nep-tra New Economics Papers
on Transition Economics
Issue of 2010‒12‒18
23 papers chosen by
J. David Brown
Heriot-Watt University

  1. Labor Institutions and their Impact on Shadow Economies in Europe By Kamila Fialová
  2. Can Religion Insure against Aggregate Shocks to Happiness? The Case of Transition Countries By Olga Popova
  3. Enterprise Performance, Privatization and the Role of Ownership in Poland By Tatahi, Motasam
  4. Trade of Heilongjiang Province (China) with Russia By Hiraizumi, Hideki
  5. Sectoral Location of FDI in China By Lin, Mi; Kwan, Yum K.
  6. Infrastructure development and economic growth in China By Sahoo, Pravakar; Dash, Ranjan Kumar; Nataraj, Geethanjali
  7. The Contribution of Human Capital to China’s Economic Growth By John Whalley; Xiliang Zhao
  8. The bases of a new organisation of the russian oil sector : between private and state ownership By Sadek Boussena; Catherine Locatelli
  9. Determinants of government size: Evidence from China By Wu, Alfred M.; Lin, Mi
  10. "China in the Global Economy" By Sunanda Sen
  11. Model Structure and the Combined Welfare and Trade Effects of China's Trade Related Policies By Wang Yongzhong
  12. Financial microeconometrics in corporate governance studies By Marek Gruszczynski
  13. "Modeling Technological Progress and Investment in China: Some Caveats" By Jesus Felipe; John McCombie
  14. House Market in Chinese Cities: Dynamic Modeling, In-Sampling Fitting and Out-of-Sample Forecasting By Leung, Charles Ka Yui; Chow, Kenneth; Yiu, Matthew; Tam, Dickson
  15. Defragmentation of Economic Growth with a Focus on Diversification: Evidence from Russian Economy By Gnidchenko, Andrey
  16. Strategic vector of romanian road transport process By Cernaianu, Nicolae
  17. Access to Capital and Capital Structure of the Firm By Anastasiya Shamshur
  18. Learning in High stakes utlimatum and market games. An experiment in the Slovak Republic By Robert Slonim; Alvin E Roth
  19. From immigrants to (non-)citizens: Political economy of naturalizations in Latvia By Artjoms Ivlevs; Roswitha M. King
  20. Does reinforcing spouses’ land rights improve children’s outcomes? Evidence from a quasi-natural experiment in rural Vietnam By Julia Anna Matz; Gaia Narciso
  21. Fiscal discipline and economic growth – the case of Romania By Dumitru, Ionut; Stanca, Razvan
  22. O lectie inedita oferita de criza in Romania By Munteanu, Ionica
  23. Effects of financial and non-financial information disclosure on prices’ mechanisms for emergent markets: The case of Romanian Bucharest Stock Exchange By Dima, Bogdan; Cuzman, Ioan; Dima (Cristea), Stefana Maria; Şărămăt, Otilia

  1. By: Kamila Fialová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper analyzes the role of labor market institutions in explaining developments of shadow economies in European countries. We use several alternative measures of the shadow sector, and we examine effects of labor institutions on shadow sector in two specific regions: new and old European Union member countries, as their respective shadow sectors exhibited a different development in the last decade. While the share of shadow economy in GDP averaged 27.7% in the new member countries in 1999-2007, the respective share in the old member states stood at 18.0% only. In our paper, we estimate effects of labor market institutions on two sets of shadow economy indicators―shadow production and shadow employment. Comparing alternative measures of the shadow sector allows more granulated analysis of the labor market institutions effects. Our results indicate that the one institution that unambiguously increases shadow economy production and employment is the strictness of employment protection legislation. Other labor market institutions―active and passive labor market policies, labor taxation, trade union density and the minimum wage setting―have less straightforward and statistically robust effects and their impact often diverge in new and old EU member countries. The differences are not robust enough, however, to allow us to reject the hypothesis of similar effect of labor market institutions in new and old EU member states.
