nep-tra New Economics Papers
on Transition Economics
Issue of 2012‒06‒05
nineteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Pension reform in a rapidly ageing country: the case of Ukraine By Lisenkova, Katerina
  2. Ensuring Stability and Efficiency of the Hungarian Financial Sector By Olena Havrylchyk
  3. Migrant's Pursuit of Happiness - The Impact of Adaption, Social Comparison and Relative Deprivation: Evidence from a 'Natural' Experiment By Silvia Maja Melzer; Ruud J. Muffels
  4. Andrzej Torój - Poland and Slovakia during the crisis: would the euro (non-)adoption matter? By Andrzej Torój
  5. The Effects of Democratization on Public Goods and Redistribution: Evidence from China By Monica Martinez-Bravo; Gerard Padró i Miquel; Nancy Qian; Yang Yao
  6. Credit Constraint and Non-separable Behavior of Rural Households — Evidence from China By Zhao, Jianmei; Zhang, Jun
  7. Changes at the top in Chinese Banking By Cousin, Violaine
  8. Body Weight and Labour Market Outcomes in Post-Soviet Russia By Huffman, Sonya Kostova; Rizov, Marian
  9. Human Capital, Economic Growth, and Inequality in China By James J. Heckman; Junjian Yi
  10. Does cadre turnover help or hinder China's green rise? Evidence from Shanxi province By Eaton, Sarah; Kostka, Genia
  11. Provincial migration in China : Preliminary insights from the 2010 population census By Fischer, A.M.
  12. Siblings, public facilities and education returns in China By Kang, Lili; Peng, Fei
  14. China's Economic Growth, Structural Change and Lewisian Turning Point (Japanese) By FUKAO Kyoji; Tangjun YUAN
  15. Workers’ remittances and economic growth in China and Korea: an empirical analysis By Jawaid, Syed Tehseen; Raza, Syed Ali
  16. The macroeconomic impacts of Chinese currency appreciation on China and the rest of world : A global computable general equilibrium analysis By Yang, Jun; Zhang, Wei; Tokgoz, Simla
  17. The RMB Debate: Empirical Analysis on the Effects of Exchange Rate Shocks in China and Japan By Soyoung Kim; Yoonbai Kim
  18. What drives urban consumption in mainland china? The role of property price dynamics By Chen, Yu-Fu; Funke, Michael; Mehrotra, Aaron
  19. Facilitating access to rural services in Vietnam: The invisible social capital link By Quoc, Hoang Dinh; Dufhues, Thomas; Buchenrieder, Gertrud

  1. By: Lisenkova, Katerina
    Abstract: Ukraine has a rapidly ageing and declining population. A dynamic forward-­looking Computable General Equilibrium (CGE) model with an explicitly modelled Payâ€Asâ€You-­Go pension scheme is constructed to perform simulations of different pension reform scenarios and investigate the impact of population ageing on a wide range of macroeconomic variables. It is shown that, changes in age structure will result in a significant negative impact on the economy and stability of the pension system. Analysis of the potential changes to the pension system is limited to modelling an increase of the pension age, keeping either the workers’ contribution rate or replacement rate constant.
    Keywords: Ukraine, CGE modelling, pension reform, ageing,
    Date: 2011
  2. By: Olena Havrylchyk
    Abstract: Loan creation has not recovered after the crisis owing to a combination of demand and supply factors. Although the banking sector is sufficiently capitalised in the short term, banks are deleveraging by cutting down their dependence on cross-border financing. The ability of the financial sector to supply credit has been further stifled by a high financial levy, a de facto ban on foreign currency lending for mortgages, future uncertainties about parent banks’ funding and undermined creditors’ rights. Up to recently, new measures to restructure household loans did not help borrowers with real repayment difficulties while weakening banks’ solvency. The mid-December 2011 agreement between the government and the banking sector was a welcome step towards fair burden sharing. Bank recapitalisation, if necessary, should be done by raising the level of capital so as not to downsize loan portfolios. In the long term, the demand for credit is hampered by large price-cost margins, which call for stiffer competition. The development of the financial markets has also been adversely affected by the de facto nationalisation of mandatory pension funds, which played a crucial role in the accumulation of long-term savings. The regulation of mandatory and voluntary pension funds requires harmonisation and transparency to increase their cost-efficiency. An effective cooperation between micro and macro-prudential regulation should be ensured in practice and the financial independence of the financial supervisor strengthened. Co-operation between host and home regulatory authorities should be enhanced in a manner that accounts for systemic risks in Hungary. Finally, an effective independence of the central bank has to be guaranteed. This Working Paper relates to the 2012 OECD Economic Survey of Hungary (<P>Assurer la stabilité et l'efficience du secteur financier hongrois<BR>La production de prêts n’a pas redémarré à l’issue de la crise du fait d’une combinaison de facteurs liés à l’offre et la demande. Bien