nep-tra New Economics Papers
on Transition Economics
Issue of 2012‒05‒08
sixteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Does finance cause growth? Evidence from the origins of banking in Russia By Berkowitz, Daniel; Hoekstra, Mark; Schoors, Koen
  2. Learning Dynamics and the Support for Economic Reforms: Why Good News can be Bad By Sweder van Wijnbergen; Tim Willems
  3. Does Corporate Governance Reform Necessarily Boost Firm Performance? Recent Evidence from Russia By Kuznecovs, Mihails; Pal, Sarmistha
  4. The Impact of Capital Measurement Error Correction on Firm-Level Production Function Estimation By Lubomir Lizal; Kamil Galuščák
  5. Volatility Transmission in Emerging European Foreign Exchange Markets By Evzen Kocenda; Vit Bubak; Filip Zikes
  6. On the Reversibility of Structural Reforms By Campos, Nauro F; Horváth, Roman
  7. Changes in China's Wage Structure By Ge, Suqin; Yang, Dennis Tao
  8. A note on foreign bank entry and bank corporate governance in China By Hasan, Iftekhar; Xie, Ru
  9. Agriculture, Structural Change and Socially Responsible Development in China and Vietnam By Tisdell, Clement A.
  10. Financial Repression and China’s Economic Imbalances By Johansson, Anders C.
  11. Land Use Rights, Market Transitions, and Labor Policy Change in China (1980-4) By Chen, Yiu Por (Vincent)
  12. Government intervention and institutional trading strategy: Evidence from a transition country By Yao, Yi; Yang, Rong; Liu, Zhiyuan; Hasan, Iftekhar
  13. Employment in Romania: evidence from a panel data analysis By Vasilescu, Denisa Maria; Aparaschivei, Larisa; Roman, Mihai Daniel
  14. Day of the week effect in central European stock markets By Stavarek, Daniel; Heryan, Tomas
  15. Quantifying patriarchy: an explorative comparison of two joint family societies By Siegfried Gruber; Mikolaj Szoltysek

  1. By: Berkowitz, Daniel (BOFIT); Hoekstra, Mark (BOFIT); Schoors, Koen (BOFIT)
    Abstract: This paper examines the effect of banking on economic growth in modern Russia. To overcome simultaneity and selection, we exploit regional banking variation induced by the creation of “specialized banks” (spetsbanks) in the last years of the Soviet Union (1988-1991). Consistent with the qualitative work of Joel Hellman [1993] and Juliet Johnson [2000], we show that these reforms generated an ideal natural experiment in that the concentration of spetsbanks is jointly uncorrelated with 15 predictors of future growth, including pre-banking income, education, anti-market sentiment, institutional quality, and government interference in the economy. Results indicate that while the presence of one additional spetsbank per million inhabitants increased total within-state lending to private firms and individuals by 14 to 26 percent in the early 2000s, it had no effect on investment or per capita income. In contrast, we find that spetsbanks increased employment. Additional results indicate that spetsbanks increased growth in regions in which they were less connected to government and were generally more similar to non-spetsbanks, as well as in regions that were better at protecting property rights. Our results thus strongly suggest that bank origins, political connections, and property rights are important determinants of effective finance.
    Keywords: finance; growth; banking; Russia
    JEL: F30 G20 O40 P30
    Date: 2012–05–02
  2. By: Sweder van Wijnbergen (University of Amsterdam); Tim Willems (University of Amsterdam)
    Abstract: Support for economic reforms has often shown puzzling dynamics: there are many examples of reforms that started off successfully but nevertheless lost public support, and vice versa. We show that learning dynamics can rationalize this apparent paradox, the reason being that the process of revealing reform outcomes is an example of sampling without replacement: every winner revealed reduces the number of unfilled winning places left, thereby making individuals who remain uncertain on their identity (reform winner or loser?) more pessimistic about their chances of benefiting from the reform. Consequently, learning considerations challenge the conventional wisdom that sequencing should be such that favorable reform outcomes are revealed first. Finally, we provide an explanation for why the gradual reform strategy worked well for China, while this is much less so for Latin American and Central and Eastern European countries.
