nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒11‒20
twelve papers chosen by
J. David Brown
Heriot-Watt University

  1. Essays on Russia’s Economic Transition By Solanko, Laura
  2. The Dynamic Change in Wage Gap between Urban Residents and Rural Migrants in Chinese Cities By Dandan Zhang; Xin Meng; Dewen Wang
  3. Modes of foreign direct investment and patterns of trade: Why do multinational enterprises come To China? By Park, Innwon; Park, Soonchan
  4. EU enlargement and theories of economic integration By Susan Senior
  5. Agriculture and rural development in Romania. The main modalities to attenuate the crisis effects and to resume economic growth. By OTIMAN, Paun Ion; TODEROIU, Filon; FLORIAN, Violeta; ALEXANDRI, Cecilia; GAVRILESCU, Camelia; IONEL, Iuliana; GRODEA, Mariana; ALBOIU, Cornelia; MOLDOVAN, Minodora; GOSA, Vasile; NAGY, Andrea
  6. The Impact of Crises on Youth Unemployment of Russian Regions: An Empirical Analysis By Olga Demidova; Marcello Signorelli
  7. Addressing the Legacy Costs in an NDC Reform: Conceptualization, Measurement, Financing By Holzmann, Robert; Jousten, Alain
  8. Agriculture in the Western Balkan Countries By Volk, Tina; Rednak, Miroslav; Erjavec, Emil; Cela, Roland; Marku, Shkelzen; Imami, Drini; MikuÅ¡, Ornella; Cerjak, Marija; Dimitrievski, Dragi; Georgiev, Nenad; Simonovska, Ana; Stojceska, Aleksandra Martinovska; Kotevska, Ana; Božidarka, MarkoviÄ; Bogdanov, Natalija; Bozic, Dragica
  9. Sources of Chinese Demand for Resource Commodities By Ivan Roberts; Anthony Rush
  10. The Truth, the Whole Truth, and Nothing but the Truth A Multiple Country Test of an Oath Script By Fredrik Carlsson; Mitesh Kataria; Alan Krupnick; Elina Lampi; Asa Löfgren; Ping Qin; Thomas Sterner; Susie Chung
  11. Looking for an Accounting Identity : The Case of Romania during the 20th Century By E. Barbu; N. Farcane; A. Popa
  12. Teacher Pay, Class Size and Local Governments: Evidence from the Latvian Reform By Hazans, Mihails

  1. By: Solanko, Laura (Bank of Finland Research)
    Abstract: This study comprises an introductory section and three essays analysing Russia’s economic transition from the early 1990s up to the present. The papers present a combination of both theoretical and empirical analysis on some of the key issues Russia has faced during its somewhat troublesome transformation from state-controlled command economy to market-based economy. The first essay analyses fiscal competition for mobile capital between identical regions in a transition country. A standard tax competition framework is extended to account for two features of a transition economy: the presence of two sectors, old and new, which differ in productivity; and a non-benevolent regional decision-maker. It is shown that in very early phase of transition, when the old sector clearly dominates, consumers in a transition economy may be better off in a competitive equilibrium. Decision-makers, on the other hand, will prefer to coordinate their fiscal policies. The second essay uses annual data for 1992–2003 to examine income dispersion and convergence across 76 Russian regions. Wide disparities in income levels have indeed emerged during the transition period. Dispersion has increased most among the initially better-off regions, whereas for the initially poorer regions no clear trend of divergence or convergence could be established. Further, some – albeit not highly robust – evidence was found of both unconditional and conditional convergence, especially among the initially richer regions. Finally, it is observed that there is much less evidence of convergence after the economic crisis of 1998. The third essay analyses industrial firms’ engagement in provision of infrastructure services, such as heating, electricity and road maintenance. Using a unique dataset of 404 large and medium-sized industrial enterprises in 40 regions of Russia, the essay examines public infrastructure provision by Russian industrial enterprises. It is found that to a large degree engagement in infrastructure provision, as proxied by district heating production, is a Soviet legacy. Secondly, firms providing district heating to users outside their plant area are more likely to have close and multidimensional relations with the local public sector.
