nep-tra New Economics Papers
on Transition Economics
Issue of 2015‒06‒20
seventeen papers chosen by
J. David Brown
United States Census Bureau

  1. Simulating Russia’s Challenging Transition By Seth G. Benzell; Eugene Goryunov; Maria Kazakova; Laurence J. Kotlikoff; Guillermo LaGarda; Kristina Nesterova; Andrey Zubarev
  2. Nowcasting and short-term forecasting of Russian GDP with a dynamic factor model By Porshakov , Alexey; Deryugina , Elena; Ponomarenko , Alexey; Sinyakov , Andrey
  3. The harsh reality of Ukraineâ??s fiscal arithmetic By Marek Dabrowski
  4. China’s Imbalanced Sex Ratio and Satisfaction with Marital Relationships By Zhiming Cheng; Russell Smyth
  5. Foreign Exchange Interventions at the Zero Lower Bound in the Czech Economy: A DSGE Approach By Simona Malovana
  6. Ownership structure and firm export performance. Evidence from Slovenian microdata By Kostevc, Crt
  7. Measuring the On-Going Changes in China's Capital Flow Management: A De Jure and a Hybrid Index Data Set By Jinzhao Chen; Xingwang Qian
  8. Сохранение денежных средств в период финансового кризиса 2014-2015 года By Egorova, Yana
  9. Recovery in the NMS, Decline in the CIS By Gabor Hunya; Monika Schwarzhappel
  10. The Mortality Cost of Political Connections By Raymond Fisman; Yongxiang Wang
  12. What Determines SMEs’ Funding Obstacles to Bank Loans and Trade Credits? By Sandra M. Leitner; Robert Stehrer
  13. Uncovered Interest Parity in Central and Eastern Europe: Sample, Expectations and Structural Breaks By Juan Carlos Cuestas; Fabio Filipozzi; Karsten Staehr
  14. Income inequality in China: Testing the Kuznets Hypothesis with National Time Series and Provincial Panel Data 1978-2011 By Wenli Cheng; Yongzheng Wu
  16. Monetary Policy Transmission in China: A DSGE Model with Parallel Shadow Banking and Interest Rate Control By Michael Funke; Petar Mihaylovski; Haibin Zhu

  1. By: Seth G. Benzell; Eugene Goryunov; Maria Kazakova; Laurence J. Kotlikoff; Guillermo LaGarda; Kristina Nesterova; Andrey Zubarev
    Abstract: This paper develops a large-scale, dynamic life-cycle model to simulate Russia’s demographic and fiscal transition under favorable and unfavorable fossil-fuel price regimes. The model includes Russia, the U.S., China, India, the EU, and Japan (Japan plus Korea). The model predicts dramatic increases in tax rates in the U.S., EU, India, and Russia. Indeed, the increases are so large as to question their political feasibility let alone their actual collection given the potential for tax avoidance and evasion.
    JEL: F0 F20 H0 H2 H3 J20
    Date: 2015–06
  2. By: Porshakov , Alexey (BOFIT); Deryugina , Elena (BOFIT); Ponomarenko , Alexey (BOFIT); Sinyakov , Andrey (BOFIT)
    Abstract: Real-time assessment of quarterly GDP growth rates is crucial for evaluation of economy’s current perspectives given the fact that respective data is normally subject to substantial publication delays by national statistical agencies. Large information sets of real-time indicators which could be used to approximate GDP growth rates in the quarter of interest are in practice characterized by unbalanced data, mixed frequencies, systematic data revisions, as well as a more general curse of dimensionality problem. The latter issues could, however, be practically resolved by means of dynamic factor modeling that has recently been recognized as a helpful tool to evaluate current economic conditions by means of higher frequency indicators. Our major results show that the performance of dynamic factor models in predicting Russian GDP dynamics appears to be superior as compared to other common alternative specifications. At the same time, we empirically show that the arrival of new data seems to consistently improve DFM’s predictive accuracy throughout sequential nowcast vintages. We also introduce the analysis of nowcast evolution resulting from the gradual expansion of the dataset of explanatory variables, as well as the framework for estimating contributions of different blocks of predictors into now-casts of Russian GDP.
