nep-tra New Economics Papers
on Transition Economics
Issue of 2013‒09‒13
thirteen papers chosen by
J. David Brown
IZA (Institute for the Study of Labor)

  1. The Performance of Export Credit Agencies in Post-Communist Central European Countries By Karel Janda; Eva Michalikova; Lucia Psenakova
  2. The International Financial Crisis and China's Foreign Exchange Reserve Management By Wang, Yongzhong; Freeman, Duncan
  3. A Growth Perspective on Foreign Reserve Accumulation. By Cheng, G.
  4. Tax Policy and Tax Reform in the People's Republic of China By Bert Brys; Stephen Matthews; Richard Herd; Xiao Wang
  5. Estimating the Preferences of Central Bankers: An Analysis of Four Voting Records By Eijffinger, S.C.W.; Mahieu, R.J.; Raes, L.B.D.
  6. A Structural Estimation on Capital Market Distortions in Chinese Manufacturing By Zheng (Michael) Song; Guiying (Laura) Wu
  7. Business cycles in EU new member states: How and why are they different? By Marcin Kolasa
  8. How are global value chains fragmented and extended in China's domestic production networks? By Meng, Bo; Wang, Zhi; Koopman, Robert
  9. Long-term memory in electricity prices: Czech market evidence By Ladislav Kristoufek; Petra Lunackova
  10. Short-term Market Reaction after Trading Halts in Chinese Stock Market By Hai-Chuan Xu; Wei Zhang; Yi-Fang Liu
  11. The formation of water user groups in a nexus of central directives and local administration in the Mekong Delta, Vietnam By Benedikter, Simon; Waibel, Gabi
  12. International trade relations of enterprises established in Poland's regions: gravity model panel estimation By Tomasz Brodzicki; Stanislaw Uminski
  13. Multi-Level Analysis of Dynamic Portfolio Formations: Central European Countries By Michael Princ

  1. By: Karel Janda (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague and University of Economics, Prague, Faculty of Finance and Accounting); Eva Michalikova (Brno University of Technology, Faculty of Business and Management); Lucia Psenakova (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague)
    Abstract: This paper is the first one to analyze official government export promotion in all four post-communist Central European Visegrad countries (Czech Republic, Hungary, Poland, Slovakia). Similar development of those economies in transition period after the fall of communism is described and their extremely fast and successful reorientation towards Western markets is emphasized. Nowadays each government in the region implements its own export strategy, where interestingly each country defines different priority territories for their export. The core of this paper is analysis of export credit agencies in Visegrad countries. Firstly we compare advantages and disadvantages of different forms of export credit agencies. Then we apply empirical data from international trade in gravity model framework and we conclude that the most e_ective type of export credit agency in Visegrad Four region is currently Polish KUKE which is an institution operating in the form of an insurance company. Other forms such as a bank and an institution providing both insurance and financing facilities are currently less effective. We confirm that smaller distance and higher GDP increase the amount of export in line with basic intuition of a gravity model of international trade.
    Keywords: international trade, state promotion, export credit agencies, gravity model, Visegrad Group
    JEL: F14 G28 C23
    Date: 2013–08
  2. By: Wang, Yongzhong; Freeman, Duncan
    Abstract: The US financial crisis and subsequent European sovereign debt crisis not only constitute serious threats to the security of China’s foreign exchange reserves, but also provide an advantageous opportunity for China to change its ideas on foreign exchange reserve management. First, according to rules of thumb, the authors assess the optimal size of China’s foreign exchange reserves in terms of short-term external debt, imports and domestic liquid assets. Second, the paper estimates the asset structure of China’s foreign reserves based on the statistics on China’s holding of US and Japanese securities. Third, the authors calculate the People’s Bank of China sterilization costs from the perspective of issuing central bank notes and raising required reserve ratios. Fourth, the paper measures the total and net investment yield of China’s foreign reserves in terms of nominal dollars, real dollars (dollar index) and nominal renminbi. Finally, the authors put forward suggestions on how to accelerate the diversification of China’s international reserves.
    Keywords: International financial crisis, foreign exchange reserves, management, diversification.
