nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒10‒16
twenty papers chosen by
J. David Brown
Heriot-Watt University

  1. The Global Financial Crisis and its Impact on Emerging Market Economies in Europe and the CIS: Evidence from mid-2010 By Marek Dabrowski
  2. Price Dynamics in China By Nathaniel John Porter
  3. Poverty and firewood consumption : A case study of rural households in northern China By Sylvie Démurger; Martin Fournier
  4. China’s monetary policy and the exchange rate By Aaron Mehrotra; José R. Sánchez-Fung
  5. Competitiveness of Bulgarian farms By Bachev, Hrabrin
  6. Does Health Insurance Coverage Lead to Better Health and Educational Outcomes? Evidence from Rural China By Yuyu Chen; Ginger Zhe Jin
  7. The Quality and Variety of Exports from New EU Member States: Evidence from Very Disaggregated Data By Konstantins Benkovskis; Ramune Rimgailaite
  8. The Economics of the Nord Stream Pipeline System By Chyong, C.K.; Noël, P.; Reiner, D.M.
  9. New Estimates of the Equilibrium Exchange Rate: The case for the Chinese renminbi By SATO Kiyotaka; SHIMIZU Junko; Nagendra SHRESTHA; Zhaoyong ZHANG
  10. Employment services and active labor market programs in Eastern European and Central Asian countries By Kuddo, Arvo
  11. The Geography of Equity Listing and Financial Centre Competition in Mainland China and Hong Kong By Karreman, B.; Knaap, G.A. van der
  12. If you try, you’ll get by: Chinese private firms’ efficiency gains from overcoming financial constraints By Galina Hale; Cheryl Long
  13. Energy efficiency in China: The local bundling of interests and policies By Kostka, Genia; Hobbs, William
  14. Chinese Saving Dynamics: The Impact of GDP Growth and the Dependent Share By Carl Bonham; Call Wiemer
  15. The impact of the global financial crisis on off-farm employment and earnings in rural China By Huang, Jikun; Zhi, Huayong; Huang, Zhurong; Rozelle, Scott; Giles, John
  16. From small farming to rural, non?agricultural work in Romania: an evaluation on 3 measures of the rural development programme By Marie-Luce Ghib; Marielle Berriet-Solliec
  17. The poverty reduction capacity of private and public transfer in transition By Verme Paolo
  18. Labor laws in Eastern European and Central Asian countries : minimum norms and practices By Kuddo, Arvo
  19. Generic and specific social learning mechanisms in foreign entry location choice. By Belderbos, Rene; van Olffen, Woody; Zou, Jianglei
  20. Cost Curves for Gas Supply Security: The Case of Bulgaria By Silve, F.; Reiner, D.M.

  1. By: Marek Dabrowski
    Abstract: Emerging market economies were major beneficiaries of the economic boom before 2007. More recently, they have become victims of the global financial crisis. Their future development depends, to a large extent, on global economic prospects. Today the global economy and the European economy are much more integrated and interdependent than they were ten or twenty years ago. Every country must recognize its limited economic sovereignty and must be prepared to deal with the consequences of global macroeconomic fluctuations. The statistical data for 2009 provides a mixed picture with respect to the impact of the crisis on various groups of countries and individual economies. On average, Central and Eastern Europe experienced a smaller output decline than the Euro area and the entire EU while the CIS, especially its European part, contracted more dramatically. However, there was a deep differentiation within each country group. Looking globally, richer countries, which are more open to trade and in which the banking sector plays a larger role and which rely more on external financing, suffered more than less sophisticated economies, which are less dependent on trade and credit (especially from external sources). With some exceptions, the previous good growth performance helped rather than handicapped countries in the CEE and CIS regions in the crisis year of 2009. The post-crisis recovery has been rather modest and incomplete. It remains vulnerable to new shocks (like the Greek Fiscal crisis), the danger of sovereign default and other uncertainties. Full post-crisis recovery and increasing potential growth will require far going economic and institutional reforms on both national, regional (e.g., EU) and global levels.
