nep-tra New Economics Papers
on Transition Economics
Issue of 2017‒11‒05
twenty papers chosen by
J. David Brown
United States Census Bureau

  1. Firm Response to Competitive Shocks: Evidence from China's Minimum Wage Policy By Harald Hau; Yi Huang; Gewei Wang
  2. Moving On Up for High School Graduates in Russia: The Consequences of the Unified State Exam Reform By Fabián Slonimczyk; Marco Francesconi; Anna Yurko
  3. A Financial Conditions Index for the CEE economies By Simone Auer
  4. The Porter Hypothesis Goes to China: Spatial Development, Environmental Regulation and Productivity. By Pedro Naso; Yi Huang Author Name: Tim Swanson
  5. China's Investment Rate: Implications and Prospects By Carsten A. Holz
  6. All-Around Trade Liberalization and Firm-Level Employment: Theory and Evidence from China By Antonio Rodriguez-Lopez; Miaojie Yu
  7. Alcohol Policies and Crime Rates in Russian Regions By Marina Kolosnitsyna; Natalia Khorkina; Anton Volkov
  8. On the Relationship Between Quality and Productivity: Evidence from China's Accession to the WTO By Haichao Fan; Yao Amber Li; Stephen R. Yeaple
  9. Physical Capital Estimates for China's Provinces, 1952-2015 and Beyond By Carsten A. Holz; SUN Yue
  10. Job Mobility Networks and Endogenous Labor Markets By Nimczik, Jan Sebastian
  11. The Chaning Patterns of Investment in the PRC Economy By Carsten A. Holz
  12. Network Effects on LaborContracts of Internal Migrants in China- A Spatial Autoregressive Model By Badi H. Baltagi; YingDeng; Xiangjun Ma
  13. Measuring the Stringency of Land Use Regulation: The Case of China's Building Height Limits By Shihe Fu
  14. Determinants of Firm-Level Domestic Sales and Exports with Spillovers: Evidence from China By Badi H. Baltagi; Peter H. Egger; Michaela Kesina
  15. Monetary policy transmission with two exchange rates and a single currency : The Chinese experience By Qing, He; Korhonen, Iikka; Zongxin, Qian
  16. Do Multinationals Transfer Culture? Evidence on Female Employment in China By Heiwai Tang; Yifan Zhang
  17. How Does Environmental Regulation Shape Economic Development? A Tax Competition Model of China. By Pedro Naso Author name: Tim Swanson
  18. Learning-by-Exporting across Export Destinations: Evidence from Lithuanian Manufacturing By Tobias D. Ketterer
  19. Current Status and Traits of the Auto Parts Industry in Viet Nam By Hideo Kobayashi
  20. Do EU regional funds hamper or foster interregional migration? A panel data analysis for Poland By Zukowska-Gagelmann, Katarzyna

  1. By: Harald Hau; Yi Huang; Gewei Wang
    Abstract: The large regional variation in minimum wage levels in the period 2002-08 in China implies that Chinese manufacturing firms experienced competitive shocks as a function of firm location and their low-wage employment share. We find that minimum wage hikes accelerate the input substitution from labor to capital, reduce employment growth and accelerate total factor productivity growth–particularly among the less productive firms under private Chinese or foreign ownership, but not among state-owned enterprises. The heterogeneous firm response to labor cost shocks can be explained by differences in management practices, and suggests that management quality and competitive pressure are complementary.
    Keywords: firm productivity, capital investment, minimum wage policy
    JEL: D24 G31 J24 J31 O14
    Date: 2017
  2. By: Fabián Slonimczyk; Marco Francesconi; Anna Yurko
    Abstract: In 2009, Russia introduced a reform that changed the admissions process in all universities. Before 2009, admission decisions were based on institution-specific entry exams; the reform required universities to determine their decisions on the results of a national high-school test known as Unified State Exam (USE). One of the main goals of the reform was to make education in top colleges accessible to students from peripheral areas who typically did not enroll in university programs. Using panel data from 1994 to 2014, we evaluate the effect of the USE reform on student mobility. We find the reform led to a substantial increase in mobility rates among high school graduates from peripheral areas to start college by about 12 percentage points, a three-fold increase with respect to the pre-reform mobility rate. This was accompanied by a 40-50% increase in the likelihood of financial transfers from parents to children around the time of the move and a 70% increase in the share of educational expenditures in the last year of the child’s high school. We find no effect on parental labor supply and divorce.
