nep-tra New Economics Papers
on Transition Economics
Issue of 2014‒11‒07
nineteen papers chosen by
J. David Brown
United States Census Bureau

  1. The cleansing effect of minimum wages - Minimum wages, firm dynamics and aggregate productivity in China By Sandra PONCET; Florian MAYNERIS; Tao ZHANG
  2. Informal Employment in Russia: Definitions, Incidence, Determinants and Labor Market Segmentation By Hartmut Lehmann; Anzelika Zaiceva
  3. Stock market efficiency in China: evidence from the split-share reform By Andrea Beltratti; Bernardo Bortolotti; Marianna Caccavaio
  4. Transition and FDI: A Meta-Analysis of the FDI Determinants in Transition Economies By Tokunaga, Masahiro; Iwasaki, Ichiro
  5. Chinese Shadow Banking: Bank-Centric Misperceptions By Tri Vi Dang; Honglin Wang; Aidan Yao
  6. Rural-Urban Migration, Structural Transformation, and Housing Markets in China By Garriga, Carlos; Tang, Yang; Wang, Ping
  7. Do distributors really know the product? Approaching emerging markets through exports By Francesca Checchinato; Lala Hu; Tiziano Vescovi
  8. Financial Regulation in Poland By Alfred Janc; Pawel Marszalek
  9. Institutional Constraints to Political Budget Cycles in the Enlarged EU By Esther Ademmer; Ferdinand Dreher
  10. The Effects of China’s Sloping Land Conversion Program on Agricultural Households By Zhen Liu; Arne Henningsen
  11. Risk Aversion, Financial Stress and Their Non-Linear Impact on Exchange Rates By Tomas Adam; Sona Benecka; Jakub Mateju
  12. Financial Regulation in Estonia By Egert Juuse; Rainer Kattel
  13. Effective Exchange Rates in Central and Eastern European Countries: Cyclicality and Relationship with Macroeconomic Fundamentals By Daniel StavaÌrek; Cynthia Miglietti
  14. Financial Regulation in Hungary By Badics, Judit; Kiss, Karoly Miklos; Stenger, Zsolt; Szikszai, Szabolcs
  15. Energy Price and Redistribution in Czech Republic By Ladoux, Norbert; Scasny, Milan
  16. Social capital and economic growth in Europe: nonlinear trends and heterogeneous regional effects By Jesús Peiró-Palomino
  17. Vietnam: Learning from Smart Reforms on the Road to Universal Health Coverage By Helene Barroy; Eva Jarawan; Sarah Bales
  18. How smooth is the stock market integration of CEE-3? By Eduard Baumöhl; Štefan Lyócsa
  19. Water quality, brawn, and education: the rural drinking water program in China By Xu, Lixin Colin; Zhang, Jing

  1. By: Sandra PONCET (Université de Paris I); Florian MAYNERIS (FERDI); Tao ZHANG (FERDI)
    Abstract: We here consider how Chinese firms adjust to higher minimum wages and how these affect aggregate productivity, exploiting the 2004 minimum-wage reform in China. We find that higher city-level minimum wages reduced the survival probability of firms which were the most exposed to the reform. For the surviving firms, thanks to signicant productivity gains, wage costs rose without any negative employment effect. At the city-level, our results show that higher minimum wages affected aggregate productivity growth via both productivity growth in incumbent firms and the net entry of more productive firms. Hence, in a fast-growing economy like China, there is a cleansing effect of labor-market standards.
