nep-tra New Economics Papers
on Transition Economics
Issue of 2011‒02‒05
twenty papers chosen by
J. David Brown
Heriot-Watt University

  1. Fostering growth in CEE countries: a country-tailored approach to growth policy By Philippe Aghion; Heike Harmgart; Natalia Weisshaar
  2. Microeconomic implications of credit booms: evidence from emerging Europe By Fabrizio Coricelli; Nigel Driffield; Sarmistha Pal; Isabelle Roland
  3. Cross country differences in job reallocation: the role of industry, firm size and regulations By John Haltiwanger; Stefano Scarpetta; Helena Schweiger
  4. Financial integration and growth - Is emerging Europe different? By Christian Friedrich; Isabel Schnabel; Jeromin Zettelmeyer
  5. The role of mid-range universities in knowledge transfer: the case of non-metropolitan regions in Central and Eastern Europe (examples from Hungary and the Czech Republic) By Gál, Zoltán; Ptáček, Pavel
  6. Education, Migration and Source Community Incomes in Rural China By Karpestam, Peter
  7. Processing Trade, Exchange Rates and China’s bilateral Trade Balances By Yuqing Xing
  8. The crisis as a wake-up call: do banks tighten screening and monitoring during a financial crisis? By Ralph de Haas; Neeltje van Horen
  10. Financial Development and Innovation in China: Evidence from the Provincial Data By Aoife Hanley; Wan-Hsin LIU; Andrea Vaona
  11. Chinese monetary policy and the dollar peg By Reade, J. James; Volz, Ulrich
  12. Social-Family Network and Self-Employment: Evidence from Temporary Rural-Urban Migrants in China By Zhang, Junfu; Zhao, Zhong
  13. Future Bangalores? The increasing role of Central and Eastern Europe in the global services offshoring market: evidence from trade statistics By Gál, Zoltán
  14. Labour Market Returns to Higher Education in Vietnam By Doan, Tinh
  15. Private renting in Romania By Gray, Patrick Francis; Epure, Manuela
  16. Addressing private sector currency mismatches in emerging Europe By Jeromin Zettelmeyer; Piroska M. Nagy; Stephen Jeffrey
  17. Foreign currency lending in emerging Europe: bank-level evidence By Martin Brown; Ralph De Haas
  18. O abodare de ansamblu privind provocările adoptării euro: cazul României By Avadanei, Andreea
  19. The Returning Diaspora: Analyzing overseas Vietnamese (Viet Kieu) Contributions toward Vietnam’s Economic Growth By Andrew T. Pham
  20. Repere de fundamentare a structurii sistemului informational statistic in Republica Moldova By COSTANDACHI, Gheorghe

  1. By: Philippe Aghion (Harvard University); Heike Harmgart (EBRD); Natalia Weisshaar (Royal Holloway College)
    Abstract: This paper analyses the long term growth experiences of the eastern European accession countries and the effect of various tailored growth policies. We find that there are two overarching growth-enhancing policies that can substantially increase long-term growth: competition and the quality of education. We find empirical evidence that if accession countries from the transition region want to achieve – and sustain – higher growth rates they will need to ensure competition by continuing to remove entry and trade barriers and by strengthening competition agencies. We also find evidence on the positive long-run impact of quality of education on growth, and hence the high return on public investment in education, particularly at the primary and secondary level. The private sector’s role in overcoming skill mismatches will benefit from deepening financial intermediation and reducing constraints in access to finance.
    JEL: O1 P2 P5
    Date: 2010–10
  2. By: Fabrizio Coricelli (Université Paris 1, Panthéon-Sorbonne); Nigel Driffield (Aston Business School); Sarmistha Pal (Brunel University); Isabelle Roland (London School of Economics)
    Abstract: While credit is essential for investment, innovation and economic growth, there are risks related to excessive indebtedness in the corporate sector in the form of increased likelihood of financial distress and bankruptcy. The recent global crisis has highlighted the macroeconomic risks of credit booms. This paper focuses on microeconomic implications of high leverage and provides an innovative firm-level approach to endogenously identify the threshold leverage beyond which corporate indebtedness becomes “excessive”. Estimates for emerging central and eastern European countries suggest that total factor productivity (TFP) growth increases with leverage until it reaches a critical threshold. Beyond this threshold, higher leverage lowers TFP growth.
