nep-tra New Economics Papers
on Transition Economics
Issue of 2017‒05‒21
fourteen papers chosen by
J. David Brown
United States Census Bureau

  1. Capital Accumulation, Private Property and Rising Inequality in China, 1978-2015 By Thomas Piketty; Li Yang; Gabriel Zucman
  2. Wages, Innovation, and Employment in China By Fleisher, Belton M.; McGuire, William H.; Wang, Xiaojun; Zhao, Min Qiang
  3. Republic of Moldova; First Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements and Request for Modification of Performance Criteria-Press Release; and Staff Report By International Monetary Fund.
  4. Georgia; Request for Extended Arrangement Under the Extended Fund Facility and Cancellation of Stand-By Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Georgia By International Monetary Fund.
  5. Innovative Behavior and Prosocial Motivation of Russian Civil Servants By Tim Jaekel
  6. The great Chinese inequality turnaround: By Kanbur, Ravi; Wang, Yue; Zhang, Xiaobo
  7. Crony banking and local growth in China By Wang, Chunyang
  8. Financial stability assessment of EU candidate and potential candidate countries By Gächter, Martin; Macki, Piotr; Moder, Isabella; Polgár, Éva Katalin; Savelin, Li; Żuk, Piotr
  9. The Role of Universities in Economic Development of Russian Regions By Alexey A. Egorov; Oleg V. Leshukov; Alexander D. Gromov
  10. Air Quality and Manufacturing Firm Productivity: Comprehensive Evidence from China By Fu, Shihe; Viard, Brian; Zhang, Peng
  11. What determines Chinaís housing price dynamics? New evidence from a DSGE-VAR By Liu, Chunping; Ou, Zhirong
  12. Sovereign default risk and debt limits: Case of Slovakia By Zuzana Mucka; Ludovit Odor
  13. Local Crowding Out in China By Yi Huang; Marco Pagano; Ugo Panizza
  14. The Renminbi central parity : An empirical investigation By Cheung, Yin-Wong; Hui, Cho-Hoi; Tsang, Andrew

  1. By: Thomas Piketty; Li Yang; Gabriel Zucman
    Abstract: This paper combines national accounts, survey, wealth and fiscal data (including recently released tax data on high-income taxpayers) in order to provide consistent series on the accumulation and distribution of income and wealth in China over the 1978-2015 period. We find that the aggregate national wealth-income ratio has increased from 350% in 1978 to almost 700% in 2015. This can be accounted for by a combination of high saving and investment rates and a gradual rise in relative asset prices, reflecting changes in the legal system of property. The share of public property in national wealth has declined from about 70% in 1978 to 30% in 2015, which is still a lot higher than in rich countries (close to 0% or negative). Next, we provide sharp upward revision of official inequality estimates. The top 10% income share rose from 27% to 41% of national income between 1978 and 2015, while the bottom 50% share dropped from 27% to 15%. China’s inequality levels used to be close to Nordic countries and are now approaching U.S. levels.
    JEL: D31 E01 E21 O53
    Date: 2017–04
  2. By: Fleisher, Belton M. (Ohio State University); McGuire, William H. (University of Washington Tacoma); Wang, Xiaojun (University of Hawaii at Manoa); Zhao, Min Qiang (Xiamen University)
    Abstract: We investigate the role of factor-priced-induced innovation in mediating the employment impact of expanding production in China. Our empirical approach implements concepts developed in Acemoglu (2010) and complements the approaches summarized by Wei, Xie, and Zhang (2017) that focus on directly observable aspects of innovation (R&D, patent activity, etc.); labor-force characteristics including the availability of "surplus" labor, investments in human capital; and investments in physical capital. It complements work on the causes of a decline in labor's share in total output as documented in Bai and Qian (2010) and in Molero-Simarro (2017). Our empirical results to date support the hypothesis that wage-induced technology change has influenced productivity growth in China, at least in the decade of the 1990s, but perhaps less so or not at all after the middle of the next decade.
