nep-tra New Economics Papers
on Transition Economics
Issue of 2016‒07‒30
eighteen papers chosen by
J. David Brown
United States Census Bureau

  1. Offshore RMB markets in Europe: prospects for greater financial integration between Europe and China By Daniela Marconi; Lorenzo Bencivelli; Anna Marra; Alessandro Schiavone; Raffaele Tartaglia-Polcini
  2. Export characteristics and output volatility: comparative firm-level evidence for CEE countries By Jaanika Meriküll; UrÅ¡ka ÄŒede; Bogdan Chiriacescu; Peter Harasztosi; Tibor Lalinsky
  3. Social networks and informal financial inclusion By Chai, Shijun; Chen, Yang; Huang, Bihong; Ye, Dezhu
  4. Firm Response to Competitive Shocks: Evidence from China’s Minimum Wage Policy By Harald Hau; Yi Huang; Gewei Wang
  5. Global Energy Trends and Their Implications for Russia: A Pathway to the New Energy Wave By Elena Kyzyngasheva; Liliana Proskuryakova
  6. Market Impacts of New Land Market Regulations in Eastern EU Member States By Pavel Ciaian; Dusan Drabik; Jan Falkowski; d'Artis Kancs
  7. The End of Cheap Labour: Are Foreign Investors Leaving China? By Julian Donaubauer; Christian Dreger
  8. Drivers of growth in Russia By Markus Brueckner; Birgit Hansl
  9. Spatial Development of the Largest Russian Cities During the Post-Soviet Period: Orienting Towards Transit or Maintaining Soviet Trends By Elena Koncheva; Nikolay Zalesskiy
  10. Spatial structure and economic network formation of manufacturing exports in Russia By Kuznetsova Maria
  11. Energy Saving Potential of Natural Ventilation in China: The Impact of Ambient Air Pollution By Chen, Yujiao; Malkawi, Ali; Liu, Zhu; Freeman, Richard Barry; Tong, Zheming
  12. Sources of Regional Inflation in Poland By Pawel Gajewski
  13. Income Inequality, Family Formation and Generational Mobility in Urban China By Gordon Anderson; Tongtong Hao; Maria Grazia Pittau
  14. Scaling New Heights: Achievements and Future Challenges for Productivity Convergence in Lithuania By Ben Westmore
  15. RIO Country Report 2015:Slovak Republic By Balaz Vladimir; Zifciakova Jana
  16. Revisiting the Invisible Hand Hypothesis: A Comparative Study between Bulgaria and Germany By Gesheva, Nadezhda; Vasilev, Aleksandar
  17. Minimum wages and the wage distribution in Estonia By Simona Ferraro; Jaanika Meriküll; Karsten Staehr
  18. Russian Economic Policy in 2015: Anti-Crisis Measures or Structural Reforms By Mau Vladimir

  1. By: Daniela Marconi (Bank of Italy); Lorenzo Bencivelli (Bank of Italy); Anna Marra (Bank of Italy); Alessandro Schiavone (Bank of Italy); Raffaele Tartaglia-Polcini (Bank of Italy)
    Abstract: China’s financial integration with the rest of the world lags far behind its trade integration, owing to long-standing capital controls and underdeveloped capital markets. Since 2009 Chinese policymakers have actively promoted the internationalization of the renminbi (RMB) and its use abroad, leading to gradual but greater capital account liberalization. This paper offers an overview of recent developments in the process of RMB internationalization. Offshore RMB markets are playing an important role in stimulating China’s financial integration and promoting the use of the RMB outside the country. In Europe, as elsewhere, offshore RMB centers are flourishing in response to increased demand for RMB-denominated financial services and strong political support from both sides. These developments have implications for currency trading, trade financing and banking activity in general, and strengthen the financial links between Europe and China. Capital account opening in China is expected to remain gradual. Recent episodes of instability on the Chinese financial and exchange rate markets have shown that the road to liberalization may be bumpy and international spillovers large.
    Keywords: Renminbi internationalization, renminbi offshore markets
    JEL: F3 G1
    Date: 2016–07
  2. By: Jaanika Meriküll; UrÅ¡ka ÄŒede; Bogdan Chiriacescu; Peter Harasztosi; Tibor Lalinsky
    Abstract: The literature shows that openness to trade improves longterm growth but also that it may increase exposure to high output volatility. In this vein, our paper investigates whether exporting and export diversification at the firm level have an effect on the output volatility of firms. We use large representative firm-level databases from Estonia, Hungary, Romania, Slovakia and Slovenia over the last boom-bust cycle in 2004–2012. The results confirm that exporting is related to higher volatility at the firm level. There is also evidence that this effect increased during the Great Recession due to the large negative shocks in export markets. In contrast to the literature and empirical findings for large or advanced countries we do not find a statistically significant and consistent mitigating effect from export diversification in the Central and Eastern European countries. In addition, exporting more products or serving more markets does not necessarily result in higher stability of firm sales.
