nep-tra New Economics Papers
on Transition Economics
Issue of 2012‒01‒18
nineteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Foreign Corporations and the Culture of Transparency: Evidence from Russian Administrative Data By Serguey Braguinsky; Sergey V. Mityakov
  2. Adjusting to Really Big Changes: The Labor Market in China, 1989-2009 By Wei Chi; Richard B. Freeman; Hongbin Li
  3. Contractual Versus Non-Contractual Trade: The Role of Institutions in China By Robert C. Feenstra; Chang Hong; Hong Ma; Barbara J. Spencer
  4. Allocating Costs of Environmental Management among Generations: A Case of Environmental Liabilities in Transition Economies By Satoru Komatsu; Andrey Kalugin; Shinji Kaneko
  5. Poverty Dynamics of Households in Rural China: Identifying Multiple Pathways for Poverty Transition By Katsushi Imai; Jin You
  6. Culture, Geography and Institutions. Empirical Evidence from Small-scale Banking By Franz R. Hahn
  7. Exchange Rate Policy and Economic Growth after the Financial Crisis in Central and Eastern Europe By Zsolt Darvas
  8. Laggards or performers? CEE vs. PIIGS countries’ catch-up with the Euro area in the last ten years By Tatomir, Cristina F.; Alexe, Ileana
  9. Moving up the Quality ladder? EU-China Trade Dynamics in Clothing By Hylke Vandenbussche; Francesco Di Comite; Laura Rovegno; Christian Viegelahn
  10. Macroprudential stress testing of credit risk : a practical approach for policy makers By Buncic, Daniel; Melecky, Martin
  11. Environmental policy and trade performance: Evidence from China By Laura Hering; Sandra Poncet
  12. Trash contracts? The impact of temporary employment on leaving the parental home in Poland. By Anna Baranowska
  13. The Road to Financial Sustainability. Comparative Analysis of Russia and the Caucasus Region By Sheremenko, Ganna; Escalante, Cesar; Florkowski, Wojciech
  14. Evaluating Changes in the Monetary Transmission Mechanism in the Czech Republic By Michal Franta; Roman Horvath; Marek Rusnak
  15. Dynamic Activity Analysis Model Based Win-Win Development Forecasting Under the Environmental Regulation in China By Shiyi Chen; Wolfgang Karl Härdle
  16. A Structural Model of Demand, Cost, and Export Market Selection for Chinese Footwear Producers By Mark J. Roberts; Daniel Yi Xu; Xiaoyan Fan; Shengxing Zhang
  17. The Impact of the Global Crisis on South-Eastern Europe By Francesco Spadafora; Emidio Cocozza; Andrea Colabella
  18. The relationship between budgetary expenditure and economic growth in Poland By Gurgul, Henryk; Lach, Lukasz; Mestel, Roland
  19. A Tale of Three Countries: Recovery after Banking Crises By Zsolt Darvas

  1. By: Serguey Braguinsky; Sergey V. Mityakov
    Abstract: Foreign-owned firms from advanced countries carry the culture of transparency in business transactions that is orthogonal to the culture of hiding and insider dealing in many developing economies and economies in transition. In this paper, we document this using administrative data on reported earnings and market values of cars owned by workers employed in foreign-owned and domestic firms in Moscow, Russia. We examine whether closer ties to foreign corporations result in the diffusion of transparency to private Russian firms. We find that Russian firms initially founded in partnerships with foreign corporations are twice as transparent in reported earnings of their workers as other Russian firms, but they are still less than half as transparent as foreign firms themselves. We also find that increased links to foreign corporations, such as hiring more workers from them, raise the transparency of domestic firms. An important channel for this transmission appears to be the need to keep official wages and salaries of incumbent workers close to wages domestic firms have to pay to their newly hired workers with experience in multinationals.
