nep-tra New Economics Papers
on Transition Economics
Issue of 2011‒10‒22
twelve papers chosen by
J. David Brown
Heriot-Watt University

  1. Transfer of financial risk in emerging eastern European stock markets: A sectoral perspective By Fedorova, Elena
  2. Evolution of competition in Vietnam industries over the recent economic transition By Doan, Tinh
  3. Emigration and Wages: The EU Enlargement Experiment By Benjamin Elsner;
  4. Industrial Associations as a Channel of Business-Government Interactions in an Imperfect Institutional Environment: The Russian Case By A. Yakovlev; A. Govorun
  5. Households’ Foreign Currency Borrowing in Central and Eastern Europe By Jarko Fidrmuc; Mariya Hake; Helmut Stix
  6. The Value-Added Tax Reform Puzzle By Jing Cai; Ann Harrison
  7. Human Capital Formation during Communism and Transition: Evidence from Bulgaria By Simeonova-Ganeva, Ralitsa
  8. Analyzing the Impact of Macroeconomic Shocks on Public Debt Dynamics: An Application to the Czech Republic By Melecky, Ales; Melecky, Martin
  9. Should China revisit the 1994 fiscal reforms? By Ahmad, Ehtisham
  10. The Impact of the European Union Emissions Trading Scheme on the Polish Economy:Interviews with Four Companies in Poland By Seiji Ikkatai; Katsuhiko Hori; Ikuma Kurita
  11. The influence of metallurgical sector on Ukrainian economy By Petrushchak, Bohdan
  12. Fiskální pravidla v zemích Visegrádské čtyřky By Melecky, Ales; Skutova, Marketa

  1. By: Fedorova, Elena (BOFIT)
    Abstract: With the rise of interconnected global financial systems, there is an increased risk that a financial crisis in one country may spread to others. The contagion effects of the 2008 global financial crisis hit advanced economies fast and hard while sparing less developed and less integrated financial systems. The present study focuses on the contagion effects at Eastern European stock markets and changes in their interconnections after EU accession in 2004. Specifically, we investigate the relationship among the stock market sectors of Poland, Hungary and the Czech Republic during 19982009 and their exposure to on-shored financial risk. The evidence suggests direct linkages between different stock market sectors with respect to returns and volatilities with increased equity-shock transmission between markets after EU accession in 2004. Of particular note is the intra-industry contagion in emerging Europe. Our findings have implications for asset pricing and portfolio selection for international financial institutions and financial managers.
    Keywords: GARCH-BEKK; international risk transfer; emerging Eastern Europe; spillovers; intra- and inter-industry contagion
    JEL: C32 F36 G12 G15
    Date: 2011–10–11
  2. By: Doan, Tinh
    Abstract: Understanding the degree and evolution of competition across industries is an important step towards understanding the impact of economic reform and competition on economic growth in Vietnam during the economic transition. In this paper, we investigate evolution of competition in Vietnam during the economic transition using the Price-Cost Margin (PCM) or Mark-up that has been widely applied in the economic literature and the Profit Elasticity (PE) recently developed by Boone (2000). This paper provides the first empirical study of intensity and evolution of competition across selected industries in Vietnam in the last decade using firm-level data from the Vietnam Enterprise Census (VEC) conducted annually since 2000 by the Vietnam General Statistical Office (GSO).
    Keywords: Competition; industry; economic transition; Vietnam
    JEL: L5 P30 L11 P20 D40
    Date: 2011–10–10
  3. By: Benjamin Elsner (Institute for International Integration Studies, Trinity College Dublin);
    Abstract: This paper studies the impact of a large emigration wave on real wages in the source country. Following EU enlargement in 2004, a large share of the workforce of the Central and Eastern Europe emigrated to Western Europe. Using data from Lithuania for the calibration of a factor demand model I show that emigration had a significant short-run impact on real wages in the source country. In particular, emigration led to a change in the wage distribution between young and old workers. The wages of young workers increased by 6%, whereas the wages of old workers decreased by around 1%. On the contrary, I find no effect on the wage distribution between workers of different education levels.
