nep-tra New Economics Papers
on Transition Economics
Issue of 2014‒07‒21
thirteen papers chosen by
J. David Brown
IZA (Institute for the Study of Labor)

  1. Learning to Export from Neighbors By Ana Fernandes; Heiwai Tang
  2. Energy Prices, Subsidies and Resource Tax Reform in China By ZhongXiang Zhang
  3. Testing the Predictability of Consumption Growth: Evidence from China By Liping Gao; Hyeongwoo Kim
  4. Examining Determinants of Foreign Wage Premiums in China By Theresa M. Greaney; Yao Li
  5. Going beyond tradition: Carbon policy in a high-growth economy: The case of China By Lucas Bretschger; Lin Zhang
  6. One currency, two markets: the renminbi’s growing influence in Asia-Pacific By Chang Shu; Dong He; Xiaoqiang Cheng
  7. How Persistent Are Consumption Habits? Micro-Evidence from Russia's Alcohol Market By Lorenz Kueng; Evgeny Yakovlev
  8. Dollar Hegemony and China’s Economy By Kai Liu
  9. Модернизация в мезоэкономическом контексте By Mosalev, Anton
  10. Protecting Democracy and the Rule of Law in the European Union: The Hungarian Challenge By Bojan Bugaric
  11. Patent statistics: a good indicator for innovation in China? Assessment of impacts of patent subsidy programs on patent quality By Dang, Jangwei; Motohashi, Kazuyuki
  12. Mind the gap between the budget lines and the programs of the National strategy for poverty reduction By Petreski, Blagica; Petreska, Despina; Kostadinov, Aleksandar
  13. Growth Strategy with Social Capital and Physical Capital- Theory and Evidence: the Case of Vietnam By Cuong Le Van; Anh Ngoc Nguyen; Ngoc-Minh Nguyen

  1. By: Ana Fernandes (University of Exeter); Heiwai Tang (Johns Hopkins University, CESIfo and Centro Studi Luca d\'Agliano)
    Abstract: This paper studies how learning from neighboring firms affects new exporters\' performance. We develop a statistical decision model in which a firm updates its prior belief about demand in a foreign market based on several factors, including the number of neighbors currently selling there, the level and heterogeneity of their export sales, and the firm\'s own prior knowledge about the market. A positive signal about demand inferred from neighbors\' export performance raises the firm\'s probability of entry and initial sales in the market but, conditional on survival, lowers its post-entry growth. These learning effects are stronger when there are more neighbors to learn from or when the firm is less familiar with the market. We find supporting evidence for the main predictions of the model from transaction-level data for all Chinese exporters from 2000 to 2006. Our findings are robust to controlling for firms\' supply shocks, countries\' demand shocks, and city-country fixed effects.
    Keywords: learning to export, knowledge spillover, uncertainty, export dynamics
    JEL: F1 F2
    Date: 2014–06–26
  2. By: ZhongXiang Zhang (School of Economics, Fudan University)
    Abstract: The Chinese leadership in November 2013 determined to embark upon a new wave of comprehensive reforms in China. This is clearly reflected by the key decision of the Third Plenum of the 18th Central Committee of Communist Party of China to assign the market a decisive role in allocating resources. To have the market to play that role, getting the energy prices right is crucial because it sends clear signals to both producers and consumers of energy. While the overall trend of ChinaÕs energy pricing reform since 1984 has been moving away from the pricing completely set by the central government in the centrally planned economy towards a more market-oriented pricing mechanism, the pace and scale of the reform differ across energy types. This paper discusses the evolution of price reforms for coal, petroleum products, natural gas and electricity in China, provides some analysis of these energy price reforms, and suggests few areas of reforms could take place in order to have the market to play a decisive role in allocating resources and to help ChinaÕs transition to a low-carbon economy.
