nep-tra New Economics Papers
on Transition Economics
Issue of 2016‒12‒04
23 papers chosen by
J. David Brown
United States Census Bureau

  1. China's mobility barriers and employment allocations By Ngai, Liwa Rachel; Pissarides, Christopher; Wang, Jin
  2. From “Made in China” to “Innovated in China”: Necessity, Prospect, and Challenges By Shang-Jin Wei; Zhuan Xie; Xiaobo Zhang
  3. Determinants of Employee Innovative Behavior: Do Foreign and Domestic Companies in Russia Differ? By A.S. Gogoleva; E.S. Balabanova; Azer G. Efendiev
  4. The Impact of Central Bank’S Verbal Interventions on Stock Exchange Indices in a Resource Based Economy: The Evidence from Russia By Olga S. Kuznetsova; Sofiya R. Ulyanova
  5. Have Chinese firms become smaller? If so, why?: By Yang, Qiming; Zhang, Xiaobo; Zhu, Wu
  6. Undermined climate policies : a study on the impact of regulatory and financial discrimination across heterogeneous firms in China By Tang, Weiqi; Meng, Bo; Wu, Libo; Liu, Yu
  7. Will China’s demographic transition exacerbate its income inequality? A CGE modeling with top-down microsimulation: By Wang, Xinxin; Chen, Kevin Z.; Robinson, Sherman; Huang, Zuhui
  8. China’s Belt and Road Initiative: Can Europe Expect Trade Gains? By Alicia Garcia-Herrero; Jianwei Xu
  9. Technology Choice for Reducing NOx Emissions: An Empirical Study of Chinese Power Plants By Teng Ma; Kenji Takeuchi
  10. Do College Graduates Serving as Village Officials Help Rural China? By Guojun He; Shaoda Wang
  11. Energy Efficiency in Transition Economies: A Stochastic Frontier Approach By Antonio Carvalho
  12. Trade Liberalization and the Great Labor Reallocation By Yuan Zi
  13. Grain Into Gold? The Impact of Agricultural Income Shocks on Rural Chinese Households By Jessica Leight
  14. Foreign Direct Investment and Sustainable Development. A Regional Approach for Romania By Mihaela Simionescu
  15. Forecasting Macedonian business cycle turning points using Qual VAR model By Magdalena Petrovska; Aneta Krstevska; Nikola Naumovski
  16. Ukraine; Ex Post Evaluation of Exceptional Access Under the 2014 Stand-By Arrangement By International Monetary Fund. Finance Dept.
  17. Ukraine; Second Review Under the Extended Fund Facility and Requests for Waivers of Non-Observance of Performance Criteria, Rephasing of Access and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Ukraine By International Monetary Fund. European Dept.
  18. RIO Country Report 2015: China By Can Huang; Xiao Jin; Lanhua Li
  20. Bulgaria; 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bulgaria By International Monetary Fund. European Dept.
  21. Delays in Connecting Firms to Electricity: What Matters? By Antonio Carvalho
  22. Microcredit in Viet Nam: Does it matter?: By Haughton, Jonathon; Khandker, Shahidur R.
  23. Republic of Moldova; Request for an Extended Arrangement Under the Extended Fund Facility and an Arrangement Under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova By International Monetary Fund. European Dept.

  1. By: Ngai, Liwa Rachel; Pissarides, Christopher; Wang, Jin
    Abstract: China's hukou system imposes two main barriers to population movements. Agricultural workers get land to cultivate but run the risk of losing it if they migrate. Social transfers (education, health, etc.) are conditional on holding a local hukou. We show that the land policy is a more important barrier on industrialization. This distortion can be corrected by giving property rights to farmers. Social transfers dampen mainly urbanization. We calculate that the two policies together lead to overemployment in agriculture of 6.7 points, underemployment in the urban sector of 6.3 points and have practically no impact on the rural non-agricultural sector.
