nep-tra New Economics Papers
on Transition Economics
Issue of 2017‒03‒19
sixteen papers chosen by
J. David Brown
United States Census Bureau

  1. Internal Devaluation and Labor Market Outcomes: Evidence from Latvia By H. Lehmann; T. Razzolini; A. Zaiceva
  2. Corporate Governance and Investment: Evidence from Russian Unlisted Firms By Carsten Sprenger; Olga Lazareva
  3. Time-varying Effects of Public Debt on the Financial and Banking Development in the Central and Eastern Europe By Janda, Karel; Kravtsov, Oleg
  4. Quantifying China's Regional Economic Complexity By Jian Gao; Tao Zhou
  5. Environmental regulations and competitiveness: evidence based on Chinese firm data By Ankai Xu
  6. Cyclicality of bank liquidity creation By Davydov, Dennis; Fungáčová, Zuzana; Weill, Laurent
  7. Case Study of the Moldovan Bank Fraud: Is Early Intervention the Best Central Bank Strategy to Avoid Financial Crises? By Alexandru Monahov; Thomas Jobert
  8. Exploring the Role of Foreign Investors in Russia's Local Currency Government Bond (OFZ) Market By Yinqiu Lu; Dmitry Yakovlev
  9. Collective Learning in China's Regional Economic Development By Jian Gao; Bogang Jun; Alex "Sandy" Pentland; Tao Zhou; Cesar A. Hidalgo
  10. Monetary Policy, Hot Money and Housing Price Growth across Chinese Cities By Xiaoyu Huang; Tao Jin; Ji Zhang
  11. Czech Magic; Implementing Inflation-Forecast Targeting at the CNB By Kevin Clinton; Tibor Hlédik; Tomás Holub; Douglas Laxton; Hou Wang
  12. People's Republic of China-Macao Special Administrative Region; 2016 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund.
  14. Stock market volatility using GARCH models: Evidence from South Africa and China stock markets By Cheteni, Priviledge
  15. The Consumption Response to Minimum Wages: Evidence from Chinese Households By Ernest Dautovic; Harald Hau; Yi Huang
  16. Albania; Ninth and Tenth Reviews Under the Extended Arrangement, and Proposal for Post-Programmonitoring-Press Release; Staff Report; and Statement by the Excutive Director for Albania By International Monetary Fund.

  1. By: H. Lehmann; T. Razzolini; A. Zaiceva
    Abstract: This paper analyzes the policy response and labor market adjustment of Latvia, which faced the most severe recession in Europe and globally. Latvia’s adjustment and recovery from the 2008 economic crisis represents “a rare case study”, which “has been an object of intense attention” (Blanchard et al., 2013) as country’s authorities, despite many experts’ recommendations, decided to maintain its currency peg and adjust through fiscal austerity and internal devaluation implementing major structural reforms. Three years later Latvia returned to a positive growth path and in 2014 joined the Euro zone. The main question in the literature is whether this adjustment represents a success story and can provide a lesson for other countries in the Euro area. We provide details on the adjustment in the Latvian labor market employing individual level data over the years 2002 to 2012. We show that with flexible labor markets, weak unions and relatively low employment protection, adjustment takes place predominantly at the extensive margin since it is driven by flows from permanent wage employment to unemployment. Underemployment constitutes another important adjustment channel, while the evidence for informal employment is more mixed. Wage regressions suggest that job mobility is not associated with increased labor productivity during and immediately after the crisis. We also identify groups particularly affected by the crisis and provide suggestions for the right mix of policy interventions.
    JEL: J6 J21 P16
    Date: 2017–03
  2. By: Carsten Sprenger (National Research University Higher School of Economics); Olga Lazareva (National Research University Higher School of Economics)
    Abstract: This paper investigates how corporate governance of unlisted firms in an emerging market economy affects financing constraints, measured by the sensitivity of investment to cash flow. We develop two original corporate governance indices based on a large-scale survey of Russian enterprises – one for shareholder protection and one for transparency. We estimate standard investment regressions where the cash flow variable is interacted with our corporate governance indices and variables capturing the ownership structure. The central result is that better shareholder protection diminishes the cash flow sensitivity of investment, particularly in firms with an outside controlling owner and in firms with low managerial ownership. In contrast, more transparency exacerbates financing constraints in some cases. We address the problem of the endogeneity of corporate governance by using fixed-effects regressions and a novel instrumental variable based on particular legal provisions for corporate governance in Russia depending on the number of shareholders
    Keywords: corporate governance, shareholder protection, transparency, financing constraints, ownership structure.