    JEL: E58 F31 G18
    Date: 2013–03–29
  3. By: Cheng, G.
    Abstract: Based on a dynamic open-economy macroeconomic model, this paper aims at understanding the contribution of domestic financial underdevelopment to foreign reserve accumulation in some emerging market economies, especially in China. It is argued that foreign reserve accumulation is part and parcel of a growth strategy based on strong capital investment in a financially constrained economy. It is further proved using a Ramsey problem that purchasing international reserves is a welfare-improving policy in terms of production efficiency gains if it is jointly used with capital controls. In fact, when domestic firms are occasionally credit-constrained and they do not have a direct access to international financial market, they need domestic saving instruments to increase their retained earnings so that they can sufficiently invest in capital. The central bank plays the role of financial intermediary and provides domestic firms with liquid public bonds, thus relaxing domestic financial constraints. The proceeds of domestic public bonds are invested abroad due to the limited scope of domestic financial market and a depressed domestic interest rate, leading to foreign reserve stockpiling. The speed of foreign reserve accumulation would slow down once the economic growth rate decelerates and the domestic financial market develops.
    Keywords: Foreign reserves, capital controls, credit constraints, domestic savings, capital investment, economic growth, Chinese economy.
    JEL: E22 F31 F41 F43
    Date: 2013
  4. By: Bert Brys; Stephen Matthews; Richard Herd; Xiao Wang
    Abstract: This paper compares the tax system in China with the tax system in OECD countries and the tax reforms China and OECD countries have implemented in the past. The analysis focuses on those taxes and tax issues which are currently on China’s reform agenda, including the consumption taxes (especially the integration of the “business tax” into the VAT), environmentally-related taxes, the personal income tax, fiscal relations between the central and sub-central levels of government and property taxes. The paper provides a (preliminary) analysis of the tax-to-GDP ratio and the tax mix in China as well as the average and marginal tax wedge on labour income, by applying the OECD’s Revenue Statistics and Taxing Wages methodology. Although a country’s culture, traditions and legal system play an important part in shaping its tax regime and how it can be reformed, the paper also reviews the general design issues on how to make the tax system in China more growth-friendly, simple and transparent, less distortive and fairer. The paper contains a detailed discussion and evaluation of each tax and considers possible directions for future tax reform in China.<P>Politique et réformes fiscales en République Populaire de Chine<BR>Ce document compare le système fiscal en Chine avec celui des pays de l’OCDE en tenant compte des réformes que ces pays ont mis en oeuvre par le passé. L’analyse se concentre sur les impôts et les questions fiscales pour lesquels la Chine envisage une réforme, y compris les impôts sur la consommation (notamment l’intégration de « la taxe d’affaires » dans la TVA), les taxes liées à l’environnement, l’impôt sur le revenu des personnes physiques, les relations budgétaires entre l’administration centrale et les administrations infranationales, ainsi que les impôts fonciers. Ce document présente une analyse (préliminaire) du ratio impôts/PIB et de la structure fiscale en Chine, ainsi que du coin fiscal moyen et marginal sur les revenus du travail, en appliquant la méthodologie utilisée dans les publications de l’OCDE Statistiques des recettes publiques et Les impôts sur les salaires. Bien que la culture, les traditions et le système juridique d’un pays jouent un rôle important pour façonner son régime fiscal et influent sur les possibilités de réforme, ce document aborde également des questions générales de conception en vue de déterminer comment faire en sorte que le système fiscal en Chine soit plus favorable à la croissance, simple, transparent et équitable, et induise moins de distorsions. Ce document examine et évalue chaque impôt en détail et réfléchit aux orientations possibles de la future réforme fiscale en Chine.
    Keywords: tax reform, tax policy, China, réforme fiscale, politique fiscale, Chine
    JEL: H2 H7
    Date: 2013–09–04
  5. By: Eijffinger, S.C.W.; Mahieu, R.J.; Raes, L.B.D. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: This paper analyzes the voting records of four central banks (Sweden, Hungary, Poland and the Czech Republic) with spatial models of voting. We infer the policy preferences of the monetary policy committee members and use these to analyze the evolution in preferences over time and the differences in preferences between member types and the position of the Governor in different monetary policy committees.