    Keywords: global financial crisis, emerging-market economies, European Union, Economic and Monetary Union, Central and Eastern Europe, Commonwealth of Independent States, sovereign debt crisis, global policy coordination
    JEL: E44 E63 F32 F36 F42 G15 H63
    Date: 2010–10
  2. By: Nathaniel John Porter
    Abstract: Chinese inflation, particularly non-food inflation, has been surprisingly modest in recent years. We find that supply factors, including those captured through upstream foreign commodity and producer prices, have been important drivers of non-food inflation, as has foreign demand for Chinese goods. Domestic demand and monetary conditions seem less important, possibly reflecting a large domestic output gap generated by many years of high investment. Inflation varies systemically within China, with richer (and urban) provinces having lower, more stable, inflation, but this urban inflation also influence that in lower-income provinces. Higher Mainland food inflation also raises inflation in non-Mainland China.
    Date: 2010–09–29
  3. By: Sylvie Démurger (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines); Martin Fournier (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: This paper discusses the determinants of firewood consumption in a poor township in rural northern China, with a special focus on the relationship between households' economic wealth and firewood consumption. We find strong support for the poverty-environment hypothesis since household economic wealth is a significant and negative determinant of firewood consumption. Firewood can therefore be considered as an inferior good for the whole population in the rural area under study, although further evidence shows that at the top of the wealth distribution, there might be a floor effect in the decreasing firewood consumption. Besides economic wealth, our analysis also shows that the own-price effect is important in explaining firewood consumption behavior, the price effect gaining importance with rising incomes. Finally, increasing education is also found to be a key factor in energy consumption behavior, especially when dealing with energy source switching behavior.
    Keywords: firewood consumption; poverty; natural resources protection; China
    Date: 2010
  4. By: Aaron Mehrotra; José R. Sánchez-Fung
    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: Monetary policy - China ; Foreign exchange
    Date: 2010
  5. By: Bachev, Hrabrin
    Abstract: This paper suggests a holistic framework for assessing farm competitiveness, and analyses competitiveness of different type of Bulgarian farms. First, it present a new approach for assessing farm competitiveness defining farm competitiveness and its three criteria (efficiency, adaptability and sustainability), and identifying indicators for assessing the individual aspects and the overall competitiveness of farms. Next, it analyzes evolution and efficiency of farming organizations during post communist transition and EU integration in Bulgaria, and assesses levels and factors of farms competitiveness in the conditions of CAP implementation.
    Keywords: efficiency; adaptability; sustainability; and competitiveness of farms; transitional agriculture; EU integration; CAP; Bulgaria
    JEL: L25 L11 Q12 Q18 L14 D23 Q13 Q15 L22 Q10
    Date: 2010–09–01
  6. By: Yuyu Chen; Ginger Zhe Jin
    Abstract: Many governments advocate nationwide health insurance coverage but the effects of such a program are less known in developing countries. We use part of the 2006 China Agricultural Census (CAC) to examine whether the recent health insurance coverage in rural China has affected children mortality, pregnancy mortality, and the school enrollment of the 6-16 year old. Our data represent a census of 5.9 million people living in eight low-income rural counties, four of which have adopted the New Cooperative Medical System (NCMS) by 2006 and the other four did not adopt NCMS until 2007. In the counties that offer NCMS, a household may take or not take the insurance. A first look of the data suggests that enrolling in NCMS is associated with better school enrollment and lower mortality of young children and pregnant women. However, using a difference-in-difference propensity score method, we find most of these differences are driven by the endogenous introduction and take up of NCMS, and classical propensity score matching fails to address the selection bias. While NCMS does not show beneficial impacts on the average population, we find some evidence that NCMS helps improve the school enrollment of six-year-olds.
    JEL: I18 I21 I38
    Date: 2010–09
  7. By: Konstantins Benkovskis; Ramune Rimgailaite
    Abstract: According to trade theories, the average quantity of exported goods is not the only parameter of export performance – the variety and quality of exports also play an important role. The goal of this paper is to evaluate the variety and quality of exports from the new EU Member States Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia (NMS) in 1999–2009. The analysis is done on the basis of methodology proposed by R. C. Feenstra (1994) and further developed by D. Hummels and P. Klenow (2005), and Ch. Broda and D. E. Weinstein (2006). Although unit values play an important role in defining export quality, the calculations herein take into account also market shares and the level of monopoly power of firms in a particular market. In addition, this study contributes to the existing literature by providing a different way of evaluating the variety assuming that the number of exported brands follows the Poisson distribution. The calculations show that exports from NMSs in 2009 were of lower quality in comparison with German exports: relative quality was ranging between 0.30 and 0.55. It was found that all NMSs significantly increased their average number of brands exported to the EU market; moreover, all NMSs were able to increase the average quality of their exports during the 10-year reference period. Finally, relative quality is much more stable than relative prices, providing evidence that the measure of relative quality developed herein is better than the traditional proxy, i.e. relative export prices, as it does not include relative costs of production but reflects structural factors.
