nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒11‒06
ten papers chosen by
J. David Brown
Heriot-Watt University

  1. Divide and Privatize : Firms Break-up and Performance By Evžen Kočenda; Jan Hanousek
  2. How Distorted Have Agricultural Incentives Become in EuropeÂ’s Transition Economies? By Kym Anderson; Johan Swinnen
  3. When Globalization Meets Urbanization: Labor Market Reform, Income Inequality, and Economic Growth in the People’s Republic of China By Ming Lu; Hong Gao
  4. How Would an Appreciation of the Yuan Affect the People’s Republic of China’s Surplus in Processing Trade? By Willem Thorbecke
  5. The Impact of Free Trade Agreements on Business Activity: A Survey of Firms in the People's Republic of China By Yunling Zhang
  6. The New Face of Chinese Industrial Policy: Making Sense of Anti-Dumping Cases in the Petrochemical and Steel Industries By Regina M. Abrami; Yu Zheng
  7. Are Specific Skills an Obstacle to Labor Market Adjustment? By Lamo, Ana; Messina, Julián; Wasmer, Etienne
  8. The Challenges Posed by Globalization for Economic Liberalization inTwo Asian Transitional Countries: Laos and Vietnam By Nick. J Freeman
  9. Chinese Saving Dynamics: The Impact of GDP Growth and the Dependent Share By Carl Bonham; Calla Wiemer
  10. The Political Economy of the Undervalued Renminbi By Ingrid H. Rima