    Keywords: Emigration, EU Enlargement, European Integration, Wage Distribution
    JEL: F22 J31 O15 R23
    Date: 2011–09
  4. By: A. Yakovlev; A. Govorun
    Abstract: International lessons from emerging economies suggest that business associations may provide an effective channel of communication between the government and the private sector. This function of business associations may become still more important in transition economies, where old mechanisms for coordinating enterprise activities have been destroyed, while the new ones have not been established yet. In this context, Russian experience is a matter of interest, because for a long time, Russia was regarded as a striking example of state failures and market failures. Consequently, the key point of our study was a description of the role and place of business associations in the presentday Russian economy and their interaction with member companies and bodies of state administration. Relying on the survey data of 957 manufacturing firms conducted in 2009, we found that business associations are more frequently joined by larger companies, firms located in regional capital cities, and firms active in investment and innovation. By contrast, business associations tend to be less frequently joined by business groups’ subsidiaries and firms that were non-responsive about their respective ownership structures. Our regression analysis has also confirmed that business associations are a component of what Frye (2002) calls an “elite exchange”– although only on regional and local levels. These “exchanges” imply that members of business associations, on the one hand, more actively assist regional and local authorities in social development of their regions, and on the other hand more often receive support from authorities. However, this effect is insignificant in terms of support from the federal government. In general, our results allow us to believe that at present, business associations (especially the industry-wide and “leading” ones) consolidate the most active, advanced companies and act as collective representatives of their interests. For this reason, business associations can be regarded as interface units between the authorities and businesses and as a possible instrument for promotion of economic development.
    Keywords: business associations, economic growth, state-business relations, collective actions
    JEL: L31 O17
    Date: 2011–10
  5. By: Jarko Fidrmuc (Zeppelin University Friedrichshafen, CESifo Munich, Institute for Eastern European Studies,); Mariya Hake (Oesterreichische Nationalbank); Helmut Stix (Oesterreichische Nationalbank, Economic Studies Division Central and Eastern Europe)
    Abstract: Foreign currency loans represent an important feature of recent financial developments in CEECs. This might pose a serious challenge for macroeconomic stability. Against this background, the authors study the determinants of foreign currency loans of households, using data on the behavior of households in nine CEECs. Their results reveal that foreign currency loans are driven by households’ lack of trust in the stability of the local currency and in domestic financial institutions. Moreover, special factors including remittances and expectations of euro adoption play an important role in selected regions. The financial crisis reduced foreign currency borrowing, but there is some indication this effect might be only temporary. JEL classification: G18, G21, C25
    Keywords: Foreign currency loans, dollarization, euroization, monetary credibility, trust, CEEC
    Date: 2011–09–01
  6. By: Jing Cai; Ann Harrison
    Abstract: We explore 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, our 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%. Our 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.
    JEL: F21 F23 H25
    Date: 2011–10
  7. By: Simeonova-Ganeva, Ralitsa
    Abstract: Is it true that communist countries had well-developed human capital, or is it just a myth? What were human capital stocks at the beginning of transition to market economy? What happened to human capital formation during the transition? We attempt to answer these questions using evidence from Bulgaria. This is also a story about how a communist government had coped with labour market problems in a small closed economy. Unfortunately, during communism, there had been quite insufficient public information on human capital. Therefore, in the first place, we collect, synthesize and analyze all available information from official statistical publications as well as internal reference books and administrative documents, which used to be classified during communism, and at present are available at the Central State Archives. Next, we construct human capital indicators based on educational data for the communist period and track the dynamics in human capital formation for both communism and transition. Finally, we identify key policy and political measures which have affected human capital formation. Main findings show that communism started with extremely underdeveloped human resources. During the entire period the government had tried to provide favorable conditions for human capital formation. Communist policy measures gave significant results in the 60s, but had been ineffective in sustaining better education in the long run. As a result, the start of transition was characterized by poor levels of human capital due to an educational crisis in the last decade of communism (then, about 60% of the population in Bulgaria was with primary or lower-level of education). We assume that lack of economic incentives at individual level had determined weak pursuit of better education.