    Keywords: learning; political economy; reform; sequencing; privatization
    JEL: D72 D83 P21
    Date: 2012–04–23
  3. By: Kuznecovs, Mihails (University of Surrey); Pal, Sarmistha (University of Surrey)
    Abstract: This paper examines whether the introduction of corporate governance (CG) reforms in general and that of transparency and disclosure (T&D) rules in particular can necessarily boost firm performance. Existing literature suggests that CG reforms can boost performance because it can resolve the conflict of interest between the controlling and the minority owners, especially in societies with highly skewed distribution of ownership. We however argue that the success of CG reform would, in addition, depend on whether the reforms may initiate further conflict, e.g., that between the state and the controlling owners. Using recent data from Russia for 2000-2008, we find that the introduction of corporate governance codes in Russia had limited success to improve indices of firm performance in our sample. We argue that this arises from the predatory behavior of the central and local governments: greater transparency make businesses easy targets for aggressive tax enforcement policy by the central government while the decentralized local governments may increase the bribe price to protect businesses from high central taxes, which may also induce some businesses to go underground, thus harming firm performance.
    Keywords: corporate governance reform, transparency and disclosure rules, conflict between state and the controlling owner, taxation and fiscal decentralisation, firm performance, predatory state, Tobin's Q, Russia
    JEL: G3 K2 P2
    Date: 2012–04
  4. By: Lubomir Lizal; Kamil Galuščák
    Abstract: Based on a large panel of Czech manufacturing firms, we estimate firm-level production functions in 2003–2007 using the Levinsohn and Petrin (2003) and Wooldridge (2009) approaches, correcting for the measurement error in capital. We show that measurement error plays a significant role in the size of the estimated capital coefficient. The capital coefficient estimate approximately doubles (depending on the particular industry) when we control for capital measurement error. Consequently, while the majority of industries exhibit constant or (in)significantly decreasing returns to scale when the standard methods are used, increasing returns cannot be rejected in some industries when the estimation is corrected for capital measurement error.
    Keywords: Measurement error, capital, firm-level data, Czech Republic.
    JEL: C23 C33 D24 O47
    Date: 2012–01–01
  5. By: Evzen Kocenda; Vit Bubak; Filip Zikes
    Abstract: This paper studies the dynamics of volatility transmission between Central European (CE) currencies and the EUR/USD foreign exchange using model-free estimates of daily exchange rate volatility based on intraday data. We formulate a flexible yet parsimonious parametric model in which the daily realized volatility of a given exchange rate depends both on its own lags as well as on the lagged realized volatilities of the other exchange rates. We find evidence of statistically significant intra-regional volatility spillovers among the CE foreign exchange markets. With the exception of the Czech and, prior to the recent turbulent economic events, Polish currencies, we find no significant spillovers running from the EUR/USD to the CE foreign exchange markets. To measure the overall magnitude and evolution of volatility transmission over time, we construct a dynamic version of the Diebold-Yilmaz volatility spillover index and show that volatility spillovers tend to increase in periods characterized by market uncertainty.
    Keywords: Foreign exchange markets; Volatility; Spillovers; Intraday data; Nonlinear dynamics; European emerging markets
    JEL: C5 F31 G15
    Date: 2011–07–01
  6. By: Campos, Nauro F (Brunel University); Horváth, Roman (Charles University, Prague)
    Abstract: What are the factors that explain reversals in the implementation of structural reforms? Our main hypothesis is that reversals in different reforms are driven by different factors. This paper uses new reform indicators and presents novel evidence showing that (a) FDI inflows reduce the likelihood of privatization reversals, (b) worsened terms of trade increase the probability of external liberalization reversals and (c) labour strikes propel reversals in the liberalization of wages and prices.
    Keywords: reform reversals, price liberalization, trade liberalization, privatization, political economy
    JEL: E23 D72 H26 O17
    Date: 2012–04
  7. By: Ge, Suqin (Virginia Tech); Yang, Dennis Tao (Chinese University of Hong Kong)
    Abstract: Using a national sample of Urban Household Surveys, we document several profound changes in China's wage structure during a period of rapid economic growth. Between 1992 and 2007, the average real wage increased by 202 percent, accompanied by a sharp rise in wage inequality. Decomposition analysis reveals 80 percent of this wage growth to be attributable to higher pay for basic labor, rising returns to human capital, and increases in the state-sector wage premium. Employing an aggregate production function framework, we account for the sources of wage growth and wage inequality in the face of globalization and economic transition. We find capital accumulation, skill-biased technological change, and export expansion to be the major forces behind the evolving wage structure in China.
    Keywords: wage growth, wage premium, wage inequality, capital accumulation, trade expansion, technological change, China
    JEL: J31 E24 O40
    Date: 2012–04
  8. By: Hasan, Iftekhar (BOFIT); Xie, Ru (BOFIT)
    Abstract: China employs a unique foreign bank entry model. Instead of allowing full foreign control of domestic banks, foreign investors are only permitted to be involved in the local banks as minority shareholders. At the same time, foreign strategic investors are expected to commit to bank corporate governance improvement and new technology support. In this context, the paper examines the effect of foreign strategic investors on Chinese bank performance. Based on a unique data set of bank ownership, performance, corporate governance and stock returns from 2003 to 2007, our regression and event study analysis results suggest that active involvement of foreign strategic investors in bank management have improved the corporate governance model of Chinese banks from a control based model to a market oriented model, and accordingly have promoted bank performance.
