nep-tra New Economics Papers
on Transition Economics
Issue of 2016‒04‒30
fifteen papers chosen by
J. David Brown
United States Census Bureau

  1. Modeling Financial Market Volatility in Transition Markets: A Multivariate Case By Leoni Eleni Oikonomikou
  2. Crimea and Punishment: The Impact of Sanctions on Russian and European Economies By Konstantin A. Kholodilin; Aleksei Netsunajev
  3. Long Term Effects of Experience During Youth: Evidence From Consumptions in China By K. Sudhir; Ishani Tewari
  4. Going beyond the first child : analysis of Russian mothers'desired and actual fertility Patterns By Levin,Victoria; Besedina,Elena; Aritomi,Tami
  5. Life Expectancy and its Determinants in the Czech Republic By Vojtech Korbelius; Michal Paulus; Tomas Troch
  6. Global Financial Crisis, its impact on stock markets' linkages and portfolio diversification opportunities By Cristiana Tudor; Maria Tudor
  7. China’s Pursuit of Environmentally Sustainable Development: Harnessing the New Engine of Technological Innovation By Jin, Wei; Zhang, ZhongXiang
  8. Divergence in the Socioeconomic Development Paths of Hungary and Slovakia By Bartha, Zoltán; Tóthné Szita, Klára
  9. How to stabilize the currency exchange rate By BLINOV, Sergey
  10. The Economics of Healthy Ageing in China By Heshmati, Almas
  11. Regulation and Firm Value: Curious Case of Transparency and Disclosure Laws in Russia By Banerjee, Suman; Masulis, Ronald; Pal, Sarmistha
  12. When is there a Kuznets curve? By jovanovic, branimir
  13. What to Expect When China Liberalizes Its Capital Account By Mark Kruger; Gurnain Pasricha
  14. Calendar Anomalies in the Ukrainian Stock Market By Guglielmo Maria Caporale; Alex Plastun

  1. By: Leoni Eleni Oikonomikou (Georg-August University Göttingen)
    Abstract: This paper presents evidence of linkages across equity markets in the following transition economies: Russia, Ukraine, Poland and Czech Republic from beginning of January 2005 till the end of December 2014. We apply a multivariate asymmetric EGARCH model. Empirical results indicate significant return and volatility spillover effects during the full sample and the Russian Great Recession and Ukrainian crisis episodes. Over the full sample period, there is evidence of return co-movements, and strong volatility persistence. During the Russian Great Recession subsample, the ownreturn effects of the markets are stronger than the cross-market effects and their correlations have increased. Finally, the Ukrainian political crisis indicated no clear information producer, whereas, evidence of returns co-movement still exists. The markets in question are mainly partially integrated and the volatility transmission linkages across them are not that strong in crises periods, thus confirming previous literature on the particularities of emerging and frontier markets. According to the empirical finance literature, developed markets are interconnected. However, emerging markets are mainly affected by local shocks. The same applies to frontier markets. Based on the categorization of countries based on their financial market development: frontier markets are in embryonic stages of financial development (in this case, Ukraine), emerging markets are important financial markets, not fully modernized belonging to countries well developed to attract capital (in this case, Russia, Poland and Czech Republic), and developed markets.
    Keywords: Multivariate EGARCH models; spillover effects; transition markets; equity markets
    JEL: G01 G15
    Date: 2016–04–14
  2. By: Konstantin A. Kholodilin; Aleksei Netsunajev
    Abstract: The conflict between Russia and Ukraine that started in March 2014 resulted in bilateral economic sanctions imposed by Russia and Western countries, including the members of the euro area (EA). The paper investigates the impact of sanctions on the real side of the economy of Russia and the EA. Using an index that measures intensity of sanctions the effects of sanctions shocks are analyzed by the means of structural vector autoregression. The direct effect on GDP growth is documented for Russia but not for the EA. While, on average, 1.97% of the GDP quarter-on-quarter growth is estimated to be lost due to sanctions by Russia, the corresponding estimate for the aggregate EA is very small. On the contrary, the indirect effect through depreciation of the currency is shown to be more important for the EA.
