nep-tra New Economics Papers
on Transition Economics
Issue of 2014‒04‒05
fourteen papers chosen by
J. David Brown
IZA (Institute for the Study of Labor)

  1. Origin of FDI and domestic productivity spillovers: does European FDI have a ‘productivity advantage’ in the ENP countries? By Vassilis Monastiriotis
  2. Understanding the Slowdown in Foreign Investment in China By Ianchovichina, Elena; Thomas Hertel; Terrie Walmsley
  3. Is China on Track to Comply with Its 2020 Copenhagen Carbon Intensity Commitment? By Yang, Yuan; Zhang, Junjie; Wang, Can
  4. An agent-based computational model for China's stock market and stock index futures market By Hai-Chuan Xu; Wei Zhang; Xiong Xiong; Wei-Xing Zhou
  5. Institutional Reform Design: А New Chapter of Economics By Polterovich, Victor
  6. Exploring the Causality and Co-integration Relationship between FDI, GDP and Employment: A Case of Czech Republic By Yousafzai, Arshad Hayat
  7. Transmission effects in the presence of structural breaks: evidence from south-eastern European countries By Minoas Koukouritakis; Athanasios P. Papadopoulos; Andreas Yannopoulos
  8. Evaluating the Links Between the Financial and Real Sectors in a Small Open Economy: The Case of the Czech Republic By Tomas Konecny; Oxana Babecka Kucharcukova
  9. Cross-border production chains and business cycle co-movement between Central and Eastern European countries and euro area member states By Iossifov, Plamen
  10. Does Social Capital Matter for European Regional Growth By Peiró Palomino Jesús; Forte Deltell Anabel; Tortosa-Ausina Emili
  11. Analysis of nominal income evolution in the rural area, on types of households. Case study, South Muntenia region By Cretu, Daniela; Iova, Radu Andrei; Lascar, Elena
  12. Innovation in State-owned Enterprises: Reconsidering the Conventional Wisdom By Belloc, Filippo
  13. Data and Model Cross-Validation to Improve Accuracy of Microsimulation Results: Estimates for the Polish Household Budget Survey By Michal Myck; Mateusz Najsztub
  14. The impact of monetary policy and exchange rate shocks in Poland: evidence from a time-varying VAR By Arratibel, Olga; Michaelis, Henrike

  1. By: Vassilis Monastiriotis
    Abstract: The process of approximation between the EU and its ‘eastern neighbourhood’ has created conditions for deepening economic interactions and market integration, giving to the EU –and to EU businesses– an elevated role in the process of economic modernisation and transition in the neighbourhood countries. This raises the question as to whether European business activity in these countries produces indeed measureable economic advantages both in absolute and in relative terms (e.g., compared to business activity from other parts of the world). Similarly, a question arises as to whether European business activity reduces or amplifies spatial imbalances within the partner countries. This paper examines these issues for the case of capital flows (foreign ownership) and the related productivity spillovers, using firm-level data from the Business Environment and Enterprise Performance Survey (BEEPS) covering 28 transition countries over the period 2002-2009. We estimate the direct and intra-industry productivity effects of foreign ownership and examine how these differ across regional blocks (CEE, SEE and ENP), according to the origin of the foreign investor (EU versus non-EU), across geographical scales (pure industry versus regional spillovers) and for different types of locations (capital-city regions versus the rest). Our results suggest that FDI of EU origin plays a distinctive role in the countries concerned helping raise domestic productivity significantly more than investments from outside the EU. However, this process appears to operate in a spatially selective manner, thus enhancing regional disparities and spatial imbalances. This, then, assigns a particular responsibility for EU policy, as it continues to promote economic integration (and FDI flows) to its eastern neighbourhood, to devise interventions that will help redress these problems.
