|
on Transition Economics |
| By: | Yi Huang (The Graduate Institute, Geneva); Marco Pagano (Università di Napoli Federico II, CSEF, EIEF, CEPR and ECGI); Ug Panizza (The Graduate Institute, Geneva); Tano Santos |
| Abstract: | In China, local public debt issuance between 2006 and 2013 crowded out investment by private manufacturing firms by tightening their funding constraints, while it did not affect state-owned and foreign firms. Using novel data for local public debt issuance, we establish this result in three ways. First, local public debt is inversely correlated with the city-level investment ratio of domestic private manufacturing firms. Instrumental variable regressions indicate that this link is causal. Second, local public debt has a larger negative effect on investment by private firms in industries more dependent on external funding. Finally, in cities with high government debt, firm-level investment is more sensitive to internal funding, also when this sensitivity is estimated jointly with the firm’s likelihood of being credit-constrained. Altogether, these results suggest that, by curtailing private investment, the massive public debt issuance associated with the post-2008 fiscal stimulus sapped long-term growth prospects in China. |
| Keywords: | Investment, Local public debt, Crowding out, Credit constraints, China |
| JEL: | E22 H63 H74 L60 O16 |
| Date: | 2016–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:450&r=tra |
| By: | Krzysztof Czerkas (CERFIN) |
| Abstract: | According to the Polish Banking Supervision (KNF) statistics , banking mortgage loans total 22.4% of the overall assets of the Polish banking credit portfolio as of January 2015 data. Around 15% of those loans might have Loan To Property Value proportion (LTV) exceeding 100%. Rapid growth of mortgage loans in Poland was the result of growth of foreign currency mortgage loans. That was the typical situation for Central and Eastern European Countries. In the Polish banking sector, collective provisions typical for retail segment including IBNR (Identified but nor Reported Loss Provisions) provision applied under current IAS 39 seems to be too low to cover credit risk. Assuming conservative credit risk parameters in determining collective provisions might affect adversely the financial situation of the Polish banks. The financial results of the Polish banks might go down considerably. In addition, borrowers having loans denominated in foreign currency have won certain legal cases in Europe and in Poland. Therefore, the presence of the foreign currency denominated mortgage loans (FCML) in the Polish banking sector represents an element of the systemic risk and has to be solved. Growth of FCML weakens the abilities of central banks to control over credit creation and to steer monetary policy. On the other hand, compulsory conversion of the mortgage loans hitherto denominated in foreign currency into mortgage loans in Polish zloty by special law, might create considerable losses in the Polish banking sector and reduction of Capital Adequacy Ratio of the Polish banks. Therefore, direct replication of the Hungarian style legal solution of the foreign currency banking (compulsory loan currency conversion into PLN) loans might create problems in the Polish banking sector. Moreover, potential state aid devoted to some borrowers in Poland that have saved significant amount of money having cheaper foreign currency mortgage loans is controversial from the social justice point of view. Law should not treat favourable one group of borrowers at the expense of the another one. Any legal solutions to sort out the problem of foreign currency loans have to take these facts into consideration. Given that background, the paper present several ways to resolve the problem of the foreign currency loans in the Polish banking sector. Complex solution how to tackle FCML problem in the Polish banking sector is needed. Any realistic solution is going to be is linked with extra provisioning after thorough investigation of real nature of FCML borrowers in Poland (households) and their financial standing. Polish Banking Supervision (KNF) should play a leading role in initiating such survey leading to more credible credit risk parameters in IAS 39. |
| Keywords: | financial stability, banking supervision, financial crisis, exchange rate risk |
| JEL: | G28 G01 F34 E44 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:ann:wpaper:8/2016&r=tra |
| By: | Fortier, George E. (Federal Reserve Bank of St. Louis); Wen, Yi (Federal Reserve Bank of St. Louis) |
| Abstract: | China is undergoing its long-awaited industrial revolution. There is no shortage of commentary and opinion on this dramatic period, but few have attempted to provide a coherent, in-depth, political economic framework that explains the fundamental mechanisms behind China’s rapid industrialization. This article reviews the New Stage Theory of economic development put forth by Wen (2016a). It illuminates the critical sequence of developmental stages since the reforms enacted by Deng Xiaoping in 1978: namely, small-scale commercialized agricultural production, proto-industrialization in the countryside, a formal industrial revolution based on mass production of labor-intensive light consumer goods, a sustainable “industrial trinity” boom in energy/motive power/infrastructure, and a second industrial revolution involving the mass production of heavy industrial goods. This developmental sequence follows essentially the same pattern as Great Britain’s Industrial Revolution, despite sharp differences in political and institutional conditions. One of the key conclusions exemplified by China’s economic rise is that the extent of industrialization is limited by the extent of the market. One of the key strategies behind the creation and nurturing of a continually growing market in China is based on this premise: The free market is a public good that is very costly for nations to create and support. Market creation requires a powerful “mercantilist” state and the correct sequence of developmental stages; China has been successfully accomplishing its industrialization through these stages, backed by measured, targeted reforms and direct participation from its central and local governments. |
