nep-tra New Economics Papers
on Transition Economics
Issue of 2019‒02‒18
sixteen papers chosen by
J. David Brown
United States Census Bureau

  1. Russia's growth problem By Marek Dabrowski; Antoine Mathieu Collin
  2. Unequal Migration and Urbanisation Gains in China By Pierre-Philippe Combes; Sylvie Démurger; Shi Li; Jianguo Wang
  3. State-owned firms behind China’s corporate debt By Margit Molnar; Jiangyuan Lu
  4. Дълготрайните материални и нематериални активи, и стоково-материалните запаси като елементи на счетоводната политика на хотели в България By Georgieva, Daniela
  5. Vietnam: The Next Asian Tiger? By Tom Barker; Murat Ungor
  6. Gender wage gap in the workplace: Does the age of the firm matter? By Iga Magda; Ewa Cukrowska-Torzewska
  7. The Effects of Trading Suspensions in China By He, Qing; Gan, Jingyun; Wang, Shuwan; Chong, Terence Tai Leung
  8. Economic effects of inward foreign direct investment in Vietnamese provinces By Taguchi, Hiroyuki
  9. The Cross Border Cooperation between Romania and Hungary By Csoka, Gabriela-Elena
  10. Предизвикателства пред висшите училища, свързани с академичното развитие By Dimitrova, Darina
  11. The Eurasian Land Bridge: The Role of Service Providers in Linking the Regional Value Chains in East Asia and the European Union By Richard Pomfret
  12. Price Rigidity in China: Empirical Results at Home and Abroad By Chong, Terence Tai Leung; Wu, Zhang
  14. Sanctions: seriously and for a long time By Knobel, Alexander (Кнобель Александр); Bagdasaryan, Kniaz (Багдасарян, Княз); Loshchenkova, Anna (Лощенкова, Анна); Proka, Ksenia (Прока, Ксения)
  15. Envelope Wages, Hidden Production and Labor Productivity By Di Nola, Alessandro; Kocharkov, Georgi; Vasilev, Aleksandar
  16. Military Expenditures and Income Inequality Evidence form a Panel of Transition Countries (1990-2015) By Raul Caruso; Antonella Biscione; Antonella Biscione

  1. By: Marek Dabrowski; Antoine Mathieu Collin
    Abstract: Between 2014 and 2016, the Russian economy suffered from a currency crisis caused by the collapse of oil prices and the country’s engagement in the conflict with Ukraine. Although the crisis was overcome in the second half of 2016 thanks to prudent fiscal and monetary policies and higher oil prices, economic recovery remains weak and Russia’s medium-term growth prospects look rather disappointing. The weak growth prospects are caused by several factors including - (i) adverse demographic trends – a declining working-age population and ageing of the population; (ii) a poor business and investment climate; (iii) difficulty in diversifying away from the dominant role of the hydrocarbon sector; (iv) Western sanctions on Russia in response to the annexation of Crimea and Russian support for separatists in the eastern Ukraine Donbas region, and Russian countersanctions. To increase potential growth, Russia needs comprehensive economic and institutional reforms that, in turn, will be conditioned by political reforms and by improved economic and political relationships with the United States, the European Union and Russia’s neighbours.
    Date: 2019–02
  2. By: Pierre-Philippe Combes (Univ Lyon, CNRS, GATE UMR 5824, F-69130 Ecully, France; Sciences Po, Department of Economics, 28, Rue des Saints-Pères, 75007 Paris, France. Research fellow at CEPR); Sylvie Démurger (Univ Lyon, CNRS, GATE UMR 5824, F-69130 Ecully, France. Research fellow at IZA); Shi Li (Business School, Beijing Normal University, China. Research fellow at IZA); Jianguo Wang (Beijing Information Science and Technology University, China)
    Abstract: We assess the role of internal migration and urbanisation in China on the nominal earnings of three groups of workers (rural migrants, low-skilled natives, and high-skilled natives). We estimate the impact of many city and city-industry characteristics that shape agglomeration economies, as well as migrant and human capital externalities and substitution effects. We also account for spatial sorting and reverse causality. Location matters for individual earnings, but urban gains are unequally distributed. High-skilled natives enjoy large gains from agglomeration and migrants at the city level. Both conclusions also hold, to a lesser extent, for low-skilled natives, who are only marginally negatively affected by migrants within their industry. By contrast, rural migrants slightly lose from migrants within their industry while otherwise gaining from migration and agglomeration, although less than natives. The different returns from migration and urbanisation are responsible for a large share of wage disparities in China.
