nep-tra New Economics Papers
on Transition Economics
Issue of 2017‒11‒19
seventeen papers chosen by
J. David Brown
United States Census Bureau

  1. Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China By Tasso Adamopoulos; Loren Brandt; Jessica Leight; Diego Restuccia
  2. Russia’s Crony Capitalism: Stagnant But Stable By Anders Aslund
  3. From Taxing to Subsidizing Farmers in China Post-1978 By Anderson, Kym
  4. Chinese Industrial Development and Policy Adjustment in Anaphase of Industrialization By Xu, Jianwei
  5. What Makes Youth Become NEET? The Evidence from Russian LFS By Anna Zudina
  6. CESEE Back on Track to Convergence By Vasily Astrov; Rumen Dobrinsky; Vladimir Gligorov; Richard Grieveson; Doris Hanzl-Weiss; Peter Havlik; Gabor Hunya; Sebastian Leitner; Isilda Mara; Olga Pindyuk; Leon Podkaminer; Sandor Richter; Hermine Vidovic
  7. RIO Country Report 2016: Romania By Mariana Chioncel; Jana Zifciakova
  8. Has the Development Gap between the Ethnic Minority and Majority Groups Narrowed in Viet Nam? Evidence from Household Surveys By Fujii, Tomoki
  9. Structure of Capital Flows and Exchange Rate: The Case of Croatia By Maja Bukovšak; Gorana Lukinić Čardić; Nina Ranilović
  10. Raising living standards and supporting investment by boosting skills in Slovenia By Rory O’Farrell
  11. Rebalancing in China: a taxation approach By Damien Cubizol
  12. The Distributional Impact of Fiscal Policy in Georgia By Cesar Cancho; Elena Bondarenko
  13. Who Benefits from Fiscal Redistribution in the Russian Federation? By Luis F. Lopez-Calva; Nora Lustig; Mikhail Matytsin; Daria Popova
  14. Expressways in China: Impacts on Growth and the Environment By Guojun He
  15. Catch-up Cycle: A General Equilibrium Framework By Peilin, Liu; Shen, Jia; Xun, Zhang
  16. Social value orientation and topography in urbanization: A case of Beijing, China By Zhang Jingchao; Koji Kotani; Tatsuyoshi Saijo
  17. The appropriateness of the macroeconomic imbalance procedure for Central and Eastern European countries By Kämpfe, Martina; Knedlik, Tobias

  1. By: Tasso Adamopoulos; Loren Brandt; Jessica Leight; Diego Restuccia
    Abstract: We use household-level panel data from China and a quantitative framework to document the extent and consequences of factor misallocation in agriculture. We find that there are substantial frictions in both the land and capital markets linked to land institutions in rural China that disproportionately constrain the more productive farmers. These frictions reduce aggregate agricultural productivity in China by affecting two key margins: (1) the allocation of resources across farmers (misallocation) and (2) the allocation of workers across sectors, in particular the type of farmers who operate in agriculture (selection). We show that selection can substantially amplify the static misallocation effect of distortionary policies by affecting occupational choices that worsen the distribution of productive units in agriculture.
    Keywords: Agriculture, misallocation, selection, productivity, China.
    JEL: O11 O14 O4 E02 Q1
    Date: 2017–11–13
  2. By: Anders Aslund
    Abstract: A conundrum this paper aims to explain is how Russia, a country that pursues such rigorous and conservative macroeconomic policies can be so tolerant of state and crony capitalism. The key issue is what Putin’s economic model amounts to, which is being presented already in section one. Section two reviews Russia’s recent economic performance, while the three ensuing sections examine three key aspects of the Russian economy, namely the eminent macroeconomic policy, the role of energy, and the impact of the Western sanctions since 2014. The final section attempts to answer the likelihood of serious market reforms.