    JEL: K42 P37
    Date: 2012–01
  2. By: Wei Chi; Richard B. Freeman; Hongbin Li
    Abstract: China’s emerging labor market was buffeted by changes in demand and supply and institutional changes in the last two decades. Using the Chinese Urban Household Survey data from 1989 to 2009, our study shows that the market responded with substantial changes in the structure of wages and in employment and types of jobs that workers obtained that mirrors the adjustments found in labor markets in advanced economies. However, the one place where the Chinese labor market appears to diverge from the labor markets in advanced countries is the rapid convergence in earnings and occupational positions of cohorts who entered the job market under more or less favorable conditions. On this dimension, China’s labor market seems more flexible than those in other countries. Three related factors may explain this pattern: (1) the rapid growth of China’s economy; (2) the high rate of employee turnover; (3) the relative weakness of internal labor markets in China. Bottom line, the Chinese labor market has responded about as well as one could expect to the changes in the demand and supply factors and institutional shocks in this critical period in Chinese economic history.
    JEL: J3
    Date: 2012–01
  3. By: Robert C. Feenstra; Chang Hong; Hong Ma; Barbara J. Spencer
    Abstract: Recent research has demonstrated the importance of institutional quality at the country level for both the volume of trade and the ability to trade in differentiated goods that rely on contract enforcement. This paper takes advantage of cross-provincial variation in institutional quality in China, and export data that distinguishes between foreign and domestic exporters and processing versus ordinary trade, to show that institutional quality is a significant factor in determining Chinese provincial export patterns. Institutions matter more for processing trade, and more for foreign firms, just as we would expect from a greater reliance on contracts in these cases.
    JEL: F13
    Date: 2012–01
  4. By: Satoru Komatsu (Graduate School for International Development and Cooperation, Hiroshima University); Andrey Kalugin (Graduate School for International Development and Cooperation, Hiroshima University); Shinji Kaneko (Graduate School for International Development and Cooperation, Hiroshima University)
    Abstract: The objective of this paper is to examine cost allocation in relation to remediating environmental liability issues in Russia, where significant environmental damages, continuing from the Soviet era, present serious impediments to pursuing sustainable development. The research attempts to highlight citizensf preferences for remediating facilities and sites with environmental liabilities, and elicits preference differences among citizens using choice experiment methods. Intergenerational issues are involved in addressing environmental liabilities in transition economies because the causes and effects are spread among generations. Therefore, evaluating citizensf preferences provides more policy implications for future remediation initiatives. The econometric analysis reveals that citizens demonstrate positive preferences for reducing pollution of drinking water and soil decontamination. The research also suggests that the households with higher incomes, older household heads (or spouses), and more young children have higher preferences for remediating environmental liabilities in Russia. Estimation of the marginal willingness to pay (MWTP) for age and income segments of the households allows the government to determine a suitable taxation policy. The findings provide new insights on cost allocation in relation to remediating environmental damages in transition economies that have suffered from these serious environmental legacies.
    Keywords: Environmental management, Willingness to pay, Preference, Generation, Transition economics
    JEL: O13 P28 Q56
    Date: 2011–12
  5. By: Katsushi Imai; Jin You
    Date: 2012
  6. By: Franz R. Hahn (WIFO)
    Abstract: The fast adoption of Western-style democracy and market economy principles as established by EU standards by many of the Eastern European "transformation countries" since the early 1990s should have raised cross-border lending by banks based in "old" EU member countries to clients resident in new Eastern European EU member countries. This should particularly apply to Austria since it shares a long-lasting common history and, hence, common culture with these countries. To account for common culture we propose a new gauge aimed at measuring "cultural proximity" by making out onomastic similarities between common surnames of Austrian residents and common surnames of residents in the Czech Republic, Slovak Republic, in Hungary and Slovenia, respectively. By exploring, with panel econometric techniques, cross-border lending activities of Austria's small-sized to medium-sized regional banks, located close to its eastern border, over the period from 1996 to 2008 this paper provides evidence that is supportive of the presumption that cultural closeness matters for making basic laws of economics work.