    Keywords: energy prices, tiered prices, differentiated tariffs, subsidies, coal, electricity, natural gas, petroleum products, resource taxes, desulfurization and denitrification state-owned enterprises, China
    JEL: H23 H71 O13 O53 Q41 Q43 Q48 Q53 Q58
    Date: 2014–06
  3. By: Liping Gao; Hyeongwoo Kim
    Abstract: Chow (1985, 2010, 2011) reports indirect evidence for the permanent income hypothesis using time series observations in China. We revisit this issue by addressing direct evidence of the predictability of consumption growth in China during the post-economic reform regime (1978-2009) as well as the postwar US data for comparison. Our in-sample analysis provides strong evidence against the PIH for both countries. Out-of-sample forecast exercises show that consumption changes are highly predictable.
    Keywords: Permanent Income Hypothesis; Consumption; Out-of-Sample Predictability; Diebold-Mariano-West Statistic
    JEL: E21 E27
    Date: 2014–07
  4. By: Theresa M. Greaney (Department of Economics, University of Hawaii at Manoa); Yao Li (School of Management and Economics, University of Electronic Science and Technology of China)
    Abstract: We estimate foreign ownership wage premiums for every 3-digit manufacturing industry in China and discover a wide range of premiums both for so-called “foreign†ownership and for overseas Chinese ownership of firms. Foreign ownership generates larger and more prevalent wage premiums than overseas Chinese ownership of firms, but both types of foreign ownership produce wage premiums that respond similarly in hypothesis testing of determinants. Using the number of computers per worker as an indicator of a firm’s technology level, we find support in 76-78% of industries for the hypothesis that foreign firms pay higher wages to reduce the risk of worker turnover and the accompanying technology leakage to domestic rivals. However, this determinant explains only 5-6% of the foreign wage premium, on average. We find the most intensive support for the “fair wage†hypothesis that foreign firms pay higher wages because they are more profitable than domestic firms and workers in more profitable firms expect to be paid more, otherwise they will shirk. This hypothesis explains an average of 8-9% of the foreign wage premiums, with support for the hypothesis found in 72-75% of the industries using firm’s total profits per worker as the added wage determinant. Intangible assets and training costs were found to be much weaker individual determinants of foreign wage premiums. When we consider the best combination of explanatory variables to include in each industry’s wage regression, we find support for our combined hypotheses in the vast majority of industries, but we still find large residual wage premiums attached to foreign ownership in China.
    Keywords: FDI, foreign ownership, wages, China
    JEL: F16 F23 J31
    Date: 2014–06
  5. By: Lucas Bretschger (ETH Zurich, Switzerland); Lin Zhang (ETH Zurich, Switzerland)
    Abstract: There is widespread concern that an international agreement on stringent climate policies will not be reached because it would imply too high costs for fast growing economies like China. To quantify these costs we develop a general equilibrium model with fully endogenous growth. The framework includes disaggregated industrial and energy sectors, endogenous innovation, and sector-specific investments. We find that the implementation of Chinese government carbon policies until 2020 causes a welfare reduction of 0.3 percent. For the long run up to 2050 we show that welfare costs of internationally coordinated emission reduction targets lie between 3 and 8 percent. Assuming faster energy technology development, stronger induced innovation, and rising energy prices in the reference case reduces welfare losses significantly. We argue that increased urbanization raises the costs of carbon policies due to altered consumption patterns.
    Keywords: Carbon policy; China; Endogenous growth; Induced innova- tion; Urbanization.
    JEL: Q54 O41 O53 C68
    Date: 2014–07
  6. By: Chang Shu; Dong He; Xiaoqiang Cheng
    Abstract: This study presents evidence of the renminbi’s growing influence in the Asia-Pacific region. The CNH market – the offshore renminbi foreign exchange market in Hong Kong SAR – is found to exert an effect on Asian currencies that is distinct from that of the onshore (CNY) market. Changes in the RMB/USD rates in both markets have a statistically and economically significant impact on changes in Asian currency rates against the US dollar, even after controlling for other major currency moves and the transmission of China’s monetary policy to the region. The continuing growth of the offshore renminbi market suggests that the influence of the CNH market is rising, but how long the independent impact will last will likely depend on China’s progress in liberalising its capital account. The findings also suggest that China’s regional influence is increasingly transmitted through financial channels.
