nep-tra New Economics Papers
on Transition Economics
Issue of 2016‒02‒12
twenty-two papers chosen by
J. David Brown
United States Census Bureau

  1. "Gender Dimensions of Inequality in the Countries of Central Asia, South Caucasus, and Western CIS" By Tamar Khitarishvili
  2. Is It Worth Issuing Bonds in China? Evidence from Stock Market Reactions By Paul-Olivier Klein; Laurent Weill
  3. Who should be Running Ahead? The Roles of Two Types of Entrepreneurship in China’s Contemporary Economy By Ying Zhang; André van Stel
  4. Catch-up with Generative State: Lessons from Chinese Telecom Equipment Industry By Ulas Emiroglu
  5. Effects of China’s Rural Insurance Scheme on Objective Measures of Health By Slawa Rokicki; Katherine Donato
  6. Does Biological Endowment Matter for Demand for Financial Services? Evidence from Russian Household Survey By Irina Andrievskaya; Maria Semenova
  7. Estimating effects of 2007 family policy changes on probability of second and subsequent births in Russia By Svetlana Biryukova; Oxana Sinyavskaya; Irina Nurimanova
  8. Oriflame CIS: The Successful Evolution of a Regional Subsidiary’s Mandate By Igor Gurkov
  9. A Simple Model of the Chinese Hukou System and Some Ongoing Reforms By Laixun Zhao
  10. Psychological Costs of Currency Transition: Evidence from Euro Adoption By Otrachshenko, Vladimir; Popova, Olga; Tavares, José
  11. AN EMPIRICAL INVESTIGATION REGARDING THE ETHICS OF EARNINGS MANAGEMENT (International Conference "Recent Advances in Economic and Social Research", 13-14 mai 2015, București) By Alina Beattrice Vladu
  12. Market Orientation and Company Performance: A Russian Service Industry Perspective By Sergei P. Kazakov
  13. CENTRAL AND EASTERN EUROPEAN STOCK MARKETS IN TIMES OF CRISIS (International Conference "Recent Advances in Economic and Social Research", 13-14 mai 2015, București) By Delia-Elena Diaconaşu
  14. Intergenerational Social Mobility in Soviet and Post-Soviet Russia By Gordey Yastrebov
  15. What we learn from China's rising shadow banking: exploring the nexus of monetary tightening and banks' role in entrusted lending By Chen, Kaiji; Ren, Jue; Zha, Tao
  16. MINIMUM WAGE AND BUSINESS ENVIRONMENT IN ROMANIA: AN INSTITUTIONAL PERSPECTIVE (International Conference "Recent Advances in Economic and Social Research", 13-14 mai 2015, București) By Marius-Cristian Pana
  17. Non-Separable Time Preferences and Novelty Consumption: Theory and Evidence from the East German Transition to Capitalism By Davide Dragone; Nicolas Ziebarth
  18. ROMANIAN BANKING SYSTEM REACTION TO THE FINANCIAL AND ECONOMIC CRISIS FOLLOWING THE E3MG MODEL SCENARIOS OF POLLITT AND BARKER (International Conference "Recent Advances in Economic and Social Research", 13-14 mai 2015, București) By Țâmpu Diana Larisa
  19. Does FDI Crowd out Domestic Investment in Transition Countries? By Cristina Jude
  20. Greying the budget : ageing and preferences over public policies By de Mello,Luiz; Schotte,Simone Raphaela; Tiongson,Erwin H. R.; Winkler,Hernan Jorge
  21. Post‐crisis developments in global value chains - example of foreign investors’ Hungarian subsidiaries By Andrea Szalavetz
  22. There is poverty convergence By Jesus Crespo Cuaresma; Stephan Klasen; Konstantin M. Wacker

  1. By: Tamar Khitarishvili
    Abstract: The collapse of the Soviet Union initiated an unprecedented social and economic transformation of the successor countries and altered the gender balance in a region that counted gender equality as one of the key legacies of its socialist past. The transition experience of the region has amply demonstrated that the changes in the gender balance triggered by economic shifts are far from obvious, and that economic expansion and women's economic empowerment do not always go hand in hand. Therefore, active measures to enhance women’s economic empowerment should be of central concern to the policy dialogue aimed at poverty and inequality reduction and inclusive growth. In this paper, we establish the current state of various dimensions of gender inequalities and their past dynamics in the countries of Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan), South Caucasus (Armenia, Azerbaijan, and Georgia), and Western CIS (Belarus, Moldova, and Ukraine), and propose steps aimed at reducing those inequalities in the context of inclusive growth, decent job creation, and economic empowerment.
