nep-tra New Economics Papers
on Transition Economics
Issue of 2018‒08‒27
nineteen papers chosen by
J. David Brown
United States Census Bureau

  1. Demographics and FDI: Lessons from China’s One-Child Policy By Rajnish Mehra; John Donaldson; Christos Koulovatianos; Jian Li
  2. Unintended Consequences of China’s New Labor Contract Law on Unemployment and Welfare Loss of the Workers By Akee, Randall; Zhao, Liqiu; Zhao, Zhong
  3. The role of regional and sectoral factors in Russian inflation developments By Elena Deryugina; Natalia Karlova; Alexey Ponomarenko; Anna Tsvetkova
  4. Involuntary return migration to Kosovo: Tackling challenges for successful reintegration By Möllers, Judith; Traikova, Diana; Herzfeld, Thomas; Bajrami, Egzon
  5. Notching R&D Investment with Corporate Income Tax Cuts in China By Zhao Chen; Zhikuo Liu; Juan Carlos Suárez Serrato; Daniel Yi Xu
  6. Market power in the international fertiliser market: empirical evidence for exports from Russia By Goretzki, Philipp; Perekhozhuk, Oleksandr; Glauben, Thomas; Loy, Jens-Peter
  7. E-Commerce Integration and Economic Development: Evidence from China By Victor Couture; Benjamin Faber; Yizhen Gu
  8. What are Migrants Willing to Pay for Better Home Country Institutions?: The Case of Viet Nam By Ngoc Thi Minh Tran; Michael P. Cameron; Jacques Poot
  9. The Shattered “Iron Rice Bowl†— Intergenerational Effects of Economic Insecurity During Chinese State-Owned Enterprise Reform By Nancy Kong; Lars Osberg; Weina Zhou
  10. Romania; Financial Sector Assessment Program-Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision By International Monetary Fund
  11. Romania; Financial Sector Assessment Program-Technical Note on Calibration of a Debt-Service-to-Income Limit in Romania-Evidence from Microdata By International Monetary Fund
  12. Urbanization, trade openness, and air pollution: a provincial level analysis of China By Wei Zheng; Patrick Paul Walsh
  13. Human Capital and Migration: a Cautionary Tale By Salvador Navarro; Jin Zhou
  14. Household Saving, Financial Constraints, and the Current Account in China By Ayşe İmrohoroğlu; Kai Zhao
  15. Romania; Financial Sector Assessment Program-Technical Note-Systemic Risk Analysis and Stress Testing the Financial Sector By International Monetary Fund
  16. Romania; Financial Sector Assessment Program By International Monetary Fund
  17. The internationalization of the Renminbi and the evolution of China’s monetary policy By Ramaa Vasudevan
  18. Romania; Financial Sector Assessment Program-Technical Note-Balance Sheet Analysis By International Monetary Fund
  19. Romania; Financial Sector Assessment Program-Technical Note-Macroprudential Policy Framework and Tools By International Monetary Fund

  1. By: Rajnish Mehra (National Council of Applied Economic Research, New Delhi, Department of Economics, Arizona State University & NBER); John Donaldson (Columbia Business School, Columbia University); Christos Koulovatianos; Jian Li (Department of Economics, University of Luxembourg)
    Abstract: Lucas (1990) argues that the neoclassical adjustment process fails to explain the relative paucity of FDI inflows from rich to poor countries. In this paper we consider a natural experiment: using China as the treated country and India as the control, we show that the dynamics of the relative FDI flows subsequent to the implementation of China’s one-child policy, as seen in the data, are consistent with neoclassical fundamentals. In particular, following the introduction of the one-child policy in China, the capital-labor (K/L) ratio of China increased relative to that of India, and, simultaneously, relative FDI inflows into China vs. India declined. These observations are explained in the context of a simple neoclassical OLG paradigm. The adjustment mechanism works as follows: the reduction in the (urban) labor force due to the one-child policy increases the savings per capita. This increases the K/L ratio and reduces the marginal product of capital (MPK). The reduction in MPK (relative to India) reduces the relative attractiveness of investment in China and is thus associated with lower FDI/GDP ratios. Our paper contributes to the nascent literature exploring demographic transitions and their effects on FDI flows.
