nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒10‒30
seventeen papers chosen by
J. David Brown
Heriot-Watt University

  1. Consumption, Income Distribution, and State Ownership in the People’s Republic of China By Yuqing Xing
  2. Banking sector competition in Russia By Anzoategui, Diego; Soledad Martinez Peria, Maria; Melecky, Martin
  3. New Light on China's Rural Elites By Gustafsson, Bjorn; Sai, Ding
  4. Effects of Credit Constraints on Productivity and Rural Household Income in China By Fengxia Dong; Jing Lu; Allen Featherstone
  5. Return to schooling in Vietnam during economic transition: Does the return reach its peak? By Doan, Tinh; Gibson, John
  6. "The Economic and Financial Crises in CEE and CIS: Gender Perspectives and Policy Choices" By Fatma Gul Unal; Mirjana Dokmanovic; Rafis Abazov
  7. Testing Urbanization Economies in Manufacturing Industries: Urban Diversity or Urban Size? By Shihe Fu; Junjie Hong
  8. Resource Abundance and Resource Dependence in China By Ji, K.; Magnus, J.R.; Wang, W.
  9. Not all that glitters. The direct effects of privatization through foreign investment By Jan Hagemejer; Joanna Tyrowicz
  10. The great crisis and fiscal institutions in eastern and central Europe and central Asia By Barbone, Luca; Islam, Roumeen; Sanchez, Luis Alvaro
  11. Measuring Renminbi Misalignment: Where Do We Stand? By Yin-Wong Cheung; Menzie D. Chinn; Eiji Fujii
  12. Credit Crunch in a Small Open Economy By Michał Brzoza-Brzezina; Krzysztof Makarski
  13. The Cultural Revolution, Stress and Cancer By Tilak Abeysinghe; Jiaying Gu
  14. Sustaining the Momentum of Fiscal Reform in Hungary By Colin Forthun; Robert P. Hagemann
  15. Analiza unor aspecte legate de mobilitatea si politizarea functiei publice in administratia publica din Romania By Andrei, Tudorel; Profiroiu, Marius; Oancea, Bogdan; TurtureaN, Marius; Matei, Ani
  16. Impact Of Social Capital On Individual Well-Being In Poland. Proxy-Based Approach By Anna Grochowska; Paweł Strawiński
  17. Getting to the Real Story: What Vietnamese business people wish foreigners understood about doing business in emerging and transition countries like Vietnam – BEFORE they start By Quan Hoang Vuong; Nancy K. Napier

  1. By: Yuqing Xing (National Graduate Institute for Policy Studies)
    Abstract: It is income rather than the peculiar saving behavior of Chinese households that constrains consumption in the People’s Republic of China. The low share of consumption in gross domestic product (GDP) is consistent with the reduced share of GDP of wage earnings—a major source of household income. Corporate savings, which accounted for 23% of national income in 2007, contributed most to the significant increase in the gross national saving rate. The surging corporate savings was mainly due to the bias of income distribution toward capital. The profits of state-owned enterprises (SOEs) made with monopolistic power and government support comprises a substantial part of corporate savings. A series of enterprise reforms have made SOEs leaner and bigger, and transformed a handful central SOEs into monopolies in highly profitable industries. Retained profits by SOEs only benefit managers and employees in these firms, not the general public who are their true owners. The empirical analysis indicates that high levels of compensation by SOEs contributed to rising inter-industry income disparity. To boost domestic demand, it is essential that the government address the bias in distribution between SOEs and households. Collecting dividends from SOEs to fund social welfare systems or direct income transfers to low-income families will reduce the gross national saving rate, boost consumption, and more importantly, mitigate social inequality.
    Keywords: China, Saving, Income Disparity and State Ownership
    Date: 2010–10
  2. By: Anzoategui, Diego; Soledad Martinez Peria, Maria; Melecky, Martin
    Abstract: The Russian banking sector includes approximately 1,000 banks, but is it competitive? This paper analyzes bank competition in Russia during 2002-2008. The authors examine indicators of concentration and contestability, and compute non-structural measures of competition. They compare competition in Russia to that in Brazil, China, and India, and contrast competition across different groups of banks within Russia. Contestability in Russia is obstructed by uneven supervisory practices and an unclear exit process. Non-structural measures reveal that banks in Russia are less competitive than those in Brazil. Within Russia, large banks and state-owned banks exert more market power than the smaller and privately-owned institutions. Finally, business-oriented banks are more competitive than those concentrating on lending to individuals.
