nep-tra New Economics Papers
on Transition Economics
Issue of 2011‒09‒16
twenty papers chosen by
J. David Brown
Heriot-Watt University

  1. Is the Dragon Learning to Fly? An Analysis of the Chinese Patent Explosion By Markus Eberhardt; Christian Helmers; Zhihong Yu
  2. The Implementation of Monetary Policy in China: The Interbank Market and Bank Lending By Hongyi Chen; Qianying Chen; Stefan Gerlach
  3. Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market By Deng, Yongheng; Morck, Randall; Wu, Jing; Yeung, Bernard
  4. Labour Migration and Time Use Patterns of the Left-Behind Children and Elderly in Rural China By Hongqin Chang; Xiao-yuan Dong; Fiona MacPhail
  5. Productivity growth and ownership change in China: 1998-2007 By Liu, Jing; Cao, Shutao
  6. Is « Pollution Haven » Hypothesis valid for China’s manufacture sectors? An empirical analysis based on carbon embodied in trade By Jie He; Jingyan Fu
  7. Is Monetary Policy in the New EU Member States Asymmetric? By Borek Vasicek
  8. Left‐Behind Children and Return Decisions of Rural Migrants in China By Sylvie Demurger; Hui Xu
  9. Impact of industrial linkages on firm performance in development zones By Hu, Zhining; Zheng, Jianghuai; Wang, Jialing
  10. Eastern Europe shifts second gear By Mohelsky, Lukas
  11. The importance of activity-based costing method (ABC) In Romania's business environment changes By Căpuşneanu, Sorinel/I; Cokins, Gary; Barbu, Cristian Marian
  12. Foreign direct investment under weak rule of law : theory and evidence from China By Wang, Xiaozu; Xu, Lixin Colin; Zhu, Tian
  13. Debt overhang in emerging Europe ? By Brown, Martin; Lane, Philip R.
  14. The value-added tax reform puzzle By Cai, Jing; Harrison, Ann
  15. Russia's trade flows and WTO By Sergey Kolesnikov; Olga Podkorytova
  16. Sustainable Real Exchange Rates in the New EU Member States: What Did the Great Recession Change? By Jan Babecky; Ales Bulir; Katerina Smidkova
  17. Reducing Vulnerability in Transition Economies: Crises and Adjustment in Cambodia By Hal Hill; Jayant Menon
  18. Can Securitization Work? Economic, Structural and Policy Considerations By Timothy J. Riddiough
  19. Technology capacity, product position and firm’s competitiveness: an empirical analysis By Gao, Yanyan; Liu, Zhibiao; Song, Shunfeng; Zheng, Jianghuai
  20. Institutional change of the agricultural administration and rural associations in East Germany before and after unification By Wolz, Axel

  1. By: Markus Eberhardt; Christian Helmers; Zhihong Yu
    Abstract: This paper analyses characteristics and determinants of the recent explosion of patent filings by Chinese firms both in China and the United States. We construct a firm-level dataset by matching USPTO and SIPO patents to Chinese manufacturing census data for the period 1999-2006. Using this integrated firm-level dataset, we show that the patent explosion is accounted for by a tiny, highly select group of Chinese companies in the information & communication technology (ICT) equipment industry. This handful of ICT companies accounts for nearly all Chinese USPTO patent filings as well as the vast majority of domestic SIPO patents despite there being a larger number of Chinese companies distributed across a wider range of industries that seeks patent protection domestically. Our empirical analysis further suggests that firms patenting in both US and China are considerably younger, larger and substantially more export-oriented than firms patenting exclusively in China. Our study contributes to the debate on China’s innovative prowess and its potential to transition from an imitator to an innovator economy.
    Keywords: China, firm, patents.