    Keywords: Lucas paradox, capital-labor ratio, FDI-intensity, one-child policy
    JEL: F11 F21 J11 O11 E13
    Date: 2018–01
  2. By: Akee, Randall; Zhao, Liqiu; Zhao, Zhong
    Abstract: China's new Labor Contract Law, which intended to strengthen the labor protection for workers, went into effect on January 1, 2008. The law stipulated that the maximum cumulative duration of successive fixed-term (temporary) labor contracts is 10 years, and employees working for the same employer for more than 10 consecutive years are able to secure an open-ended (permanent) labor contract under the new law, which is highly desirable to employees. However, in order to circumvent the new Labor Contract Law, some employers may have dismissed workers, after the passage of the new law, who had worked in the same firm for more than 10 years. Using data from the 2008 China General Social Survey, we find strong evidence that firms did in fact dismiss their formal-contract employees who have been employed for more than 10 years. Additionally, using a regression discontinuity design based on this exogenous change in unemployment status for this particular group of workers, we show that the dismissed workers suffered significant welfare loss in terms of happiness. Our results are robust to various specifications and placebo tests.
    Keywords: Labor Contract Law,Unemployment,Happiness,Regression Discontinuity Design,China
    JEL: J41 J64 I31
    Date: 2018
  3. By: Elena Deryugina (Bank of Russia, Russian Federation); Natalia Karlova (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation); Anna Tsvetkova (Bank of Russia, Russian Federation)
    Abstract: This paper examines the relative roles of region-specific and commodity-specific developments in the consumer price setting in Russia. For this purpose, we estimate a dynamic hierarchical factor model using inflation rates across regions and sectors. We found little evidence of association between region-specific factors and inflation developments, although there are several regions (mostly located in the Far East and North Caucasus) where the idiosyncratic component may contribute substantially. Conversely, the role of cross-commodity relative price changes in inflation developments in Russia is substantial.
    Keywords: dynamic hierarchical factor model, regional inflation, relative prices, Russia
    JEL: C38 E31 D4
    Date: 2018–07
  4. By: Möllers, Judith; Traikova, Diana; Herzfeld, Thomas; Bajrami, Egzon
    Abstract: Kosovo currently faces the challenge of reintegrating thousands of returned migrants who left the country in 2014 /2015. This migration wave was discussed in the IAMO Policy Brief 24. After facing restrictive asylum policies in the destination countries in Western Europe, more than 20,000 people returned to Kosovo in 2015 and 2016. Based on the results of an empirical survey of around 180 returnees, this policy brief discusses a number of reintegration issues. In addition to low levels of education and skills, reintegration is impeded above all by the precarious state of Kosovo’s labour market. This is compounded by a psychological burden that often arises from the sometimes traumatic experience of migration and involuntary return. The migration of Kosovars is at risk of becoming a vicious cycle composed of involuntary return and problems reintegrating, resulting in a further attempt at migration. Indeed, the results of the study show that many returnees do not intend to remain in Kosovo.
    Keywords: Community/Rural/Urban Development, Labor and Human Capital
    Date: 2017–11–24
  5. By: Zhao Chen; Zhikuo Liu; Juan Carlos Suárez Serrato; Daniel Yi Xu
    Abstract: We analyze the effects of a Chinese policy that awards substantial corporate tax cuts to firms that increase R&D investment over a given threshold, or notch. We exploit this quasi-experimental variation with administrative tax data in order to shed light on longstanding questions on the effects of fiscal incentives for R&D. We find large responses of reported R&D using a cross-sectional "bunching" estimator that is new to the R&D literature. We also find significant increases in firm-level productivity, even though about 30% of the increase in R&D is due to relabeling of administrative expenses. Anchored by these reduced-form effects, we estimate a structural model of R&D investment and relabeling that recovers a 9.8% return to R&D. We simulate alternative policies and show that firm selection into the program and the relabeling of R&D determine the cost-effectiveness of the policy, and the effects on productivity growth.