    Keywords: export diversification, export share, volatility of sales, business cycle, Central and Eastern Europe, CEE
    JEL: F14 F43 O57
    Date: 2016–07–12
  3. By: Chai, Shijun (School of Economics, Xinyang Normal University); Chen, Yang (Division of Economics, Xi'an Jiaotong-Liverpool University); Huang, Bihong (Asian Development Bank Institute); Ye, Dezhu (School of Economics, Jinan University)
    Abstract: Using the 2011 China Household Finance Survey (CHFS) database, this article explores the heterogeneous impacts of social networks on informal financial inclusion for rural and urban households and identifies two mechanisms through which the informal institution changes households’ financial market decisions. The IV-Probit and IV-Tobit estimation results indicate that social networks significantly increase the probability of the household’s informal financial market participation, the size of informal lending and financing and the ratio of informal lending over the total household assets. By reducing risk aversion and the precautionary saving, we find social networks play a larger role in the urban area of China compared to the rural counterpart. And notably, the effects of informal institution, shaped by various cultural factors and kinships, remain strong and persistent even with formal institutions being firmly established.
    Keywords: Social Networks, Informal financial inclusion, Risk attitude, Precautionary saving, Formal institutions
    JEL: G21 O16 P34 Z13
    Date: 2016–07–08
  4. By: Harald Hau (University of Geneva, GSEM, Geneva Finance Research Institute); Yi Huang (Graduate Institute of International and Development Studies); Gewei Wang (Graduate Institute of International and Development Studies)
    Abstract: The large regional variation of minimum wage changes in 2002—08 implies that Chinese manufacturing firms experienced competitive shocks as a function of firm location and their low-wage employment share. We find that minimum wage hikes accelerate the input substitution from labor to capital in low-wage firms, reduce employment growth, but also accelerate total factor productivity growth–particularly among the less productive firms under private Chinese or foreign ownership, but not among state-owned enterprises. The heterogeneous firm response to labor cost shocks can be explained by differences in governance or management practice, but is difficult to reconcile with the idea that competitive pressure is a substitute for governance quality.
    Keywords: Firm productivity, capital investment, minimum wage policy
    JEL: D24 G31 J24 J31 O14
    Date: 2016–07
  5. By: Elena Kyzyngasheva (National Research University Higher School of Economics); Liliana Proskuryakova (National Research University Higher School of Economics)
    Abstract: Despite the success of many countries in increasing energy saving and energy efficiency, the global energy consumption is expected to continue its growth. The main reasons are economic development and population growth happening primarily in developing and emerging economies, especially in India and China. In such circumstances fossil fuels will remain the dominant energy source in the medium and even long run. The present research paper aims at analyzing the current global trends in the energy sector identified through literature review and expert tools, and their influence on Russia. Considering a broad range of factors, the paper determined the following main challenges for the Russian energy sector: tightening competition at international energy markets, the need for comprehensive modernization and stronger energy efficiency measures, the need for technological catch-up in a number of energy sector segments, the need to increase recovery factor at traditional oilfields, and the need to diversify energy mix by increasing the share of renewables. The paper also considers the main rationale for the last challenge that include strengthened security, reliability and sustainability of the Russian energy sector. Among the key preconditions for advancements in renewable energy are improvements in investment climate, modernisation of the central grid and changes in energy policy. The paper is based on the outcomes of the first stage of the Foresight project devoted to renewable energy technologies
    Keywords: energy trends, renewable energy, global energy sector, Russian energy sector.
    JEL: O13 P47 Q42 Q43 Q47
    Date: 2016
  6. By: Pavel Ciaian; Dusan Drabik; Jan Falkowski; d'Artis Kancs
    Abstract: The objective of this paper is to review new restrictions imposed on land sales in selected Eastern EU Member States and to investigate the potential impacts of these restrictions on land prices, transaction distortions, and access to land. The main common element of the new regulations across the four studied countries (Latvia, Poland, Romania, Slovakia) is the introduction of the pre-emption rights to selected groups of potential buyers which tend to favor domestic and local farmers relative to external competition. However, the coverage of pre-emption rights differs strongly across countries. The regulation adopted in Slovakia is the most restrictive, followed by Latvia and Poland; Romania has adopted the least restrictive measures. We expect market transactions as well as land prices to decline due to reduced competition, causing foregone income to non-farming landowners.