que les banques soient suffisamment capitalisées à court terme, elles diminuent leur effet de levier en réduisant leur dépendance aux financements transnationaux. La capacité du secteur financier à offrir des crédits a de plus été bridée par une taxe financière élevée, une interdiction de fait des prêts en devises, des incertitudes quant aux financements futurs émanant des maisons mères et une limitation des droits des créanciers. Jusqu’à récemment, les nouvelles mesures de restructuration des prêts ne permettaient pas d’aider les ménages confrontés à de réelles difficultés de remboursement, et réduisaient la solvabilité des banques. L’accord conclu à la mi décembre 2011 entre le gouvernement et les banques marque une étape bienvenue vers un juste partage de la charge de restructuration. La recapitalisation éventuelle des banques doit passer par une augmentation de capital afin de ne pas réduire le portefeuille de prêts. À long terme, la demande de crédit se voit freinée par des taux de marge élevés, ce qui milite en faveur d’une concurrence accrue. Le développement des marchés financiers a également subi les conséquences de la nationalisation de fait des fonds de pension obligatoires, qui ont joué un rôle essentiel dans l’accumulation de l’épargne à long terme. La réglementation des fonds de pension obligatoires et des fonds volontaires doit mettre l’accent sur l’harmonisation et la transparence afin d’augmenter leur efficacité-coût. Une coopération effective entre la réglementation prudentielle au niveau micro et macro doit être assurée et l’indépendance financière de l’autorité de supervision financière accrue. La coopération entre les autorités de tutelle des pays d’accueil et leurs homologues étrangers doit être renforcée de manière à tenir compte des risques systémiques en Hongrie. Enfin, une indépendance effective de la banque centrale doit être garantie. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Hongrie, 2012 (
    Keywords: Hungary, competition, cost-efficiency, financial stability, banks, pension funds, Hongrie, concurrence, fonds de pension, stabilité financière, banques, efficience-coût
    JEL: D4 G21 G23 G28
    Date: 2012–05–23
  3. By: Silvia Maja Melzer; Ruud J. Muffels
    Abstract: The German reunification, which several economists have called a 'natural' experiment, provides the unique possibility to inquire the impact of migration on subjective well-being (SWB). The main goal of the research is to assessing the impact of adaptation, social comparison and relative deprivation on the change in SWB associated with moving from Eastern to Western Germany after the German reunification in 1989. We suspect that the gains or losses in subjective well-being after migration are affected by the way migrants adapt to their new economic conditions, by with whom migrants compare themselves (that is, their reference group), their former peers in the East or their new peers in the West, and how well they integrate into the new society, that means whether they are relatively deprived with respect to earnings or not. We estimate fixed- and random-effects Generalized Least Square panel regression models. Our results indicate a positive and lasting effect of migration on SWB, although it is strongly suppressed by dissatisfaction resulting from the comparison of migrants' income with the incomes of their former peers in East Germany and the relatively higher earnings of their new peers in West Germany. Moreover, our analyses provide an explanation for the increase of SWB associated with an increase in income found in East Germany after the reunification; a deviation from the Easterlins' paradox.
    Keywords: Migration, subjective well-being, happiness, social comparison, adaptation, relative deprivation, German panel data, panel regression models, natural experiment
    JEL: I32 J24 J61 J62
    Date: 2012
  4. By: Andrzej Torój (Ministry of Finance, Poland)
    Abstract: It is commonly argued that Poland avoided a massive drop in output during the 2008/2009 economic crisis in part thanks to substantial nominal zloty's depreciation against the euro. The Polish case is often contrasted with Slovakia that adopted the euro in January 2009 and, since the Ecofin Council decision in summer 2008, exhibited virtually no nominal exchange rate volatility while facing deep losses in output. In this paper we attempt to validate this contrast by reversing the roles, i.e. checking if Poland really would have faced the same drop -- and Slovakia the same boost -- if it had been Poland, not Slovakia, that adopted the euro at that point. Our counterfactual simulations based on a New Keynesian DSGE model indicate that, indeed, the Polish tradable output could have been 10-15 percent lower than actually observed in 2009, while the Slovak one -- approximately 20 percent higher. This asymmetry results mainly from structural differences between the two economies, such as size, openness, share of nontradable sector and foreign trade elasticities. The difference of this size would have been short-lived (3-4 quarters), and the difference of the nontradable output would have been of much lower magnitude.