    Keywords: GDP nowcast; dynamic factor models; principal components; Kalman filter; nowcast evolution
    JEL: C53 C82 E17
    Date: 2015–05–28
  3. By: Marek Dabrowski
    Abstract: â?¢ Ukraine is struggling with both external aggression and the dramatically poor shape of its economy. The pace of political and institutional change has so far been too slow to prevent the deepening of the fiscal and balance-of-payments crises, while business confidence continues to be undermined. â?¢ Unfortunately, the 2015 International Monetary Fund Extended Fund Facility programme repeats many weaknesses of the 2014 IMF Stand-by Arrangement: slow pace of fiscal adjustment especially in the two key areas of energy prices and pension entitlements, lack of a comprehensive structural and institutional reform vision, and insufficient external financing to close the expected balance-of-payments gap and allow Ukraine to return to debt sustainability in the long term. â?¢ The reform process in Ukraine must be accelerated and better managed. A frontloaded fiscal adjustment is necessary to stabilise public finances and the balance-of-payments, and to bring inflation down. The international community, especially the European Union, should offer sufficient financial aid backed by strong conditionality, technical assistance and support to Ukraineâ??s independence and territorial integrity.
    Date: 2015–06
  4. By: Zhiming Cheng; Russell Smyth
    Abstract: China’s imbalanced sex ratio has increased the prevalence of hypergamous (marrying up) and hypogamous (marrying down) marriages. We explore the implications of this phenomena for satisfaction with one’s spouse in terms of sexual satisfaction along a range of dimensions, care received from one’s spouse, affection expressed to, and received from, one’s spouse and the prevalence of domestic violence in the home. The main argument that we develop in the paper is that assortative mating is associated with higher satisfaction levels with one’s spouse because those involved in homogamous marriages will have more shared values, have more empathy for each other and be better able to communicate with each other, both in terms of everyday living and in terms of their sex lives. We test this argument using data from the China Health and Family Life Survey. We find considerable support for the argument that marrying up, or down, lowers satisfaction with one’s spouse.
    Date: 2015–03
  5. By: Simona Malovana (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic; Czech National Bank)
    Abstract: The paper contributes to understanding the economic dynamics at the zero lower bound and the exchange rate movements under different central bank intervention regimes. It provides a theoretical framework for modeling foreign exchange interventions at the ZLB within a dynamic general equilibrium model. We find a pronounced volatility of real and nominal macroeconomic variables in response to the domestic demand shock, the foreign demand and financial shocks and the terms-of-trade shock at the ZLB. This effects become severe in response to highly persistent shocks which leads to stronger reaction of variables and prolong period of binding constraint. The FX interventions have proven to be effective in mitigating deflationary pressures and recovering the economic activity in response to all examined shocks at the ZLB. In this sense, the central bank achieves the best performance by fixing the nominal exchange rate temporarily at the ZLB.
    Keywords: zero lower bound, foreign exchange interventions, dynamic stochastic general equilibrium, Bayesian estimation, exchange rate and price dynamics
    JEL: C11 E31 E43 E52 E58 F31
    Date: 2015–05
  6. By: Kostevc, Crt (University of Ljubljana)
    Abstract: This paper combines two very distinct strands of literature, firm-level trade analysis and studies on the impact of ownership structure. I explore the effects firm ownership structure has on its engagement with external trade using data for the population of Slovene enterprises between 2005 and 2013. The estimates indicate that concentrated firm ownership is more conducive to firms being exporters or becoming first-time exporters. Even after controlling for firm type, age, ownership type and ownership stability, firms with a larger ownership share held by the top five owners are more likely to become first-time exporters. While the association between the concentration of ownership and exporting status is slightly more ambiguous, overall the evidence favors concentrated ownership. Interestingly, the otherwise robust finding that foreign ownership improves the probability of exporting is restricted to limited-liability companies, while joint-stock companies show no association between lagged foreign ownership and export participation.