    JEL: L25 O12
    Date: 2011
  2. By: Hongyi Chen (Hong Kong Institute for Monetary Research); Qianying Chen (Hong Kong Institute for Monetary Research); Stefan Gerlach (Institute for Monetary and Financial Stability and University of Frankfurt and Hong Kong Institute for Monetary Research)
    Abstract: We analyze the impact of monetary policy instruments on interbank lending rates and retail bank lending in China using an extended version of the model of Porter and Xu (2009). Unlike the central banks of advanced economies, the People's Bank of China uses changes in the required reserve ratios and open market operations to influence liquidity in money markets and adjusts the regulated deposit and lending rates and loan targets to intervene in the retail deposit and lending market. These interventions prevent the interbank lending rate from signalling monetary policy stance and transmitting the effect of policy to the growth of bank loans.
    Keywords: Monetary Policy Implementation, Regulated Retail Interest Rates, Transmission Mechanism, Window Guidance, Bank Loans, China
    JEL: E42 E52 E58
    Date: 2011–08
  3. By: Deng, Yongheng (National University of Singapore); Morck, Randall (University of Alberta and NBER); Wu, Jing (National University of Singapore and Tsinghua University); Yeung, Bernard (National University of Singapore)
    Abstract: In the recent financial crisis, macroeconomic stimuli produced mixed results across developed economies. In contrast, China's stimulus boosted real GDP growth from an annualized 6.2% in the first quarter of 2009 trough to 11.9% in the first quarter of 2010. Amidst this phenomenal response, land auction and house prices in major cities soared. We argue that the speed and efficacy of China's stimulus derives from state control over its banking system and corporate sector. Beijing ordered state-owned banks to lend, and they lent. Beijing ordered centrally-controlled state-owned enterprises (SOEs) to invest, and they invested. However, our data show that much of this investment was highly leveraged purchases of real estate. Residential land auction prices in eight major cities rose about 100% in 2009, controlling for quality variation. Moreover, higher price rises occur these SOEs are more active buyers. We argue that these centrally-controlled SOEs overbid substantially, fueling a real estate bubble; and that China's seemingly highly effective macroeconomic stimulus package may well have induced costly resource misallocation.
    Keywords: Monetary stimuli; Fiscal Stimuli; Ownership Structure; Housing Market; China
    JEL: E52 G21 G38 P27 P34
    Date: 2011–09–05
  4. By: Hongqin Chang; Xiao-yuan Dong; Fiona MacPhail
    Abstract: Rural-urban migration has become a major feature of the Chinese economy since the mid-1990s. Due to institutional arrangements and economic and cultural factors, massive labor migration has resulted in a large left-behind population consisting of children, non-elderly married women, and the elderly. This paper examines the impacts of labor migration on time use patterns of the left-behind elderly people and children in rural China, using data derived from the China’s health and Nutrition Health Survey (CHNS) for the period between 1997 and 2006. The results show that the migration of household members increases the time spent on farm work and domestic work for the left-behind elderly, and the migration of parents increases the time spent on farm work and domestic work for the left-behind children. Importantly, migration has striking gender differentiated impacts with the increase in work time being greater for elderly women and girls than elderly men and boys. These results have important policy implications.
    JEL: J16 J22 O12
    Date: 2010–12
  5. By: Liu, Jing; Cao, Shutao
    Abstract: This paper studies the industry productivity dynamics in China’s manufacturing sector from 1998 to 2007, and in particular, explores to what extent the privatization of state-owned enterprises (SOEs) contributes to the aggregate productivity growth. Our results show that, though non-SOEs on average are more productive than SOEs, the average productivity growth among SOEs is greater than the privately-owned firms. Industry concentration, taxation, and credit market all account for this difference in growth between SOEs and non-SOEs. In addition, industry productivity growth is mainly attributed to the growth of non-SOEs, entry of non-SOE firms, and the exit of SOEs. However, non-SOE firms that are transformed directly from SOEs make a small but negative contribution to industry productivity growth.