    Keywords: urban development, agglomeration economies, wage disparities, migrants, human capital externalities, China
    JEL: O18 R12 R23 J31 O53
    Date: 2019
  3. By: Margit Molnar; Jiangyuan Lu
    Abstract: While China’s overall debt-to-GDP ratio is not particularly high, its non-financial corporate debt relative to GDP is higher than in other major economies. State-owned enterprises account for over three quarters of that debt with a size exceeding GDP. This paper provides insights into the size of debt, leverage and debt service burden by various non-financial SOE groupings including by size, extent of state ownership, level of the owner, broad and detailed sector and region. Although the debt stock of local SOEs increased the fastest, firms under government agencies leveraged up more quickly and their debt service burden also grew most rapidly. SOEs in services industries increased their debt fastest, in particular in social services, transportation, real estate and construction. In turn, warehousing and real estate firms have the highest leverage. Firms in the three provinces of Xinjiang, Shanxi and Qinghai rank among the top five in all the three indicators of debt to revenues, leverage and debt service burden. Large SOEs owe most debt and leveraged up, while small and medium-size ones reduced their leverage. The surge in the debt service burden of small SOEs coincided with an increase in state assets in this group of firms. Sector-wise, state assets increased most in competitive industries. Empirical analysis shows that higher leverage and labour productivity are more conducive to a surge in SOE debt. Such surges appear to be triggered by falling interest costs, pointing to the role for easy monetary conditions in the rapid SOE debt accumulation. Recent corporate governance reforms of SOEs will likely act as disciplining device on SOE borrowing.
    Keywords: corporate debt, interest burden, leverage, state assets, state-owned enterprises
    JEL: P31 O16 G32 L32
    Date: 2019–02–14
  4. By: Georgieva, Daniela
    Abstract: A main goal of the report is to analyze disclosed data about intangible and tangible assets, and inventories in the accounting policies of 20 hotels, offering accommodation and food services at the territory of Republic of Bulgaria. Subjects of research are the accepted and applied accounting rules and practices regarding the analyzed assets. For the purposes of the analysis, data from officially published financial statements in the Commercial Register from 2014, 2015 and 2016 were used, as well as information from the official websites of the hotels.
    Keywords: accounting policies, hotel, disclosure, development, intangible and tangible assets, inventories.
    JEL: M40 M41 M49
    Date: 2018–12
  5. By: Tom Barker (Macro Financial Department, Reserve bank of New Zealand); Murat Ungor (Department of Economics, University of Otago)
    Abstract: This paper analyzes how trade integration may affect international financial flows in a world with heterogeneous financial development. In the presence of financial frictions and sector-specific minimum investment requirements, the static gains from trade trigger the cross-sector investment reallocation on the extensive margin, which may allow the more financially developed country (North) to offshore low-return production activities and upgrade to high-return activities. This way, trade-driven sectoral upgrading in North becomes a mechanism through which the substantial decline in trade and communication costs and the resulting boom in supply-chain trade may contribute to the global imbalances in the recent decades.We investigate the growth experience of Vietnam, the country which has been getting recent attention as being the next emerging giant. First, we present an aggregate level investigation of Vietnam\'92s economic growth experience, since the inauguration of reform in 1986 known as Doi Moi. Second, we build a two-sector general equilibrium model, investigating the secular decline in agricultural employment. We conduct aquantitative analysis using a theoretical framework, with an emphasis on the counterfactual outcomes of inheriting Chinese sectoral productivity growth rates, where China is recognized as the paragon emerging economy. The main findings are: (i) Vietnam has grown impressively since 1986, but is still a relatively poor country in absolute terms; (ii) Vietnam must decrease its reliance on factor accumulation as its source of growth and increase its technological capabilities; (iii) economic policies should equally target both agricultural and nonagricultural sectors to increase sectoral productivity growth rates in Vietnam.\
    Keywords: Vietnam, capital formation, convergence, deagriculturalization
    JEL: N10 O47 O53 O57
    Date: 2018
  6. By: Iga Magda; Ewa Cukrowska-Torzewska
    Abstract: We contribute to the literature on firm-level determinants of gender wage inequalities by studying the link between a firm’s age and the size of its gender pay gap. Using European Structure of Earnings data for eight European countries, we find that in all of these countries, the gender wage gaps are smallest in the youngest firms. Our results also show that in Central European countries, the size of the gender pay gap clearly increases with the age of the company; whereas there is no such link in the older EU member states. Levels of gender wage inequality appear to be highest in companies that were previously state-owned, but were privatized during the transition. We interpret our findings with the support of competition and monopsony theories.