    Keywords: Russia, crony capitalism, corruption, macroeconomic policy, economic growth, gas and oil
    JEL: D72 D73 E01 E60 E65 H63 P48 Q43
    Date: 2017–09
  3. By: Anderson, Kym
    Abstract: This paper has three purposes: to document the pace and extent to which China's policy regime has transitioned over the past four decades from taxing to subsidizing its farmers relative to its producers of other tradable goods; to present projections of the world economy to 2030 that suggest China will continue to become more food import-dependent under current policies and productivity growth rates; and to explore alternative policy instruments for remaining food secure and ensuring that farmers are not losers from economic growth. The data used to estimate the extent of distortions to producer incentives come from freely available World Bank and OECD sources that allow direct comparisons of China's policy developments with those of more- and less-advanced economies. The estimates reveal that China has made the transition from negative to positive assistance to farmers far faster than the average developing country, and almost as fast as its Northeast Asian neighbours did in earlier decades at similar levels of real per capita incomes. That has helped to ensure China remained food self-sufficient during the first two decades of reform. However, food self-sufficiency is now declining and is projected to continue to do so over the next decade under current policies. Preventing food self-sufficiency from declining further by increasing agricultural protection is now unnecessary thanks to the information and communication technology revolution that enables the government to use conditional cash transfers to directly support the adjustment and well-being of poor farm households.
    Keywords: Agricultural support policies; China's economic growth; Food security; Multiple exchange rates
    JEL: F13 F14 Q17 Q18
    Date: 2017–11
  4. By: Xu, Jianwei (National Development & Reform Commission (NDRC)
    Abstract: Through nearly forty years rapid development, China has entered the anaphase of industrialization. With the changes of factor conditions and development environment, the traditional industrial development model is encountering serious bottleneck restriction. Meanwhile, the growth power of industry tends to weaken gradually. The thirteenth five-year plan period is the key period of realizing industrialization. Industrial development formation will experience deep adjustment not only including the changes of proportion and speed, but also including the changes of industrial structure, development mode and driving factors. Therefore, the government should timely adjust industrial policy, focus on accumulation of innovation elements and optimization of innovation environmental, and allow the market to play a decisive role in resource allocation.
    Keywords: China; industrialization; industrial adjustment; Anaphase of Industrialization
    Date: 2017–11–08
  5. By: Anna Zudina (National Research University Higher School of Economics)
    Abstract: This article addresses the issue of socio-demographic factors of becoming NEET, i.e. dropping out of employment, education or training for individuals aged 15-24. Empirical analysis was based on the micro-data of Russian Labour Force Survey (LFS) by Federal State Statistics Service for 1995-2015. The paper introduces the results of the analysis of the impact of education on NEET status, which were conducted for Russia on the basis of regression estimations for the first time. Contrary to previous studies, higher education doesn’t provide a universal ”safety net” from NEET status for all young people. NEET-unemployed youth in Russia mainly have tertiary education of one level or another, while NEET inactivity is concentrated among those who have only primary education and the size of the effect becomes even more pronounced for rural residents and females
    Keywords: youth labour market, NEET, LFS, youth unemployment,
    JEL: J13 J21 J24 Z13
    Date: 2017
  6. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: GDP forecasts for 2017 have been revised upwards for all Central and East European EU Member States (EU-CEE). Farther east, especially in Russia, but also in the Western Balkans, the post-crisis recovery has been much weaker. Private consumption is the main growth driver, underpinned by rising wages and household incomes. Nonetheless, CESEE labour cost competitiveness is not yet endangered. Gradually, along with expanding private consumption, investments have also gained strength and have increasingly emerged as a driver of growth. Trade balances have improved, and many EU-CEE countries (as well as Russia) also report current account surpluses. Growth is thus becoming broader based, more robust, and probably also more sustainable. Improvements in labour markets are spectacular, with rising employment levels mirrored by declining unemployment. Simultaneously, emerging labour shortages are acting as a potential constraint on future growth. In terms of current GDP growth prospects, the CESEE region is split into three sub-regions the EU-CEE, with average annual growth close to 4% in the forecasting period; the Western Balkans, with GDP growing by around 3% per year; and finally, the Commonwealth of Independent States (CIS) and Ukraine, where growth will be around 2% annually in the medium term. The EU-CEE region is thus catching up again with Western Europe, and the process of economic convergence has resumed at a greater pace than previously expected. This catching-up process will continue probably for the rest of the decade. Importantly, economic convergence is not expected to resume in Russia, where the lack of structural change, lasting investment climate deficiencies and geopolitical conflicts impose a burden on growth. Meagre growth in Russia adversely affects the growth prospects of her CIS partners. But there are several other CESEE countries where recent political developments are not very conducive to growth and European integration in the medium term. However, for the moment, economic growth seems to be unaffected by domestic political instability. Globally, economic resilience persists, regardless of the elevated geopolitical risks. The Forecast Report also includes three special topics (on income convergence with Western Europe, on euro accession and on higher yields on hard currency sovereign debt in CESEE). The key findings of these reports are Convergence in terms of per capita GDP levels in CESEE is a long-term process; by 2050, most of the region will only have bridged half the current gap with the EU-28 level; during the next decade, no country in the region will catch up with average EU-28 wealth levels, and advanced EU-CEE countries like Poland and Hungary will not even reach the 80% mark. Despite sustained criticism since its inception, the euro may yet survive and attract new members in the EU-CEE; it is in the interests of Croatia and Bulgaria to join, and is potentially advantageous for Hungary and Poland; the case is less clear cut for the Czech Republic and Romania, although in neither case would accession be harmful. Many CESEE sovereigns are not in a markedly better shape to deal with a sharp rise in debt yields than they were 10 years ago, and in some cases they are in a worse position; for countries with heavy debt loads and little apparent prospect of achieving high and sustained growth, bond markets could panic, leading to funding difficulties; Ukraine stands out as particularly vulnerable from a sovereign risk perspective, while we conclude that Belarus and many countries in the Western Balkans are also in a weak position.
