nep-tra New Economics Papers
on Transition Economics
Issue of 2015‒02‒22
twenty-two papers chosen by
J. David Brown
United States Census Bureau

  1. The Internationalization of the RMB, Capital Market Openness, and Financial Reforms in China By Joshua Aizenman
  2. Itâ??s not just Russia: Currency crisis in the Commonwealth of independent states By Marek Dabrowski
  3. Input-output-based genuine value added and genuine productivity in China's industrial sectors (1995-2010) By Gao, Yuning; Zheng, Yunfeng; Hu, Angang; Meng, Bo
  4. Who Will Feed China in the 21st Century? Income By Martin, Will; Fukase, Emiko
  5. Who Is Coming to the Artefactual Field Experiment? Participation Bias among Chinese Rural Migrants By Frijters, Paul; Kong, Tao Sherry; Liu, Elaine M.
  6. Who Is Coming to the Artefactual Field Experiment? Participation Bias among Chinese Rural Migrants By Paul Frijters; Tao Sherry Kong; Elaine M. Liu
  7. Bulgarian Welfare System (1989 – 2014) During the Transition and the Crisis By Nenovsky, Nikolay; MIlev, Jeko
  8. State Capitalism vs. Private Enterprise By Donghua Chen; Dequan Jiang; Alexander Ljungqvist; Haitian Lu; Mingming Zhou
  9. Does minimum wage reduce youth employment on regional labour markets in Poland? By Paulina Broniatowska; Aleksandra Majchrowska; Zbigniew ¯ó³kiewski
  10. The political economy of industrial development in Vietnam: Impact of state-business relationship on industrial performance, 1986-2012 By Vu-Thanh, Tu-Anh
  11. Empowering cities : good for growth ? evidence from China By Zhu, T. Juni; Mukim, Megha
  12. Where is the value added? China's WTO entry, trade and value chains By Aichele, Rahel; Heiland, Inga
  13. Interest Rates and Structural Shocks in European Transition Economies By Mirdala, Rajmund
  14. In Search Of Critical Capacity: Exploring Attitudes Of Npo Leaders In Russia By Anael Labigne; Olga N. Kononykhina; Irina V. Mersianova
  15. R&D returns, spillovers, and firm incentives : evidence from China By Goh, Chorching; Li, Wei; Xu, Lixin Colin
  16. From the Loser to the Winner - How Trade Liberalization can lead to Leapfrogging between Countries By Rutzer, Christian
  17. The Literary Inquisition: The Persecution of Intellectuals and Human Capital Accumulation in China By Koyama, Mark; Xue, Melanie Meng
  18. Impact Evaluation of Development Programmes and Policies: Experiences from Viet Nam By Nguyen Viet Cuong
  19. A comparative analysis of China and India’s manufacturing sectors By Yingqi Wei; Vudayagi Balasubramanyam
  20. Fiscal Policy Stance Reaction to the Financial/Economic Crisis in the EMU: The Case of Slovenia By Mencinger, Jernej; Aristovnik, Aleksander
  21. Remittances' impact on the labor supply and on the deficit of current account By Meyer, Dietmar; Shera, Adela
  22. The long Shadow of Socialism: On East-West German Differences in Financial Literacy By Bucher-Koenen, Tabea; Lamla, Bettina

  1. By: Joshua Aizenman
    Abstract: This paper provides an overview of Chinese financial and trade integration in recent decades, and the challenges facing China in the coming years. China had been a prime example of exported growth, benefiting from learning by doing, and by adopting foreign know-how, supported by a complex industrial policy. While the resultant growth has been spectacular, it comes with hidden but growing costs and distortions. The Chinese export-led growth path has been challenged by its own success, and the Global Financial Crisis forced China toward rebalancing, which is a work in progress. Reflecting on the internationalization of the CNY, one expects the rapid accelerating of the commercial internationalization of the CNY.