    Keywords: euro adoption, Poland, Slovakia, DSGE, counterfactual simulations
    JEL: C54 E42
    Date: 2012–05–23
  5. By: Monica Martinez-Bravo; Gerard Padró i Miquel; Nancy Qian; Yang Yao
    Abstract: This study investigates the effects of introducing elections on public goods and redistribution in rural China. We collect a large and unique survey to document the history of political reforms and economic policies and exploit the staggered timing of the introduction of elections for causal identification. We find that elections significantly increase public goods expenditure, the increase corresponds to demand and is paralleled by an increase in public goods provision and local taxes. We also find that elections cause significant income redistribution within villages. The results support the basic assumptions of recent theories of democratization (Acemoglu and Robinson, 2000; Lizzeri and Persico, 2004). In addition, we show that the main mechanism underlying the effect of elections is increased leader incentives.
    JEL: H11 O38 P16
    Date: 2012–05
  6. By: Zhao, Jianmei; Zhang, Jun
    Abstract: This article addresses the separability issue in the context of Chinese rural households. Deviating from previous research, our test on separability is embedded in the capital market imperfections and from the perspective of farm living consumption and their production inputs. Our theoretical framework incorporates the credit constraint and predicts both separability and non-separability behavior from rural households. Empirical estimation presents the evidence of non-separability behavior for credit constrained farm families, while independent decisions on farm living consumption and their production inputs exist among unconstrained households. Our overall results reject the separability for financially constraint farm households in China.
    Keywords: credit constraint, non-separable behavior, switching regression, Agricultural Finance, Consumer/Household Economics, Q12, Q14, O18,
    Date: 2012
  7. By: Cousin, Violaine
    Abstract: At the end of October 2011, the heads of the three financial sector regulators were rotated. It is time to ask what are the rules behind the scenes for the process of “revolving doors” in China, how far the Party interference reaches and what the future holds for the Chinese financial sector.
    Keywords: bank; china; regulatory agencies; personnel
    JEL: G38 G28
    Date: 2012–01–25
  8. By: Huffman, Sonya Kostova; Rizov, Marian
    Abstract: This paper estimates the impacts of weight, measured by body mass index (BMI), on employment, wages, and missed work due to illness for Russian adults by gender using recent panel data (1994-2005) from the nationally representative Russian Longitudinal Monitoring Survey (RLMS). We employ econometric techniques to control for unobserved heterogeneity and potential biases due to endogeneity in BMI. The results show an inverted U-shaped effect of BMI on probability of employment for men and women. We did not find evidence of wage penalty for higher BMI. In fact, the wages for overweigh men are higher. However, having a BMI above 28.3 increases the number of days missing work due to health problems for men. Overall, we find negative effects of obesity on employment only for women but not on wages. During the transition in Russia, the increasingly competitive pressure in the labour market combined with economic insecurity faced by the population has lead to a muted impact of an individual’s weight on labour market outcomes.
    Keywords: BMI, obesity, labour market outcomes, Russia, Health Economics and Policy, Labor and Human Capital,
    Date: 2012
  9. By: James J. Heckman; Junjian Yi
    Abstract: China’s rapid growth was fueled by substantial physical capital investments applied to a large stock of medium skilled labor acquired before economic reforms began. As development proceeded, the demand for high skilled labor has grown, and, in the past decade, China has made substantial investments in producing it. The egalitarian access to medium skilled education characteristic of the pre-reform era has given rise to substantial inequality in access to higher levels of education. China’s growth will be fostered by expanding access to all levels of education, reducing impediments to labor mobility, and expanding the private sector.
    JEL: I25 J24 O15
    Date: 2012–05
  10. By: Eaton, Sarah; Kostka, Genia
    Abstract: China's national leaders see restructuring and diversification away from resourcebased, energy intensive industries as central goals in the coming years. This paper argues that the high turnover of leading cadres at the local level may hinder state-led greening growth initiatives. Frequent cadre turnover is intended to keep local Party secretaries and mayors on the move in order to curb localism and promote compliance with central directives. Yet, with average term lengths of between three and four years, local leaders' short time horizons can have the perverse effect of discouraging them from taking on comprehensive restructuring, a costly, complex and lengthy process. On the basis of extensive fieldwork in Shanxi province during 2010 and 2011, the paper highlights the salience of frequent leadership turnover for China's green growth ambitions. --