    Keywords: Gender Economics, Inequality, Transition Countries, Human Development, Western CIS, Central Asia, South Caucasus
    JEL: J16 P2
    Date: 2016–01
  2. By: Paul-Olivier Klein (LaRGE Research Center, Université de Strasbourg); Laurent Weill (LaRGE Research Center, Université de Strasbourg)
    Abstract: There has been a considerable expansion of corporate bond markets in China in the recent years. The objective of this study is to examine the stock market reaction following bond issuance by Chinese companies. In addition to analyzing for positive or negative reactions to bond issues, we consider the influences of ownership and management characteristics on the stock market reaction. Applying an event-study methodology to a sample of 481 bond issues of 347 Chinese companies over the period 2009–2013, the univariate results show that Chinese bond issues typically generate a positive stock market reaction. The reaction is only significantly positive, however, in the case of central state-owned companies (as opposed to those owned by local or provincial governments). The multivariate results indicate that insider ownership influences stock market reaction to a bond issue, while management characteristics have no discernable impact.
    Keywords: China, Emerging Markets, Corporate Bonds, Event Study.
    JEL: G14 P34
    Date: 2016
  3. By: Ying Zhang (Harvard Business School); André van Stel (Trinity Business School, Trinity College Dublin, Ireland)
    Abstract: One of the most important transitions of China from a centrally planned economy to a market-based economy was the emergence of entrepreneurship in two different forms of private enterprise, viz. getihu and siyingqiye. Using a unique database for 31 Chinese regions over the period 1997-2009, we investigate the economic antecedents of regional rates of getihu and siyingqiye, and find that the antecedents of these rates are substantially different. We also investigate the mutual interactions between getihu and siyingqiye at the regional level. Our analysis suggests that both types of entrepreneurship play important but distinct roles in stimulating China's economic development.
    Date: 2016–02
  4. By: Ulas Emiroglu (TEKPOL, Science and Technology Policy Studies, Middle East Technical University)
    Abstract: Neoliberal catch-up policies are definitely useless to create suitable environment for latecomers in order to close the gap with forerunners. This paper investigates an alternative policy to the neoliberal development policies in the scope of the high-technology industrial catch-up of the latecomers with guidance of the state and the state-led development policies. By this approach, the state’s active and interventionist role is suggested in all phases of the catch-up. It is a triple system of state, foreign investment, and national industry-capital, and this system has a dynamic and interactive relation with each other. Telecom equipment industry of China is chosen as a case study for this research. The suggested model is managed by the state and “transfer of modern technologies via JVs between MNCs and national companies”, “funding of industrial activities by state-owned banks and markets” and “re-organizing or creating competitive SOEs (State-owned enterprises) in these industries” are the major characteristics of the model. This system is named in this paper as “generative state” in which the state creates and sets up all related institutions and processes which are necessary to development and catch-up in a continuous manner. On the contrary to “passive and regulative role of state” in neoliberal policy suggestions, state actively manages all these phases with state-owned instruments. General finding of the study is noteworthy, China succeeded significant catch-up in a high tech industry- telecom equipment industry in 21st century with state-led policies of “state capitalism”.
    Keywords: State-led, catch-up, China, telecom, telecom equipment
    Date: 2015–12
  5. By: Slawa Rokicki; Katherine Donato
    Abstract: In 2003, the Chinese government established the New Cooperative Medical Scheme (NCMS) with the goal of improving health for the country’s 800 million mostly uninsured rural residents. Using new data on objective health measures, we analyzed the program’s effectiveness in improving health for enrollees. Using longitudinal data from the China Health and Nutritional Survey from 2000 to 2009 (12 080 observations across four waves), we analyzed the impact of the NCMS on objective measures of health such as blood pressure, HbA1c, and cholesterol, as well as use of preventive care. In order to overcome inherent selection bias where less healthy people are more likely to enroll in the voluntary health insurance scheme, we used intent-to-treat and instrumental variable analysis strategies, and offered evidence that these approaches can mitigate this bias. For every additional year of NCMS coverage, the probability of seeking preventive health care increased by 0.6 percentage points (95% CI 0.1-1.0). However, we did not find evidence that the NCMS resulted in consistent improvements in objective measures of health. Sub-group analysis suggested that lower-income communities benefited more from the program, implying that the program may have resulted in some lessening of the wealth-based disparity in health. The NCMS does not appear to significantly improve objective measures of health. This is consistent with evaluations of health insurance programs in other countries, but in contrast to some previously reported improvements in self-reported health resulting from the NCMS.
