nep-tra New Economics Papers
on Transition Economics
Issue of 2011‒04‒02
twenty papers chosen by
J. David Brown
Heriot-Watt University

  1. Labor Market Adjustment: Is Russia Different? By Gimpelson, Vladimir; Kapeliushnikov, Rostislav
  2. Blame the Switchman? Russian Railways Restructuring After Ten Years By Russell Pittman
  3. Determinants of Protests: Longitudinal Evidence from Ukraine's Orange Revolution By Carlos Bozzoli; Tilman Brück
  4. The Poverty Reduction Capacity of Private and Public Transfers in Transition By Paolo Verme
  5. The Empire Is Dead, Long Live the Empire! Long-Run Persistence of Trust and Corruption in the Bureaucracy By Becker, Sascha O.; Boeckh, Katrin; Hainz, Christa; Woessmann, Ludger
  7. Impact of FDI on Domestic Firms' Exports in China By Yu Sheng; Chunlai Chen; Christopher Findlay
  8. The Role of MNCs in China's Standardization By Junjun Hou; ;
  9. Is China climbing up the quality ladder? Estimating cross country differences in product quality using Eurostat's COMEXT trade database By Gabor Pula; Daniel Santabárbara
  10. The Challenges Confronting the Banking System Reform in China: An Analysis in Light of Japan's Experience of Financial Liberalization By Kumiko Okazaki; Masazumi Hattori; Wataru Takahashi
  11. Civil Service and Military Service Pensions In China By Leckie, Stuart H.
  12. Inflationary effect of oil-price shocks in an imperfect market: a partial transmission input-output analysis By Libo Wu; Jing Li; ZhongXiang Zhang
  13. Processing Trade, Exchange Rates, and the People’s Republic of China’s Bilateral Trade Balances By Xing, Yuqing
  14. Renminbi Going Global By Xiaoli Chen; Yin-Wong Cheung
  15. Environmental Cost Analysis of the Relocation of Pollution-intensive Industries Case Study: Transfer of Ceramics Industry from Foshan to Qingyuan, Guangdong Province By Liu Li; Li Bin
  16. Heterogeneous Credit Impacts of Healthcare Spending of the Poor in Peri-urban Areas, Vietnam: Quantile Treatment Effects Estimation By Tinh Doan; John Gibson; Mark Holmes
  17. Effects of Fiscal Consolidation in the Czech Republic By Vladimir Klyuev; Stephen Snudden
  18. The wage curve: A panel data view of labour market segments By Pavel Gertler
  19. Fiscal policy in the EU in the crisis: a model-based approach By István P. Székely; Werner Roeger; Jan in 't Veld
  20. Osobine sustava korporativnog upravljanja u bankama u Bosni i Hercegovini By Matić, Branko; Papac, Nikola

  1. By: Gimpelson, Vladimir (CLMS, Moscow Higher School of Economics); Kapeliushnikov, Rostislav (CLMS, Moscow Higher School of Economics)
    Abstract: The paper discusses how the Russian labor market has been evolving over two decades of the transition. It starts with tracing key labor market indicators such as employment, unemployment, labor force participation, working hours, and real wages. Their dynamics indicate that the labor market tends to operate in a non-conventional fashion and far from the patterns expected initially. The authors argue that the current Russian labor market represents a peculiar model that is different from what is observed in the rest of Europe outside of the CIS. Having established this, they look at the institutional foundations that make this unconventional performance possible and proceed with discussing political economy and welfare implications. The findings are compared with the experience of other post-socialist countries.
    Keywords: employment, unemployment, wages, labor market institutions, Russia
    JEL: J8 J21 J31 J62 P20
    Date: 2011–03
  2. By: Russell Pittman (Economic Analysis Group, Antitrust Division, U.S. Department of Justice)
    Abstract: The Russian economy relies on the Russian freight railways to an extraordinary degree. In 2001, after years of debate, the Russian government adopted an ambitious plan to transform this vertically integrated, government owned monopoly into a system that would rely more on private investment and competition and less on government ownership and regulation. This paper examines the state of the industry after ten years of reforms, with a focus on competition, tariffs, and private sector participation. Much remains to be decided, in particular the question of whether Russia will settle on its own unique model of railways restructuring or will move in the direction of one of the three standard models seen in other countries: vertical separation as in the UK and Sweden, third party access as in Germany and France, or horizontal separation, as in the US, Canada, and Mexico.