    Keywords: labor market institutions, shadow economy, shadow employment, European Union
    JEL: J08 O17 O52
    Date: 2010–12
  2. By: Olga Popova
    Abstract: This paper focuses on the effects of reforms and happiness in transition economies. previous literature suggest that religiousness insures happiness against individual stressful life events, such as unemployment, disability, or marital separation. I estimate an econometric model to study if religion also insures against aggregate shocks to happiness, such as reforms and various changes in political, economic, and social life. The model accounts for the endogeneity of religion and analyzes the effects of religion on life satisfaction, and perceptions of the current economic and political situation in transition countries.
    Keywords: happiness; life satisfaction; religion; reforms; transition
    JEL: C21 I31 P20 Z12
    Date: 2010–10
  3. By: Tatahi, Motasam
    Abstract: In both economically developed and developing countries, privatisation, budget austerity measures and market liberalisations have become key aspects of structural reform programs in the last three decades. These three recommended policies were parts of strong revival of classical and new-classical school of thought since the middle of 70s. Such programs aim to achieve higher microeconomic efficiency and foster economic growth, whilst also aspiring to reduce public sector borrowing requirements through the elimination of unnecessary subsidies. For firms to achieve superior performance a change in ownership from public (state ownership) to private has been recommended as a vital condition. To assess the ownership role, the economic performances of private, public and mixed enterprises in Poland is compared through the use of factor analysis method. The extracted factors, using data of two years, 1998 and 2000, do not pick ownership as a key performance factor.
    Keywords: Poland; efficiency; performance measure; privatization; factor analysis; public and private relationship; role of ownership
    JEL: L3 L33
    Date: 2010–10–25
  4. By: Hiraizumi, Hideki
    Abstract: Local trade between the Far East region of the USSR and the Northeast region of the People’s Republic of China started in 1957, arranged by the public trade organizations in the respective borderlands. Heilongjiang Province of China has been the main actor in trade with the Far East region of the USSR, and more recently, Russia. After 1957, Heilongjiang Province’s trade with the Russian Far East developed rapidly until 1993, except a period of interruption (1967-1982). Thereafter, the Heilongjiang Province’s trade with the Russian Far East underwent a stagnation period (1994-1998), a recovery period (1999-2001), a rapid development period (2002-2007) and a period of change of tendencies and radical decrease (2008-2009). Heilongjiang Province’s trade with the Russian Far East consists of three main forms: general trade, Chinese-style border trade (Bianjing Trade which includes Bianjing Small Trade and trade between private persons (Hushi Trade)) and Travel Trade. The rapid increase of Heilongjiang Province’s trade with the Russian Far East from 2002 to 2007 is mainly attributable to the increase in the export of ordinary consumer goods, especially textile clothing and footwear, and to Bianjing Small Trade.
    Keywords: China, Russia, International trade, Local government, H-R Trade, Bianjing Small Trade, Trade between private persons, Travel Trade, Hushi Trade
    JEL: F14
    Date: 2010–08
  5. By: Lin, Mi; Kwan, Yum K.
    Abstract: This paper investigates the determinants of FDI sectoral allocation in 29 China’s manufacturing sectors from 2000 to 2007. We find that FDI sectoral allocation has a strong self-reinforcing effect. MNCs with ownership advantages tend to invest more in local high productivity sectors. The FDI presence, however, is discouraged in China’s high productivity sectors in which the major market share is dominated by SOEs. We also find that the degree of FDI penetration is higher in sectors that are producing labor-intensive goods and also export-oriented.