    Keywords: Ownership structure; ownership stability; ownership type; exporting
    JEL: F14 G32
    Date: 2015–06–09
  7. By: Jinzhao Chen (The University of Hong Kong); Xingwang Qian (SUNY Buffalo State and Hong Kong Institute for Monetary Research)
    Abstract: Liberalizing China's capital account may have profound implications for the RMB exchange rate, monetary policy autonomy, and Chinese and the world economy. Owing to the scarcity of proper measurements of China's capital controls, rigorous studies on the effectiveness and implications of China's capital controls are limited. We contribute to the literature by creating a new data set of indices including de jure and hybrid measurements of the changes in China's capital controls, hoping to inspire a new avenue of research in this area. In contrasting to other capital control indices that are compiled in a yes-or-no style, we quantify the intensity of changes in China's capital controls. Our indices reveal a persistent but uneven process of capital account liberalization in China between 1999 and 2012. This paper describes the de jure and hybrid indices, including indices for capital controls on individual asset categories, gross flows, inflows and outflows, as well as for residents and nonresidents asset transactions. Understanding that China usually implements policies in a step by step gradualist style, we extract those gradual information from the lines of the text in the IMF's Annual Report on Exchange Arrangement and Exchange Restrictions (AREAER) and some supplementary material from other sources.
    Keywords: Capital Flows, China's Capital Controls, De Jure Index, Hybrid Index
    JEL: C82 F15 F21
    Date: 2015–05
  8. By: Egorova, Yana
    Abstract: In this article problems of preservation of funds of households are considered. The author analysed the main options of possible investments of citizens of the Russian Federation in the period of an economic crisis of 2014-2015, such as an investment of money in real estate, preservation of money in rubles, currency or jewelry, reduction of personal expenses. Need of the state participation in preservation of funds of the population is revealed. On the basis of the conducted research by the author it is offered to allocate an optimum way of preservation of funds of households.
    Keywords: financial crisis, money, inflation, preservation of money, crisis of 2014-2015.
    JEL: G0 G01
    Date: 2015–06–15
  9. By: Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Monika Schwarzhappel (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Content The first part of the publication contains an analysis of the latest FDI trends. The analysis highlights the modest recovery of FDI in 2014. The second part of the publication contains two sets of tables Tables I total flow and stock data, FDI flow by components and FDI income, FDI per capita and other FDI reference parameter (2006-2014) Tables II detailed FDI data by economic activity and by country (last four years) The main sources of data are the central banks of the individual Central, East and Southeast European countries. General Description (PDF) | Table of contents (PDF)   Abstract The first part of this report provides an analysis of the 2014 foreign direct investment (FDI) trends in 23 Central, East and Southeast European (CESEE) countries, highlighting uneven developments. FDI inflows recovered in the new EU Member States (NMS), stagnated in the Southeast European countries and plummeted in Russia and Ukraine. Greenfield investments have declined in all three regions, but capital increases in foreign subsidiaries gathered momentum in the NMS. Even in this region, FDI inflow is still meagre in relation to gross fixed capital formation thus FDI is not a major driver of economic recovery. The countries of the Commonwealth of Independent States (CIS), as well as Latvia and Lithuania, are receiving much less foreign investment than before, in the wake of the Ukraine crisis. Capital flight has hit Russia. Net FDI in the country has become negative as inflows declined by two thirds while outflows diminished only by one third. Chinese FDI contributes only a minor fraction to the FDI stock in the CESEE, but it is on the rise. More and larger greenfield projects originating in China and Hong Kong have been announced recently, first of all in Russia. Forecasts for economic growth in 2015 suggest a further recovery of FDI in the NMS, although first-quarter trends in FDI flows and greenfield investments do not support this expectation. The second part of this report contains two sets of tables Tables I cover FDI flow and stock data, FDI flows by components and related income; Tables II provide detailed FDI data by economic activity and by country. The main sources of data are the central banks of the individual Central, East and Southeast European countries. Methodological explanations highlight important recent changes in reporting standards.   The wiiw FDI Database is available online This online access with a modern query tool supports easy search and download of data. The wiiw FDI Database contains the full set of FDI data with time series starting form 1990 as far as available. Access to wiiw FDI Database
    Keywords: foreign direct investment, balance of payments, income repatriation, statistics, new EU Member States, Southeast Europe, CIS
    JEL: C82 F21 O57 P23
    Date: 2015–06
  10. By: Raymond Fisman; Yongxiang Wang
    Abstract: We study the relationship between the political connections of Chinese firms and workplace fatalities. In our preferred specification we find that the worker death rate for connected companies is two to three times that of unconnected firms (depending on the sample employed), a pattern that holds for within-firm estimations. The connections-mortality relationship is attenuated in provinces where safety regulators' promotion is contingent on meeting safety targets. In the absence of fatalities, connected firms receive fewer reports of major violations for safety compliance, whereas in years of fatal accidents the rate of reported violations is identical. Moreover, fatal accidents produce negative returns at connected companies and are associated with the subsequent departure of well-connected executives. These results provide suggestive evidence that connections enable firms to avoid (potentially costly) compliance measures, rather than using connections to avoid regulatory response after accidents occur. Our findings emphasize the social costs of political connections, and suggest that appropriate regulatory incentives may be useful in mitigating these costs.