    Keywords: gender wage gap, wage inequalities, transition, age of firms
    JEL: J16 J31 J45
    Date: 2019–01
  7. By: He, Qing; Gan, Jingyun; Wang, Shuwan; Chong, Terence Tai Leung
    Abstract: We study the effects of both mandatory and voluntary trading suspensions on stock prices, volatility and trading volume in China’s stock market. It is found that both voluntary and mandatory suspensions generate negative abnormal returns. Trading volume and volatility rise significantly in the post-suspension period. Our results suggest that suspensions are not effective in calming down investors in China. Ownership structure and duration of suspension explain the ineffectiveness of suspensions.
    Keywords: Voluntary Suspensions, Mandatory Suspensions, Efficiency
    JEL: G13 G18
    Date: 2018–01–21
  8. By: Taguchi, Hiroyuki
    Abstract: This article examines the effect of FDI on economic growth and domestic investment with a focus on Vietnamese provinces by conducting the Granger causality and impulse response tests under a vector auto-regression (VAR) estimation using panel data. The major research questions in this study are twofold: whether the inward FDI causes economic growth or economic growth induces the FDI, and whether the inward FDI crowds in or crowds out domestic investment. Since this study targets Vietnamese provinces, it explores reginal differences in the FDI effect by dividing Vietnamese provinces according to FDI-value intensity. The VAR estimation results showed two clear contrasts on FDI effects between the FDI-intensive region and the FDI-less-intensive one. One contrast was that FDI causes economic growth in the FDI-intensive region, whereas economic growth induces FDI in the FDI-less-intensive region. Another contrast was that FDI crowds in domestic investment in the FDI-intensive region, whereas FDI crowds out domestic investment in the FDI-less-intensive region. These contrasts suggest the existence of FDI’s agglomeration effects.
    Keywords: Inward foreign direct investment (FDI), Economic growth, Domestic investment, Crowd-in or -out effects, Vietnamese provinces, Vector auto-regression estimation, Granger causality and Impulse responses
    JEL: F21 O47 O53
    Date: 2019–02
  9. By: Csoka, Gabriela-Elena
    Abstract: Abstract: European territorial cooperation means a balanced development of the whole community area by encouraging cooperation and exchange of best practices among all the EU regions, which was organized across three axes: cross-border, transnational and inter-regional cooperation. Cross-border cooperation is not just about financing and creating infrastructure, but also aimed to strengthen cooperation: one of the most important concepts of cross-border cooperation programs is to facilitate the joint development of geographically related areas, sharing resources separated by artificial boundaries. Strengthening economic and social cohesion in the border region can be achieved by investing in business infrastructure by supporting cross-border business cooperation and tourism development between the two countries.
    Keywords: cross-border cooperation, financing, Romania, Hungary.
    JEL: R58
    Date: 2018–12–17
  10. By: Dimitrova, Darina
    Abstract: Резюме: В доклада се прави изследване на същността на академичното развитие в контекста на критичен анализ на последните изменения и допълнения на ЗРАСРБ от 3 Април 2018 г. Акцент се поставя на наукометричните изисквания към публикационната дейност, като основна предпоставка за академичното израстване.
    Abstract: The report examines the essence of the academic development in the context of critical analysis of the last amendments and supplements of the Development of Academic Staff in the Republic of Bulgaria Act dated 3 April 2018. Accent is put on the science-metric requirements for the publications as a basic precondition for the academic development.
    Keywords: higher schools; academic staff; academic development
    JEL: I23
    Date: 2019
  11. By: Richard Pomfret
    Abstract: Rail links between China and Europe are typically analysed in the context of China’s Belt and Road Initiative, focusing on China’s economic rise and the implications for international relations. This paper argues that establishment of the China–Europe Land Bridge predated the Belt and Road Initiative and has been market-driven, as service-providers identified and responded to demand for efficient freight services along pre-existing railway lines. Governments’ role was trade facilitating, i.e. reducing delays and costs at border crossing points, rather than investing in hard infrastructure. Service-providers responded by linking European and Asian value chains (e.g. in automobiles and electronic goods) and reducing costs for traders shipping between China and Europe. The Eurasian Land Bridge provides a case study of ‘servicification’ as a component of increased trade in the 21st century.
    Keywords: Servicification, Belt and Road Initiative, Trade costs
    JEL: L92 O18 F14
  12. By: Chong, Terence Tai Leung; Wu, Zhang
    Abstract: This paper explores the price rigidity in China using 259 monthly domestic and foreign macroeconomic time series. A factor-augmented vector autoregressive (FAVAR) model expanded with global components is employed. Four findings are obtained. First, the model shows that disaggregated price indices are volatile but not necessarily stickier than aggregate price series, and the inflation triggered by global and domestic components is massive and persistent. Second, although the global components have minimal effects on price volatility, they have a growing contribution to volatility. Moreover, they are a major force of the price persistence in China. Third, no clear evidence shows that the price stickiness in China is subject to urban-rural disparities. Last, we observe a relatively active price volatility and high persistence after the 2008 financial crisis, in which domestic components have increasingly significant impacts.
