nep-tra New Economics Papers
on Transition Economics
Issue of 2011‒02‒19
nineteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Persistent anti-market culture: A legacy of the Pale of Settlement and of the Holocaust By Irina Grosfeld; Alexander Rodnyansky; Ekaterina Zhuravskaya
  2. Compliance with EU Social Policies in Old and New Member States: Different Worlds, Different Remedies By Gerda Falkner
  3. Making sense of China’s excessive foreign reserves By Yi Wen
  4. Climate Change, Risk and Grain Production in China By Rainer Holst; Xiaohua Yu; Carola Grün
  5. Multidimensional Inequalities In China By Kelly Labar
  6. Harnessing the Forces of Urban Expansion - The Public Economics of Farmland Development Allowance By Chau, Nancy H.; Zhang, Weiwen
  7. The European Rescue of the Washington Consensus? EU and IMF Lending to Central and Eastern European Countries By Susanne Lütz & Matthias Kranke
  8. Dancing with the Dragon Heads: Enforcement, Innovations and Efficiency of Contracts between Agricultural Processors and Farmers in China By Xiaohua Yu; David Abler; Chao Peng
  9. Environmental impacts of international trade: the case of industrial emission of Sulfur Dioxide (SO2) in Chinese provinces By Jie He
  10. Economic Determinants for China's Industrial SO2 Emission: Reduced vs. Structural form and the role of international trade By Jie He
  11. The impacts of air-pollution motivated automobile consumption tax adjustments of China By Xiao, Junji; Ju, Heng
  12. Fighting Inflation Within the Dollarization Context: The Case of Vietnam By Michaël Goujon
  13. Move Closer! New Modes of Governance and Accession to the European Union By Tanja A. Börzel
  14. Climate Change and Production Risk in Chinese Aquaculture By Rainer Holst; Xiaohua Yu
  15. Decomposing wage inequality: Public and private sectors in Vietnam 1993-2006 By Clément Imbert
  16. Explaining Productivity Differentials in Eastern European Agriculture: Efficiency or Class Structure ? By Jean-Louis Arcand; Daniela Borodak
  17. What Regulatory Policies Work for Emerging Markets? By Ping, Luo
  18. Implication of Single Euro Payments Area for financial services market. The case of Romania By Avadanei, Anamaria; Ghiba, Nicolae
  19. Trade liberalization and poverty dynamics in Vietnam 2002-2006 By Barbara Coello; Madior Fall; Akiko Suwa-Eisenmann

  1. By: Irina Grosfeld (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Alexander Rodnyansky (CEFIR - Center for Economic and Financial Research - CEFIR); Ekaterina Zhuravskaya (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, NES - New Economic School - NES)
    Abstract: We investigate the long-term effects of the important presence of Jews in Eastern Europe before the Second World War and their disappearance during the Holocaust. The Pale of Settlement, the area which Jewish residents were confined to in the Russian empire is used as a source of exogenous variation in the size of Jewish population before the Second World War. Based on election and survey data, we find that current residents of the Pale (if compared to their counterparts outside the Pale) vote more for socialist anti-market parties, have lower support for market and democracy, are less engaged in entrepreneurship, but exhibit higher levels of trust. At the same time, the Pale has no lasting effects on average consumption, income, and education levels. We show that the effect of the Pale is related to the former presence of Jews rather than the inflow of new migrant population into the formerly-Jewish areas. We suggest two mechanisms behind the effect: the development of persistent anti-market culture and bonding trust among non-Jewish population rooted in ethnic hatred, and the disappearance of the middle class. Regression discontinuity at the Pale border helps identification.
    Keywords: Holocaust ; pale of settlement ; political development ; ethnic animosity ; persistence ; culture
    Date: 2010–10
  2. By: Gerda Falkner
    Abstract: Going beyond the traditional compliance debate that is still ongoing in various journals and geared towards a specialized political science sub-community, this paper focuses on the wider social reform issues arising from the finding that there are serious compliance problems almost everywhere in the EU, particularly when enforcement and application of the standards are considered and not only formal transposition into domestic law. This article presents in brief the findings from two large-scale research projects on (non-)compliance with EU law in two sub-fields of social policy, working time and equal treatment policies. Two teams of co-authors studied the "old" EU15 plus later four countries from Central and Eastern Europe: the Czech Republic, Hungary, Slovakia and Slovenia. Four "worlds of compliance" were discussed on the basis of our findings from the 102 overall qualitative case studies. Searching for ways to improve the state of social affairs, it seems useful to build on these differential procedural modes of implementation and to draw up tailor-made recommendations of potential use for those fighting compliance problems, such as the European Commission.