    JEL: D73 J81 P26
    Date: 2015–06
  11. By: Dori Pavloska - Gjorgjieska, Jelena Stanojevic (University American College, Skopje, Macedonia)
    Abstract: The aim of this paper is to evaluate the level of NPL loans in banking systems of the three sample Balkan countries. The special attention is dedicated to the level of NPL loans and their ratio compare to total loans. The quality of credit portfolio is important determinant in future bank strategies, thereby it’s important for the economic development of the whole country. The NPL loans affect the economic development through the credit activity which influence on the consumption and the capital adequacy ratio which constrain the possibility of growth. Thus creating a spiral and higher NPL ratio create low economic growth and low growth creates further NPL portfolio. In this paper analysis will be focused to compare the data of quality of credit portfolio in Macedonia, Serbia and Croatia. The comparative analysis will outline the differences in the quality of the portfolios in sample countries as well as the reasons for the differences. The reasons for higher resilience of some banking systems portfolios compared to others can be used as a valuable tool for enhancing the stability of the banking systems. These three countries are chosen because they had high credit growth in the past until the financial crises, they were affected by the crisis in the same time and their banking systems are dominantly owned by foreign banks.
    Keywords: Credit portfolio, NPL, banking systems, growth rate
    JEL: G21 G01
    Date: 2015–03
  12. By: Sandra M. Leitner (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: A Comparative Analysis of EU-15 and NMS-13 Countries This paper analyses bank credits and trade loans as the two most important sources of external finance of firms and identifies particular firm and country characteristics that determine the ease with which both external funding sources can be accessed. It focuses on SMEs in EU Member States and uses ECB/EU SAFE microdata, which differentiate between various degrees of external funding constraints. The results show that innovators of both products and processes have a harder time raising sufficient funds from banks. Further, smaller and younger firms and firms that are part of an enterprise are more likely to face stronger obstacles from banks. Moreover, it points to the important role previous bank loan and trade credit histories plays for successful application processes and demonstrates that banks and suppliers respond asymmetrically to changes in a firm’s financial and economic situation. Finally, it points to the importance of the state and structure of a country’s banking sector for successful bank loan and trade credit application processes.
    Keywords: funding obstacles, bank loans, trade credits, small and medium-sized enterprises
    JEL: G21 G23 O16
    Date: 2015–05
  13. By: Juan Carlos Cuestas (Department of Economics, University of Sheffield); Fabio Filipozzi (Tallinn University of Technology, Estonia); Karsten Staehr (Tallinn University of Technology, Estonia)
    Abstract: This paper examines the empirical validity of the hypothesis of uncovered interest parity (UIP) using data from five Central and Eastern European countries with floating exchange rates for the period 2003-2013. The analysis includes forward-looking as well as static expectations and also allows for different types of structural breaks. The variable representing deviations from UIP is stationary when expectations are forward-looking, but typically not when expectations are static even when structural breaks are incorporated. The results underscore the importance of the assumptions when the UIP hypothesis is tested.