    Keywords: endogenous innovation, China, factor shares
    JEL: O30 D22 D24 D33
    Date: 2017–04
  3. By: International Monetary Fund.
    Abstract: Following the political and economic turmoil of recent years, the Moldovan economy has started to recover. Economic growth in 2016 was stronger than originally projected benefiting from solid agricultural performance and better-than-expected exports; and the outlook for 2017 has been marked up. Inflation decelerated sharply from the high levels of 2015, but has returned to the target range.
    Date: 2017–05–01
  4. By: International Monetary Fund.
    Abstract: Georgia is recovering from an adverse external shock (a decline in trading partners’ growth since late 2014), although at a slower pace than previously envisaged. The economy has shown resilience to the external shock, with real GDP growth averaging 2.8 percent in 2015–16, the highest among its main trading partners, except for China and Turkey. The exchange rate was allowed to adjust, and the dollarized banking sector has weathered the significant depreciation vis-Ã -vis the dollar. With depreciation of major trading partner currencies, external competitiveness has not improved, however. Hence, external imbalances remain elevated and reserves below adequate levels. Following the October 2016 parliamentary elections that gave the ruling party a constitutional majority, the new government has united around a policy agenda centered on bolstering growth.
    Keywords: Georgia;Middle East;
    Date: 2017–04–13
  5. By: Tim Jaekel (National Research University Higher School of Economics)
    Abstract: The motivation of civil servants has a considerable impact on their decision-making and thus the performance of a bureaucratic agency. This paper studies how innovative and error-correcting behavior of Russian public civil servants correlates with three types of motivation: public service motivation (PSM), power motivation (PM) and security motivation (SM). Civil servants with a higher level of PSM are expected to correct existing errors in standard operating procedures (SOP) and to introduce “new ways of doing things” (Fernandez and Moldogaziev 2013); and so to improve their organizations’ performance and citizens’ well-being by enhancing organizational learning. For empirical analysis the paper uses a new unique dataset with some 1,600 responses from a survey questionnaire among local civil servants in the Russian region of Leningrad. The results from regression analyses demonstrate that prosocial motivation (seven item scale, Cronbach’s alpha =0.72), power motivation (nine-item scale, Cronbach’s alpha=0.78), employee encouragement, empowerment practices, and citizens orientation are positively correlated with innovative and error-correcting. In contrast the level of security motivation and job satisfaction fail to achieve statistical significance throughout all models
    Keywords: behavioral public administration (BPA), innovative behavior, error-correcting behavior, motivation, civil servants, Russia
    JEL: D73 D81 H83
    Date: 2017
  6. By: Kanbur, Ravi; Wang, Yue; Zhang, Xiaobo
    Abstract: The high level of inequality in China has been a focus of interest for policy makers and researchers. However, few studies have evaluated the trend since 2010. With changes in the economic structure and new policy tools introduced in recent years, a revisit of Chinese inequality should give us the latest information about its evolution and the impacts of these economic and policy changes on income distribution. This paper argues that after a quarter century of sharp and sustained increase, Chinese inequality is now plateauing and even turning down. The argument is made using a range of data sources and a range of measures and perspectives on inequality. The evolution of inequality is further examined through decomposition by income source and population subgroup. Some preliminary explanations are provided for these trends in terms of shifts in policy and the structural transformation of the Chinese economy. The narrative on Chinese inequality now needs to focus on the reasons for this great turnaround.
