nep-tra New Economics Papers
on Transition Economics
Issue of 2015‒10‒10
seventeen papers chosen by
J. David Brown
United States Census Bureau

  1. Policy Shocks and Stock Market Returns: Evidence from Chinese Solar Panels By Meredith A. Crowley and Huasheng Song
  2. Is China fudging its figures? Evidence from trading partner data By Fernald, John G.; Hsu, Eric; Spiegel, Mark M.
  3. The Impact of Rural-Urban Migration on the Health of the Left-behind Parents By Ao, Xiang; Jiang, Dawei; Zhao, Zhong
  4. Transition and capital misallocation : the Chinese case By Damien Cubizol
  5. Outward FDI and domestic input distortions: Evidence from Chinese firms By CHEN, Cheng; TIAN, Wei; YU, Miaojie
  6. The Great Recession and Social Preferences: Evidence from Ukraine By de Haas, Ralph; Djourelova, Milena; Nikolova, Elena
  7. EU structural funds as a source of investment financing in Tri-City small and medium enterprises By Anna Golejewska
  8. The Ruble between the hammer and the anvil: Oil prices and economic sanctions By Dreger, Christian; Fidrmuc , Jarko; Kholodilin , Konstantin; Ulbricht , Dirk
  9. How do bankruptcy systems perform in Eastern Europe? By Régis BLAZY; Nicolae STEF
  10. Sustaining Micro Competitiveness to Ensure Convergence and Macro Resilience of the Polish Economy By Albinowski, Maciej; Hagemejer, Jan; Lovo, Stefania; Varela, Gonzalo
  11. Could climate change affect government expenditures? Early evidence from the Russian regions By Leppänen , Simo; Solanko, Laura; Kosonen, Riitta
  12. Reserve requirements and the bank lending channel in China By Fungácová , Zuzana; Nuutilainen , Riikka; Weill , Laurent
  13. The Effect of Risk Sharing on Asset Prices: Natural Experiment from the Chinese Stock Market Liberalization By Chan, Marc K; Kwok, Simon
  14. Theoretical Questions of the Impact of the Conclusion of Preferential Trade Agreements on International Investment By Idrisov, Georgy; Taganov, Boris
  15. The Rise of China's Shadow Banking System By Zheng Song; Kinda Hachem
  16. Courts in a Transition Economy: Case Disposition and the Quantity-Quality Tradeoff in Bulgaria By VALENTINA DIMITROVA-GRAJZL; PETER GRAJZL; ATANAS SLAVOV; KATARINA ZAJC
  17. Impact of Wage Policy on Economic Growth in Transitive Countries and New Interpretation of the Phillips Curve By BAZHAL, IURII

  1. By: Meredith A. Crowley and Huasheng Song
    Abstract: We examine the stock market performance of publicly-listed Chinese firms in the solar panel industry over 2012 and 2013 in response to announcements of new import restrictions by the European Union and domestic policy changes by the Chinese government. Using daily stock market prices from the Shanghai-Shenzhen, New York and Hong Kong markets, we calculate abnormal returns to several policy changes affecting solar panels produced in China. We find, consistent with the Melitz (2003) model, that larger, more export-oriented firms experienced larger stock market losses in the wake of European trade restriction announcements. We further show that European trade policy had a larger negative effect on Chinese private sector firms relative to state owned enterprises. Finally, we use a two stage least squares estimation technique to show that firms listed on US markets are more responsive to news events than those listed in China and Hong Kong.
    Keywords: Chinese exports, antidumping, solar panels, event study
    JEL: F12 F13 G10 G14
    Date: 2015–09–30
  2. By: Fernald, John G. (Federal Reserve Bank of San Francisco); Hsu, Eric (Federal Reserve Bank of San Francisco); Spiegel, Mark M. (Federal Reserve Bank of San Francisco)
    Abstract: How reliable are China’s GDP and other data? We address this question by using trading-partner exports to China as an independent measure of its economic activity from 2000-2014. We find that the information content of Chinese GDP improves markedly after 2008. We also consider a number of plausible, non-GDP indicators of economic activity that have been identified as alternative Chinese output measures. We find that activity factors based on the first principal component of sets of indicators are substantially more informative than GDP alone. The index that best matches activity in-sample uses four indicators: electricity, rail freight, an index of raw materials supply, and retail sales. Adding GDP to this group only modestly improves in-sample performance. Moreover, out of sample, a single activity factor without GDP proves the most reliable measure of economic activity.