    Keywords: foreign direct investment
    Date: 2014–01–08
  2. By: Ianchovichina, Elena; Thomas Hertel; Terrie Walmsley
    Abstract: No one thought China’s high growth rates would persist forever, or that multinational firms would always keep pouring into the Chinese market, eager to establish operations regardless of local conditions. Economic convergence ensures that there will be a cooling off as wages rise and expected rates of return to investments fall. The difficult question has never been whether China will lose its luster, but when this would happen and how the adjustment will occur.
    Date: 2014
  3. By: Yang, Yuan; Zhang, Junjie; Wang, Can
    Abstract: In the 2009 Copenhagen Accord, China agreed to slash its carbon intensity (carbon dioxide emissions/GDP) by 40% to 45% from the 2005 level by 2020. We assess whether China can achieve the target under the business-as-usual scenario by forecasting its emissions from energy consumption. Our preferred model shows that China’s carbon intensity is projected to decline by only 33%. The results imply that China needs additional mitigation effort to comply with the Copenhagen commitment. In addition, China’s baseline emissions are projected to increase by 56% in the next decade (2011-2020). The emission growth is more than triple the emission reductions that the European Union and the United States have committed to in the same period.
    Keywords: Social and Behavioral Sciences, climate change, carbon dioxide emissions, China, spatial econometrics.
    Date: 2014–01–01
  4. By: Hai-Chuan Xu (TJU); Wei Zhang (TJU); Xiong Xiong (TJU); Wei-Xing Zhou (ECUST)
    Abstract: This study presents an agent-based computational cross-market model for Chinese equity market structure, which includes both stocks and CSI 300 index futures. In this model, we design several stocks and one index futures to simulate this structure. This model allows heterogeneous investors to make investment decisions with restrictions including wealth, market trading mechanism, and risk management. Investors' demands and order submissions are endogenously determined. Our model successfully reproduces several key features of the Chinese financial markets including spot-futures basis distribution, bid-ask spread distribution, volatility clustering and long memory in absolute returns. Our model can be applied in cross-market risk control, market mechanism design and arbitrage strategies analysis.
    Date: 2014–03
  5. By: Polterovich, Victor
    Abstract: In this paper I argue that the Theory of Reform may be considered as a comparatively new but intensively forming chapter of Economics. In spite of great variety of concrete reforms, the problem of institutional reforming admits general formulation and general approaches of solving it. I discuss some important steps in the development of the Theory of Reform, and then describe its state-of-the art. Since the theory is new, its architecture is not set completely. In the final part of the paper, I will present my own visions of this architecture. It is a typical case in the practice of reforms, when a reformer, who seeks to build an institution with desired properties, discovers that its immediate implementation is impossible because of resource, technological, cultural, political or institutional constraints. In this case, one has to construct a sequence of interim institutions which, for each moment of time, satisfy the existing constraints, and, in the end, provide the implementation of the desired institution. I describe some methods and constructions that can be used to create sequences of interim institutions; illustrations are extracted from the reform experience of China, Russia, and other countries.
    Keywords: shock therapy and gradualism, institutional trajectories, interim institutions, dysfunctions, institutional trap, transaction and transformation costs, norm fixing mechanisms, promising trajectories, manual for reformers
    JEL: D02 E02 H75 L85 O1 P5
    Date: 2014–03–27
  6. By: Yousafzai, Arshad Hayat
    Abstract: The paper investigate long term relationship between FDI, GDP and host country employment by using sector-wise panel data from 1993-2011 for the Czech Republic. IPS test is applied for panel data unit root testing and Johansen Fisher Panel Co-integration test is used to test for the presence of co-integration relationship between the variables. A vector error correction model (VECM) is estimated to find out the short run and long run causality between the variables. In the end, Impulse response functions are estimated. The paper found both a short term and long term causality going from FDI inflow to employment. Impulse responses show that both GDP and employment respond positively to an exogenous shock in FDI inflow. However, the employment response to FDI inflow shock is smaller than that of GDP response.