    Keywords: new EU Member States, exports, quality, variety
    JEL: C43 F12 F14 O52
    Date: 2010–08–20
  8. By: Chyong, C.K.; Noël, P.; Reiner, D.M.
    Abstract: We calculate the total cost of building Nord Stream and compare its levelised unit transportation cost with the existing options to transport Russian gas to western Europe. We find that the unit cost of shipping through Nord Stream is clearly lower than using the Ukrainian route and is only slightly above shipping through the Yamal-Europe pipeline.<br><br> Using a large-scale gas simulation model we find a positive economic value for Nord Stream under various scenarios of demand for Russian gas in Europe. We disaggregate the value of Nord Stream into project economics (cost advantage), strategic value (impact on Ukraine’s transit fee) and security of supply value (insurance against disruption of the Ukrainian transit corridor). The economic fundamentals account for the bulk of Nord Stream’s positive value in all our scenarios.
    Keywords: Nord Stream, Russia, Europe, Ukraine, Natural gas, Pipeline, Gazprom
    JEL: L95 H43 C63
    Date: 2010–10–01
  9. By: SATO Kiyotaka; SHIMIZU Junko; Nagendra SHRESTHA; Zhaoyong ZHANG
    Abstract: We estimate the equilibrium exchange rate (EER) of the Chinese renminbi (RMB) vis-a-vis the U.S. dollar from 1992 to 2008. In contrast to the recent empirical studies on the EER employing a large cross-country analysis, we focus on the supply side real factors in estimating the EER by extending the Yoshikawa (1990) model. To better reflect China's processing exports in the context of growing intra-regional trade in Asia, we incorporate in the empirical analysis the source country breakdown data on import prices and input coefficients of intermediate inputs by constructing an annual new International Input-Output (IIO) table for the period from 1992 to 2008. The results show that the EER of Chinese RMB appreciates sharply from 2005 to 2008, suggesting that the current RMB exchange rate has been substantially undervalued and should be revalued by 65 percent from the year 2000 level. Such sharp appreciation of the EER corresponds to the dramatic increase in China's current account surplus from the mid-2000s, especially against the United States, which is ascribed to the significant improvement of both labor and intermediate input coefficients in China.
    Date: 2010–09
  10. By: Kuddo, Arvo
    Abstract: The objective of this paper is to look at employment services and labor market policies in the transition countries of Eastern Europe and Central Asia, and identify key benefits and constraints of active labor market programs, as well as the main characteristics and features of successful policy interventions. Various policy options are discussed on how to enhance public employment services but also private employment agencies which might be relevant to and suitable for the countries in the region given their macroeconomic and labor market situation. Overall, this report recommends that greater resources will be needed for active labor market programs (ALMPs) in the future. However, the emphasis should be put on improving the design and effectiveness of ALMPs, rather than on increasing spending levels only.
    Keywords: Labor Markets,Labor Policies,Markets and Market Access,Labor Management and Relations,Population Policies
    Date: 2009–10–01
  11. By: Karreman, B.; Knaap, G.A. van der
    Abstract: This study examines the changing competitiveness of financial centres in mainland China and Hong Kong based on the geography of equity listing of mainland Chinese firms. Pre-listing firm characteristics are used to explore firms’ motives for listing on a particular exchange and whether these motives have changed over time. The results show that Hong Kong’s prominence as an international financial centre is attracting the largest and, recently, also the best performing mainland Chinese state-owned enterprises to go public. Less differentiation exists between the competitiveness of Shanghai and Shenzhen, although the renewed strategy of the Shenzhen stock exchange to attract smaller firms appears to be successful.