    Keywords: freight railways, restructuring, competition, Russian Federation, vertical separation, third party access, horizontal separation
    Date: 2011–02
  3. By: Carlos Bozzoli; Tilman Brück
    Abstract: This paper is the first study that analyzes the drivers of political protest using longitudinal data from a critical revolution that changed -at least temporarily- the political landscape in a transition country. We make use of a rich dataset consisting of panel data collected before and after the so called "Orange" revolution in Ukraine. Our empirical approach tackles two different -and equally interesting- features of the revolution: the determinants of participation (both in the protests and counter-protests) and the "selection" of participants into different levels of involvement (i.e. intensity of participation). We consider different drivers of participation, from traditional proxies for opportunities and grievances, but we also analyze the role of political and economic preferences, risk tolerance, life satisfaction, and indicators of network connectivity. What emerges from this study is a more nuanced pattern of participation that does not link uniquely to a single theoretical model.
    Keywords: Conflict, protest, transition economy, Ukraine, longitudinal studies
    JEL: P20 D74
    Date: 2011
  4. By: Paolo Verme (University of Torino)
    Abstract: The transitional economies of the Former Soviet Union (FSU) have enjoyed an extraordinary period of growth and poverty reduction between 2000 and 2007 and this occurred in concomitance with significant increases in private and public transfers to households. The paper assesses the relative importance of these transfers for welfare and poverty in Moldova, the poorest country in Europe. A longitudinal analysis based on panel data reveals that private transfers and social insurance transfers are effective in improving welfare and reducing poverty whereas social assistance transfers have little or no effect. Social insurance and social assistance seem to have swapped roles. Social insurance is most relevant for lifting people out of poverty while social assistance - if anything - has a small role in protecting the non-poor from falling into poverty. We also find that the different types of transfers do not crowd-out each other and that social insurance may in fact reinforce the capacity of private transfers to reduce poverty. Such findings have several policy implications for the near future: a) Poor households in FSU transitional economies remain highly vulnerable to shocks in public and private transfers; b) the 2008-2009 recession is likely to expose this vulnerability and result in a surge in poverty larger than expected and c) the social assistance systems remain in great need of pro-poor reforms and cannot currently provide an adequate protection from economic shocks.
    Keywords: Private Transfers, Social Insurance, Social Assistance, Transitional Economies
    JEL: H5 I3 O1 P2
    Date: 2010–08
  5. By: Becker, Sascha O. (University of Warwick); Boeckh, Katrin (Osteuropa-Institut, Regensburg (OEI)); Hainz, Christa (Ifo Institute for Economic Research); Woessmann, Ludger (Ifo Institute for Economic Research)
    Abstract: Do empires affect attitudes towards the state long after their demise? We hypothesize that the Habsburg Empire with its localized and well-respected administration increased citizens' trust in local public services. In several Eastern European countries, communities on both sides of the long-gone Habsburg border have been sharing common formal institutions for a century now. Identifying from individuals living within a restricted band around the former border, we find that historical Habsburg affiliation increases current trust and reduces corruption in courts and police. Falsification tests of spuriously moved borders, geographic and pre-existing differences, and interpersonal trust corroborate a genuine Habsburg effect.
    Keywords: Habsburg Empire, trust, corruption, institutions, borders
    JEL: N33 N34 D73 Z10
    Date: 2011–03
  6. By: Jaan Masso; Jaanika Meriküll; Priit Vahter
    Abstract: Systems of profit taxation are undergoing continuous change and are subject to numerous studies. This paper estimates the effect of the corporate tax reform in Estonia in the year 2000, a reform that was unique anywhere. This reform nullified the taxation of retained earnings and retained the corporate income tax only on distributed profits. We estimate the effect of the reform on firms’ capital structure, liquidity, investments and productivity. The effect of the reform is identified by comparing the performance of Estonian firms that were affected with that of firms from Latvia and Lithuania, the two other Baltic states, which are economically fairly similar to Estonia and have correlated business cycles. We use firm-level financial data and the difference in differences and propensity score matching methods for our analysis. The results show that the corporate tax reform has resulted in increased holdings of liquid assets and lower use of debt financing; these results can be seen especially among the smaller companies affected by the liquidity constraints. These developments have contributed positively to firms’ survival during the recent global economic crisis. A positive effect on investment and labour productivity has also been found, especially among companies in the services sector. The results imply that distributed profit taxation schemes may have significant positive effects on economic development and firms’ survival.
