nep-tra New Economics Papers
on Transition Economics
Issue of 2011‒08‒09
sixteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Estimation of a Health Production Function: Evidence from East-European Countries. By Bichaka Fayissa; Anca Traian
  2. What Explains Prevalence of Informal Employment in European Countries: The Role of Labor Institutions, Governance, Immigrants, and Growth By Hazans, Mihails
  3. Tax return as a political statement By Libman, Alexander; Schultz, André; Graeber, Thomas
  4. Energy service companies in China: The role of social networks and trust By Kostka, Genia; Shin, Kyoung
  5. Endogenous Coordination: Multinational Companies and the Production of Collective Goods in Central and Eastern Europe By Bob Hancké
  6. Productivity in China's high technology industry: Regional heterogeneity and R&D By Zhang, Rui; Sun, Kai; Delgado, Michael; Kumbhakar, Subal
  7. Dual-Track Interest Rates and the Conduct of Monetary Policy in China By Dong He; Honglin Wang
  8. Impact of Economic Development on Provincial Relative Price of Agricultural Product to Industrial Product in China: A Note for the Analysis of Regional Income Differences by Provincial Economic Characteristics By Keiya Eto
  9. Income Redistribution in Urban China by Social Security System: An Empirical Analysis Based on Annual and Lifetime Income By Lixin He; Hiroshi Sato
  10. Assessment of the Labour Market in Serbia By Vladimir Gligorov; Hermine Vidovic; Kosovka Ognjenović
  11. The Post-Enlargement Migration Experience in the Baltic Labor Markets By Hazans, Mihails; Philips, Kaia
  12. Emigration Triggers: International Migration of Polish Workers between 1994 and 2009 By Katarzyna Budnik
  13. Integration in the Absence of Institutions: China-North Korea Cross-Border Exchange By Marcus Noland; Stephan Haggard; Jennifer Lee
  14. Informal Workers across Europe: Evidence from 30 Countries By Hazans, Mihails
  15. Public Expenditures on Education and Health in Georgia before and during the Global Crisis By Maka Chitanava; Maya Grigolia; Lasha Labadze
  16. Protecting Vulnerable Families in Central Asia: Poverty, vulnerability and the impact of the economic crisis By Franziska Gassmann; UNICEF Innocenti Research Centre

  1. By: Bichaka Fayissa; Anca Traian
    Abstract: The purpose of this study is to estimate a health production function for the 13 East European countries including Belarus, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia and Ukraine. Using panel data from 1997 to 2005 on a diverse array of economic, demographic, environmental, and lifestyles factors as inputs, we analyze a health production function at the macro level in order to determine the most efficient way of allocating limited resources for improving the overall health status of countries in the sample. To control for individual country heterogeneity, we employ panel analytic methods of fixed effects, random effects, and Arellano – Bond estimator. The results indicate that economic growth as measured by GDP per capita growth, investment in human capital formation, and residence in urban areas significantly reduce infant mortality and thus improve the health status of countries in the sample. These findings are useful, not only for serving as background for health care policy decisions, but also for a better understanding of the factors that affect the health condition of the region.
    Keywords: Health Status, Eastern European Countries, Fixed-Effects, Random-Effects, Arellano-Bond estimator
    JEL: I12 I20
    Date: 2011–07
  2. By: Hazans, Mihails (University of Latvia)
    Abstract: European Social Survey data on 30 countries, covering years 2004-2009, are used to look into joint institutional [and other macro] determinants of the rates of dependent employment without a contract, informal self-employment, and unemployment (secondary jobs are not accounted for). Consistently with theoretical predictions, quality of business environment has a significant negative impact on prevalence of both types of informal employment. The share of non-contracted employees is negatively affected by perceived quality of public services and is positively related to economic growth. GDP per capita has a positive impact on informality in Europe at large and within Eastern and Southern Europe. Other things equal, the share of non-contracted employees in the labor force across all European countries increases with the minimum-to-average wage ratio, with union density, with the share of first and second generation immigrants, and with income inequality, but falls with stricter employment protection legislation (EPL) and higher tax wedge on labor. Thus it appears that in Europe at large, labor cost effects of EPL and taxes are weaker than their impact via perceptions of job security and law enforcement, along with tax morale and the income effect. Yet the EPL effect on informality is positive (i.e., cost-related) when either Eastern and Southern Europe or Western and Northern Europe are considered separately. Furthermore, within Western and Northern Europe, the minimum wage effect is negative, whilst within Eastern and Southern Europe, the union effect is negative. Various panel data methods are used to confirm the robustness of the results.
