nep-tra New Economics Papers
on Transition Economics
Issue of 2011‒08‒02
twelve papers chosen by
J. David Brown
Heriot-Watt University

  1. The Land that Lean Manufacturing Forgot? Management Practices in Transition Countries By Nicholas Bloom; Helena Schweiger; John Van Reenen
  2. Lessons from the East European Financial Crisis, 2008-10 By Anders Aslund
  3. Why transition economies did worse than others in 2008-09 recession? By Popov, Vladimir
  4. Graduate labor mismatch in Central and Eastern Europe By Aleksander Kucel; Montserrat Vilalta-Bufi; Peter Robert
  5. Parental Job Loss and Children’s Health: Ten Years after the Massive Layoff of the SOEs’ Workers in China By Liu, Hong; Zhao, Zhong
  6. Rock, scissors, paper: the problem of incentives and information in traditional Chinese state and the origin of Great Divergence By Ma, Debin
  7. Chemical Fertilizer and Migration in China By Avraham Ebenstein; Jian Zhang; Margaret S. McMillan; Kevin Chen
  8. Negotiating Political Spaces: Social and Environmental Activism in the Chinese Countryside By Maria Bondes
  9. Breaking the Impasse in International Climate Negotiations: A New Direction for Currently Flawed Negotiations and a Roadmap for China to 2050 By ZhongXiang Zhang
  10. Currency Union and Investment Flows: Estimating the Euro Effect on FDI By Marián Dinga; Vilma Dingová
  11. Development and the cyclicality of government spending in the Czech Republic By Szarowska, Irena
  12. Political Legislation Cycle in the Czech Republic By Josef Brechler; Adam Gersl

  1. By: Nicholas Bloom; Helena Schweiger; John Van Reenen
    Abstract: We have conducted the first survey on management practices in transition countries. We found that Central Asian transition countries, such as Uzbekistan and Kazakhstan, have on average very poor management practices. Their average scores are below emerging countries such as Brazil, China and India. In contrast, the central European transition countries such as Poland and Lithuania operate with management practices that are only moderately worse than those of western European countries such as Germany. Since we find these practices are strongly linked to firm performance, this suggests poor management practices may be impeding the development of Central Asian transition countries. We find that competition, multinational ownership, private ownership and human capital are all strongly correlated with better management. This implies that the continued opening of markets to domestic and foreign competition, privatisation of state-owned firms and increased levels of workforce education should promote better management, and ultimately faster economic growth.
    JEL: M11
    Date: 2011–07
  2. By: Anders Aslund (Peterson Institute for International Economics)
    Abstract: In the fall of 2008, Central and Eastern Europe became a flashpoint in the global financial crisis. The positive surprise, however, is that after about two years, the crisis in the region had more or less abated. Public attention moved from Latvia, Estonia, and Lithuania to the PIIGS (Portugal, Ireland, Italy, Greece, and Spain). The issue was no longer why Latvia must devalue but what Greece could learn from Latvia. What lessons can be drawn from the resolution of the financial crisis in Eastern Europe for the rest of the European Union and the world at large?
    Date: 2011–06
  3. By: Popov, Vladimir
    Abstract: While developing countries as a group did better than developed countries in 2008-09 recession, transition economies – former communist countries – experienced the largest reduction of output. Out of 42 countries that experienced negative growth in 2007-09, 13 were transition economies. In fact, 4 out of 5 most affected economies were former communist countries (Latvia, Estonia, Ukraine, Lithuania). The hypothesis is that these transition countries (1) suffered more than the others from the sudden outflow of capital and (2) did not manage this outflow particularly well. The rule of thumb was that large outflows of capital, especially coupled with negative trade shocks, suppressed economic activity. But if the shocks were relatively small (up to 3% of GDP change in trade and capital account from Q2 2008 to an average of subsequent 3 quarters), it was possible to mitigate them through devaluation (not allowing foreign exchange reserves to drop by the same amount). If the shocks were large, even devaluation did not allow to avoid output fall.
