nep-tra New Economics Papers
on Transition Economics
Issue of 2012‒09‒22
twenty-two papers chosen by
J. David Brown
IZA (Institute for the Study of Labor)

  1. Russian Inequality on the Eve of Revolution By Steven Nafziger; Peter H. Lindert
  2. Labor Market Conditions and Social Insurance in China By Rickne, Johanna
  3. Rising Inequalities in Income and Health in China: Who is left behind? By Steef Baeten; Tom Van Ourti; Eddy Van Doorslaer
  4. Looking Inward for Growth By Rod Tyers
  5. Bank ownership and lending patterns during the 2008-2009 financial crisis : evidence from Latin America and Eastern Europe By Cull, Robert; Peria, Maria Soledad Martinez
  6. The Implications of a Break-Up of China for Carbon Dioxide Emissions By Richard S.J. Tol
  7. The Rise and Robustness of Economic Freedom in China By Rod Tyers
  8. Globalization and Regional Innovation in China By Hein Roelfsema; Yi Zhang
  9. Energy cost modelling of new technology adoption for Russian regional power and heat generation By Alexandra Bratanova; Jacqueline Robinson; Liam Wagner
  10. Chinese Urban Residential Construction to 2040 By Leon Berkelmans; Hao Wang
  11. The Economic Causes and Consequences of Social Instability in China By Jobn Knight
  12. Preparing for an Uncertain Future: Expanding Social Protection for Children in Eastern Europe and Central Asia By Deolinda Martins; Elena Gaia
  13. Stock Market Comovements in Central Europe: Evidence from Asymmetric DCC Model By Dritan Gjika; Roman Horvath
  14. In Search of an Optimal Strategy for Yuan’s Real Revaluation By Dai, Meixing
  15. Fostering innovation in Russian companies in the post-crisis period: Opportunities and constraints By Simachev, Yuri; Kuzyk, Mikhail; Ivanov , Denis
  16. Citizenry Accountability in Autocracies. The Political Economy of Good Governance in China By Gilli, Mario; Li, Yuan
  17. The effect of market access on the labor market: Evidence from German reunification By Zierahn, Ulrich
  18. Regional Motives for Post-Entry Subsidiary Development: The Case of Poland By Agnieszka Chidlow; Christine Holmstrom-Lind; Ulf Holm; Heinz Tuselmann
  19. The Regional Economic Effects of a Reduction in Carbon Emissions and An Evaluation of Offsetting Policies in China By Anping Chen; Nicolaas Groenewold
  20. China's Gender Imbalance and its Economic Performance By Jane Golley; Rod Tyers
  21. Trust and Trustworthiness under the Prospect Theory: A field experiment in Vietnam By Quang Nguyen; Marie-Claire Villeval; Hui Xu
  22. Microfinance at the Microfinance at the margin: experimental evidence from Bosnia and Herzegovina vidence from Bosnia and Herzegovina By Britta Augsburg; Ralph De Haas; Heike Harmgart; Costas Meghir

  1. By: Steven Nafziger; Peter H. Lindert
    Abstract: Just how unequal were the incomes of different classes of Russians on the eve of Revolution, relative to other countries, to Russia’s earlier history, and to Russia’s income distribution today? Careful weighing of an eclectic data set provides provisional answers. We provide detailed income estimates for economic and social classes in each of the 50 provinces of European Russia. In 1904, on the eve of military defeat and the 1905 Revolution, Russian income inequality was middling by the standards of that era, and less severe than inequality has become today in such countries as China, the United States, and Russia itself. We also note how the interplay of some distinctive fiscal and relative-price features of Imperial Russia might have shaped the now-revealed level of inequality.