    Keywords: renminbi internationalisation, renminbi impact, offshore markets
    Date: 2014–03
  7. By: Lorenz Kueng; Evgeny Yakovlev
    Abstract: We use the Anti-Alcohol Campaign in 1986 and the rapid expansion of the beer market after the collapse of the Soviet Union as two quasi-natural experiments to identify highly persistent habit formation in alcohol consumption among Russian males. Importantly, these results apply to all levels of alcohol consumption and are not driven by heavy drinking or alcoholism. The two large shocks combined with persistent habits lead to large cohort differences in consumer behavior even decades later. We derive a basic model of habit formation with homogeneous preferences over two habit-forming goods, which is consistent with these facts. Using placebo tests as well as simple descriptive statistics, we show that habits are formed during early adulthood and remain largely unaffected afterward. The main alternative hypotheses such as income effects, unobserved taste heterogeneity, stepping-stone effects, and changes in culture or social norms are inconsistent with those patterns. Using the experiments as IVs, we estimate the first-order autoregressive coefficient to be 0.83, which is almost three times larger than its OLS estimate. Finally, our results suggest that male mortality in Russia will decrease by one quarter within twenty years even under current policies and prices due to the long-run consequences of the large changes in the alcohol market.
    JEL: D12 E21 G02 I10
    Date: 2014–07
  8. By: Kai Liu
    Abstract: This paper models the US dollar as a global currency and focuses on the effects of US money supply shock upon China’s economy. The special roles of US dollar as a global currency and the special institutional arrangements of China are investigated. Given a positive US money supply shock, both the inflation and real GDP of China will be below their steady state levels in the medium term; while for the US there is no inflation pressure. Welfare calculation shows that a positive 10% US money supply shock will result in a positive 1.25% welfare gain for China, a positive 0.06% welfare gain for US, but a 0.21% welfare loss for the rest of the world. Given that the US dollar’s hegemony is not weakened, the regime with liberalized capital accounts and an exchange rate peg to the US dollar for China is best for the Chinese households under the US money supply shock. However, when the US dollar is no longer the global reserve currency but instead a supranational reserve currency replaces it, then for China this regime is the worst kind of reform, no matter whether or not the dollar standard in international trade is maintained.
    Keywords: US dollar, global currency, capital control, exchange rate, business cycle
    JEL: E32 E42 E51 F31 F41 F44
    Date: 2014–06–04
  9. By: Mosalev, Anton
    Abstract: Modernization as a platform for a possible innovative development of Russia's economy in general and in particular mesoeconomics of the regions is of paramount importance. However, its systematic conduct is faced with many obstacles. So in the article, it is determined that many institutional factors can act as positive and neutral basis for current and future development programs. Attracting investors to the territory of the region should be determined by the parameters of how the internal environment (expectations may have a counter-proposal), and external, that are largely mediated by government policy. In a number of hypotheses based on the analysis of public statistics, verification and evaluation of the significance of which allowed us to determine those "buckles", the account of which may contribute to a systematic, competent program of modernization of economic activities and opportunities for innovative development agents on the mesoeconomics’ level.
    Keywords: mesoeconomics, modernization, experimental design techniques, education, labor, investments
    JEL: E22 R58
    Date: 2014–03–30
  10. By: Bojan Bugaric
    Abstract: After the fall of the Berlin Wall and the collapse of communist regimes, many Central and East European countries successfully managed a ‘return to Europe’. For many observers, the ‘return to Europe’ signaled the ultimate victory of democracy and rule of law over the legacy of totalitarianism in these countries. In contrast to this optimistic view, history is not over and the rising illiberalism in Hungary as well as in some other CEE countries represents a major challenge to liberal democracy. All those who expected that a decade of ‘EU accession’ for CEE legal regimes would lead to an irreversible break with the totalitarian past were simply naive. They forgot that institutions of liberal democracy cannot be created overnight. It is not only that developing liberal democracy requires more time; it also depends on continuous support and endorsement by the people. The rise of illiberal authoritarianism in Hungary is reminiscent of the dramatic events in Europe’s most horrible century. Even if the existence of the EU makes the danger of rising illiberalism less dramatic, there are still reasons to be worried about the authoritarian illiberal attacks on liberal democracy. As the Hungarian case shows, the EU has quite limited powers to effectively prevent the slide to authoritarianism. The irony is that conditionality, so powerful before the CEE countries joined the EU, loses much of its teeth once countries become member states of the EU. Yet, the discussion of the EU instruments to contain such slides into illiberalism has also shown that they are not totally unimportant and that they can be further improved. As I tried to argue, safeguarding democracy and the rule of law in the EU requires serious improvements in the legal toolkit currently available to deal with the slide to authoritarianism in Hungary. Ultimately, EU political actors must respect the limits of the EU political constitution and not attempt to go too far in their otherwise noble aim of protecting democracy in the EU.