    Keywords: social policy; implementation; directives; political science; non-discrimination; Czech Republic; Hungary; Slovakia; Slovenia
    Date: 2010–09–15
  3. By: Yi Wen
    Abstract: Large uninsured risk, severe borrowing constraints, and rapid income growth can create excessively high household saving rates and large current account surpluses for emerging economies. Therefore, the massive foreign-reserve buildups by China are not necessarily the intended outcome of any government policies or an undervalued home currency, but instead a natural consequence of the country’s rapid economic growth in conjunction with an inefficient financial system (or lack of timely financial reform). A tractable growth model of precautionary saving is provided to quantitatively explain China’s extraordinary path of trade surplus and foreign-reserve accumulation in recent decades. Ironically, the analysis suggests that without a well-developed domestic financial market, the value of the renminbi (RMB) may significantly depreciate, instead of appreciate, once the Chinese government abandons the linked exchange rate and the massive amount of precautionary savings of Chinese households are unleashed toward international financial markets to search for better returns.
    Keywords: International trade ; Balance of trade - China ; International finance
    Date: 2011
  4. By: Rainer Holst (Georg-August-University Göttingen); Xiaohua Yu (Georg-August-University Göttingen); Carola Grün (Georg-August-University Göttingen)
    Abstract: This paper employs the production function-based method proposed by Just and Pope (1978, 1979) to explicitly analyze production risk in the context of Chinese grain farming and climate change, and test for potential endogeneity of climate factors in Chinese grain production. Our results indicate that grain production in south China might, at least in the short run, could be a net beneficiary of global warming. In particular, we find that a 1 °C increase in annual average temperature in South China could entail an increase of grain output by 3.79 million tons or an economic benefit of around USD 798 million due to the increasing mean output. However the impact of global warming in north China is negative, small and insignificant. In addition, Hausman tests reveal no endogeneity of climate variables in Chinese grain production.
    Keywords: Agriculture; grain production; climate change; production risk; China
    JEL: Q1 Q54
    Date: 2011–02–08
  5. By: Kelly Labar (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: The usual manner of describing inequality in a population, involves income distributions. China has experienced rapid income growth, led by reforms which have exacerbated income inequalities. Other components of well-being have been affected as well. Education and health care have become less accessible due to increased costs linked to the decentralization of the financing of such services. The changing face of inequality in China is therefore not confined to income. As such this paper applies new tools to the measure of multidimensional inequalities on wages, education and health. The multidimensional aspect is critical because there may be compensating effects of one form of inequality with respect to others which can change the evolution of overall inequality. Results are submitted to the values of parameters which are included in the formulation of new indices and which translate the Chinese population's aversion to inequalities and the weight it gives to the different dimensions considered. My results show that there has been a significant increase in inequality in China between 1997 and 2000, irrespective of the dimensions one focus on, and that this increase is robust to reasonable variations in the underlying parameters.
    Keywords: multidimensional inequalities;wages;education;health;China
    Date: 2011–02–09
  6. By: Chau, Nancy H.; Zhang, Weiwen
    Abstract: For decades, rapid urban expansion has led to concerns over the loss of cultivated land in rural China. This contrasts sharply with another salient feature of the Chinese land policy reform landscape that has gone on largely unnoticed - the addition of newly cultivated land in China through land development has consistently exceeded land conversion. In a model featuring fiscal decentralization, local governments as custodians of land use and development, along with a land development allowance policy instituted in 1998, we show that a land development allowance policy can harness the forces of urban expansion to encourage agricultural land development.
    Keywords: land development allowance, fiscal decentralization, inter-jurisdictional competition, agricultural development, Community/Rural/Urban Development, H11, H77, P35, R5, R14, O18,
    Date: 2011–01
  7. By: Susanne Lütz & Matthias Kranke
    Abstract: The latest global financial crisis has allowed the International Monetary Fund (IMF) a spectacular comeback. But despite its notorious reputation as a staunch advocate of restrictive economic policies, the Fund has displayed less preference for austerity in recent crisis lending. Though widely welcomed as overdue, the IMF’s shift away from what John Williamson coined the ‘Washington Consensus’ was met with resistance from the European Union (EU) where it concerned Central and Eastern European (CEE) countries. The situation of hard-hit Hungary, Latvia, and Romania propelled unprecedented cooperation between the IMF and the EU, in which the EU has very actively promoted orthodox measures in return for loans. We argue that this represents a European rescue of the Washington Consensus. The case of Latvia is paradigmatic for the profound disagreements between an austerity-demanding EU and a less austere IMF. The IMF’s stance contradicts conventional wisdom about the organization as the guardian of economic orthodoxy. To solve this puzzle, we shed light on three complementary factors of (non)learning that have shaped the EU’s relations vis-à-vis CEE borrowing countries in comparison to the IMF’s: (1) a disadvantageous institutional setting; (2) vociferous creditor coalitions; (3) the precarious eurozone project.