    Keywords: Political conflict, sanctions, economic growth, Russia, euro area, structural vector autoregression
    JEL: C32 F51
    Date: 2016
  3. By: K. Sudhir (Cowles Foundation & School of Management, Yale University); Ishani Tewari (School of Management, Yale University)
    Abstract: We test for the long-term effects of experience during youth on consumption in nontraditional taste-forming categories. A unique dataset that tracks individuals over twenty years from 1992-2011, residing in nine Chinese provinces that vary widely in both income levels and rate of economic growth, helps us identify cohort and intra-cohort “prosperity-inyouth” (PIY) effects on consumption. We first demonstrate that non-traditional category consumption increases strongly among cohorts that entered adulthood during China’s boom years. We then show evidence of the intra-cohort PIY effect, controlling for individual level experience by leveraging the heterogeneity in the timing and rate of growth in prosperity across Chinese provinces. We find that the PIY effect has two dimensions– a direct effect of one’s own prosperity and an indirect effect of the prosperity of one’s province during youth. The indirect effects suggest that norms and aspirations created by the consumption of nontraditional categories by the surrounding rich during one’s youth have significant impact on long-term consumption—almost the same magnitude as the direct effect. We conduct a large number of robustness checks; in particular, we rule out potential supply side and attitude based explanations for the PIY effect. Our results imply that segmentation and consumption forecasts based on birth cohorts and experience of prosperity can be effective for taste forming non-traditional products in emerging markets.
    Keywords: Cohort effects, Lifecycle effects, Emerging markets, China, Prosperity in youth, Impressionable years hypothesis, Long-term effects
    JEL: M31 D12 F61
    Date: 2015–10
  4. By: Levin,Victoria; Besedina,Elena; Aritomi,Tami
    Abstract: The Russian Federation's population has been declining since 1992, but recently the decline appears to be over. Although fertility has risen since the 2007 introduction of the family policy package, which focused on stimulating second and higher-order births, total fertility rates still remain significantly below replacement rate. Unlike some Western European countries, low overall fertility in Russia can be explained predominantly by a high prevalence of one-child families, despite the two-child ideal family size reported by the majority of Russians. This paper examines the correlates of Russian first-time mothers'desire and decision to have a second child. Using the 2004?12 waves of the Russia Longitudinal Monitoring Survey, the study focuses on the motherhood-career trade-off as a potential obstacle to higher fertility in Russia. The preliminary results indicate that among Russian first-time mothers, being in stable employment is positively associated with the likelihood of having a second child. Moreover, the desire to have a second child is positively associated with the first child attending formal childcare, which suggests that the availability, affordability, and quality of such childcare can be important for promoting fertility. These results are broadly consistent with previous studies in other European countries that indicate that the ability of mothers to combine work and family has important implications for fertility, and that pro-natalist policies focusing on childcare accessibility can offer the greatest payoffs. In addition to these factors, better housing conditions, being married, having an older child, and having a first-born boy are also positively associated with having a second child.
    Keywords: Reproductive Health,Gender and Health,Population&Development,Gender and Law,Population Policies
    Date: 2016–04–18
  5. By: Vojtech Korbelius (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic); Michal Paulus (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic); Tomas Troch (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: We model the life expectancy function for the Czech Republic using three types of explanatory variables: socio-economic, healthcare and environmental pollution factors. The paper presents the first life expectancy model of the Czech Republic and contributes to the existing literature also by the analysis of district level data and inclusion of environmental pollution variables. We found two qualitatively different life expectancy functions where one is applicable for men at the age of 45 and 65 and women at the age of 45 and the other is suitable for women at the age of 65. Key findings can be summarized as follows: only one healthcare factor was significant in all models simultaneously and environmental pollution factors were revealed as significant and should be included in other models of life expectancy function.