    JEL: F10 F14 O14
    Date: 2014–10
  2. By: Hartmut Lehmann; Anzelika Zaiceva
    Abstract: This paper takes stock of informal employment in Russia analyzing its incidence and determinants, developing several measures of informal employment and demonstrating that the incidence varies widely across the different definitions. We, however, show that the determinants of informal employment are roughly stable across the different measures. We also estimate an informal-formal wage gap at the means and across the entire wage distributions. We find only weak evidence for labor market segmentation in Russia for salaried workers but establish a segmented informal sector with a lower free entry tier and an upper rationed tier when including the self-employed and entrepreneurs
    Keywords: Informal employment, transition economies, labor market segmentation, Russia
    JEL: J31 J40 P23
    Date: 2014–03
  3. By: Andrea Beltratti (Bocconi University); Bernardo Bortolotti (Bocconi University and University of Turin); Marianna Caccavaio (Bank of Italy)
    Abstract: We perform an event study to investigate the efficiency of the Chinese stock market. We study the reaction of stock returns and trading volumes to the 2005-2006 structural reform which allowed the transformation of non-tradable shares (NTS) into tradable shares (TS) through payment of a compensation to holders of TS. We find evidence of positive abnormal returns in the few days before the announcement of which companies will undergo the reform process and in the ten days after the readmission to trading of participating companies following the determination of the compensation, but no abnormal returns after the payment itself. From a methodological viewpoint, our contribution is the introduction of a bootstrap procedure that is designed to replicate the actual degree of covariance across firms.
    Keywords: Chinese stock market, market efficiency, event study, bootstrap
    JEL: G14 N25
  4. By: Tokunaga, Masahiro; Iwasaki, Ichiro
    Abstract: In this paper, we conduct a meta-analysis of studies that empirically examine the relationship between economic transformation and foreign direct investment (FDI) performance in Central and Eastern Europe and the former Soviet Union over the past two decades. More specifically, we synthesize the empirical evidence reported in previous studies that deal with the determinants of FDI in transition economies, focusing on the impacts of transition-factors. We also perform meta-regression analysis to specify the determinant factors of the heterogeneity among the relevant studies and the presence of publication selection bias. We find that the existing literature reports a statistically significant non-zero effect as a whole, and a genuine effect is confirmed in the study area of the determinants of FDI beyond the publication selection bias.
    Keywords: foreign direct investment (FDI), FDI determinants, transition economies, meta-analysis, publication selection bias
    JEL: E22 F21 P33
    Date: 2014–10
  5. By: Tri Vi Dang (Columbia University and Hong Kong Institute for Monetary Research); Honglin Wang (Hong Kong Institute for Monetary Research); Aidan Yao (AXA Investment Managers)
    Abstract: In this paper, we provide a qualitative and theoretical framework to analyze the rapid growth of shadow banking in China. An important characteristic of the system is its close connection with traditional banks, making it very bank-centric. Our theoretical model employs the concept of "information sensitivity" - a measure of tail risks - by Dang, Gorton and Holmstrom (2013) and suggests that Chinese shadow banking is built on the asymmetric perception of information sensitivity among shadow banking entities, banks and investors. Compared to the US, we show that shadow banking in China is built on different mechanisms (implicit guarantees in China versus financial engineering in the US) and operates on different platforms (banks versus capital markets).
    Keywords: Number: 222014
    Date: 2014–09
  6. By: Garriga, Carlos (Federal Reserve Bank of St. Louis); Tang, Yang (Nanyang Technological University); Wang, Ping (Washington University)
    Abstract: This paper explores the role played by structural transformation and the resulting relocation of workers from rural to urban areas in the recent housing boom in China. This development process has fostered an ongoing increase in urban housing demand, which, combined with a relatively inelastic supply due to land and entry restrictions, has raised housing and land prices. We examine the issue using a multi-sector dynamic general-equilibrium model with endogenous rural-urban migration and endogenous housing demand and supply. Our quantitative results suggest that the development process accounts for two-thirds of housing and land price movements across all urban areas. This mechanism is amplified in an extension calibrated to the two largest cities indicating that market fundamentals remain a key driver of housing and land prices.