    JEL: H2 O3
    Date: 2018–06
  6. By: Goretzki, Philipp; Perekhozhuk, Oleksandr; Glauben, Thomas; Loy, Jens-Peter
    Abstract: This study presents empirical evidence for the behaviour of Russian exporters in the international fertiliser market. Russia is in the spotlight since the potash cartel has collapsed. In 2012, Russia became the world’s second-largest exporter increasing its potash exports from 1996 to 2012 more than two times. PTM approach developed by Krugman (1986, 1987) is chosen to test the market behaviour. Imperfect competition in the Russian export market for nitrogen fertilisers is revealed in two-thirds of the destination countries under study. In the export market for potash, a sufficiently perfect market is found in only one out of 9 countries.
    Keywords: Industrial Organization
    Date: 2017–08–28
  7. By: Victor Couture (University of California, Berkeley); Benjamin Faber (UC Berkeley); Yizhen Gu (UC Berkeley)
    Abstract: The number of people buying and selling products online in China has grown from practically zero in 2000 to more than 400 million by 2015. Most of this growth has occurred in cities. In this context, the Chinese government recently announced the expansion of e-commerce to the countryside as a policy priority with the objective to close the rural-urban economic divide. As part of this agenda, the government entered a partnership with a large Chinese e-commerce firm. The program invests in the necessary logistics to ship products to and sell products from tens of thousands of villages that were largely unconnected to e-commerce. The firm also installs an e-commerce terminal at a central village location, where a terminal manager assists households in buying and selling products through the firm’s e-commerce platform. This paper combines a new collection of survey and administrative microdata with a randomized control trial (RCT) that we implement across villages in collaboration with the e-commerce firm. We use this empirical setting to provide evidence on the potential of e-commerce integration to foster economic development in the countryside, the underlying channels and the distribution of the gains from e-commerce across households and villages.
    Date: 2018
  8. By: Ngoc Thi Minh Tran (University of Waikato); Michael P. Cameron (University of Waikato); Jacques Poot (University of Waikato)
    Abstract: We conduct the first contingent valuation investigation of the preference of international migrants for better home country institutional quality. Our study uses contingent valuation questions in a survey of Vietnamese migrants living in New Zealand (NZ) in 2016 to establish the compensating differentials that make those migrants indifferent between residing in New Zealand and returning to Viet Nam (VN) in hypothetical scenarios. We find that the estimated willingness to pay for an incremental unit improvement in institutional quality in Viet Nam is, on average, NZD 79.80 per week (approximately 33 percent of the average weekly wage in Viet Nam for the same period), and positively associated with the respondents’ age and the perceived importance of institutional quality in Viet Nam to their repatriation intentions. This study underscores the importance of institutional quality to migration decisions by showing that migrants are willing to trade-off part of their regular income for better home country institutional quality.
    Keywords: return migration; institutional quality; contingent valuation method; willingness to pay;Viet Nam
    JEL: F22 O15 H40
    Date: 2018–08–13
  9. By: Nancy Kong (The Centre for the Business of Economics of Health, The University of Queensland); Lars Osberg (Department of Economics, Dalhousie University); Weina Zhou (Department of Economics, Dalhousie University)
    Abstract: Reform of the Chinese state-owned enterprise (SOE) sector in the late 1990s produced massive layoffs (34 million employees) and marked the end of the “iron rice bowl†guarantee of employment security. An expanding international literature has documented the adverse health impacts of economic insecurity on adults but has usually neglected children. This paper uses the natural experiment of SOE reform in China to explore the causal relationship between increased parental economic insecurity and children’s BMI Z-score. Using provincial and year-level layoff rates and income loss from the layoffs, we estimate a generalized differences-in-differences model with individual fixed effects and year fixed effects. For a medium-built 10-year-old boy, a 10%-point increase in expected parental economic loss from layoff (largest treatment effect) implies a gain of 4 kg. The counterfactual analysis suggests a 4.5%-point increase in overweight rate due to the reform. The weight gain persists for boys whose parents kept their jobs, indicating the importance of anxiety about potential losses, as well as the experience of actual loss. Quantile regressions suggest that boys who were relatively overweight were more severely affected by parental economic insecurity. Girls are not significantly affected. Accounting for intergenerational effects therefore increases the estimated public health costs of greater economic insecurity.
