nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒11‒27
seventeen papers chosen by
J. David Brown
Heriot-Watt University

  1. On the road to prosperity ? The economic geography of China's national expressway network By Roberts, Mark; Deichmann, Uwe; Fingleton, Bernard; Shi, Tuo
  2. Can rising housing prices explain China’s high household saving rate? By Xin Wang; Yi Wen
  3. Social Identity and Inequality--The Impact of China’s Hukou System By Farzana Afridi; Sherry Xin Li; Yufei Ren
  4. The level of human capital in innovative firms located in China. Is foreign capital relevant? By Li Shu; Aurora A.C. Teixeira
  5. Chinese networks and tariff evasion By Pierre-Louis Vézina; Lorenzo Rotunno
  6. Globalization and Regional Income Inequality: Evidence from within China By Guanghua Wan; Ming Lu; Zhao Chen
  7. Short- and long-term impact of remarkable economic events on the growth causes of China-Germany trade in agri-food products By Zhichao Guo; Yuanhua Feng; Xiangyong Tan
  8. An inquiry into the development of science and technology parks in China By Zhang, Haiyang; Sonobe, Tetsushi
  9. Why do firms invest in the Baltic Sea Region By Markku Kotilainen; Nuutti Nikula
  10. Embedded interests and the managerial local state: methanol fuel-switching in China By Kostka, Genia; Hobbs, William
  11. Bypassing Russia: Nabucco project and its implications for the European gas security By Erdogdu, Erkan
  12. Business incubators in China: an inquiry into the variables associated with incubatee success By Zhang, Haiyang; Sonobe, Tetsushi
  13. Did higher inequality impede growth in rural China ? By Benjamin, Dwayne; Brandt, Loren; Giles, John
  14. Firm Performance in Vietnam:Evidence from Manufacturing Small and Medium Enterprises By Le, Viet; Harvie, Charles
  15. Global financial crisis and its impact on the financial system of Kosovo By Ramosaj, Berim
  16. The Demand for Skills and the Labor Cost in Partner Countries: Evidence from the Enlarged EU By Alessia LO TURCO; Aleksandra PARTEKA
  17. Do the Vietnamese support Doi Moi? By Migheli, Matteo

  1. By: Roberts, Mark; Deichmann, Uwe; Fingleton, Bernard; Shi, Tuo
    Abstract: Over the past two decades, China has embarked on an ambitious program of expressway network expansion. By facilitating market integration, this program aims both to promote efficiency at the national level and to contribute to the catch-up of lagging inland regions with prosperous Eastern ones. This paper evaluates the aggregate and spatial economic impacts of China's newly constructed National Expressway Network, focussing, in particular, on its short-run impacts. To achieve this aim, the authors adopt a counterfactual approach based on the estimation and simulation of a structural"new economic geography"model. Overall, they find that aggregate Chinese real income was approximately 6 percent higher than it would have been in 2007 had the expressway network not been built. Although there is considerable heterogeneity in the results, the authors do not find evidence of a significant reduction in disparities across prefectural level regions or of a reduction in urban-rural disparities. If anything, the expressway network appears to have reinforced existing patterns of spatial inequality, although, over time, these will likely be reduced by enhanced migration.
    Keywords: Transport Economics Policy&Planning,Economic Theory&Research,Labor Policies,Roads&Highways,Regional Economic Development
    Date: 2010–11–01
  2. By: Xin Wang; Yi Wen
    Abstract: China’s average household saving rate is one of the highest in the world. One popular view attributes the high saving rate to fast rising housing prices and other costs of living in China. This article uses simple economic logic to show that rising housing prices and living costs per se cannot explain China’s high household saving rate. Although borrowing constraints and demographic changes can help translate housing prices to the aggregate saving rate, quantitative simulations using Chinese data on household income, housing prices, and demographics indicate that rising mortgage costs contribute at most 5 percentage points to the Chinese aggregate household saving rate, given the down-payment structure of China’s mortgage markets.