    Date: 2016–03
  6. By: Cristiana Tudor (Bucharest University of Economics); Maria Tudor (Bucharest University of Economics)
    Abstract: This research investigates causal relationships and short-term interaction mechanisms among seven equity markets, including smaller post-communist Eastern-European countries and developed G7 markets, while paying special consideration to the effects of the 2007-2009 global financial crisis. The analysis period runs from 01/10/2004 to 01/02/2015, while the credit-crunch crisis sub-period is considered to have started on 09/08/2007 when BNP Paribas terminated withdrawals from three hedge funds citing "a complete evaporation of liquidity" and to have ended on 01/06/2009, according to the U.S. National Bureau of Economic Research. The study analyses whether the relationships among stock markets are time varying and whether the potential for diversifying risk by investing in different markets is limited/diminished during financial turmoil. Other points of interest consist in the leading role of the Russian market in the Eastern-European region before/during/after the crisis and in the impact of innovations from the US market in the Eastern-European area.
    Keywords: multivariate GARCH, financial crisis, stock markets
    JEL: B59
  7. By: Jin, Wei; Zhang, ZhongXiang
    Abstract: Whether China continues its business-as-usual investment-driven, environment-polluting growth pattern or adopts an investment and innovation-driven, environmentally sustainable development holds important implications for both national and global environmental governance. Building on a Ramsey-Cass-Koopmans growth model that features endogenous technological change induced by R&D and knowledge stock accumulation, this paper presents an exposition, both analytically and numerically, of the mechanism underlining China’s economic transition from an investment-driven, pollution-intensive to an investment and innovation-driven, environmentally sustainable growth path. We show that if R&D technological innovation is incorporated into China’s growth mechanism, then at some tipping point in time when marginal welfare gain of R&D for knowledge accumulation becomes equalized with that of investment for physical asset deployment, China’s economy will launch capital investment and R&D simultaneously and make a transition to a sustainable growth path along which consumption, capital investment, and R&D have a balanced share of 5: 4: 1, consumption, capital stock, and knowledge stock all grow at a rate of 4.9%, and environmental quality improves at a rate of 2.5%. In contrast, if R&D technological innovation is not harnessed as a new growth engine, then China’s economy will follow its business-as-usual investment-driven growth path along which standalone accumulation of dirty physical capital stock will lead to an more than 200-fold increase in environmental pollution.
    Keywords: Endogenous Technological Change, Sustainable Development, Economic Growth Model, China’s Economic Transition, Resource /Energy Economics and Policy, Q55, Q58, Q43, Q48, O13, O31, O33, O44, F18,
    Date: 2016–03–18
  8. By: Bartha, Zoltán; Tóthné Szita, Klára
    Abstract: This study aims to provide a comparative analysis of socioeconomic development in Slovakia and Hungary. For this purpose, we use the State of the Future Index (SOFI) to measure and forecast the socioeconomic well-being of both the countries from 1995 to 2015. The SOFI methodology has many characteristics that are in line with the 2009 Stiglitz-Sen-Fitoussi report. We find that during 1995–1999, Slovakia had a higher overall SOFI total, signifying a higher level of well-being; subsequently, however, Hungary pulled ahead between 1999 and 2005, after which Slovakia overtook Hungary yet again. Our predictions suggest that Slovakia will continue to pull ahead in the 2015–2025 period. The areas where Hungary has scope for considerable improvement are life expectancy, GDP per capita, renewable energy resources and CO2 emission and government debt. In some areas, both countries perform poorly: level of corruption and demographic trend. However, Hungary seems to have an advantage in R&D expenditure, unemployment level and voter turnout.