    Keywords: structural change; economic development; economic analysis, Chinese inequality turnaround; inequality data; inequality trends, inequality and structural transformation; harmonious development and government policy, D31 Personal Income, Wealth, and Their Distributions; O15 Economic Development: Human Resources, Human Development, Income Distribution, Migration; O53 Economywide Country Studies: Asia including Middle East; D63 Equity, Justice, Inequality, and Other Normative Criteria and Measurement;,
    Date: 2017
  7. By: Wang, Chunyang
    Abstract: The rise of city commercial banks (CCBs) in Chinese cities provides a unique opportunity to study the finance and growth nexus at the city level. Given the notorious inefficiency of China's “Big Four” state banks, policymakers attempted to correct the situation in 1995 through the creation of a new kind of local bank designed to promote local growth by lending to small and medium-sized enterprises. Using 1990-2009 panel data for 283 prefectural-level cities and four provincial-status municipalities, we find that the establishment of CCBs significantly reduced local economic growth overall. We suggest this outcome stems from the ability of firms to bribe local government officials to obtain credit from their local CCBs. In our proposed model for crony banking relations, large firms spend disproportionately larger amounts of time and bribe money cultivation relations with local officials involved in CCB lending decisions, so we expect large firms to have easier access to credit than small firms even if it results in inefficient lending. Using data on 206,771 firms for 1999-2007, we find that cities with CCBs had significantly lower overall growth rates. Small firms, in particular, were negatively impacted by the presence of CCBs, while large firms benefited from their presence. In the cities with CCBs, large firms, even those with relatively poor return-on-assets ratios, obtained more credit than small firms in aggregate. Using data from the 2005 World Bank Business Environment Survey, we find that an increase in a firm's crony relations with the government, measured in terms of the average number of days a month top managers of the firm spend interacting with government officials, increases the likelihood a firm will be granted bank credit. This effect was quite distinct for cities with CCBs.
    JEL: G21 G28 G38
    Date: 2017–05–12
  8. By: Gächter, Martin; Macki, Piotr; Moder, Isabella; Polgár, Éva Katalin; Savelin, Li; Żuk, Piotr
    Abstract: This paper reviews and assesses financial stability challenges in countries preparing for EU membership i.e. Albania, Bosnia and Herzegovina, Kosovo, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey. The paper focuses on the period since 2014 and on the banking sectors that dominate financial systems in this group of countries. It identifies two main near-term challenges applying to most of them. The first relates to credit risk, which remains substantial despite some progress in reducing the burden of non-performing loans on banks’ balance sheets in the period under review. However, progress so far is limited, partly owing to structural impediments. The second relates to the still high share of foreign exchange denominated loans and deposits, which poses an indirect credit risk in the case of lending to unhedged borrowers and impairs the monetary transmission channel. In addition, profitability is worth monitoring going forward, as it remains subdued in many countries given high provisioning needs and a lacklustre credit growth and low interest rate environment. These concerns are generally met with a solid shock-absorbing capacity, as exemplified by robust capital and liquidity buffers. JEL Classification: F31, F34, F36, G15, G21, G28
    Keywords: banking sector, credit growth, cross-border flows, deleveraging., EU accession, financial stability, foreign exchange lending, Western Balkans
    Date: 2017–05
  9. By: Alexey A. Egorov (National Research University Higher School of Economics); Oleg V. Leshukov (National Research University Higher School of Economics); Alexander D. Gromov (National Research University Higher School of Economics)
    Abstract: This paper analyses the contribution of higher education institutions (HEI) in Russia to gross regional product (GRP) growth. We explore the relationship between higher education coverage and rates of economic growth based on longitudinal economic growth models which are pooled regression, fixed effects, and regression with simultaneous fixed and spatial effects. In addition to the influence of HEI on economic growth, the model specifications also allow an investigation of the relationship between the territory accessibility of higher education and GRP growth, and the significance of higher education in regions with different structures of GRP. The main policy outcome of the paper is that universities can be considered as fully-fledged economic agents which make positive contributions to GRP growth. The development of regional higher education systems would lead to a positive effect on regional economic development
    Keywords: higher education, economic growth, spatial effects, influence on GRP, regional economic development
    JEL: I21 I23 I25
    Date: 2017
  10. By: Fu, Shihe; Viard, Brian; Zhang, Peng
    Abstract: We provide comprehensive estimates of air pollution’s effect on short-run labor productivity for manufacturing firms in China from 1998 to 2007. An emerging literature estimates air pollution’s effects on labor productivity but only for small groups of workers of particular occupations or sets of firms to ensure causality. To provide more comprehensive estimates necessary for policy analysis, we estimate effects for all but some small firms (90% of manufacturing output in China) and capture all channels by which pollution influences productivity. We instrument for reverse causality between pollution and output using thermal inversions. Our causal estimates imply that a one
    Keywords: air pollution; productivity; environmental costs and benefits; firm competitiveness
    JEL: D62 Q51 Q53 R11
    Date: 2017–04–20
  11. By: Liu, Chunping (Nottingham Trent University); Ou, Zhirong (Cardiff Business School)
    Abstract: We investigate what determines Chinaís housing price dynamics using a DSGE-VAR estimated with priors allowing for the featured operating of normal and ëshadowí banks in China, with data observed between 2001 and 2014. We Önd that the housing demand shock, which is the essential factor for housing price ëbubblesí to happen, accounts for over 80% of the housing price áuctuation. We also Önd that a prosperous housing market could have led to future economic growth, though quantitatively its marginal impact is small. But this also means that, for policy-makers who wish to stabilise the housing market, the cost on output reduction would be rather limited.