    Keywords: human capital, student migration, Russia, university admission
    JEL: J61 O15
    Date: 2017
  3. By: Simone Auer (Bank of Italy)
    Abstract: Financial Conditions Indexes (FCIs) are analytical tools devised to synthesize the information contained in a set of financial variables in order to identify how financial conditions affect economic activity. In this paper, for each of the three main Central and Eastern EU member states outside the euro area (Hungary, Poland and the Czech Republic) an FCI is constructed as an unobserved factor estimated using the EM algorithm. After having assessed their performance in providing information about future economic activity (both in-sample and out-of-sample), these FCIs are used to describe the evolution of financial conditions in the three economies between 2001 and 2016. The overall findings of this study support a narrative whereby all three economies, after their integration into the EU, enjoyed very accommodative financial conditions until 2008; the Czech Republic and Hungary subsequently turned out to have been more exposed than Poland to the spillover effects from both the global financial crisis and euro sovereign debt crisis.
    Keywords: Financial Conditions Index, dynamic factor models, forecasting, macro-financial linkages
    JEL: C43 E5 E17 E44 G01
    Date: 2017–10
  4. By: Pedro Naso; Yi Huang Author Name: Tim Swanson
    Abstract: We examine the relationship between environmental regulation and competitiveness in China. Exploiting exogenous changes in national pollution standards for three industries—ammonia, paper and cement—we test whether environmental regulation increases industry productivity. Our results show that the strong version of the Porter hypothesis does not hold, but that regulation might reallocate productivity spatially. We show that regulated industries that are located in newly developing cities see an increase in their productivity as compared to the same industries in other cities. This means that environmental regulation is more likely to drive the spatial distribution of productivity changes than it is to drive the pace and direction of technological change.
    Keywords: Tax competition; Production Technology and Environment and Development
    JEL: H71 O13 Q56 D24
    Date: 2017–10–04
  5. By: Carsten A. Holz
    Abstract: For the past nearly forty years, China has experienced average annual real GDP growth of close to ten percent, much of it driven by investment and capital accumulation. By 2014, gross capital formation had reached 46 percent of aggregate expenditures. This paper documents the role of investment in driving economic growth in China, questions how much longer China can sustain a relatively high investment rate, and examines the arguments that have been offered for an impending drastic reduction in investment. It also notes that investment in China remains broad-based across all economic sectors, with little specialization; the size of the Chinese economy may allow continued comprehensive development across all economic sectors. At the same time, the relative size of foreign investment in China has become negligible and the China growth story thus has become a domestic one.
    Keywords: investment rate, capital-output ratio, ICOR, national investment strategy, economic growth
    JEL: E01 E22 E60 O11 O53
    Date: 2017
  6. By: Antonio Rodriguez-Lopez; Miaojie Yu
    Abstract: Chinese firms faced an all-around trade liberalization process during the early 2000s: lower barriers from other countries on Chinese goods, and lower Chinese barriers on other countries’ goods and inputs. Using novel firm-level tariff data for trading Chinese manufacturing firms, this paper disentangles the effects of each type of trade liberalization on Chinese firm-level em-ployment. For each firm type, reductions in Chinese and foreign final-good tariffs are associated with job destruction in low-productivity firms and job creation in high-productivity firms. In contrast, the net effect of reductions in Chinese input tariffs is limited to job destruction in low-productivity ordinary exporters.