    JEL: N30 N33 O15
    Date: 2012–09
  2. By: Rickne, Johanna (Research Institute of Industrial Economics (IFN))
    Abstract: Fifteen years after the introduction of highly ambitious social insurance programs for urban Chinese workers, a large number of them remain un-insured. This paper examines the relationship between labor market conditions and social insurance participation among industrial firms in the pre-crisis years of 2000–2007. I find that increased labor tightness over this period was a quantitatively important driver of participation. Comparing different segments of the labor market, stronger response to tightness is found in sectors with the largest shares of un-insured: private firms, those with a larger share of low-educated workers, and those without labor unions. Increased tightness in the years ahead can therefore be expected to aid policy makers in social insurance implementation and in combating insurance inequality.
    Keywords: Social insurance; Employer participation; Labor market tightness; People’s Republic of China
    JEL: D21 J64 J65
    Date: 2012–09–05
  3. By: Steef Baeten (Institute for Health Policy and Management, Erasmus University Rotterdam); Tom Van Ourti (Erasmus School of Economics (EUR)); Eddy Van Doorslaer (Erasmus School of Economics (EUR))
    Abstract: During the last decades, China has experienced double-digit economic growth rates and rising inequality. This paper implements a new decomposition on the China Health and Nutrition panel Survey (1991-2006) to examine the extent to which changes in level and distribution of incomes and in income mobility are related to health disparities between rich and poor. We find that health disparities in China relate to rising income inequality and in particular to the adverse health and income experience of older (wo)men, but not to the growth rate of average incomes over the last decades. These findings suggest that replacement incomes and pensions at older ages may be one of the most important policy levers in combating health disparities between rich and poor Chinese.
    Keywords: China; income growth; income inequality; income mobility; health inequality
    JEL: C00 D30 D63 I14 I15
    Date: 2012–09–10
  4. By: Rod Tyers (Business School, University of Western Australia)
    Abstract: Export led growth has been very effective in transforming China’s economy and establishing a large high-saving middle class. Notwithstanding political opposition from trading partners, this growth strategy has also offered the rest of the world an improved terms of trade and cheaper finance. Yet it is believed by China’s government that this convenient strategy has run its course and the transition has begun to a model that “looks inward” for growth, to be driven by expanding consumption and home investment. This paper uses a numerical model of the Chinese economy with oligopoly behaviour to examine the available “inward” sources of transformative growth along with the policies needed to exploit them. Success will require the redistribution of the considerable rents now accruing to connections of key state owned enterprises, suggesting the potential for political resistance and the yet-avoidable possibility that China could fall into a “middle incometrap”.
    Date: 2012
  5. By: Cull, Robert; Peria, Maria Soledad Martinez
    Abstract: This paper examines the impact of bank ownership on credit growth in developing countries before and during the 2008-2009 crisis. Using bank-level data for countries in Eastern Europe and Latin America, it analyzes the growth of banks'total gross loans as well as the growth of corporate, consumer, and residential mortgage loans. Although domestic private banks in Eastern Europe and Latin America contracted their loan growth rates during the crisis, there are differences in foreign and government-owned bank credit growth across regions. In Eastern Europe, foreign bank total lending fell by more than domestic private bank credit. These results are primarily driven by reductions in corporate loans. Furthermore, government-owned banks in Eastern Europe did not act counter-cyclically. The opposite was true in Latin America, where the growth of government-owned banks'corporate and consumer loans during the crisis exceeded that of domestic and foreign banks. Contrary to the case of foreign banks in Eastern Europe, those in Latin America did not fuel loan growth prior to the crisis and did not contract lending at a faster pace than domestic banks during the crisis.
    Keywords: Banks&Banking Reform,Access to Finance,Debt Markets,Public Sector Corruption&Anticorruption Measures,Bankruptcy and Resolution of Financial Distress
    Date: 2012–09–01
  6. By: Richard S.J. Tol (Department of Economics, University of Sussex, UK; Institute for Environmental Studies, Department of Spatial Economics, Vrije Universiteit, Amsterdam, The Netherlands; Department of Economics, Trinity College, Dublin, Ireland)
    Abstract: The transition from autocracy to democracy may lead a country to break-up. The break-ups of the USSR and Yugoslavia led to sharp falls in emissions. If something similar would happen in China, projected emissions would fall by 50% or more. Break-up uncertainty dominates other scenario uncertainty.