| Keywords: | China; Income Traps; Institutions; Industrial Revolution; Economic Development; Industrial Policies; Washington Consensus; Shock Therapy; New Stage Theory |
| Date: | 2016–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2016-016&r=tra |
| By: | Watanabe, Mariko |
| Abstract: | This study tested whether contract farming or farmers professional cooperatives (FPCs) improved the social benefit of pork production and income of breeding farmers in China. The main concern of this study is whether institutional arrangement like contract farming or FPCs actually improved the welfare of farmers as expected. To answer this question accurately, we estimated the differentiated market demand of pork products in order to quantify the benefit by transaction types. Our study finds that contract farming or FPCs improved the benefits of pork products, but farmer's income remained lower than that of traditional transaction types. This finding is new in terms of quantifying distribution of the economic values among sales outlets, agro-firms and farmers. It is more reliable because it explicitly captures impacts from both demand side and supply side by structural estimation. In practice, we need to keep it mind the bargaining power of small farmers will not improve instantly even when the contract farming or FPCs are introduced. |
| Keywords: | Agricultural industries, Agriculture, Agricultural cooperative, Farmers, Food industry, Pork processing industry, Differentiated demand estimates, Value chain, Contract farming, Farmers professional cooperatives |
| JEL: | L22 O13 Q13 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper612&r=tra |
| By: | Li, Zhe; Massa, Massimo; Xu, Niahang; Zhang, Hong |
| Abstract: | We study whether culture plays an important role in affecting firm incentives when formal institutions fall short. We link earnings management to alcohol-related sin culture in China, and we find that firms in regions in which alcohol plays a more prominent role show more earnings management. Tests using the regional gender ratio and snow/temperature as instruments suggest a causal interpretation. Moreover, a high level of alcohol consumption in CEOs' home region significantly enhances earnings management, suggesting that corporate leaders can transmit and propagate sin culture in society. We also find that firms more exposed to alcohol rely more on local business partners for their operations. Furthermore, culture can generate a negative externality by further reducing the likelihood of fraud detection; however, significant improvements in formal institutions (e.g., the 2012 anticorruption regulation) can suppress this impact. Our results shed new light on the impact of culture on the real economy. |
| Keywords: | Alcohol; Culture; Earnings management; Geographic shocks |
| JEL: | G30 M14 P48 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11475&r=tra |
| By: | Bin Qiu; Kuntal K. Das (University of Canterbury); W. Robert Reed (University of Canterbury) |
| Abstract: | Previous studies investigating the effect of exchange rate changes on a country's exports have found little evidence that exchange rates matter. This “Exchange Rate Disconnect Puzzle†may stem from the fact that studies have mostly focused on aggregate data. We analyze the effect of real exchange rate fluctuations of the RMB by decomposing Chinese trade into its “extensive†and “intensive†margins using product-level data. Contrary to recent empirical evidence on the insignificant effects of exchange rate changes on trade, we estimate that real appreciation of the RMB has a significantly negative impact on Chinese exports. We also find that the major channel of effect is via the extensive margin. There is only weak evidence to indicate that imports are affected by exchange rates. With respect to exchange rate volatility, we generally find that it is negatively associated with exports, with no significant effect on imports. There appear to be major differences across China's major and non-major trading partners. Most of the exchange rate effects that we estimate are with China’s non-major trading partners. |
| Keywords: | Chinese Trade, Extensive Margin, Intensive Margin, Real Exchange Rate, Volatility |
| JEL: | F14 F31 |
| Date: | 2016–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:16/17&r=tra |
| By: | Ubarevičienė, Rūta (Lithuanian Social Research Centre); van Ham, Maarten (Delft University of Technology) |
| Abstract: | Since the 1990s, Lithuania lost almost a quarter of its population, and some regions within the country lost more than 50% of their residents. Such a sharp population decline poses major challenges to politicians, policy makers and planners. This study aims to get more insight into the recent processes of socio-spatial change and the role of selective migration in Lithuania. The main focus is on understanding who lives in those regions which are rapidly losing population, and who is most likely to leave these regions. This is one of the first studies to use individual level Lithuanian census data from 2001 and 2011. We found that low socio-economic status residents and older residents dominate the population of shrinking regions, and unsurprisingly we found that the most "successful" people are the most likely to leave such regions. This process of selective migration reinforces the negative downward spiral of declining regions. As a result, socio-spatial polarisation is growing within the country, where people with higher socio-economic status are increasingly overrepresented in the largest city-regions, while the elderly and residents with a lower socioeconomic status are overrepresented in declining rural regions. This paper provides empirical evidence of selective migration and increasing regional disparities in Lithuania. While the socio-spatial changes are obvious in Lithuania, there is no clear strategy on how to cope with extreme population decline and increasing regional inequalities within the country. |