    Keywords: corporate income tax, capital structure, liquidity, investments, productivity, comparative economic development
    JEL: H25 H32 O16
    Date: 2011
  7. By: Yu Sheng (Crawford School of Economics and Governance, Australian National University); Chunlai Chen (Crawford School of Economics and Governance, Australian National University); Christopher Findlay (School of Economics, University of Adelaide)
    Abstract: Using manufacturing industry firm-level census data from the period of 2000-2003 in China, this paper examines the impact of foreign direct investment on domestic firms' exports. After dealing with econometric problems of endogeneity and sample selection, we find that foreign direct investment in China has had a positive impact on domestic firms' export value through backward industrial linkages and a positive impact on domestic firms' export propensities in the same industry through demonstration effects. In particular, non-exporting FDI firms and FDI firms producing homogeneous products are more likely to generate the positive export spillovers to domestic firms through industrial linkages while exporting FDI firms and FDI firms producing heterogeneous products are more likely to generate positive export spillovers to domestic firms through demonstration effects in the same industry.
    Keywords: Foreign Direct Investment, export spillovers, industrial linkage
    JEL: F14 F23
    Date: 2011–03
  8. By: Junjun Hou; ;
    Abstract: Multinational Corporations (MNCs) affect China's standardization through participation in standard setting, education for standardization and other ways to seek commercial profits. MNCs' participation accelerates the speed and strengthens the transparency and internationality of China's standardization, however, it weakens the sovereignty of China's standardization and makes it harder to reach agreement in standardization. In order to achieve a win-win situation, this paper attempts to propose that Chinese stakeholders should keep a more open mind to MNCs, and MNCs should keep more patience to Chinese standardization, moreover there should be more communication and collaboration between Chinese stakeholders and MNCs.
    Date: 2011–02
  9. By: Gabor Pula (European Central Bank, Kaiserstraße 29, D-60311 Frankfurt am Main, Germany.); Daniel Santabárbara (Banco de España and European Central Bank, Kaiserstraße 29, 60311 Frankfurt am Main, Germany.)
    Abstract: There is an ongoing debate in the literature about the quality content of Chinese exports and to what extent China imposes a threat to the market positions of advanced economies. While China’s export structure is very similar to that of the advanced world, its export unit values are well below the level of developed economies. Building on the assumption that unit values reflect quality the prevailing view of the literature is that China exports low quality varieties of the same products than its advanced competitors. This paper challenges this view by relaxing the assumption that unit values reflect quality. We derive the quality of Chinese exports to the European Union by estimating disaggregated demand functions from a discrete choice model. The paper has two major findings. First, China’s share on the European Union market is larger than would be justified by its relatively low average prices, implying that the quality of Chinese export products is relatively high compared to many competitors. Second, China has gained quality relative to other competitors since 1995, indicating that China is climbing up the quality ladder. The relatively high and improving quality of China’s exports may be explained by the increasing role of global production networks in China. JEL Classification: F1, F12, F14, F15, F23.
    Keywords: Chinese Exports, Vertical Product Differentiation, Quality Ladder, Global Production Networks, Discrete Choice Model, COMEXT database.
    Date: 2011–03
  10. By: Kumiko Okazaki (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Masazumi Hattori (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Wataru Takahashi (Director-General, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: China's banking system reform has made notable progress since 2002. After restoring their balance sheets, Chinese banks have aggressively increased lending and contributed to supporting the country' s economy given the global financial crisis. Thus far, the regulated deposit and lending interest rates, undeveloped capital markets, and restrictions in cross-border capital transactions have given banks an advantage in gaining profits. However, along with the full-blown reform of the economic system toward a market-oriented economy, the conditions protecting banks' profits will change in the future. The experiences of Japanese banks under the financial liberalization that occurred during the 1970s and 1980s indicate how important it is for commercial banks to change their business models in accordance with the fundamental changes in the economy. These experiences may be useful for considering the subsequent reform process of the financial system in China.
    Keywords: Banking System Reform, Financial Liberalization, State-owned Commercial Banks, Rent for Banks