    JEL: O1 P2 P5
    Date: 2010–10
  3. By: John Haltiwanger (University of Maryland, NBER, IZA); Stefano Scarpetta (OECD, IZA); Helena Schweiger (EBRD)
    Abstract: Somewhat surprisingly, cross-country empirical evidence (at least in the cross section) does not seem to support the predictions of standard models that economies with stricter regulations on hiring and firing should have a lower pace of job reallocation. One problem in exploring these issues empirically has been the difficulty of comparing countries on the basis of harmonised measures of job reallocation. A related problem is that there may be unobserved measurement or other factors accounting for differences in job reallocation across countries. This paper overcomes these challenges by using harmonised measures of job creation and destruction in a sample of 16 developed and emerging economies (including four transition economies), exploiting the country, industry and firm size dimensions. The analysis of variance in the paper shows that firm size effects are a dominant factor in accounting for the variation in the pace of job reallocation across country, industry and size cells. However, even after controlling for industry and size effects there remain significant differences in job flows across countries that could reflect differences in labour market regulations. We use the harmonised data to explore this hypothesis with a difference-in-difference approach. We find strong and robust evidence that stringent hiring and firing regulations tend to reduce the pace of job reallocation.
    JEL: O1 P2 P5
    Date: 2010–07
  4. By: Christian Friedrich (Graduate Institute for International and Development Studies, Geneva); Isabel Schnabel (Johannes Gutenberg University, Mainz); Jeromin Zettelmeyer (EBRD)
    Abstract: Using industry-level data, this paper shows that the European transition region benefited much more strongly from financial integration in terms of economic growth than other developing countries in the years preceding the current crisis. We analyse several factors that may explain this finding: financial development, institutional quality, trade integration, political integration, and financial integration itself. The explanation that stands out is political integration. Within the group of transition countries, the effect of financial integration is strongest for countries that are politically closest to the European Union. This suggests that political and financial integration are complementary and that political integration can considerably increase the benefits of financial integration.
    JEL: O1 P2 P5
    Date: 2010–12
  5. By: Gál, Zoltán; Ptáček, Pavel
    Abstract: The paper focuses on the specific role of mid-range universities in knowledge transfer and explores the knowledge flows from these mid-range universities facing a number of extra constraints in transitional Central Eastern European (CEE) regions. Mid-range universities, very often located outside of the metropolitan regions, represent the keystones of regional innovation systems for the less developed regions where the “density of contacts” is much lower and possible spillovers emerge more sparsely. The first part of the paper focuses on the types of possible linkages between mid-range universities and industry, and limitations of these relations bringing examples from Western Europe where the position of universities in the collaboration with business sector and their role in the innovation system is quite different form their CEE counterparts. It is mainly due to the different development path of innovation systems and development trajectories in post-communist countries described in the paper. Based on case studies bringing examples mainly from the non-metropolitan regions of Hungary and the Czech Republic, where the number of constraints, such as the lack of critical mass in their techno-economic systems, the traditionally weaker role of university based experimental researches, the mismatch between the economic and knowledge sectors, the weak regional innovation systems and less intense university–industry links are the major impediments of knowledge transfer. The paper argues that ambitious university-based developmental models have to be revised in CEE regions and the future role of universities has to be reconsidered as potential engines of local economic development from a more realistic perspective. The paper also argues, that the regional techno-economic system needs to achieve a certain degree of maturity in order to be able to determine the foci of a research and innovation-oriented regional development within the reindustrializing CEE regions and makes policy recommendation for the mid-range universities to take on new role, which means a stronger regional engagement in also medium-tech innovations and in social and organizational innovation.