    Keywords: Banks&Banking Reform,Access to Finance,Financial Intermediation,Financial Crisis Management&Restructuring,Emerging Markets
    Date: 2010–10–01
  3. By: Gustafsson, Bjorn; Sai, Ding
    Abstract: This paper analyses political elites, economic elites, hybrid elite households and non-elite households in rural China using household data for 1995 and 2002. We seek to understand the determinants of belonging to each of the three elite categories. We find that education and military experience positively affect the probability of being a political elite. The probability of becoming an economic elite is linked to the age of the head of household and to the income level of the county, indicating that opportunities to become an economic elite have increased over time, but in a spatially uneven way. We also investigate disparities in household per capita income as well as in household per capita wealth. Asia Market Transition Theory, we find that the relationship between education and the household’s economic status became stronger from 1995 to 2002. This theory also predicts that payoffs from belonging to the political elite decrease during transition towards market economy. Our results show that in the richest counties in 2002, the economic gain from being a political elite household was higher than elsewhere and higher than in high-income counties observed in 1995. We also found that although elite households on average have a better economic situation than non-elite households, income inequality and household wealth inequality in rural China would decrease only marginally if such disparities were to vanish. In contrast the spatial dimension is much more important for income inequality and for wealth inequality in rural China.
    Keywords: China, elties, cadre, entrepreneur
    Date: 2010
  4. By: Fengxia Dong (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Jing Lu; Allen Featherstone
    Abstract: Agricultural production is strongly conditioned by the fact that inputs are transformed into outputs with considerable time lags, causing the rural household to balance its budget during the season when there are high expenditures for input purchases and consumption and few revenues. With limited access to credit, the budget balance within the year can become a constraint to agricultural production. As is the case in many developing countries, Chinese rural households have been suffering from a lack of access to capital. While China is one of the biggest countries in terms of rural areas and agricultural production, few studies have focused on the impact of credit on agriculture in China. Using survey data, this study aims to examine how credit constraints currently affect agricultural productivity and rural household income in China. The study findings suggest that under credit constraints, production inputs, along with farmers’ capabilities and education, cannot be fully employed. By removing credit constraints, agricultural productivity and rural household income can be improved.
    Keywords: credit constraint, household income, productivity, rural China.
    Date: 2010–10
  5. By: Doan, Tinh; Gibson, John
    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 for the period 1992-1998 is still relatively low, below 5%, relative to that of the world and other transitional economies. In addition, 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 around 10%.
    Keywords: economic transition; returns to schooling; Vietnam
    JEL: J31 O15
    Date: 2010
  6. By: Fatma Gul Unal; Mirjana Dokmanovic; Rafis Abazov
    Abstract: This paper looks at the countries of Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS), where economies have been most dramatically hit by the global crisis and its impact is likely to be most long-lasting, especially among poor and vulnerable groups. Using poverty as the main axis, it looks at aspects of economic and social development in countries at similar poverty levels to identify the degree of fiscal space in each, as well as the different policy choices made. The paper argues that despite such economic fundamentals as increasing external debt, worsening current account imbalances, and demands for a balanced budget, governments have policy choices to make about how to protect different groups, especially the most vulnerable-including women.
    Keywords: Economic Crisis; Gender; Policy Response; Pro-poor Macro Policies; Gender; Policy Space; Central and Eastern Europe; Commonwealth of Independent States
    JEL: B5 E6 E61
    Date: 2010–05
  7. By: Shihe Fu; Junjie Hong
    Abstract: Whether urbanization economies stem from urban diversity or urban scale is not clear in the literature. This paper uses the 2004 China manufacturing census data and tests simultaneously the effects of urban size and industrial diversity on firm productivity, controlling for localization economies and human capital externalities. We find that productivity increases with city size—but at a diminishing rate, and the city size effect becomes negative for cities with population over two million. Firms also benefit from industrial diversity, and the strength of such benefit increases with city size but decreases with firm size. The characteristics of agglomeration economies in a transition economy are also discussed.