    Keywords: Foreign Direct Investment; Dynamic Panel Regression
    JEL: F23 O53 F21
    Date: 2010–08–20
  6. By: Sahoo, Pravakar; Dash, Ranjan Kumar; Nataraj, Geethanjali
    Abstract: China is the fastest growing country in the world for last few decades and one of the defining features of China's growth has been investment-led growth. China's sustained high economic growth and increased competitiveness in manufacturing has been underpinned by a massive development of physical infrastructure. In this context, we investigate the role of infrastructure in promoting economic growth in China for the period 1975 to 2007. Overall, the results reveal that infrastructure stock, labour force, public and private investments have played an important role in economic growth in China. More importantly, we find that Infrastructure development in China has significant positive contribution to growth than both private and public investment. Further, there is unidirectional causality from infrastructure development to output growth justifying China's high spending on infrastructure development since the early nineties. The experience from China suggests that it is necessary to design an economic policy that improves the physical infrastructure as well as human capital formation for sustainable economic growth in developing countries.
    Keywords: China, Infrastructure, Economic development, Investments, China, Investment, L9 - Industry Studies: Transportation and Utilities, H4 - Publicly provided goods, O1 - Economic development
    JEL: H54 L90 O10
    Date: 2010–10
  7. By: John Whalley; Xiliang Zhao
    Abstract: This paper develops a human capital measure in the sense of Schultz (1960) and then reevaluates the contribution of human capital to China’s economic growth. The results indicate that human capital plays a much more important role in China’s economic growth than available literature suggests, 38.1% of economic growth over 1978-2008, and even higher for 1999-2008. In addition, because human capital formation accelerated following the major educational expansion increases after 1999 (college enrollment in China increased nearly fivefold between 1997 and 2007) while growth rates of GDP are little changed over the period after 1999, total factor productivity increases fall if human capital is used in growth accounting as we suggest. TFP, by our calculations, contributes 16.92% of growth between 1978 and 2008, but this contribution is -7.03% between 1999 and 2008. Negative TFP growth along with the high contribution of physical and human capital to economic growth seem to suggest that there have been decreased in the efficiency of inputs usage in China or worsened misallocation of physical and human capital in recent years. These results underscore the importance of efficient use of human capital, as well as the volume of human capital creation, in China’s growth strategy.
    JEL: O0 O10 O4 O47
    Date: 2010–12
  8. By: Sadek Boussena (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II); Catherine Locatelli (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: The reforms and privatisation programmes of the 1990s structured the Russian oil industry around a few large national and private companies. This organisational structure poses some questions in respect of the Russian authorities will to take back the oil sector. Three factors may explain this evolution. First, the Russian authorities want to ensure the long-term future of the oil industry by encouraging new strategies in exploration. Second, the government can use the oil sector to support economic growth. This would involve sharing out the rent in a different manner. Third, and it is e new but important factor, the State intends to use Russia's oil power in this international relationships with the United States, Europe and Asia (China, Japan, South Korea, and India). The future of the Russian oil industry has some importance for the stability of the international oil market. Could Russia produce 12 Mb/d and challenging the dominant position of the Saudi Arabia?
    Keywords: Oil industry ; Russia ; Ownership rights ; Access to the natural resource ; State policy ; rule of law ; market reform ; Russian international policy
    Date: 2010
  9. By: Wu, Alfred M.; Lin, Mi
    Abstract: This paper investigates the determinants of government size at the provincial level in China. We employ the panel data model as a platform for empirical analysis and control for endogeneity in the study. Our study shows that openness to trade and foreign direct investment (FDI) may curtail government expansion, and that the provincial-level public sector is characterized by economies of scale. This study also documents that Wagner’s law does not hold true for China. Moreover, both expenditure decentralization and revenue decentralization contribute to the expansion of China’s government.