    Keywords: mid-range universities; knowledge transfer; non-metropolitan regions; Central & Eastern Europe; regional engagement;
    JEL: P36 I23 D83 O33 D8 O31 R11
    Date: 2010–09–12
  6. By: Karpestam, Peter (Department of Economics, Lund University)
    Abstract: Residents in rural China doubt the benefits from education, yet there is empirical evidence supporting positive effects in urban and rural areas. This paper investigates whether education affects a variety of income attainment indicators for households in rural China, using a household survey from the provinces of Hebei and Liaoning. The analysis estimates education effects for household residents, but also for temporary migrants (rural-urban migrants) and children who have moved permanently (rural-rural migrants). This can help to answer a set of three related questions: 1) Does household welfare in rural China depend on education? 2) Is the effect of education contingent on the decision to migrate? and 3) Does education have dissimilar effect for rural-urban and rural-rural migrants? The results support that education has positive income effects and that migration yields no additional payoffs. However, there is no evidence that households benefit from higher education if migration is only temporary. Altogether, this signals positive payoffs of educational expenses to rural households but households which consider sending a migrant into the urban labor force are better off if the more educated stay at home.
    Keywords: East Asia; China; Education; Migration; Remittances; Non-Farm Incomes;
    JEL: D13 F24 I20 J60 R23
    Date: 2011–01–18
  7. By: Yuqing Xing (National Graduate Institute for Policy Studies)
    Abstract: This paper analyzed the role of processing trade in China’s bilateral trade balances and the impact of the yuan’s appreciation on processing trade. The analysis is based on a panel data covering China’s 51 major trading partners from 1993-2008. The empirical analysis shows that: (1) processing trade accounted for 100% of China’s overall trade surplus and could explain most of China’s bilateral trade balances; (2) China’s processing trade shows a significant regional bias. While China has maintained a surplus with all G-7 countries in processing trade, it has run a significant deficit with most of East Asian economies; (3) East Asian economies are major sources and account for 77% of China’s processing imports. The econometric analysis reveals that processing imports from East Asian is eleven times of that from other regions; (4) the response of processing imports to the yuan’s appreciation differs with that of normal trade. Specifically, a 10% real appreciation of the yuan will reduce rather than increase China’s processing imports by 3.9%. Given that processing exports will decrease 9.6% for the same appreciation and China’s trade surplus is mainly generated from processing trade, a moderate appreciation of the yuan would have a very limited impact on China’s trade balance.
    Keywords: Processing Trade, Exchange Rates, China
    Date: 2011–01
  8. By: Ralph de Haas (EBRD); Neeltje van Horen (Dutch Central Bank.)
    Abstract: Recent developments and theoretical work on the transition economies has emphasised the importance of internal bargaining and incentives. This paper constitutes the first attempt to systematise the large and growing body of case studies of enterprise restructuring in Poland, Hungary, Slovakia, Russia and the Czech Republic. We begin from a framework in which the incentives and constraints on managers are crucial for the success of transforming enterprises into value maximising firms. The forms of, and the constraints on, active behaviour are examined for each enterprise across the dimensions of internal organisation, product and labour markets and investment. There is a huge variety in the quality of the evidence and in the experiences documented. Although we find widespread evidence of enterprise managers reacting to the post-reform environment, examples of deep restructuring are rare. Managers are hamstrung by weak incentives and increasing employee opposition, as well as by the uneven development of social and market infrastructure external to the enterprise. Low incentives arise from the absence of a managerial labour market, monopoly power and the large component of idiosyncratic knowledge possessed by incumbents. Opposition is based on the high costs of job loss. A characteristic feature of the transition economies is the ability of employees to veto restructuring and the opposition of labour appears likely to increase as unemployment rates and durations grow. Cases are described where the passage of restructuring measures has been facilitated by the willingness of the state to provide compensation to the ‘losers’. The examination of pre-privatisation behaviour suggests that the pace and depth of restructuring would increase after privatisation only when privatisation clearly transforms the incentives and