nep-tra New Economics Papers
on Transition Economics
Issue of 2011‒03‒12
fifteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Macro-financial Linkage and Financial Deepening in China after the Global Financial Crisis By Kumiko Okazaki; Tomoyuki Fukumoto
  2. Corruption and Social Interaction: Evidence from China By Bin Dong; Benno Torgler
  3. Beyond the Crisis: Prospects for Emerging Europe By Zsolt Darvas
  4. Governance and Enterprise Restructuring - the case of Macedonia By Apostolov, Mico
  5. Which households use banks? Evidence from the transition economies By Thorsten Beck; Martin Brown
  6. Labour Quality and Inward FDI: A Firm-level Empirical Study in China By Faqin Lin
  7. Present and Future of the Chinese Labour Market By Michele Bruni; Claudio Tabacchi
  8. How do special economic zones and industrial clusters drive China's rapid development ? By Zeng, Douglas Zhihua
  9. Decomposing wage inequality: Public and private sectors in Vietnam 1993-2006 By Clément Imbert
  10. Choosing between foreign investment and subcontracting: Strategies of Italian firms in Romania By Tattara, Giuseppe
  11. Ex ante bargaining and ex post enforcement in trade credit supply: theory and evidence from China By Yanagawa, Noriyuki; Watanabe, Mariko
  12. Words or deeds – what matters? Experience of recentralization in Russian security agencies By Libman, Alexander
  13. The Poor Health Status of the Hungarians; Comparative Macro-Analysis of the Likely Explanatory Factors onHungarian and Austrian Data, 1960-2004 By M ria Lack¢
  14. Attributes to corporate governance and enterprise restructuring in the Macedonian economy By Apostolov, Mico
  15. Varieties of System Transformations and Their Structural Background Based on the IPS Model By M ria Csan di

  1. By: Kumiko Okazaki (Director and Senior Economist, Deputy Head of Planning and Coordination Group, Economic and Financial Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Tomoyuki Fukumoto (Associate Director-General, Head of Planning and Coordination Division, International Department, Bank of Japan (E-mail:
    Abstract: As China's economic integration with the global economy deepens, the amount of capital flow to/from China has been increasing significantly, especially since it joined the WTO. In spite of such environment, the recent global financial crisis has not severely affected the Chinese financial markets because of China's relatively strict control of cross-border capital transactions and its strong economic and financial fundamentals. The government's stimulus policies worked effectively to realize a quick recovery of the country's economic growth. However, on the horizon, the factors that protected the Chinese economy during the crisis also seem to carry with them substantial risks and challenges to its sustainable growth. This paper reviews the factors that have kept the Chinese economy and financial markets relatively stable and analyzes the recent changes in China's macro financial linkage overseas, and highlights the challenges that China faces in realizing a sustainable and efficient economic development.
    Keywords: Macro-financial Linkage, Financial Deepening, Cross-border Capital Flow, Bank Lending
    JEL: F36 O53 P34
    Date: 2011–01
  2. By: Bin Dong (QUT); Benno Torgler (QUT)
    Abstract: We explore theoretically and empirically whether social interaction, including local and global interaction, influences the incidence of corruption. We first present an interaction-based model on corruption that predicts that the level of corruption is positively associated with social interaction. Then we empirically verify the theoretical prediction using within-country evidence at the province-level in China during 1998 to 2007. Panel data evidence clearly indicates that social interaction has a statistically significantly positive effect on the corruption rate in China. Our findings, therefore, underscore the relevance of social interaction in understanding corruption.
    Keywords: corruption, social interaction, China
    JEL: K42 D72 D64 O17 J24
    Date: 2010–11–26
  3. By: Zsolt Darvas (Institute of Economics Hungarian Academy of Sciences)
    Abstract: This paper assesses the impact of the 2008-09 global financial and economic crisis on the medium-term growth prospects of the countries of central and eastern Europe, the Caucasus and Central Asia, which began an economic transition about two decades ago. We use cross-country growth regressions, putting special emphasis on a proper consideration of the crisis and robustness. We find that the crisis has had a major impact on the within-sample fit of the models used and that the positive impact of EU enlargement on growth is smaller than previous research has shown. The crisis has also altered the future growth prospects of the countries studied, even in the optimistic but unrealistic case of a return to pre-crisis capital inflows and credit booms.