    Keywords: labor market institutions, informal employment, immigrants, ethnic minorities
    JEL: J08 J21 J51 J61 K31
    Date: 2011–07
  3. By: Libman, Alexander; Schultz, André; Graeber, Thomas
    Abstract: The accuracy of a tax return is usually interpreted as an outcome of the tax evasion decision by an individual. However, in non-democratic regimes with predatory blackmail tax systems it is possible that large sums voluntarily reported by influential politicians or businessmen may be used as political statements. By openly acknowledging one's personal income an individual can signal the strength of one's position, or, on the contrary, the submissiveness to the political leadership. In this paper we explore the idea of the tax return as a political statement and test it using a unique dataset of the tax returns filed by the Russian regional governors and the members of their families for the year 2009. Our results conjecture that Russian governors may deliberately file their tax return as a political statement to signal their strength vis-à-vis the central government. --
    Keywords: tax compliance,communication in non-democracies,Russian regions
    JEL: D73 D78 H26 P26
    Date: 2011
  4. By: Kostka, Genia; Shin, Kyoung
    Abstract: China's energy-service companies (ESCOs) have developed only modestly despite favorable political and market conditions. We argue that with sophisticated market institutions still evolving in China, trust-based relations between ESCOs and energy customers are essential for successful implementation of energy efficiency projects. Chinese ESCOs, who are predominantly small and private enterprises, perform poorly in terms of trust-building because they are disembedded from local business, social, and political networks. We conclude that in the current institutional setting, the ESCO model based on market relations has serious limitations and is unlikely to lead to large-scale implementation of energy efficiency projects in China. --
    Keywords: energy policies,energy service companies (ESCO),social networks,trust,China
    JEL: Q40 Q48 O53
    Date: 2011
  5. By: Bob Hancké
    Date: 2011–08
  6. By: Zhang, Rui; Sun, Kai; Delgado, Michael; Kumbhakar, Subal
    Abstract: This paper analyzes the impact of Research and Development (R&D) on the productivity of China's high technology industry. In order to capture important differences in the effect of R&D on output that arise from geographic and socioeconomic differences across three major regions in China, we use a novel semiparametric approach that allows us to model heterogeneities across provinces and time. Using a unique provincial level panel dataset spanning the period 2000-2007, we find that the impact of R&D on output varies substantially in terms of magnitude and significance across different regions. Results show that the eastern region benefits the most from R&D investments, however it benefits the least from technical progress, while the western region benefits the least from R&D investments, but enjoys the highest benefits from technical progress. The central region benefits from R&D investments more than the western region and benefits from technical progress more than the eastern region. Our results suggest that R&D investments would significantly increase output in both the eastern and central regions, however technical progress in the central region may further compound the effects of R&D on output within the region.
    Keywords: China; Research and Development; Productivity; Semiparametric smooth coefficient model
    JEL: C14 L00
    Date: 2011–06–30
  7. By: Dong He (Hong Kong Monetary Authority and Hong Kong Institute for Monetary Research); Honglin Wang (Hong Kong Monetary Authority and Hong Kong Institute for Monetary Research)
    Abstract: China has a dual-track interest-rate system: bank deposit and lending rates are regulated, but money and bond market rates are market-determined. At the same time, the central bank also imposes an indicative target, which may not be binding at all times, on total credit in the banking system. We develop and calibrate a theoretical model to illustrate the conduct of monetary policy within the framework of dual-track interest rates and a juxtaposition of both price- and quantity-based policy instruments. We model the transmission of monetary policy instruments to market interest rates, which, together with the quantitative credit target in the banking system, ultimately serve as the lever by which monetary policy affects the real economy. The model shows that market interest rates are most sensitive to changes in the benchmark deposit interest rates, significantly responsive to changes in the reserve requirements, but not particularly reactive to open market operations. These theoretical predictions are verified and supported by both linear and GARCH models using daily money and bond market data. Overall, the results of this study help us understand why the central bank conducts monetary policy in China the way it does: a combination of price and quantitative instruments, with various degrees of potency in terms of their influence on the cost of credit.
    Keywords: Monetary Policy, People's Bank of China, Dual-Track Interest Rates, Interest Rate Liberalization
    JEL: E52 E58 C25 C32
    Date: 2011–07
  8. By: Keiya Eto
    Date: 2011–08
  9. By: Lixin He; Hiroshi Sato
    Abstract: This study investigates the redistributive effect of the social security reform in urban China using the nationally representative urban household surveys in 1995 and 2002. The main findings are as follows. First, public pension is the main income for the elderly in urban China. Majority of people aged 60 and over (72% in 1995, 82% in 2002) have pension. Second, the social security system in urban China improved the income of low-income and older age groups and reduced the relative poverty rate. However, the redistributive effect did not offset the expanding income inequality, which resulted in the Gini coefficient of redistributed income in 2002 being higher than that in 1995. Third, during 1995 and 2002, both low income group and high income group get positive net benefit from social security system, but the net benefit is increasing with income. There is an adverse income transfer in social security system no matter measured on annual income or lifetime income. Fourth, assuming that the reformed policy were applied to public sector employees, the long-term redistributive effect of the pension system for the working population, as calculated using their lifetime income, would be larger.