    Keywords: Recession 2008-09; capital outflow; trade shocks; devaluation
    JEL: F42 F40 F41 F43
    Date: 2011–03
  4. By: Aleksander Kucel; Montserrat Vilalta-Bufi; Peter Robert (Universitat de Barcelona)
    Abstract: Using crosssection data from the REFLEX/HEGESCO surveys, this paper explores the likelihood of educationjob mismatch in Central and Eastern Europe. We classify countries in two groups according to the signaling strength of their educational credentials: the occupational labor market group (Poland, Czech Republic and Slovenia) and the internal labor market group (Hungary, Lithuania and Estonia). We analyze three types of mismatch: the vertical mismatch (under/overeducation), horizontal mismatch (inadequacy of the field of study) and, finally, skills mismatch. We are particularly interested in studying how fields of study and individual competencies affect mismatch in the labor market in these economies. Results indicate that fields of study and individual competencies both significantly affect the likelihood of various types of mismatch. There are important differences between occupational and internal labor market structures in terms of mismatch determinants.
    Keywords: competencies, educationlabor mismatch, occupational labor market, fields of study, eastern europe, internal labor market, overeducation
    JEL: I28 J44 I23 J24
    Date: 2011
  5. By: Liu, Hong (Central University of Finance and Economics); Zhao, Zhong (Renmin University of China)
    Abstract: Beginning in the mid 1990s, China sped up its urban labor market reform and drastically restructured its state-owned enterprises (SOEs), which resulted in massive layoff of the SOEs' workers and a high unemployment rate. In this paper, we investigate the impact of the parents’ job loss on the health of their children, using six waves of the China Health and Nutrition Survey covering the period from 1991 to 2006. We find that paternal job loss has a significant negative effect on children's health, whilst maternal job loss has no significant effect. The rationale behind the findings is that the income loss resulting from maternal job loss is much smaller; at the same time, the unemployed mothers are likely to increase the time they devote to care of their children, and this may alleviate the negative effect resulting from maternal job loss. Our findings are robust to various specifications.
    Keywords: children’s health, job loss, Grossman’s model, China
    JEL: I12 J63 N35 J13
    Date: 2011–07
  6. By: Ma, Debin
    Abstract: This article posits that the political institution of imperial China – its unitary and centralized ruling structure – is an essential determinant to China‘s long-run economic trajectory and its early modern divergence from Western Europe. Drawing on institutional economics, I demonstrate that monopoly rule, a long time-horizon and the large size of the empire could give rise to a path of low-taxation and dynastic stability in imperial China. But fundamental incentive misalignment and information asymmetry problems within its centralized and hierarchical political structure also constrained the development the fiscal and financial capacity of the Chinese state. Based on a reconstruction of two millennia records of incidences of warfare, this paper develops a narrative to show that the establishment and consolidation towards a single unitary monopoly of political power was an endogenous historical process. Using data series on warfare and government revenue for 17-19th century, I illustrate the Qing imperial rule as an epitome of the traditional Chinese political economy.
    JEL: O53 N0
    Date: 2011–07
  7. By: Avraham Ebenstein; Jian Zhang; Margaret S. McMillan; Kevin Chen
    Abstract: This paper examines a possible connection between China’s massive rural to urban migration and high chemical fertilizer use rates during the late 1980s and 1990s. Using panel data on villages in rural China (1987-2002), we find that labor out-migration and fertilizer use per hectare are positively correlated. Using 2SLS, employing the opening of a Special Economic Zone in a nearby city as an instrument, we find that village fertilizer use is linked to contemporaneous short-term out-migration of farm workers. We also examine the long-term environmental consequences of chemical fertilizer use during this period. Using OLS, we find that fertilizer use intensity is correlated with future fertilizer use rates and diminished effectiveness of fertilizer, demonstrating persistency in use patterns, and suggesting that in areas with high use of fertilizer, the land is becoming less responsive. We also demonstrate that fertilizer use within a river basin is correlated with organic forms of water pollution, suggesting that industrialization has induced pollution in China both directly and through its impact on rural labor supply.
    JEL: O1 O13
    Date: 2011–07
  8. By: Maria Bondes (GIGA Institute of Asian Studies)
    Abstract: The proliferation of social organizations in China has engendered a lively debate about how to conceptualize these social forces. This paper argues that such a conceptualization should take into account the role that both the party?state and social actors attribute to social organizations. With an empirical case study from the western Chinese countryside, this paper explores how social organizations both adapt to the restrictive authoritarian framework and negotiate the spaces opening up to society in the realms of environmental and social politics. The study shows that while the party?state understands organizations as consultants and partners in service provision, they have a deviating self?image with the Western concepts of “NGO” and “civil society” becoming increasingly relevant as frames of reference. While their practices remain within the limits imposed by the authoritarian framework, they impact policy formulation, local political participation, and the formation of social networks according to their own self?image as members of a budding Chinese civil society.
