nep-tra New Economics Papers
on Transition Economics
Issue of 2014‒02‒21
fifteen papers chosen by
J. David Brown
IZA (Institute for the Study of Labor)

  1. The asymmetric spatial effects for eastern and western regions of Russia By Olga A. Demidova
  2. Does migration lead to regional convergence in Russia? By Elena Vakulenko
  3. Is there a difference between domestic and foreign risk premium? The case of China Stock Market By Frédéric Teulon; Khaled Guesmi; Salma Fattoum
  4. Euler equation with habits and measurement errors: estimates on Russian micro data By Irina Khvostova; Alexander Larin; Anna Novak
  5. Collusion in markets characterized by one large buyer: lessons learned from an antitrust case in Russia By Andrei Y. Shastitko; Svetlana V. Golovanova
  6. How agglomeration in the financial services industry influences economic growth: Evidence from Chinese cities By Liang, Lin; Lin, Shanglang; Li, Yong
  7. Political Selection in China: the Complementary Roles of Connections and Performance By Jia, Ruixue; Kudamatsu, Masayuki; Seim, David
  8. Practicing catching-up: A comparison of development models of East Asian and Central-Eastern European countries By Terk, Eric
  9. How interdependent are Eastern European economies and the Euro area? By Prettner, Catherine; Prettner, Klaus
  10. Urbanisation and changes in the sectoral structure of economic development: the scale of the manufacturing sector in Chinese cities and the shift towards service industry By Peter Daniels; Pengfei Ni
  11. Measuring financial stress and economic sensitivity in CEE countries By Maciej Krzak; Grzegorz Poniatowski; Katarzyna Wasik
  12. How Far Can Renminbi Internationalization Go? By Yongding, Yu
  13. Macroeconomic and fiscal implications of population aging in Bulgaria By Onder, Harun; Pestieau, Pierre; Ley, Eduardo
  14. IPARD in Macedonia, a Chance for Farmers and private Consultants By Kovachev, Goran
  15. Special Economic Zones - 20 years later By Camilla Jensen; Marcin winiarczyk

  1. By: Olga A. Demidova (National Research University Higher School of Economics)
    Abstract: The purpose of this study is to identify the spatial effects of the main macroeconomic indicators of the eastern and western regions of Russia. These regions differ significantly in population density and the distances between cities. The main research question we are interested in is the following: how are events occurring in one of the western regions, such as economic growth or a decrease in the unemployment rate, effecting similar indicators in other western and eastern regions. The spatial effects of the western and eastern regions, when considered separately, may differ both qualitatively and with of the ‘flow on effect’. The determinants of the same macro-economic indicators in the eastern and western regions may also differ. In order to test the hypothesis of a possible difference in the spatial effects and determinants for these regions, we have developed a special class of model with four spatial matrices (west-west, east-east, west-east, and east-west) and a double set of control variables (one for each type of region). As the macroeconomic indicators monitor the rate of unemployment in the region, the real regional wage and GRP growth for the year were chosen for our models. We controlled the variables describing the socio-demographic situation in the region, migration processes, economic development, and export-import activity in the region. The models were estimated by the Arellano-Bond method on panel data for Russian regions over 2000-2010. Our analysis revealed, 1) a positive spatial correlation of the main macroeconomic indicators for the western regions, 2) both positive and negative externalities for the eastern regions and 3) the asymmetric influence of eastern and western regions on each other. Usually “impulses” from the western regions have a positive effect on the eastern regions, but the “impulses” from the eastern regions usually do not affect the western regions.
    Keywords: Russian regions, spatial effects, spatial econometric models
    JEL: R1 C21
    Date: 2014
  2. By: Elena Vakulenko (National Research University Higher School of Economics)
    Abstract: We analyze the impact of migration on wages, income and the unemployment rate. Using the official Russian statistical database from 1995 to 2010, we calculate a dynamic panel data model with spatial effects. There is a positive spatial effect for wages and unemployment. There is no significant impact of migration on the unemployment rate. We find a negative relationship between net internal migration and both wages and income, which is explained by the positive effect of emigration. However, the migration benefits are not big enough to make a difference on the Gini index across regions. We conclude that migration does not affect the regional convergence of economic indicators.
    Keywords: convergence, migration, wage, income, unemployment rate, spatial dynamic panel data models.