    Date: 2010
  3. By: Farzana Afridi (Department of Economics, Delhi School of Economics, Delhi, India); Sherry Xin Li (School of Economic, Political and Policy Sciences (EPPS) University of Texas at Dallas, GR31); Yufei Ren (School of Economic, Political and Policy Sciences (EPPS) University of Texas at Dallas, GR31)
    Abstract: We conduct an experimental study to investigate the causal impact of social identity on individuals? response to economic incentives. We focus on China?s decades old household registration system, or the hukou institution, which categorizes citizens into urban and rural residents, and favors the former over the latter in resource allocation. Our results indicate that making individuals? hukou status salient and public significantly reduces the performance of rural migrant students on an incentivized cognitive task by 10 percent. This leads to a leftward shift of their earnings distribution – the proportion of rural migrants below the 25th earnings percentile increases significantly by almost 19 percentage points. However, among non-migrants the proportion with earnings below the 25th percentile drops by 5 percentage points, and the proportion above the 75th percentile increases by almost 8 percentage points, albeit insignificantly. The results demonstrate the impact of institutionally imposed social identity on individuals? intrinsic response to incentives, and consequently on widening income inequality.
    Keywords: social identity, hukou, inequality, field experiment, China
    JEL: C93 O15 P36
    Date: 2010–10
  4. By: Li Shu (Faculdade de Economia, Universidade do Porto); Aurora A.C. Teixeira (CEF.UP, Faculdade de Economia, Universidade do Porto; INESC Porto; OBEGEF)
    Abstract: Studies on the impact of Foreign Direct Investment (FDI) on the Chinese economy have essentially focused on the relationship between FDI, productivity and economic growth, revealing a tendency toward sectoral and macroeconomic empirical studies. This work aims to complement these approaches and contribute to the rather limited literature on the relationship between FDI, Human Capital and Innovation at a corporate level. Based on a set of large and innovative firms (national and foreign capital) located in China, we have concluded that: i) the direct impact of foreign capital on the level of human capital in firms is negative, that is, no evidence was found suggesting that FDI has a positive influence on their human capital; ii) in indirect terms, by means of investment in R&D activities, FDI has a positive impact on general human capital (i.e., formal education). These results suggest that for China to benefit from FDI, it is necessary to implement a selective policy to attract FDI, taking into account more technologically advanced projects.
    Keywords: Foreign Direct Investment; Multinational firms; Human Capital; R&D; China
    JEL: F21 F23 J24 O32
    Date: 2010–11
  5. By: Pierre-Louis Vézina; Lorenzo Rotunno (IHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: In this paper we combine the tariff evasion analysis of Fisman and Wei (2004) with Rauch and Trindade’s (2002) study of Chinese trade networks. Chinese networks are known to act as trade catalysts by enforcing contracts and providing market information. As tariff evasion occurs outside the law, market information is scant and formal institutions inexistent, rendering networks the more important. We find robust evidence that Chinese networks, proxied by ethnic Chinese migrant populations, increase tariff evasion, i.e. the tariff semi-elasticity of Chinese missing imports. We suggest the effects takes place through matching of illicit-minded traders, identification of corrupt customs agents and enforcement of informal contracts.
    Keywords: tariff evasion, China, illicit trade, migrant networks
    JEL: F1 K42
    Date: 2010–11
  6. By: Guanghua Wan; Ming Lu; Zhao Chen
    Abstract: China’s recent accession to the WTO is expected to accelerate its integration into the world economy, which aggravates concerns over the impact of globalization on the already rising inter-region income inequality in China. This paper discusses China’s globalization process and estimates an income generating function, incorporating trade and FDI variables. It then applies the newly developed shapley value decomposition technique to quantify the contributions of globalization, along with other variables, to regional inequality. [Discussion Paper No. 2004/10]
    Keywords: globalization, inequality, decomposition, Shapley value, China
    Date: 2010
  7. By: Zhichao Guo (University of Paderborn); Yuanhua Feng (University of Paderborn); Xiangyong Tan (Beijing Technology and Business University)
    Abstract: This paper focuses on a systematic quantitative discussion of the short- and long-term impact of remarkable economic events on international trade in a two-stage framework. Firstly, procedures based on dummy variables are proposed to detect structural breaks, types and sizes of jumps caused by such events. Then we propose to apply a hierarchical CMS (Constant Market Share) model to all sub-periods defined by the detected change points to study the short- and long-term impact of those events on growth causes. Application to China-Germany trade in agri-food products shows that China’s accession to WTO had a negative short-term impact on corresponding series. But its long-term impact on China’s export competitiveness was definitely positive. The short-term impact of the EU’s CAP (Common Agricultural Policy) reform on Germany’s exports to China was also negative. Its long-term impact on export competitiveness was sometimes positive and sometimes negative. The financial crisis of 2008 caused a significant reduction of China’s agri-food exports to Germany. But Germany’s exports to China in 2009 were not affected by the financial crisis as much.