    Keywords: Urbanization economies; Industrial diversity; Jacobs externalities; City size.
    JEL: L60 R12 R30
    Date: 2010–10–18
  8. By: Ji, K.; Magnus, J.R.; Wang, W. (Tilburg University, Center for Economic Research)
    Abstract: This paper reconsiders the ‘curse of resources’ hypothesis for the case of China, and distinguishes between resource abundance, resource rents, and resource dependence. Resource abundance and resource rents are shown to be approximately equivalent, and their association with resource dependence varies with institutional quality. Resource abundance/rents has a positive impact on economic growth, while resource dependence has a negative impact. The impact of the ‘West China Development Drive’ policy, started in 2000, is substantial, and this is investigated through a comparative analysis based on cross-section samples, and through a panel-data timevarying coefficient approach for West and East provinces. Resource effects do change after the policy shock.
    Keywords: Natural resource curse;Economic growth;China;Institutional quality;Resource abundance;Resource dependence;Regional differences;Policy change.
    JEL: O11 O13 O53 C21 Q0 Q33
    Date: 2010
  9. By: Jan Hagemejer (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland; Rimini Centre for Economic Analysis)
    Abstract: Although foreign subsidiaries usually perform better than the average of the hosting economies, empirical literature has also established that the selection effect is statistically significant. In this paper we attempt to evaluate its economic relevance, using a unique dataset of annual financial reports by all medium and large Polish enterprises over a period 1996-2007. We match firms privatized with the use of FDI to a control group of non-privatized state owned companies in order to disentangle the effect of self-selection and FDI entry. Evidence suggests that although FDI enters more frequently into companies who already participate in the international trading networks, roughly half of the export intensity differential may be attributed to the entry of FDI. On the other hand, selection effects seem to dominate as far as efficiency is concerned, while only towards the end of the sample the positive effect of FDI on profitability may be confirmed.
    Keywords: privatization, transition, propensity score matching, firm-level analysis, Poland
    JEL: P45 P52 C14 O16
    Date: 2010
  10. By: Barbone, Luca; Islam, Roumeen; Sanchez, Luis Alvaro
    Abstract: This paper examines fiscal outcomes in Eastern and Central European countries before and during the global crisis of 2008-2010. These outcomes are evaluated in the context of overall changes in fiscal institutions and global market conditions. Eastern and Central European countries’ situations improved dramatically in the pre-crisis period as tax revenues boomed, and fiscal institutions were reformed. Expenditures increased quite significantly in real terms for some of the countries in the pre-crisis era so that when tax revenues collapsed in the wake of the crisis, the countries were left with large deficits. Institutional reform helped countries manage their fiscal situations better, but the crisis also exposed shortcomings of the status quo. In the post-crisis period, fiscal institutions aimed at promoting fiscal discipline are being strengthened. Governments will also need to take a closer look at the sustainability of current expenditure patterns, particularly the strong emphasis on social expenditures.
    Keywords: Public Sector Expenditure Policy,Debt Markets,Fiscal Adjustment,Subnational Economic Development,Public Sector Economics
    Date: 2010–10–01
  11. By: Yin-Wong Cheung (University of California, Santa Cruz and Hong Kong Institute for Monetary Research); Menzie D. Chinn (University of Wisconsin, Madison); Eiji Fujii (Kwansei Gakuin University)
    Abstract: The value of China's currency, the renminbi (RMB), and the conduct of China's exchange rate policy have generated intense debate in academic and international policy circles. Despite the accumulation of empirical evidence regarding the degree of RMB misalignment over the past few years, the debate continues unabated. In this study, we highlight the challenges to properly assessing the nature and degree of currency misalignment, in terms of the choice of the model, the method of calculation, and data uncertainty. In particular, we demonstrate the susceptibility of misalignment estimates to model selection and data revisions. Further, we explicitly discuss the implications of sampling uncertainty for determining the extent of RMB misalignment.