constraints facing managers. The limited evidence on post- privatisation restructuring surveyed here suggests that foreign ownership of a former state-owned enterprise is the exception in which privatisation produces a marked change in behaviour. The role of product market power runs through the survey. Some enterprises use profits as a shield to avoid painful change, others have actively sought to build dominant positions. Aggregate data is presented which raises the possibility that the pattern of restructuring is being distorted by the uneven distribution of monopoly power across sectors. In our conclusions, we suggest ways in which future enterprise-level research could be improved to shed more light on the pattern of restructuring and to facilitate safer policy advice. From a policy perspective, we stress the complementarity between different reforms. The focus on the incentives and constraints facing enterprise managers highlights the limitations to a strategy which relies on privatisation to raise efficiency. The state must play a role in facilitating labour shedding and internal reorganisation of enterprises through providing finance for compensation, promoting the provision of social services outside the structure of enterprises and fostering the creation of new jobs. The hardening ahs promoted adjustment but over-tight budgetary policies may offset this, slowing the arte of new job creation ad heightening uncertainty about the prospects of enterprises under restructuring.
    JEL: O1 P2 P5
    Date: 2010–08
  9. By: Christopher Edmonds (University of Hawaii at Manoa, CTAHR, Center on the Family); Yao Li (College of Management and Economics at University of Electronic Science and Technology of China)
    Abstract: This paper analyzes China’s trade relationships using a new trade intensity index, which incorporates gravity model estimation, to compare observed trade levels with levels would be expected to prevail given the economic, geographic, and cultural characteristics of the trading partners. The index is calculated to study China’s bilateral trade intensity, and uses Japan as a comparative case. Standard trade intensity index measures suggest China trades at a very intensive level with countries in East and Southeast Asia (ESA) and at a low level with countries in Europe (EU) and US-Canada (USC). The gravity model based index indicates that China’s level of trade with countries in the ESA region is consistent with levels that would be expected given the countries’ characteristics, while China’s level of trade with EU and USC are greater than one would expect given their characteristics. The new index also reveals insights regarding the evolution of China’s trade partners during the years 1988-2005. The paper’s results suggest the gravity model adjusted trade intensity index can provide a useful analytical tool for identifying strategic or other deviations in trade levels.
    Keywords: Gravity model, Trade Intensity Index, Bilateral Trade, China
    JEL: F14 F13 C43
    Date: 2010–12–12
  10. By: Aoife Hanley; Wan-Hsin LIU; Andrea Vaona
    Abstract: This paper investigates the role of regional financial development, in addition to FDI, for regional innovation in China, using a more recent provincial dataset and more sophisticated panel data estimation techniques than previous studies. Two aspects of regional financial system development are considered: its financial depth and government intervention in the financial system. Estimation results show that the financial depth of a region has a significantly positive effect on regional innovation (patenting) performance. This positive effect is found to be higher for minor innovations such as external design patents than for more complicated innovations such as utility model patents and invention patents. Surprisingly, estimation results do not show that government financial system intervention reduces allocative efficiency of resources which would otherwise impede regional innovation performance
    Keywords: regional financial system, FDI, innovation, patent, regional study, China
    JEL: G20 O30 O53 R10
    Date: 2011–01
  11. By: Reade, J. James; Volz, Ulrich
    Abstract: This paper investigates to what extent Chinese monetary policy is constrained by the dollar peg. To this end, we use a cointegration framework to examine whether Chinese interest rates are driven by the Fed's policy. In a second step, we estimate a monetary model for China, in which we include also other monetary policy tools besides the central bank interest rate, namely reserve requirement ratios and open market operations. Our results suggest China has been relatively successful in isolating its monetary policy from the US policy and that the interest rate tool has not been effectively made use of. We therefore conclude that by employing capital controls and relying on other instruments than the interest rate China has been able to exert relatively autonomous monetary policy. --