    Keywords: China, civil society, NGO, social organizations
    Date: 2011–07
  9. By: ZhongXiang Zhang
    Abstract: China’s unilateral pledge to cut its carbon intensity by 40-45 percent by 2020 relative to its 2005 levels raises both the stringency issue, and given that China’s pledge is in the form of carbon intensity, reliability issues concerning China’s statistics on energy and GDP. Moreover, as long as China’s commitments differ in form from those of other major greenhouse gas emitters, China is constantly confronted with both criticism on its carbon intensity commitment being less stringent and the threats of trade measures. In response to these concerns and to put China in a positive position, this paper will map out a realistic roadmap for China’s specific climate commitments towards 2050, with its main distinguishing features including China taking on absolute emission caps around 2030 and the three transitional periods of increasing climate obligations before that. With current international climate negotiations flawed with a focus on commitments on the targeted date of 2020 that does not accommodate well the world’s two largest greenhouse gas emitters, the paper suggests a new direction to break the current impasse in international climate negotiations.
    Keywords: Carbon Intensity, Post-Copenhagen Climate Change Negotiations, Climate Commitments, China
    JEL: Q42 Q43 Q48 Q52 Q53 Q54 Q58
    Date: 2011–06
  10. By: Marián Dinga (CERGE-EI); Vilma Dingová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper studies the effect of the euro introduction on international FDI flows. Using country-pair data on 35 OECD economies during 1997-2008 and adopting the propensity score matching as identification strategy, we investigate the impact of the euro on capital reallocation. In general, the euro exhibits no significant impact on FDI. However, the effect becomes significant on the subset of EU countries, increasing FDI flows by 14.3 to 42.5 percent. Furthermore, we find that the EU membership fosters FDI flows much more than the euro, increasing FDI flows by 55 to 166 percent. Among other FDI determinants, high gross domestic product, low distance between countries and low unit labor costs in target country have a positive effect on FDI. On the contrary, long-term exchange rate volatility deters FDI flows.
    Keywords: monetary union, foreign direct investment, common currency area, euro
    JEL: E42 F15 F21
    Date: 2011–07
  11. By: Szarowska, Irena
    Abstract: This paper aims to provide direct empirical evidence on business cycle relations between GDP and government spending in the Czech Republic. Government spending plays an important role in a fiscal policy as a possible automatic stabilizer. We analyzed annual data on government spending in compliance with the COFOG international standard. We use cross-correlation on cyclically filtered adjusted time series over the period 1995-2008. The cyclical properties of GDP and government spending function were, in average, found as weakly correlated. However, we report considerable differences in correlations across the spending functions. The lowest correlation coefficient (0.06) was found for recreation, culture and religion and the highest average was reported for economic affairs (-0.51). As regards to using government spending as the stabilizer, total government spending, general public services, defense, economic affairs and education spending were negative correlated and it confirms countercyclical relation between these spending functions and GDP. It is in line with theory suggestion. On the other hand, the highest spending function (social protection) correlated weak positive and it mean procyclical development. The results of Johansen cointegration test proved the existence of long-run relationship between GDP and total government spending, public order and safety and economic affairs.
    Keywords: Government spending; cyclicality; economic growth; correlation; cointegration.
    JEL: C32 E62 H5
    Date: 2011–05
  12. By: Josef Brechler (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Adam Gersl (Czech National Bank; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: There is a wide range of theories that try to explain interactions between politics end economy that are referred as political cycles. Majority of these theories aims at analysis of changes in economic outcomes that are related to elections or other phenomena in the political reality. To induce at least some of these changes it is necessary to alter a country’s legislation which leads to emergence of political legislation cycles – changes in legislation activity over time in an electoral term. The aim of this paper is to study political legislation cycle in the legislative system of the Czech Republic. Obtained results suggest that elections timing has an impact on legislation activity. As electoral term matures and upcoming elections are getting closer an increase is observed in the legislation activity.
    Keywords: political business cycle, economic theory of legislation, voters
    JEL: H61 H62 C49
    Date: 2011–07

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