  1. By: Evžen Kočenda (Osteuropa-Institut, Regensburg (Institut for East European Studies)); Jan Hanousek
    Abstract: We analyze the long-term effects of divesture and ownership change on corporate per-formance. We employ a unique data set for a large number of Czech firms spanning the period 1996–2005. We employ a propensity score matching procedure to deal with endogeneity problems. Our results, which are generally in line with the positive effects of divestiture found in the developed-market literature, show that the initial effects of di-vestiture are positive but after a certain point they quickly diminish over time.
    Keywords: firm divestiture, corporate performance, ownership changes, privatization, emerging markets, endogeneity, propensity score matching procedure
    JEL: D23 G32 G34 L20 M21 P47
    Date: 2010–10
  2. By: Kym Anderson (School of Economics, University of Adelaide); Johan Swinnen (Department of Economics, Katholieke Universiteit, Leuven, Belgium)
    Abstract: Over the past two decades, earnings from farming in the former communist countries of Eastern Europe and Central Asia have been altered hugely by government sectoral and trade policy reforms. This paper summarizes evidence on the changing extent of distortions to markets for farm products since the transition away from planned prices began. In particular, it examines the extent to which, following the initial shocks, there has been a gradual improvement in farmer incentives. This new evidence is not inconsistent with that past pattern of earlier-developing countries, but the speed of assistance increase is relatively rapid and is linked with actual or desired accession to the European Union. The final section focuses on future prospects, and in particular on what might be done to avoid agricultural protection levels becoming excessive.
    Keywords: Distorted farmer and consumer incentives, agricultural price and trade policy reforms, agricultural development, European transition economies
    JEL: F13 F14 Q17 Q18
    Date: 2009–12
  3. By: Ming Lu; Hong Gao
    Abstract: The development path that the People’s Republic of China (PRC) has been following during the past thirty years has led to both internal and external economic imbalances, and is now greatly challenged by the global crisis. This unbalanced growth path was primarily a result of the PRC’s labor market reform which took the years of the mid-1990s as its turning point. Before the mid-1990s, the scale of rural-to-urban migration was limited, but it has grown dramatically since then. 1996 also saw drastic employment restructuring in urban areas of the PRC. [ADBI Working Paper 162]
    Keywords: development, People’s Republic of China (PRC), internal, economic, global
    Date: 2010
  4. By: Willem Thorbecke (Asian Development Bank Institute)
    Abstract: Enormous trade surpluses are problematic for the People’s Republic of China (PRC) and the rest of the world. They primarily stem from processing trade. This paper investigates how exchange rate changes would affect the PRC’s imports for processing and processed exports. The results indicate that an appreciation throughout East Asian supply chain countries would reduce the PRC’s surplus in processing trade, while an appreciation of the yuan alone might not. Even for an appreciation throughout East Asia, however, the sum of the exchange rate elasticities is not large. Thus, to rebalance the PRC’s trade, exchange rate appreciations must be accompanied by other changes such as factor market liberalization and greater enforcement of environmental regulations.
    Keywords: trade surpluses, China, exchange rates, yuan appreciation, factor market liberalisation
    JEL: F32 F41
    Date: 2010
  5. By: Yunling Zhang (Asian Development Bank Institute)
    Abstract: The People’s Republic of China (PRC) has emerged as a major player in the global economy and considers free trade agreements (FTAs) an important part of its global trading strategy. The PRC’s export industries are embedded in existing regional and global production networks and are reliant on foreign direct investment flows and external supplies of material and intermediate goods. Immediately after its accession to the World Trade Organization in December 2001, the PRC adopted a regional approach to trade and began negotiating and implementing FTAs. This paper analyzes the results of a survey undertaken across 232 Chinese firms with regard to FTA-related issues such as utilization, perceived costs and benefits, perceptions of multiple rules of origin, and policy and institutional support mechanisms. It was found that, of the firms surveyed, 45% were using FTAs to some extent. While this utilization rate appears relatively high, and reflects the assertive stance of Chinese firms when it comes to exploring market opportunities, the actual coverage of export value by FTAs is variable. In general, Chinese firms view FTAs as a way to increase their access to partner markets. Nevertheless, there remains an orientation toward the United States and other traditional markets. However, over time, as rebalancing of growth takes place, there may be a shift in market orientation toward the Association of Southeast Asian Nations (ASEAN) and regional markets and the use of FTAs may intensify. This study offers several proposals to increase FTA use, including the expansion of support services for firms, the promotion of larger regional FTAs, and the creation of more opportunities for collaboration between the government and the private sector.
    Keywords: China, FTA, utilization rate, growth rebalancing
    JEL: F1 F15 O24
    Date: 2010
  6. By: Regina M. Abrami (Harvard Business School); Yu Zheng (University of Connecticut)
    Abstract: Why have China's petrochemical and steel industries behaved so differently in seeking trade protection through antidumping measures? We argue that the patterning of antidumping actions is best explained in terms of the political economy of economic restructuring in pillar industries and its effect on industry structures. In the petrochemical industry, the shift toward greater horizontal consolidation and vertical integration reduces the collective action problems associated with antidumping petitions among upstream companies. It also weakens downstream companies lobbying in favor of the general protection of highly integrated conglomerates. In the steel industry, by contrast, national industrial policy in the absence of exogenous economic shocks fails to weaken local state interests sufficiently. Fragmented upstream and downstream channels instead persist, with strong odds against upstream suppliers waging a successful defense of material interests.
    Date: 2010–10
  7. By: Lamo, Ana (European Central Bank); Messina, Julián (World Bank); Wasmer, Etienne (Sciences Po, Paris)
    Abstract: This paper shows that specialized education reduces workers' mobility and hence their ability to cope with economic changes. We illustrate this point using labor force data from two countries having experienced important macroeconomic turbulence; a large economy with rigid labor markets, Poland, and a small open economy with increased flexibility, Estonia. We find that holding a vocational degree is associated with much longer unemployment duration spells and higher likelihood of leaving activity for older workers. We then build a theoretical framework in which young agents' careers are heavily determined by the type of initial education, and analyze the transition to a new steady-state after a sectoral demand shift. Quantitative exercises suggest that the over-specialization of the labor force in Poland led to much higher and persistent unemployment compared to Estonia during the period of EU enlargement. Traditional labor market institutions (wage rigidity and employment protection) lead to an increase of the unemployment gap, but to a lesser extent.
    Keywords: transition countries, vocational education, specific skills, EU enlargement
    JEL: J4 J24
    Date: 2010–10
  8. By: Nick. J Freeman
    Abstract: This paper examines the impact of globalization on two transitional economies in Asia. Both countries have undergone a radical economic reform process over the past decade, assisted by increases in external trade flows, foreign investment activity, and external assistance. However, the pace of economic reform has decelerated since the perceived perils of globalization—as evidenced by the Asian Crisis—have become more apparent to the leaderships of these two avowedly socialist states. Although neighbouring and fraternal countries, adopting broadly parallel economic liberalisation programmes, the forces of globalization have manifested themselves in different ways in Laos and Vietnam. The paper discerns these differences, and assesses whether the two countries are likely to overcome the current hiatus in their economic reform programmes. [Discussion PaperNo.2001/40]
    Keywords: globalizationbacklash,foreigndirectinvestment,EastAsia
    Date: 2010
  9. By: Carl Bonham (Economics Department & UHERO University of Hawaii at Manoa); Calla Wiemer (Center for Chinese Studies University of California, Los Angeles)
    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 run-up 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
  10. By: Ingrid H. Rima (Department of Economics, Temple University)
    Abstract: A relatively new phase in China’s reform since the Cultural Revolution is evidencing itself in the focus given to direct foreign and joint investment in large-scale manufacturing industries that yield increasing returns. The ongoing relative cheapness of the yuan at 6.78 to the dollar is assuredly enhancing the effectiveness of China’s export program. The U. S. Congress maintains that a more expensive renminbi would ease the plight of the American manufacturing sector and laid-off workers. However, the argument of this paper is that the success of China’s trade is not based on Ricardian comparative advantage. Its trade reforms are better explained in terms of increasing returns as set forth in Nicholas Kaldor's restatement of Verdoorn’s Law and Adam Smith’s “vent for surplus” principle. This analytical perspective seems particularly relevant, given contemporary political concern about the value of the yuan. Given the attractiveness of China for direct foreign investment (DFI), what is the likely ultimate effect on the distribution of the world’s wealth? It seems possible that trade can alter the distribution of the world’s negotiable wealth in the twenty-first century in much the same way as the programs of the World Bank and the IMF enabled the OECD countries and the United States to control some 85 percent of the world’s wealth in the twentieth century.
    Keywords: Cultural Revolution, direct foreign investment, export-led growth, trade reform, vent for surplus, Verdoorn's Law.
    JEL: F12 F31
    Date: 2010–10

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