    JEL: R23 C23
    Date: 2014
  3. By: Frédéric Teulon; Khaled Guesmi; Salma Fattoum
    Abstract: This article studies the dynamic return and market price of risk for Chinese stocks (A-B shares). A Multivariate DCC-GARCH model is used to capture the feature of time-varying volatility in stock returns. We show evidence of different pricing mechanisms explained by the difference in the expected return and market price of risk between A and B shares. However, the significance of the difference between market prices of risk becomes disappearing if GARCH models are used.
    Keywords: Asymmetric DCC-GARCH models, B-share discount, Chinese stock market, Market segmentation
    JEL: G12 G14 G15
    Date: 2014–02–12
  4. By: Irina Khvostova (National Research University Higher School of Economics); Alexander Larin (National Research University Higher School of Economics); Anna Novak (National Research University Higher School of Economics)
    Abstract: This paper presents estimates for the consumption Euler equation for Russia. The estimation is based on micro-level panel data and accounts for the preference heterogeneity, measurement errors, and the impact of macroeconomic shocks. The presence of multiplicative habits is checked with the LM-test in a GMM framework. We obtain estimates of the elasticity of intertemporal substitution and of the subjective discount factor, which are consistent with the theoretical model and can be used for calibration, as well as for a Bayesian estimation of DSGE models for the Russian economy. We also show that the effects of habit formation are not significant. The hypotheses on habits (external, internal, and both external and internal) are not supported by the data
    Keywords: household consumption, Euler equation, habit formation, elasticity of intertemporal substitution, RLMS-HSE
    JEL: E21 C23
    Date: 2014
  5. By: Andrei Y. Shastitko (National Research University Higher School of Economics); Svetlana V. Golovanova (National Research University Higher School of Economics)
    Abstract: This paper demonstrates that even established and verified facts of agreements among producers are not a sufficient condition for cartel identification and, as a consequence, prosecution of agreement participants. Such requires looking at institutional details and the wider context of these and similar appearances or occurrences of documents and actions when qualifying the actions of market participants and their effects. This paper discusses a recent antitrust case brought against Russian manufacturers of large diameter pipes (LDPs) that examined supposedly abusive practices by these firms that were contrary to the law on the Protection of Competition, which prohibits market division. The case under consideration illustrates the importance of investigating institutional details when qualifying the actions of market participants and their effects. An analysis of the materials in this case using modern economic theory indicates that the presence of collusion is inconsistent with the active participation of the main consumer of LDPs in that agreement. The chosen format for the cooperation between pipe manufacturing companies and OJSC Gazprom, namely indicative planning, may be explained from the perspective of reducing contract risk in an environment characterized by large-scale private investments.
    Keywords: collusion, antitrust policy, credible commitments, indicative planning, contract risk
    JEL: K21 B52
    Date: 2014
  6. By: Liang, Lin; Lin, Shanglang; Li, Yong
    Abstract: This paper empirically tests the effect of financial knowledge spillovers on agglomeration in China's financial services industry and examines the external effects on cities' economies. The authors apply hierarchical linear modeling to examine a data set that comprises 276 Chinese cities and draw the following conclusions. Firstly, they find that agglomeration in the financial services industry and the Jacobs spillovers of industry diversification both promote financial knowledge spillovers in terms of industry specialization. Secondly, agglomeration in this studied industry has a significant positive influence on a city's economic growth, while financial knowledge spillovers have a significant but negative effect on a city's economic growth. Thirdly, the tendency towards agglomeration in the financial services industry in a few major cities is clear and the clustering significantly influences cities' boundaries. Finally, China's financial services industry is limited by a serious degree of regulation and is dominated by the main banking institutions. --
    Keywords: financial services industry agglomeration,industry specialization,knowledge spillovers,city economies,hierarchical linear modeling
    JEL: G20 O4
    Date: 2014
  7. By: Jia, Ruixue (University of California San Diego); Kudamatsu, Masayuki (Institute for International Economic Studies); Seim, David (Department of Economics, University of Toronto)
    Abstract: Who becomes a top politician in China? We focus on provincial leaders a pool of candidates for top political office and examine how their chances of promotion depend on their performance in office and connections with top politicians. Our empirical analysis, based on the curriculum vitae of Chinese politicians, shows that connections and performance are complements in the Chinese political selection process. This complementarity is stronger the younger provincial leaders are relative to their connected top leaders. To provide one plausible interpretation of these empirical findings, we propose a simple theory in which the complementarity arises because connections foster loyalty of junior officials to senior ones, thereby allowing incumbent top politicians to select competent provincial leaders without risking being ousted. Auxiliary evidence suggests that the documented promotion pattern does not distort the allocation of talent. Our findings shed some light on why a political system known for patronage can still select competent leaders.