    Keywords: China; foreign market entry; corporate governance
    JEL: F23 G21 G28 G34
    Date: 2012–05–02
  9. By: Tisdell, Clement A.
    Abstract: The gradualism of economic reforms in China and Vietnam (especially in China, which has led the way in this regard) has been commented on favourably by many analysts studying transitional economies. Early market reforms in China and Vietnam were constrained by political considerations and consequently, began in agriculture and in China’s case, in rural areas with the development of town-and-village enterprises as well. It is argued that at the time when the reforms began, they were socially responsible. However, they have created a legacy which has resulted in agricultural land disputes and many town-and-village enterprises now face new economic challenges resulting in social conflict as the structure of China’s economy alters and greater market competition occurs. A further relevant policy issue which is discussed is whether commercial industrialised farming should be encouraged at the expense of the existing predominantly small-scale household farming in China and Vietnam. At present, titles to agricultural land continue to be held by village councils and villagers only have conditional user rights to the land allocated to them. These rights can be taken away by village councils and the use of the land involved can be reallocated which has been increasingly necessary with structural economic change in China and Vietnam. Some villagers believe that their land is taken unfairly and that they are not adequately compensated for its loss. Why this problem exists and the difficulties of solving it are given particular consideration
    Keywords: China, commercialisation of agriculture, economic reform, land rights, town-and-village enterprises, transitional economies, Vietnam., Community/Rural/Urban Development, Environmental Economics and Policy, Farm Management, International Relations/Trade, Political Economy, P21, P25, P31, P32,
    Date: 2012–04
  10. By: Johansson, Anders C. (China Economic Research Center)
    Abstract: Increasing domestic and external imbalances pose a serious challenge to economic development in China. While several forms of economic imbalances have been identified and discussed, many of these imbalances represent symptoms rather than the main issues that Chinese policymakers have to deal with in order to sustain economic growth over the next decade. Building on recent research on the relationship between financial repression and economic imbalances, the main premise of this paper is that financial repression in China has been at least partly responsible for extremely high levels of investments, a very strong industrial sector and a weakly developed service sector, serious external imbalances and rising inequality. This paper discusses how the Chinese government has used repressive financial policies since the beginning of the reforms, how these policies have resulted in economic imbalances, and some initial suggestions on financial reforms that would help in the pursuit of rebalancing the Chinese economy.
    Keywords: Financial repression; Structural imbalances; External imbalances; Inequality; Financial liberalization; Financial reform; China
    JEL: F41 G18 L52 O16 O40
    Date: 2012–04–27
  11. By: Chen, Yiu Por (Vincent) (University of Sheffield)
    Abstract: This paper provides a systematic analysis of the way shifts in property utilization rights in China induced another sequence of institutional changes that led to the rise of rural-urban labor migration from 1980 to 1984, a critical period in the country's market transition. I show that the 1980s' Household Responsibility System (HRS), which brought family farming back from the communal system, endowed rural households not only with land use rights, but also with de facto labor allocation rights. These shifts in property relations promoted a growth in agricultural market size as well as the emergence of intraprovincial non-hukou rural-urban migration, which may have made labor retention policies such as the small township strategy ineffective, and may have given the government an incentive to deregulate its subsequent labor market policy.
    Keywords: rural-urban migration, labor mobility, undocumented labor, institutional change
    JEL: J43 J61 R23 R52 R58
    Date: 2012–04
  12. By: Yao, Yi (BOFIT); Yang, Rong (BOFIT); Liu, Zhiyuan (BOFIT); Hasan, Iftekhar (BOFIT)
    Abstract: This study investigates the effectiveness of government intervention in rescuing bearish markets in a transition economy. Focusing on a pre- and a post-intervention period, the findings reveal that government intervention successfully rescued bearish markets in China and led to a fundamental change in institutional trading strategy after the intervention. We observe that following an intervention, institutions are more sensitive to long-term stock market regulations, whereas individual investors are more concerned about the rules related to their short-term interests. Evidence suggests that a credible signal from the government can be helpful in creating a positive outcome in the market (Bhanot and Kadapakkam, 2006). The findings are important to the current debate regarding the role of government intervention in markets in other transitional economies, as well as in developed countries.