    Keywords: crisis; economic growth; growth regressions; transition countries
    JEL: C31 C33 O47
    Date: 2011–01
  4. By: Apostolov, Mico
    Abstract: This paper is a case study of the Republic of Macedonia (Southeast Europe), which focuses on examining governance and enterprise restructuring. Governance and enterprise restructuring is already defined indicator in EBRD’s studies and transition reports, measuring the effective corporate governance and corporate control exercised through domestic financial institutions and markets, fostering market-driven restructuring. As of the beginning of the transition process, governance and enterprise restructuring remains in the center, as essential pillar, that moves forward the society towards developed market economy. The data used in this article are analyzed with an econometric regression model, which as employed in this study examines the interrelationships between governance and enterprise restructuring and set of policies that influence the governance patterns.
    Keywords: governance; corporate governance; management strategy; transition; Southeast Europe; Macedonia
    JEL: O11 G38 G32 P31 G30 L33
    Date: 2011
  5. By: Thorsten Beck (EBC, Tilburg University.); Martin Brown (University of St. Gallen.)
    Abstract: This paper uses survey data for 29,000 households from 29 transition economies to explore how the use of banking services is related to household characteristics, bank ownership structure and the development of the financial infrastructure. At the household level we find that the holding of a bank account or bank card increases with income, wealth and education in most countries and also find evidence for an urban-rural gap, as well as for a role of religion and social integration. Our results show that foreign bank ownership is associated with more bank accounts among high-wealth, high-income, and educated households. State ownership, on the other hand, does not induce financial inclusion of rural and poorer households. We find that higher deposit insurance coverage, better payment systems and creditor protection encourage the holding of bank accounts in particular by highincome and high-wealth households. All in all, our findings shed doubt on the ability of policy levers to broaden the financial system to disadvantaged groups. JEL Classification: G2, G18, O16, P34.
    Keywords: Access to finance, Bank-ownership, Deposit insurance, Payment system, Creditor protection.
    Date: 2011–02
  6. By: Faqin Lin (School of Economics, University of Adelaide)
    Abstract: This paper uses a large sample of Chinese cross-section firm-level data with comprehensive information about labour quality to investigate the relationship between labour quality and FDI distribution in China. Using parametric, IV-GMM and non-parametric techniques, the author finds that labour quality measured by education level plays an important role on deciding the distribution of FDI but labour quality measured by working certificates lose their significance. The author also finds that labour quality has a more significant impact on other foreign investments than HMT invested firms and the impacts of labour quality on FDI is strongly uneven across industries and provinces.
    Keywords: education, foreign direct investment, labour quality
    JEL: F21 O18 O53
    Date: 2011–03
  7. By: Michele Bruni; Claudio Tabacchi
    Abstract: The paper aims to provide a representation, as rich and complete as possible, of the Chinese labour market, both in terms of stock and flow, despite the fact that the statistical information is still rather poor and often inconsistent. It does then document the increasing differences in the level and trends of the main labour market variables at the provincial level. In order to reach a deeper comprehension of the dynamic of the Chinese labour market, the paper analyses two other extremely relevant phenomena: the so called “floating population” and the labour shortages that are more and more frequently affecting the coastal regions. After having provided a demographic background to the Lewis model of development with unlimited supply of labour, the paper shows in which periods China has been obliged to accumulate a large labour surplus, mainly in the agricultural sector, and in which periods and through which mechanisms, including ageing and internal migration, the process of deaccumulation has taken place. More specifically, the paper shows how up to now internal migrations have provided urban areas and coastal regions with an unlimited supply of labour, a factor that has played a major role in boosting the Chinese economic development and determining its typology. In order to reach this result, simple demographic tools have been utilized to estimate the net migration balance of each province and in each province of rural and urban areas, and therefore to define areas of departures and areas of arrival, information not provided by the literature on the floating population. Finally the paper provides a rough estimate of the disguised unemployment in agriculture and of its geographical distribution. After assessing which percentage can represent a possible supply of labour for the modern sector, it will be maintained that China not only is very close to the Lewis turning point (a situation that has already been reached in many coastal areas), but is going to become the world biggest importer of labour. In order to provide its population with living standards comparable to that of the western world, in a reasonable time interval, China needs to continue to grow at an extremely high rate. This will require the capacity to deal with a series of structural problems. Limiting our concerns to the labour market, that is characterized by increasing complexity and regional differentiation, high priority should be given to improve the collection, analysis and dissemination of labour market data; to abolish the one child policy that is totally obsolete in a situation that will be soon characterized by a structural lack of labour supply; to give to the Chinese citizens the right to freely move and change residence, while rapidly regularizing the existing floating population; to raise the legal age of retirement; to plan and implement a structure of t entries in vocational courses and higher educational paths coherent with the expected structure of the labour demand in terms of flows by occupation; to strengthen the Employment service system in order to improve skills matching at the local level, and facilitate the correct allocation of human resources over the national territory, in order to minimize the human and economic costs of future unavoidable internal migrations.