    Keywords: Growth causes of agri-food trade; the CMS model; the EU’s CAP reform; China’s accession to WTO; financial crisis
    JEL: Q17 C53
    Date: 2010–11
  8. By: Zhang, Haiyang; Sonobe, Tetsushi
    Abstract: In order to investigate the effectiveness of science and technology industrial parks (STIPs), this study examines data on high-tech firms within and outside the STIPs in China, while paying special attention to the issues related to agglomeration and congestion. The main finding is that the negative effect of congestion on productivity is highly likely to outweigh the positive productivity effect of agglomeration economies within the STIPs but not among high-tech firms outside the STIPs. The paper also finds that the productivity of high-tech firms, whether within or outside the STIPs, are positively associated with foreign direct investment and the academic activities of local universities in the same city. --
    Keywords: science and technology parks,agglomeration,congestion,China
    JEL: O3 O4
    Date: 2010
  9. By: Markku Kotilainen; Nuutti Nikula
    Abstract: We have defined the Baltic Sea Region as consisting of the following countries and regions : Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Poland, Sweden, and the regions of St Petersburg, Leningrad Oblast and Kaliningrad in Russia. We have investigated the factors af-fecting FDI in the Baltic Sea Region in three ways. First, we have studied the factors affecting FDI on the basis of the existing theoretical and empirical literature. Secondly, we have studied the characteristics of the existing FDI in the Baltic Sea Region. Thirdly, we have researched the investment motives through two firm questionnaires : 1) firms participating in the MIPIM real estate fairs and 2) Finnish firms active in the Baltic Sea Region (Finpro register). The common results of both empirical enquiries were : 1) the most important reasons for FDI are market size and its growth potential, 2) companies do not see the BSR as a single market in their actual decision making process, 3) there are clear benefits in having the non-Euro area countries as members of the EMU, but the results are not very robust : obviously they are weakened by the already rather credible pegs of the Estonian, Danish, Latvian and Lithuanian currencies and the diversification benefits of the floating Swedish krone, and 4) governmental investment promotion organizations have a rather small role in the actual investment decision making process. Their role is rather in giving general information on the country’s investment environment. The most important differences between the samples of firms are : 1) in the real estate sector the majority of FDI is done through buying an existing firm, whereas in the sample of Finnish firms most FDI is done as a greenfield investment (establishing a new firm), 2) among the real estate firms Sweden, Finland, Germany and Poland are the most important destinations for FDI, while in the Finnish sample of firms (including more manufacturing and service firms) St Petersburg, Poland, Estonia and Sweden are the most important destinations, 3) in the sample of real estate firms R&D and the proximity of the Russian market are not important motives for FDI, contrary to the Finnish, more manufacturing and retail trade-oriented sample, and 4) among the real estate firms the potential for large increases in real estate prices is an important motive for FDI.