    Keywords: firm-level employment, firm-level tariffs, heterogeneous firms
    JEL: F12 F14 F16
    Date: 2017
  7. By: Marina Kolosnitsyna (National Research University Higher School of Economics); Natalia Khorkina (National Research University Higher School of Economics); Anton Volkov (National Research University Higher School of Economics)
    Abstract: In economic theory, alcohol consumption is considered as an addictive and sometimes irrational behaviour. Such behaviour often leads to undesirable external effects: increasing crime rates, traffic and occupational accidents, fires, and domestic violence. That is why most countries facing high levels of alcohol intake apply special measures to reduce consumption and, as a result, the external effects. Recently, the same measures have also been put in place in Russia, including price rises and time restrictions on retail alcohol sales. This paper investigates the influence of these measures on crime indicators. The empirical study is based on an econometric analysis of panel data from Russian regions, 2003-2015. The results confirm the effectiveness of time restrictions on alcohol sales with regard to juvenile and adult crime. However, the increase of vodka prices due to increasing excise tax reduces juvenile crime but does not influence crime rates among adults
    Keywords: alcohol; alcohol policies; crime; Russia.
    JEL: H23 I18
    Date: 2017
  8. By: Haichao Fan (Institute of World Economy, School of Economics, Fudan University, Shanghai, China); Yao Amber Li (Division of Economics, The Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology; Research Affiliate of the China Research and Policy Group at University of Western Ontario); Stephen R. Yeaple (Department of Economics, Pennsylvania State University; Research Associate at National Bureau of Economic Research; Research Affiliate at Ifo Institute)
    Abstract: This paper presents an analysis of the effect of China’s entry into the WTO on the quality choices of Chinese exporters in terms of their outputs and their inputs. Using highly disaggregated firm-level data, we show that the quality upgrading made possible by China’s tariff reductions was concentrated in the least productive Chinese exporters. These firms, which had been laggards in terms of quality prior to the tariff reduction, were the most aggressive in increasing the quality of their exports and their inputs and in redirecting their exports towards high income markets where demand for high quality goods is strong. Our empirical results are consistent with a simple model featuring scale effect and non-Hicks’ neutral productivity that disproportionately affects the efficiency with which firms use intermediate inputs. This latter feature does not appear in workhorse models of firm heterogeneity and endogenous quality choice which provide a distorted view of the impact of trade liberalization on quality upgrading.
    Date: 2017–10
  9. By: Carsten A. Holz; SUN Yue
    Abstract: Capital estimates are widely used in economic growth and productivity studies, for profitability considerations and wealth accounting exercises. Yet the calculation of “capital†frequently receives only cursory attention, despite the challenges posed by conceptual difficulties, the complexity of calculations, and the extensive data requirements. This paper (i) calculates long-run provincial (and national) physical capital series for China, (ii) distinguishes between capital services and wealth capital stock, and (iii) applies the most recent methodology advanced by the OECD, the U.S. Bureau of Labor Statistics, and the Australian Bureau of Statistics. The complete set of data is available online and is expected to be updated on an annual basis in the future.
    Keywords: capital services, wealth capital stock, capital concepts
    JEL: E01 E22 O11 O53
    Date: 2017
  10. By: Nimczik, Jan Sebastian
    Abstract: I introduce a novel method to identify endogenous labor markets revealed by job mobility flows. The estimation is based on tools from network analysis. Firms are in the same market if they have similar links to other firms and not because they are located in the same region. I compare endogenous markets to geographically separated markets. I analyze employment spillovers following a large local labor demand shock as well as mobility responses to import competition from China and Eastern Europe.
    JEL: J61
    Date: 2017
  11. By: Carsten A. Holz
    Abstract: The investment-intensive growth model of the People’s Republic of China (PRC) is often viewed as state-driven and ultimately unsustainable. But largely unnoticed, a shift has taken place. This paper examines the changes in investment patterns since 2003 and the potential impact of industrial policies on these patterns. The point of view is macroeconomic, based on economy-wide data with various breakdown. Significant shifts in investment patterns across sectors and ownership forms have occurred over time, supporting a new growth model with a reduced role of the state, and these shifts appear driven more by market factors than by government policies.