    Keywords: Housing price; Bubbles; Market spillovers; DSGE-VAR; China
    JEL: C11 E32 E44 R31
    Date: 2017–04
  12. By: Zuzana Mucka (Council for Budget Responsibility); Ludovit Odor (Council for Budget Responsibility)
    Abstract: We use a sovereign default model developed by Hatchondo et al. (2015) to study the implications of adopting constitutional debt limits. It can be shown, that for a benevolent government issuing long-term debt it is welfare-enhancing to introduce credible fiscal rules to mitigate the so called "debt dilution" problem. By calibrating the theoretical model to Slovak data, we estimate the optimal (net) debt brake threshold at 48 percent of the mean annual output. Compared to a no-rule economy, the introduction of a fully-credible debt limit represents a substantial decrease in average sovereign spreads (50 basis points). In the empirical part of the paper we find that the introduction of the constitutional Fiscal Responsibility Act in Slovakia in 2011 might have helped to lower sovereign spreads compared to euro area peers by 20-30 basis points.
    Keywords: sovereign default risk, debt dilution, fiscal rules, debt limits
    JEL: H1 H63 H8
    Date: 2017–04
  13. By: Yi Huang (The Graduate Institute, Geneva); Marco Pagano (University of Naples Federico II, CSEF, EIEF, ECGI and CEPR); Ugo Panizza (The Graduate Institute, Geneva, and CEPR)
    Abstract: In China between 2006 and 2013 local public debt issuance crowded out the investment of private manufacturing fi rms by tightening their funding constraints, but it did not affect state-owned and foreign fi rms. The paper, using novel data for local public debt, establishes this result in three ways. First, local public debt is inversely correlated with city-level investment by domestic private manufacturing firms. Second, this fi nding is stronger for private firms that depend more heavily on external funding. And third, in cities where public debt is high, fi rms' investment is more sensitive to internal cash flow, even when cash-flow sensitivity is estimated jointly with the probability of being credit- constrained. These results suggest that the enormous increase in local public debt produced by massive debt issuance as part of the post-2008 fi scal stimulus curtailed private investment, thus weakening China's long-term growth prospects.
    Date: 2017
  14. By: Cheung, Yin-Wong; Hui, Cho-Hoi; Tsang, Andrew
    Abstract: On August 11, 2015, China revamped its procedure for setting the official central parity of the renminbi (RMB) against the US dollar. Our empirical investigation suggests that the intertemporal dynamics of China’s central parity shifted after this policy change, though the deviation of the RMB offshore rate from the central parity and the US dollar index remained the two significant determi-nants of central parity after the policy change. In contrast, the VIX index only offered explanatory power up to August 2015. Thereafter, the onshore RMB rate and the difference between the one-month offshore and onshore RMB forward points have significant impacts on the central parity. While the US dollar index effect remains, we find no evidence of a rate-fixing role for the RMB exchange rate against the currency basket announced by China in December 2015.
    JEL: F31 F33 G15 G17 G18
    Date: 2017–05–11

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