    Keywords: development path; Hungary; State of the Future Index; Slovakia
    JEL: E01 O11 O57
    Date: 2015–12–31
  9. By: BLINOV, Sergey
    Abstract: In 2015, many countries had to deal with the weakening of their currencies. Issues regarding exchange rate management by the Central Banks have again become the focal point of heated debate. For example, the Russian Ruble exchange rate has been fluctuating hugely. The problem now is not so much the Ruble's weakness as instability of its exchange rate, volatility. The management of the Central Bank claims that stabilization of the Ruble exchange rate is not possible though it is the responsibility of the Bank of Russia under the Constitution. As a matter of fact, any country's Central Bank has two methods of stabilizing the exchange rate available to it. Firstly, «adaptive» approach to stabilization may be adopted. In this case, the Central Bank, as it were, «adjusts itself» to the tendencies unfolding in the market, without being active in trying to influence them. Secondly, the Central Bank may use an «active» way of stabilizing the exchange rate. In such a case, it needs to influence the exchange rate without resorting to foreign exchange interventions. Both methods, the adaptive one and the active one, do not require gold or foreign exchange reserves to be spent. It is even the other way round, - the reserves become replenished, while economy gets an impetus for growth.
    Keywords: Monetary Policy, Central Banking, Business Cycles, International Finance, Foreign Exchange
    JEL: E30 E52 E58 E65 F30 F31
    Date: 2016–04–11
  10. By: Heshmati, Almas (Jönköping International Business School (JIBS), Centre of Excellence for Science and Innovation Studies (CESIS),& Department of Economics, Sogang University, Seoul, South Korea)
    Abstract: Healthy ageing is a challenge for many countries with significant shares of elderly people. Literature refers to China’s ageing population as a ticking time bomb which paradoxically is both a challenge and an opportunity for the country. Health is considered an important determinant of economic growth and competitiveness. The health of the elderly population determines its need for resources and care. Thus, investing in healthy ageing contributes to economic and social well-being. This study is a review of literature on the social and economic aspects of healthy ageing. It summarizes alternative approaches presented in literature to ease pressures of a rapidly growing ageing population. The main focus is on strategies for healthy ageing, policy practices and measures, organization, finances and manpower resources to promote healthy ageing in China. Up-to-date theories and methods applied to household surveys and population statistics are used to quantify the problem, resource requirements and estimating the social and economic benefits of having policies and measures for healthy ageing. Conclusions are drawn with respect to conditions of healthy ageing in China and about the state policy in this regard.
    Keywords: Healthy ageing; ageing in China; active ageing; challenges and opportunities; economics of healthy ageing
    JEL: H75 I15 I18 I38 P36
    Date: 2016–04–05
  11. By: Banerjee, Suman (University of Wyoming); Masulis, Ronald (University of New South Wales); Pal, Sarmistha (University of Surrey)
    Abstract: We provide novel evidence on the effectiveness of mandated changes in Russian transparency and disclosure (henceforth T&D) rules in boosting shareholder welfare. We focus on the staggered implementation of these T&D reforms initiated in 2002 and implemented during 2003-07. Using difference in difference method, we find that the reforms improved earnings quality, which on average reduced the operating performance (i.e., EBIT/Assets) of treated domestically-listed (relative to our control group of cross-listed) Russian firms, but had no significant impact on their market valuation. We argue that low tax alignment, where financial statements are not used for tax purposes, made it possible for managers of domestically-listed firms to inflate pre-reforms earnings, which became difficult post-reforms, leading to a drop in operating earnings. Yet, firm values, on average, remained unchanged because the drop in earnings was roughly offset by a decrease in the required market return due to more reliable accounting information post reform. Also, T&D reforms had negligible effects on cross-listed firms that act as our control group. Further, for domestically listed firms without a domestic controlling shareholder, post-reform reported earnings did not drop, while firm value increased significantly. For the domestically listed firms with a controlling shareholder, just the opposite occurred. Thus, a key finding of our study is that a strong governance structure is a prerequisite for significant gains in shareholder wealth following improved reliability of firm accounting information.