    Keywords: human capital; communism; transition; human capital formation; determinants of human capital; labour market policies in communism
    JEL: I2 E24 O15 P2 J48 J24 N34 J0
    Date: 2005–09–01
  8. By: Melecky, Ales; Melecky, Martin
    Abstract: The global financial crisis and its ramification into the fiscal area have demonstrated the importance of regular assessment and monitoring of fiscal vulnerabilities, including the sustainability of sovereign debt. This paper extends the analytical framework of Favero and Giavazzi (2007) to facilitate the analysis of the effects of macroeconomic shocks on public debt dynamics in an open economy. It then applies this framework using the data for the Czech Republic and derives some policy implications from such an analysis. The modeling framework nests a linear structural vector auto-regression (SVAR) model estimated with short-run identifying restrictions and a non-linear equation describing the public debt dynamics. The main variables of the system include GDP growth, inflation, the effective interest rate on government debt, government expenditures and revenues, the exchange rate and government debt. The utilized estimation method is the Bayesian approach.
    Keywords: Macroeconomic Shocks; Non-linear Public Debt Dynamics; Open Economy; Czech Republic; Structural Vector Autoregression Model; Bayesian Estimation
    JEL: E62 H68
    Date: 2011–10
  9. By: Ahmad, Ehtisham
    Abstract: The 1994 reforms in China were remarkably successful in stabilizing the economy and raising revenues for the benefit of sustainable growth and permitting the central government to redistribute resources to poorer regions through an equalization framework. However, the rise of informal local borrowing in the absence of effective own-source revenues raises possible risks and imbalances in the future. There is thus a need to reconsider the fundamentals of intergovernmental fiscal relations, building on the basis laid in the 1994 reforms.
    Keywords: Financial Economics, H2, H5, H6, H7,
    Date: 2011–09
  10. By: Seiji Ikkatai (Graduate School of Education, Kyoto University); Katsuhiko Hori (Institute of Economic Research, Kyoto University); Ikuma Kurita (Institute of Economic Research, Kyoto University)
    Abstract: This paper reports the results of interviews with four Polish companies. The results of the interviews shows that Polish companies tend to evaluate the effects of the introduction of EU ETS in 2005 positively: it provided an alternative view that they need considering environment in their business, and that they had much useful information for the improvement of energy losses by measuring it to verify the amount of emissions. However, there are also several negative claims to the EU ETS: auction adopted in the EU ETS from 2013 not only requires purchasing allowances, but also increases production cost due to the rise in the electricity price. Moreover, some of them are concerned that the competitiveness of Poland might be weakened, since it deeply depends on coal.
    Date: 2011–10
  11. By: Petrushchak, Bohdan
    Abstract: The purpose of this article is to analyze the influence of metallurgical sector on Ukrainian economy. We try to examine what is iron ore for Ukraine – a basis for successful economic development or resource curse, and investigate the impact of steel and iron companies on performance of domestic stock exchange.
    Keywords: Metallurgical sector; resource curse; Ukrainian stock market; volatility of export revenues;
    JEL: D53 E32 F14 G20
    Date: 2011
  12. By: Melecky, Ales; Skutova, Marketa
    Abstract: Recently the popularity of fiscal rules has been increasing also due to the impact of macroeconomic and financial shocks on fiscal sustainability. This paper reviews supranational and national fiscal rules implemented in the Visegrad countries (V4). Namely, we base the review and comparison of fiscal rules on the existing literature and the empirical data from the European Commission. According to the Fiscal Rule Strength Index developed by the European Commission, Poland’s debt rule as of 1997 received the highest ranking. Poland also received the highest score based on the aggregated Fiscal Rules Index in 2009. The most influential in this respect is the application of an early adjustment mechanism which is triggered once the debt to GDP ratio exceeds 50%.
    Keywords: Nadnárodní fiskální pravidla; Národní fiskální pravidla; V4; EU; Index síly fiskálního pravidla; Index fiskálních pravidel
    JEL: E62 H50 H60
    Date: 2011

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