    Keywords: China; labour market; stock and flow; demography; internal migration; Lewis turning point
    Date: 2011–02
  8. By: Zeng, Douglas Zhihua
    Abstract: In the past 30 years, China has achieved phenomenal economic growth, an unprecedented development"miracle"in human history. How did China achieve this rapid growth? What have been its key drivers? And, most important, what can be learned from China's success? Policy makers, business people, and scholars all over the world continue to debate these topics, but one thing is clear: the numerous special economic zones and industrial clusters that emerged after the country's reforms are without doubt two important engines of China's remarkable development. The special economic zones and industrial clusters have made crucial contributions to China's economic success. Foremost, the special economic zones (especially the first several) successfully tested the market economy and new institutions and became role models for the rest of the country to follow. Together with the numerous industrial clusters, the special economic zones have contributed significantly to gross domestic product, employment, exports, and attraction of foreign investment. The special economic zones have also played important roles in bringing new technologies to China and in adopting modern management practices. This study briefly summarizes the development experiences of China's special economic zones and industrial clusters (their formation, success factors, challenges, and possible areas or measures for policy intervention), based on case studies, interviews, field visits, and extensive reviews of the existing literature in an attempt to benefit other developing countries as well as the broader development community.
    Keywords: Economic Theory&Research,ICT Policy and Strategies,E-Business,Transport Economics Policy&Planning,Knowledge Economy
    Date: 2011–03–01
  9. By: Clément Imbert (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, 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)
    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
  10. By: Tattara, Giuseppe
    Abstract: Vertical disintegration in most industries and the globalization of markets has led to significant changes in the pattern of international division of labour among manufacturing firms. At the same time increased competition from low cost producers, exchange rate constraints, the opening up of CEE countries have had huge consequences for the Italian industrial system. This paper deals with the Veneto footwear, furniture and refrigeraion industries and examines the effects of foreign direct investments and subcontracting in Romania. The reorganization of the division of labour, in the most dynamic suppliers induced a change in the “nature of subcontracting”, upgrading along the ladder of the value chain as more and more operations are offshored.
    Keywords: Foreign direct investment; International subcontracting;
    JEL: F32 D82
    Date: 2011
  11. By: Yanagawa, Noriyuki; Watanabe, Mariko
    Abstract: Recent empirical literature on trade credit found a negative correlation between the bargaining power of the supplier and the ratio of trade credit in a transaction. Our survey done in China along with our theoretical model shed light on the mechanism behind this correlation. Our model depict that the trade credit ratio is decreasing to bargaining power and increasing to enforcement power, sufficient cash in the hand of the buyer can expand trading volume. These were identified by structural estimation. Main findings are; an increase in economic activity can be effected by either an increase in the enforcement power of the seller or in the cash in hand of the buyer, and the two factor are substitutive of each other; the stronger the bargaining power of the seller is, the trading volume will shrink. The result implies that a policy that can improve enforcement power via a non-bargaining power factor such as an institution may increase the trade credit ratio and trading volume.