    JEL: F3 F32 F36 F4 F41
    Date: 2015–02
  2. By: Marek Dabrowski
    Abstract: â?¢ The currency crisis that started in Russia and Ukraine during 2014 has spread to neighbouring countries in the Commonwealth of Independent States (CIS). The collapse of the Russian ruble, expected recession in Russia, the stronger US dollar and lower commodity prices have negatively affected the entire region, with the consequence that the European Union's entire eastern neighbourhood faces serious economic, social and political challenges because of weaker currencies, higher inflation, decreasing export revenues and labour remittances, net capital outflows and stagnating or declining GDP. â?¢ The crisis requires a proper policy response from CIS governments, the International Monetary Fund and the EU. The Russian-Ukrainian conflict in Donbass requires rapid resolution, as the first step to return Russia to the mainstream of global economic and political cooperation. Beyond that, both Russia and Ukraine need deep structural and institutional reforms. The EU should deepen economic ties with those CIS countries that are interested in a closer relationship with Europe. The IMF should provide additional assistance to those CIS countries that have become victims of a new regional contagion, while preparing for the possibility of more emerging-market crises arising from slower growth, the stronger dollar and lower commodity pric
    Date: 2015–02
  3. By: Gao, Yuning; Zheng, Yunfeng; Hu, Angang; Meng, Bo
    Abstract: The rapid growth of China's economy has brought about huge losses of natural capital in the form of natural resource depletion and damages from carbon emissions. This paper recalculates value added, capital formation, capital stock, and related multifactor productivity in China's industrial sectors by further developing the genuine savings method of the World Bank. The sector-level natural capital loss was calculated using China's official input–output table and their extensions for tracing final consumers. The capital output elasticity in the productivity estimation was adjusted based on these tables. The results show that although the loss of natural capital in China's industrial sectors in terms of value added has slowed, the impacts on their productivity during the past decades is still quite clear.
    Keywords: China, Input-output tables, Economic sector, Productivity
    JEL: C67 E01 O4
    Date: 2015–02
  4. By: Martin, Will; Fukase, Emiko
    Abstract: This paper uses resource-based cereal equivalent measures to explore the evolution of China’s demand and supply for food. Although demand for food calories is probably close to its peak level in China, the ongoing dietary shift to animal-based foods, induced by income growth, is likely to impose considerable pressure on agricultural resources. Estimating the relationship between income growth and food demand with data from a wide range of countries, China’s demand growth appears to have been broadly similar to the global trend. On the supply side, output of food depends strongly on the productivity growth associated with income growth and on the country’s agricultural land endowment, with China appearing to be an out-performer. The analyses of income-consumption-production dynamics suggest that China’s current income level falls in the range where consumption growth outstrips production growth, but that the gap is likely to begin to decline as China’s population growth and dietary transition slow down. Continued agricultural productivity growth through further investment in research and development, and expansion in farm size and increased mechanization, as well as sustainable management of agricultural resources, are vital for ensuring that it is primarily China that will feed China in the 21st century.
    Keywords: cereal equivalents, China, food self-sufficiency, livestock, income growth, International Development, International Relations/Trade, Q11, Q17, Q18,
    Date: 2014
  5. By: Frijters, Paul (University of Queensland); Kong, Tao Sherry (Peking University); Liu, Elaine M. (University of Houston)
    Abstract: In this paper, we compare participants in an artefactual field experiment in urban China with the survey population of migrants from which they were recruited. The experimental participants were more educated, more likely to lend money to friends, and worked fewer hours than the general population. They differ significantly from non-participants in terms of regression coefficients, such as the effects of wealth and marital status on the probability of being self-employed and distance migrated. We thus find that there was selection into our experiments on the basis of both observable characteristics and on unobserved differences in behavioral relations.
    Keywords: artefactual field experiment, participation bias, rural migrants
    JEL: C81 C93 C90
    Date: 2015–02
  6. By: Paul Frijters; Tao Sherry Kong; Elaine M. Liu
    Abstract: In this paper, we compare participants in an artefactual field experiment in urban China with the survey population of migrants from which they were recruited. The experimental participants were more educated, more likely to lend money to friends, and worked fewer hours than the general population. They differ significantly from non-participants in terms of regression coefficients, such as the effects of wealth and marital status on the probability of being self-employed and distance migrated. We thus find that there was selection into our experiments on the basis of both observable characteristics and on unobserved differences in behavioral relations.