    Date: 2015–09–21
  3. By: Ao, Xiang (Renmin University of China); Jiang, Dawei (Renmin University of China); Zhao, Zhong (Renmin University of China)
    Abstract: Since the reform and opening up in 1978, China has begun a period of rapid industrialization and urbanization. Along with an increasing number of rural people migrating to urban area for jobs, there are a considerable number of elderly parents left behind in the rural area. The impact of migration of the adult children on the health of their left-behind parents is ambiguous. On the one hand, the additional income from the children's jobs can allow their parents to afford better health care and nutrition; on the other hand, the migration necessarily reduces the amount of time the children have to take care of their parents. This paper uses the Rural Urban Migration in China data to empirically investigate the effect of adult children's migration on the health of the left-behind parents. Based on a linear probability model with instrumental variable correction, we find that having one additional adult child migrated to an urban area increases the probability of the left-behind elderly parents being in poor health condition by about 8%. Furthermore, parents having only one child, from low-income households, or aged above 60 years are affected more. Our results point out that the parents with only one child is the most vulnerable group and highlight the importance of establishing a formal care system for the rural elderly to complement the traditional family care in rural China.
    Keywords: left-behind parents, health, rural-urban migration, China
    JEL: O15 J14 I15
    Date: 2015–09
  4. By: Damien Cubizol (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon Saint-Etienne, Ecully, F-69130, France; Université Lyon 2, Lyon, F-69007, France)
    Abstract: This paper addresses the allocation puzzle of capital flows and privatization in emerging countries in transition. It demonstrates that the allocation of household savings to State-Owned Enterprises (SOEs), and not to the increasing share of private firms, solves both the allocation puzzle of capital flows and the drop in consumption in China. The contribution is to explain these two elements in a dynamic general equilibrium model with TFP growth that differentiates FDI and financial capital. In addition to other frictions, public banks and SOEs have the crucial role in capital misallocation by misdirecting household savings. It modifies firms’ labor and capital intensiveness, creates shifts in savings accumulation, and households satisfy the large cheap labor demand coupled with low returns on their savings. With a calibration adapted to the Chinese case and deterministic shocks, the model also matches to a large extent the data for a variety of stylized facts over the last 30 years.
    Keywords: Financial capital flows, FDI, China's transition, privatization, global imbalances, consumption, credit and capital markets frictions, TFP growth
    JEL: E20 F21 F32 P30
    Date: 2015
  5. By: CHEN, Cheng; TIAN, Wei; YU, Miaojie
    Abstract: This paper studies how discriminations against private enterprises (i.e., non-state-owned enterprises or non-SOEs) in the domestic market affect firms’ investment and production strategies abroad. We first document three puzzling empirical findings using data on Chinese multinational corporations (MNCs). First, private MNCs are less productive than state-owned MNCs. Second, SOEs are less likely to undertake FDI. Third, relative size of state-owned MNCs (compared with non-exporting or non-multinational firms) is larger than that of private MNCs. A theoretical model is built to rationalize these facts. The key economic force is that distortions in the domestic input market incentivize private firms to invest and produce abroad, which results in less tougher self-selection into FDI for those firms (i.e., selection reversal). Compared with state-owned MNCs, private MNCs allocate output disproportionately more in the foreign market, and their size increases disproportionately when they become MNCs. All such theoretical predictions are supported by the data on Chinese MNCs.
    Keywords: Outward FDI, Multinational Firms, Institutional Distortion, State-owned Enterprises
    JEL: F13 O11 P51
    Date: 2015–09–01
  6. By: de Haas, Ralph (Tilburg University, Center For Economic Research); Djourelova, Milena; Nikolova, Elena
    Abstract: We use detailed survey data to document stark differences between West<br/>and East Ukraine when it comes to household attitudes toward market-based<br/>economies and democratic institutions. Along both of these dimensions, Eastern<br/>Ukrainians are decidedly less supportive of liberal systems. We also find that economic attitudes changed in response to the global financial crisis. West Ukrainian households who were affected more extensively by the crisis were more disappointed with the market and private ownership, while in Eastern Ukraine economic attitudes became less pro-market across the board. Our evidence suggests that attitudes and values are determined by both deep-rooted factors and more transient macroeconomic shocks.
