Shanghai’s global socio-economic network. This finding has relevant political and managerial implications and generates new questions to be answered in future research.
    Keywords: Social capital, network analysis, entrepreneurship in China
    Date: 2010–09–20

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