    JEL: C81 C90 C93
    Date: 2015–02
  7. By: Nenovsky, Nikolay; MIlev, Jeko
    Abstract: Bulgarian welfare system was significantly changed in the late 1990’s and in early 2000’s following the whole economic and political changes since the collapse of communist system. On the next lines an attempt to summarize the most important changes in the Bulgarian economy in the early 2000’s is made. The accent is put on the welfare system and social inclusion. The reforms in the pension system and in the system concerning the employment policy in Bulgaria are at the center of the research since these two spheres appeared to be the most sensitive to the changes that took place at that time.
    Keywords: Welfare System, Pension System, Transition, Bulgaria
    JEL: I3 P3
    Date: 2014
  8. By: Donghua Chen; Dequan Jiang; Alexander Ljungqvist; Haitian Lu; Mingming Zhou
    Abstract: We study the efficiency of internal capital markets at state-controlled and privately owned business groups in China. Using highly granular data on within-group capital flows, we document stark differences: while private groups allocate more capital to units with better investment opportunities, state groups do the opposite. Minority shareholders in state owned firms suffer as a result. Product market competition and external monitoring by outside investors help discipline state groups’ tendency to ignore investment opportunities. We conjecture that capital allocations at state groups reflect the private career objectives of their chairmen. We show that promotion depends not on increasing profitability but on avoiding layoffs. Consistent with a career motive, we find that capital allocations are used to prop up large and struggling employers, but only if the chairman has a realistic chance of being promoted and if the cost of self-interested behavior is not too high.
    JEL: G15 G31 G32 G34 P1 P31
    Date: 2015–02
  9. By: Paulina Broniatowska (Warsaw School of Economics; National Bank of Poland); Aleksandra Majchrowska (Faculty of Economics and Sociology, University of Lodz; National Bank of Poland); Zbigniew ¯ó³kiewski (National Bank of Poland)
    Abstract: The main aim of the paper was to verify whether the changes in minimum to average wage ratio in Poland negatively affected youth (15-24 years old) employment rate. Moreover we tried to answer the question if this impact differs among regions. We analysed a model where changes in youth employment rate were the function of changes in minimum to average wage ratio as well as other (demand and supply) variables. The analyses were conducted on 16 Polish NUTS2 regions in 1999-2012. The analyses conducted in the paper showed that when we estimated the average impact of changes in minimum to average wage ratio on changes in youth employment rate the parameter was not significant. Changes in youth employment were driven mostly by changes in business cycle and in school enrolment ratio. After having checked for the regional variation of the determination of the youths’ employment rate we found that the impact of minimum on employment differed significantly among regions, both in terms of size and sign. The regions where youth employment rates were negatively affected in the whole period by changes in minimum to average wage ratio were the rural, less developed districts of Poland (Lubelskie and Podkarpackie). The results of our analyses indicate in regions with low productivity and low average wages the level of unique minimum wage may be too high. Low youth employment rates in those regions in Poland may not only result from insufficient aggregate demand but also from relatively high costs of employing young workers.
    Keywords: minimum wages, youth employment rates, regional labour markets in Poland.
    JEL: R23 J31
    Date: 2015–01
  10. By: Vu-Thanh, Tu-Anh
    Abstract: Vietnam.s industrial development since doi moi is a success, but only a partial one. This paper provides a political economy account of Vietnam.s industrial growth since 1986. It shows that the key determinant of Vietnam.s industrial growth lies in the re
    Keywords: state-business relationship, political economy, industrial development, Vietnam
    Date: 2014
  11. By: Zhu, T. Juni; Mukim, Megha
    Abstract: This paper utilizes a countrywide, county-to-city upgrade in the 1990s to identify whether extending the powers of urban local governments leads to better firm outcomes. The paper hypothesizes that since local leaders in newly-promoted cities have an incentive to utilize their new administrative remit to maximize gross domestic product and employment growth, there should be improvements in economic outcomes. The analysis finds that aggregate firm-level outcomes do not necessarily improve after county-to-city graduation. However, it does find that state-owned enterprises perform better post-graduation, with increased access to credit through state-owned banks as a possible explanation for the improvement in performance. The most important finding is that newly-promoted cities with high capacity generally produce better aggregate firm outcomes compared with newly-promoted cities with low capacity. The conclusions are twofold. First, in terms of access to credit, the paper provides evidence that relaxing credit constraints for firms could lead to large increases in firm operation and employment. Second, increasing local government's administrative remit is not enough to lead to better firm and economic outcomes; local capacity is of paramount importance.