    Keywords: Migration; structural transformation; housing boom
    JEL: D90 E20 O41 R23 R31
    Date: 2014–10–01
  7. By: Francesca Checchinato; Lala Hu; Tiziano Vescovi
    Abstract: Exports represent an entry mode into international markets that is less risky than more direct strategies, therefore it particularly fits SMEs (small-medium enterprises) that generally have a few resources to invest. In the case of emerging markets because of the high psychic distance, SMEs tend to rely on their distributors for the business operations in the new market. However, although this type of intermediary allows the access to the foreign distribution channel that is particularly complex in countries such as China, it can limit the market control and in some cases, the product expansion. Based on a qualitative research consisting of interviews and secondary data, we present two original case studies of Italian firms operating in the Chinese market. It is shown that in emerging markets, since distributors do not really analyze and know consumer expectations and behaviors, they may represent a barrier in the knowledge accumulation of foreign products in the new market. Managerial implications are discussed on the extent to which SMEs are not able to replicate marketing strategies used in other countries, but they should define a clear strategy that involves their distributors in the process of knowledge accumulation and brand value creation in the foreign market.
    Keywords: internationalization, export, SME, distributor, emerging markets.
    JEL: F23 M16 M31 D22
    Date: 2014–10
  8. By: Alfred Janc (Poznan University of Economics); Pawel Marszalek (Poznan University of Economics)
    Abstract: The paper aims at short synthesis of the Polish regulatory framework referring to the financial sector with special attention paid to the banking system. We describe origins of the financial regulations in Poland, as well as their further evolution. Then, in the context of changes in the EU directives, we present changes in the Polish regulation resulting from the necessity of adjustments.
    Keywords: financial regulation, Poland, integration, financial crisis
    JEL: G21 G28
    Date: 2014–09–01
  9. By: Esther Ademmer; Ferdinand Dreher
    Abstract: This paper revisits Political Budget Cycles (PBCs) in the enlarged European Union (EU). Based on a panel of 25 current EU member states from 1996 to 2012, we show that governments frequently fiscally stimulate the economy prior to elections; a phenomenon that is seemingly not only an ‘Eastern problem’ of the EU’s new members, as has been suggested in the literature. We argue that fiscal institutions are apt to reduce the extent of opportunistic fiscal behaviour both in these younger democracies as well as in other EU member states that lack a strong press to hold governments accountable. Yet, we conclude that in order to eradicate PBCs in the enlarged EU, a powerful press remains key
    Keywords: Central and Eastern Europe, Enlargement, Fiscal Institutions, Political Budget Cycles, Press Freedom
    JEL: D72
    Date: 2014–09
  10. By: Zhen Liu (Department of Food and Resource Economics, University of Copenhagen); Arne Henningsen (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: In the late 1990s, China aimed to mitigate environmental degradation from agricultural production activities by introducing the world’s largest ’Payments for Environmental Services’ (PES) program ― the Sloping Land Conversion Program (SLCP). In order to analyze its effects on agricultural households, we develop a microeconomic Agricultural Household Model (AHM), which can model the production, consumption, and non-farm labor supply decisions of agricultural households in rural China in a theoretically consistent fashion. Based on this theoretical model, we derive an empirical specification that we use to econometrically estimate the effects of the SLCP and other exogenous factors. Using a large longitudinal farm household survey data set, we estimate the empirical model with the Hausman-Taylor estimation method. The empirical results are generally consistent with the results of our theoretical comparative static analysis, e.g. that the SLCP significantly decreases agricultural production. While the SLCP increases non-farm labor supply and total consumption in the Yellow River basin, these effects could not be observed in the Yangtze River basin. The recent reduction of the SLCP compensation payment rates has had some notable, but generally small effects.
    Keywords: Sloping Land Conversion Program; Agricultural household model; Household behavior; Hausman-Taylor Estimator; China
    JEL: H31 Q12 R38
    Date: 2014–10
  11. By: Tomas Adam; Sona Benecka; Jakub Mateju
    Abstract: This paper shows how the reaction of selected emerging CEE currencies to increased uncertainty depends on market sentiment in a core advanced economy or even on the global scale. On the example of the Czech koruna, a highly stylized model of portfolio allocation between EUR- and CZK-denominated assets suggests the presence of two regimes characterized by different reactions of the exchange rate to increased stress in the euro area. The “diversification" regime is characterized by appreciation of the koruna in reaction to an increase in the expected variance of EUR assets, while in the “flight to safety" regime, the koruna depreciates in response to increased variance. We suggest that the switch between regimes may be related to changes in risk aversion, driven by the actual level of strains in the financial system as captured by financial stress indicators. Using the Bayesian Markov-switching VAR model, the presence of these regimes is identified in the case of the Czech koruna and to a lesser extent in the case of the Polish zloty and the Hungarian forint. We find that a slight increase in euro area financial stress causes the koruna to appreciate, but as financial market tensions intensify (and investors’ risk aversion increases), the Czech currency depreciates in response to a financial stress shock.
