nep-tra New Economics Papers
on Transition Economics
Issue of 2016‒10‒23
sixteen papers chosen by
J. David Brown
United States Census Bureau

  1. Urban-rural gap and poverty traps in China: A prefecture level analysis By Jian-Xin Wu; Ling-Yun He
  2. Statistical research of development of integration processes in Russian agriculture By Demichev, Vadim
  3. The financial systems in Russia and Turkey: recent developments and challenges By Simone Auer; Emidio Cocozza; Andrea COlabella
  4. Interdependencies between Leverage and Capital Ratios in the Central and Eastern European Banks By Janda, Karel; Kravtsov, Oleg
  5. Determinants of real convergence in Central and Eastern Europe By Petrevski, Goran; Gockov, Gjorgji; Makreshanska-Mladenovska, Suzana
  6. Convergence of bank competition in Central and Eastern European countries: Does ownership matter? By Ion Lapteacru
  7. Bank Risk in Central and Eastern European Countries: Does Ownership Matter? By Ion Lapteacru
  8. Causal Relationships between Economic Policy Uncertainty and Housing Market Returns in China and India: Evidence from Linear and Nonlinear Panel and Time Series Models By Sheung-Chi Chow; Juncal Cunado; Rangan Gupta; Wing-Keung Wong
  9. Structural Change and the Dynamics of China-US Real Exchange Rate By Xiaodong Zhu; Juanyi Xu; Yong Wang
  10. Economic Policy and Macroeconomic Developments in Hungary, 2010-2015 By Gábor Oblath
  11. The Impact of War on Happiness: the Case of Ukraine By Tom Coupé; Maksym Obrizan
  12. Income and funding structures, banking regulation and bank risk-taking: The role of ownership in Central and Eastern European banks By Ion Lapteacru
  13. Overview of Housing Policy Interventions in Poland By Daniela Glocker; Marissa Plouin
  14. Interdependencies between Leverage and Capital Ratios in the Banking Sector of the Czech Republic By Janda, Karel; Kravtsov, Oleg
  15. Developing or Under-developing? Implications of China’s ‘Going out’ for Late Development By Dic Lo
  16. Relationship Between Inflation and Economic Activity and Its Variation Over Time in Latvia By Andrejs Bessonovs; Olegs Tkacevs

  1. By: Jian-Xin Wu; Ling-Yun He
    Abstract: Urban-rural gap and regional inequality are long standing problems in China and result in considerable number of studies. This paper examines the dynamic behaviors of incomes for both urban and rural areas with a prefectural data set. The analysis is conducted by using a distribution dynamics approach, which have advantages in examination on persistence, polarization and convergence clubs. The results show that persistence and immobility are the dominant characteristics in the income distribution dynamics. The prefectural urban and rural areas converge into their own steady states differentiated in income levels. This pattern of urban-rural gap also exists in three regional groups, namely the eastern, central and western regions. Examination on the dynamics of the poorest areas shows that geographical poverty traps exist in both urban and rural prefectural areas. Our results indicate that more policy interventions are required to narrow down the urban-rural gap and to eliminate the poverty traps in China.
    Date: 2016–10
  2. By: Demichev, Vadim
    Abstract: The article is devoted to the main directions of improving the analysis of integration processes in Russian agriculture. By the integration processes, we mean the development of cooperation, agricultural holdings and agrarian clusters. The article describes the history of agricultural cooperation and the role of cooperatives in the development of integration processes. A key point is the study of integration from the perspective of agricultural holdings’ formation, as the largest vertically integrated structures specializing in the production and deep processing of agricultural raw materials and products. Based on analysis of materials published on the websites and information portals, investigated the activities of 82 existing Russian agricultural holdings. The geography of agricultural holdings, their structure and specialization, the amount of resources available to the agricultural holdings in their production activities was evaluated as a result of the study. Particular attention is given to the leaders of the production of basic agricultural products. The most complex integration system in Russian agriculture is an agrarian clusters based on such structures as cooperatives and agricultural holdings. The highlights five main approaches to the study of agricultural clusters, the main of which is the general improvement of the statistics of the agricultural sector, the development of the current statistical reporting and analysis, the improvement of sample survey of peasant farms’ and individual entrepreneurs’ activities, expanding the program All-Russian agricultural census and organization of sample surveys of agricultural holdings’ activity. To analyze the feasibility of agrarian clusters establishing, the program screening the prerequisites for the formation of clusters in the agricultural region is proposed. The implementation of the directions presented in this article, significantly enhance the objectivity of the analysis of integration processes in Russian agriculture.