    Keywords: China, scenarios, carbon dioxide emissions
    JEL: Q54
    Date: 2012–09
  7. By: Rod Tyers (Business School, University of Western Australia)
    Abstract: The performance of the Chinese economy since Deng Xiaoping’s and Jiang Zemin’s changes to the core philosophy of the Chinese Communist Party (CCP) is unprecedented for a country so large and could be seen as contrary to Popper’s central idea that liberal democracy is essential to peaceful transitions toward prosperity. It is argued in this chapter that this growth surge is due to the separation of economic from political freedoms and to increased liberalism toward the former. In modern China, however, these freedoms depend on political institutions that are fragile and so its growth cannot be yet regarded as robust. Indeed, interdependent as they are with the general level of development, Chinese economic freedoms are under threat from abroad and from the perceived necessity to depart from “export led” growth to a model driven by expanding consumption and home investment. Political and economic obstacles stand in the way of continued strong growth following this change of policy direction and a failure to deliver could cause a second shift in the core philosophy of the CCP and a future path on which both economic and political freedoms are lessened. While “soft resolutions” are available, they depend on the recognition abroad that global economic performance now depends importantly on continued economic growth in China.
    Date: 2012
  8. By: Hein Roelfsema; Yi Zhang
    Abstract: This paper explores the connection between the external opening of China and differences in innovation across Chinese regions. Controlling for locational advantages and fixed regional characteristics, for the period 1995-2010 overall we find that regions that have increased most the connections to the world market have become more innovative when compared to other regions. By interacting regional characteristics with openness, we find a U-shaped relation between regional income levels and innovation, where both the lower middle-income and the most advanced regions gain from globalization in terms of increased innovation and productivity. In relative terms, the higher middle-income regions gain less from globalization than the other regions. By examining the nature of international activities across regions, we conjecture that differences in the ownership structures of foreign investments and the nature of linkages between foreign and domestic firms are at the hart of this finding, as the higher middle-income regions have higher outsourcing levels and thus benefit less from foreign technology transfers.
    Keywords: Globalization, Innovation, Regional Development, China
    JEL: F14 F21 F23 O33 O53
    Date: 2012–09
  9. By: Alexandra Bratanova (Department of Economics, University of Queensland); Jacqueline Robinson (Department of Economics, University of Queensland); Liam Wagner (Department of Economics, University of Queensland)
    Abstract: Russia is frequently referred to as a country with sufficient energy efficiency potential. Although an improvement has been shown (energy-GDP ratios were improved by 35% between 2000-2008 [2]), the contribution of technological progress is estimated to account for only 1% of the energy-GDP ratio reduction, the existing share of renewable energy sources (RES) based electricity generation is estimated at 0.1%. Analysis shows that regional and federal levels of governance in Russia are missing efficient mechanisms for stimulation of energy saving and technological development [7]. This research aims to develop an analytical tool for energy sector economic analysis for technological development planning to support policy decision making. The paper adapts the levelized cost of energy (LCOE) methodology of Wagner and Foster [9], which has been upgraded to facilitate combined energy generation processes, to examine the cost structures associated with energy system and applies it to a Russian regional case study. The model run for two fuel price scenarios allowed us to conclude that the regional energy supply system is dependent on natural gas price. Strong political and financial support is needed to boost technological development and RES application.
    Keywords: Russian Electricity Sector; Levelised Cost of Energy; Electricity Generation;
    JEL: Q40 G12 Q48
    Date: 2012–09
  10. By: Leon Berkelmans (Reserve Bank of Australia); Hao Wang (Reserve Bank of Australia)
    Abstract: This paper projects Chinese urban residential construction out to 2040. The paper argues that the extraordinary growth of recent years will not continue, but that construction will stabilise at a high level. This augurs well for steel demand, especially as steel intensity is expected to increase. These projections are subject to upside and downside risks, which are discussed. In addition, this paper argues that official figures understate the extent of urban residential construction.