    Keywords: Land Market, SAPS, institutions, agricultural policy, CEE.
    JEL: F12 L11 Q11 Q12 P32
    Date: 2016–01–02
  7. By: Julian Donaubauer; Christian Dreger
    Abstract: China’s government is promoting the shift towards a consumption-based economy since a few years. The explicit goal to significantly raise the percentage of wages in the national household income is integral part of the 12th Five-Year Plan (2011-15). The changes in the economic strategy are likely to affect the attractiveness of the country to foreign investors. In this paper, we raise the hypothesis that soaring wages negatively affect FDI inflows to China and alter the distribution of FDI over Chinese provinces. In addition, low-wage countries in the geographical surrounding might benefit from the changed direction of FDI inflows. By performing panel models with spatial effects for both Chinese provinces and developing ASEAN countries, regional dependencies are explicitly addressed. We provide strong and robust evidence that the wage increases change the distribution of FDI within China. In addition, we show that the changes in China’s economic strategy improve the chances of its low-income neighbours to attract FDI.
    Keywords: Foreign direct investment, Chinese economic transformation, spatial correlation
    JEL: F15 F21 F63 E22
    Date: 2016
  8. By: Markus Brueckner; Birgit Hansl
    Abstract: Between the end of the 1990s and the first decade of the 2000s Russia experienced significant growth in GDP per capita that was driven by transitional convergence, structural reforms, and improvements in the terms of trade. Reforms to the structure of the economy boosted growth by over 2 percentage points per annum with improvements in telecommunication infrastructure, financial development, and a reduction in the GDP share of government consumption being the most important structural reforms. The paper discusses Russia’s growth performance relative to comparator countries: countries in the European and Central Asia regions, advanced natural resource exporting countries and the BRICS countries. Economic growth was significantly lifted in advanced natural resource exporting countries due to the international commodity price boom, for example, in Russia improvements in the terms of trade lifted growth by over 1 percentage point per annum. In the group of advanced natural resource exporting countries and BRICS countries, Russia is at the forefront in terms of growth benefits arising from structural reforms.
    Date: 2016–07
  9. By: Elena Koncheva (National Research University Higher School of Economics); Nikolay Zalesskiy (National Research University Higher School of Economics)
    Abstract: Russian cities are traditionally characterized by high levels of public transport ridership, compared to the Western cities. Moreover, the cities were intensively developing during the Soviet era when the private transport was literally absent. Thus, it can be assumed that the spatial structure of Russian cities (as well as the spatial structure of the majority of the former USSR cities) is a perfect illustration of the Transit Oriented Development (TOD). In this paper the spatial development patterns of 13 Russian cities are analyzed to assess the current situation and the prospects for transit oriented development in the Russian Federation. À brief history of urban spatial development during the Soviet period is provided. Fundamental differences between TOD and Soviet Style Development (SSD) are discussed, such as the absence of competition between the private and public transport and the absence of private ownership of land.
    Keywords: urban spatial development, urban land use, land use and transportation, Soviet Style Development, Transit Oriented Development
    JEL: R14 R41
    Date: 2016
  10. By: Kuznetsova Maria
    Abstract: We study the agglomeration effect of exporters on decision of a firm to start exporting and volumes of trade. The unique database of Russian exporters in manufacturing sector for the eight-years period was constructed. It enables us to examine the nature and channels of export spillovers along the product and destination dimensions. At first, we provide the analysis using the existing empirical strategies. Our findings support the previous results, that export spillovers are destination-specific and affect both margins of trade. On the top of that, the large data sample and the usage of multiple fixed effects, that absorb time-variant and time-invariant unobserved characteristics, allowed us to achieve better identification strategy of the export spillover effect. It acts through the narrow group of firms that export the same product to the same destination as exporters nearby. Moreover, we tend to follow network view of international trade (Rauch 1999). The export spillover effect is positive for differentiated goods and negative for homogeneous goods. The presence of other exporters nearby to contiguous or linked country affects positively decision of a firm to export the same product to the same country.