    Keywords: Subnational Economic Development,Banks&Banking Reform,City Development Strategies,Access to Finance,Public Sector Management and Reform
    Date: 2015–02–01
  12. By: Aichele, Rahel; Heiland, Inga
    Abstract: In the 2000s, China's WTO entry constituted a major trade shock. In this paper, we analyze its eff ects on trade and value chains. The fragmentation of the global value chain makes it hard to disentangle who produces for whom. Value added trade contains this information. We build a multi-sector gravity model of the Eaton and Kortum (2002) type with inter-sectoral linkages that gives rise to a gravity equation for value added trade flows. As in Koopman et al. (forthcoming), exports can be decomposed into value added exports, exports of foreign value added and double counting. We construct a panel database of value added trade for 40 countries and the years 1995-2009 from the World Input-Output database. With WIOD and tariff data, we estimate the gravity model's key parameters. The simulation then hypothetically sets tari s w.r.t. China back to their pre-accession levels. We find that China's WTO entry strengthend the Asian production network. Chinese value added in exports reduced and increasingly foreign value added - most prominently from Japan and Korea - is assembled and exported.
    JEL: F13 F14 F17
    Date: 2014
  13. By: Mirdala, Rajmund
    Abstract: European transition economies are still suffering from negative implications of economic crisis. Significant decrease in the key interest rates was followed by reduced maneuverability of central banks in providing incentives into real economies. Low interest rate environment together with effects of quantitative easing induced economists to examine sources of interest rates volatility. Responsiveness of short-term interest rates to the structural shocks provides unique platform to investigate sources of their unexpected volatility and associated effects on monetary policy decision making. Moreover, sources of interest rates volatility may help to reveal side effects of the exchange rate regime choice. Empirical investigation of interest rates determination under different exchange rate regimes highlights substantial implications of relative exchange rate diversity and its importance during the crisis period. In the paper we analyze sources of the short-term nominal interest rates volatility in ten European transition economies by employing SVAR methodology. We observed unique patterns of the short-term interest rates responsiveness in countries with different exchange rate arrangements that contributes to the fixed versus flexible exchange rate dilemma.
    Keywords: interest rates, structural shocks, exchange rate arrangements, economic crisis, VAR, impulse-response function
    JEL: C32 E43 F41
    Date: 2014–08
  14. By: Anael Labigne (Stifterverband); Olga N. Kononykhina (Hertie School of Governance); Irina V. Mersianova (National Research University Higher School of Economics)
    Abstract: Following a public sphere approach to civil society research, we develop a working definition of Critical Capacity to analyze what leaders of Russian nonprofit organizations (NPOs) say regarding their political embeddedness. Theoretically, we stress the value added of differentiating more explicitly between the nonprofit sector, the third sector and civil society – the Critical Capacity concept represents a way forward towards applying that essential differentiation. Empirically, factor analysis on representative and current survey data confirms four dimensions of Critical Capacity, namely NPO leaders’ attitudes toward the role of the state, other NPOs, international cooperation as well as recent political events. In a second step, and based on these four dimensions, a cluster analytical model helps us to identify six reliable opinion clusters as well as the qualitative and quantitative characteristics of each group. Finally, we conclude on strength and weaknesses of our approach and address further research
    Keywords: cluster analysis; critical capacity, civil society; institutionalism, nonprofit sector; public sphere; Russia; third sector
    JEL: C21 D64
    Date: 2015
  15. By: Goh, Chorching; Li, Wei; Xu, Lixin Colin
    Abstract: This paper uses a new data set of 12,000 firms in China to estimate the returns to research and development investment and its spillover effects, and investigates how the returns to research and development depend on firm incentives. For the firms in the sample, the results show that on average firm output increases around 0.4 yuan for each additional 1 yuan spent on research and development in the previous year, and there is high research and development return regardless of whether the analysis deals with the endogeneity of research and development intensity. Interestingly, the marginal return to research and development is significantly higher in firms whose chief executive officers were not appointed by the government and lower when the chief executive officer's pay is directly related to annual performance. The return to research and development is higher in relatively poor regions and for firms with worse access to finance. There are also non-trivial research and development spillover effects.