    Keywords: Government size - Wagner’s law - Scale effects - Openness to trade - Fiscal decentralization
    JEL: H11 H61
    Date: 2010–11–23
  10. By: Sunanda Sen
    Abstract: China occupies a unique position among developing countries. Its success in achieving relative stability in the financial sector since the institution of reforms in 1979 has given way to relative instability since the beginning of the current global financial crisis. Over the last few years, China has been on a path of capital account opening that has drawn larger inflows of capital from abroad, both foreign-direct and portfolio investment. Of late, a surge in these inflows has introduced problems for the monetary authorities in continuing with an autonomous monetary policy in China, especially with large additions to official reserves, the latter in a bid to avoid further appreciation of the country’s domestic currency. Like other developing countries, China today faces the “impossible trilemma” of managing the exchange rate with near-complete capital mobility and an autonomous monetary policy. Facing problems in devising and sustaining this policy, China has been using expansionary fiscal policy to tackle the impact of shrinking export demand. The recent drive on the part of Chinese authorities to boost real demand in the countryside and to revamp the domestic market shows a promise far different from that of the financial rescue packages in many advanced nations. The close integration of China with the world economy over the last two decades has raised concerns from different quarters that relate both to (1) the possible effects of the recent global downturn on China and (2) the second-round effects of a downturn in China for the rest of world.
    Keywords: Trade Surplus; Official Reserves; Impossible Trillemma; Integration; Capital Account Opening; Financial Crisis; State-owned Enterprises; Stock Markets; Volatility
    JEL: P31 P33 P34 P45 Q53
    Date: 2010–12
  11. By: Wang Yongzhong (Institute of World Economics and Politics)
    Abstract: In recent years, China has faced an increasing trilemma—how to maintain independent monetary policy and limit exchange rate flexibility simultaneously, while at the same time facing persistent and substantial international capital flows. This paper undertakes an empirical investigation to evaluate the effectiveness of China’s sterilizations and capital mobility regulations, measured by the sterilization and offset coefficients respectively, using monthly data between mid 1999 and March 2009. We find that the effectiveness of China’s sterilization is almost perfect in terms of the monetary base, while it is nearly half in light of M2, and the extent of China’s capital mobility regulations still works but not well binds. Recursive estimation finds evidence of increasing mobility of capital flows and decreasing extent of sterilizations that may undercut China’s ability to seek monetary autonomy and domestic currency stability simultaneously.
    Keywords: Effectiveness, Capital Mobility, International Reserves, Sterilization
    JEL: E50 E52 E58
    Date: 2010
  12. By: Marek Gruszczynski (Warsaw School of Economics)
    Abstract: Quantitative research on corporate governance is mostly rooted in microeconometrics. Paper debates the financial edge of microeconometrics and its relevance to corporate governance. The considerations are illustrated with the examples from Central and Eastern Europe.
    Keywords: corporate governance, microeconometrics
    JEL: C10 O57 G30
    Date: 2010–12–12
  13. By: Jesus Felipe; John McCombie
    Abstract: Since the early 1990s, the number of papers estimating econometric models and using other quantitative techniques to try to understand different aspects of the Chinese economy has mushroomed. A common feature of some of these studies is the use of neoclassical theory as the underpinning for the empirical implementations. It is often assumed that factor markets are competitive, that firms are profit maximizers, and that these firms respond to the same incentives that firms in market economies do. Many researchers find that the Chinese economy can be well explained using the tools of neoclassical theory. In this paper, we (1) review two examples of estimation of the rate of technical progress, and (2) discuss one attempt at modeling investment. We identify their shortcomings and the problems with the alleged policy implications derived. We show that econometric estimation of neoclassical models may result in apparently sensible results for misinformed reasons. We conclude that modeling the Chinese economy requires a deeper understanding of its inner workings as both a transitional and a developing economy.
    Keywords: China; Identity; Investment; Neoclassical Model; Total Factor Productivity Growth
    JEL: C20 E22 E62 O23 P41
    Date: 2010–12
  14. By: Leung, Charles Ka Yui; Chow, Kenneth; Yiu, Matthew; Tam, Dickson
    Abstract: This paper attempts to contribute in several ways. Theoretically, it proposes simple models of house price dynamics and construction dynamics, all based on forward-looking agents’ maximization problems, which may carry independent interests. Simplified version of the model implications are estimated with the data from four major cities in China. Both price and construction dynamics exhibit strong persistence in al cities. Significant heterogeneity across cities is found. Our models out-perform widely used alternatives in in-sample-fitting for all cities, although similar success only limited to highly developed cities in out-of-sample forecasting. Policy implications and future research directions are also discussed.