    Keywords: Integration, cooperation, agricultural holdings, statistical research, agricultural census, scorecard, agricultural clusters, factor of attraction.
    JEL: Q13
    Date: 2016–10–17
  3. By: Simone Auer (Bank of Italy); Emidio Cocozza (Bank of Italy); Andrea COlabella (Bank of Italy)
    Abstract: Following the severe financial crises of the 1990s and early 2000s, substantial efforts have been undertaken in Russia and Turkey to diversify and deepen the financial systems. However, despite unquestionable improvements, financial deepening in Russia and Turkey has taken place at a slower pace than in other major emerging economies. Our paper highlights that this is in part a consequence of a highly volatile economic environment and deep-seated institutional and structural bottlenecks. Though authorities in both countries have committed to sounder economic policies and have implemented important structural reforms to improve the institutional environment and overcome structural weaknesses, over time reform fatigue has gradually taken hold. As a consequence significant gaps and weaknesses in the institutional and business environments still characterize, to a different degree, Russia and Turkey. These factors have not only slowed the development of the financial system as a whole, but have also contributed to the build-up of key vulnerabilities, which have come to the fore more recently in the context of a less supportive external environment.
    Keywords: exhaustible resources, financial deepening, institutional quality, international banking, international finance, Central and Eastern Europe, Russia, Turkey
    JEL: E65 G21 O43 O57 P17 P27 P34 P52 Q32
    Date: 2016–10
  4. By: Janda, Karel; Kravtsov, Oleg
    Abstract: In this paper we discuss the implications of the Basel III requirements on the leverage ratio for the banking sector in the Central and Eastern Europe (CEE) and particularly in the Czech Republic. In the empirical study, we applied a data sample of 198 major banks operating in seven countries across the CEE region over the period 2007-2014. The data of the Czech banking sector confirms stronger capital ratios and an overall solid leverage level with only few historical observations being lower than the regulatory guidelines. By analyzing the components of ratios, we conclude that the Czech banks during the last seven years are focusing more on the optimization of risk weighted assets and structuring portfolios with lower risks. We propose an empirical model that allows to test how the leverage ratios and its variables respond to the changes in the cycle. Our analysis across financial institutions in the CEE region shows that the leverage in normal times is strongly related to capital ratio. The statistic evidences on the risk profile and strategy as measured by risk proxy in the model are pointing out on incentives of the banks to manage actively their balance sheet and reduce the riskiness of their portfolios in adverse economic conditions.
    Keywords: Leverage ratio, capital ratio, Basel III, Czech Republic, CEE
    JEL: G21 G32
    Date: 2016–10–13
  5. By: Petrevski, Goran; Gockov, Gjorgji; Makreshanska-Mladenovska, Suzana
    Abstract: This paper deals with the process of convergence of the Central and Eastern European (CEE) countries towards the EU and attempts to identify the main driving factors behind this process. In these regards, we first provide an overview of the real convergence through an analysis of several economic variables – rate of approximation of real GDP per capita and price levels, trade integration, harmonization of the economic structure and achievements in the labor market. In addition, we offer a formal econometric evidence on the main determinants of the convergence process, based on a panel data for 10 CEE countries during 2000-2015 period, estimated with fixed effects. The results of our study imply that higher savings and investment ratio, higher labour productivity, more efficient labour markets (lower unemployment) and macroeconomic stability (lower inflation and lower budget deficits) are conducive to real convergence. However, quite surprisingly, we find that the close trade integration with the EU is associated with lower level of real convergence.
    Keywords: Real convergence, Central and Eastern Europe, European Union, Panel data models, Fixed-effects estimator.
    JEL: O11 O47
    Date: 2016–09–14
  6. By: Ion Lapteacru (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux 4)
    Abstract: Many reforms of banking market liberalization in CEE countries raised the question on the convergence of banks’ competitive behaviour, particularly because of the presence of foreign banks from same European regions. We find within-country convergence of three used bank competition measures, with higher convergence levels of market power and of competitive behaviour, and with faster convergence trend for foreign banks. Despite the efforts for banking market integration, there is no general movement toward across-countries convergence of competitive behaviour of CEE banks, neither for foreign nor for domestic institutions, higher dispersion of countries being however observed for the former.
    Keywords: Banking, competition, convergence, Central and Eastern European countries.