    Keywords: financial crisis; socail preferences; Ukraine
    JEL: F36 P20
    Date: 2015
  7. By: Anna Golejewska (Faculty of Economics, University of Gdansk)
    Abstract: The aim of the article is to analyze the use of the European Regional Development Fund for investment projects in Tri-City SMEs from Pomerania Regional Operational Programme and examine effects of these projects on a regional basis. 250 projects granted in the 2007-2013 programming period are analyzed. The analysis is based on the data provided by the Pomerania Development Agency Inc. Results of the analysis confirmed geographical and sectorial concentration of projects and significant diversity of total values of projects submitted by micro-, small- and medium-sized enterprises. Due to small share of the project beneficiaries in total number of firms in the Tri-City sub-region and fact that some projects are still ongoing, the assessment of the direct impact of the projects on the socio-economic situation of the sub-region is rather impossible. It can be noted that, at the micro-scale, the European Regional Development Fund improves competitiveness of enterprises and increases employment in the sub-region, particularly in the county of Gdañsk.
    Keywords: EU structural funds, investment, SMEs
    JEL: R11 M21
    Date: 2015–05
  8. By: Dreger, Christian (BOFIT); Fidrmuc , Jarko (BOFIT); Kholodilin , Konstantin (BOFIT); Ulbricht , Dirk (BOFIT)
    Abstract: The exchange rate fluctuations strongly affect the Russian economy, given its heavy dependence on foreign trade and investment. Since January 2014, the Ruble lost 50% of its value against the US Dollar. The fall of the currency started with the conflict between Russia and Ukraine. The impact of the conflict on Russia may have been amplified by sanctions imposed by Western countries. However, as Russia is heavily dependent on exports of natural re-sources, the oil price decline starting in Summer 2014 could be another factor behind the deterioration. By using high frequency data on nominal exchange and interest rates, oil prices, actual and unanticipated sanctions, we provide evidence on the driving forces of the Ruble exchange rate. The analysis is based on cointegrated VAR models, where fundamental long-run relationships are implicitly embedded. The results indicate that the bulk of the depreciation can be related to the decline of oil prices. In addition, unanticipated sanctions matter for the conditional volatility of the variables involved.
    Keywords: military conflict; sanctions; oil prices; Ruble depreciation
    JEL: C22 F31 F51
    Date: 2015–08–21
  9. By: Régis BLAZY (LaRGE Research Center, Université de Strasbourg); Nicolae STEF
    Abstract: For post-socialist countries that have undertaken long phases of economic and judicial transitions, an important aspect of attractiveness is based on the performances of their bankruptcy systems. Those performances are all the more essential in a context of non-mature capital markets. Precisely, bankruptcy procedures should, first generate substantial recoveries for the whole set of investors, and second share those recoveries in an adequate way – e.g. in a way that improves the investors’ individual incentives (in terms of monitoring, control, support, etc.). This article uses an original hand-collected database of 554 closed bankruptcy cases in three Eastern European countries (Hungary, Poland, and Romania) to evaluate the determinants of bankruptcy systems’ performances during the post-transition era (from year 2003 to 2010/11). In particular, we investigate whether the specificities of these local bankruptcy environments are significant enough to influence the creditors’ total recoveries. We also wonder whether those recoveries are impacted by the presence of private/public creditors and/or the concentration of their claims. This paper goes beyond a mere analysis of the creditors’ overall repayment, by focusing on the competition effects between them. Implementing competition is actually a core issue for post-transition economies, which have to mimic rivalry effects that usually prevail in more mature market economies. Precisely, we measure the priority order of repayment among competing classes of creditors (public, social, and private claims) and investigate the nature of competition (rivalry vs. ripple effects) among these classes. (1) We first confirm that the design of bankruptcy law “matters”: the creditors’ repayment is not independent from the type of bankruptcy procedure, and depends on the national environment in which such procedure is engaged. (2) On all three countries, the total recoveries do not benefit from the presence of public claimholders, even when those are in position of being residual claimants. Following Satjer (2010), this result suggests some passivity from the state, which has lost bargaining power under bankruptcy. On the contrary, the private claimholders exert a contrasting influence on total recoveries: positive for the junior ones (more involved under bankruptcy, to compensate their lack of protection), and negative for the secured ones (confirming the “lazy argument” attached to collaterals). (3) We also find that repayments are lower when the claims are concentrated: despite easier coordination, concentration may generate excessive influence from the largest creditors, willing to run bankruptcy adjudicat ion in their sole interests. (4) We show that the Eastern European bankruptcy systems provide stronger protection for private secured claims than for public claims. From that angle, the post-socialist economies mimic the prioritization of secured creditors that characterizes most Western European bankruptcy systems. (5) Last, we confirm that Eastern European bankruptcy systems have successfully implemented competition among the classes of creditors, which we interpret as a sign of maturity.