    Keywords: Asset allocation, exchange rates, financial stress, Markov-switching
    JEL: E44 F31 G12 G20
    Date: 2014–09
  12. By: Egert Juuse; Rainer Kattel (Tallinn University of Technology)
    Abstract: Regulation of the banking industry in Estonia is theoretically significant in many respects. There is no clear straightforward model that would explain the evolution of the banking legislation, as all theoretical concepts are applicable for understanding the dynamics at certain periods in the regulatory development trajectory. This is witnessed in the interplay of domestic features and external factors. Both the need to build up the institutional framework for private finance and address re-occurring crises anchored the banking regulation and supervision to the EU and other international principles and practices. Estonia has been “accused” of meticulous punctuality in applying the EU regulations, in some cases directly copying from external legal sources, and setting even stricter requirements than the EU would dictate. This, however, has created a paradox of exemplary compliance with the EU standards in terms of its extensiveness, but meager effectiveness in addressing real-life developments. The paper shows the pragmatic approach to establishing regulatory and supervisory framework in the 1990s in the context of crises, internationalization of banking, and also EU accession aspirations, while 2000s mark gradual outsourcing of oversight and embedded formalism in terms of deepening reliance on external normative standards with insignificant economic substance, given the local circumstances.
    Keywords: Financial regulation, financial supervision, banking, transition economies, financial fragility, Europeanization, Estonia
    JEL: G28
    Date: 2014–09–01
  13. By: Daniel StavaÌrek (Department of Finance and Accounting, School of Business Administration, Silesian University); Cynthia Miglietti (Department of Applied Sciences, Firelands College, Bowling Green State University)
    Abstract: This paper provides direct empirical evidence on the nature of the relationship between effective exchange rates and selected macroeconomic fundamentals in nine central and Eastern European countries. Therefore, the paper addresses a key precondition of numerous exchange rate determination models and theories that will explain the role of exchange rates in the economy. Additionaly, short-term volatility and medium-term variability of effective exchange rates are examined. The results suggest that flexible exchange rate arrangements are reflected in higher volatility and variability of nominal as well as real effective exchange rates. Furthermore, the results provide mixed evidence in intensity, direction and cyclicality but show a weak correlation between exchange rates and fundamentals. Sufficiently high coefficients are found only for the money supply. Consequently, using fundamentals for the determination of exchange rates and using the exchange rate for an explanation of economic development can be limited for the countries analyzed.
    Keywords: effective exchange rates, volatility, variability, cycle, high/low analysis, peak/trough analysis, cross correlation
    JEL: E32 E44 F31
    Date: 2014–10
  14. By: Badics, Judit; Kiss, Karoly Miklos; Stenger, Zsolt; Szikszai, Szabolcs
    Abstract: The paper aims to study the evolution of the financial regulation and supervision in Hungary from 1987, the year when the foundations of the two-tier banking system were laid. After a brief overview of the history of the Hungarian financial system we turn our attention to the history of the financial regulation. We investigate systematically the main areas of the national financial regulation and discuss the implementation of the financial directives of the European Union in Hungary. Our analysis on the development of the Hungarian legal system concludes that it is almost fully harmonized with the European legislation.
    Keywords: banking system, Hungary, financial crisis, financial institution, financial system, regulation
    JEL: G01 G20 G21 G23 G28 N24
    Date: 2014–09–01
  15. By: Ladoux, Norbert; Scasny, Milan
    Abstract: This paper studies environmental taxation in a Mirrlees setting when energy, a polluting good, is used both as a factor of production and a final consumption good. The model is calibrated for the Czech economy. We study two different tax systems. Both consider a non-linear income tax but the first one considers a linear energy tax, while the second one allows for a non-linear taxation of energy. We show that: (i) households' energy consumption should be subsidized except if the environmental external costs of energy consumption are sufficiently high (ii) The subsidy applied to energy consumption should decrease with income.