    Keywords: China hukou; employment allocations; land policy; mobility barriers; social subsidies
    JEL: J61 O18 R23
    Date: 2016–11
  2. By: Shang-Jin Wei; Zhuan Xie; Xiaobo Zhang
    Abstract: After more than three decades of high growth that was based on an exploration of its low-wage advantage and a relatively favorable demographic pattern in combination with market-oriented reforms and openness to the world economy, China is at a crossroad with a much higher wage and a shrinking work force. Future growth by necessity would have to depend more on its ability to generate productivity increase, and domestic innovation will be an important part of it. In this paper, we assess the likelihood that China can make the necessary transition. Using data on expenditure on research and development, and patent applications, receipts, and citations, we show that the Chinese economy has become increasingly innovative. In terms of drivers of innovation growth, we find that embracing expanded market opportunities in the world economy and responding to rising labor costs are two leading contributing factors. On the other hand, we find evidence of resource misallocation in the innovation area: while state-owned firms receive more subsidies, private firms exhibit more innovation results. Innovation can presumably progress even faster if resource misallocation can be tackled.
    JEL: O1 O3 O4 O53
    Date: 2016–11
  3. By: A.S. Gogoleva (National Research University Higher School of Economics); E.S. Balabanova (National Research University Higher School of Economics); Azer G. Efendiev (National Research University Higher School of Economics)
    Abstract: This paper investigates employees’ individual innovative behavior. Three main stages of innovative process – new ideas generation, their promotion and implementation – are examined. 623 Russian employees of domestic and foreign companies operating in Russia were surveyed. The results show high significance of individual determinants (status and self-assessment of professional competence), favorable organizational environment (managerial incentives) and types of decision-making for all three stages of innovative process. The authors’ main proposition that foreign companies demonstrate higher level of individual innovative activity was not confirmed but qualitative distinctions at all three stages of innovative process were revealed.
    Keywords: innovative process, employee innovative behavior, innovative organizational environment.
    JEL: M12 O18 O32
    Date: 2016
  4. By: Olga S. Kuznetsova (National Research University Higher School of Economics); Sofiya R. Ulyanova (National Research University Higher School of Economics)
    Abstract: This paper analyzes the intra-day impact of the Bank of Russia’s verbal interventions on the Russian stock exchange indices in 2014-2015. With this aim, we construct the communication index, which summarizes the verbal interventions of the Bank of Russia during this period. After that, we estimate GARCH model using intraday data on the returns of RTS and MICEX indices. We also take into account the price of futures contracts on BRENT as the Russian economy has a strong dependence on oil prices. We show that the verbal interventions of the Bank of Russia have a positive short-term impact on the RTS returns, but do not affect their volatility. This results contradict previous studies, which show that usually central bank’s communication has a strong effect on the volatility of indices, but does not affect their returns. We suggest that this contradiction arises from the fact that we consider an export orientation of the economy, which has not been examined in previous studies
    Keywords: the Bank of Russia, verbal interventions, GARCH-modeling, stock exchange indices, RTS index, MICEX index
    JEL: E32
    Date: 2016
  5. By: Yang, Qiming; Zhang, Xiaobo; Zhu, Wu
    Abstract: Normally as an economy develops, firm sizes increase. However, as measured by the employment rate, the firm size in China declined from 2004 to 2008. In this paper, we develop a structural dynamic model with heterogeneous workers to study the relative contributions of three factors to declining firm size: rising real wages, implementation of minimum wages, and the introduction of a new national labor contract law. While rising wages make a sizeable contribution, we find that the new labor law plays a dominant role in solving the puzzle. In comparison, the impact of minimum wages is more muted.
    Keywords: wages, labor law, labour legislation, law,
    Date: 2016
  6. By: Tang, Weiqi; Meng, Bo; Wu, Libo; Liu, Yu
    Abstract: Firms in China within the same industry but with different ownership and size have very different production functions and can face very different emission regulations and financial conditions. This fact has largely been ignored in most of the existing literature on climate change. Using a newly augmented Chinese input–output table in which information about firm size and ownership are explicitly reported, this paper employs a dynamic computable general equilibrium (CGE) model to analyze the impact of alternative climate policy designs with respect to regulation and financial conditions on heterogeneous firms. The simulation results indicate that with a business-as-usual regulatory structure, the effectiveness and economic efficiency of climate policies is significantly undermined. Expanding regulation to cover additional firms has a first-order effect of improving efficiency. However, over-investment in energy technologies in certain firms may decrease the overall efficiency of investments and dampen long-term economic growth by competing with other fixed-capital investments for financial resources. Therefore, a market-oriented arrangement for sharing emission reduction burden and a mechanism for allocating green investment is crucial for China to achieve a more ambitious emission target in the long run.