    Keywords: Ideal points;Voting records;Central Banking;NBP;CNB;MNB;Riksbank.
    JEL: E58 E59 C11
    Date: 2013
  6. By: Zheng (Michael) Song (University of Chicago, Booth School of Business); Guiying (Laura) Wu (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332)
    Abstract: Capital market distortions lower aggregate productive efficiency by misallocating re- sources. The existing literature infers such distortions from the dispersion of the average revenue product of capital. However, the methodology is subject to a set of identification issues: unobserved heterogeneities in production technology and market power; capital ad- justment costs with idiosyncratic shocks; and measurement errors in the data. This paper develops a structural econometric approach of estimating capital market distortions in en- vironments where all the above factors can be present. Using representative firm-level data from Chinese manufacturing from 2004 to 2007, we find that capital market distortions imply aggregate revenue losses of 40 percent. We also estimate distortions for U.S. manu- facturing firms in Compustat. Improving capital allocation e¢ ciency to the level observed among the Compustat firms would increase China's manufacturing revenue by 31 percent. Finally, we propose a simplified approach, which addresses the identification issues in a much more tractable way.
    Keywords: capital market distortions, Chinese manufacturing, structural estimation, un-observed heterogeneities
    JEL: C15 D92 E22 O16 O47
    Date: 2013–06
  7. By: Marcin Kolasa (National Bank of Poland, Warsaw School of Economics)
    Abstract: This paper uses the business cycle accounting framework to investigate the differences between economic fluctuations in Central and Eastern European (CEE) countries and the euro area. We decompose output movements into the contributions of four economic wedges, affecting the production technology, the agents’ intra- and intertemporal choices, and the aggregate resource constraint. We next analyze the observed cross-country differences in business cycles with respect to these four identified wedges. Our results indicate that business cycles in the CEE countries do differ from those observed in the euro area, even though substantial convergence has been achieved after the eastern EU enlargement. The major differences concern the importance of the intraand intertemporal wedges, which account for a larger proportion of output fluctuations in the CEE region and also exhibit relatively little comovement with their euro area counterparts.
    Keywords: business cycle accounting; business cycle synchronization
    JEL: E32 F44
    Date: 2013
  8. By: Meng, Bo; Wang, Zhi; Koopman, Robert
    Abstract: Global value chains are supported not only directly by domestic regions that export goods and services to the world market, but also indirectly by other domestic regions that provide parts, components, and intermediate services to final exporting regions. In order to better understand the nature of a country’s position and degree of participation in global value chains, we need to more fully examine the role of individual domestic regions. Understanding the domestic components of global supply chains is especially important for large developing countries like China and India, where there may be large variations in economic scale and development between domestic regions. This paper proposes a new framework for measuring domestic linkages to global value chains. This framework measures domestic linkages by endogenously embedding a country’s domestic interregional input-output (IO) table in an international IO model. Using this framework, we can more clearly describe how global production is fragmented and extended through linkages across a country’s domestic regions. This framework will also enable us to estimate how value added is created and distributed in both domestic and international segments of global value chains. For examining the validity and usefulness of this new approach, some numerical results are presented and discussed based on the 2007 Chinese interregional IO table, China customs statistics at the provincial level, and World Input-Output Tables (WIOTs).
    Keywords: China, Input-output tables, International trade, Distribution, Value chain, Input-output, Trade in value added
    JEL: C67 F10 O53
    Date: 2013–08
  9. By: Ladislav Kristoufek; Petra Lunackova
    Abstract: We analyze long-term memory properties of hourly prices of electricity in the Czech Republic between 2009 and 2012. As the dynamics of the electricity prices is dominated by cycles -- mainly intraday and daily -- we opt for the detrended fluctuation analysis, which is well suited for such specific series. We find that the electricity prices are non-stationary but strongly mean-reverting which distinguishes them from other financial assets which are usually characterized as unit root series. Such description is attributed to specific features of electricity prices, mainly to non-storability. Additionally, we argue that the rapid mean-reversion is due to the principles of electricity spot prices. These properties are shown to be stable across all studied years.