    Keywords: China, Health insurance, Biomarkers, Objective health
    JEL: I13 I15
    Date: 2016–02
  6. By: Irina Andrievskaya (National Research University Higher School); Maria Semenova (National Research University Higher School)
    Abstract: There are many studies revealing factors which influence the demand for financial services. However genetic features, determining the individual’s overall postnatal behaviour, have not been studied within this context. This paper extends the previous literature by studying to what extent individual biological endowment, proxied by prenatal testosterone (PT) (measured by the 2D:4D ratio), can determine personal demand for bank services and insurance. We use data from the Russian Longitudinal Monitoring Survey of 2011–2012. Our findings confirm the existence of the link between inherent biological variation and financial inclusion: PT affects the use of bank cards, intention to take out a loan, having a bank deposit and the consumption of insurance products
    Keywords: prenatal testosterone, 2D:4D ratio, financial inclusion, household, RLMS, Russia
    JEL: D14 D81 G21 G22 O16 P34
    Date: 2016
  7. By: Svetlana Biryukova (National Research University Higher School of Economics); Oxana Sinyavskaya (National Research University Higher School of Economics); Irina Nurimanova (National Research University Higher School of Economics)
    Abstract: From 2007 to 2014 total fertility rate in Russia increased from 1.42 to 1.75. To what extent this growth is related to a package of family policy measures introduced in 2007? Although the maternity (family) capital program is the most well-known innovation of the 2007 reform, we argue that the new rules of monthly childcare allowance assignment is its another major component. Since all measures were introduced simultaneously, it is only possible to estimate their cumulative effect on subsequent fertility behavior. Using panel Russian Generations and Gender Survey data collected in 2004, 2007 and 2011, this study assesses how family policy changes introduced in 2007 were related to the fertility behavior in Russia in recent years. We find a statistically significant increase in the chances of having second and subsequent births in September 2007 to Summer 2011 in comparison with the period of Summer 2004 to September 2007. We interpret that as a cumulative effect of the 2007 policy changes. We acknowledge that the observed effects might be related only to the calendar shifts in fertility behavior and further data and studies are needed to make any conclusions about completed fertility of the cohorts affected by 2007 family policy measures.
    Keywords: Family Policy, Pro-Natalist Policy, Russian Maternity Capital Program, Fertility, Births, Generations and Gender Survey, Russia
    JEL: J13
    Date: 2016
  8. By: Igor Gurkov (National Research University Higher School of Economics)
    Abstract: What role can collective action by foreign investors play in an environment characterized by incomplete institutions? We study this question by looking on foreign business associations in the Russian Federation. By interviewing 17 foreign business associations and conducting an online survey of their member firms, we find that business associations play an important welfare-enhancing role in providing a series of support and informational services. However, they do not play a significant role in lobbying the collective interests of their member firms, especially in the current political context in Russia where since the start of the Ukraine crisis the business community seems to have suffered a general loss of influence on political decision making
    Keywords: multinational corporations, Russia, subsidiary mandate, foreign direct investments
    JEL: F21 F23 D24
    Date: 2016
  9. By: Laixun Zhao (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: We model the Chinese Hukou (household registration) system, from the Mao era when it was strictly enforced to the early reform era (Deng Xiaoping era) when peasants were allowed to migrate to cities for work only. We document some stylized characteristics of Hukou control, and based on which build a rigorous model of the dual labor market generated by it. The model can explain the fact that rural migrant workers not only made important contributions to China's export boom, but also reversed the Chinese trade pattern—from exporting primary products to manufactured goods, because they are the labor force in "the manufacturing center of the world". Reform recovers some of the deadweight losses from Mao's strict Hukou control, but the gains from reform are unevenly distributed. We also apply the model to examine various policies and some ongoing reforms such as Special Economic Zones, export-tax refund, urbanization, one-child policy, etc.