    Keywords: E-Business,Agricultural Knowledge and Information Systems,Scientific Research&Science Parks,Science Education,Rural Development Knowledge&Information Systems
    Date: 2015–02–01
  16. By: Rutzer, Christian
    Abstract: How shifts in the economic leadership between countries can occur has been widely debated not only since the recent catch up of China in several sectors. However, there is no adequate theoretical model analyzing this question in the light of trade liberalization. This paper is the first one to address productivity leapfrogging between two countries using a heterogeneous firms trade framework. In the model, firms' R&D investments determine their expected productivity draw. In one country firms face lower R&D costs. Before trade liberalization, the sector productivity and the competition intensity is higher in this country. However, when trade liberalization occurs, fiercer competition can more than offset the investment advantage. Hence, firms from the disadvantaged country may invest relatively more in R&D than firms from the advantaged country. Consequently, the laggard country can become the leader in terms of sector productivity after trade liberalization. The results of the model highlight open markets in combination with innovations by firms as the necessary requirement for leapfrogging between two countries.
    JEL: F12 F13 F10
    Date: 2014
  17. By: Koyama, Mark; Xue, Melanie Meng
    Abstract: Imperial China used an empire-wide system of examinations to select civil servants. Using a semiparametric matching-based difference-in-differences estimator, we show that the persecution of scholar-officials led to a decline in the number of examinees at the provincial and prefectural level. To explore the long-run impact of literary inquisitions we employ a model to show that persecutions could reduce the provision of basic education and have a lasting effect on human capital accumulation. Using the 1982 census we find that literary inquisitions reduced literacy by between 2.25 and 4 percentage points at a prefectural level in the early 20th century. This corresponds to a 69% increase in the probability of an individual being illiterate. Prefectures affected by the literary inquisition had a higher proportion of workers in agriculture until the 1990s.
    Keywords: China, Human Capital, Institutions, Persecutions, Persistence
    JEL: N0 N45 O1 O15
    Date: 2015–02–11
  18. By: Nguyen Viet Cuong
    Abstract: Poverty reduction is one of major goals of development policy of most countries, especially developing ones. To reduce poverty, numerous development programmes have been implemented throughout the world. In recent decades, researchers as well as policy makers have been increasingly interested in impact evaluation of development programmes to improve the effectiveness of the programmes. Vietnam has been very successful in poverty reduction since the economic reform in 1986. The Government of Viet Nam, as well as international and domestic organisations, has implemented numerous targeted programmes to increase people’s welfare. Although increasing attention is paid to impact evaluation of programmes, well-designed impact evaluation of development projects remains very limited. This paper discusses experiences and difficulties in impact evaluation of development programmes in Viet Nam. The findings are expected to be relevant for not only Vietnam but also other developing countries, especially those with a similar socio-economic context as Vietnam.
    Keywords: impact evaluation, impact evaluation experiences, development programs, Vietnam.
    JEL: H43 H40 D04
    Date: 2015–02–10
  19. By: Yingqi Wei; Vudayagi Balasubramanyam
    Abstract: China’s manufacturing sector led by labour intensive manufactures has grown much faster than that of India both in terms of production and exports. It is often argued that India’s manufacturing sector that is relatively capital intensive must now follow China’s example and promote labour intensive manufactures. This is said to be essential if India were to promote growth and employment that are both essential for reducing the relatively high levels of poverty in the country. This paper argues that it may not be feasible for India to follow China’s growth strategy based on exports of labour intensive manufactures. India may have missed the boat and in any case it has failed to implement a strategy for agriculture of the sort that China put in place to provide its manufacturing sector with low wages and low cost raw materials. India, however, should utilise its services sector, mostly the IT services, to promote its nascent non- farm manufacturing sector in the rural areas. There may be lessons here from China’s town and village enterprises TVEs) programme.