    Keywords: Foreign direct investment (FDI), Baltic Sea Region, Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Poland, Sweden, St Petersburg, Leningrad Region, Kaliningrad
    JEL: F21 F23 F13 F15
    Date: 2010–11–19
  10. By: Kostka, Genia; Hobbs, William
    Abstract: This paper analyzes the determinants of alternative automobile fuel regulation and development support with a particular focus on methanol fuel. We find that embedded interests, bureaucratic reforms, and political circumstances in the Chinese national, provincial, and municipal governments have all shaped policy outcomes in this area. The paper seeks to explain why at, the national level, support for alternative fuels has waned and finds that the concerns of state oil majors and disorganization during the process of national bureaucratic restructuring have been the deciding factors. Interestingly, at the sub-national level promotion of methanol continues unabated in some places. At the local level, business relationships as well as the embedded economic and personal interests of local leaders help to explain managerial local government behavior and sheds light on why government officials actively create and manage methanol fuel business opportunities through local standardization, subsidies, and hands-on management of SOE opposition. The switch towards methanol fuel was more successful in localities where individuals, either government officials or enterprise managers, formed an alliance and made this their 'pet projects'. The analysis draws on 55 interviews conducted between June and October 2010 in Shanxi, a major coal-producing province which has supported methanol fuel-switching programs for over ten years. The findings contribute to debates about the condition of the local state in China. The argument put forward in this paper is that because of limited state capacity at the central level and insufficient concerns for the development of alternative fuels in the short-term, some sub-national governments with strong embedded interests promote certain alternative fuels by taking on active managerial roles, adopting creative and ad-hoc strategies to fill in the national level policy gap at the local level. --
    Keywords: China,local state,policy implementation,energy policy,governance,alternative fuel
    JEL: D73 D78 O18 R58 Q48 Q58 Q42
    Date: 2010
  11. By: Erdogdu, Erkan
    Abstract: Restrictions on CO2 emissions, the nuclear phase out announced by some member states, high emissions from coal-fired power plants, and barriers to rapid development of renewable generation are factors that make the European Union (EU) highly dependent on natural gas. With three non-EU countries (Russia, Algeria and Norway) currently supplying more than half the gas consumed within the EU and with projections pointing out that by 2030 internal sources will only be able to meet 25% of demand, EU desperately looks for means to secure new sources of gas supply. In this context, the Nabucco pipeline is planned to deliver gas from Caspian and Middle East regions to EU market. It runs across Turkey and then through Bulgaria, Romania and Hungary before connecting with a major gas hub in Austria. On paper, Nabucco project makes perfect sense, offering a new export route to EU markets for Caspian gas producers (Azerbaijan, Turkmenistan and Kazakhstan) as well as Iran and, in time, Iraq. The project is backed by the EU and strongly supported by the United States. Perhaps most importantly, Nabucco would completely bypass Russia. This paper addresses issues surrounding Nabucco project and their implications for European gas security.
    Keywords: European natural gas security; Nabucco project; energy policy
    JEL: Q38 Q41 Q34 Q31 Q48
    Date: 2010–12
  12. By: Zhang, Haiyang; Sonobe, Tetsushi
    Abstract: This paper examines the association between the outcome of business incubation and the resources used by incubators, by using a small panel of science and technology business incubators (STBIs) in China. We find that while the number of firms graduating from an STBI is closely correlated with the infrastructure as well as the human and financial resources at the STBI's disposal, the graduates' firm sizes, in terms of employment and value added, as well as their labor productivity are unrelated to such resource inputs. We also find that the educational levels of incubator managers and the financial support given to their clients have significant impacts on the number of graduates. However, the number of graduates does not increase with the scale and diversity of the cities in which their STBIs are located or with the presence of foreign ventures and universities in the locality. We do not find that university-based and government-established STBIs differ significantly in their incubation performance. --
    Keywords: business incubators,new firms,market failures,government policy,human resources,China
    JEL: M13 O31 O32 O38
    Date: 2010
  13. By: Benjamin, Dwayne; Brandt, Loren; Giles, John
    Abstract: This paper estimates the relationship between initial village inequality and subsequent household income growth for a large sample of households in rural China. Using a rich longitudinal survey spanning the years 1987-2002, and controlling for an array of household and village characteristics, the paper finds that households located in higher inequality villages experienced significantly lower income growth through the 1990s. However, local inequality’s predictive power and effects are significantly diminished by the end of the sample. The paper exploits several advantages of the household-level data to explore hypotheses that shed light on the channels by which inequality affects growth. Biases due to aggregation and heterogeneity of returns to own-resources, previously suggested as candidate explanations for the relationship, are both ruled out. Instead, the evidence points to unobserved village institutions at the time of economic reforms that were associated with household access to higher income activities as the source of the link between inequality and growth. The empirical analysis addresses a number of pertinent econometric issues including measurement error and attrition, but underscores others that are likely to be intractable for all investigations of the inequality-growth relationship.