    Keywords: Chinese institutions, Discrimination, Hukou, Rural-Urban migration, Earnings inequality, Trade policy, Special economic zones, Urbanization
    JEL: F1 J4 P2 P3
    Date: 2016–02
  10. By: Otrachshenko, Vladimir; Popova, Olga; Tavares, José
    Abstract: We analyze individual levels of life satisfaction in Slovakia, after that country adopted the Euro, following a spirited debate. We gauge the psychological cost of transition to the new currency by comparing individual life satisfaction, not only before and after Euro introduction, but by comparison with individuals with similar characteristics in the neighboring Czech Republic, which did not adopt the Euro. Both countries were economically and politically integrated for decades, and share similar macroeconomic indicators just before the currency change in Slovakia. We find evidence of substantial psychological costs of currency transition, which are especially important for the old, the unemployed, those with low education and in households with children. We believe these results suggest the importance of information and enlightened debate before a sweeping change in economic context such as the adoption of a new currency.
    Keywords: currency transition; Czech Republic; euro; Slovakia; subjective well-being
    JEL: E52 F55 I31
    Date: 2016–01
  11. By: Alina Beattrice Vladu (Babes-Bolyai University Cluj-Napoca, Faculty of Economics and Business Administration)
    Abstract: This paper assessed the knowledge structures underlying accounting representations, rarely investigated in accounting by examining the perceptions of master and last year accounting students from an ex-communist country relative to the ethics of short-term earnings management. In this respect a survey was conducted during one month period in one of the largest public universities in Romania. The results document a differentiate acceptance of the types of earnings management (e.g. accrual-based versus real earnings management). Overall Romanian students seems to accept as less ethical the accrual-based earnings management and to have a high moral development and understanding of the consequences of such manipulative practices. Limits of the paper are presented and also the scope for future research
    Keywords: ethical judgments, accrual based earnings management, real earnings management, ethical factors
    JEL: M40 M41
    Date: 2015–12
  12. By: Sergei P. Kazakov (National Research University Higher School of Economics)
    Abstract: Purpose – This paper examines the influence of Market Orientation on business performance in the local service industry in Russia. Design/methodology/approach – The MKTOR and MARKOR models of Market Orientation were studied and evaluated. This led to the elaboration and proposal of a localized Market Orientation model which counts the peculiarities of doing business and the market in an emerging market. Such a model then provided the basis for a set of hypotheses tested by a field study of 133 organizations operating in the service industry. The impact of Market Orientation on business performance then was examined. Findings – The results demonstrate that Market Orientation produces a positive effect on performance. Practical implications – Companies may benefit by implementing Market Orientation. In the service industry, inter-functional coordination between different departments, competitive service product offers and a customer centred philosophy are the most crucial Market Orientation components. Others should not be overlooked as they also commonly provide a substantial basis for improved business performance. Being applied systematically, the Market Orientation paradigm may produce a positive effect on the business and its competitive position in the marketplace. Originality/value – This paper follows a stream of publications dedicated to the Market Orientation paradigm. Even with the number of publications on Market Orientation there is a lack of studies on its application to different markets, countries and industries. This paper contributes to the small number of publications dedicated to Market Orientation in one of the most multifaceted emerging markets, Russia. It is also the first that studies Market Orientation applied solely to service industry organizations in Russia
    Keywords: Market Orientation, Performance management, Service industry, Emerging markets
    JEL: Z
    Date: 2016
  13. By: Delia-Elena Diaconaşu (Alexandru Ioan Cuza” University of Iasi, Iasi, Romania,)
    Abstract: The recent collapse of international capital markets, after a period of accelerated development, led inevitably to refresh interests on the subject emerging market volatility. In this regard, the purpose of this study is to analyse the impact of macroeconomic factors on the evolution of volatility of one emerging stock market from Central and Eastern Europe in the period January 2010 - November 2013. Using ARCH family models and a set of variables: the volume of trading BET, the interest rate on short-term exchange rates EUR/ROL and USD/EUR and the American stock index S&P500, we tested the impact of the determinants of national versus international on the variation of an index from Emerging Europe after the crisis.