    Keywords: Environmental policy, Climatic change, Business enterprises, Econometric model, Emissions, CGE, Firm heterogeneity, SME, ETS, Chinese economy
    JEL: C67 C68 O16 Q56
    Date: 2016–11
  7. By: Wang, Xinxin; Chen, Kevin Z.; Robinson, Sherman; Huang, Zuhui
    Abstract: Demographic transition due to population aging is an emerging trend throughout the developing world, and it is especially acute in China, which has undergone demographic transition more rapidly than have most industrial economies. This paper quantifies the distributional effects in the context of demographic transition using an integrated recursive dynamic computable general equilibrium model with top-down behavioral microsimulation. The results of the poverty and inequality index indicate that population aging has a negative impact on the reduction of poverty while its impact is positive with regard to equality. In addition, elderly rural households are experiencing the most serious poverty, and their inequality problems compared with other household groups and within group inequality worsens with demographic transition. These findings not only advance the previous literature but also deserve particular attention from Chinese policy makers.
    Keywords: demography, poverty, economic development, macroeconomics, mathematical models,
    Date: 2016
  8. By: Alicia Garcia-Herrero (NATIXIS; Department of Economics, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology); Jianwei Xu (Beijing Normal University)
    Abstract: The Belt and Road initiative, recently embarked on by China, aims to improve cross-border infrastructure in order to reduce transportation costs across a massive geographical area between China and Europe. We estimate how much trade might be created among Belt and Road countries as a consequence of the reduction in transportation costs (both railway and maritime) and find that European Union countries, especially landlocked countries, should benefit considerably. This is also true for Eastern Europe and Central Asia and, to a lesser extent, south-east Asia. In contrast, if China were to seek to establish a free trade area within the Belt and Road region, EU member states would benefit less, while Asia would benefit more. Xi Jinping’s current vision for the Belt and Road, centred on improving transport infrastructure, is very good news for Europe as far as trade creation is concerned.
    Keywords: China, Belt & Road initiative, infrastructure, international economic system
    Date: 2016–11
  9. By: Teng Ma (Graduate School of Economics, Kobe University); Kenji Takeuchi (Graduate School of Economics, Kobe University)
    Abstract: This study investigates the choices of denitration technology in the Chinese thermal power sector. Using a multinominal logit model of the choices among 1,135 boilers in thermal power plants operating in China in 2013, we analyze how the choices were inuenced by government policies, the stringency of national standards, and subsidies for using speci_c technology. The results are as follows. First, China's 12th Five-year Plan might make it more attractive for plants to choose the cheapest denitration technology among the three options examined in this study. Second, technology choices differed signi_cantly by region before the 12th Five-year Plan period. These differences have disappeared, perhaps due to the economic development across all regions of China. Third, electricity price subsidies offered to plants that use denitration equipment might affect their technology choice. These results suggests that plants might choose the cheapest technology available, in order to lower investment costs.
    Keywords: technology choice, NOx emissions, China, thermal power sector
    JEL: O33 Q53 Q55
    Date: 2016–11
  10. By: Guojun He (Division of Social Science, Hong Kong University of Science and Technology; Division of Environment, Hong Kong University of Science and Technology; Department of Economics, Hong Kong University of Science and Technology); Shaoda Wang (Department of Agricultural and Resource Economics, UC Berkeley)
    Abstract: This study estimates the effect of improved bureaucrat quality on poverty alleviation by exploring a unique human capital reallocation policy in China -- the ¡§College Graduate Village Officials¡¨ (CGVOs) program. We find that introducing CGVOs into the village governance system improves the targeting and implementation of central government¡¦s social assistance programs. CGVOs help eligible poor households understand and apply for relevant subsidies, thus increase the number of pro-poor program beneficiaries. Further analysis suggests that CGVOs improve the quality rather than the quantity of village bureaucrats, and their presence reduces elite capture of pro-poor programs.