    Keywords: investment rate, investment policy, national investment strategy, sector distribution of investment, ownership distribution of investment, causes of investment, economic growth
    JEL: E22 E60 L52 O11 O25 O53
    Date: 2017
  12. By: Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); YingDeng (University of International Business and Economics); Xiangjun Ma (University of International Business and Economics)
    Abstract: This paper studies the fact that 37 percent of the internal migrants in China do not sign a labor contract with their employers, as revealed in a nationwide survey. These contract-free jobs pay lower hourly wages, require longer weekly work hours, and provide less insurance or on-the-job training than regular jobs with contracts. We find that the co-villager networks play an important role in a migrant’s decision on whether to accept such insecure and irregular jobs. By employing a comprehensive nationwide survey in 2011 in the spatial autoregressive logit model, we show that the common behavior of not signing contracts in the co-villager network increases the probability that a migrant accepts a contract-free job. We provide three possible explanations on how networks influence migrants’ contract decisions: job referral mechanism, limited information on contract benefits, and the "mini labor union" formed among co-villagers, which substitutes for a formal contract. In the sub-sample analysis, we also find that the effects are larger for migrants whose jobs were introduced by their covillagers, male migrants, migrants with rural Hukou, short-term migrants, and less educated migrants. The heterogeneous effects for migrants of different employer types, industries, and home provinces provide policy implications.
    Keywords: Contract, Co-Villager Network, Spatial Autoregressive Logit Model, Internal Migrants
    JEL: O15 R12 J14
    Date: 2017–09
  13. By: Shihe Fu (A209)
    Abstract: This paper develops a new approach for measuring the stringency of a major form of land use regulation, building height restrictions, and applies it to an extraordinary data set of land-lease transactions from China. Our theory shows that the elasticity of land price with respect to the floor area ratio (FAR), a building height indicator, is a measure of the regulation's stringency (the extent to which FAR is kept below the free-market level). Using a national sample, estimation allowing this elasticity to be city-specific shows variation in the stringency of FAR regulation across Chinese cities. Single-city estimation for Beijing shows that stringency varies with site characteristics.
    Keywords: floor-area ratio, density restriction, urban development
    JEL: R14 R52
    Date: 2017–10–16
  14. By: Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Peter H. Egger (ETH Zurice, CEPR, CESifo, GEP); Michaela Kesina (ETH Zurich)
    Abstract: This paper studies the determinants of firm-level revenues, as a measure of the performance of firms in China's domestic and export markets. The analysis of the determinants of the aforementioned outcomes calls for a mixed linear-nonlinear econometric approach. The paper proposes specifying a system of equations, which is inspired by Basmann's work and recent theoretical work in international economics and conducts comparative static analyses regarding the role of exogenous shocks to the system to flesh out the relative importance of transmissions across outcomes.
    Keywords: Spatial Econometrics, Spillovers, Panel-Data Econometrics, Nonlinear Systems, Firm- Level Sales, Chinese Firms
    JEL: C23 C31 D24 L65
    Date: 2017–09
  15. By: Qing, He; Korhonen, Iikka; Zongxin, Qian
    Abstract: In emerging market economies, transmission of monetary policy through the foreign exchange market is complicated by the coexistence of financial restrictions and arbitrages. Using China as an example, we show that the coexistence of exchange rate interventions, capital controls and an on-shore-offshore exchange rate differential makes the long run equilibrium in the currency market nonlinear. Disturbances to this nonlinear long run equilibrium could offset the impact of monetary policy actions on domestic price stability. Omitting such nonlinearity leads to biased inference on the effectiveness of monetary policy.
    JEL: E52 F31 F40
    Date: 2017–10–21
  16. By: Heiwai Tang; Yifan Zhang
    Abstract: We study the global diffusion of culture through multinationals, focusing on gender norms. Using data on manufacturing firms in China over 2004-2007, we find that foreign affiliates from countries with a more gender-equal culture tend to employ proportionally more women and appoint female managers. They also generate cultural spillovers, increasing domestic firms’ female labor shares in the same industry or city. Based on a multi-sector model with firm heterogeneity in productivity, gender biases, and learning, we perform counterfactual exercises. Hypothetically eliminating firms’ gender biases raises China’s aggregate total factor productivity by 5%, of which spillovers from multinationals account for 19%.