    Keywords: Productivity Growth, Industry Dynamics, Ownership Change, Reallocation
    JEL: E6 D24 O4
    Date: 2011–04–15
  6. By: Jie He (University of Sherbrooke, GREDI); Jingyan Fu (Department of International Trade and Economics, Jinan University)
    Abstract: Based on single-country linked Input-Output model, this paper first calculated the balance of emission embodied in trade (BEET) and pollution trade terms (PTT) for China’s international trade during 1996-2004. Our results confirm China as a net emission exporter but also find China’s exports to be less-polluting than China’s import. Our estimation results confirm the findings of IO analysis and reveals that China has comparative advantages in less polluting labour-intensive sector. The reason China which exports principally in less-polluting sectors to have a positive BEET is because China has higher emission intensity in almost all sectors than its trade partners. Our conclusion also reveals international production division is organised without consideration of environmental performance of producers of different countries, this is the principal reason for the carbon leakage phenomenon related to international trade, while the pollution haven hypothesis plays actually a marginal role.
    Keywords: Single-country linked Input-Output model, Pollution Haven Hypothesis, Carbon leakage, Comparative advantage, BEET, Pollution terms of trade, China
    Date: 2011–08
  7. By: Borek Vasicek
    Abstract: Estimated Taylor rules have become popular as a description of monetary policy conduct. There are numerous reasons why real monetary policy can be asymmetric and estimated Taylor rules nonlinear. This paper tests whether monetary policy can be described as asymmetric in three new European Union (EU) members (the Czech Republic, Hungary, and Poland), which apply an inflation targeting regime. Two different empirical frameworks are used: (i) Generalized Method of Moments (GMM) estimation of models that allow discrimination between sources of potential policy asymmetry but are conditioned by specific underlying relations, and (ii) a flexible framework of sample splitting where nonlinearity enters via a threshold variable and monetary policy is allowed to switch between regimes. We find generally little evidence for asymmetric policy driven by nonlinearities in economic systems, some evidence for asymmetric preferences, and some interesting evidence on policy switches driven by the intensity of financial distress in the economy.
    Keywords: Inflation targeting, monetary policy, nonlinear Taylor rules, threshold estimation.
    JEL: C32 E52 E58
    Date: 2011–07
  8. By: Sylvie Demurger (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon); Hui Xu (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon)
    Abstract: This paper examines how left-behind children influence return migration in China. We first present a simple model that incorporates economic and non-economic motives for migration duration (or intentions to return). Based on Dustmann (2003b), the parent is assumed to be altruistic and to care about the prospects of her left-behind children. We then propose two complementary empirical tests based on an original dataset from a rural household survey carried out in Wuwei County (Anhui province, China) in fall 2008. We first use a discrete-time proportional hazard model to estimate the determinants of migration duration for both on-going migrants with incomplete length of duration and return migrants with complete length of duration. Second, we apply a binary Probit model to study the return intentions of on-going migrants. Both models find consistent results regarding the role of left-behind children as a significant motive for return. First, left-behind children are found to pull their parents back to the village, the effect being stronger for pre-school children. Second, sons are found to play a more important role than daughters in reducing migration duration.
    Keywords: return migration; migration duration; left-behind children; discrete-time duration analysis; China
    Date: 2011
  9. By: Hu, Zhining; Zheng, Jianghuai; Wang, Jialing
    Abstract: This article investigates the effect of industrial linkages on firm performance in Chinese development zones, using Jiangsu Province as a case study. An ordered response model based on the dependent variable being ordinal was developed. The empirical results reveal an insignificant relationship between industrial linkages and firm performance. Our interpretation of this finding mainly lies with the global and domestic challenges that have changed the way participating firms operate and organize in the development zones of Jiangsu. When many other economic factors take precedence over industrial linkages in driving superior firm performance, firms feel it less important to get closer to their suppliers or customers, therefore weakening the impact of industrial linkages. Although this article primarily focuses on development zones in Jiangsu Province, the findings and discussion will provide insights for other development zones in China that may be, reviewing their development strategies because most of them have similar development problems.
    Keywords: Industrial linkages; Development zones
    JEL: F23 L23 O20
    Date: 2011–03
  10. By: Mohelsky, Lukas
    Abstract: The paper describes the recent development in the personal car ownership within the European Union. It stems from the key factors influencing its fluctuations (population, GDP, fleet renewal), which also represent important socio-economic differences between the EU countries. The subsequent part analyses the comparison of the total car parc and of the new personal carc sales and offers the potential prospects of the further development of both indicators in the twelve new EU members.