    Keywords: Latvia
    Date: 2010–05–01
  8. By: Xiaohua Yu (Georg-August-University Göttingen); David Abler (The Penn State University); Chao Peng (Renmin University of China)
    Abstract: Contractual breaches are very prevalent in developing countries, such as in China. In order to prevent breaches of contracts, the contractual designs between farmers and agricultural processors (Dragon-Heads Firms) in China, innovate in two ways: organizational innovations and contractual innovations. In particular, contractual innovations are that initial simple price-quantity contracts involve into complex cooperation contracts. Using the data for over 500 State Key Processors in 2003 from Chinese Ministry of Agriculture, we construct econometric models to study contract choices, contract intensity, and the impacts on sales and profits for agricultural processors in China. The results indicate that capital and the number of contracted farmers are endogenous in contract choices. Processors are more likely to use cooperation contracts compared with price-quantity contracts as the number of contracted farmers increases, because then the costs of coordinating, monitoring and enforcing price-quantity contracts may increase dramatically in the case of price-quantity contracts. On the other hand, contract types are not important for the number of contracted farmers, the intensity of contracts, sales and profits for processors, because the purposes of different contract types are related with prevention of breaching contracts. By the way, the results indicate that the elasticity of profits with respect to capital is 0.52, which implies that the returns to investing in the food processing industry are relatively high in China.
    Date: 2011–02–08
  9. By: Jie He (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: To get better understanding on trade's impact on environment, we construct a four-equation simultaneous system, in which emission is determined by the three economic determinants: scale, composition and technical effects and directly by trade. Supposing the three economic determinants are also endogenous to trade, we check in the following three functions the indirect impacts of trade on environment through the intermediation of the three effects. The model is then estimated by 29 Chinese provinces' panel data on industrial SO2 emission (1993-2001). Our estimation results reveal totally opposite role of export expansion and accumulation of manufactured goods import in industrial SO2 emission determination. The results do not support “pollution haven” hypothesis; the reinforced competition faced by exporters is a positive factor encouraging technology progress in pollution abatement. China's actual comparative advantage resides in labor-intensive industries, exporting to world market actually helps to reduce pollution increasing caused by its heavy-industry-oriented development strategy, which is traditionally supported by import activities.
    Keywords: cerdi
    Date: 2011–02–09
  10. By: Jie He (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: In this paper, basing on panel data on Chinese provincial level from 1991-2000, we test, firstly, the existence of EKC for industrial SO2 emission density. Following, we decompose the economical determinants of this SO2 emission density into: income effect (GDPPC), scale effect (Industrial GDP per km2) and composition effect (industrial capitalistic ratio). And in the third step, we study the direct and indirect role of international trade intensity ((X+M)/GDP). Instead of a supposed EKC, we find ever-increasing trend in industrial SO2 emission density with respect to income growth for most Chinese provinces when the three largest cities (Beijing, Tianjin and Shanghai) directly under central government are taken off from our database. Following, confirming Grossman (1995), we succeed in decomposing industrial SO2 emission density into its three famous economic “effects”. However, different from our expectation, the composition effect, measured by industrial capitalistic ratio K/L in this paper, instead of being a pollution-increasing role as generally accepted idea, turns out to lead industrial SO2 density to reduce as a technology-reinforcing factor. For the role of trade, besides the positive direct impact on industrial SO2 density, we find equally some “pollution haven” evidences. In addition, our results show for most provinces, their comparative advantage stays still in labour-intensive sectors, increase in the capitalistic ratio is proven to be environment-friendly through its technological “pollution-abatement” effect until this ratio reach the level of 83333 yuan/person, which can be considered as the threshold to distinguish capital-intensive sector. Due to these different aspect's effects, corresponding to the conclusion of ACT (1998, 2001), the total effect of trade on industrial SO2 pollution does not turn out to be an important factor for industrial SO2 emission density. Including all these co-related economic determinants into a more general graphical analysis, we find that, for most provinces whose actual income and capitalistic ratio stay still at moderate level, further income growth and capital accumulation are generally environment-friendly factor in openness process. However, the further enlargement of openness degree will result in environment deterioration for the provinces that have relatively low income and too low or too high capitalistic ratio. The necessary policy to reduce this possible deterioration is to adopt besides the open policy, the complementary policies aiming at reinforcing public consciences on environment quality (through income effect) and encouraging R&D activities to increase technological efficiency in pollution abatement.