    Keywords: Russia; transition; regional issues; tax competition; infrastructure
    JEL: H20 H50 N90 P20
    Date: 2010–11–11
  2. By: Dandan Zhang; Xin Meng; Dewen Wang
    Abstract: Although a significant wage gap has been found in many previous studies between urban workers and rural migrants in Chinese cities, it is still not clear how such a wage gap may evolve over time. This paper uses both a dynamic wage decomposition method and economic assimilation model with pooled cross-sectional data from the China Household Income Project Survey (CHIPS) of 1999 and 2002 to investigate the change in the wage gap between urban workers and rural migrants over time and its determinants in Chinese cities. The estimation results show that (1) there is a widening on-average wage gap between urban workers and rural migrants across the two surveyed years in Chinese cities, mainly caused by the decline in the return to education for rural migrants; (2) rural migrants can catch up with the wage level of their urban counterparts as the time they reside in the host cities increases, but because of the decline in the speed of catching-up over time, rural migrants cannot obtain wages comparable totheir urban counterparts in their life time, and more importantly well-educated rural migrants do not seem to have a significant advantage in this wage assimilation process than the lowlypoorly-educated ones. Both findings suggest that there might be discrimination against well-educated rural migrants which prevents them from obtaining a fair wage in the Chinese urban labour market.
    Keywords: Wage differential, Migration
    JEL: J31 J61
    Date: 2010
  3. By: Park, Innwon; Park, Soonchan
    Abstract: This paper investigates the link between patterns of trade and modes of foreign direct investment (FDI) by utilizing exports, imports, and inward FDI data for China over the period 1998 to 2007. We construct a modified gravity equation to find the main modes of inward FDI into China with considering spatially interdependent third country effect. The problem of endogeneity is controlled by applying the system generalized method of moments (GMM) estimation technique. We find that there is no evidence of statistically significant substitutability and complementarity between bilateral trade and FDI in the aggregate data. On the contrary, the trade-diverting third country effect of inward FDI is proven to be strong. As we decompose the aggregate trade goods into final and intermediate goods, we find that there is strong evidence of vertical FDI for importing intermediate goods from the home country and exporting final goods back to the home country. However, the motivation of vertical FDI has been diminishing and the modes of export-platform and complex vertical FDI have begun to emerge. This implies that China has imported intermediate inputs from the home country of FDI, produced final goods or parts and components, and exported them back to the home country. Recently, however, we have noticed that there has been a diversion trend of the vertical linkage from home country to third countries. This indicates that the main mode of inward FDI into China has been shifting from “home export base” to “third country export base”.
    Keywords: patterns of trade; foreign direct investment; multinational enterprises; China
    JEL: F23 F21
    Date: 2010–11–08
  4. By: Susan Senior
    Abstract: The fifth wave of EU enlargement taking place in 2004 and 2007 was the culmination of a long process beginning in 1989. Early on the Central and Eastern Europe countries began requesting membership, taking the then European Community by surprise. Only slowly during the 1990s were criteria for accession drawn up and empirical studies of the likely effects of enlargement began to emerge. The theoretical basis for analysis of the enlargement process was heterogeneous and piecemeal, and it is difficult to talk of ‘enlargement theory’. None the less the aim here is to indicate the main theoretical approaches used to study the fifth wave of enlargement. A strand of integration theory relies on the seminal work of Balassa to synthesize this process into ‘stages’ or grades of integration: a free trade area; a customs union; a single market (with the four freedoms of movement of goods, services, capital and labour); economic and monetary union; and political union. Though these stages do not constitute clearly defined steps in an ascending scale, as will be shown here, they are reflected in the evolution of ‘enlargement theory’. The paper illustrates that economic theories of enlargement and those dealing with more general aspects of European integration have at times developed in parallel, with spillovers occurring in both directions, but in other cases they have taken rather diverging routes.
    Keywords: European integration, EU enlargement, theories of integration.