    Date: 2016
  7. By: Ion Lapteacru (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux 4)
    Abstract: Our main objectives are to estimate the risk of Central and Eastern European banks and determine its factors focussing on the role of ownership structures. We apply market-based risk measures and an improved Z-score and conclude that foreign and private banks are less risky than state-owned institutions. Moreover, a higher proportion of interbank deposits amplifies the risk of foreign banks and reduces that of public institutions. The effect of longterm funds is negative for state-owned banks with market-based measure, whereas it is positive with accounting-based measure. Another result is the negative impact of the concentration on interest-bearing activities on the risk of all banks regardless their ownership structure. Finally, the enforcement of the banking regulation reduces the risk of foreign banks and increases that of public institutions.
    Keywords: Bank risk, Distance to Default, Z-score, ownership structures, Central and Eastern European economies.
    Date: 2016
  8. By: Sheung-Chi Chow (Research Institute of Business, Hang Seng Management College); Juncal Cunado (Facultad de Ciencias Economicas y Empresariales, Universidad de Navarra); Rangan Gupta (Department of Economics, University of Pretoria); Wing-Keung Wong (Department of Finance, Asia University and Department of Economics, Lingnan University)
    Abstract: In this paper, we modify the multivariate nonlinear causality test to be panel nonlinear causality test and we recommend academics and practitioners to carry out cross linear and nonlinear causality tests in their study.Thereafter, we apply the tests we proposed and other existing related tests to examine the causal relationship between Economic Policy Uncertainty (EPU) and real housing returns in China and India using monthly data from January 1998 to December 2014. While both panellinear and nonlinear Granger causality tests suggest the existence of only linear and nonlinear unidirectional causality relationships from EPU shocks to real housing returns in both China and India, and bivariate linear Granger causality test suggest the existence of only linear unidirectional causality relationship from EPU shocks to real housing returns only in China, nonlinear bivariate Granger causality test conclude that the existence of nonlinear bidirectional causality relationships between EPU shocks and real housing returns in both China and India and cross bivariate linear and nonlinear Granger causality tests discover that there is only a linear causality relationship from Indian EPU shocks to Chinese housing returns. The results confirm the relevance of EPU data to better understand and predict the future behaviour of housing market returns in these countries.
    Keywords: Economic policy uncertainty; Housing market returns; Granger causality linear and nonlinear tests
    JEL: C32 G10 R30
    Date: 2016–10
  9. By: Xiaodong Zhu (University of Toronto); Juanyi Xu (Hong Kong Univ of Science and Technology); Yong Wang (Hong Kong University of Science and Tech)
    Abstract: We study the dynamics of the real exchange rate between China and the US since 1990. We first show that a standard Balassa-Samuelson model without structural change cannot account for the observed real exchange rate behaviour. We then extend the Balassa-Samuelson framework to a three-sector model with structural change and frictions in both capital and labour markets. We show that the model can quantitatively account for both the structural changes in the two countries and the behaviour of the real exchange rate between the two countries. Finally, we find that factor market frictions are crucial for understanding the structural changes and real exchange rate dynamics.
    Date: 2016
  10. By: Gábor Oblath
    Abstract: Following a prolonged period of economic decline and stagnation, Hungary’s GDP growth accelerated to 3.7% in 2014 and was close to 3% in 2015. The reasons for the country’s economic performance over the last six years are only partly related to the economic policies pursued since 2010. Deleveraging (the decrease in excessive debt, both at the macroeconomic and the microeconomic level) had a negative impact on Hungary’s growth performance between 2010 and 2013. However, the acceleration of growth observed in 2014 is also mainly due to “exogenous” factors, in particular exceptionally large transfers from EU funds, which have nothing to do with the government’s so-called “unorthodox” economic policy. The deteriorating institutional environment of the economy, in turn, is a direct consequence of this policy. Without fundamental improvements in the institutional environment and stability/predictability of economic policy, the country’s potential growth is expected to be rather low, implying a very slow convergence with the more affluent nations of the European Union and a divergence relative to the other central and eastern European member states of the EU.
    Keywords: Economic policy in Hungary, macroeconomic developments, international comparisons, EU transfers, institutional quality
    JEL: E65 E66
    Date: 2016–09
  11. By: Tom Coupé (University of Canterbury); Maksym Obrizan
    Abstract: In this paper, we study how war affects happiness using data from the on-going conflict in Ukraine. Using a difference-in-difference design, we find that the average level of happiness declined substantially in areas that experience war directly, with the drop in happiness being roughly comparable to the loss of happiness a relatively well-off person would experience if he/she were to become a poor person. At the same time, despite the fact that the war in the East dominates the local media in Ukraine, respondents in other regions of Ukraine are about as happy as they were before the war.