    Keywords: panel econometric analysis, cross-border bank lending, geography, common culture, institutions
    Date: 2012–01–10
  7. By: Zsolt Darvas
    Abstract: In a paper on the effects of the global financial crisis in Central and Eastern Europe (CEE), the author reacts to a paper of Aslund (2011) published in the same issue of "Eurasian Geography and Economics" on the influence of exchange rate policies on the region’s recovery. The author argues that post-crisis corrections in current account deficits in CEE countries do not in themselves signal a return to steady economic growth. Disagreeing with Aslund over the role of loose monetary policy in fostering the region’s economic problems, he outlines a number of competitiveness problems that remain to be addressed in the 10 new EU member states of CEE, along with improvements in framework conditions supporting future macroeconomic growth.
    Keywords: Central and Eastern Europe, Baltic states, exchange rate policy, global financial crisis, floating exchange rate, fixed exchange rate, inflation, internal devaluation, credit boom, overheating economy, current account balance, negative output gap, euro area, unit labour costs, price competitiveness
    JEL: F30 F40 F50 P26
    Date: 2011–01
  8. By: Tatomir, Cristina F.; Alexe, Ileana
    Abstract: This research paper develops a comparative analysis between the new members states of the European Union (EU) – from Central and Eastern Europe (CEE) – and PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) in terms of economic convergence with the Euro area, in the last decade. In addition, the paper emphasizes the changes in the economic convergence levels determined by the recent international crisis. In order to assess these evolutions, we compute an aggregated index of economic convergence, made up of real and structural convergence indexes. Then, by using cluster methodology, we highlight the similarities between the states in the two groups, CEE and PIIGS, from the economic convergence perspective. The comparative analysis reveals that in 2010 only Estonia, Hungary and Slovenia report resembling characteristics to PIIGS group. We also report an important progress of the countries analyzed, as regards real and structural convergence with the Euro area. However, after a decade of catching-up, Romania remains by far the most distanced country from the Euro area.
    Keywords: real convergence; structural convergence; Central and Eastern Europe; PIIGS; clusterization
    JEL: F15 C43 F43
    Date: 2011–10–15
  9. By: Hylke Vandenbussche; Francesco Di Comite; Laura Rovegno; Christian Viegelahn
    Abstract: We apply a simple method to study the relative quality of Chinese versus European products exported in the clothing sector after the end of the Multi-Fiber Arrangement. Based on the model of Foster et al (2008), we interpret the relative change of export prices and quantities sold in narrowly defined product categories as an indicator of quality shifts. Using UN Comtrade data we find that European varieties exported to the US typically sell for a higher price than identical Chinese varieties exported to the US, but this price gap is narrowing. Despite rising prices, Chinese varieties are gaining market share. This opposite movement of relative prices and quantities sold in the same destination market, are a strong indication of China moving up the quality ladder in its clothing exports relative to the EU. While European “core” products in clothing are stable over time, Chinese exports show strong product dynamics with exit and entry of new “core” products every year and “core” products changing rapidly. Both China and the EU export in every product category, resulting in an almost perfect product overlap with almost no products being exported by only one of the two.
    Date: 2011
  10. By: Buncic, Daniel; Melecky, Martin
    Abstract: Drawing on the lessons from the global financial crisis and especially from its impact on the banking systems of Eastern Europe, the paper proposes a new practical approach to macroprudential stress testing. The proposed approach incorporates: (i) macroeconomic stress scenarios generated from both a country specific statistical model and historical cross-country crises experience; (ii) indirect credit risk due to foreign currency exposures of unhedged borrowers; (iii) varying underwriting practices across banks and their asset classes based on their relative aggressiveness of lending; (iv) higher correlations between the probability of default and the loss given default during stress periods; (v) a negative effect of lending concentration and residual loan maturity on unexpected losses; and (vi) the use of an economic risk weighted capital adequacy ratio as the relevant outcome indicator to measure the resilience of banks to materializing credit risk. The authors apply the proposed approach to a set of Eastern European banks and discuss the results.