| Keywords: | population decline, shrinking regions, internal migration, socio-spatial polarisation, Lithuania |
| JEL: | R23 O15 J11 P20 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10160&r=tra |
| By: | Marta Bisztray (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences) |
| Abstract: | In 1993 Audi opened a new plant in Hungary. This paper examines the long-term effects of this large foreign direct investment on local firms operating in supplier industries. I use firm-level panel data with long time series. Using the method of triple difference-in-differences I compare outcomes of firms in supplier and control industries, close and far from the Audi plant, before and after the entry. My main findings are: (1) after the Audi entry the average annual growth rate of local firms increased by 3 percentage points for sales and 2 percentage points for employment. The effect is visible only five years after the entry of Audi. I find no positive effect on productivity. (2) Firms with foreign owners account for all the positive effect on sales and employment, suggesting a foreign-to-foreign complementarity in investments. Firms with higher productivity gained more. Consequently, the low initial productivity of domestic firms may explain the lack of an effect in this group. (3) New entrants in the supplier industry locating close to Audi are larger and grow faster, suggesting that Audi also had an effect on the extensive margin. |
| Keywords: | foreign direct investment, vertical spillovers, agglomeration |
| JEL: | F23 R12 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1622&r=tra |
| By: | Polterovich, Victor |
| Abstract: | It is shown that the institutional trajectories of catching-up development in successful countries contained similar interim institutions; this similarity is explained by common technological, institutional and cultural constraints that should be taken into account and to overcome. Corporatism, indicative planning, the presence of the "main" development agencies with broad powers, maintaining an undervalued exchange rate - due to these and a number of other mechanisms, countries of economic miracle were able to initiate and maintain rapid growth, despite low level of human capital, underdevelopment of civic culture, and market failures. Institutes of catching-up development contributed to the formation of collaborative relationships between the government, business and society. They softened the existed constraints, and they itself were gradually modified to ensure the transition to modern democracy with effective market economy. The analysis allows to outline а plan of institutional reform , taking into account the institutional particularities of Russia. The principles of the administrative reform are considered. The problem of the formation of a hybrid national planning system is formulated, which includes indicative planning and program budgeting. To finance the planned projects, it is offered a mix of public-private partnership and project financing. It is proposed to use the Japanese experience of stimulating temporary association of companies for the development of modernization projects. The principles of reforming of the state property governance, as well as education and science sectors are discussed. |
| Keywords: | interim institution, social values, democratization, indicative planning, national innovation system, imitation, public-private ownership |
| JEL: | A13 B52 D02 L52 O21 O25 P11 P21 |
| Date: | 2016–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73447&r=tra |
| By: | Polterovich, Victor |
| Abstract: | It is proposed to distinguish between two types of collaboration: a positive (not directed against third parties) and a negative one. I consider the hypothesis that in the process of social development, transaction costs ratio of the three main types of coordination - competition, power, and collaboration - is changing in favor of the latter. The mechanisms responsible for the implementation of this tendency are studied, and an attempt to explain its nonmonotonicity is made. It is shown that the strengthening role of positive collaboration is largely explained by cultural changes: the increase of tolerance culture, the spread of cosmopolitanism and altruism, increasing planning horizon as well as trust radius. I demonstrate the importance of the institutions of positive collaboration in the process of catching-up development; it is shown that shock reforms could lead to the formation of negative collaboration mechanisms. For the further development of these ideas, a program of interdisciplinary researches is outlined. Рассматривается гипотеза о том, что в процессе общественного развития соотношение трансакционных издержек трех основных типов координации – конкуренции, власти и сотрудничества – меняется в пользу последнего. Исследуются механизмы, ответственные за реализацию этой тенденции. |
| Keywords: | coordination, positive and negative collaboration, Golden rule of morality, transaction costs, tolerance, cosmopolitanism, altruism, radius of trust, catching-up development |
| JEL: | B00 B4 B52 N00 P11 |
| Date: | 2016–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73448&r=tra |