    Keywords: financial centre competition;stock listing;Hong Kong;China
    Date: 2010–08–10
  12. By: Galina Hale; Cheryl Long
    Abstract: It appears to be common knowledge that external financing in China is mostly limited to state-owned firms and is hard to obtain for smaller private firms. In this paper we first confirm this pattern for more recent data and then investigate ways in which private firms overcome their financing constraints. We find that private firms reduce their need for external funds through more efficient management of inventory levels and accounts receivable. We further show that the low levels of inventories and accounts receivable in Chinese private firms are not below efficient levels and are unlikely to be a hindrance to their efficient operations. Instead, these low levels of working capital seem to be correlated with higher financial returns as well as higher productivity. We conclude that while limited access to external financing may limit the growth of private sector in the medium and long run, in the short run the lean operating budget may be contributing to Chinese private firms’ efficiency.
    Keywords: Business enterprises ; China
    Date: 2010
  13. By: Kostka, Genia; Hobbs, William
    Abstract: With the end of China's 11th Five-Year Plan approaching, this paper analyzes sub-national governments' implementation strategies to meet national energy efficiency targets. Previous research focuses on the way governance practices and decision-making structures shape implementation outcomes, yet very little attention has been given to what strategies local leaders actually employ to bridge national priorities with local interests. To illustrate how leaders work politically, this paper highlights specific implementation mechanisms officials use to strengthen formal incentives and create effective informal incentives to fulfill their energy efficiency mandates. The analysis is drawn from fifty-three interviews conducted in June and July 2010 in Shanxi, a major coal-producing and energy-intensive province. Findings suggest that local government leaders conform to the national directives by 'bundling' the energy efficiency policy with policies of more pressing local importance or by 'bundling' with the interests of groups with significant political influence. Ultimately, officials take national policies and then frame them in ways that give them legitimacy at the local level. --
    Keywords: China,local state,policy implementation,energy policy,governance
    JEL: D73 D78 O18 R58 Q48 Q58
    Date: 2010
  14. By: Carl Bonham (University of Hawaii at Manoa, Department of Economics; University of Hawaii Economic Research Organization (UHERO)); Call Wiemer (University of California, Los Angeles, Center for Chinese Studies)
    Abstract: China’s national saving rate rose rapidly in the 2000s after declining through the late 1990s. These dynamics are not explained by precautionary motives, the institutional distribution of income, or reform related processes in general. Rather, we find a compelling explanation lies with GDP growth fluctuations and movement in the dependent share in population. We estimate a vector autoregressive model for the period 1978-2008, then generate in-sample simulations that successfully replicate the 2000s runup in the saving rate. Our out of sample forecasts show the saving rate dropping in the 2010s as the dependency share falls and GDP growth moderates.
    JEL: C32 E21 O11 O53
    Date: 2010–07–29
  15. By: Huang, Jikun; Zhi, Huayong; Huang, Zhurong; Rozelle, Scott; Giles, John
    Abstract: This paper examines the effect of the financial crisis on off-farm employment of China's rural labor force. Using a national representative data set collected from across China, the paper finds that there was a substantial impact. By April 2009 off-farm employment reached 6.8 percent of the rural labor force. Monthly earnings also declined. However, while it is estimated that 49 million were laid-off between October 2008 and April 2009, half of them were re-hired in off-farm work by April 2009. By August 2009, less than 2 percent of the rural labor force was unemployed due to the crisis. The robust recovery appears to have helped avoid instability.
    Keywords: Labor Markets,Labor Policies,Work&Working Conditions,Tertiary Education,Crops&Crop Management Systems
    Date: 2010–10–01
  16. By: Marie-Luce Ghib; Marielle Berriet-Solliec
    Abstract: Romanian rural areas contain the highest level of agricultural workers in the European Union, resulting in the challenge of stimulating non-agricultural employment. This paper uses the methodology of policy evaluation to analyse the influence of 3 measures the CAP. From an objectives tree to reveal the objectives of the programme to statistical analysis and field surveys, we analysed the pertinence, the coherence and the first results of those schemes. It was found that the targeted population was under estimated for one of the semi-subsistence schemes. Choosing activities (tourism and enterprise) which are open to all rural society leads to enhanced competition between beneficiaries. Due to the global context of economic crisis, co-financing can be met only by owners of strong capital, and the previous targeted population would then be only indirectly touched by the creation of jobs in rural areas.