    Keywords: bankruptcy;attractiveness;recoveries;transition economies.
    JEL: G33 K22 P34
    Date: 2015
  10. By: Albinowski, Maciej (Ministry of Finance of Poland and Warsaw School of Economics); Hagemejer, Jan (National Bank of Poland and University of Warsaw); Lovo, Stefania (London School of Economics and Political Science, Grantham Research Institute on Climate Change and the Environment); Varela, Gonzalo (The World Bank Group)
    Abstract: We use export transaction and firm-level data to analyze Poland's export competitiveness over the period 2005 - 2013. Polish firms have become increasingly internationalized through exports. We observe a substantial increase in the number of exporters and a decrease in their average size, which indicates that fixed costs associated with exporting have decreased – mainly with the EU. Decomposition of export growth reveals that diversification is an increasingly important factor in explaining export growth. Exporters have become more diversified in the analyzed period, and export quality has been converging to the levels of high-income country exporters. We find that the process of quality upgrading is concurrent with market diversification: exporters upgrade in quality as they diversify into new destinations, likely because clients demand improvements in product specifications. Polish export flows are highly sustainable and we identify factors conducive to their survival. When analyzing determinants of participation in the export markets we find that the effect of real exchange rate varies across firms, depending on the extent to which firms participate on regional or global value chains (as measured by the firms' share of imported inputs in the total input bill). Productivity, financial constraints and sunk costs also matter for the export decision. In additional we find substantial evidence of local sectoral spillovers on exports. Finally, productivity dynamics were analyzed. Productivity growth in the analyzed period has been solid and resulted both from within-firm gains and allocative efficiency gains. Both domestic and foreign firms experienced productivity gains during the period. For domestic firms, an important source of these gains appears associated with FDI vertical spillovers through forward linkages. Increased FDI stocks in upstream markets account for between 5 and 30 percent of the TFP gains observed during the period 2005-2013 in most sectors.
    Keywords: export competitiveness; export decision; export diversification; total factor productivity; vertical spillovers
    JEL: D24 F14
    Date: 2015–10–06
  11. By: Leppänen , Simo (BOFIT); Solanko, Laura (BOFIT); Kosonen, Riitta (BOFIT)
    Abstract: This paper explores the implications of climate change for government expenditures. Using a rich sub-national dataset for Russia covering 1995–2009, we estimate the impacts of changes in climatic conditions through short-term variation and medium-term changes in average regional temperatures and precipitation. We show a strong and robust negative (but non-linear) relation between regional budget expenditures and population-weighted temperature. The results indicate that an increase in temperature results in a decrease in public expenditures and that the magnitude of this effect diminishes the warmer the region. Further, our results suggest that the benefits from warming accumulate and that adaptation measures could help leverage those benefits. The estimated decreases in regional government expenditure are, however, quite small. It should be noted that our results are estimated for a scenario of mild temperature increase (1–2 °C). Larger temperature increases are likely to have dramatic consequences e.g. from loss of permafrost and methane release that are impossible to predict with available historical data.
    Keywords: climate change; public expenditures; adaptation; non-linearity; Russia
    JEL: C50 H72 P20 Q54 Q58 R59
    Date: 2015–09–22
  12. By: Fungácová , Zuzana (BOFIT); Nuutilainen , Riikka (BOFIT); Weill , Laurent (BOFIT)
    Abstract: This paper examines how reserve requirements influence the transmission of monetary policy through the bank lending channel in China while also taking into account the role of bank ownership. The implementation of Chinese monetary policy is characterized by the reliance on the reserve requirements as a regular policy tool with frequent adjustments. Using a large dataset of 170 Chinese banks for the period 2004–2013, we analyze the reaction of loan supply to changes in reserve requirements. We find no evidence of the bank lending channel through the use of reserve requirements. We observe, nonetheless, that changes in reserve requirements influence loan growth of banks. The same findings hold true for other monetary policy instruments. Further, we show that the bank ownership format influences transmission of monetary policy.