    JEL: F14 R12
    Date: 2016–07–04
  11. By: Chen, Yujiao; Malkawi, Ali; Liu, Zhu; Freeman, Richard Barry; Tong, Zheming
    Abstract: Natural ventilation (NV) is a key sustainable solution for reducing the energy use in buildings, improving thermal comfort, and maintaining a healthy indoor environment. However, the energy savings and environmental benefits are affected greatly by ambient air pollution in China. Here we estimate the NV potential of all major Chinese cities based on weather, ambient air quality, building configuration, and newly constructed square footage of office buildings in the year of 2015. In general, little NV potential is observed in northern China during the winter and southern China during the summer. Kunming located in the Southwest China is the most weather-favorable city for natural ventilation, and reveals almost zero loss due to air pollution. Building Energy Simulation (BES) is conducted to estimate the energy savings of natural ventilation in which ambient air pollution and total square footage must be taken into account. Beijing, the capital city, displays limited per-square-meter saving potential due to the unfavorable weather and air quality for natural ventilation, but its largest total square footage of office buildings makes it become the city with the greatest energy saving opportunity in China. Our analysis shows that the aggregated energy savings potential of office buildings at 35 major Chinese cities is 112 GWh in 2015, even after allowing for a 43 GWh loss due to China’s serious air pollution issue especially in North China. 8–78% of the cooling energy consumption can be potentially reduced by natural ventilation depending on local weather and air quality. The findings here provide guidelines for improving current energy and environmental policies in China, and a direction for reforming building codes.
    Date: 2016
  12. By: Pawel Gajewski (Department of Economics, Faculty of Economics and Sociology, University of Lodz, Lodz, Poland)
    Abstract: This paper aims at shedding some light on the sources of regional inflation in Poland. More specifically, it investigates the role of external, national and idiosyncratic shocks. In a two-step procedure, we estimate orthogonal components corresponding to each of these shocks, while performing variance decomposition to assess their relative importance in explaining inflation in individual regions. In the course of the paper we develop two ad hoc hypotheses. First, that regional inflation rates are largely driven by national shocks, while the impact of external shocks is smaller. Second, that shocks to inflation which are asymmetric between Poland and its external environment contribute to the cross-regional divergence of inflation rates in Poland. Empirical evidence supports both of these assertions. Indeed, we show that the importance of idiosyncratic shocks in the Polish regions is strikingly low. However, regional differences in inflation co-movements can be attributed to the diverse importance of global and national shocks. In auxiliary regressions we confirm that shocks which strongly and asymmetrically affect inflation in Poland and the EU, also contribute to crossregional inflation divergence in Poland. To the best of our knowledge this is the first attempt to investigate sources of regional inflation in a CEE country.
    Keywords: regional inflation, principal components, parallel analysis, regional economic dynamics
    JEL: E31 R11
    Date: 2016–06
  13. By: Gordon Anderson; Tongtong Hao; Maria Grazia Pittau
    Abstract: Income inequality has increased in most developed and developing economies in the world in the last 30 years and China is exemplary in this regard. Many analyses of its strident growth in income inequality have focused on the effects of policies relating to Urban-Rural and Inland-Coastal distinctions. Yet income inequality growth has prevailed on both sides of those respective divides as though there is something more fundamental underlying the phenomenon. Here, by showing how specific types of change in family formation and specific types of human capital transfer engender increases in inequality measures, growth in urban inequality is rationalized as a consequence of the changing nature of the family and the structure of the human capital augmentation process that has been a feature of the last 70 years in China. Influenced by such events as the Cultural Revolution, the One Child Policy and the Economic Reforms, people changed the way they chose a marriage partner, invested in children and passed on human capital endowments. Social class designations became less important and educational class designations became more important. Using a unique data set linking grandparents, parents and children, such changes can be observed empirically.