    Keywords: Banks&Banking Reform,Debt Markets,Currencies and Exchange Rates,Economic Theory&Research,Bankruptcy and Resolution of Financial Distress
    Date: 2012–01–01
  11. By: Laura Hering; Sandra Poncet
    Keywords: Export performance, spillovers
    JEL: F1 A A A
    Date: 2011–12
  12. By: Anna Baranowska (Institute of Statistics and Demography, Warsaw School of Economics)
    Abstract: Poland stands out in international comparisons as a country where leaving parental home is remarkably delayed. There are many economic and institutional factors which contribute to postponing residential independence among youth, such as housing shortages, the limited share of rental housing or limited social assistance for young people. However, in the public debate there is little discussion about re-designing social policy support for youth or improvement of situation on the housing market. What attracts attention instead is the role of flexibilisation of contractual arrangements on the Polish labour market. In the media discourse, fixed-term contracts have been labelled as “trash contracts” and all the problems that young people in Poland face when making transition to adulthood, have been attributed to the spread this specific employment form. This article aims to find out whether fixed-term contracts indeed hinder residential independence of youth. Models of leaving parental home are estimated based on panel data from EU-SILC. The results show no significant negative impact of temporary employment on probability of establishing one’s own household among youth. What matters is whether young people have jobs, whereas the type of contracts that they receive from employers seems to be of little importance.
    Keywords: fixed-term contracts, temporary employment, leaving parental home, transition to adulthood
    JEL: J12 J13
    Date: 2011
  13. By: Sheremenko, Ganna; Escalante, Cesar; Florkowski, Wojciech
    Abstract: This paper examines delinquency, profitability, and outreach determinants of microfinance institutionsâ (MFIs) performance in Russia and the Caucasus. The estimation is done using the Seemingly Unrelated Regression (SUR) technique. The estimation results suggest that Russian and Caucasian MFIs are profit-driven but are expected to improve outreach in the long-run.
    Keywords: Microfinance institution, SUR, Financial sustainability, Delinquency, Profitability, Social outreach, Agricultural Finance, Financial Economics, G20, G21,
    Date: 2012
  14. By: Michal Franta; Roman Horvath; Marek Rusnak
    Abstract: We investigate the evolution of the monetary policy transmission mechanism in the Czech Republic over the 1996–2010 period by employing a time-varying parameters Bayesian vector autoregression model with stochastic volatility. We evaluate whether the response of GDP and the price level to exchange rate or interest rate shocks changes over time, with a focus on the period of the recent financial crisis. Furthermore, we augment the estimated system with a lending rate and credit growth to shed light on the relative importance of financial shocks for the macroeconomic environment. Our results suggest that output and prices have become increasingly responsive to monetary policy shocks, probably reflecting financial sector deepening, more persistent monetary policy shocks, and overall economic development associated with disinflation. On the other hand, exchange rate pass-through has weakened somewhat over time, suggesting improved credibility of inflation targeting in the Czech Republic with anchored inflation expectations. We find that credit shocks had a more sizeable impact on output and prices during the period of bank restructuring with difficult access to credit. In general, our results show that financial shocks are less important for the aggregate economy in an environment of a stable financial system.
    Keywords: Monetary policy transmission, sign restrictions, time-varying parameters.
    JEL: E44 E52
    Date: 2011–12
  15. By: Shiyi Chen; Wolfgang Karl Härdle
    Abstract: Porter Hypothesis states that environmental regulation may lead to win-win opportunities, that is, improve the productivity and reduce the undesirable output simultaneously. Based on directional distance function, this paper proposes a novel dynamic activity analysis model to forecast the possibilities of win-win development in Chinese Industry between 2009 and 2049. The evidence reveals that the appropriate energy-saving and emission-abating regulation will result in both the improvement in net growth of potential output and the steadily increasing growth of total factor productivity. This favors Porter Hypothesis.
    Keywords: Dynamic Activity Analysis Model, Energy-Saving and Emission-Abating, Environmental Regulation, Win-Win Development
    JEL: D24 O47 Q25 Q32
    Date: 2012–01
  16. By: Mark J. Roberts; Daniel Yi Xu; Xiaoyan Fan; Shengxing Zhang
    Abstract: In this paper we use micro data on both trade and production for a sample of large Chinese manufacturing firms in the footwear industry from 2002-2006 to estimate an empirical model of export demand, pricing, and market participation by destination market. We use the model to construct indexes of firm-level demand, cost, and export market profitability. The empirical results indicate substantial firm heterogeneity in both the demand and cost dimensions with demand being more dispersed. The firm-specific demand and cost components are very useful in explaining differences in the extensive margin of trade, the length of time a firm exports to a destination, and the number and mix of destinations, as well as the export prices, while cost is more important in explaining the quantity of firm exports on the intensive margin. We use the estimates to analyze the reallocation resulting from removal of the quota on Chinese footwear exports to the EU and find that it led to a rapid restructuring of export supply sources in favor of firms with high demand and low cost indexes.