    Keywords: Political turnover; Economic performance; Personnel control; Social networks
    JEL: H11 H70 J63 P30
    Date: 2014–02–07
  8. By: Terk, Eric
    Abstract: This article makes an attempt to compare the development patterns of the economies of the East Asian and Central and Eastern European (CEE) regions, which have been the fastest in catching up on the global arena. It observes both the internal fea-tures of the economies and economic policies and the parameters characterising their relation with the international background (openness, integration).The statistical materials used have been taken mostly from the World Economic Forum competi-tiveness reports and from the WB and IMF sources, while the descriptions of eco-nomic policy and its dynamic are based on materials concerning the regions under discussion and their individual countries. The goal of the article is not to reach con-clusions characterising the behaviour of the economies of the entire East Asian or CEE regions, but the economic development models, specific features, development and performing of countries, which have displayed top performance in either region and have reached the level of developed economies. --
    Keywords: catching up,development models,developmental state
    Date: 2014
  9. By: Prettner, Catherine; Prettner, Klaus
    Abstract: This article investigates the interrelations between the Euro area and five Central and Eastern European economies. Using an open economy framework, we derive theoretical restrictions to be imposed on the cointegration space of a structural vector error correction model. We employ generalized impulse response analysis to assess the effects of shocks in output, interest rates, the exchange rate, and relative prices on both areas. The results show strong international spillovers in output with the magnitude being similarly strong in both areas. Furthermore, we find multiplier effects in Central and Eastern Europe and some evidence for the European Central Bank´s desire toward price stability. --
    Keywords: European Economic Integration,Structural Vector Error Correction Model,Generalized Impulse Response Analysis,International Transmission of Shocks
    JEL: C11 C32 F41
    Date: 2014
  10. By: Peter Daniels (UoB-SERU - Services and Enterprise Research Unit - University of Birmingham); Pengfei Ni (CASS-IFTE - Institute of Finance and Trade Economics - Chinese Academy of Social Sciences)
    Abstract: There are many dimensions to the evolving economic development model in China and the role for urbanization within it. One key component is a requirement to incorporate a wider range of service industries, especially in the nation's fast-growing cities where there is demand for knowledge and related advanced services that will support, for example, the necessary shift to more 'modern' manufacturing. This paper summarizes progress towards servicification and the rationale for undertaking more research that will deepen understanding of the actual and potential contribution of producer services. Some recent empirical evidence on the growth trends for producer service in selected cities, including the four case study cities of Shanghai, Huangshan, Chongqing and Kunming, is presented. It is shown that in majority of cities the manufacturing-services gap remains a significant.
    Keywords: urbanisation ; China ; service industry
    Date: 2014–02
  11. By: Maciej Krzak; Grzegorz Poniatowski; Katarzyna Wasik
    Abstract: This report presents the methodology for the construction of the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) and investigates the economic situation in twelve Central and East European Countries (CEECs) between 2001 and 2012. The objective of this paper is to capture key features of financial and economic vulnerability and examine the co-movement of economic turmoil and financial disturbances that strongly affected the CEECs in the last decade. Our main finding is that the FSI can be used as a leading indicator and can be used to recognize changing trends in the index. A shift in the value of the index proves that EU accession has a positive, but minor influence on financial stability in the CEECs. On the other hand, the impact of the introduction of the euro in Estonia, Slovakia and Slovenia is ambiguous. For most of the countries in our sample, in 2007, the FSI started to grow rapidly, reaching its peak around the third quarter of 2008. Consequently, financial stress reained high for a few quarters and started to fall gradually. For a number of countries, we observe higher financial stress in the latest period of our analysis, i.e. 2010-2012. However, the value of the FSI was significantly lower than three years earlier. The results show that indices might be helpful in predicting future recessions. However, forecasting properties seem to be limited at this stage of our work.