    Keywords: Economic Insecurity, Health, Intergenerational Effects, BMI
    JEL: J13 J63
  10. By: International Monetary Fund
    Abstract: As an European Union (EU) Member State, Romania is subject and aligned to the EU common regulatory framework for banking supervision. The EU regulatory framework for banking supervision has been subject to significant changes since the 2008 global financial crisis and the subsequent sovereign debt crisis. The adoption of the Capital Requirements Regulation and the Capital Requirements Directive IV (CRR/CRD IV) which forms the Single Rule Book was an important step towards stronger prudential regulation. Given that a large part of Romania’s banking system is owned by Eurozone banks, the Single Supervisory Mechanism (SSM), as the home supervisor for Eurozone banks, is a key partner of the National Bank of Romania (NBR). Prudential regulations of the NBR are broadly aligned to the requirements of the Basel Core Principles (BCP). As of 2017, the NBR has identified 11 banks as systematically important, of which 8 are supervised at group level by the SSM.
    Keywords: Romania;Europe;
    Date: 2018–06–20
  11. By: International Monetary Fund
    Abstract: The recent pick-up in household credit in Romania has given rise to a need for revisiting the design of existing macroprudential tools addressing household vulnerabilities. After a period of contraction followed by lackluster growth in the aftermath of the financial crisis, household credit growth has risen rapidly starting in 2016. This trend has strengthened the need to revisit the design of macroprudential tools aimed at constraining excessive household borrowing, and in particular the existing stressed Debt Service to Income (DSTI) limit applicable to consumer loans.
    Keywords: Europe;Romania;
    Date: 2018–06–08
  12. By: Wei Zheng (School of Economics and Development, Wuhan University, China; School of Politics and International Relations, University College Dublin, Dublin, Ireland); Patrick Paul Walsh (School of Politics and International Relations, University College Dublin, Dublin, Ireland)
    Abstract: As the largest developing country in the world, with fast-paced urbanization development, China has achieved rapid economic growth since the “Reform and opening-up” policy implemented in 1978. This growth, however, has resulted in persistent and severe environmental problems. This paper evaluates urbanization, trade openness, energy consumption and PM2.5 in the Chinese economy using Fixed effect (FE), fixed effect instrumental (FE-IV), and system generalized method of moments (GMM-sys) estimation methods from 29 provinces over the period 2001–2012. Results demonstrated that PM2.5 is a continuous process that the previous period has positive effect on the current level of PM2.5; Environmental Kuznets Curve (EKC) hypothesis was not supported by analyzing the relationship between economic growth and PM2.5 in China; temperature is not a crucial influencing factor in affecting the amount of PM2.5; urbanization is beneficial to the decrease of PM2.5. PM2.5 from neighboring regions is an important factor increasing the local PM2.5, and the influencing factors of international trade, heavy industry and private cars are contributors to PM2.5 level as well.
    Keywords: PM2.5, Energy consumption, Urbanization, Average temperature level
    Date: 2018–07–27
  13. By: Salvador Navarro (University of Western Ontario); Jin Zhou (University of Chicago)
    Abstract: We study the interaction of migration and education decisions, and their effects on labor market outcomes of individuals in sending locations. We consider the possibility that, while the level of human capital affects the migration decisions of an individual (i.e., self-selection of migrants), it is also the case that the possibility of migration itself affects the human capital accumulation decisions of agents. In particular, we first analyze how the migration option can reduce the incentives to accumulate human capital in the context of a simple Roy model with exogenous migration. As we show, even when the return to migrating is positive,if the return to education for migrants is lower in the receiving location than in the sending location, the mere possibility of migrating reduces the returns to human capital accumulation for people in the sending location. We analyze data on rural migration in China, where this pattern of returns seems to hold. We then use diff-in-diff to show that, consistent with our simple model's prediction, educational attainment in rural China slowed down compared to urban regions after an early 80's reform that relaxed the restrictions to rural migration. Finally, we build a structural model of rural-urban migration in China, where we estimate the reduction in migration costs that happened as a consequence of the reform. To quantify the effect of the policy, we simulate what would have happened had the policy not been implemented. We find that the attendance rates for high school, some college and college would have increased by 29%, 141%, and 24%, respectively.