    Keywords: lifetime income, income redistribution, social security, pension, China
    JEL: E21 H55 P43
    Date: 2011–07
  10. By: Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw); Kosovka Ognjenović
    Abstract: In the period after the political changes in the year 2000, GDP growth in Serbia was rather rapid and compares favourably with other transition countries in Southeastern Europe. It was driven mainly by the expansion of services, with industrial production and agriculture basically stagnating over the whole period. The labour market effects were similar to those in other countries going through transition: employment declined in the public sector and increased in the private sector, with the overall number of employed declining and those unemployed increasing, and also with strong increases in the number of pensioners. The Serbian labour market is characterized by low employment and activity rates, particularly for women and young people. This indicates the weaknesses of the secondary educational system in adapting to the needs of the labour market, but also the obsolete skills of the high percentage of long-term unemployed. In general, the educational attainments of the workforce have changed only marginally over recent years. Labour mobility, as everywhere in Europe, is very low in Serbia. By contrast, Serbia’s (outward) migration is very high and remittances constitute an important share of income. Brain drain has become an important issue in recent years though it is hardly a new phenomenon. However, for highly educated people, the relevant labour market is the world labour market. Informal sector employment, which has been traditionally high in Serbia, even increased during the past decade, with a rising share of older workers, better educated persons with secondary education or more, self-employed persons and unpaid family workers. During the current crisis there has been a marked decline in the number of self-employed persons, which is where most informally employed people are to be found. Serbia has not relied on consistent labour market policies to address the low level of employment and high level of unemployment. Some changes are being introduced in the crisis and post-crisis periods, but the effects are uncertain and are yet to be determined in any case. Although spending on passive and active labour market policy measures in Serbia has been growing in the past couple of years, it is still low compared to the EU average but higher than in most other Western Balkan countries. The lion’s share of the available budget is spent on passive measures. An important step in order to improve the efficiency of labour market policy measures was made in 2007, when the administration of health insurance was separated from the NES which absorbed much time and efforts in the past. Transition and the current crisis have led to the development of significant structural problems in the labour markets in Serbia. The policies so far have been inadequate as they have been targeting cyclical rather than structural problems. This needs to be changed in the future with significant improvements in the policy design and the institutional support for implementation.
    Keywords: labour market, wage developments, skill mismatch, informal economy, labour market policies
    JEL: J08 J21 J24 J31 J43 J64
    Date: 2011–05
  11. By: Hazans, Mihails (University of Latvia); Philips, Kaia (University of Tartu)
    Abstract: We use Lithuanian, Latvian and Estonian LFS data (2002-2007) complemented with several other surveys to compare the profile of Baltic temporary workers abroad before and after EU accession with that of stayers and return migrants. Determinants of migration and return, as well as selection issues are discussed. Post-enlargement migrants from all three countries were significantly less educated than stayers. After accession, medium-educated workers were most likely to move, other things equal, and human capital became increasingly less pro-migration over time. Return migrants differ from all movers in many ways and, in particular, are more educated. Although brain drain was not a feature of post-accession Baltic migration, brain waste was: during 2006-2007, the proportion of overqualified among high-educated movers ranged from five out of ten for Latvia to seven out of ten for Lithuania, but it was around one fifth among high-educated stayers in all three countries. We find that the free movement of labor partially introduced in 2004 (and expanded in 2006) for EU citizens, although excluding Baltic non-citizens, brought about significant changes in how ethnicity and citizenship affect workers' mobility. We conclude by discussing migration perspectives in the context of recession.
    Keywords: return migrants, Baltic countries, EU enlargement, migration, ethnic minorities
    JEL: J61 J15
    Date: 2011–07
  12. By: Katarzyna Budnik (National Bank of Poland, Economic Institute; Warsaw School of Economics)
    Abstract: This paper analyzes the emigration propensity of Polish workers between 1994 and 2009. Particular attention is paid to a labour market situation of prospective temporary emigrants, the role of developments on host labour markets and the importance of an open-door policy. The Polish household survey data suggest that temporary emigrants are generally young, more frequently male than female, well educated but with less labour market experience, and have less family commitments than stayers. Other things equal, non-employed are twice that likely to emigrate as employed. The propensity to emigrate varies substantially among the employed. Farmers and employees employed on permanent contracts or in jobs with a high social prestige (managerial or specialist positions) are least probable to leave Poland. The highest propensity to emigrate is observed among temporarily employed or helping family members. The introduction of an open-door policy by majority of the European Economic Area countries after 2004 significantly facilitated emigration from Poland and increased the share of workers leaving to countries with the more liberal immigration regime. The open-door policy within the European Economic Areas amplifies responses of Polish workers to cyclical fluctuations in employment opportunities abroad. Similar changes in the unemployment rate (real wages) abroad lead to more pronounced reaction of temporary emigration or return migration flows, then before the European Union enlargement.