    JEL: F1 L0
    Date: 2012–01
  17. By: Francesco Spadafora; Emidio Cocozza; Andrea Colabella
    Abstract: This paper analyzes the impact of the global crisis on six South-Eastern European countries. The main objective is to compare macro-financial conditions and policies in the run-up to the crisis as well as to compare the policy responses to it, so as to highlight, inter alia, possible country-specific constraints. While sharing a common pre-crisis pattern of strong capital inflows and robust growth, a key difference in the conduct of macroeconomicpolicies is that some countries adopted expansionary (and procyclical) fiscal policies. These moves exacerbated external vulnerabilities and compromised the ability to discretionarily use the fiscal instrument in acountercyclical fashion.
    Keywords: Banks , Capital flows , Credit expansion , Credit risk , Current account deficits , Eastern Europe , Economic growth , External debt , Financial crisis , Financial sector , Fiscal consolidation , Fiscal policy , Global Financial Crisis 2008-2009 , Monetary policy ,
    Date: 2011–12–20
  18. By: Gurgul, Henryk; Lach, Lukasz; Mestel, Roland
    Abstract: Abstract This paper investigates the association between different kinds of budgetary expenditure and economic growth of Poland. The empirical analysis makes use of linear and nonlinear Granger causality tests to evaluate the applicability of Wagner’s Law and that of the contrasting Keynesian theory.We employ aggregate and disaggregate data with the sub-categories of most important budgetary expenditure, including health care and social security, education and science, national defence and public security expenditure and government administration expenditure for the period Q1 2000 to Q3 2008. This causality analysis indicates that total relation between budgetary expenditure and economic growth is consistent with Keynesian theory. The results of our computations have important policy implications. In case of Poland the health care expenditure was found to be as important for economic growth as expenditures on education and science. Furthermore, in order to stimulate economic growth, Polish government should consider reallocating some of national defence, public security and government administration expenditure to health care, social security, education and science expenditure.
    Keywords: Government expenditure · Linear and nonlinear causality · Bootstrap techniques
    JEL: E21 C01
    Date: 2011–12–01
  19. By: Zsolt Darvas
    Abstract: Highlights 1) Iceland, Ireland and Latvia experienced similar developments before the crisis, such as sharp increases in banks’ balance sheets and the expansion of the construction sector. However the impact of the crisis was different: Latvia was hit harder than any other country in the world. Ireland also suffered heavily, while Iceland came out from the crisis with the smallest fall in employment, despite the greatest shock to the financial system. 2) There were marked differences in policy mix: currency collapse in Iceland but not in Latvia, letting banks fail in Iceland but not in Ireland, and the introduction of strict capital controls only in Iceland. The speed of fiscal consolidation was fastest in Latvia and slowest in Ireland. 3) Economic recovery has started in all three countries and there are several encouraging signals. The programme targets in terms of fiscal adjustment, structural reforms and financial reform are on track in all three countries. 4) Iceland seems to have the right policy mix. 5) Internal devaluation in Ireland and Latvia through wage cuts did not work, because private-sector wages hardly changed. The productivity increase was significant in Ireland and moderate in Latvia, yet was the result of a greater fall in employment than the fall in output, with harmful social consequences. 6) The experience with the collapse of the gigantic Icelandic banking system suggests that letting banks fail when they had a faulty business model is the right choice. 7) There is a strong case for a European banking federation.
    Keywords: banking crisis, banking sector restructuring, economic recovery, currency devaluation, internal devaluation, capital controls, fiscal adjustment
    JEL: F31 F32 J30 O40
    Date: 2011–12–20

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