    Keywords: pre-sale; production constraint; collateral constraint; cross-city heterogeneity; fundamental versus policy
    JEL: R30 E30 C33
    Date: 2010
  15. By: Gnidchenko, Andrey
    Abstract: In this paper, we develop a comprehensive analysis of diversification issues for Russian economy. Assessing diversification for nine different variables, we show that choice of a variable affects the result much, and that, unlike a popular opinion, equiproportional economic diversity measures are still useful in economic analysis. Developing a simple defragmentation of economic growth, we account for labor productivity and labor availability separately, and show that these components depend on different factors.
    Keywords: Diversification, economic growth, regions, Russia
    JEL: O18 O49 R15 R12 R11
    Date: 2010–12
  16. By: Cernaianu, Nicolae
    Abstract: Romania's standing concerns to adapt its road transport system both in its new developments, and international requirements, have spurred construction of its specific market and, due to the provision of services and ensure freedom of establishment and has defined contributions to the establishment of a common transport policy in Europe. Despite economic constraints, technical and social changes that occurred in our country, the Romanian transport system, threatened new competitive factors, is also evolving its efforts to ensure continuity of service provision, has adapted structures according to its national peculiarities reported in European and international standards, gradually evolving towards a modern and sustainable transport system.
    Keywords: Carrier; Quality Operator; Occupation of operator; The material in road; Driver; Human resources specialist; Safety Advisor; Instructor trening; Intermediaries in road transport
    JEL: H54 F41
    Date: 2010
  17. By: Anastasiya Shamshur
    Abstract: The paper examines the importance of financial constraints for firm capital structure decisions in transitions economies during 1996-2006 using endogenous switching regression with unknown sample separation approach. The evidence suggests that differences in financing constraints have a significant effect on a firm's capital structure. Constrained and unconstrained firms differ in capital structure determinants. Specifically, tangibility appears to be an extremely important leverage determinant for constrained firms, while macroeconomic factors (GDP and expected inflation) affect the leverage level of unconstrained firms, suggesting that those firms adjust their capital structure in response to changes in macroeconomic conditions. Moreover, financially unconstrained firms adjust their capital structures faster to the target level, which is consistent with the previous literature.
    Keywords: capital structure; financing decisions; credit constraints; Eastern Europe;
    JEL: G32 C23
    Date: 2010–12
  18. By: Robert Slonim; Alvin E Roth
    Date: 2010–12–10
  19. By: Artjoms Ivlevs (Department of Economics, University of the West of England); Roswitha M. King (Østfold University College and University of Latvia)
    Abstract: Latvia enjoys the dubious distinction of having the highest population share of ethnic minorities and foreign-born residents in the European Union. In addition there exists a peculiar Latvian “institution”, a category of resident known as “non-citizen”, originating from the Soviet era migration flows. This “non-citizen” status has a number of serious disadvantages relative to citizen status. It is, therefore, of interest why a significant number of “non-citizen” opt to keep this status, although they have the opportunity to obtain full citizenship, and why others choose to become citizen. Using data from a representative 2007 survey of 624 former and current non-citizens in a multinomial probit model reveals characteristics of those who want to remain non-citizen, and of those who have obtained citizen status, are in the process of obtaining it or plan to do so in the future. Proficiency level of the state language (Latvian) is the single most significant correlate of the willingness to obtain citizenship. Significant influence also accrues to age, gender, education, emigration intentions and municipality level factors – the unemployment rate and the share of non-citizens
    Keywords: Immigrants, non-citizens, naturalization, integration, Latvia, political economy.