    JEL: G31 G32 G34
    Date: 2017
  3. By: Janda, Karel; Kravtsov, Oleg
    Abstract: In this paper we investigate the time varying effects of domestic public debts on the financial development, private credit and banking performance in the countries of the Central Eastern Europe, Balkan and Baltics region. By analyzing the empirical relationships among indicators and ratios of financial development and banking performance, we test their time-varying responses to changes in public debt through the described transmission channels. The econometric results suggest that the most significant determinant of private debt is the growing public debt over the short-midterm horizon. This might imply the crowding-out effect of public debt on private credit in the region. The growth of public debt positively impacts the banking sector efficiency only over the short-term period, while we observe only minor time effects in responses to changes in public debt on the financial stability indicators.
    Keywords: sovereign debt, private credit, financial development, Central Eastern Europe
    JEL: G21 P24 R11
    Date: 2017–03–06
  4. By: Jian Gao; Tao Zhou
    Abstract: China has experienced an outstanding economic expansion during the past decades, however, literature on non-monetary metrics that reveal the status of China's regional economic development are still lacking. In this paper, we fill this gap by quantifying the economic complexity of China's provinces through analyzing 25 years' firm data. First, we estimate the regional Economic Complexity Index (ECI), and show that the overall time evolution of provinces' ECI is relatively stable and slow. Then, after linking ECI to the economic development and the income inequality, we find that the predictive power of ECI is positive for the former but negative for the latter. Next, we compare different measures of economic diversity and explore their relationships with monetary macroeconomic indicators. Results show that ECI and Fitness are comparative and they have better predictive power than other benchmark measures like entropy. Further multivariate regressions suggest the robustness of our results after controlling other socioeconomic factors. Our work moves forward a step towards better understanding China's regional economic development and non-monetary macroeconomic indicators.
    Date: 2017–03
  5. By: Ankai Xu
    Abstract: This paper provides empirical evidence in support of the Porter hypothesis that tighter environmental regulations can increase productivity under certain circumstances. It builds on a theoretical model in which environmental regulations induce firms to adopt more efficient technologies. Using Chinese firm-level data covering a ten-year period, the empirical study examines the effects of two specific policy instruments - the pollution levy and regulatory standards - on firm productivity. It finds a bell-shaped relationship between pollution levies and the total factor productivity of firms, indicating that an increase in the pollution levy rate can be associated with higher productivity. In addition, the study investigates the effect of pollution emission standards on firm productivity and identifes an initial negative effect which diminishes after a period of two to three years.
    Keywords: Environmental regulations, Innovation, Productivity, Porter hypothesis, China.
    JEL: D2 F18 Q52 Q55 Q56
    Date: 2016–12–15
  6. By: Davydov, Dennis; Fungáčová, Zuzana; Weill, Laurent
    Abstract: This paper investigates the cyclicality of bank liquidity creation. Since liquidity creation is a major economic function of banks, their liquidity creation behavior may amplify business cycle fluctuations. Using the methodology of Berger and Bouwman (2009) to compute liquidity creation measures, we analyze the relation between GDP growth and liquidity creation of Russian banks from 2004 to 2015. Detailed quarterly data on a very large sample of banks and coexistence of different bank ownership types (state-owned, domestic private and foreign banks), makes Russia an ideal natural laboratory for study of cyclicality of liquidity creation for banks. We find that liquidity creation of banks is procyclical. We show that the liquidity creation behavior of state-owned banks and foreign banks is similar to that of domestic private banks in terms of procyclicality. We further find that the magnitude of procyclicality is higher for liquidity creation than for lending. Thus, while ownership of banks does not influence the liquidity creation behavior of banks, such behavior can amplify business cycle fluctuations.