    Keywords: CESEE, economic forecast, Europe, Central and Eastern Europe, Southeast Europe, Western Balkans, new EU Member States, CIS, Belarus, Russia, Ukraine, Kazakhstan, Turkey, growth convergence, political uncertainties, external risks, EU funds, investment, consumption-led growth, unemployment, employment, wage growth, inflation, competitiveness, industrial production
    JEL: E20 O47 O52 O57 P24 P27 P33 P52
    Date: 2017–11
  7. By: Mariana Chioncel; Jana Zifciakova (European Commission - JRC)
    Abstract: The 2016 series of the RIO Country Report analyses and assesses the development and performance of the national research and innovation system of the EU-28 Member States and related policies with the aim of monitoring and evaluating the EU policy implementation as well as facilitating policy learning in the Member States.
    Keywords: research and innovation, Romania, innovation system
    Date: 2017–10
  8. By: Fujii, Tomoki (Asian Development Bank Institute)
    Abstract: Using household data for rural northern Viet Nam between 1993 and 2014, we find that the ethnic minority group continued to lag behind the majority group in various development indicators despite the overall improvement in living standards. Our regression and decomposition analyses show that the structural differences between the two groups are an important cause of the persistent development gap. However, the nature of structural differences changed over time and no single source of structural difference explains the persistent gap. We argue that more minority-appropriate policies are needed to lift poor minority households out of poverty further and reduce the development gap.
    Keywords: development gaps; ethnicity; ethnic minority; structural differences; Oaxaca-Blinder decomposition; poverty decomposition; inequality
    JEL: I32 O10
    Date: 2017–02–08
  9. By: Maja Bukovšak (The Croatian National Bank, Croatia); Gorana Lukinić Čardić (The Croatian National Bank, Croatia); Nina Ranilović (The Croatian National Bank, Croatia)
    Abstract: The paper analyses the impact of different types of capital flows to Croatia on the kuna exchange rate. SVAR models based on Cholesky decomposition with block exogeneity restrictions are estimated using different types of capital flows and the key finding is that the structure of capital flows matters for their impact on the exchange rate. On the one hand, debt capital inflows lead to kuna appreciation, irrespective of their maturity, while in terms of sectoral structure this is mostly due to corporate and government borrowing. On the other hand, equity capital flows seem to affect it in the opposite direction, which is in line with results from other empirical research. The opposite effects of debt and equity flows could stem from the differences in their relative orientations towards the tradable versus the non-tradable sector, with the latter being more prominent in debt flows. The paper also confirms that capital flows to the banking sector have no effect on the exchange rate, providing support to the intensive use of countercyclical macroprudential measures by the central bank. These findings are relevant for the design of monetary policy, especially in countries like Croatia where central bank uses the exchange rate of the kuna against the euro as the main tool for achieving its primary objective of price stability.
    Keywords: capital inflows, kuna exchange rate, SVAR with block exogeneity
    JEL: F32 F41 C51 C32
    Date: 2017–07
  10. By: Rory O’Farrell (OECD)
    Abstract: Higher living standards and well-being, as well as convergence with more advanced economies, will depend on achieving higher productivity, which in turn would be boosted by more investment in capital. In particular, investment in knowledge-based capital and greater inward FDI can help Slovenia develop its economy and improve global integration. Complementing such investments requires a workforce that is given the opportunities and incentives to continuously engage in upskilling and seek employment where they are most productive, in the process raising their incomes. Reskilling can be improved by boosting the links between educational institutions and local and foreign firms, helping Slovenia to overcome its problems of long-term unemployment and low employment rates of older workers. Improving life-long learning will allow workers to adapt to a changing economic environment and thereby contribute to their own well-being. Adjusting wage determination and broadening labour market activation measures can smooth these adjustments. This Working Paper relates to the 2017 OECD Economic Survey of Slovenia ( y-slovenia.htm).