    Keywords: Chinese banks; bank lending channel; bank ownership
    JEL: E52 G21 P52
    Date: 2015–09–21
  13. By: Chan, Marc K; Kwok, Simon
    Abstract: In a recent stock market reform, over half of the stocks listed in the Shanghai Stock Exchange became purchasable by foreign investors. Theory predicts that the price revaluation of an investible stock should be positively associated with the reduction in systematic risk. Using the policy as a natural experiment, we test this implication using a difference-in-differences estimator and a sample of 786 stocks in the Shanghai market. We find that risk-sharing explains over 40 percent of the price revaluation of investible stocks during the eight-month window between reform announcement and implementation. The results support the efficiency of the Chinese stock market, to the extent that the reduction of systematic risk is priced into those stocks that are affected by the liberalization.
    Keywords: Abatement; Cap and Trade; Emission Markets; Environmental Policy; Emission Taxes; Permit Trading
    Date: 2015–10
  14. By: Idrisov, Georgy (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Taganov, Boris (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The paper presents the results of an empirical analysis of investment effects of accession to the various preferential trade agreements, meaningful interpretation of the quantitative estimates is worked out. Based on the results, practical recommendations for the economic policy of Russia are developed.
    Keywords: investment effects, preferal trade agreements, international investment, economic policy, Russia
    Date: 2015–06
  15. By: Zheng Song (The University of chicago); Kinda Hachem (University of Chicago)
    Abstract: Shadow banking in China has grown very rapidly during the past decade. This paper studies the causes and impending consequences. We begin by documenting important differences in the cross-section of Chinese banks to isolate the regulatory triggers for shadow banking. We then build a model that rationalizes the facts and use it to conduct policy experiments. We find that asymmetric competition between banks is both a short-run stabilizer and a long-run risk, with new regulations potentially exacerbating the tipping point.
    Date: 2015
    Abstract: The lack of effective judiciary in post-socialist countries has been a pervasive concern and successful judicial reform an elusive goal. Yet to date, little empirical research exists on the functioning of courts in the post-socialist world. We draw on a new court-level panel dataset from Bulgaria to study the determinants of court case disposition and to evaluate whether judicial decision-making is subject to a quantity-quality tradeoff. Addressing endogeneity concerns, we find that case disposition in Bulgarian courts is largely driven by demand for court services. The number of serving judges, a key court resource, matters to a limited extent only in a subsample of courts, a result suggesting that judges adjust their productivity based on the number of judges serving at a court. We do not find evidence implying that increasing court productivity would decrease adjudicatory quality. We discuss the policy implications of our findings.
    Keywords: courts, post-socialist countries, case disposition, quantity-quality tradeoff
    JEL: P37 K40 D02
    Date: 2015–02–02
    Abstract: This paper considers the problem why minimal and average earnings differ dramatically in rich and new EU countries, as well as in Ukraine. Such phenomenon is usually explained by the difference among levels of labour productivity but the modern globalization processes have been doing the technology of production in many emerging economies very similar, especially in cases of the transnational companies’ influences. The practice of the Post-Socialist transitive countries also has been demonstrating such problem. While in the beginning of the reforms they were at more or less equal economic levels, very soon they were becoming a very differ by labour cost, and it led to significant differentiation of GDP per capita. For the short-term period it is difficult to explain this phenomenon by the cardinal changes in the physical labour productivity of existing productions, but it can be done taking into account the difference in the wages policy, and the innovation changing of technological structure of production. Mentioned problems have been analysed using the Phillips curve approach. The analysis shows the transitive countries which had undertaken considerable gradual increasing of labour cost and simultaneously stimulating of the innovation activities then later they have got a high dynamics of real GDP per capita.
    Keywords: Comparative economics, Wages policy, Phillips curve, Innovation development, Ukraine economy.
    JEL: E24 E64 J38 O47 P52
    Date: 2015–06–25

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