    Keywords: Rural policies, Policy evaluation, small farms, Romania
    JEL: R58 O21 H72 C13
    Date: 2010–09–13
  17. By: Verme Paolo (University of Turin)
    Abstract: The transitional economies of the Former Soviet Union (FSU) have enjoyed an extraordinary period of growth and poverty reduction between 2000 and 2007 and this occurred in concomitance with significant increases in private and public transfers to households. The paper assesses the relative importance of these transfers for welfare and poverty in Moldova, the poorest country in Europe. A longitudinal analysis based on panel data reveals that private transfers and social insurance transfers are effective in improving welfare and reducing poverty whereas social assistance transfers have little or no effect. Social insurance and social assistance seem to have swapped roles. Social insurance is most relevant for lifting people out of poverty while social assistance - if anything - has a small role in protecting the non-poor from falling into poverty. We also find that the different types of transfers do not crowd-out each other and that social insurance may in fact reinforce the capacity of private transfers to reduce poverty. Such findings have several policy implications for the near future: a) Poor households in FSU transitional economies remain highly vulnerable to shocks in public and private transfers; b) the 2008-2009 recession is likely to expose this vulnerability and result in a surge in poverty larger than expected and c) the social assistance systems remain in great need of pro-poor reforms and cannot currently provide an adequate protection from economic shocks
    Date: 2010–07
  18. By: Kuddo, Arvo
    Abstract: This study focuses on internationally accepted labor standards and norms governing the individual employment contract, including International Labor Organization (ILO) conventions and recommendations, European Union (EU) labor standards, and the European community social charter. The study also analyzes relevant provisions in the main labor law of each Eastern European and Central Asian (ECA) country associated with commencing or terminating employment and during the period of employment. References are made to relevant practices from EU15 countries. Overall, despite similar origin of country labor laws, the current set of labor regulations in the region provides a wide array of legal solutions. The minimum content of the employment contract in most ECA countries coincides, and goes beyond, the requirements of the labor standards even in the countries that are non-signatories of relevant treaties. Some of these entitlements, however, have the potential to adversely affect labor market participation.
    Keywords: Labor Markets,Labor Policies,Work&Working Conditions,Labor Standards,Labor Management and Relations
    Date: 2009–11–01
  19. By: Belderbos, Rene; van Olffen, Woody; Zou, Jianglei
    Abstract: We combine economic and institutional theories of clustering in foreign entry location choice in an overarching social learning conceptualisation. Prospective entrants learn about the attractiveness of alternative locations by observing the entry choices of previous investors („models‟). We distinguish two types of learning which differ in observational focus width but can and do operate simultaneously. With assessment learning, firms judge the economic feasibility and agglomeration benefits of entering a location by observing and following a broad set of models. With bandwagon learning, firm-level uncertainty narrows attention to, and prompts the following of, specific models, with recentness of model behavior an important moderator. We find broad support for our conceptualization in an analysis of 692 Japanese electronics firms‟ entries into Chinese provinces during 1979-2001.
    Keywords: foreign entry; multinational firms; location choice; agglomeration;
    Date: 2010–09
  20. By: Silve, F.; Reiner, D.M.
    Abstract: We evaluate the cost-effectiveness of various policy options and infrastructure investment proposals to improve the security of gas supply in Bulgaria, one of the most gas insecure countries in the European Union. We do this by computing ‘security of supply cost curve’ for different gas supply disruption scenarios. The curves show the cumulative amount of security of supply on the horizontal axis and the unit cost of security on the vertical axis. Measures should be implemented by order or rising unit cost until the public authorities’ preferred level of security is achieved. Our results show that a costeffective gas supply security policy for Bulgaria would concentrate on two measures: (1) allowing reverse-flow transactions on the transit pipelines to Greece and Turkey to access the LNG terminals in these countries in case of disruption in Russian gas supplies and, (2) ensuring effective dual-fuel capability for Bulgaria’s heat generation plants. The infrastructure options actually considered by the Bulgarian authorities and gas industry (expanding the withdrawal rate of the Chiren underground gas storage and building a new gas interconnector pipeline with Greece) appear to be much more costly.
    Keywords: Natural Gas, Security of Supply, Energy Policy, Bulgaria, EU
    JEL: L38 Q48 L5 L95 L98
    Date: 2010–10–01

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