    Keywords: College Graduate Village Officials, Pro-Poor Program, Rural Development, Rural Governance
    Date: 2016–11
  11. By: Antonio Carvalho (Centre for Energy Economics Research and Policy, Heriot-Watt University)
    Abstract: The paper outlines and estimates a measure of underlying efficiency in electricity consumption for an unbalanced panel of 28 transition economies and 5 Western European OECD countries in the period 1994-2007, by estimating a Bayesian Generalized True Random Effects (GTRE) stochastic frontier model that estimates both persistent and transient inefficiency. The properties of alternative GTRE estimation methods in small samples are explored to guide the estimation strategy. The paper analyses the behaviour of underlying efficiency in electricity consumption in these economies after accounting for time-invariant technological differences. After outlining the specific characteristics of the transition economies and their heterogeneous structural economic changes, an aggregate electricity demand function is estimated to obtain efficiency scores that give new insights for transition economies than a simple analysis of energy intensity. There is some evidence of convergence between the CIS countries and a block of Eastern European and selected OECD countries, although other country groups do not follow this tendency, such as the Balkans.
    Keywords: Electricity Consumption, Transition Economies, Energy Efficiency, Stochastic Frontier
    JEL: C23 Q49 P20
    Date: 2016–11
  12. By: Yuan Zi (IHEID, Graduate Institute of International and Development Studies, Geneva)
    Abstract: The extent to which a country can benefit from trade openness crucially depends on its ease of reallocating resources. However, we know little about the role of domestic frictions in shapingthe effects of trade policies. I address this question by analyzing the impact of tariff reductions on the spatial allocation of labor in China, and how this impact depends on migration frictions that stem from China's household registration system (hukou). I first provide reduced-form evidence that input trade liberalization has induced significant spatial labor reallocation in China, with a stronger effect in regions with less hukou frictions. Then, I construct and estimate a quantitative spatial model with input-output linkages and hukou frictions to examine the general equilibrium effects of tariff reductions and perform counterfactuals. The quantitative exercise shows that trade liberalization increases China's welfare by 0.63%. Abolishing the hukou system leads to a direct welfare improvement of 1.51%. Additionally, it increases gains from tariff reductions by 2% and alleviates its negative distributional consequences. In this process, I develop a novel measure of migration frictions associated with the hukou system.
    Keywords: input trade liberalization, spatial labor reallocation, hukou frictions, migration
    JEL: F11 F13 F16 R23 O15
    Date: 2016–11–08
  13. By: Jessica Leight (Williams College)
    Abstract: This paper analyzes whether there is evidence of a poverty trap driven by credit constraints and non-linearities in the return to capital in rural China in the 1990s, estimating the effect of positive income shocks experienced by rural households as a result of increases in the price paid for mandatory grain quota sales. Households were required to sell part of their grain output to the state at a below-market price, and increases in the quota price generated income shocks that also varied cross-sectionally in accordance with crop composition. The identification strategy exploits climatically driven variation in crop composition in conjunction with quota price fluctuations to identify quasi-random variation in the size of the positive income shock and estimate its impact on economic outcomes. The results suggest agricultural investment decreases and investment in non-agricultural businesses and migration increase as households gain increased income, consistent with a poverty trap in which households are initially constrained from entering new productive sectors. There is also evidence of large increases in consumption and borrowing.
    Date: 2016–09
  14. By: Mihaela Simionescu (Institute for Economic Forecasting of the Romanian Academy.)
    Abstract: In this paper, the relationship between foreign direct investment (FDI) in Romania and economic and social development as part of sustainable development is analyzed. The research is based on a regional approach, some panel vector-autoregressive models being proposed for evaluating the influence of FDI on economic growth and on relative poverty rate in the Romanian regions during 2005-2014. Two types of analyses were proposed: one that includes all the 8 regions and one that excludes Bucuresti-Ilfov region from study, because it is an outlier with respect to FDI weight in total FDI and to economic growth. Indeed, if the Bucuresti-Ilfov region is included, FDI generated economic growth in Romania, but if this region is excluded, in the rest of the country, FDI had a negative impact on economic growth. In the seven regions of Romania, excepting Bucuresti-Ilfov one, FDI did not diminish the poverty rate.