    Keywords: Absolute Purchasing Power Parity, China, Currency Misalignment, Sampling Uncertainty, Data Revision
    JEL: F31 F41
    Date: 2010–09
  12. By: Michał Brzoza-Brzezina (National Bank of Poland, Economic Institute; Warsaw School of Economics); Krzysztof Makarski (National Bank of Poland, Economic Institute; Warsaw School of Economics)
    Abstract: We construct an open-economy DSGE model with a banking sector to analyse the impact of the recent credit crunch on a small open economy. In our model the banking sector operates under monopolistic competition, collects deposits and grants collateralized loans. Collateral effects amplify monetary policy actions, interest rate stickiness dampens the transmission of interest rates, and financial shocks generate non-negligible real and nominal effects. As an application we estimate the model for Poland - a typical small open economy. According to the results, financial shocks had a substantial, though not overwhelming, impact on the Polish economy during the 2008/09 crisis, lowering GDP by approximately 1.5 percent.
    Keywords: credit crunch, monetary policy, DSGE with banking sector
    JEL: E32 E44 E52
    Date: 2010
  13. By: Tilak Abeysinghe (Department of Economics, National University of Singapore); Jiaying Gu (Department of Economics, University of Illinois at Urbana-Champaign)
    Abstract: The link between mental stress and cancer is still a belief, not a well established scientific fact. Scientists have relied largely on opinions of cancer stricken patients to establish a link between stress and cancer. Such opinion surveys tend to produce contradictory statistical inferences. Although it is difficult to conduct scientific experiments on humans similar to those on animals, human history is replete with “experiments” that have caused enormous stress on some human populations. The objective of this exercise is to draw evidence from one such massive experiment, the Cultural Revolution in China. Cancer data from Shanghai analyzed through an age-period-cohort technique show very strong evidence in support of the hypothesis that mental stress causes cancer.
    Date: 2010–08–01
  14. By: Colin Forthun; Robert P. Hagemann
    Abstract: Hungary has faced a considerable challenge to regain credibility following persistent and high fiscal deficits. Efforts during recent years have produced substantial results. The fiscal deficit has been brought down significantly and, despite the recession, fiscal consolidation has continued to help restore foreign investor confidence. Short-term fiscal adjustment needed to be accompanied by measures that can durably improve Hungary’s fiscal position, however, and it has; the adoption in 2009 of a pension reform and a Fiscal Responsibility Act, creating a Fiscal Council and fiscal rules hold that potential. These results should not lead to complacency. Some expenditure cuts, such as lower public salaries, may prove difficult to sustain. Fiscal consolidation in the past owed both to expenditure cuts and revenue increases. As a result, and despite an important tax reform starting in the second half of 2009 and extended from the beginning of 2010, marginal tax rates remain high, with adverse effects on the labour market and growth. Going forward, the government needs to contain public expenditure growth and improve public administration efficiency to reduce the public “footprint” on the economy and allow lower taxes. Key areas that warrant intensified efforts are public administration and health. The government should help secure a prominent role for the Fiscal Council and sufficient experience needs to accumulate before considering any substantial changes in the fiscal rules. Finally, improvements to make taxation less distortive should continue by further reducing tax wedges, and increasing the role of wealth taxes, notably for local governments. This Working Paper relates to the 2010 OECD Economic Survey of Hungary (<P>Soutenir le rythme de la réforme budgétaire en Hongrie<BR>Le défi auquel se trouve confrontée la Hongrie est de restaurer sa crédibilité après avoir accusé de lourds déficits persistants. Les efforts déployés ces dernières années ont été très fructueux. Le déficit budgétaire a été nettement réduit et, malgré la récession, l’assainissement des finances publiques a raffermi la confiance des investisseurs étrangers. L’ajustement budgétaire à court terme a dû néanmoins se doubler de mesures à même d’améliorer durablement les finances publiques, ce qui a été fait, l’adoption, en 2009, d’une réforme des retraites et d’une loi de responsabilité budgétaire, mettant en place un Conseil budgétaire et des règles de politique budgétaire, y a contribué Mais la tâche n’est pas terminée. Certaines réductions de dépenses, notamment du côté des rémunérations dans le secteur public, pourraient être difficiles à mettre en oeuvre. Dans le passé l’assainissement budgétaire a été obtenu grâce à la réduction des dépenses et à l’augmentation des recettes. En conséquence, et malgré