    Keywords: Chinese monetary policy,monetary independence,cointegration
    JEL: C32 E52 F33
    Date: 2010
  12. By: Zhang, Junfu (Clark University); Zhao, Zhong (Renmin University of China)
    Abstract: We hypothesize that individuals with a larger social-family network are more likely to choose self-employment. We test this hypothesis using data on temporary rural-urban migrants in China. The size of a migrant’s social-family network is measured by the number of relatives and friends this migrant greeted during the past Spring Festival. Our empirical analysis faces two challenges. First, there is an endogeneity problem in that a migrant may want to develop and maintain a large social-family network exactly because he is self-employed. For this reason, a simple correlation between the probability of being self-employed and the size of the migrant’s social-family network cannot be interpreted as causal. Second, the size of the social-family network is measured using survey data, which is subject to measurement error. To overcome these problems, we take an instrumental variable (IV) approach. More specifically, we examine the distance an individual migrated when he first moved to a city and use this variable to instrument for the current size of the social-family network. We establish the credibility of the IV by emphasizing the unique institutional context of rural-urban migration in China and focusing on the sample of migrants who originally started as wage workers in urban areas and currently are not in their first jobs. Our IV results indeed show that a rural-urban migrant with a larger social-family network is more likely to be self-employed in the city. This finding is robust to alternative model specifications and various restrictions on the sample used in estimation.
    Keywords: social-family network, self-employment, rural-urban migrants
    JEL: J23 J61 D85
    Date: 2011–01
  13. By: Gál, Zoltán
    Abstract: Many Central and Eastern European countries invigorated by EU enlargement became important locations for offshored service centres. Building on the region’s nearshoring advantages such as geographical-cultural proximity and on its multilingual graduate supply, CEE is likely to utilise more value added and quality-driven services. Trade statistics support the assumption that an expanding export in other business and ICT services has been associated with offshoring services in the six NMS analysed in detail in the paper. The service export data adopted from the Balance of Payments statistics gives a good approximation to indentify those sections of service trade, which can be regarded as offshorable. The paper summarises the additional factors favouring nearshoring (as in CEE locations) over offshoring (e.g. India) and lists several factors besides size why CEE countries cannot outpace India’s market potential.
    Keywords: offshoring; nearshoring; service trade; balance of payments statistics; offshorable services; Central and Eastern Europe; new member states; India; offshoring advantages
    JEL: F16 L84 F23 F21 R12 L86
    Date: 2010–04–12
  14. By: Doan, Tinh
    Abstract: This paper employs the Ordinary Least Squares, Instrumental Variables and Treatment Effect models to a new dataset from the Vietnam Household Living Standards Survey (VHLSS) to estimate return to the four-year university education in 2008. Our estimates reveal that the return to university education is about 17% (annualized) and robust to the various estimators. The return to higher education has significantly increased since the economic reform in late 1980s.
    Keywords: economic transition; returns to higher education; IV model; Vietnam
    JEL: J31 O15 C31
    Date: 2011–01–26
  15. By: Gray, Patrick Francis; Epure, Manuela
    Abstract: The paper's aim is to present an overview on the PRS in Romania, emphasizing the main characteristics and the nature of PRS evolution after 1989. The past 20 years reveal some key-changes that occurred in the socio-economic and political life of the country and we have explored them as factors that have shaped the PRS. The analysis begins with a presentation of PRS stock, and it continues with a brief assessment of the housing conditions in addition to the socio-economic and demographic profile of households in the sector. Romania has a large housing stock with an unusually high-share of private ownership. Having these findings as a starting point, our paper explores those housing policies that have had the biggest impact on the field and shaped housing market trends. We have used statistical tools to analyze the data provided by the National Institute of Statistics-Romania, and Housing Associations, and major real-estate companies who operate on the Romanian market. An exploratory research was developed using the opportunity to interview policy-makers, national housing authorities, landlords and tenants in order to describe the current role of PRS on the housing market and the future of PRS in Romania.