    Date: 2013–09
  10. By: Hai-Chuan Xu; Wei Zhang; Yi-Fang Liu
    Abstract: In this paper, we study the dynamics of absolute return, trading volume and bid-ask spread after the trading halts using high-frequency data from the Shanghai Stock Exchange. We deal with all three types of trading halts, namely intraday halts, one-day halts and inter-day halts, of 203 stocks in Shanghai Stock Exchange from August 2009 to August 2011. We find that absolute return, trading volume, and in case of bid-ask spread around intraday halts share the same pattern with a sharp peak and a power law relaxation after that. While for different types of trading halts, the peaks' height and the relaxation exponents are different. From the perspective of halt reasons or halt duration, the relaxation exponents of absolute return after inter-day halts are larger than that after intraday halts and one-day halts, which implies that inter-day halts are most effective. From the perspective of price trends, the relaxation exponents of excess absolute return and excess volume for positive events are larger than that for negative events in case of intraday halts and one-day halts, implying that positive events are more effective than negative events for intraday halts and one-day halts. In contrast, negative events are more effective than positive events for inter-day halts.
    Date: 2013–09
  11. By: Benedikter, Simon; Waibel, Gabi
    Abstract: Vietnam’s agrarian system has profoundly changed since the government initiated its renovation policy in 1986. Various policy directives and institutional reforms have been aimed at increasing the production of cash crops for the export markets and ensuring the nation’s food security. The government has undertaken considerable investments in irrigation and water control to boost local rice production, especially in the Mekong Delta. Today, a large water bureaucracy plans, implements and maintains the hydraulic infrastructure, but farmers have to contribute to funding and managing the irrigation systems. In this context, water user groups started to emerge from the 1990s onwards. This study on the trajectory of group development in Can Tho City shows that party-state authorities strongly stimulate group formation processes and organise the collaboration between farmers and the state. As a result, water user groups have become an integral part of local water management and instrumental in meeting the state-mandated production targets in agriculture.
    Keywords: Water resources management; Vietnam; Mekong Delta; water user groups; irrigation; rural production; decentralisation
    JEL: Q0 Q1
    Date: 2013
  12. By: Tomasz Brodzicki (Institute for Development); Stanislaw Uminski (Institute for Development)
    Abstract: We apply conventional panel data approaches to a comprehensive analysis of the gravity equation of bilateral trade flows between 16 Polish NUTS2 regions and 205 countries and territories over 1999-2011. Empirical analysis clearly demonstrates that gravity model fits the data reasonably well and provides sensible results in accordance with our expectations. Basic parameters as: distance, regions’ and countries’ GDP have statistically significant influence on dependent variable. We realize that gravity concept is often regarded as controversial, and doubts relate predominantly to its theoretical background. The question is that it treats economic relations in a too “mechanical” way. However the advantage of gravity approach is that it takes into account features of both, regions and countries, in analysis of trade flows intensity.
    Keywords: international trade of regions, gravity panel model estimation, Hausman-Taylor estimator, Poland
    JEL: C23 F10 F14 F17 R11
    Date: 2013–08
  13. By: Michael Princ (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The paper focused on measuring efficiency of investment strategies and portfolio optimization based on dynamic portfolio formation using the global minimum variance approach in a region of central European countries. The paper analyses DCC GARCH model, which was employed in order to obtain conditional correlation matrices. The analysis includes a comparison of global minimum variance (GMV) and newly proposed least correlated assets (LCA) portfolio formations based on individual shares and market indexes. Performance of constituted portfolios showed that dynamic form of portfolio optimization is an efficient tool in profit maximization and volatility minimization. The study shows that there is a potential for improvements of proposed methods. LCA portfolio formation showed that the number of parameters could be effectively lowered without a loss of profit.
    Keywords: dynamic modelling, portfolio selection, GMV, regional analysis
    JEL: C32 E44 F36 G14 G15
    Date: 2013–08

This nep-tra issue is ©2013 by J. David Brown. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.