    Keywords: cultural spillover, gender inequality, FDI, misallocation
    JEL: F11 F21 J16 L22 O47
    Date: 2017
  17. By: Pedro Naso Author name: Tim Swanson
    Abstract: We propose a novel theoretical framework to study how environmental regulation shapes economic development in a developing country such as China. We develop a dynamic tax competition model in which local governments, located in development zones, use variation in taxes to attract workers to their jurisdictions. Their objective is to maximize tax revenue less local health costs that are proportional to local pollution. Our main result is that competition generates a reallocation of productive factors when national regulation is introduced. Local governments in more productive regions set greater production taxes than in other regions. This makes workers and output to shift from more to less developed regions of the country.
    Keywords: Tax competition; Asymmetric tax competition; Environment and Development
    JEL: H71 H72 Q56 O13
    Date: 2017–10–05
  18. By: Tobias D. Ketterer
    Abstract: This paper investigates micro-level effects of export market entry on firm-level productivity. In particular, we study the effects of single and multiple export market entry, and additionally differentiate between the effects of export market entry by destination country. To isolate the impact of participation in foreign markets we employ matching techniques. Using micro-level trade and balance sheet data for firms in Lithuania, we show that single export market entry is linked with larger post-entry productivity growth for new export market entrants, relative to similar non-exporting firms. Moreover, we find support for more learning-by-exporting when looking at firms exporting to more sophisticated markets with presumably higher productivity standards.
    JEL: F14 F18 Q56
    Date: 2017–07
  19. By: Hideo Kobayashi
    Abstract: This study aims to clarify the current situation and traits of the Vietnamese automobile industry by showing the status of its automobile and auto parts industry. The whole picture of the automobile industry in Viet Nam is discussed first, and then the vulnerability of the auto parts industry, which is the biggest feature and an issue to be addressed in the future, is highlighted as it is the auto parts industry that ultimately determines the competitiveness of the auto industry. The study looked at studies that have been undertaken on this subject. The number of analytical studies dedicated to the auto industry in Viet Nam is extremely small. Besides, most of them have been conducted only in the context of the Association of Southeast Asian Nations (ASEAN) automobile industry in general. Studies by Tetsuya Kobayashi (2013) and Yingshan Jin (2016) are among them. These studies are basically intended to provide the actual picture of the automobile industry in Viet Nam. This research paper will focus on the auto parts industry in Viet Nam with the aim of getting closer to its core. It should be noted that many of auto parts suppliers in Viet Nam have started operations as motorcycle parts suppliers, and some of them have transformed from motorcycle to auto parts suppliers. Section 1 describes the establishment of the motorcycle industry in Viet Nam and the formation and expansion of the motorcycle parts industry. Section 2 describes the start of automobile production and the peculiarity of the supply chain formation. Section 3 discusses the possibility of converting from motorcycle parts suppliers to auto parts suppliers. During this process, the global value chain advocated by Gary Gereffi and Miguel Korzeniewicz (1994) is considered to see if and how it will apply and evolve in Viet Nam.
    Keywords: Viet Nam, motorcycle and auto parts, mixed production system of 2-wheeled and 4-wheeled vehicles, TOYOTA MOTOR VIETNAM CO., LTD., Truong Hai Auto Corporation Group (THACO)
    JEL: L62
    Date: 2017–08
  20. By: Zukowska-Gagelmann, Katarzyna
    Abstract: This paper studies the effects of the European Union (EU) regional policy transfers on internal migration across regions in Poland for the period 2004-2014. Based on a gravity model of migration, it tests empirically using the Poisson Pseudo-Maximum Likelihood (PPML) estimator whether EU transfers affect the level and the pattern of bilateral migration flows. For the first eleven years of the EU membership, the study finds no evidence of EU funding discouraging residents’ mobility. On the contrary, residents of regions with higher EU transfers attracted are relatively more likely to leave. This effect is especially significant in poorer regions. In addition, EU transfers help regions attract more migrants. Both the “push” and the “pull” effect of the EU transfers on migration intensified over time. Hence, EU regional funding did not hamper, but rather fostered internal migration in Poland leading to a higher regional concentration of population and prosperity. This, however, works against the objective of the EU regional policy, which is to promote economic and social convergence across regions.
    Keywords: EU regional policy,EU structural funds,internal migration,migration determinants,Poland,panel data,gravity model,PPML
    Date: 2017

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