    JEL: G21
    Date: 2017–03–10
  7. By: Alexandru Monahov (Université Côte d'Azur; GREDEG CNRS); Thomas Jobert (Université Côte d'Azur; GREDEG CNRS)
    Abstract: In this paper, we study the means by which a billion dollar fraud that was perpetuated in the Moldovan banking sector evolved into a severe financial crisis in which the Central Bank’s inaction came under scrutiny. We examine the financial operations through which money was taken out of the banking system and reconstruct the fraudulent schemes that led to the demise of three systemically important banks. We also create an agent-based simulation of the banking system which replicates the pre-crisis environment and the fraudulent schemes to determine whether Central Bank intervention could have improved the outcome of the crisis.
    Keywords: Financial Fraud, Prudential supervision, Central Bank Intervention, Agent Based Model, Multi-Agent Simulation
    JEL: C61 C63 E58 E65 G28
    Date: 2017–03
  8. By: Yinqiu Lu; Dmitry Yakovlev
    Abstract: Local currency government bonds (OFZ bonds) are an important fixed-income instrument in Russia’s financial markets. In this paper, based on granular data, we explore the development of the OFZ bond market with a focus on foreign investors. As this fixed-income market has experienced a liberalization of the domestic trading and settlement infrastructure, and weathered several episodes of market stresses since the 2008–09 global financial crisis, the role of foreign investors can be observed along with these events. What we have found is that foreign investors had influenced the market before they became an important player and since then they have contributed to the development of the market while not necessarily destabilizing it in episodes of shocks.
    Keywords: Foreign investment;Russian Federation;Bonds;Currencies;Bond markets;Supply and demand;local currency government bonds; Russia; financial market development
    Date: 2017–02–10
  9. By: Jian Gao; Bogang Jun; Alex "Sandy" Pentland; Tao Zhou; Cesar A. Hidalgo
    Abstract: Industrial development is the process by which economies learn how to produce new products and services. But how do economies learn? And who do they learn from? The literature on economic geography and economic development has emphasized two learning channels: inter-industry learning, which involves learning from related industries; and inter-regional learning, which involves learning from neighboring regions. Here we use 25 years of data describing the evolution of China's economy between 1990 and 2015--a period when China multiplied its GDP per capita by a factor of ten--to explore how Chinese provinces diversified their economies. First, we show that the probability that a province will develop a new industry increases with the number of related industries that are already present in that province, a fact that is suggestive of inter-industry learning. Also, we show that the probability that a province will develop an industry increases with the number of neighboring provinces that are developed in that industry, a fact suggestive of inter-regional learning. Moreover, we find that the combination of these two channels exhibit diminishing returns, meaning that the contribution of either of these learning channels is redundant when the other one is present. Finally, we address endogeneity concerns by using the introduction of high-speed rail as an instrument to isolate the effects of inter-regional learning. Our differences-in-differences (DID) analysis reveals that the introduction of high speed-rail increased the industrial similarity of pairs of provinces connected by high-speed rail. Also, industries in provinces that were connected by rail increased their productivity when they were connected by rail to other provinces where that industry was already present. These findings suggest that inter-regional and inter-industry learning played a role in China's great economic expansion.
    Date: 2017–03
  10. By: Xiaoyu Huang; Tao Jin; Ji Zhang
    Abstract: We use a dynamic hierarchical factor model to identify the national, regional, and local factors of the city-level housing price growth in China from 2005 to 2014. We find that city-specific factors account for a large proportion of the variations in city-level housing price growth for most cities. However, the national factor also plays an important role in explaining the fluctuations of city-level housing price growth rates especially after 2009---the average explaining power of the national factor for housing price growth fluctuations reaches 18%. We use a VAR model to investigate the driving forces of the national factor and find that unexpected PBoC policy and hot money flow changes can affect the national housing prices significantly. A positive monetary policy shock has a significant negative impact on the national factor, which lasts for more than two years. Meanwhile, a positive hot money shock does cause a significant increase in the national factor. However, this effect is relatively transitory and reverses in half a year. Monetary policy also affects the national factor by responding positively to positive hot money and price shocks---the reversed effect of hot money shocks and the negative impact of positive price shocks on the national factor result from the tightening of monetary policy triggered by these shocks.
    Date: 2017–03
  11. By: Kevin Clinton; Tibor Hlédik; Tomás Holub; Douglas Laxton; Hou Wang
    Abstract: This paper describes the CNB’s experience implementing an inflation-forecast targeting (IFT) regime, and the building of a system for providing the economic information that policymakers need to implement IFT. The CNB’s experience has been very successful in establishing confidence in monetary policy in the Czech Republic and should provide useful guidance for other central banks that are considering adopting an IFT regime.