    Keywords: China; residential construction
    JEL: E22 R31
    Date: 2012–09
  11. By: Jobn Knight
    Abstract: Social instability is a concept that economists rarely analyse, and yet it can lurk behind much economic policy-making. China’s leadership has often publicly expressed its concerns to avoid ‘social instability’. It is viewed as a threat both to the political order and to the continued rapid growth of the economy. This threat to growth in turn endangers the maintenance of social stability. This paper examines the likely economic determinants of social instability, using both surveys and other evidence. After explaining the determinants of China’s rapid growth, the paper goes on to examine the likely mechanisms by which social instability can affect the growth rate. There is a case for more research on the role of social instability in the economic development process.
    Keywords: China, Civl unrest, Corruption, Developmental state, Economic growth, Governance, Happiness, Inequality, Social instability
    JEL: O15 O20 O43 P26
    Date: 2012
  12. By: Deolinda Martins; Elena Gaia (Division of Policy and Strategy,UNICEF)
    Abstract: Poverty disproportionately affects children in all CEECIS countries for which data is available. Social protection is needed to mitigate the lasting effects of the 2008/09 economic crisis in CEECIS, as well as the additional strains on households due to the Eurozone crisis, high unemployment, and recurring food/fuel price spikes. Existing social protection systems in the region need urgent reform: programmes for children need to reach more vulnerable families, provide higher allocations, and offer additional support services beyond cash.
    Keywords: children,protection systems,Eastern Europe, Central Asia, economic crisis,fuel price,food price.
    Date: 2012
  13. By: Dritan Gjika; Roman Horvath
    Abstract: We examine time-varying stock market comovements in Central Europe employing the asymmetric dynamic conditional correlation multivariate GARCH model. Using daily data from 2001 to 2011, we find that the correlations among stock markets in Central Europe and between Central Europe vis–à–vis the euro area are strong. They increased over time, especially after the EU entry and remained largely at these levels during financial crisis. The stock markets exhibit asymmetry in the conditional variances and in the conditional correlations, to a certain extent, too, pointing to an importance of applying sufficiently flexible econometric framework. The conditional variances and correlations are positively related suggesting that the diversification benefits decrease disproportionally during volatile periods.
    Keywords: stock market comovements, Central Europe, financial crisis
    JEL: G01 G15
    Date: 2012–08–01
  14. By: Dai, Meixing
    Abstract: International commentators seem to have a consensus view that the Chinese yuan is substantially undervalued and the Chinese monetary authority must take speedy actions to redress the currency misalignment by rapid nominal revaluation. This paper argues for a gradualist but comprehensive strategy for adjusting RMB’s exchange rate. Taking into consideration of the facts that the yuan’s undervaluation is caused by an array of domestic and international factors and the Chinese central bank cannot effectively invest its growing holdings of foreign reserves, we develop a framework to provide a theoretical underpinning for the optimal strategy for renminbi’s gradual revaluation. With this strategy, the renminbi undervaluation problem is gradually redressed through a combination of nominal appreciation and higher inflation plus some other structural and macroeconomic policies. This strategy can also allow absorb external imbalances hence strengthening the foundation of China’s long-term growth.
    Keywords: Real revaluation; renminbi (RMB); foreign reserves; external imbalances; macroeconomic adjustment
    JEL: E52 F41 E61 F31
    Date: 2012–09
  15. By: Simachev, Yuri; Kuzyk, Mikhail; Ivanov , Denis
    Abstract: In recent years the Russian innovation policy has made a significant progress that manifests in developing its ‘tool kit’, increasing resource base, etc. However it has not yet succeeded in improving business innovation activities that remain local thus not giving prerequisites to transform the general macroeconomic context. Basing on a survey of more than 600 Russian industrial enterprises the authors analyze key features of innovation in Russian companies under economic recovery, as well as stimuli and obstacles for innovation activities. In particular, the paper shows that lack of competition is the key factor discouraging innovation and that the most limiting constraints to business innovation activities are instable economic environment and intra-corporate bureaucratization. Significant attention is paid to the analysis of the use of various instruments of state support for innovation and their beneficiaries. One of the findings is that Russian innovation policy is "neutral" to the size of companies, but there is a lack of instruments engaging new companies in innovation activities. The authors also discuss two possible models of government support for innovation: the former relies on international innovation spillover and the latter on domestic innovation and import-substitution.