    Keywords: Local state,China,policy implementation,governance,cadre rotation
    JEL: D78 D73 O18 R58 Q48 Q58
    Date: 2012
  11. By: Fischer, A.M.
    Abstract: In anticipation of the forthcoming release of the 2010 national population census of China, this paper compares the limited population data that have been released so far with annual data on natural population increase since the 2000 census in order to construct a rough but robust measure of net migration for each province in China between these two censuses. The results emphasize the extent of net out-migration from much of interior and western China as well as the degree to which rapid population growth in five coastal growth poles has been due to net in-migration. In total, 15 out of 31 provinces experienced net population outflows between the two censuses according to this measure, versus only six that experienced negative population growth, leaving nine provinces that registered positive population growth at the same time as net out-migration. Three exceptions to the western pattern of net outflows were the Tibet Autonomous Region, Xinjiang and Ningxia, which had the highest average natural population increase rates in China and also continued to experience moderate net in-migration. Overall, the sheer extent and speed of these flows, which have been mostly contained within national borders, sheds light on the enormity of the developmental challenges facing the government in this context, as well as the demographic pressures placed on the coastal growth poles absorbing most of the net flows. Moreover, there appears to be little association between rates of net migration and provincial rates of economic growth or even provincial levels of per capita GDP during this period, except in the broadest interregional sense that the three coastal province-level entities exhibiting the strongest rates of net in-migration – Beijing, Shanghai and Tianjin – were by far the most affluent in China.
    Keywords: China;population;census;natural population increase;provincial migration
    Date: 2012–05–14
  12. By: Kang, Lili; Peng, Fei
    Abstract: This paper investigates the intrahousehold resource allocation on children’s education and its earnings consequence in Chinese labour market. In order to overcome the endogeneity problem of schooling, we consider the siblings structure and the available public facilities as instrumental variables. Females’ education is negatively affected by siblings (brothers or sisters) number, while males’ education is also negatively affected by their brothers but much less by their sisters. For the youngest cohort born after 1980, the education of a girl would be heavily impeded by her sisters, reflecting strong distortion of “One-Child Policy” on intrahousehold resource allocation. Comparing the OLS and GIV estimations for returns to schooling, we find that there are downwards biases of OLS estimations for males in all cohorts and in all years. However, for females, downwards biases of OLS estimation are only for data before 2004, as females in the old cohorts actually have upwards biases after 2004. Education returns of the youngest cohort are much higher than old cohorts supporting the argument of heterogeneous human capital accumulation during transition.
    Keywords: Siblings; education returns; China
    JEL: J13 J31 J16
    Date: 2012–05
  13. By: Kristi Anniste; Tiit Tammaru; Enel Pungas; Tiiu Paas
    Abstract: The study analyzes changes in emigration from Estonia in order to shed more light on East–West migration, contributing to the main debate on “brain drain” by focusing on educational differences in emigration. We use anonymous individual level data for all emigrants from the register-based Estonian Emigration Database compiled by Statistics Estonia for the period 2000–2008. The analysis shows that there has been no significant brain drain from Estonia as a new EU member state during this period. Moreover, we find evidence of a spreading of the emigration norm into a wider range of population groups, including the less educated, since Estonia joined the European Union in 2004.
    Keywords: education, emigration, East–West migration, Estonia
    JEL: J61 F22 O15
    Date: 2012
  14. By: FUKAO Kyoji; Tangjun YUAN
    Abstract: In a country such as China, which maintains strict controls on foreign exchange and frequently intervenes in the currency market, it is not surprising that the local currency is persistently undervalued in nominal terms. Normally, one would expect such a policy of deliberate currency undervaluation to result in a sharp rise in domestic prices, with abnormally low prices reversed not through an appreciation of the nominal exchange rate but through a rise in domestic prices. Why is this not occurring in China? A possible explanation is that, due to certain structural reasons, the equilibrium real exchange rate for China is considerably lower than that of other developing countries.<br />Taking this hypothesis as our point of departure, we examine how undervalued the Chinese yuan is in terms of purchasing power parity by comparing China's experience with other developing countries and the development process of developed countries in the past. In addition, we construct an open economy growth model with three sectors, where - similar to the Lewis growth model - there is surplus labor in the primary industry. Using this model, we analyze the relationship between the economic growth process and the level of absolute prices (real exchange rate). We show that the absolute price level will not increase until the economy reaches the Lewisian turning point. In addition, we show that in an economy like China, where there are strong barriers to the migration of labor to the manufacturing sector and where the ratio of net exports of goods and services to GDP is high, the economy will not reach the turning point until GDP per worker reaches a sufficiently high level.