    Keywords: rule of law, EU, Hungary, Article 7 TEU, Victor Orban, democracy backsliding, illiberalism, Copenhagen Commission
    Date: 2014–07
  11. By: Dang, Jangwei; Motohashi, Kazuyuki
    Abstract: This paper investigates whether patent subsidy programs aimed at promoting regional innovations have aroused a large number of low-quality applications in China and created biased patent statistics as an indicator for innovations. We found that patent filing fee subsidies encouraged filing of low-quality patent, resulting in a decreased grant rate. Though reward conditioned on grants increased patent grant rate, it also brought patents with narrow claim breadth. Our empirical results confirmed a general concern that patent subsidies have side effects in encouraging patent applications of low quality or low value. However, the patent subsidy programs does not affect the trend of granted patents, particularly for those applied by firms. Therefore, while the surge of patent applications has upward biases as an innovation indicator, increases in granted patents can be explained by uprising of technological capability at enterprise sector in China.
    Keywords: patent, subsidy, quality, China
    JEL: O34 O38
    Date: 2013–11
  12. By: Petreski, Blagica; Petreska, Despina; Kostadinov, Aleksandar
    Abstract: The objective of this study is to investigate the weak links in the processes for poverty reduction in Macedonia. We investigate the weak links between the budget lines and the poverty-reduction programs, involvement of vulnerable categories of people and researchers in the processes for poverty reduction. 27.1% of the Macedonian population lived below the poverty line in 2011. In order to reduce poverty, the National Strategy for Poverty Reduction and Social Exclusion has been introduced by the Ministry of Labor and Social Policy. The budget lines for passive measures account around 45% of the total Budget spending in contrast to active measures which took only 0.13% of all spending in 2013. We have used three different approaches: an analysis of the current strategic documents for poverty reduction, an interview with the people at social risk and a survey among the civil society and academic researchers in the country. The main result is that vulnerable categories of people face with lack of information about measures for poverty reduction, especially those with at most primary education. The citizens are not involved in the process of identifying potential problems of the vulnerable group and the process of construction measures for addressing the problems. Also, the Macedonian social system faces with absent process of monitoring of the spending of the funds and the effects of the used measure. Only 24% of the respondents were monitored regularly. At the same time, only 18% of the researchers were involved in the process of creating some strategic document for poverty reduction and only 9% made a social change or their recommendations have potential to be accepted by the policymakers and cause change.
    Keywords: poverty, social vulnerability, budget lines, Macedonia, vulnerable categories of people, processes
    JEL: I32 P36
    Date: 2014–06
  13. By: Cuong Le Van (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, VCREME - VanXuan Center of Research in Economics, Management and Environment - VanXuan Center of Research in Economics, Management and Environment); Anh Ngoc Nguyen (DEPOCEN - Development and Policies Research Center); Ngoc-Minh Nguyen (DEPOCEN - Development and Policies Research Center)
    Abstract: We study the impact of social capital in both simple theoretical and empirical model with the main assumption is the price of physical capital is a decreasing function of social capital. In our theoretical model, there exists a critical value such that firm will not invest in social capital if its saving is lower than the critical value and otherwise. Moreover, the output depends positively and non-linearly on the social capital. Our empirical model that captures the impact of physical capital, human capital, and social capital using the database from Survey of Small and Medium Scale Manufacturing Enterprises (SMEs) in Vietnam 2011, confirms the conclusions of the theoretical model.
    Keywords: Social capital; optimal growth
    Date: 2014–02

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