    Keywords: Happiness; War; Ukraine
    JEL: I3 N44
    Date: 2016–10–13
  12. By: Ion Lapteacru (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux 4)
    Abstract: This paper explores the effects of CEE banks’ balance sheet strategies and the impact of banking reforms on their risk-taking behaviour and assesses them with respect to banks’ ownership profile. With our asymmetric Z-score and Distance to Default, we find that state-owned banks are the riskiest and foreign banks the safest institutions. Moreover, the market perceives the former as being riskier regardless of their balance sheet policies. More interbank deposits and long-term funds increase the Z-scores of these banks to a larger extent, but more income diversification has the opposite effect. As for domestic private and foreign banks, these balance sheet policies do not affect the accounting-based risk measure of these institutions. Finally, in countries and periods with banking regulations that conform to the Basel requirements to a greater degree, foreign and private banks are less risky with respect to their Z-score and this effect is stronger for foreign institutions.
    Keywords: Foreigns Banks, Basel
    Date: 2016
  13. By: Daniela Glocker; Marissa Plouin
    Abstract: This paper assesses national public expenditure on housing in Poland, within the context of recent trends in the housing market. It focuses on direct expenditure on housing by the former Ministry of Infrastructure and Development, which until 2016 was the primary ministry charged with housing policy. While Poland has made considerable progress in reducing the housing deficit and improving housing quality, housing affordability and limited diversity of the housing stock remain important policy challenges. A comprehensive and conclusive evaluation of housing policy instruments in Poland is difficult, due to limited relevant data. As such, this paper outlines a series of key questions to guide policy makers in selecting housing policy instruments and in facilitating a more robust framework to measure the efficiency and effectiveness of housing policy
    Keywords: housing, indicators, housing prices, monitoring and evaluation, housing policies
    Date: 2016–10–20
  14. By: Janda, Karel; Kravtsov, Oleg
    Abstract: In this paper we discuss the implications of the Basel III requirements on the leverage ratio for the banking sector in the Czech Republic. We identify the potential binding constraints from regulatory limits and analyze the interactions among leverage and capital ratios over the country’s economic cycle (during the period 2007-2014). The historical data confirm stronger capital ratios of the banks and an overall solid leverage level with only 5% of the total historical observations being lower than the regulatory recommendations. By analyzing the components of ratios, we conclude that the banks are focusing more on the optimization of risk weighted assets. Strong co-movement patterns between leverage and assets point to the active management of leverage as a means of expanding and contracting the size of balance sheets and maximizing the utility of the capital. The analysis of correlation patterns among the variables indicates that the total assets (and exposure) in contrast to Tier 1 capital are the main contributors to the cyclical movements in the leverage. The leverage and the total assets also demonstrate a weak correlation with GDP, but a strong co-movement with loans to the private sector.
    Keywords: Leverage ratio, capital ratio, Basel III, Czech Republic
    JEL: G30
    Date: 2016–10–11
  15. By: Dic Lo (Department of Economics, SOAS, University of London, UK)
    Abstract: Since the turn of the century, China’s influence on world development has increased enormously. This paper seeks to analyse major attributes of the influence of China’s “going out†, centring on the argument that the influence has been in the main conducive to the rest of the developing world. Specifically, this paper offers a critique of relevant, popular theses such as “China’s neoliberalization crowds out world development†, “China under-cuts the conditions of the world’s working class†, and “China exhibits a tendency towards imperialism†, etc. It is argued that, in the context of a neoliberal world economy that is increasingly speculation-oriented, China’s production-oriented activities can be seen as an important countervailing force. Whether this China influence is to continue to be conducive to world development in the future, or to turn to become detrimental, depends critically on the broader political-economic context.
    Keywords: China, trade, investment, world development
    JEL: F54 F60 O14 O50
    Date: 2016–09
  16. By: Andrejs Bessonovs (Bank of Latvia); Olegs Tkacevs (Bank of Latvia)
    Abstract: This paper studies the relationship between inflation and economic slack in Latvia with a particular focus on its time variation. The results suggest that the Phillips curve for Latvia had been steepening before the crisis against the backdrop of rising inflation. In the more recent years, there has been tentative evidence of the Phillips curve flattening as Latvia's economy entered a period of very low inflation. If the current trend of an even weaker response of inflation to economic activity in Latvia persists and proves to be statistically significant, unconventional monetary policy instruments may be of limited effectiveness to control inflation in Latvia. This calls for structural reforms aimed at increasing competition and reducing price stickiness.
    Keywords: inflation, Phillips curve, business cycles, Bayesian estimation
    JEL: C32 C51 E31 E52
    Date: 2016–09–23

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