    Keywords: sustainable development, FDI, economic growth, poverty rate
    JEL: C51 C53 E22
    Date: 2016–11
  15. By: Magdalena Petrovska (National Bank of the Republic of Macedonia); Aneta Krstevska (National Bank of the Republic of Macedonia); Nikola Naumovski (National Bank of the Republic of Macedonia)
    Abstract: This paper aims to assess the usefulness of leading indicators in business cycle research and forecast. Initially we test the predictive power of the ESI within a static probit model as a leading indicator, commonly perceived to be able to provide a reliable summary of the current economic conditions. We further proceed by analyzing how well an extended set of indicators performs in forecasting turning points of the Macedonian business cycle by employing the Qual VAR approach of Dueker (2005). In continuation, we evaluate the quality of the selected indicators in pseudo-out-of-sample context. The results show that the use of survey-based indicators as a complement to macroeconomic data work satisfactory well in capturing the business cycle developments in Macedonia.
    Keywords: Forecasting, Business cycle turning points, Qual VAR, MCMC, Latent variable
    JEL: F42 C25 C22
    Date: 2016–11
  16. By: International Monetary Fund. Finance Dept.
    Abstract: Ukraine requested a 24-month SDR 10.976 billion exceptional access Stand-By Arrangement (SBA) in April 2014 against the backdrop of large internal and external imbalances, considerable domestic political upheaval, and an emerging conflict in the East. Inconsistent macroeconomic policies in the preceding years had led to a potent combination of an overvalued pegged exchange rate, large and growing twin deficits, and a weak banking system by end-2013. Domestic political turmoil and conflict in Crimea and Eastern Ukraine added to these problems, creating an urgent need for financial assistance from the international community. The 2014 SBA (of about $17 billion) was Ukraine’s third since 2008.
    Keywords: Stand-by arrangements;Monetary policy;Banking sector;Fiscal policy;Energy sector;Fiscal reforms;Ex post assessments;Exceptional use of Fund resources;Economic indicators;Fund policies;Press releases;Ukraine;
    Date: 2016–10–03
  17. By: International Monetary Fund. European Dept.
    Abstract: The authorities have continued to make progress in implementing the program. Notwithstanding the delay in completing this review, mainly related to a difficult approval process of the 2016 budget and political tensions culminating in a change in government in April 2016, important policy measures have been taken since the last review. This includes a sizable fiscal adjustment; a successful completion of the debt operation with private bondholders; the increase in gas and heating tariffs to full cost recovery; and decisive steps to rehabilitate the banking system. However, progress in tackling corruption, privatizing state-owned enterprises (SOEs), and advancing pension reform has been slower than envisaged against significant political resistance.
    Keywords: Extended Fund Facility;Economic conditions;Fiscal policy;Energy sector;Fiscal reforms;Public enterprises;Banking sector;Monetary policy;Economic indicators;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Phasing of purchases;Ukraine;
    Date: 2016–10–03
  18. By: Can Huang (School of Management, Zhejiang University, Hangzhou); Xiao Jin (School of Management, Zhejiang University, Hangzhou); Lanhua Li (School of Management, Zhejiang University, Hangzhou)
    Abstract: RIO R&I International Country Reports analyse and assess the research and innovation system, including the main challenges, framework conditions, regional R&I systems, and international co-operation, including with DG JRC.
    Keywords: R&I system, R&I policy, Innovation Union, Regional R&I, International, China
    Date: 2016–10
  19. By: Antonescu, Daniela
    Abstract: Romania are placed on the last place in the Top of Europe in terms of government efficiency. This position is given by the value of a many indicators, often used in World Bank assessments, that takes into account the capacity of central and local government, the characteristics of the regulatory system, level of corruption, its impartiality and the quality of public services provided. The article present, synthetically, the evolution of the main theories of public administration and, practically, to compared Romania with to other European countries, it is found that the value of many public administration indicator has not changed substantially in the last 7 years, Romania occupying constantly the last place. The analysis provides an alternative insight into the analysis of public administration capacity as one of the main dependent links to the quality of government indicator and formulates some elements for a possible development framework for the future reforms.