    Keywords: “pollution haven” hypothesis.;Decomposition;industrial SO2 emission;international trade;EKC;China
    Date: 2011–02–09
  11. By: Xiao, Junji; Ju, Heng
    Abstract: A concomitant of the rapid development of the automobile industry in China is the serious air pollution and carbon dioxide emission. There are various regulation instruments to reduce the air pollution from automobile sources. China government chooses a small-displacement oriented consumption tax as well as fuel tax to alleviate the worse air pollution. This paper evaluates the effects of both policy instruments on fuel consumption and social welfare. Our empirical results show that fuel tax decreases the total sale of new cars, which leads to a decline of total consumption of fuel from the new cars, but does not change the sale distribution over various fuel efficiency models; while consumption tax adjustment results in a skewed sale distribution toward more efficient new cars but increases the total consumption of fuel due to an enlarged sale. The effects of these two taxes on pollution depend on our assumption about the average fuel efficiency of outside goods. On the other hand, consumption tax leads to less social welfare loss; in particular, consumer surplus decreases in an order of magnitude less than that caused by fuel tax. Fuel tax actually transfers more welfare from private sector to the government.
    Keywords: China auto industry; welfare analysis; tax incidence; BLP model; tax progressivity
    JEL: A13 C35 H23
    Date: 2011–02–07
  12. By: Michaël Goujon (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: During the transition towards a market economy, the Vietnamese economy has embarked upon a path of lasting disinflation in a context of dollarization. In this study, a model shedding light on the determinants of inflation in the case of dollarization is developed and estimated with a two-step procedure for Vietnam in the 1990s. In particular, the results of this research reveal the impact on inflation of the exchange rate variations and a measure of the excess of broad money. Then, managing the exchange rate fluctuations and avoiding any excess of broadly defined money are found to be essential. The adoption of these two strategies by Vietnamese authorities may be a significant explanation of their ability to fight inflation.
    Keywords: Vietnam ; cointegration ; Dollarization ; Demand for Money ; inflation
    Date: 2011–02–09
  13. By: Tanja A. Börzel
    Abstract: This paper focuses on new modes of governance in the EU’s attempts to impact upon states, which are not (yet) members and which have become members in the 1980s. More specifically, I seek to explore the role of new modes of governance for the implementation of EU policies and EU primary Law in different types of states, “weak states” in particular, including Southern European member states, CEE candidate countries and associated states in the former Soviet Union and Northern Africa. To what extent have new modes of governance helped weak states that lack sufficient capacities to adopt and implement domestic reforms to comply with EU norms and rule cope with the challenge of accession and approximation to the EU?
    Keywords: governance; implementation; European law; governance; treaty reform; political science
    Date: 2011–01–15
  14. By: Rainer Holst (Georg-August-University Göttingen); Xiaohua Yu (Georg-August-University Göttingen)
    Abstract: Drawing on the method developed by Just and Pope (1978, 1979), this paper separately analyzes the marginal contributions of both regular input factors and climate factors to mean output and to production risk in Chinese inland aquaculture. Furthermore, the net change in output following a 1°C increase in annual average temperature will be determined. According to the results obtained, the impending changes in global climate will have both positive and negative impacts. While an increment in annual average temperatures will increase mean output and decrease production risk, an increase in temperature variability will reduce mean output and cause a higher level of production risk. The corresponding measures of precipitation however have no significant impact on mean output and production risk. Finally, a 1°C increase in annual average temperature is, ceteris paribus, likely to increase national mean output by 1.47 million tons.
    Keywords: Aquaculture; climate change; production risk; China
    JEL: Q1 Q54
    Date: 2011–02–08
  15. By: Clément Imbert (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper studies the labor market in Vietnam during the transition towards market economy (1993-2006): we show that the public-private sector wage gap markedly increased, but that wage inequality decreased overall. Our aim is to assess how much of this evolution can be explained by workers' productive skills and their allocation between sectors. We use a simple, yet innovative, method that allows us to take into account workers' unobservable characteristics and their remuneration in each sector. Throughout the period we consider, public sector workers are more skilled than private sector workers. However, rising returns to workers' skills in the public sector play a major role in the increase of the public-private sector gap. Against all expectations, the public sector grew richer as Vietnam moved towards market economy. Finally, a greater homogeneity among labor market participants seems to explain the overall decline in wage inequality.
