nep-tra New Economics Papers
on Transition Economics
Issue of 2012‒04‒23
thirty papers chosen by
J. David Brown
Heriot-Watt University

  1. All in transition - Human resource management and labour relations in the Chinese industrial sector By Yu, Nan
  2. Migration, Urbanization and City Growth in China By Nong Zhu; Xubei Luo; Heng-fu Zou
  3. Ownership and Investment Behaviour in Transition Countries: A Case Study of Collective and Corporate Farms in the Czech Republic By Curtiss, Jarmila; Ratinger, Tomáš; Medonos, Tomáš
  4. The reform and modernization of vocational education and training in China By Hao, Yan
  5. External Information and Monetary Policy Transmission in New EU Member States: Results from FAVAR Models By Zlatina Balabanova; Ralf Brüggemann
  6. Unemployment Dynamics in Central Europe: A Labor Flow Approach By Vladislav Flek; Martina Mysíková
  7. Bank Stress Tests as an Information Device for Emerging Markets: The Case of Russia By Zuzana Fungáèová; Petr Jakubík
  8. Human resource management and labour relations in post-transitional Russia By Shulzhenko, Elena
  9. The World upside down, China's R&D and innovation strategy By Guilhem Fabre; Stephane Grumbach
  10. Russian Federation: Instability ahead? By Peter Havlik
  11. Croatia: Recession continues By Hermine Vidovic
  12. Evaluation of Non-price Competitiveness of Exports from Central, Eastern and Southeastern European Countries in the EU Market By Konstantins Benkovskis; Julia Woerz
  13. Initial reforms and dynamics of transition By Ariane Tichit Miniscloux; Solenne Tanguy
  14. Determinants of Corporate Investment in China: Evidence from Cross-Country Firm Level Data By Papa N'Diaye; Nan Geng
  15. The impact of macro news and central bank communication on emerging European forex markets By Balázs Égert; Evžen Kočenda
  16. De-monopolization Toward Long-Term Prosperity in China By Ashvin Ahuja
  17. Direct and indirect energy consumption in China and the United States By Liu, Hongtao; Polenske, Karen R.; Guilhoto, Joaquim José Martins; Xi, Youmin
  18. Slovakia: Successful year achieved, challenges ahead By Doris Hanzl-Weiss
  19. Slovenia: Slipping into recession again By Hermine Vidovic
  20. Romania: Slowdown after boom By Gabor Hunya
  21. Poland: Economy decoupled from the eurozone crisis By Leon Podkaminer
  22. Kazakhstan: Strong growth continues, but problems in the banking sector remain By Olga Pindyuk
  23. Estonia: Weakness of external demand will drag down strong recovery By Sebastian Leitner
  24. Fiscal Policy Response to External Crises The Case of Moldova 1998-2010 By Driton Qehaja
  25. Ukraine: Association agreement with the EU delayed By Vasily Astrov
  26. Latvia: Aiming for euozone accession By Sebastian Leitner
  27. Lithuania: Exports trigger cyclical downturn By Sebastian Leitner
  28. Strengthening Russia's Fiscal Framework By Daria Zakharova; Charleen Gust
  29. Hungary: Economic policy turn ahead? By Sandor Richter
  30. Latvia's Internal Devaluation: A Success Story? By Mark Weisbrot; Rebecca Ray

  1. By: Yu, Nan
    Abstract: This discussion paper is a literature study reviewing the development of human resource management in China, with a particular focus (where possible) on the automobile industry. It presents the Chinese context for HRM discussing the normative debate about the adaptation of Western management methods and the heritage of Chinese philosophy and values, and it describes the economic, cultural, and transition-specific factors which influence HRM in China. In more detail, the paper deals with work organization analyzing to which extent companies transfer Western work organization systems to China and describing Chinese concepts of teamwork and leadership. As to personal development, it deals with Chinese approaches to recruitment and career systems also describing the debate about skill formation in the Chinese industry. Wage and incentive systems in China are analyzed, and the system of employee interest representation in China and the role of the All-China Federation of Trade Unions are presented. --
    Date: 2012
  2. By: Nong Zhu; Xubei Luo; Heng-fu Zou
    Abstract: Migration and urbanization have transformed the Chinese economy and society in the past 25 years. This paper intends to explore the determinants of population flows and city growth using a panel data at the provincial level in China. The main findings are: (i) regional disparities of urbanization in China, in particular those between coastal and inland areas, are very significant; (ii) the open-door policy has encouraged urban development in China; (iii) the population of small and medium size cities grows faster than that of large cities; (iv) the role of the secondary and tertiary sectors differs from region to region. In central China, the secondary sector actually serves as the push factor for local urbanization; and in coastal region, however, it is the development of the tertiary sector that pushes urbanization; and (iv) the labor force tends to move to cities with good infrastructures.