    Date: 2015–12
  14. By: Gordey Yastrebov (National Research University Higher School of Economics)
    Abstract: The aim of this paper is to bridge the gaps in existing accounts of the evolution of intergenerational social mobility in Soviet and post-Soviet Russia. The study makes a potentially valuable contribution to the literature by extending the spectrum of institutional and historical contexts, in which (in)equality of opportunity has been considered so far, and a chance to re-examine existing evidence by using alternative datasets and a slightly different methodology. Following the conventions in the social mobility literature in this study I approach social destinations and social origins in terms of educational and occupational attainments of children and their parents respectively. For empirical part I utilize data from four representative cross-national surveys conducted in Russia in 1994, 2002, 2006 and 2013. To study historical change in the patterns of social mobility I identify four cohorts whose educational and occupational careers unfolded during four different historical periods (two for the Soviet and two for the post-Soviet period). Being informed by several earlier studies on post-socialist countries including earlier research on Russia, I anticipated (1) a trend towards lesser (rather than greater) openness in the late years of the Soviet era, (2) a temporary discontinuity of mobility patterns during the turbulent 1990s and (3) the ‘tightening up’ of social mobility regime in the more stable years of Russia’s post-Soviet history. If any such trend existed, my findings would rather suggest that it was directed towards decreasing intergenerational transmission of educational advantage in the post-Soviet era, rather than the other way around. Also, surprisingly and quite contrary to earlier findings and theoretical considerations, the changes in the pattern of occupational mobility remained surprisingly invariant to the changes in historical and institutional context. The paper concludes with highlighting some of the remaining puzzles and possible directions for future research.
    Keywords: social mobility, social inequality, social reproduction, social transformations, Russian society, Soviet society, post-Soviet society
    JEL: Z13 J62 I24
    Date: 2016
  15. By: Chen, Kaiji (Emory University); Ren, Jue (Emory University); Zha, Tao (Federal Reserve Bank of Atlanta)
    Abstract: We argue that China's rising shadow banking was inextricably linked to potential balance-sheet risks in the banking system. We substantiate this argument with three didactic findings: (1) commercial banks in general were prone to engage in channeling risky entrusted loans; (2) shadow banking through entrusted lending masked small banks' exposure to balance-sheet risks; and (3) two well-intended regulations and institutional asymmetry between large and small banks combined to give small banks an incentive to exploit regulatory arbitrage by bringing off-balance-sheet risks into the balance sheet. We reveal these findings by constructing a comprehensive transaction-based loan dataset, providing robust empirical evidence, and developing a theoretical framework to explain the linkages between monetary policy, shadow banking, and traditional banking (the banking system) in China.
    Keywords: Regulatory arbitrage; asset pricing; institutional asymmetry; entrusted loans; risk taking; shadow loans; bank loans; nonloan investment; nonbank trustees; small banks; large banks; balance sheet; optimal decisions
    JEL: E02 E5 G11 G12 G28
    Date: 2016–01–01
  16. By: Marius-Cristian Pana (Bucharest University of Economic Studies,)
    Abstract: The institutional economics perspective is less present in the field of minimum wage law’s implications, despite the fact that labor market is one of the most regulated markets in every economy. At its beginnings, the minimum wage legislation has been subject of intense controversies between the institutionalist and neoclassical economists, but the mainstream point of view has gained ground. Still, in the last decade the institutional economics perspective has made some progress in this area, its contributions being limited to justifying the necessity of the minimum wage legislation based on some arguments borrowed from the old institutionalists, especially from John Commons. This paper is focused on the minimum wage law’s implications on the business environment in Romania. The institutional hypothesis that guides the entire reasoning in this paper is: any entrepreneurial endeavor means, basically, that the entrepreneurs act in an existing institutional frame. The formal regulations, such as minimum wage legislation, affect entrepreneurial behavior by creating and altering transaction costs. The aim of this paper is to offer an explanation to the evasive entrepreneurship in Romania using the concept of transaction costs related to the institutional rigidities created by the minimum wage legislation.
    Keywords: minimum wage law, transaction costs, institutional economics, evasive entrepreneurship
    JEL: B25 J58 L26
    Date: 2015–12
  17. By: Davide Dragone; Nicolas Ziebarth
    Abstract: Non-separable intertemporal preferences and novelty consumption can explain the persistent correlation between economic development and obesity. Employing the German reunification as a fast motion natural experiment of economic development, we study how the sudden availability of novel food products impacts individual consumption patterns and body weight. Immediately after the reunification, East Germans consumed more novel western food and gained more weight than West Germans. The subsequent long-run persistence in food consumption and body weight among Eastern Germans cannot be explained by taste for variety; it provides evidence for habit formation in intertemporal consumption preferences.
    Keywords: economic development, food consumption, German reunification, habit formation, learning, novel goods, obesity
    JEL: D11 D12 D92 E21 I12 I15 L66 O10 O33 Q18 R22
    Date: 2016–01
  18. By: Țâmpu Diana Larisa (postdoc researcher, The Romanian Academy)
    Abstract: This paper examines the impact that the crises that began in 2007 have on Romania economy taking into consideration the scenarios of E3MG model. What it will be figured here is a series of carefully defined scenarios, simulating aspects of behavioral changes within the banking sector and in the wider global economy. The conclusion will try to explain the mechanism by which the crisis has infested the economy specifying the moment when the current policy was effective or not. The last part of the paper highlights the effects that the monetary policy measures have on Romania case, following the ‘seven-point plan' of Barker. The results show that there are ways to stimulate the economy and increase employment, transforming the financial crisis into an opportunity for a new green deal.