    Keywords: government intervention; institutional trading strategy
    JEL: G15 G18 G32
    Date: 2012–05–02
  13. By: Vasilescu, Denisa Maria; Aparaschivei, Larisa; Roman, Mihai Daniel
    Abstract: The labour market in Romania is facing some imbalances arising from the negative demographic trends, legislative instability, poor correlation between the educational programs with the labour market, low labour productivity. The European Union labour market strategy aims at achieving 75% employment rate by 2020, for Romania the objective being 70% (Europe 2020). Although Romania has enjoyed robust economic growth for the most part of the 2000s, the labour market was experiencing large and increasing shortages of labour and skills, which coexisted with low participation rates, as well as excess supply of labour in declining sectors (mainly agriculture). The negative growth rate of the Romanian population, which has started in the early 1990s has already reduced the population. On top of this, there is the migration of the work force - most of the migrants are still included in the labour market statistics, as inactive, but are absent from the Romania’s labour market and might be partly responsible for the slow progress of employment rate in Romania. In this context, we aim to examine the employment rate in Romania, considering a panel data analysis over the period 1996-2009. The explanatory variables are the net migration rate, the mortality and birth rates, the unemployment rate, the real earnings, the secondary and tertiary education graduates.
    Keywords: labour supply; migration; education; panel data; Romania
    JEL: C23 O15 J61 J20
    Date: 2012–02–01
  14. By: Stavarek, Daniel; Heryan, Tomas
    Abstract: The aim of the paper is to estimate the day of the week effect in the stock markets in the Czech Republic, Hungary and Poland over the period 2006 – 2012. The entire period of estimation is divided to six sub-periods capturing individual phases of the financial and economic crisis. We separately estimate a modified GARCH-M (1,1) model for each country and each sub-period using daily returns of the major national stock market indices. The day of the week effect is measured for both daily returns and conditional variance (volatility) of the returns. The results clearly indicate that there is a little evidence of day of the week effect. Daily calendar anomalies are rather sporadic, isolated, unstable over time and often opposite to theoretical assumptions. There is no phase of financial crisis characteristic of significantly increased incidence of day of the week effects. We conclude that the day of the week effect is not typical for the Central European stock markets and the recent financial crisis seems to have no impact on existence of this phenomenon in the markets.
    Keywords: day-of-the-week effect; calendar anomalies; stock market; GARCH-M model; financial crisis
    JEL: C32 G10
    Date: 2012–04–28
  15. By: Siegfried Gruber (Max Planck Institute for Demographic Research, Rostock, Germany); Mikolaj Szoltysek (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: The notion of ‘patriarchy’ has pervaded the scholarly descriptions of peasant families in historical Eastern and South-Eastern Europe. The term has often included many different elements, such as the dominance of patrilineal descent, patrilocal or patrivirilocal residence after marriage, power relations that favour the domination of men over women and of the older generation over the younger generation, customary laws that sanctioned these patterns, the absence of an interfering state that could mitigate their influence, and an inert traditional society that emanated from these conditions. Combinations of these elements have been used to explain the peculiarity of the residence patterns in the East and South-East of Europe relative to the West, but in a manner that generally does not allow researchers to measure comparatively the ‘intensity’ of patriarchy across time and space. In this paper, we propose a handy tool for comparative studies of joint families, and argue that ‘patriarchy’ can be meaningfully measured in quantitative terms. We also suggest approaches for measuring patriarchy, and provide a list of numerical variables easily derived from census microdata that can be used for measurement purposes. To illustrate how these comparative studies can be conducted, we use census and census-like materials for two historical joint family societies from the European East (Poland-Lithuania and Albania). For both datasets, we compute a list of well-specified variables and investigate how they correlate with each other. Finally, based on these variables, an index of patriarchy is proposed, allowing us to identify regions with different degrees of patriarchy within one country.
    JEL: J1 Z0
    Date: 2012–04
  16. By: Sophie Brana; Delphine Lahet
    Abstract: CEECs are characterised by a significant presence of foreign banks and by a marked dependence upon financing from foreign bankers. We show that this situation leaves these countries open to two types of financial risk, which have grown throughout the present decade. The first relates to the direct financial exposure between European creditor countries and CEECs and the risk of sudden withdrawal of capital. The second, which is indirect, is associated with the risk of regional contagion via spill-over effects and the common creditor channel. Based on a synthetic measure of these risks, we show that the degree of vulnerability of each country to the recent financial crisis could have been anticipated.
    Keywords: Eastern Europe, banking risks, foreign claims, contagion, subsidiaries.
    JEL: F23 F32 F36 G01 G21
    Date: 2011–11–01

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