    JEL: F22 J15 J61
    Date: 2010–12
  20. By: Julia Anna Matz (Institute for International Integration Studies and Department of Economics, Trinity College Dublin); Gaia Narciso (Institute for International Integration Studies and Department of Economics, Trinity College Dublin)
    Abstract: The aim of this paper is to investigate the relationship between laws strengthening women’s rights, and children’s outcomes, namely child labor and educational attainment. We analyze the effects of a land reform introduced in Vietnam in 2003 that had the objective of reinforcing women’s land rights within households. The introduction of the 2003 Land Law represents a quasi-natural experiment which allows us to analyze how legal reforms are transformed and adopted by social norms. We investigate the effects of being part of the population of households targeted by the land law with the help of a household survey that permits detailed investigation of property rights at the plot level. We show that the land reform contributed to reducing girls’ participation in household agricultural production and to increasing girls’ educational attainment. We do not find comparable effects for boys.
    Keywords: Child labor, education, land rights, gender, land reform, Vietnam.
    JEL: D13 O18 R20 R52
    Date: 2010–12
  21. By: Dumitru, Ionut; Stanca, Razvan
    Abstract: The fiscal and budgetary policy should play a key role to alleviate the impact of the business cycle on the real economy. Procyclical fiscal policy is particularly undesirable in developing countries, as it not only exacerbates the business cycle, but also the high output volatility hurts the poorest people with low safety net. This paper assesses the structural budget deficit in Romania during 2000-2009 and evaluates the role of the fiscal policy during the business cycle. The paper concludes that the fiscal policy in Romania was highly procyclical, exacerbating the economic cycle. In order to escape from this procyclicality, Romania needs deep structural reforms in order to restore the sustainability of the public finances and put Romania on a sustainable growth path.
    Keywords: structural budget balance; procyclicality of fiscal policy; fiscal discipline
    JEL: E61 H3 H6
    Date: 2010–10–24
  22. By: Munteanu, Ionica
    Abstract: The recent financial crisis has brought new legislation in order to increase transparency in the banking sector. In Romania, as well as in the whole European Cummunity, the new legislation adresses, primarily, the protection of credit consumers. In compliance with EU Directive 2008/48/EC, the Romanian Emergency Ordinance 50/2010 regulates the elimination of some abusive fees related to credit contracts and the calculation of the variable interest according to transparent indices such as ROBOR/EURIBOR/LIBOR and not to internal reference interest rates. Romanian banks’ clients are now complaining of the way banks are trying to avoid the correct implementation of the new ordinance. A questionnaire applied inside the groups these clients formed online revealed a dominant profile of the displeased banking client, which gives us an unconventional lesson.
    Keywords: criza financiara; transparenta bancara; clauze abuzive; moneda creditului; variabilitatea dobanzii
    JEL: G21
    Date: 2010–11–20
  23. By: Dima, Bogdan; Cuzman, Ioan; Dima (Cristea), Stefana Maria; Şărămăt, Otilia
    Abstract: The issuance of the European Union Regulation (EC) 1606/2002 and the 2007 adoption of the Markets and Financial Instruments Directive in Romania determined us to sett the goal of the present study at investigating the impact of public information disclosure on market values in the case of the Romanian companies listed on Bucharest Stock Exchange. Our focus is mainly on comparing the value relevance of Internet disclosed information provided by annual and interim financial reports and other non-financial news in the decision making process of investors. Consistent with the literature, we anticipate a positive and significant incremental relevance of such information items, even if an important non-uniformity of prices’ adjustments can be expected. In order to have a benchmark for our results, we compare these with the ones specific to a more developed market, the Madrid Stock Exchange. Empirical tests support our research hypothesis according to which there will be a relative incremental value of a higher volume and a better quality of information, reflecting prices’ overreactions even in the case of a market with imperfect trading mechanisms.
    Keywords: KEY WORDS Disclosure; Valuation; Bucharest Stock Exchange; Madrid Stock Exchange
    JEL: D81 D83
    Date: 2010–11

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