    Keywords: financial stress, economic sensitivity, economic indicators, Central and Eastern Europe
    JEL: G01 E32 C43
    Date: 2014
  12. By: Yongding, Yu (Asian Development Bank Institute)
    Abstract: Since the formal launch of the renminbi trade settlement scheme in 2009, renminbi internationalization has made impressive inroads. The progress in renminbi trade settlement is especially impressive. However, Hong Kong, China’s offshore renminbi deposits failed to make significant progress as expected. The question of how far renminbi internationalization can go has become a common concern in the international financial community. This paper argues that the sheer size of the People’s Republic of China’s (PRC) trade and the convenience of using the renminbi for transaction settlements is one contributing factor, but that exchange rate arbitrage and interest rate arbitrage matter also. As well, a fundamental constraint for renminbi internationalization is the PRC’s capital controls. Before fully opening up its capital account and making the renminbi freely convertible, however, the PRC needs first to put its own house in order, most importantly making the renminbi exchange rate flexible. While the renminbi can and will become a major international currency eventually, the road to internationalization is bound to be long and bumpy.
    Keywords: renminbi; trade settlement; capital account liberalization; capital controls; store of value
    JEL: F31 F33
    Date: 2014–02–14
  13. By: Onder, Harun; Pestieau, Pierre; Ley, Eduardo
    Abstract: Bulgaria is in the midst of a serious demographic transition that will shrink its population at one of the highest rates in the world within the next few decades. This study analyzes the macroeconomic and fiscal implications of this demographic transition by using a long-term model, which integrates the demographic projections with social security, fiscal and real economy dimensions in a consistent manner. The simulations suggest that, even under fairly optimistic assumptions, Bulgaria's demographic transition will exert significant fiscal pressures and depress the economic growth in the medium and long term. However, the results also demonstrate that the Government of Bulgaria can play a significant role in mitigating some of these effects. Policies that induce higher labor force participation, promote productivity and technological improvement, and provide better education outcomes are found to counteract the negative consequences of the demographic shift.
    Date: 2014–02–01
  14. By: Kovachev, Goran
    Abstract: European perspective of Macedonian agriculture and rural development became viable on 17th of December 2005, with Macedonia gaining candidate status for European Union (EU) membership. The new outlook allowed the Country access to the Union’s Instrument for Pre-Accession Assistance in Rural Development (IPARD). This Instrument is a major chance for Macedonian farmers and private consultants to understand how EU agriculture and rural development works.
    Keywords: IPARD; Macedonian agriculture; EU; farmers; private consultants
    JEL: G23 H81 Q14
    Date: 2014–02–07
  15. By: Camilla Jensen; Marcin winiarczyk
    Abstract: In this paper we undertake an ex-post evaluation of whether the special economic zones (SEZs) introduced in Poland in 994 have been successful in meeting regional development objectives. We evaluate the policy on as many of its objectives as possible: employment creation, business creation (which includes attracting foreign direct investment), income or wage effects, and environmental sustainability. We use different panel data methods to investigate this question at the powiat (nuts4 or something similar to a commune) and gmina (nuts5 or something similar to a village) levels in Poland during the 995-20 period. It is also possible to include numerous controls to reduce the problem of the omitted variables bias such as education level, dependency rates, state ownership, general subsidies and whether the area is urban or rural. Our results indicate that SEZs in Poland have been successful in a number of their objectives such as private business creation. The positive effect of the policy however mainly comes through foreign direct investment (FDI), whereas the effects on e.g. investment and employment are small or insignificant. In other areas, such as securing higher income levels and locking firms into the sustainability agenda through the adoption of green technologies and reduced air pollution, we find only a small positively moderating effect of the policy on what are traditionally economically disadvantaged areas in Poland that used to be dependent on the socialist production model. Hence, despite high levels of FDI, the zones policy has not managed to overcome the legacy of backwardness or lagging regions. The main policy implication of the paper is that SEZs may be successful in stimulating activity in the short run but the policy must be seen as one of necessary temporality and can therefore not stand alone. Before launching SEZs, policymakers must have plans in place for follow up measures to ensure the longer term competitiveness and sustainability implications of such an initiative. There is a need to understand the connection between the specific incentive schemes used (in this particular case tax incentives were used) and the kinds of firms and activities they attract, including the behavioral models that those incentives promote.
    Keywords: Special Economic Zones, Panel Data, Policy Evaluation, Regional Development, Reindustrialization, Competitiveness
    JEL: F13 F23 C23 R11 P25
    Date: 2014–02

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