    Keywords: European automotive industry; car ownership; car consumption
    JEL: L62 R41
    Date: 2010–06–24
  11. By: Căpuşneanu, Sorinel/I; Cokins, Gary; Barbu, Cristian Marian
    Abstract: The purpose of this paper is to present the importance of Activity-Based Costing method (ABC) in Romania's business environment changes. We analyzed the possibilities to adapt to a modern management accounting method and managerial accounting organization assumptions of the ABC (Activity-Based Costing) method in Romanian enterprises. The article ends with the authors' conclusions about the changes of the ABC method in the Romanian’s business environment.
    Keywords: Activity-Based Costing; management accounting; entity; implementation; business environment
    JEL: M41 M21
    Date: 2011–05–15
  12. By: Wang, Xiaozu; Xu, Lixin Colin; Zhu, Tian
    Abstract: This paper develops a self-enforcing contract model to show that better economic fundamentals can help when there is weak rule of law -- but with order -- to attract foreign direct investment, whereas lowering taxes does not necessarily help. Using a cross-region Chinese dataset, the analysis finds evidence consistent with the theoretical analysis. Regional variations in tax rates and the perceived quality of formal contracting institutions are not correlated with regional inflows of foreign direct investment, but leadership characteristics are. Most conventional economic factors have the predicted effects on foreign direct investment. The finding that foreign direct investment is lower in locations where domestic private firms have better access to finance and where the air quality is poor is new to the literature.
    Keywords: Debt Markets,Emerging Markets,Investment and Investment Climate,Bankruptcy and Resolution of Financial Distress,Access to Finance
    Date: 2011–09–01
  13. By: Brown, Martin; Lane, Philip R.
    Abstract: This paper assesses the extent to which debt overhang poses a constraint to economic activity in Emerging Europe, as the region emerges from the recent financial and economic crisis. At the macroeconomic level, it finds that the external imbalance problem for Emerging Europe has been in most cases more one of flows (high current account deficits in the pre-crisis years) rather than large stocks of external debt. A high reliance on equity funding means that net external debt is far lower than net external liabilities. Domestic balance sheets have expanded quite rapidly but sector liabilities remain relatively low compared with advanced economies. With the important exception of Hungary, public debt levels also remain relatively low in Emerging Europe. At the microeconomic level, the potential for debt overhang in the corporate sector is limited to a few countries: Latvia, Lithuania, Estonia, and Slovenia. Due to the low incidence of household debt, hardly any country, except Estonia, seems to face a threat of debt overhang in the household sector. The strong increase in non-performing loans compared with pre-crisis bank profitability suggests that debt overhang in the banking sector is a threat in Ukraine, Latvia, Lithuania, Hungary, Georgia, and Albania. Financial integration of Emerging Europe seems to have contributed to the transmission of the crisis to the region. At the same time, this integration is helping the region in managing the crisis by concerted actions of the major players.
    Keywords: Debt Markets,Access to Finance,Bankruptcy and Resolution of Financial Distress,Banks&Banking Reform,Emerging Markets
    Date: 2011–08–01
  14. By: Cai, Jing; Harrison, Ann
    Abstract: This explores the impact of a tax reform in some provinces of China which eliminated the value-added tax on some investment goods. While the goal of the experiment was to encourage upgrading of technology, the results suggest that there was no evident increase overall in fixed investment, and employment fell significantly in the treated provinces and sectors. The reform reduced the total number of employees for all types of firms. For domestic firms, it reduced employment by almost 8 percent. The results are robust to a variety of approaches, and suggest that the primary impact of the policy has been to induce labor-saving growth. This experiment has since been extended to the rest of China.
    Keywords: Taxation&Subsidies,Investment and Investment Climate,Debt Markets,Emerging Markets,Economic Theory&Research
    Date: 2011–09–01
  15. By: Sergey Kolesnikov (Department of Economics, European University at St. Petersburg); Olga Podkorytova
    Abstract: In our paper, we use the gravity model of the international trade to estimate the effect of the future WTO ascension for Russia based on the current WTO effect for Russia's WTO trade partners. Starting from Rose's specification, we constructed several progressively exact models. Nevertheless, none of these specifications shows any evidence that the WTO significantly and positively influences the trade between its members among Russia's trade partners. This result holds even as we exclude the oil and the gas trade and the FTA influence. Therefore, in terms of increasing the overall trade the value of ascension seems to be lower than FTAs, the impact of which is evident in the model.