    Keywords: public sector, public administration, administrative reform, economic efficiency
    JEL: H00 H1 H11 H4 H5
    Date: 2016–11–27
  20. By: International Monetary Fund. European Dept.
    Abstract: The Bulgarian economy has shown resilience since the last Article IV consultation. Growth over the last 4 quarters exceeded expectations. The authorities took concrete steps to correct the fiscal slippage in 2014 and efforts are underway to strengthen confidence in the health of the financial system. Looking ahead, risks to the outlook are broadly balanced. Downside risks stem mostly from weak external demand, possible regional tension, and reversal in domestic policy reforms.
    Date: 2016–11–10
  21. By: Antonio Carvalho (Centre for Energy Economics Research and Policy, Heriot-Watt University)
    Abstract: This paper discusses institutional factors that influence delays in connecting businesses to electricity across the world. These delays lead to significant economic consequences at the early stages of commercial operations of a newly established firm. The level of economic development of a country can influence this indicator, but there are also conflicting results as quality of institutions increase, in a duality of increasing regulation and control of corruption. Aggregate national level data from World Bank Enterprise Surveys Project, Worldwide Governance Indicators and World Development Indicators is used to estimate and quantify these effects in a broad sample of 141 countries across the world. Panel data techniques are implemented to explore the fact that there are multiple surveys conducted over time, particularly in transition economies (mostly FSU economies). Analysis is mainly focused on this sub-sample of transition economies. There is clear evidence of a positive effect of increased control of corruption and the negative effect of increasing regulation, likely to be associated with extra steps to establish a connection. The latter result is also confirmed by alternative measures of regulation in the power sector in transition economies. There is no evidence that interconnected advances in several dimensions of governance leads to positive outcomes in this context.
    Keywords: Electricity Connection, Corruption, Governance, Regulation
    JEL: D73 L94 Q40
    Date: 2016–11
  22. By: Haughton, Jonathon; Khandker, Shahidur R.
    Abstract: With 7 million borrowers and US$5.4 billion in outstanding loans in 2012, the Viet Nam Bank for Social Policies (VBSP) is the largest single microcredit lender in the world. We measure the impact of VBSP lending and seek to answer the question of whether continued subsidies to the bank, which amount to about 2 percent of the value of its loans, are justified. VBSP grew particularly rapidly between 2004 and 2008, when its share of total loans in Viet Nam rose from 10 to 27 percent, and by 2008 an estimated two-fifths of its loans were ostensibly used for directly productive purposes. Using data from a panel of 1,846 rural households interviewed in 2004, 2006, and 2008 as part of the Viet Nam Household Living Standards Survey, we estimated the impact of VBSP lending on consumption and income per capita, as well as self-employment earnings. Both an intention-to-treat model with fixed effects, and a quantity-of-credit model with fixed effects and using instrumental variables, show significant or close to significant impacts of VBSP microloans on consumption and income, but our data do not have enough power to determine whether this mainly works via agricultural or nonagricultural self-employment income. Without VBSP, the rural poverty rate would have been 0.7 percentage points higher in 2008 than it actually was. The subsidy is likely justified, given the evidence and scale of the positive impact of VBSP loans on consumption spending and the concentration of benefits among poorer households in Viet Nam.
    Keywords: finance, credit, rural areas, poverty, microcredit,
    Date: 2016
  23. By: International Monetary Fund. European Dept.
    Abstract: Since late 2014, Moldova’s economy has been hit by a number of domestic and external shocks. Chief among them is the exposure of extensive and wellorchestrated fraud in the banking system, resulting in the closure of three banks at a public cost of 10 percent of GDP. During the following period, confidence collapsed, external concessional financing largely froze, and international reserves fell by onethird, prompting significant tightening of monetary conditions. Domestic political turmoil, marked by three changes in government, constrained solutions and delayed collaboration with the international community on possible financial support.
    Date: 2016–11–09

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