    Keywords: adult education, human capital, labour market, productivity, reallocation, skills, training
    JEL: J21 J24 J32
    Date: 2017–11–20
  11. By: Damien Cubizol (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69130 Ecully, France)
    Abstract: The rebalancing of the Chinese economy is analyzed through a heterogeneous taxation of various types of firms. Based on a two-country dynamic general equilibrium model, the paper applies tax reforms to raise consumption, reduce some firms' overinvestment and maintain a high level of welfare. To rebalance consumption and investment, taxation may allow reallocating a part of the labor force to firms that are not overinvesting. Moreover, the correction of distortions in production factor costs (capital and labor) is necessary during certain reforms applied in the model; that is, on the one hand, higher credit costs for State-Owned Enterprises (SOEs) and, on the other hand, a catch-up of foreign firms' wages by domestic firms (public and private). In this model, firms' credit cost is a key channel because it impacts both firms' investment and household consumption (through returns on savings). These consumption and investment reforms bring welfare benefits to households, and the results are close to direct welfare maximization. In this framework, the rebalancing of the domestic demand does not require the readjustment of the external financial position because the aggregate savings rate remains high and the supply of domestic assets is reduced. Finally, another theoretical framework proposes a heterogeneous taxation of consumption across home and foreign goods to enhance consumption.
    Keywords: The Chinese economy, tax reforms, financial intermediation, consumption, investment, welfare, foreign assets
    JEL: F20 F30 H20 H30 P20 P30
    Date: 2017
  12. By: Cesar Cancho (Poverty & Equity Global Practice at the World Bank); Elena Bondarenko (Macroeconomics & Fiscal Management Global Practice at the World Bank)
    Abstract: This paper uses the 2013 Integrated Household Survey, collected by the Central Statistical Agency of Georgia (GeoStat), and data concerning government revenues and expenditures collected by the Ministry of Finance (MoF) along with other administrative agencies, and applies the CEQ methodology to analyze the progressivity of Georgia’s tax and transfer systems. The effects of a variety of policies are individually described, including personal income tax (PIT), value added tax (VAT) and excise tax. In addition, this paper assesses direct and in-kind transfers made by the Georgian government. The distributional effect of indirect subsidies, which are confined to the capital city, Tbilisi, are also considered, as well as the Agricultural Card program. The results show a stark difference between direct and indirect taxation. Direct taxes are progressive, and income tax is largely borne by high-income deciles. Meanwhile, the burden of indirect taxation is more evenly distributed, with the poor losing a higher percentage of income. Thus, the tax system is regressive. Overall, fiscal policy is progressive and equalizing, even before in-kind transfers for early education, and the Medical Insurance for the Poor (MIP), and Universal Health Care (UHC) programs are taken into account. The Targeted Social Assistance Program (TSA) and old-age pensions play a significantly pro-poor role. Fiscal incidence reduces poverty (under $2.50 USD’s per day) over 9 percentage points, the largest drop in poverty amongst the countries where CEQ analysis was performed. This paper concludes that excise taxes should be reassigned or eliminated to reduce regressivity, while PIT and the property tax could be broadened, which would expand the tax base.
    Keywords: fiscal incidence, taxation, social spending, inequality, poverty, Georgia
    JEL: H22 D31 I38
    Date: 2017–05
  13. By: Luis F. Lopez-Calva (World Bank); Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University, Commitment to Equity Institute (CEQI).); Mikhail Matytsin (World Bank); Daria Popova (World Bank)
    Abstract: This paper shows that the system of taxes and transfers in Russia has a limited redistributive capacity vertically (among different income groups)—particularly when pensions are assumed to be deferred income—though it does achieve significant horizontal redistribution (among sociodemographic groups). The main results of the analysis, concern the Russian fiscal system’s limited redistributive effect,low effectiveness in poverty reduction, and relatively poor net financial impact on all demographic groups except pensioners. Firstly, benchmarking shows that the Russian system of direct taxes and transfers does not compare well with countries that achieve larger redistribution, in particular European Union countries. Secondly,net direct taxes (incorporated into disposable income) are always equalizing, but net indirect taxes (incorporated into consumable income) are unequalizing in both the benchmark and the sensitivity analysis scenarios. Thirdly, under the benchmark scenario, the net effect of the fiscal system is actually poverty increasing. Finally, it appears that all households of working-age people with and without children are net payers under the Russian fiscal system, while only pensioners’ households benefit from the fiscal redistribution in Russia under both scenarios. The main conclusion that emerges from this analysis is that there are both equity and efficiency reasons to review the tax and social spending structure. Such an exercise may require, however, a good understanding of the political economy of a potential reform.