    Keywords: energy tax, Pigouvian tax, redistributive concerns
    JEL: H21 H23
    Date: 2014–05
  16. By: Jesús Peiró-Palomino (Department of Economics, University Jaume I, Castellón, Spain)
    Abstract: After two decades of academic debate on the social capital-growth nexus, discussion still remains open. Most of the literature so far, however, has followed the one-size-its-all approach, neglecting that the great disparities across geographical units might have implications in this relationship. This article analyzes the role of two social capital indicators on the growth of 237 European regions in the period 1995–2007 by implementing a set of both parametric and non- parametric regressions. Whereas the former impose a linear functional form for the parameters, the latter relax this assumption providing a flexible frame in which the functional form is given by the data. The technique also permits introducing parameter heterogeneity in the analysis by estimating individual regional effects. The results from the parametric analysis show that the sign and the magnitude of the effects hinge upon the indicator considered. In contrast, results from the nonparametric regressions suggest that, while both indicators are significant growth predictors, the effect departs from linearity. Moreover, not all regions benefit from social capital with the same intensity. The most notable difference lies in regions from Central and Eastern Europe countries, where social capital is mostly negative. Other regional conditions such as initial income levels, investment rates or the stock of human capital show a more limited influence.
    Keywords: Economic growth, European regions, nonparametric regression, social capital
    JEL: C14 R11 Z13
    Date: 2014
  17. By: Helene Barroy; Eva Jarawan; Sarah Bales
    Abstract: Universal Health Coverage is a powerful framework for a nation aiming to protect their population against health risks. However, countries face multiple challenges in implementing, achieving and sustaining UHC strategies. Sharing and learning from diverse country experiences may enable to foster global and country progress toward that goal. The study seeks to contribute to the global effort of sharing potentially useful lessons to address policy concerns on the design and implementation of UHC strategies in LMICs. Vietnam is one of the LMICs that have taken relatively quick and effective actions to expand health coverage and improve financial protection in the last two decades. The country study, first, takes stock of UHC progress in Vietnam, examining both the breadth and the depth of health coverage and assessing financial protection and equity outputs (chapter one). Chapter two includes an in-depth analysis of some of the major success strategies and policy actions that the country took to expand health coverage and financial protection for all, including for the poor. Chapter three focuses on some of the UHC-related challenges that the country faces in pursuing expansion and sustaining UHC. Vietnam?s experience suggests that, moving toward greater UHC outputs, the system must be constantly adjusted, and that UHC strategies must be adaptive, those used in the past to cover the formal sector and the poor may turn out inadequate to reach the uninsured in the informal sector.