    Keywords: Foreign Direct Investment (FDI), Employment, Czech Republic, Unit Root, Co-integration, Causality
    JEL: F21 F23 J23
    Date: 2014
  7. By: Minoas Koukouritakis (University of Crete); Athanasios P. Papadopoulos (University of Crete); Andreas Yannopoulos (University of Crete)
    Abstract: In this paper, we investigate the monetary transmission mechanism through interest rate and real effective exchange rate channels, for five South-Eastern European countries, namely Bulgaria, Croatia, Greece, Romania and Turkey. Recent unit root and cointegration techniques in the presence of structural breaks in the data are used in the analysis. The empirical results validate the existence of a valid long-run relationship, with parameter constancy, for each of the five sample countries. Additionally, the estimated impulse response functions regarding the monetary variables and the real effective exchange rate converge and follow a reasonable pattern in all cases.
    Keywords: Monetary Transmission Mechanism; Structural Breaks; LM Unit Root Tests; Cointegration Tests; Impulse Responses.
    JEL: E43 F15 F42
    Date: 2014–01
  8. By: Tomas Konecny; Oxana Babecka Kucharcukova
    Abstract: Various approaches have been employed to study the possibility of non-linear feedback between the real and financial sector. We employ the threshold Bayesian VAR with block restrictions to evaluate the non-linear dynamics in a small open economy using the example of the Czech Republic. The study combines information on aggregate credit and non-performing loans (NPLs) to find that procyclicality of the financial sector matters for the real economy. A positive shock to credit and a negative shock to NPLs support industrial production over the entire time horizon, yet the responses do not differ substantially across credit spread regimes. Our results also suggest that the responses of the financial sector to real shocks differ depending on the credit market conditions. Finally, the direct impact of foreign factors on lending seems to be rather limited given that the financial sector in the Czech Republic is largely bank-based and funded predominantly by domestic deposits.
    Keywords: Credit, non-linearities, small open economy
    JEL: C15 C32 E51
    Date: 2013–12
  9. By: Iossifov, Plamen
    Abstract: In this paper, we highlight the role of global value chains in the synchronization of economic activity between countries in Central and Eastern Europe (CEE) and the euro area. We start off by demonstrating that the degree of synchronization of the business cycles of CEE countries and their main trade partners from the euro area has increased in recent years. We next show that the cyclical fluctuations of GDP in CEE countries are strongly influenced by pro-cyclical movements of changes in inventories. We then present evidence of the importance of cross border production chains for the economies of CEE countries. We build on these findings to show that the propagation of changes in demand for imports along global supply chains—linked to technological requirements and inventory stock adjustments—contributes to the synchronization of economic activity across Europe. We also show evidence that CEE exporters have started to set up their own value chains in the CEE region. JEL Classification: E32, F44, F62, O52
    Keywords: business cycle, CEE, Central and Eastern European countries, cross-border production chains, global value chains, inventories
    Date: 2014–01
  10. By: Peiró Palomino Jesús (Universidad Jaime I); Forte Deltell Anabel (Jaume I University); Tortosa-Ausina Emili (INSTITUTO VALENCIANO DE INVESTIGACIONES ECONÓMICAS (Ivie) UNIVERSITY JAUME I)
    Abstract: This working paper analyzes the role of different elements of social capital in economic growth for a sample of 85 European regions during the period 1995-2008. Despite the remarkable progress that social capital and European regional economic growth literatures have experienced over the last two decades, initiatives combining the two are few, and entirely yet to come for the post-1990s period. Recent improvements in data availability allow this gap in the literature to be closed, since they enable the researcher to consider the traditionally disregarded Central and Eastern European regions. This is particularly interesting, since they are all transition economies that recently joined the European Union, with relatively low levels of social capital. On the methodological side, we follow the Bayesian paradigm, which enables us to make direct inferences on the parameters to be estimated and deal with parameter uncertainty, leading to a deeper understanding of the relationships being investigated. Contrary to other contributions for the European context, results suggest, among other findings, that trust and social norms might have some implications for regional growth, whereas the role of active participation in groups remains unclear.