    Keywords: Access to Finance,Inequality,Rural Poverty Reduction,Poverty Impact Evaluation,Services&Transfers to Poor
    Date: 2010–11–01
  14. By: Le, Viet; Harvie, Charles (University of Wollongong)
    Abstract: This paper examines the performance of domestic non-state manufacturing small and medium enterprises (SMEs) in Vietnam. Specifically, it evaluates firm level technical efficiency and identifies the determinants of technical efficiency of these SMEs. The paper uses an econometric approach based on a stochastic frontier production function to analyse 5,204 observations of SMEs from three surveys conducted in 2002, 2005 and 2007. The results from the estimations reveal that manufacturing SMEs in Vietnam have relatively high average technical efficiency ranging from 84.2 percent to 92.5 percent. The paper further examines the factors influencing efficiency. It finds that firm age, size, location, ownership, cooperation with a foreign partner, subcontracting, product innovation, competition, and government assistance are significantly related to technical efficiency, albeit with varying degrees and directions. Exporting does not appear to influence technical efficiency. The paper offers some evidence-based policy recommendations to improve the technical efficiency and competitiveness of manufacturing SMEs.
    Keywords: manufacturing small and medium enterprises, firm performance, technical efficiency, stochastic frontier production function, Vietnam.
    JEL: L1 L6 O1 O12 O14
    Date: 2010
  15. By: Ramosaj, Berim
    Abstract: The Kosovo’s Financial Sector is one of the newest financial sectors in Eastern Europe whose developments began in early 2000. Kosovo's banking sector consists of 8 privately owned commercial banks, the insurance companies which make up 5% of total financial sector assets by 10 insurance companies with over 70% foreign equity ownership. Pension funds also participate by about 1.5% of the total financial sector assets. In the long history of global financial crisis, and such have been over 120, the current crisis is regarded as among the most profound (similar to that of year 1929) and comprehensive on the speed and breadth of development. The sources of the crisis lie in the three pillars of the functioning of banking institutions: inadequate management of credit risk and liberalization of excessive lending policies; inadequate capitalization of the banking institutions; and inadequate management of their liquidity. Kosovo is part of Europe and cannot act as a closed oasis. The concept of a new model of financial sector in Kosovo is thought to create additional mechanisms that will enable advancements in the development of Kosovo’s financial sector with special focus in the field of investment and that mean financial market development namely the securities market. Legal infrastructure on debt market in Kosovo will create a legal possibility that the central and municipal government have the opportunity to borrow in order to implement their development policies. It is unimaginable implementation of the project without information technology support. This support has to do with that that information technology offers its capacities in supporting of all the activities that include the operation of the securities market and the creation of its electronic data base.
    Keywords: Financial market; ffinancial crisis; financial system; financial institutions; financial intermediation
    JEL: G22 G23 N20 G28 G24 G21 G20
    Date: 2010–08–07
  16. By: Alessia LO TURCO (Universita' Politecnica delle Marche, Dipartimento di Economia); Aleksandra PARTEKA (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: We analyse the consequences of trade integration in Europe (1995-2005) detecting how the labor costs in partner countries affects the demand for domestic high- and low-skilled labor in the EU-15 and five new member states. In general, independently on the skill level, the results hint at complementarity between domestic and foreign labor. However, the demand for the high skilled in New EU members' low skill intensive sectors is boosted by the increase of the average labor cost in Old EU members, thus hinting for these sectors at the high skilled in New member countries substituting for labor in Old EU.
    Keywords: EU integration, labor markets, trade
    JEL: F15 F16 J31
    Date: 2010–09
  17. By: Migheli, Matteo
    Abstract: Each reform implies social and economic changes. After experiencing war and reunification, today Vietnam is implementing a comprehensive and deep process of renovation (doi moi), but a revolution needs the support of the population to be successful. This paper investigates whether the Vietnamese are supportive of some of the main features of a market economy. In particular the preferences for competition, ownership of firms (either private or public) and income inequality as an incentive to productivity are studied here. The data allow to conclude that the doi moi is not at risk, but the population tend to contrast income inequality.
    Keywords: Vietnam; people's support; people's preferences; doi moi
    JEL: D01 D40 O53 P36
    Date: 2010–11

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