    Keywords: Russia, gravity model, trade flows, non-oil trade
    JEL: C21
    Date: 2011–06–21
  16. By: Jan Babecky; Ales Bulir; Katerina Smidkova
    Abstract: The Great Recession affected export and import patterns in our sample of new EU member countries, and these changes, coupled with a more volatile external environment, have a profound impact on our estimates of real exchange rate misalignments and projections of sustainable real exchange rates. We find that real misalignments in several countries with pegged exchange rates and excessive external liabilities widened relative to earlier estimates. While countries with balanced net trade positions may experience sustainable appreciation during 2010–2014, several currencies are likely to require real depreciation to maintain sustainable net external debt.
    Keywords: Foreign direct investment, Great Recession, new EU member states, sustainable exchange rates.
    JEL: F31 F33 F36 F47
    Date: 2011–08
  17. By: Hal Hill; Jayant Menon
    Abstract: This paper examines the impact of the global financial crisis on Cambodia, and the lessons learned. Cambodia is an interesting case study: after extremely rapid economic growth 2000-07, it experienced a sharp growth collapse in 2008-09. This highlighted a number of its peculiar vulnerabilities, including a narrow economic base, a pre-crisis asset price boom, a fragile financial system, and the limited array of defensive economic policy levers available to the government. The economy has begun to rebound since early 2010, and the crisis episode provides the government with an opportunity to place the country's economic growth trajectory on a more sustainable footing. Apart from diversifying the economy and creating the preconditions for dedollarization, we also consider policies that could improve the business climate and make growth more inclusive.
    Keywords: Cambodia, transition economies, economic crises
    JEL: O53 P20
    Date: 2011
  18. By: Timothy J. Riddiough (University of Wisconsin - Madison and Hong Kong Institute for Monetary Research)
    Abstract: Structured asset securitization is capable of generating a number of economic benefits, including liquidity provision, an increased ability to manage risk, and value enhancement through the pooling and partitioning of cash flows. But the recent financial crisis has exposed numerous structural flaws, which has led many observers to question whether asset- and mortgage-backed securities should be classified as financial "weapons of mass destruction" that require strict containment and possibly even elimination. This paper considers the fundamental economic tradeoffs associated with securitization, with an eye towards policy development, concluding that asset securitization can work. Whether it actually will work depends on how policymakers respond to the significant challenges of reregulating the financial system. Finally, the specific case of securitization in China is considered in the context of institutional and political realities.
    Date: 2011–08
  19. By: Gao, Yanyan; Liu, Zhibiao; Song, Shunfeng; Zheng, Jianghuai
    Abstract: Using firm-level data from a 2009 survey conducted in Suzhou City, Jiangsu Province, China, this paper examines impacts of technology capacity and value-chain position on firm’s product competitiveness. Both technology capacity and product competitiveness are self-assessed relative to other firms and products in the same industry. The position of value-chain is measured relative to if a firm is an original brand manufacturer or not. Our empirical results show that competitiveness rises with firm’s technology capacity and its position in the global value chain. This finding is consistent with the theoretical prediction. The paper also investigates determinants of technology capacity and value-chain position, including firm’s size, R&D spending, location dummies, education level of technical and management personnel, wages of technical and management personnel, and enterprise ownership. Bootstrapping, Probit, and linear probability regression models are employed.