    Keywords: regional disparities, migration, urbanization, city growth
    JEL: J61 O18 R23
    Date: 2012
  3. By: Curtiss, Jarmila; Ratinger, Tomáš; Medonos, Tomáš
    Abstract: Cooperative and corporate farms have retained an important role for agricultural production in many transition countries of Central and Eastern Europe. Despite this importance, these farms' ownership structure, and particularly the ownership's effect on their investment activity, which is vital for efficient restructuring and the sector's future development, are still not well understood. This paper explores the ownership-investment relationship using data on Czech farms from 1997 to 2008. We allow for ownership-specific variability in farm investment behaviour analyzed by utilizing an errorcorrection accelerator model. Empirical results suggest significant differences in the level of investment activity, responsiveness to market signals, investment lumpiness, as well as investment sensitivity to financial variables among farms with different ownership characteristics. These differences imply that the internal structure of the Czech cooperative and corporate farms will be developing in the direction of a decreasing number of owners and an increasing ownership concentration.
    Date: 2012–02
  4. By: Hao, Yan
    Abstract: Vocational education and training (VET) is defined in general practice as technical education and skills training mainly for jobs that are based on manual or practical activities. According to China's 1996 Vocational Education Law, VET is deemed a key component of China's educational system, and an important means to promote employment, economic growth and social advancement. The Chinese government has attached great importance to VET since the founding of the People's Republic in 1949. The 1996 Vocational Education Law and the State Council's 2002 Decision on Vigorously Promoting the Reform and Development of VET represents the government's renewed effort at supporting VET in the era of reform and open-up. In recent years, additional reform measures have been introduced to modernize the existing VET system in line with the readjustment of China's development strategy and industrial structure. --
    Date: 2012
  5. By: Zlatina Balabanova (Department of Economics, University of Konstanz, Germany); Ralf Brüggemann (Department of Economics, University of Konstanz, Germany)
    Abstract: We investigate the e_ects of monetary policy shocks in the new European Union member states Czech Republic, Hungary, Poland and Slovakia. In contrast to existing studies, we explicitly account for external developments in European Monetary Union (EMU) countries and in other acceding countries. We do so by using factor-augmented vector-autoregressive models that employ the information from non-stationary factor time series. One set of VAR models includes factors obtained from a large cross-section of time series from EMU countries, while another set includes factors obtained from other acceding countries. We use cohesion analysis to facilitate the interpretation of the different factor time series. We find that including the EMU factors does not greatly affect the impulse response patterns in acceding countries. In contrast, including factors from other accession countries leads to substantial changes in impulse responses and to economically more plausible results. Overall, our analysis highlights that taking into account external economic developments properly is crucial for the analysis of monetary policy in the new EU member states.
    Keywords: Factor-augmented VARs, impulse-response analysis, monetary policy shocks, central and eastern European countries, European monetary union
    JEL: C32 C50 E52 C38
    Date: 2012–03–27
  6. By: Vladislav Flek (University of Finance and Administration); Martina Mysíková (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: We analyze labor market flows and unemployment in the Czech Republic (CR), Slovakia and Poland over the period 2004–2007. Relative involvement of working-age population in gross labor market flows is approximately five times lower in central Europe than in the U.S. /UK. Yet, compared to neighboring countries, the CR suffers more from unemployment rigidity, as evidenced most convincingly by a relatively weakernet flowof workers from unemployment to employment. This net flow alone would cut the unemployment rate in Poland more than twice as fast as in the CR. The CR lags behind in creating jobs forthe unemployed, particularly for men, individuals with primary education, and for the 55–65 age group.