    Keywords: industrial innovation; research and development; innovation policy
    JEL: O38 O31
    Date: 2012–09–07
  16. By: Gilli, Mario (University of Milan-Bicocca); Li, Yuan (University of Duisburg--Essen)
    Abstract: Do the citizens have a role in constraining policies in autocratic governments? Usually the political and economic literature model autocracy as if the citizens have no role in constraining leader’s behavior, but actually autocratic government are afraid of possible citizens’ revolts. In this paper we focus on contemporary China to analyze how citizens might induce an autocratic government to adopt congruent policies. Although there is no party or electoral competition, the leader fears deposition by coup d’état of the selectorate and revolutionary threats from citizens. We build a three player political agency model to study the role of both these constraints and we show that the effectiveness of the selectorate and of revolutionary threats are crucial factors in determining the policy outcomes. In particular, we show that the citizens can effectively discipline the leader because of the revolution threat notwithstanding the selectorate size, but this may result in a failed state when the costs of revolting and the selectorate size are small. As the size of the selectorate and the costs of revolution vary dramatically across countries, our result explain why different types of autocracies arise. In particular our model and results provide a useful framework to interpret China policy in the last twenty years.
    Keywords: Autocracy; Accountability; Revolt; Chinese Economic Reform
    JEL: D02 D74 H11
    Date: 2012–09–05
  17. By: Zierahn, Ulrich
    Abstract: The New Economic Geography predicts a positive effect of market access on wages, as represented by the wage equation. Several studies provide empirical evidence in favor of the wage equation. However, a key problem is the endogeneity of market access: it is challenging to identify the causal effects of market access on wages, since market access itself depends on wages. Whereas most approaches rely on instrumental variables and strong assumptions on exogeneity, the present analysis relies on German reunification as an exogenous variation of market access in order to identify the effects. Since the market access shock due to reunification was accompanied by a labor supply shock due to migrants and commuters from eastern Germany, the effects on wages, employment and unemployment are analyzed. The results provide evidence in favor of a labor demand shock due to the increase in market access and a labor supply shock due to migrants and commuters from eastern Germany. --
    Keywords: New Economic Geography,wage equation,market access,natural experiment,differences-in-differences
    JEL: F15 R12 R23
    Date: 2012
  18. By: Agnieszka Chidlow; Christine Holmstrom-Lind; Ulf Holm; Heinz Tuselmann
    Abstract: The issue of location-specific factors of a multinational company’s activities has long been investigated by international business scholars. To our knowledge, however, all these studies have put attention on the pre-entry location decision of foreign subsidiaries, rather than the post-entry decision. As such, by incorporating a regional perspective into the study of a subsidiary’s development this work offers an understanding of the importance of location-specific factors for the post-entry development of a multinational company’s subsidiaries at the regional level. The empirical analysis, used in this work, utilises a discrete-choice model with primary data from an online survey of 91 foreign-owned subsidiaries in Poland. The results demonstrate that the Mazowieckie region is the most attractive location for post-entry subsidiary development if knowledge-seeking factors are important to MNCs. Further, the findings indicate that South-East and South-West regions are more favoured for post-entry subsidiary development when efficiencyseeking factors are important to multinational companies. The findings also show that none of the examined regions are significant for the post-entry subsidiary’s development if agglomerations factors and infrastructure are important to multinational companies.