    Keywords: Technology Capacity; Original Brand Manufacturer; Competitiveness; Global Value Chain; Bootstrapping
    JEL: F23 L10
    Date: 2009–11
  20. By: Wolz, Axel
    Abstract: With the collapse of the socialist regime in East Germany in late 1989 and the rising political call for unification in early 1990, a radical and abrupt change of the institutional structure became necessary. Among others, the (agricultural) administration had to be totally restructured. This referred not only to substance, functions and tasks which had to be adjusted, similar to most other transition economies, to the market-economic and pluralistic democratic system, but also the whole administrative set-up had to be re-established in line with the West German system (territorial re-organisation). Hence, a new administrative system had to be built up in the East, while simultaneously the socialist one had to be dismantled. This transformation process implied the recruitment of new staff and had to be carried out in a very short period. However, different to the other transition economies, there had been strong support from the West in re-organising the administration. Overall, this institutional change seems to have been accomplished successfully as billions of Deutsch Mark could be processed by the agricultural administration in 1990 in order to avoid an imminent collapse of the agricultural sector. In addition, the new administration also comprised the set-up of a specialised agency in charge of state property. This office while originally anticipated to last for a short period only, still operates today. Similarly, the organisations representing the agricultural population had to be re-organised. The re-organisation of the German Farmers' Union is of special prominence as both German parts were representing completely different agricultural models. Nevertheless, this is the only important organisation at national level where East Germans could stay in decision-making positions after unification. This had severe repercussions when shaping transformation policies affecting the agricultural sector in East Germany during the 1990s. -- Der Zusammenbruch des sozialistischen Regimes Ende 1989 sowie der immer lauter werdenden Ruf nach politischer Einheit seit Beginn 1990 bedingte einen schnellen und radikalen Bruch der ostdeutschen Institutionen. Dieser Bruch umfasste auch eine komplette Neuausrichtung der (landwirtschaftlichen) Verwaltung. Ähnlich wie in den anderen Transformationsländern Mittel- und Osteuropas mussten die Inhalte, Funktionen und Aufgaben entsprechend den Anforderungen einer demokratischen Gesellschaft sowie der Marktwirtschaft angepasst werden. Darüber hinaus musste jedoch die Verwaltungsstruktur Ostdeutschland dem verwaltungsmäßigen (territorialen) Aufbau Westdeutschland angepasst werden. In der Praxis bedeutete dies, dass die sozialistische Struktur abgebaut und aufgelöst, während gleichzeitig eine neue aufgebaut wurde. Dieser Prozess bedingte auch die komplett neue Einstellung von Personal, obwohl Ehemalige sich neu bewerben konnten. Der Zeitrahmen für diese Transformation war extrem begrenzt. Im Unterschied zu den anderen Transformationsländern konnte hierbei jedoch auf die massive Unterstützung durch Westdeutschland zurückgegriffen werden. Zurückblickend ist diese Transformation der Agrarverwaltung sehr erfolgreich verlaufen, da in dieser Periode ohne nennenswerte Probleme Milliarden von DM an die landwirtschaftlichen Betriebe ausgereicht wurden, um den drohenden Zusammenbruch der landwirtschaftlichen Produktion zu verhindern. Die landwirtschaftliche Verwaltung musste jedoch nicht nur transformiert werden, sondern es wurden neue Veraltungseinheiten geschaffen, besonders um das Staatseigentum an Grund und Boden mit dem Ziel einer raschen Privatisierung zu verwalten. Allerdings erhielt diese Verwaltungseinheit, die ursprünglich nur auf kurze Zeit ausgelegt war, im Laufe der Jahre einen permanenten Charakter. Neben der Verwaltung mussten sich auch die landwirtschaftlichen Verbände neu organisieren. Von besonderer Bedeutung war die Vereinigung und Neuausrichtung des Deutschen Bauernverbandes, da beide Ursprungsverbände ein völlig konträres landwirtschaftliches Leitbild vertraten. Dies ist jedoch der einzig bedeutende Verband Deutschlands, in dem ostdeutsche Personen nach der Vereinigung an der Verbandsspitze verblieben sind. Diese Konstellation hatte tiefgreifende Auswirkungen auf die Ausgestaltung der Agrarstrukturpolitik in Ostdeutschland während der ersten Jahre nach der Vereinigung.
    Keywords: Transition,agricultural administration,rural associations,farmers' union,unification,Germany.,Transformation,Agrarverwaltung,ländliche Verbände,Bauernverband,Vereinigung,Deutschland.
    JEL: H77 P21 P36 Q18
    Date: 2011

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