    Keywords: EU-SILC, labor market flows, longitudinal data, unemployment
    JEL: E24 J60 J63 J64
    Date: 2012–03
  7. By: Zuzana Fungáèová (Bank of Finland, Institute for Economies in Transition (BOFIT)); Petr Jakubík (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The recent financial crisis emphasised the need for effective financial stability analyses and tools for detecting systemic risk. This paper looks at assessment of banking sector resilience through stress testing. We argue such analyses are valuable even in emerging economies that suffer from limited data availability, short time series and structural breaks. We propose a top-down stress test methodology that employs relatively limited information to overcome this data problem. Moreover, as credit growth in emerging economies tends to be rather volatile, we rely on dynamic approach projecting key balance sheet items. Application of our proposed stress test framework to the Russian banking sector reveals a high sensitivity of the capital adequacy ratio to the economic cycle that shows up in both of the two-year macroeconomic scenarios considered: a baseline and an adverse one. Both scenarios indicate the need for capital increase in the Russian banking sector. Furthermore, given that Russia’s banking sector is small and fragmented relative to advanced economies, the loss of external financing can cause profound economic stress, especially for medium-sized and small enterprises. The Russian state has a low public debt-to-GDP ratio and plays decisive role in the banking sector. These factors allow sufficient fiscal space for recapitalisation of problematic banks under both of our proposed baseline and adverse scenarios.
    Keywords: stress testing, bank, Russia
    JEL: G28 P34 G21
    Date: 2012–02
  8. By: Shulzhenko, Elena
    Abstract: The paper discusses the role of the personnel function as described in the research literature before the background of the particular characteristics of the Russian HR conditions which have evolved during the transition period. It describes the characteristics of wage and incentive systems in Russian private enterprises, of personnel development systems, and of work organisation on the shop floor. Leadership styles and work- behaviour and work values are discussed as well as industrial relations literature dealing with the role of unions and of collective bargaining and with the perception of trade unions by employees. It ends with a brief summary and some conclusions. --
    Date: 2012
  9. By: Guilhem Fabre (CCJ - Chine, Corée, Japon - CNRS : UMR8173 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Université Paris VII - Paris Diderot); Stephane Grumbach (LIAMA - NETQUEST - CIRAD - CNRS - INRA - INRIA - Chinese Academy of Science (CAS) - Institute of Automation, Chinese Academy of Sciences)
    Abstract: R&D and innovation have become much more strategic than ever before for the growth of China as well as for its global societal upgrade. The Chinese authorities have designed an innovation strategy to face new economic and social challenges. The first part of the paper is focused on the emergence of the policy, in the 2006-2020 Plan for S&T, with a historical perspective explaining the legacy of the past in today's choices. In the second part, we illustrate China's catching up strategy through four sectors (high-speed trains, aeronautics, clean energy, IT) and discuss its potential impact on the world industry.
    Keywords: R&D; innovation; strategy; high speed trains; aeronautics; clean energy; IT
    Date: 2012–02–28
  10. By: Peter Havlik (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The Russian GDP grew by more than 4% in 2011 thanks to a robust recovery of fixed investment, construction and consumer expenditures. The contribution of net exports to GDP growth was sharply negative (despite a sizeable nominal increase in trade and current account surplus). wiiw reckons with unspectacular GDP growth during 2012-2014, assuming no abrupt policy changes or external shocks. Export revenues will grow rather slowly owing to stagnating volumes of exported oil and gas; import volumes are expected to grow at a faster rate as household consumption and investment will gradually pick up, both fuelled by the ongoing real currency appreciation. In the medium and long run, reforms and investments (including FDI) may be stimulated by WTO membership, while the attempted modernisation drive will hardly succeed any time soon. With some luck the annual CPI inflation may gradually drop to 5% and the budget deficit will remain balanced.
    Date: 2012–03
  11. By: Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In Croatia, GDP growth will decline again in 2012 and should finally rebound only in 2013, provided external demand and competitiveness strengthen. The poor situation on the labour market will continue to be a major obstacle to a recovery in household consumption. The burdens associated with high foreign debt servicing and reducing the budget deficit including structural reforms will remain the most serious challenges for the new government. EU accession in 2013 may stimulate foreign investment flows.
    Date: 2012–03
  12. By: Konstantins Benkovskis; Julia Woerz
    Abstract: We propose an export price indicator adjusted for non-price factors as a measure of a country's competitiveness. Based on the approach by Broda and Weinstein (2006) who adjust price developments for changes in varieties of imported products, we relax their assumption of unchanged quality over time and apply this index to export prices of the ten CESEE EU Member States which acceded in 2004 and 2007. The index is calculated using data from Comext at the highly disaggregated eight-digit CN product level. Our analysis spans the time period from 1999 to 2010, thus including the recent global recession in 2009. The results show that all CESEE10 countries experienced loss in price competitiveness, although much smaller than is usually suggested by the traditional CPI-based or ULC-based real effective exchange rate measures. Although relative export prices (unit values) increased stronger in CESEE10 countries as compared with their competitors, the average quality of their goods increased even more, thus fully compensating for the rise in prices. These improvements in non-price competitiveness were pronounced in all CESEE10 countries.