    Keywords: Inequality, Intergenerational Mobility, Education, Social Classs
    JEL: I30
    Date: 2016–07–22
  14. By: Ben Westmore
    Abstract: GDP per capita in Lithuania rose from one third to two thirds of the OECD average level between 1995 and 2014, despite internal and external crises. Productivity catch-up was critical to this process, although the level of labour productivity also remains around one-third below the OECD average. Further productivity gains will partly rely on improvements in resource allocation. In particular, the Lithuanian government should promote better governance of state-owned enterprises, more effective bankruptcy procedures and new forms of business financing. However, convergence will also require policy settings that encourage advances in within-firm productivity growth. Improvements to the quality of education at all levels and increasing the role of workplace training will be important. So too will be further measures that support the innovation capacity of the business sector, including innovation policies that promote the absorptive capacity of firms and do not favour incumbents at the expense of young businesses. This Working Paper relates to the 2016 OECD Economic Survey of Lithuania ( Atteindre des nouveaux sommets : réalisations et défis futurs pour une convergence de la productivité en Lituanie Le produit intérieur brut (PIB) par habitant s'est hissé d'un tiers à deux tiers de la moyenne de l'OCDE entre 1995 et 2014, malgré des crises internes et externes. Le rattrapage du retard qu'avait accumulé la Lituanie en termes de productivité a joué un rôle essentiel dans ce processus, même si le niveau de la productivité du travail demeure inférieur d'un tiers environ à la moyenne de l'OCDE. La poursuite de cette convergence dépendra en partie d'une amélioration de la répartition des ressources. Le gouvernement devrait notamment favoriser une amélioration de la gouvernance des entreprises publiques, la mise en place de procédures de faillite efficaces et l'émergence de nouvelles formes de financement des entreprises. Cette convergence passera aussi par des politiques publiques propices à l'amélioration de la croissance de la productivité au sein des entreprises. Il sera également important d'améliorer la qualité de l'enseignement à tous les niveaux et de renforcer le rôle de la formation en entreprise. Néanmoins, il conviendra aussi de prendre de nouvelles mesures pour renforcer la capacité d'innovation du secteur des entreprises, notamment en mettant en oeuvre des politiques d'innovation qui permettent d'améliorer encore la capacité d'absorption des entreprises et ne favorisent pas les acteurs en place au détriment des jeunes entreprises. Ce Document de travail se rapporte à l’Étude économique de l’OCDE 2016 de la Lituanie ( ique-lituanie.htm)
    Keywords: product market regulation, education, innovation, productivity convergence, resource allocation, knowledge transfer, transferts de connaissances, convergence de la productivité, allocation des ressources, innovation, éducation, réglementation des marchés de produits
    JEL: F43 O10 O24 O33 O38 O47 O52
    Date: 2016–07–26
  15. By: Balaz Vladimir (Slovak Academy of Sciences, (Bratislava, Slovak Republic)); Zifciakova Jana (European Commission - JRC)
    Abstract: The 2015 series of RIO Country Reports analyse and assess the policy and the national research and innovation system developments in relation to national policy priorities and the EU policy agenda with special focus on ERA and Innovation Union. The executive summaries of these reports put forward the main challenges of the research and innovation systems.
    Keywords: R&I system, R&I policy, ERA, innovation union, Semester analysis, Belgium
    JEL: I20 O30 Z18
    Date: 2016–07
  16. By: Gesheva, Nadezhda; Vasilev, Aleksandar
    Abstract: This paper examines Adam Smith’s concept of an Invisible Hand of the market in light of the underlying assumptions for the theory to hold. Furthermore, the study focuses on Total Factor Productivity as a measure of efficiency of resource allocation, employs growth accounting in Bulgaria relative to a frontier country (Germany), and tries to explain the Total Factor Productivity gap with the difference in the quality of institutions and economic freedom performance (where the latter is based on the Freedom Index Indicators). Satisfactory results have been obtained, favoring the hypothesis that freer markets perform better and a “catching up” effect of Bulgaria’s Total Factor Productivity levels towards those of Germany has been observed. Finally, the study provides policy recommendations facilitating the Invisible Hand Process in Bulgaria for a more rapid convergence towards Germany’s productivity levels.
    Keywords: Invisible Hand of the Market,Free Market Economy,Total Factor Productivity,Convergence
    JEL: C82 O11
    Date: 2016
  17. By: Simona Ferraro; Jaanika Meriküll; Karsten Staehr
    Abstract: The main scope of the paper is to evaluate the hypothesis that the monetary policy of the European Central Bank leads to convergence in bank-induced effects in inflation forecast uncertainty for euro area countries. Inflation forecast uncertainty is measured by the root mean squared pseudo ex-post errors of inflation forecasts net of the ARCH-GARCH effects. A bootstrap-type test is proposed for testing convergence of growth of the cross-country uncertainty ratio, understood as the fraction of the estimated policy effects in inflation uncertainty. Results obtained from monthly data for 16 countries for the period January 1991 to November 2014 and with forecast horizons from 1 to 18 months show strong evidence of such convergence among the euro area countries to a common level
    Keywords: inflation ex-post uncertainty, monetary policy, country effects, inflation forecasting
    JEL: F14 F43 O57
    Date: 2016–07–19
  18. By: Mau Vladimir (RANEPA)
    Abstract: Today, the world is looking for the new equilibrium that should occur after the global structural (systemic) crisis that began in 2008 and still more or less continues. We are witnessing the formation of a new macroeconomic (including the nature of monetary policy and economic growth potential) and institutional growth model, a change in the roles of certain economic sectors, the emergence of a new model for globalization and international trade, and a re-thinking of the role of inequality in the economic and social development of the leading states. The situation remains unstable, although the global crisis itself is nearing completion
    Keywords: Russian economy, anti-crisis economic policy, rent model
    JEL: P16 P26 P48
    Date: 2016

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