    Keywords: China, Corporate accounting, Industrial management, Trade credit, Enforcement power, Cash constraint, Bargaining, Competition in goods
    JEL: E41 G2 K0 M41 O5 O53 P31
    Date: 2011–02
  12. By: Libman, Alexander
    Abstract: Although decentralization is often modeled as an outcome of bargaining over rents and poli-cies, intuitively it seems possible that public statements, symbols and status often have a great impact on this process. The paper studies the relative importance of the “real” political actions versus the changes of symbolic nature in the bargaining over devolution and secession, using the unique laboratory of the personnel recentralization in the Russian security agencies in 2000-2007. While in the 1990s regional branches of federal ministries were mostly captured by regional governors, in 2000s Putin replaced the heads of agencies by new bureaucrats, cut-ting the connections to the region. The paper finds a robust influence of symbolic gestures made by regional governments in the earlier bargaining process on appointments, even if the actual devolution policies did not matter. Symbolic actions seem to play a crucial role in the decisions in this highly sensitive area.
    Keywords: devolution; bargaining; fiscal federalism; transition economies
    JEL: H77 D78 P26
    Date: 2011–01
  13. By: M ria Lack¢ (Institute of Economics Hungarian Academy of Sciences)
    Abstract: In Hungary, the health status of working age men is extremely bad in comparison with both the developed market economies and the neighboring transition countries. The study based on data between 1960 and 2004 investigates the health status of population in Hungary and Austria by health-production functions on macro level and makes comparisons. The rationale for comparison of these very countries is the territorial closeness and the mutual long past. The mortality rate of working age population (15-60 years old) is considered the proxy variable for the health status. According to this indicator the health status in the two countries was at the same level in 1960's, but they started to diverge at the beginning in the 1970's. As explanatory variables for the mortality rate of the working age population the following variables are taken into account: the indicators of the life style (consumption of alcohol, smoking, the extra work in the "second" and "hidden economy"), the long- term economic development (the development of the GDP per capita), health-care resources (the relative share of physicians) and the situation in the labor market (unemployment rate). The estimations of the health production functions turn out approximating well real world developments in both countries.
    Keywords: health status, health production function, mortality, Hungary, Austria
    JEL: I12
    Date: 2011–02
  14. By: Apostolov, Mico
    Abstract: Corporate governance is most often defined in terms of the roles, responsibilities, and interactions of top management and the board of directors. Using information on Macedonia, obtained through various sources, this study is an attempt on determining some of the factors that influence the development of governance and enterprise restructuring in this economy. This study is founded on governance-conduct-performance paradigm in strategic management. We will examine the possibilities that lead to the fallowing outcomes: A) The degree to which governance and enterprise restructuring is positively related to foreign direct investments, exports and value added (industry and services) in Macedonian economy; B) The degree to which governance and enterprise restructuring is related to: listed domestic companies, market capitalization of listed companies and stocks traded, and presumably that relation is somewhat ambiguous, nonetheless important.
    Keywords: corporate governance; enterprise restructuring; transition; SEE; Macedonia
    JEL: G38 G34 G32 P31 L33 G30 O12
    Date: 2011
  15. By: M ria Csan di (Institute of Economics Hungarian Academy of Sciences)
    Abstract: This study is the theoretical chapter of a planned book. This book, aims to contribute to the theoretical foundations of similarities and differences in the transformation of party-state systems. Analytical framework of system transformation is based on the extension of the Interactive Party State model (Csan di, 2006) where specifics of the structure and operation of party-state systems and structural background of their disparities were described and analyzed. Self-similarities and disparities of transformation and path-dependency of the variety of systemic outcomes are assigned to structural characteristics of power distribution of party-state systems interpreted as networks. The empirical part of the book uses the Chinese case to test this theory, measuring the dynamics of system transformation, the consequences of short- and long-term external adaptation pressures on the system transformation and long-term consequences of the short-term reactions to these pressures and their spatial disparities. This research was supported by the National Research Foundation in Hungary.
    Keywords: system transformation, economic transformation political transformation, sequence of transformation, disparities of transformation, varieties of system outcomes, party-state network
    JEL: P2 F5 P21 P26 P30
    Date: 2011–02

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