    Keywords: emigration, EU enlargement, open-door policy, labour market flexibility
    JEL: C34 C35 J61
    Date: 2011
  13. By: Marcus Noland (Peterson Institute for International Economics); Stephan Haggard (University of California, San Diego Graduate School of International Relations and Pacific Studies); Jennifer Lee (Eurasia Group)
    Abstract: Theory tells us that weak rule of law and institutions deter cross-border integration, deter investment relative to trade, and inhibit trade finance. Drawing on a survey of more than 300 Chinese enterprises that are doing or have done business in North Korea, we consider how informal institutions have addressed these problems in a setting in which rule of law and institutions are particularly weak. Given the apparent reliance on hedging strategies, the rapid growth in exchange witnessed in recent years may prove self-limiting, as the effectiveness of informal institutions erode and the risk premium rises. Institutional improvement could have significant welfare implications, affecting the volume, composition, and financial terms of cross-border exchange.
    Keywords: economic integration, property rights, institutions, transition, China, North Korea
    JEL: P3 P33 F15 F36
    Date: 2011–08
  14. By: Hazans, Mihails (University of Latvia)
    Abstract: The European Social Survey data are used to analyze informal employment at the main job in 30 countries. Overall, informality decreases from South to West to East to North. However, dependent work without contract is more prevalent in Eastern Europe than in the West, except for Ireland, the UK and Austria. Between 2004 and 2009, no cases found when unemployment and dependent informality rates in a country went up together, suggesting that work without contract is pro-cyclical in Europe. Dependent informality rate is inversely related to skills (measured by either schooling or occupation). The low-educated, the young (especially students), the elderly, and persons with disabilities are more likely to work informally, other things equal. In Southern and Western Europe, immigrants from CEE and FSU feature the highest dependent informality rate, whilst in Eastern Europe this group is second after minorities without immigrant background. In Eastern, Southern and part of Western Europe, immigrants not covered by EU free mobility provisions are more likely to work without contracts than otherwise similar natives. We provide evidence that exclusion and discrimination play important role in pushing employees into informality, whilst this seems not to be the case for informal self-employed. Both on average and after controlling for a rich set of individual characteristics, informal employees in all parts of Europe are having the largest financial difficulties among all categories of employed population (yet they fare much better than the unemployed and discouraged), whilst informal self-employed are at least as well off as formal employees.
    Keywords: informal employment, human capital, discrimination, minorities, immigrants
    JEL: J21 J24 J61 J71 O17 O52
    Date: 2011–07
  15. By: Maka Chitanava; Maya Grigolia; Lasha Labadze
    Abstract: After years of stagnation and political cataclysms, Georgia tried to recover by launching radical economic and political reforms starting in 2004. The results of the reforms appeared to be impressive. The country’s GDP has more than doubled; the total volume of bank deposits is five times what it used to be. Key international indices (Doing Business Index, Economic Freedom Index, Corruption Perception Index) have also reflected the success of the reforms. The occupation of the Georgian territories by Russia in August 2008 and the global financial crisis have significantly changed the current macroeconomic environment in Georgia. The August conflict undermined investor and consumer confidence, put pressure on public finances, damaged physical and other infrastructure and undermined the banking system with a large volume of deposit withdrawals. The deepening of the international financial crisis put further pressure on currency and foreign investments. The purpose of this paper is to consider the nature and magnitude of the impact of the global financial crisis on Georgia’s social services sector and on the country’s economy as a whole. The global financial crisis had a sharp impact on the most disadvantaged members of the society. The main objectives of the paper are to describe to what extent the education and healthcare sectors were affected in Georgia and to investigate how government policies have addressed the problems which arose due to the financial crisis.
    Keywords: Georgia, Education, Health Care Sector, Public Service Delivery, Development During the Financial Crisis, Financial Crisis in Georgia, Georgia’s education sector, Georgia’s health sector, Georgia’s macro indicators, Financial aid
    JEL: H11 H51 H52 I11 I12 I18 I21 I22 I28
    Date: 2011
  16. By: Franziska Gassmann; UNICEF Innocenti Research Centre
    Abstract: This paper provides an overview of the social and economic vulnerabilities of households with children in the five Central Asian countries, and assesses the ability of national social protection systems to address these, with the main focus on the role of non-contributory cash transfers financed from general government revenues. The paper concludes that the existing social cash transfer systems are not effective in addressing the needs of poor and vulnerable children and families in Central Asia. Limited coverage together with limited funding reduces the potential poverty reduction impact of the programmes.
    Keywords: economic crisis; poverty reduction; social assistance; social protection;
    JEL: H0
    Date: 2011

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