    JEL: F15
    Date: 2010–11
  5. By: OTIMAN, Paun Ion (Institute of Agricultural Economics); TODEROIU, Filon (Institute of Agricultural Economics); FLORIAN, Violeta (Institute of Agricultural Economics); ALEXANDRI, Cecilia (Institute of Agricultural Economics); GAVRILESCU, Camelia (Institute of Agricultural Economics); IONEL, Iuliana (Institute of Agricultural Economics); GRODEA, Mariana (Institute of Agricultural Economics); ALBOIU, Cornelia (Institute of Agricultural Economics); MOLDOVAN, Minodora (Institute of Agricultural Economics); GOSA, Vasile (Research Center for Sustainable Rural Development in Romania); NAGY, Andrea (Research Center for Sustainable Rural Development in Romania)
    Abstract: The paper presents the main modalities and solutions by which agriculture and rural development can represent factors of economic-financial crisis shock attenuation and resuming economic growth. It is without doubt that the main modality to increase agriculture contribution to the general economic growth is the capital injection into economic factors (investments that create jobs, increase production and productivity on the agricultural holdings, develop infrastructure in the rural areas), the best use of financial resources by funding systems adequate to the present situation whose effects should stop the economic decline and subsequently generate economic growth. Romania, a EU Member State since 2007, must “get in line” with the funding systems used in agriculture and rural development in the European Union. However, a main remark should be made. All the CAP funding systems, adopted by the EU, from its establishment up to the present moment (except for the first system, in use in the immediate period after the Common Market was established), have been funding systems designed and implemented under strong general economic and agricultural growth conditions, for the equilibration of the agricultural market (in most cases with surplus of agricultural products), family farm consolidation and environment and landscape protection conditions, animal welfare, etc. Taking into consideration the period of generalized economic and financial crisis, in the paper it is specified that none of the funding systems of agriculture and rural development in the EU has been designed for periods of generalized economic-financial crisis or economic recession, so that certain points of view presented below, with regard to the modalities to attenuate the crisis in agriculture and to increase this sector contribution to economic growth relaunching, might be in (relative) disagreement with the present CAP funding system, adopted by the EU.
    Keywords: agriculture and rural development; economic-financial crisis; recession; CAP; investments;
    JEL: Q01 Q14 Q18
    Date: 2010–11
  6. By: Olga Demidova; Marcello Signorelli
    Abstract: The main purpose of this paper is to estimate the influence of the 1998 and 2008 crises on the youth unemployment rates (age class 20-29) in Russian regions. The investigation is founded on the panel data for 78 Russian regions during 1997–2008 provided by ROSSTAT (the main Russian State statistical organization). We compare the level and dynamics of the youth unemployment in various Russian regions and try to solve three main questions. Are there any special features of the youth unemployment in comparison with overall unemployment? How the 1998 crisis did change - and how the 2008 crisis is going to change - the youth unemployment dynamics? What can we learn from the impact of 1998 crisis and what is the main difference with the impact of the 2008 crisis? With the help of the obtained results we define some preliminary policy suggestion.
    Keywords: financial crises, regional youth unemployment, Russian labour market.
    JEL: R23 E24
    Date: 2010–10–01
  7. By: Holzmann, Robert (World Bank); Jousten, Alain (CREPP, Université de Liège)
    Abstract: The paper provides a framework for the conceptualization, definition and estimation of legacy costs that need to be addressed in a reform that transforms an unfunded defined contribution (NDB) scheme into a notional (or non-financial) defined contribution (NDC) scheme. As the new contribution rate is fixed and, perhaps, reduced, paying for the accrued to date liabilities leaves a financing gap that needs to be estimated and financed, best outside the pension system if a less distorting financing form is available. The paper illustrates the proposed measurement approach with broad estimates under a hypothetical NDC reform in China.
    Keywords: legacy costs, pension reform, NDC, coverage expansion
    JEL: H55 H68 J21 J26
    Date: 2010–10
  8. By: Volk, Tina; Rednak, Miroslav; Erjavec, Emil; Cela, Roland; Marku, Shkelzen; Imami, Drini; MikuÅ¡, Ornella; Cerjak, Marija; Dimitrievski, Dragi; Georgiev, Nenad; Simonovska, Ana; Stojceska, Aleksandra Martinovska; Kotevska, Ana; Božidarka, MarkoviÄ; Bogdanov, Natalija; Bozic, Dragica
    Abstract: The current publication covers Albania, Bosnia-Herzegovina, Croatia, Kosovo under UNSCR 1244/99, the FYR Macedonia, Montenegro and Serbia, and provides an overview of the agricultural situation in the European Union (EU) candidate and potential candidate countries of the Western Balkans (WBs). The objective was to provide an analysis of the development and current situation in agriculture and agricultural policy in these countries as relates to the EU accession process. The individual country reports, as well as a cross-country overview and comparison, have been prepared as a part of "AgriPolicy" project, which was financially supported by the European Commission under the 7th framework program.
    Keywords: Agricultural and Food Policy, Community/Rural/Urban Development, Institutional and Behavioral Economics, Political Economy,
    Date: 2010
  9. By: Ivan Roberts (Reserve Bank of Australia); Anthony Rush (Reserve Bank of Australia)
    Abstract: Is China’s demand for resources driven predominantly by domestic factors or by global demand for its exports? The answer to this question is important for many resource-exporting countries, such as Australia, Brazil, Canada and India. This paper provides evidence that China’s (mainly manufacturing) exports have been a significant driver of its demand for resource commodities over recent decades. First, it employs input-output tables to demonstrate that, historically, manufacturing has been at least as important as construction as a driver of China’s demand for resource-intensive metal products. Second, it shows that global trade in non-oil resource commodities can be described by the gravity model of trade. Using this model it is found that, controlling for domestic expenditure (including investment), exports are a sizeable and significant determinant of a country’s resource imports, and that this has been true for China as well as for other countries.