    Keywords: transparency and disclosure rules, quasi-experimental analysis, domestic vs. cross-listed firms, firm performance, Tobin's Q, EBIT-to-Asset ratio, difference-in-difference method, Russia
    JEL: G3 K2 P2
    Date: 2016–04
  12. By: jovanovic, branimir (University of Turin)
    Abstract: This paper investigates when is there a Kuznets curve, that is, under which conditions economic growth is associated with a decline in income inequality. The analysis is done on a sample of 26 ex-socialist countries from Eastern Europe, during the post-socialist years. These countries had very similar characteristics when socialism collapsed, but very di¤erent experiences with the transition afterwards, which makes them a suitable group for analysing the relationship between GDP and in- equality. We focus on four factors that may shape this relationship - labour market institutions, market power of companies, social bene?ts and taxes. Findings suggest that inequality (before government re- distribution) declines with economic growth when labour markets are more regulated, anti-monopoly policy is more exective and taxes are higher. Taxes seem to be the single most important factor.
    Date: 2015–12
  13. By: Mark Kruger; Gurnain Pasricha
    Abstract: When China joined the World Trade Organization in December 2001, it marked a watershed for the world economy. Ten years from now, the opening of China’s capital account and the financial integration that will unfold will be viewed as a milestone of similar importance. This paper discusses the benefits, to China and the rest of the world, of deepening China’s capital account liberalization. We assess China’s current level of de jure and de facto integration, in relation to other G20 economies. We update the Pasricha et al. (2015) data on capital control actions to 2015 for China, to assess China’s international financial integration. We also look at its relative international investment position to gauge its de facto integration. We then estimate the size and composition of capital flows likely to ensue assuming that China’s further capital account liberalization results in its gross international investment position converging to that of the G20 average. In addition, we discuss the risks involved with the further opening of China’s capital account and how they can best be managed. We also emphasize the potentially stabilizing effects of residents’ flows and the importance of liberalizing inflows and outflows in a balanced way and at the same time.
    Keywords: Balance of payments and components, Exchange rate regimes, International topics
    JEL: F31 F32 G18
    Date: 2016
  14. By: Guglielmo Maria Caporale; Alex Plastun
    Abstract: This paper is a comprehensive investigation of calendar anomalies in the Ukrainian stock market. It employs various statistical techniques (average analysis, Student's t-test, ANOVA, the Kruskal-Wallis test, and regression analysis with dummy variables) and a trading simulation approach to test for the presence of the following anomalies: Day of the Week Effect; Turn of the Month Effect; Turn of the Year Effect; Month of the Year Effect; January Effect; Holiday Effect; HalloweenEffect. The results suggest that in general calendar anomalies are not present in the Ukrainian stock market, but there are a few exceptions, i.e. the Turn of the Year and Halloween Effect for the PFTS index, and the Month of the Year Effect for UX futures. However, the trading simulation analysis shows that only trading strategies based on the Turn of the Year Effect for the PFTS index and the Month of the Year Effect for the UX futures can generate exploitable profit opportunities that can be interpreted as evidence against market efficiency.
    Keywords: Calendar anomalies, day of the week effect, turn of the month effect, month of the year effect, january effect, holiday effect, halloween effect
    JEL: G12 C63
    Date: 2016
  15. By: Péter Bauer (Magyar Nemzeti Bank (Central Bank of Hungary)); Marianna Endrész (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: The ultimate aim of this paper is to generate micro-level risk measures, which can provide a useful input for further research. To this end, this paper estimates bankruptcy probabilities for Hungarian firms using probit estimation. The estimated models show reasonable performance in distinguishing surviving and failing firms. We combine macro and micro information, as the addition of macro variables is needed to capture the aggregate dynamics and level of risk, especially during the crisis period. Controlling for the non-linear impact of firm characteristics and allowing heterogeneity by firm size improves the model’s performance significantly. The distributional characteristics of the micro-level risk indicators provide some interesting insights regarding the development of risk dispersion and the risktaking of the banking sector.
    Keywords: bankruptcy risk modelling, probit, micro data
    JEL: C23 G33
    Date: 2016

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