    Keywords: fiscal policy, fiscal incidence, social spending, inequality, poverty, taxes, Russia
    JEL: H22 I38 D31
    Date: 2017–05
  14. By: Guojun He (Assistant Professor, Division of Social Science, Division of Environment, and Economics Department, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology)
    Abstract: Guojun He, Faculty Associate of HKUST IEMS, explains why a single, unified economic or environmental policy may backfire, using the case of China’s national expressways. He found that while the cross-nation system was originally conceived as a unified economic policy, counties along the roads were affected very differently in terms of economic growth and pollution.
    Date: 2017–09
  15. By: Peilin, Liu (Asian Development Bank Institute); Shen, Jia (Asian Development Bank Institute); Xun, Zhang (Asian Development Bank Institute)
    Abstract: Certain stylized facts are common among successful economic latecomers: an inverse U-shaped gross domestic product and capital per capita growth rate, high growth rates during the catch-up period, and rapid structural changes. We propose, for the first time, a general equilibrium framework to document the catch-up cycle that a successful latecomer is likely to experience. We argue that technology adoption and imitation, and diminishing marginal returns to capital are the two driving forces of the catch-up cycle. The technological gap and speed/efficiency of technological catching-up are two fundamental factors for successful catching-up. This paper concludes with a case study for the People’s Republic of China and sheds light on the different policy choices at various stages of the catch-up cycle.
    Keywords: Catch-up cycle; Latecomers; General Equilibrium; Total Factor Productivity (TFP); China
    JEL: E13 E60 O11
    Date: 2017–02–03
  16. By: Zhang Jingchao (School of Economics and Management, Kochi University of Technology); Koji Kotani (School of Economics and Management, Kochi University of Technology); Tatsuyoshi Saijo (School of Economics and Management, Kochi University of Technology)
    Abstract: Urbanization leads to cultural changes that shape people's social values and behaviors. Topographical variation of mountainous, hilly and plains areas is considered one of the main factors to reflect different degrees of urbanization, following distance to urban cities. Therefore, it is hypothesized that there may be a topographical difference in distributions of social value orientations (SVOs) that categorize people's social preferences into the prosocial, the proself and the unidentified. To examine this hypothesis, we conduct field surveys and experiments in mountainous, hilly and plains areas of Beijing, collecting sociodemographic information and SVOs of 596 samples. We find that proportions of proself people are higher in plains and hilly areas than mountainous areas, as the distance to the center of Beijing becomes shorter. Also, a proportion of unidentified people is prominent in hilly areas as a transitional society. Overall, this result suggests that social preferences transition from the prosocial to the unidentified and then to the proself with the topographical changes, implying that new social mechanisms shall be necessary to affect people's social preferences for inducing prosocial behaviors in the progress of urbanization. Otherwise, important social problems such as air pollution or sustainability, which require further cooperation for the solutions, will pose more danger in the future.
    Keywords: Social value orientation, topography, urbanization
    Date: 2017–10
  17. By: Kämpfe, Martina; Knedlik, Tobias
    Abstract: The experience of Central and Eastern European countries (CEEC) during the global financial crisis and in the resulting European debt crises has been largely different from that of other European countries. This paper looks at the specifics of the CEEC in recent history and focuses in particular on the appropriateness of the Macroeconomic Imbalances Procedure for this group of countries. In doing so, the macroeconomic situation in the CEEC is highlighted and macroeconomic problems faced by these countries are extracted. The findings are compared to the results of the Macroeconomic Imbalances Procedure of the European Commission. It is shown that while the Macroeconomic Imbalances Procedure correctly identifies some of the problems, it understates or overstates other problems. This is due to the specific construction of the broadened surveillance procedure, which largely disregarded the specifics of catching-up economies.
    Keywords: macroeconomic imbalances procedure,Central and Eastern European countries,signals approach,early warning system
    JEL: E60 F53 G01
    Date: 2017

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