    Keywords: non-price competitiveness, quality, relative export price
    JEL: C43 F12 F14 L15
    Date: 2012–04–13
  13. By: Ariane Tichit Miniscloux (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Solenne Tanguy (CREG - Centre de recherche en économie de Grenoble - Université Pierre Mendès-France - Grenoble II : EA4625)
    Abstract: This article analyses the impact on the labor market of the transition from a state-controlled economy towards a market economy. We consider a dynamic matching-model with a declining and an emerging competitive sector. We show that there are two opposite strategies in the move towards a market economy: a massive decrease in employment or a small decrease in employment in the non-competitive sector. We find that the transition is achieved faster with a big reduction in state employment than with a small one. Surprisingly, the end of transition is also characterized by lower unemployment when there are massive layoffs - because in the short run, the high unemployment implied by the massive decrease makes job creation in the competitive sector more profitable. In fact, this seems to have been the way chosen by most of the CEECs.
    Keywords: Unemployment;Matching models;transitional economies
    Date: 2012–04–13
  14. By: Papa N'Diaye; Nan Geng
    Abstract: This paper analyzes the evolution of investment in China, its main features, and its key determinants. In recent years, manufacturing, real estate, and infrastructure have been the main drivers of investment. Investment remains largely concentrated in coastal areas, but there has been a shift to greater investments inland in recent years. The empirical analysis of the determinants of investment indicates that financial variables, such as interest rates, the exchange rate, and the depth of the domestic capital market are important determinants of corporate investment. The results suggest in particular that financial sector reform, including that which deregulates and raises real interest rates as well as appreciates the real effective exchange rate, would lower investment and help rebalance growth away from exports and investment toward private consumption.
    Keywords: Capital markets , Corporate sector , Exchange rate appreciation , Investment , Real effective exchange rates ,
    Date: 2012–03–20
  15. By: Balázs Égert; Evžen Kočenda
    Abstract: We analyze the impact of macroeconomic news and central bank communication on the exchange rates of three Central and Eastern European (CEE) currencies against the euro. In doing so, we first estimate standard and extended versions of the monetary model to capture deviations from the long-term monetary equilibrium. In the second stage, we employ a high-frequency GARCH model that includes accurately identified macroeconomic news, central bank communication and emerging market risk and allows for non-linear behavior as regards the deviation from equilibrium. Surprisingly, there is little support for non-linearity in the data. During the pre-crisis period (2004–2007) the major CEE currencies generally respond to macroeconomic news in an intuitive manner that corresponds to exchange rate-related theories. During the crisis (2008–2009), the responsiveness breaks down and the currencies react to news on the key economic indicator (real GDP growth). There is a lack of responsiveness to central bank communications during the pre-crisis period but all currencies react to central bank verbal interventions during the crisis. Our results show that the CEE currencies react to both macroeconomic news and central bank communications but this responsiveness differs during the pre-crisis and crisis periods. Detailed responses vary across the currencies and we conjecture that the exchange rate regime and the extent to which particular currencies are traded on the international forex market are potential explanations behind these differences.
    Keywords: exchange rate, macroeconomic news, central bank communication, monetary model, Central Europe, European Union
    JEL: E31 F31 O11 P17
    Date: 2012
  16. By: Ashvin Ahuja
    Abstract: During the past decade, the average Chinese earns roughly 9 times less and is 10 times less productive than the average American at purchasing power parity. Current consensus attributes large differences in output per worker to differences in total factor productivity (TFP). Evidence suggests that most of the US-China TFP differences lie in the inefficiency of China’s domestic-oriented service and agricultural sectors. This paper focuses on (1) the evidence of monopoly rights and its influence on work practice improvement at China’s firms and plants and (2) the evidence that policy arrangement there has encouraged more competition in merchandise manufacturing and heavy industries while barriers to market access remain high against new firms in the domestic market (especially in services). A numerical experiment is provided, which suggests that China can enhance long-term income per capita by a factor of 10 largely through TFP gains by implementing reform to weaken protection of monopolies and encourage entry in all industries.