    Keywords: private rental sector; housing stock; tenant; landlord; rent; housing market; housing policy
    JEL: P25 R31 R21
    Date: 2010–02–02
  16. By: Jeromin Zettelmeyer (EBRD); Piroska M. Nagy (EBRD); Stephen Jeffrey (University of Warwick)
    Abstract: This paper provides a survey of the theoretical and empirical literature on the dollarisation of corporate and household liabilities; presents evidence on the causes of FX lending specifically in transition economies; and proposes a set of criteria to help decide on the right policy response based on country characteristics. These criteria particularly affect the extent to which regulation should be part of the policy response. Regulation to contain FX mismatches is useful in relatively advanced countries in which small market size and/or proximity to the euro make it difficult to fully develop local currency capital markets. In contrast, regulatory responses could be counterproductive in less advanced countries with high macroeconomic volatility. In these countries, the route to de-dollarisation first and foremost requires the strengthening of macroeconomic institutions.
    JEL: O1 P2 P5
    Date: 2010–06
  17. By: Martin Brown (Swiss National Bank, Tilburg University); Ralph De Haas (EBRD)
    Abstract: Based on survey data from 193 banks in 20 countries we provide the first bank-level analysis of the determinants of foreign currency (FX) lending in emerging Europe. We find that FX lending by all banks, regardless of their ownership structure, is strongly determined by the macroeconomic environment. We find no evidence of foreign banks ‘pushing’ FX loans indiscriminately because of easier access to wholesale funding in foreign currency. In fact, while foreign banks do lend more in FX to corporate clients, they do not do so to retail clients. We also find that after a take-over by a foreign bank, the acquired bank does not increase its FX lending any faster than a bank which remains in domestic hands.
    JEL: O1 P2 P5
    Date: 2010–12
  18. By: Avadanei, Andreea
    Abstract: Abstract. The scope of this paper is to highlight the Romanian strategy towards the euro adoption. We structured our article on sections that cover four main research directions. The first one illustrates the interlinkages between nominal and real convergence; the second presents a comparative analysis Romania-Slovakia; the third one points out the possible scenarios ex post common currency’ introduction and the fourth underlines the necessity of reforming the euro area entry criteria. We conclude by saying that the decision to join the Eurozone should not be taken only in terms of the ability to achieve the nominal convergence criteria, but also in relation to the progress of real convergence phenomenon. In their absence, the economy will become peripheral, less flexible and unable to manage and eliminate the shocks affecting it.
    Keywords: economic and monetary union; convergence criteria; optimum currency area; catching-up process; structural reforms; financial system
    JEL: F15 E42 E44 F36
    Date: 2011–01–26
  19. By: Andrew T. Pham (London School of Economics Development Management MSc)
    Abstract: This paper focuses on the contributions of the Vietnamese Diaspora to Vietnam’s economic growth by examining its unique formation and subsequent actual and potential impact on the emerging economy. A review of recent government policy toward the Vietnamese Diaspora and their official contributions reveal that the Diaspora has used informal networks as their primary route to make investments. This paper seeks to establish that there is the emergence of an integrated Vietnamese Diaspora network—a combination of formal organizations and the existing informal networks—facilitating the greater investment, flow and knowledge exchange between the Vietnamese Diaspora and Vietnam increasing the overall Diaspora contribution to Vietnam’s economic growth.
    Date: 2011
  20. By: COSTANDACHI, Gheorghe
    Abstract: The essay defines the essence of the National Statistical Information System and principal directions reforming the informational statistics system and it harmonization on the European standards. The author presents the functional scheme of the statistical information system and formulated the principal moments of reforming this system. There is compiled and presented the structural scheme of the statistical indicators of the Republic of Moldova.
    Keywords: Sistemul Naţional Informaţional Statistic (SNIS); sistem de indicatori statistici; cadru legislativ; cadrul instituţional; integrare europeană etc.
    JEL: C10
    Date: 2010

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