    Keywords: ability to pay, access to health care, access to health services, access to services, Administrative costs, aging, antenatal care, artificial limbs, basic health care ... See More + blood pressure, blood tests, Budget Law, cancer, capitation, capitation payment, capitation system, Catastrophic Health Expenditure, catastrophic health spending, central budget, child health, child health services, citizens, clean water, Clinical laboratory, Clinical practice, communicable diseases, contribution rate, contribution rates, cost control, cost sharing, cost-effectiveness, costs of care, curative health care, debt, delivery system, demand for services, Dental care, developing countries, development plans, diabetes, Dialysis, disabilities, disadvantaged groups, disease control, drug list, drugs, early detection, economic growth, Emergency services, employment, entitlement, epidemics, expenditures, families, Family Planning, Fee for Service, fee schedule, financial incentives, financial protection, financial resources, Financial Risk, food safety, global effort, health care, health care costs, health care coverage, Health Care Financing, Health Care Provider, health care services, health care system, Health Care Systems, health centers, HEALTH COVERAGE, health expenditure, Health Expenditures, health facilities, health financing, health financing system, Health Insurance, health insurance funds, Health Insurance Program, health insurance scheme, Health Organization, health outcomes, Health Policy, health professionals, health promotion, Health Purchaser, health reforms, health risks, Health sector, health service, health service delivery, health services, Health Specialist, health spending share, Health Strategy, health system, health system performance, health system reform, Health Systems, health workers, health workforce, Healthcare, Healthcare System, hearing aids, hepatitis B, HIV/AIDS, hospital autonomy, hospital services, hospitals, household expenditure, human resources, hypertension, Immunization, incidence analysis, income, income countries, income elasticity, income groups, induced demand, infant, infant mortality, infectious disease control, infectious diseases, Informal Payments, informal sector, injuries, inpatient admission, inpatient hospital, inpatient hospital services, insurance package, insurance premiums, insurance schemes, Integration, laws, leprosy, live births, living standards, long-term care, medical care, medical care costs, medical costs, medical doctors, medical education, medical equipment, medical examination, Medical Goods, medical services, medical technologies, medical training, medicines, mental illness, Ministry of Health, morbidity, mortality, national development, national Health, national Health Insurance, national policies, nurses, nursing, Nutrition, Outpatient services, patient, patient demand, patients, pediatrics, pharmacists, physician, physicians, Policy Process, Policy Research, population groups, preventive care, preventive health care, primary care, private sector, private services, Private Spending, progress, Prostitution, Provider Payment, Public Expenditure, Public Health, public health programs, Public Health Spending, Public Hospital, public hospitals, Public Policy, public sector, public spending, purchaser-provider split, quality of care, quality of health, quality of health care, Referrals, rehabilitation, reproductive health, Resource Allocation, risk adjustment, screening, smoking, Social Affairs, Social Health Insurance, social insurance, social mobilization, Social Security, social security benefits, social welfare, Sustainable Development, tuberculosis, under-five mortality, universal health insurance coverage, use of health services, vaccination, visits, workers, World Health Organization
    Date: 2014–08
  18. By: Eduard Baumöhl; Štefan Lyócsa
    Abstract: We study the stock market integration of emerging CEE-3 stock markets (namely, the Czech, Hungarian, and Polish markets) and hypothesize that this process has been gradual over time. As a proxy for integration, co-movements with three stock market indices that represent the developed markets (i.e., MSCI Germany, the Dow Jones Euro Stoxx 50, and MSCI World) are estimated using the standard, asymmetric, and corrected DCC-GARCH model. A smooth transition logistic trend model is then fitted to the dynamic correlations to examine the integration process. Evidence of strengthening relationships among the markets under study is provided.
    Keywords: stock market integration; dynamic conditional correlations; CEE-3 countries; smooth transition model
    JEL: C32 G01 G15
    Date: 2014–06–01
  19. By: Xu, Lixin Colin; Zhang, Jing
    Abstract: Although previous research has demonstrated the health benefits of water treatment programs, relatively little is known about the effect of water treatment on education. This paper examines the educational benefits to rural youth in China of a major drinking water treatment program started in the 1980s, perhaps the largest of such programs in the world. By employing a cross-sectional data set (constructed from a longitudinal data set covering two decades) with more than 4,700 individuals between 18 and 25 years old, the analysis finds that this health program has improved the individuals'education substantially, increasing the grades of education completed by 1.08 years. The qualitative results hold when the analysis controls for local educational policies and resources, village dummies, and distance of villages to schools, and by instrumenting the water treatment dummy with villages'topographic features, among others. Moreover, three findings render support to the brawn theory of gender division of labor: girls benefit much more from water treatment than boys in schooling attainment; youth with an older brother benefit more than youth with an older sister; and boys gain more body mass than girls do from having access to treated water. The program can account for the gender gap in educational attainment in rural China in the sample period. Young people that had access to treated plant water in early childhood (0-2 years of age) experienced significantly higher gains in education than those who were exposed to treated water after early childhood. The estimates suggest that this program is highly cost-effective.
    Keywords: Health Monitoring&Evaluation,Town Water Supply and Sanitation,Water and Industry,Water Supply and Sanitation Governance and Institutions,Water Conservation
    Date: 2014–10–01

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