    Keywords: China , Competition , Economic models , Manufacturing sector , Markets , Productivity , Services sector , United States ,
    Date: 2012–03–13
  17. By: Liu, Hongtao; Polenske, Karen R.; Guilhoto, Joaquim José Martins; Xi, Youmin
    Abstract: Greenhouse gas reduction and energy consumption are becoming two important issues in both industrialized and developing countries, and policy makers are developing means to reduce total domestic energy use. We evaluate and compare the direct and the indirect energy consumption both in the People’s Republic of China (China) and the United States of America (US) by looking at a series of hybrid energy input-output tables (1997, 2002, and 2007). We also apply structural decomposition analysis (SDA), to identify the factors causing energy intensity (energy consumption per unit of gross domestic product) to differ between the two countries, which lead to potential energy-saving options. Our results show that, besides the differences in direct energy consumption, huge differences also exist in indirect energy consumption between the two countries. Differences in indirect energy consumption are mainly due to differences in technology. Technological change and industrial-structure change are key factors to explain the inequality of energy intensity, while there is a significant trend towards the convergence of sectorial energy efficiency between the two countries.
    Keywords: Input-output analysis; Structural decomposition analysis; Energy
    JEL: N7 Q43
    Date: 2011
  18. By: Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: While Slovakia achieved a successful year 2011 – with a GDP growth of about 3.3% – main challenges lie ahead. Due to the ongoing European debt crisis and worsened outlook for its main trade partners Germany and the Czech Republic, we revised our growth forecasts downwards and expect GDP to grow by 1.5% this year. Net exports might remain the main driver of GDP provided that external demand does not weaken even further. In addition, uncertainties derive from the forthcoming parliamentary elections to be held on 10 March 2012. In case of a government dominated by the leftist Smer party led by Robert Fico, we may expect weaker fiscal consolidation and thus slowly reviving private consumption.
    Date: 2012–03
  19. By: Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Given fiscal consolidation and the expected growth slowdown in Slovenia’s most important EU trading partners, GDP will decline by 1% in 2012. A rebound of economic activity is expected only in 2013 since public investment will need time to recover and deleveraging of the enterprise sector is still going on. Household consumption will depend on improvements on the labour market. Slovenia’s economic recovery will largely hinge on the success or failure of the new government.
    Date: 2012–03
  20. By: Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In Romania, a bumper harvest boosted GDP by 2.5% in 2011, a one-time effect that is due to vanish in 2012. At best 1% growth can be expected, driven by private consumption. A major factor of the economic slowdown is the expected stop in credit expansion. The fiscal situation is not expected to deteriorate under the close control of the IMF. The elections in November may lead to a cohabitation of president and government from opposing political groupings, which may increase political uncertainty.
    Date: 2012–03
  21. By: Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The general deterioration of conditions in the euro area (even in Germany) in the second half of 2011 has already affected the performance and prospects in most new member states. But so far Poland has kept its growth momentum. Growth in 2012 is likely to be satisfactory (though of course lower than in 2011) even if the euro area stagnates. The domestic economy is in no need for any meaningful deleveraging while fiscal and monetary policies will quite certainly not chase any overambitious goals. As in 2009 the Polish economy will benefit from its size, versatility and relative closedness. But the exchange rate volatility will continue to be a source of surprises which can be either pleasant or unpleasant.
    Date: 2012–03
  22. By: Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Kazakhstan’s economy exhibited outstanding real growth of 7.5% in 2011. We forecast that strong GDP growth of 5-6% in real terms will continue in 2012-2014. The oil sector will remain the backbone of the economy, accounting for the bulk of its exports and FDI. Investment growth is forecasted to speed up in 2012-2014 to about 8-10%, in particular owing to a number of state-financed investment projects. Banking sector vulnerabilities have been accumulating, with the share of non-performing bank loans reaching 21.7% and the BTA bank negotiating a second restructuring.
    Date: 2012–03
  23. By: Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: After a year of strong economic activity, the recessionary developments in the eurozone also impair the growth prospects of the Estonian economy. Thus, the growth of investments will abate throughout 2012 while household demand will still support the trade cycle. Moreover, the latest protests and strikes in Estonia should give rise to stronger wage increases this year. In 2013 and 2014 a slight upswing of external demand should bring forth a revival of faster GDP growth.
    Date: 2012–03
  24. By: Driton Qehaja
    Abstract: External shocks pose major challenges to fiscal policy makers through lower output and large fiscal imbalances. This paper analyzes the case of Moldova, which faced parallel crises a decade apart: the Russian crisis of 1998 and the global financial crisis of 2008-2009. The country went through large fiscal adjustments during these crises and launched important fiscal reforms. The paper reviews the crises and reform experience. In particular, it aims to explain the motivation for reforms, describe reform design and implementation, and provide an understanding of their outcomes. The paper also catalogues the form and size of international assistance for Moldova.