    Keywords: Uncovered interest parity, arbitrage, structural breaks, expectations, Central and Eastern Europe
    JEL: C32 F15
    Date: 2015–05
  14. By: Wenli Cheng; Yongzheng Wu
    Abstract: This paper investigates income inequality in the post-reform Chinese economy using both national time series and provincial panel data 1978 to 2011. We identify a Kuznets inverted-U relationship between economic development and income inequality and show that this relationship was driven by the process of urbanization. We find that, after controlling for urbanization, low productivity in agriculture relative to that of the economy as a whole (i.e., dualism) and inflation appear to have been significant contributing factors to income inequality. There is also some evidence to suggest that, the expansion of higher education may have widened income inequality, but the expansion of secondary education may have narrowed it.
    Keywords: Kuznets curve, income inequality in China, Theil index, urbanisation, dualism
    JEL: O15 O53
    Date: 2015–05
  15. By: Mirjana Knezevic, Petar Veselinovic (University of Kragujevac, Faculty of Economics,)
    Abstract: The subject of the analysis is the importance of new education policy of Republic of Serbia, as one of the key factors for economic development, whose dynamics depends on the degree of its realization and capacity of state to implement New Strategy for development of education in Serbia until 2020 (Law on government RS, 2005). In long term, the biggest importances in the process have investments into human capital and education, and research and development. The goal of the paper is to demonstrate that New Strategy for development of education in Serbia until 2020. has responded to requests that educational system should correspond to needs of the economy, to establish active institutional system of linking between science and industry; and that policy of incentives should be focused towards innovation in entrepreneurial sector. The paper starts with hypothesis that level of development of the economy depends on the results of conducted reform in education system, as well as that education system of Republic of Serbia, whose standards lag behind the outstanding legislation standards of European Union, does not satisfy immediate needs of the current economic structure. Defined hypothesis is confirmed in the paper, by the use of comparative legislation analysis of educational policy in European countries and surrounding countries. Basic message of the paper is that establishment of economic development of Republic of Serbia in post-crisis period is closely linked to implementation of education policy whose priorities are given in the New Strategy for educational development in Serbia until 2020, because without reform of education system is impossible to implement structural reforms in the economy.
    Keywords: education, economic development, Strategy for development of education
    JEL: K22 K23 I25 I28
    Date: 2015–03
  16. By: Michael Funke (Hamburg University, CESifo, Munich, and Hong Kong Institute for Monetary Research); Petar Mihaylovski (Hamburg University); Haibin Zhu (JP Morgan Chase Bank)
    Abstract: The paper sheds light on the interplay between monetary policy, the commercial banking sector and the shadow banking sector in mainland China by means of a nonlinear stochastic general equilibrium (DSGE) model with occasionally binding constraints. In particular, we analyze the impacts of interest rate liberalization on monetary policy transmission as well as the dynamics of the parallel shadow banking sector. Comparison of various interest rate liberalization scenarios reveals that monetary policy results in increased feed-through to the lending and investment under complete liberalization. Furthermore, tighter regulation of interest rates in the commercial banking sector in China leads to an increase in loans provided by the shadow banking sector.
    Keywords: DSGE Model, Monetary Policy, Financial Market Reform, Shadow Banking, China
    JEL: E32 E42 E52 E58
    Date: 2015–05
  17. By: Evica Delova Jolevska, Ilija Andovski (MIT University Skopje, Faculty of Management, University of Nis, Faculty of Science and Mathematics)
    Abstract: Macedonian agriculture has received substantial donor support in the past two decades. Now, when most of those donor projects are completed, this paper looks at what have been the most important factors for achieving sustainability, and how the level of sustainability of the foreign assistance in the agriculture can be improved. The analysis is based on 8 different foreign donor projects in Macedonia. The data collection is done through a primary research – interviews with stakeholders of those projects, and secondary research – already existing publications on the topic. In the analyzed cases the achieved sustainability of the results is not on a required level. The factors that contributed to this can be seen in the lack of political support, socio-cultural aspects, institutional aspects, economic and financial aspects as well as the external factors. This gives basis for recommendations for the main stakeholders and potential users of this paper: the national government to ensure that the donors’ country strategies are in line with the national strategies; to the donors to use the participatory approach in the project design; and to the beneficiaries (farmers) to take greater responsibility and commitment for ownership of the achieved project results.
    Keywords: Sustainability, agriculture, donor projects, foreign assistance, development.
    JEL: F35 O13 O19
    Date: 2015–03

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