    Keywords: China; trade; investment; resource commodities; gravity model
    JEL: F10 F14 F40 Q31 Q33
    Date: 2010–11
  10. By: Fredrik Carlsson (Department of Economics, University of Gothenburg); Mitesh Kataria (Max Planck Institute of Economics, Jena); Alan Krupnick (Resources for the Future, Washington); Elina Lampi (Department of Economics, University of Gothenburg); Asa Löfgren (Department of Economics, University of Gothenburg); Ping Qin (Peking University, College of Environmental Sciences and Engineering); Thomas Sterner (Department of Economics, University of Gothenburg); Susie Chung (Resources for the Future, Washington)
    Abstract: Hypothetical bias is one of the main issues bedeviling the field of nonmarket valuation. The general criticism is that survey responses reflect how people would like to behave, rather than how they actually behave. In our study of climate change and emissions reductions, we took advantage of the increasing bulk of evidence from psychology and economics that addresses the effects of making promises, in order to investigate the effect of an oath script in a contingent valuation survey. The survey was conducted in Sweden and China, and its results indicate that an oath script has significant effects on respondent behavior in answering willingness-to-pay (WTP) questions, some of which vary by country. In both countries, the share of zero WTP responses and extremely high WTP responses decreases when an oath script is used, which also results in lower variance. In China, the oath script also reduces the average WTP, cutting it by half in certain instances. We also found that the oath script has different impacts on various respondent groups. For example, without the oath script, Communist party members in China are more likely than others to have a positive WTP for emissions reductions, but with the oath script, there is no longer any difference between the groups.
    Keywords: Oath script, hypothetical bias, willingness to pay
    JEL: D61 Q5
    Date: 2010–11–09
  11. By: E. Barbu (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II, ACM professionnal member - ACM professionnal member); N. Farcane (West University of TimiBoara - Faculty of Economics and Business Administration); A. Popa (University Eftimie Murgu Reşiţa - Faculty of Engineering, Reşiţa)
    Abstract: This article aims to provide a longitudinal presentation of developments in Romanian accounting during the 20th century and to propose a neo-institutional explanation of this evolution. The historical research methodology employed here is complex. We use a constructive research philosophy, an inductive research approach, a mixture of research types (narrative, oral and interpretative histories), content analysis as our research method and four types of data collection (archives, secondary data, observations and interviews). The interpretative analysis is based on the neo-institutional theoretical framework. The study identifies a “homeAgrown”, normative influence in Romanian accounting practices during the first 50 years of the twentieth century, a coercive one, imposed until 1989, by a centralized communist system, and from 1989 to the present, a mixed isomorphism oriented around French, European and International accounting systems. Lacking a period of introspection, the authors feel that there is little hope that Romanian accounting will reA discover its unique culture, or will manage to build upon or improve its indigenous base in the current international context
    Keywords: Accounting ; Historical approach ; Neo-institutionalism ; XXth century ; Romania
    Date: 2010
  12. By: Hazans, Mihails (University of Latvia)
    Abstract: This paper employs a rich collection of survey and administrative datasets, including linked school-teacher payroll data, to document the reform of teacher compensation and school network implemented in Latvia amidst the economic crisis of 2008-2010, immediately after territorial reform. We explore diverse responses by local governments in terms of proportion of state subsidy transferred to schools, extent of redistribution of state funds between schools, degree of autonomy in compensation policies given to schools, and municipal contribution to school wage bills. Other things equal, municipalities tend to redistribute funds from schools with high student-teacher ratio (S/T) to ones with low S/T. Nevertheless, the reform has changed the effect of the local student-teacher ratio on teacher earnings per workload from negative to positive of the same size. Survived schools feature strong heterogeneity in terms of workload and staff reduction, change in class size, and compensation strategies. We provide evidence for a substantial incidence of using performance-related criteria for teacher base salary differentiation. We analyze school and individual level determinants of teacher pay using mixed models with municipality and school level random effects.
    Keywords: local governments, teacher compensation, linked employee-employer data
    JEL: H75 I22 I28 J31 J33 J45 M52 C23
    Date: 2010–10

This nep-tra issue is ©2010 by J. David Brown. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.