    JEL: G21 O16 O53 P34
    Date: 2011–03
  11. By: Leckie, Stuart H.
    Abstract: As quoted by Palacios and Whitehouse, there are separate pension schemes for civil servants in about half the world’s countries. This includes the People’s Republic of China. In some countries pension costs for public sector employees form a disproportionately large part of the total pension expenditure, and this applies to China. Whereas a considerable volume of material is available on the Chinese national pension systems, there has been far less study of the pension arrangements in place for the civil service, public service employees and military personnel in China. Indeed it has proven particularly difficult to obtain reliable and accurate information as to the pension arrangements for the People’s Liberation Army. Of course pension provision worldwide is attracting a great deal of attention because of its importance at a micro level, i.e. as replacement income for individuals after retirement, and at a macro level, viz. the impact on the overall economy of both funded and unfunded arrangements. The major pressures affecting the different pension systems in China, and indeed worldwide, include: - rapidly improving life expectancy; - changing work patterns, including greater labour mobility; - the effect of the global financial crisis on pension assets and on government budgets. This paper will describe the main elements of pension provision in China, i.e.: - state pension system for urban workers;- supplementary benefits for urban workers;- the National Social Security Fund;- the proposed rural pension system;- civil service and public servants pensions;- the military pension system. A description of certain reforms affecting public servants is given, together with comment on the desirability of further harmonising the various pension arrangements in China
    Date: 2011–02
  12. By: Libo Wu (Center for Energy Economics ans Strategy Studies, Fudan University); Jing Li (Department of World Economy, School of Economics, Fudan University); ZhongXiang Zhang (East-West Center)
    Abstract: This paper aims to examine the impacts of oil-price shocks on China’s price levels. To that end, we develop a partial transmission input-output model that captures the uniqueness of the Chinese market. We hypothesize and simulate price control, market factors and technology substitution - the three main factors that restrict the functioning of a price pass-through mechanism during oil-price shocks. Using the models of both China and the U.S., we separate the impact of price control from those of other factors leading to China’s price stickiness under oil-price shocks. The results show a sharp contrast between China and the U.S., with price control in China significantly preventing oil-price shocks from spreading into its domestic inflation, especially in the short term. However, in order to strengthen the economy’s resilience to oil-price shocks, the paper suggests a gradual relaxing of price control in China.
    JEL: Q43 Q41 Q48 O13 O53 P22 E31
    Date: 2011–03
  13. By: Xing, Yuqing (Asian Development Bank Institute)
    Abstract: This paper analyzes the role of processing trade in the People’s Republic of China (PRC)’s bilateral trade balances and the impact of the yuan’s appreciation on processing trade. The analysis is based on panel data covering the PRC’s 51 trading partners from 1993–2008. The empirical analysis shows that: (1) processing trade accounts for 100% of the PRC’s overall trade surplus and can explain most of its bilateral trade balances; (2) the PRC’s processing trade shows a significant regional bias—its processing exports to East Asian economies are three times those to other regions while its processing imports from East Asian economies are eleven times those from other regions; (3) the PRC is one of the major sources of its own processing imports, accounting for 16.8% of its total processing imports from all 51 trading partners; and (4) the appreciation of the yuan would affect both processing imports and exports in the same direction—specifically, a 10% real appreciation of the yuan would reduce not only the PRC’s processing exports by 9.6% but also its processing imports by 3.9%. Therefore, a moderate appreciation of the yuan would have a very limited impact on the PRC’s trade balance.
    Keywords: processing trade; east asia trade; bilateral trade balances; prc processing trade; yuan appreciation
    JEL: F10
    Date: 2011–03–23
  14. By: Xiaoli Chen (Shandong University); Yin-Wong Cheung (University of California, Santa Cruz and Hong Kong Institute for Monetary Research)
    Abstract: The paper assesses the international status of the Chinese currency renminbi (RMB) by recounting and reviewing the recent polices China instituted to promote the use of the RMB in the global market. The evidence suggests that the RMB is gaining acceptance overseas. However, compared with the size of the Chinese economy, the current scale of the use of the RMB is quite small. The path to a fully fledged international RMB will be a distant goal.
    Keywords: RMB Internationalization, Off-Shore RMB Market, Cross-Border Trade Settlement, Panda Bonds
    JEL: F02 F31 F33
    Date: 2011–03
  15. By: Liu Li (College of Environmental Science and Engineering, South China University of Technology); Li Bin
    Abstract: In recent years, Chinese policy makers have tried to balance development in different regions of the country by relocating industrial production from prosperous zones to less developed areas. However, this type of industrial relocation is usually accompanied by the transfer of pollution problems. To shed more light on the costs and benefits of this important policy tool, this study looks at the relocation of ceramics production from one region of Guangdong Province to another. The study finds that the transfer of some ceramics production from populous Foshan to less densely populated Qingyuan would be an effective way of reducing the overall negative effect of the industry's air pollution. However, the study underlines the importance of using effective pollution-abatement technology. It recommends that such technology should be implemented in Foshan and in any new ceramics factories in Qingyuan. It finds that the value of the health benefits produced by installing this technology will greatly exceed the cost of putting the technology in place.