    Date: 2012–05
  15. By: Jawaid, Syed Tehseen; Raza, Syed Ali
    Abstract: This study investigates the relationship between workers’ remittances and economic growth in China and Korea by employing time series data from period of 1980 to 2009. Cointegration results confirm that there exist significant positive long run relationship between remittances and economic growth in Korea, while, significant negative relationship exist between remittances and economic growth in China. Error correction model confirms the significant positive short run relationship of workers’ remittances with economic growth in Korea while, the results of China were insignificant in short run. Causality analysis confirms unidirectional causality runs from workers’ remittances to economic growth in both China and Korea. Sensitivity analysis confirms that the results are robust. It is suggested that Korea should form friendly policy to ensure the continuous inflows of workers’ remittances and their efficient utilization to ensure economic growth. On the other hand, China should keep an eye to reduce voluntary unemployment leads to decrease in productivity and growth in the country.
    Keywords: Remittances; Open Economy; Economic Growth
    JEL: F41 F43 F24
    Date: 2012
  16. By: Yang, Jun; Zhang, Wei; Tokgoz, Simla
    Abstract: There has been contentious debate surrounding the issue of undervaluation of the Chinese Renminbi. Despite continuous international political pressure to appreciate its currency, the Chinese government has resisted significant changes. A key question underlining the debate is whether a Renminbi appreciation would deliver substantial gains for exports and employment as the United States has argued or a significant slowdown of Chinese economy as feared by the Chinese government, and if so to what extent. This paper analyzes the ex-ante, short-term impacts of the Chinese Renminbi appreciation on the Chinese and world economies using the novel approach of modeling nominal exchange rate adjustment in the Global Trade Analysis Project, a global computable general equilibrium model. Scenario results show that the Chinese economy will be affected negatively, with lower real gross domestic product, lower employment rates, and a decline in the trade surplus. Chinese currency appreciation has a positive impact on the GDP of the major countries and regions, but by a small margin. With a higher Chinese exchange rate, trade balances for other trading partner countries, with the exception of the United States, improve.
    Keywords: Computable general equilibrium model, Exchange rate, Economic impacts, Renminbi appreciation,
    Date: 2012
  17. By: Soyoung Kim (Seoul National University and Hong Kong Institute for Monetary Research); Yoonbai Kim (University of Kentucky)
    Abstract: For a better understanding of the ongoing debates on the RMB, this paper investigates the effects of exchange rate shocks on output and the current account for China and Japan. We use structural vector auto-regression models and find that yen appreciation reduces current account surpluses while having no strong effect on output in Japan. RMB appreciation, on the other hand, has an insignificant effect on the current account, although it tends to reduce output in China. For China, dollar pricing with vertical trade integration seems responsible for the insignificant effect on the current account.
    Keywords: Renminbi Appreciation, Current Account Imbalance, VAR, Exchange Rate Shocks, Recession
    Date: 2012–05
  18. By: Chen, Yu-Fu; Funke, Michael; Mehrotra, Aaron
    Abstract: This paper adds to the literature on wealth effects on consumption by disentangling house price effects on consumption for mainland China. In a stochastic modelling framework, the riskiness, rate of increase and persistence of house price movements have different implications for the consumption/housing ratio. We exploit the geographical variation in property prices by using a quarterly city-level panel dataset for the period 1998Q1 – 2009Q4 and rely on a panel error correction model. Overall, the results suggest a significant long run impact of property prices on consumption. They also broadly confirm the predictions from the theoretical model.
    Keywords: Consumption, China, house prices, panel data,
    Date: 2011
  19. By: Quoc, Hoang Dinh; Dufhues, Thomas; Buchenrieder, Gertrud
    Abstract: This paper investigates the effects of individual social capital on the access of rural households to services. In the context of agriculture economics, an innovative data collection approach is used to determine social capital. The approach originates from the field of sociology and entails a personal network survey. We define four social capital variables according to tie strength (bonding/bridging) and social distance (bondinglink/bridginglink) between the respondent and his/her network member. The econometric results suggest that social capital with weaker ties in combination with socially distant ties (bridginglink social capital) can potentially improve households’ access to rural services.
    Keywords: Consumer/Household Economics, Research Methods/ Statistical Methods, rural services, social capital, rural households, Vietnam,
    Date: 2012

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