    Keywords: Inflation targeting;Czech Republic;Central banks;Monetary policy;Forecasting models;Inflation Targeting, Monetary Policy, Optimal Control
    Date: 2017–01–30
  12. By: International Monetary Fund.
    Abstract: In recent years, the Macao SAR economy contracted by a cumulative 30 percent due to a sharp fall in spending by gaming tourists from Mainland China. Spillovers to the rest of the economy were relatively contained with unemployment staying under 2 percent and asset quality in the financial sector unaffected. Nonetheless, the size and speed of the shock underscored the need to transition to a more diversified economic model going forward. Fortunately, Macao SAR is entering this transition from a position of strength with large fiscal and external buffers.
    Keywords: Article IV consultation reports;Economic growth;Tourism;Fiscal policy;Labor markets;Banking sector;Currency boards;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Macao SAR;
    Date: 2017–02–14
  13. By: Julita E. Wasilczuk (Gdansk University of Technology, Gdansk, Poland); Katarzyna Stankiewicz (Gdansk University of Technology, Gdansk, Poland)
    Abstract: Unproductive entrepreneurship is not a common theme undertaken by researchers. The author defines the basic concepts of unproductive entrepreneurship and explains the role of cultural and economic differences in transition countries, in terms of institutional environment. However the main aim is to identify the nature of unproductive entrepreneurship in Poland. The theory for the research was based on the Baumol work. The research model on the Ajzen TPB. 270 Polish entrepreneurs were surveyed in order to define and describe unproductive entrepreneurship in Poland. The surveyed entrepreneurs present a permissive subjective standard regarding tax evasion when the existence of their enterprise is endangered, however they are also quite indulgent in the case of desire to maximize profits. The entrepreneurs represent more negative behavioural beliefs regarding the effectiveness of tax avoidance than regarding the effectiveness of making arrangements with tender participants or paying bribes.
    Keywords: unproductive entrepreneurship, types of unproductivity
    JEL: D22 D23 O43
    Date: 2017–03
  14. By: Cheteni, Priviledge
    Abstract: This study looks into the relationship between stock returns and volatility in South Africa and China stock markets. A Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model is used to estimate volatility of the stock returns, namely, the Johannesburg Stock Exchange FTSE/JSE Albi index and the Shanghai Stock Exchange Composite Index. The sample period is from January 1998 to October 2014. Empirical results show evidence of high volatility in both the JSE market, and the Shanghai Stock Exchange. Furthermore, the analysis reveals that volatility is persistent in both exchange markets and resembles the same movement in returns. Consistent with most stock return studies, we find that movements of both markets seem to take a similar trajectory.
    Keywords: GARCH, ARCH effect, JSE index, Shanghai Stock Exchange Composite Index
    JEL: G0 G1 G10 G17
    Date: 2016–12
  15. By: Ernest Dautovic (University of Lausanne); Harald Hau (University of Geneva, Swiss Finance Institute, Centre for Economic Policy Research (CEPR), and CESifo (Center for Economic Studies and Ifo Institute)); Yi Huang (Graduate Institute of International and Development Studies)
    Abstract: This paper evaluates the Chinese minimum wage policy for the period 2002-2009 in terms of its impact on low income household consumption. Using a representative household panel, we find support for the permanent income hypothesis, whereby unanticipated and persistent income increases due to minimum wage policy change are fully spent. The impact is driven by households with at least one child. We infer significant positive welfare effects for low income households based on expenditure increases concentrated in health care and education, whereas a negative employment effect of higher minimum wage cannot be confirmed.
    Keywords: Minimum wages; Labor income; Household consumption; Permanent income hypothesis
    JEL: E24 J38 C26
    Date: 2017–01
  16. By: International Monetary Fund.
    Abstract: In February 2014, the Executive Board approved a three-year Extended Arrangement with access equivalent to SDR 295.42 million (212.1 percent of current quota). Total disbursements of SDR 238.14 million have been made so far, and a final disbursement equivalent to SDR 57.28 million will be made available upon completion of the combined ninth and tenth reviews. Fund engagement with Albania will continue through a Post-Program Monitoring.
    Date: 2017–02–28

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