    Keywords: Bayesian inference, economic growth, European regions, social capital
    JEL: Z13 C15 R10
    Date: 2014–02
  11. By: Cretu, Daniela; Iova, Radu Andrei; Lascar, Elena
    Abstract: The income and consumption of the population are determined by the general evolution of the national economy, these know effects of the accession and post-accession processes of the country to the European Union. In this respect, in the present paper we proposed to study the evolution of the household, of the agricultural and nonagricultural income, supposing that the agricultural income determined a favorable evolution, using the research methods documenting, analyzing and processing of data by the secondary analysis. In Romania in the analyzed period, the decrease of the purchasing power of available income, inflation, high prices and tariffs for some goods and services led the households to reduce consumption to the bare minimum and to try to keep as much as possible the prior levels of consumption choosing to save costs.
    Keywords: agricultural household, rural population, nominal income, agricultural income, non agricultural income
    JEL: Q1
    Date: 2013–10–21
  12. By: Belloc, Filippo
    Abstract: A very well established economic literature maintains that State-owned enterprises (SOEs) are inefficient comparatively to privately-owned ones (POEs). In this paper we argue that SOEs' inefficiency is not due to the State ownership per se, rather it is caused by some conditions other than ownership which SOEs often, but not necessarily, relate to. In particular, we focus on dynamic efficiency - specifically, the production of technological innovation - of SOEs in manufacturing industries, where SOEs should contend with POEs in a competitive environment. We suggest that targeted measures aimed at increasing managers' commitment to long-term investment strategies and at reducing corruption and political interference, though being complex and difficult to implement, can be much more (positively) incisive on long-run technical progress than the simple privatization of companies. This leaves room for exploration and implementation of policies that might reconcile State ownership and market competition in industrial sectors.
    Keywords: State-owned enterprises; innovation; privatization.
    JEL: H11 L33 O31 P12
    Date: 2013–11–01
  13. By: Michal Myck; Mateusz Najsztub
    Abstract: We conduct detailed analysis of the Polish Household Budget Survey data for the years 2006-2011 with the focus on its representativeness from the point of view of microsimulation analysis. We find important discrepancies between the data weighted with baseline grossing-up weights and official statistics from other sources. A number of re-weighting exercises is examined from the point of view of the accuracy of microsimulation results and we show that using a combination of demographic calibration targets with several economic status variables or tax identifiers from the microsimulation model substantially improves the correspondence of model results and administrative data. While demographic re-weighting is neutral from the point of view of income distribution, calibrating the grossing-up weights to adjust for economic status and tax identifiers significantly increases income inequality. We argue that although data reweighting can substantially improve the accuracy of microsimulation it should be used with caution.
    Keywords: microsimulation, re-weighting, household data analysis
    JEL: D31 I38
    Date: 2014
  14. By: Arratibel, Olga; Michaelis, Henrike
    Abstract: This paper follows the Bayesian time-varying VAR approach with stochastic volatility developed by Primiceri (2005), to analyse whether the reaction of output and prices to interest rate and exchange rate shocks has changed across time (1996-2012) in the Polish economy. The empirical findings show that: (1) output appears more responsive to an interest rate shock at the beginning of our sample. Since 2000, absorbing this shock has become less costly in terms of output, notwithstanding some reversal since the beginning of the global financial crisis. The exchange rate shock also has a time-varying effect on output. From 1996 to 2000, output seems to decline, whereas for periods between 2000 and 2008 it has a positive significant effect. (2) Consumer prices appear more responsive to an interest rate shock during the first half of our sample, when Poland experienced high inflation. The impact of an exchange rate shock on prices seems to slightly decrease across time. JEL Classification: C30, E44, E52, F41
    Keywords: Bayesian time-varying parameter VAR, exchange rate pass-through, monetary policy transmission
    Date: 2014–02

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