    Date: 2018
  14. By: Ayşe İmrohoroğlu (University of Southern California); Kai Zhao (University of Connecticut)
    Abstract: In this paper, we present a model economy that can account for the changes in the current account balance in China since the early 2000s. Our results suggest that the increase in the household saving rate and tighter financial constraints facing the firms played equally important roles in the increase in the current account surplus until 2008. We argue that inadequate insurance through government programs for the elderly and the decline in family insurance due to the one-child policy led to the increase in the household saving rate especially after 2000 as more and more families with only one child entered the economy. The increase in the saving rate coupled with the financial frictions preventing the increased household saving from being invested in domestic firms resulted in large current account surpluses until 2008. Our results also indicate that the decline in the current account surplus since 2008 was likely to be due to the relaxation of financial constraints facing domestic firms, which was a result of the large-scale fiscal stimulus plan launched by the Chinese government after 2008. These findings imply that the planned increases in China’s public pension coverage are likely to reduce the future current account balances. On the other hand, if financial constraints are tightened back to the pre-stimulus levels; the current account surplus may rise again.
    JEL: E00 E20
    Date: 2018–08
  15. By: International Monetary Fund
    Abstract: The Financial Sector Assessment Program (FSAP) took place against a backdrop of improved resilience and recovery after the crisis. Romanian banks enjoy one of the highest capitalization ratios in Europe, significantly strengthened since the crisis. NPLs have declined to 6.4 percent as of December 2017 from their peak of 21.5 percent following the crisis. Banks’ reliance on parent funding has also reduced significantly, and the share of foreign currency-denominated loans has declined. The banking sector’s profitability is strong and liquidity appears ample.
    Keywords: Europe;Romania;
    Date: 2018–06–08
  16. By: International Monetary Fund
    Abstract: Romania’s financial sector has strengthened significantly over the last few years. Effective supervisory measures have helped reduce the high level of nonperforming loans (NPLs) from 21.9 percent at its peak in 2013 to 6.4 percent as of December 2017. Foreign-owned banks’ dependence on parent funding has significantly declined, while deposits from the domestic private sector have increased, reducing liquidity risks. Banks’ capital buffers strengthened, on the back of a slowdown of credit and low interest rates, with an average capital to risk-weighted assets now above 18 percent. Substantial progress made since the last FSAP is summarized in Appendix I.
    Keywords: Romania;Europe;
    Date: 2018–06–08
  17. By: Ramaa Vasudevan (Colorado State University)
    Abstract: This paper explores the evolution of monetary policy in the context of the distinct path China and the PBoC have adopted in fostering the international role of the renminbi. Instead of focusing on the PBoC’s negotiation of the impossible trinity of flexible exchange rates, capital mobility and independent monetary policy, the paper highlights the challenges the PBoC faces as it promotes the use renminbi, in international lending in particular, while simultaneously seeking to contain and discipline the inherent instability and potentially disruptive logic of finance.
    Keywords: China, monetary policy, internationalization of renminbi, impossible trinity
    JEL: F33 F36 G28
    Date: 2018–08
  18. By: International Monetary Fund
    Abstract: This note analyzes macro-financial interlinkages, sectoral dependencies, and potential balance sheet vulnerabilities for all resident sectors. The mission used the sectoral balance sheets compiled by the National Bank of Romania (NBR)2 to map balance sheet exposures and potential contagion channels among different sectors. The construction of intersectoral network maps sheds light on balance sheet vulnerabilities and how these developed over time, potentially leading to risks building up. This analysis helps to understand causes and effects of macro-financial imbalances, provides a coherent context in which net lending and borrowing stocks cover all sectors, and supports the development of remedial policies outlined in other areas of the FSAP.
    Keywords: Europe;Romania;
    Date: 2018–06–08
  19. By: International Monetary Fund
    Abstract: The National Bank of Romania (NBR) has a long experience in implementing macroprudential policy measures and as a result, a relatively sophisticated systemic risk monitoring framework. The NBR monitors several indicators to assess the build-up of systemic risk, many of which are derived from the nation-wide credit register and related data sources, and constructs summary indicators to facilitate overall risk assessment. The NBR also has various economic models to assess macro-financial developments and the effects of various shocks, and to assess policy actions. The NBR also subjects banks to regular solvency and liquidity stress tests. Nevertheless, data and information gaps remain, for instance, due to extensive NPL exposures being sold to asset management companies, which do not have to report to the credit registry.
    Keywords: Europe;Romania;
    Date: 2018–06–08

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