    Keywords: pollution, China
    Date: 2010–08
  16. By: Tinh Doan (University of Waikato); John Gibson (University of Waikato); Mark Holmes (University of Waikato)
    Abstract: Quantile Treatment Effects are estimated to study the impacts of household credit access on health spending by poor households in one District of Ho Chi Minh City, Vietnam. There are significant positive effects of credit on the health budget shares of households with low healthcare spending. In contrast, when an Average Treatment Effect is estimated, there is no discernible impact of credit access on health spending. Hence, typical approaches to studying heterogeneous credit impacts that only consider between group differences and not differences over the distribution of outcomes may miss some heterogeneity of interest to policymakers.
    Keywords: credit; healthcare budget share; quantile treatment effects; Vietnam
    JEL: C21 I19
    Date: 2011–02–18
  17. By: Vladimir Klyuev; Stephen Snudden
    Abstract: This paper uses the IMF’s Global Integrated Monetary and Fiscal Model (GIMF) to assess the impact of fiscal consolidation on the Czech economy. Its contribution is threefold. First, it provides estimates of dynamic fiscal multipliers for a variety of fiscal instruments (tax and expenditure), consolidation durations, assumptions about credibility, and monetary policy responses. Second, the paper evaluates the impact on the economy of tightening measures envisaged in the 2011 budget. Third, the paper considers alternative packages for consolidation beyond 2011 to achieve the government’s balanced budget target by 2016 and identifies which forms of adjustment are more "growth-friendly".
    Date: 2011–03–24
  18. By: Pavel Gertler (National Bank of Slovakia, Research Departmen)
    Abstract: The paper studies the relationship between the local unemployment rate and wage level – commonly referred to as the wage curve. Using a panel data setup for annual enterprise-level microdata, we confirm previous findings that wages in Slovakia are, on the whole, relatively flexible – with a rise in the local unemployment rate of 1 percentage point being associated with a drop in wages of 0.85%. We find, however, that these elasticities differ considerably across sectors, regions and, in particular, skills. Our results indicate that overall wage flexibility in the Slovak labour market is driven more by the wage flexibility of higher-skilled employees, and their broader opportunities for employment, than by the institutional arrangements of the labour market.
    Keywords: wage curve, panel data, unemployment elasticity of wages, wage flexibility, Slovakia, Phillips curve, microdata
    JEL: E E C
    Date: 2010–12
  19. By: István P. Székely; Werner Roeger; Jan in 't Veld
    Abstract: This paper uses a multi region DSGE model with collateral constrained households and residential investment to examine the effectiveness of fiscal policy stimulus measures in a credit crisis. The paper explores alternative scenarios which differ by the type of budgetary measure, its length, the degree of monetary accommodation and the level of international coordination. In particular we provide estimates for New EU Member States where we take into account two aspects. First, debt denomination in foreign currency and second, higher nominal interest rates, which makes it less likely that the Central Bank is restricted by the zero bound and will consequently not accommodate a fiscal stimulus. We also compare our results to other recent results obtained in the literature on fiscal policy which generally do not consider credit constrained households.
    Keywords: Fiscal Policy, Monetary Policy, Fiscal Multiplier, Collateral Constraint, DSGE modelling
    JEL: E21 E62 F42 H31 H63
    Date: 2011–03
  20. By: Matić, Branko; Papac, Nikola
    Abstract: The term ‘corporate governance’ stands for a set of relations between management, large and small shareholders and other interest groups. A good corporate governance system is the basic postulate of sustainable economic growth, increase in economic system efficiency and a guarantee for easier access to sources of foreign capital. Ownership concentration is a significant internal mechanism of corporate governance because it greatly defines the relationship between owner and manager. There are two types of ownership concentration: highly dispersed ownership, that is, low ownership concentration, and very high ownership concentration. These concentration differences affect the corporate governance system itself, so there is a difference between a closed corporate governance system in the situation of high ownership concentration and an open corporate governance system where the situation is the reverse. The form of the system affects how the governing body is formed and structured, as well as how it operates and conducts its business policies. Within the financial system of Bosnia and Herzegovina, the banking system is dominant. An analysis of the corporate governance system has shown a relationship between ownership concentration and the form of the corporate governance system itself. 3e banking sector is predominantly owned by foreign companies and is characterized by a high ownership concentration. The fact that the corporate governance system is closed affects the election of members to the governing body and their work in enforcing business policies.
    Keywords: corporate governance; stakeholders; corporate governance system; the banking sector of Bosnia and Herzegovina
    JEL: G3
    Date: 2010–07

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