    Keywords: international business, subsidiary development, regional motives, transition context
    JEL: M19 L21 L60
    Date: 2012–06–01
  19. By: Anping Chen (School of Economics Jinan University); Nicolaas Groenewold (Business School, University of Western Australia)
    Abstract: China has promised to cut CO2 emissions per unit of GDP 40-50% by 2020. It is almost certain that the reduction in emissions will have negative effects on the economy; moreover, the effects are likely to differ across regions, given that there is considerable heterogeneity among Chinese regions. These differential regional impacts will affect regional disparities, which are already very substantial and the source of great concern at the highest policy levels. Yet, very little analysis of them has yet been carried out. We help fill this gap by building a small theoretical model involving two regions designed to capture some of the features of the Chinese economy. We incorporate the right to emit CO2 as a factor of production with the national level of permitted emissions set by the national government. The model is solved numerically based on a parameterisation using Chinese data to simulate the effects on the regions of the carbon-reduction. We find that a reduction has regionally differentiated effects on key variables such as income, welfare and output. We also explore the effects of offsetting policies that may be undertaken by governments at both regional and national levels to ameliorate the effects of the carbon reduction. We find that the effects of standard fiscal policies (both regional and national) depend crucially on whether one or both regions are targeted. Welfare changes are often in the opposite direction to output changes. Boosts to productive capacity do better in terms of output but also have “perverse” welfare effects.
    Date: 2012
  20. By: Jane Golley (Centre for China in the World Australian National University); Rod Tyers (Business School, University of Western Australia and Research School of Economics Australian National University)
    Abstract: Chinese GDP growth faces rising handicaps that include the slowdown and eventual contraction of its labour force, a complication of which is its rising sex ratio at birth. The undesirable consequences of the resulting gender imbalance include excessive saving as families with boys compete to match their sons with scarce girls, trafficking in women and rising disaffection and crime amongst the low-skill male population. These are reviewed and analysed using a dynamic model of both economic and demographic behaviour. The results show that the proportion of unmatched low-skill males of reproductive age could be as high as one in four by 2030, with numbers too large for female immigration to be a solution. Policies to rebalance the sex ratio at birth will take decades to reduce the sex ratio at reproductive age and any associated allowance of higher fertility would slow growth in real per capita income. Yet the results suggest that the beneficial effects of reduced male disaffection and crime could outweigh the losses from reduced saving and higher population.
    Date: 2012
  21. By: Quang Nguyen (Division of Economics - Nanyang Technological University); Marie-Claire Villeval (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Hui Xu (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon)
    Abstract: We study the influence of risk and time preferences on trust and trustworthiness by conducting a field experiment in Vietnamese villages and by estimating the parameters of the Cumulative Prospect Theory and of quasi-hyperbolic time preferences. We find that while probability sensitivity or risk aversion do not affect trust, loss aversion influences trust indirectly by lowering the expectations of return. Also, more risk averse and less present biased participants are found to be trustworthier. The experience of receiving remittances influences behavior and a longer exposure to a collectivist economy tend to reduce trust and trustworthiness.
    Keywords: Trust, trustworthiness ; risk preferences ; time preferences ; Cumulative Prospect Theory ; Vietnam ; field experiment
    Date: 2012–09–10
  22. By: Britta Augsburg (Institute for Fiscal Studies); Ralph De Haas (EBRD); Heike Harmgart (EBRD); Costas Meghir (Yale University and University College London)
    Abstract: We use a randomised controlled trial (RCT) to analyse the impact of microcredit on poverty reduction in Bosnia and Herzegovina. The study population are loan applicants that would normally have just been rejected based on regular screening. We find that access to credit allowed borrowers to start and expand small-scale businesses. Households that already had a business and where the borrower had more education, ran down their savings, presumably to complement the loan and to achieve the minimum amount necessary to expand their business. In less-educated households, however, consumption went down. A key new result is that there was a substantial increase in the labour supply of young adults (16-19 year olds). This was accompanied by a reduction in school attendance.
    Keywords: Microfinance; liquidity constraints; human capital; randomised controlled trial
    JEL: G21 D21 I32
    Date: 2012–09

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