l’importante réforme fiscale du second semestre 2009 qui continue au début de 2010, les taux marginaux d’imposition restent élevés, ce qui a des effets négatifs sur le marché du travail et sur la croissance. Pour l’avenir, il faut que le gouvernement enraye la croissance des dépenses publiques et accroisse l’efficience de l’administration afin d’alléger l’« empreinte » publique sur l’économie et de permettre des baisses d’impôts. L’administration publique et la santé sont les principaux domaines où l’effort devrait être intensifié. Il faudrait que le gouvernement fasse en sorte que le Conseil budgétaire puisse jouer un rôle prééminent et une expérience suffisante sera nécessaire avant d’envisager toute modification substantielle des règles de politique budgétaire. Enfin, il faudra poursuivre l’action en vue d’une fiscalité qui crée moins de distorsions, en réduisant encore les coins fiscaux et en donnant plus de poids à la taxation du patrimoine, notamment au niveau des collectivités locales. Ce document de travail se rapporte à l’Étude économique de l’OCDE de la Hongrie, 2009 (
    Keywords: taxation, budgets, fiscal policy, public expenditure, fiscal rules, efficiency, fiscal consolidation, fiscal sustainability, public services, deficit, debt, politique budgétaire, finances publiques, imposition, dépenses publiques, règles budgétaires, soutenabilité des finances publiques, consolidation budgétaire, efficacité, déficit, services publics, dette
    JEL: H11 H50 H51 H55 H59
    Date: 2010–09–13
  15. By: Andrei, Tudorel; Profiroiu, Marius; Oancea, Bogdan; TurtureaN, Marius; Matei, Ani
    Abstract: This paper presents a number of issues related to the mobility of civil servants and to the politicizing the civil service in Romania in the period 2000-2010. Analysis of the politicization phenomenon has allowed identification of three stages: 2000-2004, 2005-2008 and 2009-present. Application of legislation within the civil service has allowed a considerable increase of the stability level. Professionalization of the prefect function did not generate a considerable increase in its level of stability. Lately it is noted an increased dependency of the public function to the political system, through legislative changes initiated at the government level. In this paper, using qualitative and quantitative methods, a number of issues related to mobility of civil servants and to the politicization of civil service are highlighted. For this study, there were used data sets from a sample of civil servants form the public administration. Civil servants’ oppinion is totally unfavorable to the process of politicizing the public administration.
    Keywords: politicizing civil service; public administration reform; mobility; civil service
    JEL: H0
    Date: 2010–09–01
  16. By: Anna Grochowska (Faculty of Economic Sciences, University of Warsaw); Paweł Strawiński (Faculty of Economic Sciences, University of Warsaw)
    Abstract: In this paper we attempt to quantify the impact of social capital on individual well-being. We follow the Putnam (1995) approach and select five key social capital components to construct a synthetic index for social capital using a multivariate probit model. Social capital is considered as one of the three crucial individual endowments: physical capital, human capital and social capital. The impact of the synthetically constructed social capital index on individual’s well-being is estimated using a Mincer type earning equation. The results show that social capital explains up to 20% of income variation both at individual and household level. However, human capital and physical capital remain the critical determinants of individual income.
    Keywords: social capital, income, well-being, local community, household
    JEL: A14
    Date: 2010
  17. By: Quan Hoang Vuong; Nancy K. Napier
    Abstract: Knowledge sharing typically examines organizational transfer of knowledge, often from headquarters to subsidiaries, from developed country sites to emerging country sites, or from host to local employees. Yes, recent research, such as Prahalad’s Bottom of the Pyramid, raises the question of reverse transfer of knowledge, or whether knowledge could and should be transferred from local sites to home country sites within an organization. As several emerging economies build their capabilities in knowledge, research and development, marketing, and the like, it only makes sense to consider what type of knowledge and how to transfer it in reverse or bi-directional manners. This paper takes one step back in the process. Rather than focusing on what knowledge transfer may make sense within an organization, we consider what types of knowledge are important for foreigners to know at the initial stages of engagement abroad as they consider whether to do business in an emerging country.
    Keywords: Corporate Culture; Human Resource Management; Transition Economies; Vietnam
    JEL: M14 M20 F23 P20 Z13
    Date: 2010–10

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