    Keywords: transition ; inequality decomposition ; public sector
    Date: 2011–02
  16. By: Jean-Louis Arcand (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Daniela Borodak (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: This paper considers whether it is differences in technical efficiency or differences in factor endowments that explain productivity differentials in Moldovan agriculture. We compute non-parametric measures of technical efficiency for a sample of Moldovan small-holders using the four-step Data Envelopment Analysis (DEA) approach suggested by Fried, Schmidt and Yaisawang (1999). We also consider a model of class structure inspired by the work of Eswaran and Kotwal (1986), and estimate a bivariate probit model that explains a household's labor market participation decisions (and hence class membership) in terms of its factor endowments. These constructs are then used in an effort to understand the determinants of output per hectare in Moldovan agriculture. We find that differences in technical efficiency explain very little of the great heterogeneity in productivity observed in our sample, while class membership is slightly more successful. Our empirical model of class structure suggests that self sufficient households will disappear and be replaced by a class of small capitalist farmers as land and credit markets develop.
    Keywords: transaction costs;Technical efficiency;household model;transitional economy;agrarian reform
    Date: 2011–02–09
  17. By: Ping, Luo (Asian Development Bank Institute)
    Abstract: <p>This paper discusses the banking regulatory and supervisory practices in People’s Republic of China (PRC) with reference to the international standard for banking supervision, namely, the Basel Core Principles for Effective Banking Supervision (BCPs). While the PRC has incorporated many sound practices advocated by the BCPs, there are quite a few areas where significant differences can be observed with respect to qualification review of senior management, broader regulation at the product level, prescriptive rules, and guidance for risk management. Broadly speaking, the PRC adopts a rules-based approach to regulation; in many cases, regulations are prescriptive or even intrusive. In building a robust supervisory system, the PRC finds specific guidance more helpful than sole reliance on principles-based approaches. <p>The paper argues that general principles and a principle-based approach to regulation do not seem to work well for emerging markets. Indeed, the current financial crisis has revealed some shortcomings in the existing international standards on banking supervision. Perhaps this standard can be improved by greater specificity and by incorporating more aspects of the experiences in emerging markets.
    Keywords: banking regulatory supervisory practices prc; international standard banking supervision; basel core banking supervision; bcps
    JEL: G20 G28
    Date: 2011–02–10
  18. By: Avadanei, Anamaria; Ghiba, Nicolae
    Abstract: For our country, the development and the modernization of the national system of payments were and are a prevalent subject of the financial arena, after the socialist period since 1990. The purpose of this study is to examine the actual status and the future application of Single Euro Payments Area (SEPA). Frameworks, based on the Romanian experience. The study is structured on chapters that present the theoretical background of the theme, the strategy for the adoption and migration to SEPA payment instruments, the actual stage and the challenges of the SEPA implementation in Romania. Our aim is to underline the importance of adopting Single Euro Payments in our country and to present its overall impact on the national financial services market. Although Romania may be facing obstacles in terms of joining the Euro zone, it is already well integrated in terms of payment infrastructures and has already put in place SEPA instruments.
    Keywords: Single Euro Payments Area; direct debit; Payments Services Directive; corporate bodies; Romanian banking system
    JEL: F30 E44
    Date: 2010–04–25
  19. By: Barbara Coello (Banque Mondiale - Banque Mondiale); Madior Fall (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Afristat - AFRISTAT); Akiko Suwa-Eisenmann (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper shows the evolution of poverty in Vietnam during the deepening of trade liberalization and examines the impact of trade-related variables at the household level. The study is based on a panel dataset of households followed in 2002, 2004 and 2006. Trade-related variables at the household level are defined as the household specialization in terms of production and employment with respect to the type of jobs (wage earners or self-employed) and sectors (import-competing or exported manufactured goods, services, and in agriculture, rice, exported, subsistence and import-competing crops). For the poor, besides the expected positive impact of working in an export-related sector (in industry and in agriculture), diversification in self-employed non-farm activities appears to have been efficient at alleviating poverty. Moreover, the import-competing sectors (in industry and in agriculture) play also a positive role in poverty alleviation. The latter channel could be hindered in the near future, as Vietnam is now in the process of decreasing its import protection.
    Keywords: trade liberalization ; poverty dynamics ; Vietnam
    Date: 2010–05

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