    Keywords: Development assistance , External shocks , Financial crisis , Fiscal policy , Fiscal reforms , Global Financial Crisis 2008-2009 , Government expenditures , Revenue sources , Tax policy ,
    Date: 2012–03–20
  25. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In Ukraine, booming private consumption and a bumper harvest contributed to an impressive 5% GDP growth in 2011. The budget situation improved markedly, and currency depreciation pressures were successfully counteracted. However, the recent monetary policy tightening coupled with weak external demand will likely dampen the growth prospects this year, possibly to below 4%, while dependence on external funding will remain a source of risk for financial stability. Following the ‘Tymoshenko case’, the association and free trade agreement with the EU have been put on hold and are unlikely to be signed before the end of 2012.
    Date: 2012–03
  26. By: Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The downturn of the European trade cycle leads to lowered growth prospects also for Latvia in 2012. The corporate and the household sector will continue to deleverage quite strongly, thus the growth in investments and household consumption will decline as well. Eager to join the eurozone in 2014, the Latvian government will most probably manage to reduce the budget deficit to below 3% in 2012. The greatest obstacle will however be to lower the consumer inflation rate to the Maastricht criterion. From 2013 onwards we expect external demand to trigger a revival in output growth.
    Date: 2012–03
  27. By: Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In Lithuania, the slowdown of growth in exports and corporate investments that could be observed towards the end of 2011 will continue throughout 2012. In spite of parliamentary elections to be held in October 2012, the government reinforced austerity measures in order to reduce the budget deficit to below 4% of GDP. This will curb domestic demand throughout the year. Thus, the situation on the labour market will remain strained and outward migration especially of young people will continue. A revival of GDP growth to be expected in 2013 and 2014 should be backed by an external demand stimulus.
    Date: 2012–03
  28. By: Daria Zakharova; Charleen Gust
    Abstract: Though many aspects of Russia's fiscal policy framework are close to best practice on paper, actual practice in recent years has been moving away from best practice. In particular, the continued focus on the overall rather than the nonoil balance, and the regular use of supplemental budgets to spend windfall oil revenues contribute to procylicality of fiscal policy, risking costly boom-bust cycles. Against this background, this paper suggests several improvements to the framework for fiscal policy.
    Keywords: Commodity price fluctuations , Fiscal policy , Fiscal sustainability , Nonoil sector , Oil prices , Oil producing countries , Oil revenues ,
    Date: 2012–03–14
  29. By: Sandor Richter (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The Hungarian economy will slide into recession this year due to the austerity measures required to reduce the fiscal deficit to below 3% of the GDP. Further, but smaller consolidation measures will be necessary in 2013 as well. An agreement with the IMF and the EU may help partially restore confidence in the government’s economic policy; nevertheless, that would also mean the end of the ‘unconventional’ policy measures and probably a revision of some of the earlier introduced ones, such as the radical tax cuts. In the absence of an agreement with IMF and EU, the consequences may include a remarkable weakening of the exchange rate and serious difficulties in rolling over external debt.
    Date: 2012–03
  30. By: Mark Weisbrot; Rebecca Ray
    Abstract: Advocates of an economic strategy of “internal devaluation” have recently pointed to Latvia as an example of successful macroeconomic policy. The Latvian economy is projected to grow by four percent in 2011. They argue that the Latvian government, along with the European authorities (including the International Monetary Fund ­ IMF), pursued the correct macroeconomic policies by maintaining Latvia’s fixed exchange rate and implementing pro-cyclical fiscal policies (that shrunk the economy further) and sometimes pro-cyclical monetary policies. They argue that these were the best policies ­as opposed to counter-cyclical, expansionary fiscal and monetary policies, accompanied by devaluation­ designed to promote a rapid economic recovery. The data, however, contradict the notion that Latvia’s experience provides an example of successful internal devaluation. This paper looks at the Latvian case and provides further evidence that this can be a very costly strategy and one that does not work. The social and economic costs in Latvia were enormous, and the loss of income much greater than most countries that had crisis-driven devaluations. Countries with crisis-driven devaluations also recovered vastly faster, on average, than did Latvia. Furthermore, net exports contributed little or nothing to Latvia's recovery, which seems to have been facilitated instead by the abandonment of pro-cyclical macroeconomic policies.
    Keywords: latvia, europe, devaluation, procyclical, countercyclical, imf,
    JEL: E E6 E52 F F34 F14
    Date: 2011–12

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