    Keywords: Manufacturing, Foreign Direct Investment, Labour Regulations, Town and Village Enterprises (TVEs)
    Date: 2015
  20. By: Mencinger, Jernej; Aristovnik, Aleksander
    Abstract: The article evaluates the current economic crisis’ impact on changes in the adoption of fiscal policy measures for 16 euro-area countries in the 2004–2012 period and compares those changes with fiscal policy measures introduced in Slovenia. In general, the results suggest that the adopted fiscal policy measures in most euro-area countries were more expansionary in the period before the current economic crisis started. The evaluation of the fiscal stance in Slovenia suggests expansionary and pro-cyclical fiscal behaviour during the 2005–2008 period, whereas the response of the fiscal authorities in Slovenia in 2011 and 2012 due to fiscal consolidation was more restrictive and pro-cyclical. Finally, we emphasize that inconsistent fiscal policy without structural reforms also being carried out may lead to a further deterioration of the fiscal position and macroeconomic situation of euro-area countries, including during a period of cyclical recovery.
    Keywords: fiscal stance, economic crisis, cyclical adjusted balance, output gap, EMU, Slovenia
    JEL: E60 E62
    Date: 2014–12
  21. By: Meyer, Dietmar; Shera, Adela
    Abstract: Remittances as one of the main benefits of international migration have a great and important impact on the countries of origins and make migration a topic of special interest for many researchers. Workers' remittances represent an important financial flows and a major source of private external finance for many developing countries, which they receive them in large quantity. For many economies, remittances represent a sizable and stable source of funds that sometimes exceed official aid or financial inflows from foreign direct investment. One substantial drawback of remittances is that it means developing economies lose their best, most skilled young workers. It can lead to a situation where so many adults have migrated to a richer country; children are being brought up by grandparents. This has both an economic and social cost. The economy loses because young workers are not available; society loses out by the displacement effect of young adults not being there. On the other hand, people wouldn't undertake the upheaval of moving to other countries, if they didn't think their families would benefit and the country benefits too. The free movement of labor enables greater opportunities for people in developing economies and also helps developing economies gain important foreign currency revenue. Developed countries benefit from a more elastic supply of labor, enabling greater labor market flexibility. Remittances may increase consumption and enhance investments and have a significant impact to finance economic growth in receiving economies. In particular, migrants' transfers of funds, being inflows of foreign currencies that can be used to repay foreign debt, are less volatile compared to other financial flows. For some countries money sent back in the form of remittances from migrant workers are mostly used for consumption and investments and comprise a substantial portion of GDP and their balance of payments. This paper examines the impact of remittances as an income source to finance the balance of payment deficit. First, it documents the increasing share of remittances relative to other foreign capital flows to Albania and Southeast countries, distribution of remittance inflows across countries. This is followed by some analysis of the potential benefits and costs of remittances in recipient countries. The paper drawing on the case of Albania, Serbia, Bosnia Herzegovina, Moldova, Bulgaria, Romania and Republic of Macedonia, the paper shows the positive impact that rising remittances can have on the improvement of current account balance. Finally, also examines the role of remittances in funding decreasing Albanian National Debt. Workers' remittances to Albania are nevertheless an important financial flow-with perhaps, significant developmental effects. Albania earns a large amount of worker's remittances which since 1992 they have grown rapidly. It is well known that they represent the second largest inflow of incomes, are less costly and increased mostly consumption level. Our results point the positive impact of remittances in financing the deficit of the balance of payments and are a stable source of incomes.
    Keywords: workers' remittances,international migration,deficit of current account,national debt
    JEL: F24 F22 H63 C01
    Date: 2015
  22. By: Bucher-Koenen, Tabea; Lamla, Bettina
    Abstract: We use the German re-unification as a natural experiment to understand drivers of financial literacy accumulation. With the transformation from a planned to a market-based economy in 1990, the incentives to invest in financial literacy were changed exogenously for East Germans and remained the same for West Germans. Our results show that even 20 years after re-unification there is evidence for a significant financial literacy gap between East and West. While some groups, for instance women and those who have migrated from the East to the West, have mastered to catch up with their West German peers, others did not. Differences in financial literacy are present across all educational groups and at the top as well as the bottom of the income distribution. Based on models which account for factors that are commonly integrated in financial literacy theory, we decompose the financial literacy gap. Most of the gap remains unexplained. Thus, an extension of empirical and theoretical models that allow for the inclusion of differences in attitudes and values might be crucial to improve our understanding of financial literacy acquisition.
    JEL: D14 D91 D12
    Date: 2014

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