    Keywords: E3MG model; economic crises, scenario, monetary policy, government policy
    Date: 2015–12
  19. By: Cristina Jude (Centre de recherche de la Banque de France - Banque de France, LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The aim of this paper is to empirically test the hypothesis of FDI led capital accumulation in Central and Eastern European countries. More precisely, we investigate the relationship between FDI and local investment, using a sample of 10 CEEC over the period 1990-2010. We find FDI to crowd out domestic investment, while the effect decreases with time. Our results also indicate that greenfield FDI may develop long run complementarities with domestic investment, while mergers and acquisitions do not prove any significant effect on domestic investment. Finally, financial development seems to foster a certain crowding-in effect in the case of mergers&acquisitions.
    Keywords: investment, FDI, crowding-out, economic transition, financial development
    Date: 2015
  20. By: de Mello,Luiz; Schotte,Simone Raphaela; Tiongson,Erwin H. R.; Winkler,Hernan Jorge
    Abstract: This paper looks at how individual preferences for the allocation of government spending change along the life cycle. Using the Life in Transition Survey II for 34 countries in Europe and Central Asia, the study finds that older individuals are less likely to support a rise in government outlays on education and more likely to support increases in spending on pensions. These results are very similar across countries, and they do not change when using alternative model specifications, estimation methods, and data sources. Using repeated cross-sections, the analysis controls for cohort effects and confirms the main results. The findings are consistent with a body of literature arguing that conflict across generations over the allocation of public expenditures may intensify in ageing economies.
    Keywords: Debt Markets,Youth and Government,Health Monitoring&Evaluation,Scientific Research&Science Parks,Population Policies
    Date: 2016–02–02
  21. By: Andrea Szalavetz (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: This paper investigates multinational corporations’ (MNCs’) organisational responses to the global financial crisis and the impact of value chain reorganisation on their Hungarian subsidiaries. We find that the global crisis has reinforced and intensified ongoing organisational reconfiguration trends and argue that crisis-prompted responses need to be separated from fundamental organisational transformation catalysed by the crisis. Strategic organisational realignment programmes have been driven by long-standing technological and market trends rather than by transient developments. Drawing on interview findings carried out at MNCs’ manufacturing subsidiaries in Hungary, we show that MNCs’ global reorganisation brought upgrading opportunities for local subsidiaries. Altogether, the surveyed Hungarian subsidiaries have benefitted from their owners’ cost-cutting and restructuring actions: they were on the receiving end, as production activities were relocated to Hungary. Moreover, the necessity of task integration and of co-location-driven synergy effects have intensified subsidiaries’ ongoing functional upgrading processes.
    Keywords: crisis adaptation; organisational realignment, upgrading, manufacturing subsidiaries, Hungary
    JEL: D23 F23 L22 F44
    Date: 2016–01
  22. By: Jesus Crespo Cuaresma (Department of Economics, Vienna University of Economics and Business); Stephan Klasen (University of Göttingen); Konstantin M. Wacker (University of Mainz)
    Abstract: Martin Ravallion ("Why Don't We See Poverty Convergence?" American Economic Review, 102(1): 504-23; 2012) presents evidence against the existence of convergence in global poverty rates despite convergence in household mean income levels and the close linkage between income growth and poverty reduction. We show that this finding is driven by a specification that demands more than simple convergence in poverty headcount rates and assumes a growth elasticity of poverty reduction, which is well-known to accelerate with low initial poverty levels. If we motivate the poverty convergence equation using an arguably superior growth semi-elasticity of poverty reduction, we find highly significant and robust evidence of convergence in absolute poverty headcount ratios and poverty gaps. Relatedly, we show that the results in Ravallion (2012) are driven by the special income growth and poverty dynamics in Central and Eastern European transition economies that started with low initial poverty rates and thus observed a high elasticity of poverty reduction. Once we control for their abnormal poverty dynamics, we again find robust evidence of global convergence in poverty, even in the original specification by Ravallion (2012).
    Keywords: poverty convergence, economic growth, poverty trap, transition economies
    JEL: I32 D31 P36
    Date: 2016–01

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