    Keywords: FAVAR, global components, price rigidity
    JEL: E31 E32 E52
    Date: 2018–10–28
  13. By: Maryna Tverdostup; Tiiu Paas
    Abstract: The study aims to assess productivity and efficiency of selected blue economy sectors in two neighbouring countries: Estonia and Finland. The analysis relies on the Amadeus database for both countries, implementing Data Envelopment Analysis (DEA) and calculating partial productivity measures. The results of the study show that, on average, blue sectors report high performance indicators in coastal regions of the countries, the only exceptions being the tourism and bio and subsea activities sectors in Estonia and marine (cargo) transportation in Finland. The common pattern of imperfectly efficient blue sectors in both countries is a substantial excess of fixed assets, which convey extra costs for business activities and, to some extent, generate excessive environmental pressures. The special nature of a shared blue economic area of Estonia and Finland stipulates close cross-border cooperation as a major tool to improve performance of the imperfectly efficient sectors through shared “best practice” operations, technologies and infrastructures. However, the lack of appropriate cross-border statistical data restricts analytical opportunities and development of policy recommendations.
    Keywords: blue economy, economic performance analysis, cross-border statistics
    Date: 2019
  14. By: Knobel, Alexander (Кнобель Александр) (The Russian Presidential Academy of National Economy and Public Administration, Russian Foreigan Trade Academy); Bagdasaryan, Kniaz (Багдасарян, Княз) (The Russian Presidential Academy of National Economy and Public Administration); Loshchenkova, Anna (Лощенкова, Анна) (Gaidar Institute for Economic Policy); Proka, Ksenia (Прока, Ксения) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The report discusses the theoretical aspects of economic sanctions to assess and classify the restrictive measures used by the initiating countries in relation to Russia. Recommendations are proposed for the conduct of economic policy in the context of sanctions based on an analysis of the restrictive measures applied to Russia, their impact on the economy, as well as the assessment of the experience of various countries in countering sanctions. An assessment of the negative impact of sanctions on the economy of the Russian Federation is given - about 1 pp of GDP per year. It is shown that the most effective anti-sanctions policy is not the introduction of symmetrical measures and the closure of the markets for goods / services / capital, but the policy of “aggressive” openness of markets to cooperation. It is revealed that the main negative channel of the impact of sanctions on the Russian economy consists not so much in the level of sanctions as in maintaining uncertainty about future sanctions parameters. In this regard, in the short and medium term, it is advisable to focus on stabilizing the current level of sanctions to reduce uncertainty, rather than on their full or partial cancellation.
    Date: 2019–01
  15. By: Di Nola, Alessandro; Kocharkov, Georgi; Vasilev, Aleksandar
    Abstract: We evaluate the relative importance of aggregate labor productivity versus income taxes and social contributions for tax compliance in an economy with a large degree of informality. Empirical evidence points out that tax evasion in Europe happens through partially concealing wages and profits in formally registered enterprises. To this end, we build a model in which employer-employee pairs of heterogeneous productive capacities make joint decisions on the degree of tax evasion. The quantitative model is used to analyze the case of Bulgaria which has the largest informal economy in Europe and underwent a number of important tax reforms over the period 2000-2014, including the introduction of a flat income tax in 2008. The estimation strategy relies on matching the empirical series for the size of the informal economy and other aggregate outcomes for 2000-2014. Our counterfactual experiments show that the most important factor for the changing size of the informal economy is labor productivity, which accounts for more than 75% of the change. The variation in corporate income tax accounts for the rest. We find that the 2008 flat tax reform did not play any visible role in coping with informality.
    Keywords: Envelope wages, hidden production, informal economy, flat tax reform
    JEL: E6 E65 H24 H26
    Date: 2018
  16. By: Raul Caruso; Antonella Biscione (Department of Economic Policy and CSEA, Catholic University of Sacred Heart CESPIC, Catholic University 'Our Lady of Good Counsel'); Antonella Biscione (CESPIC, Catholic University 'Our Lady of Good Counsel')
    Abstract: This paper contributes to the literature on military spending by analyzing the relationship between military spending and income inequality in a panel of transition economies over the period 1990-2015. In particular, we exploit three different measures of military expenditures: (i) the military spending in absolute terms; (ii) the military expenditures per capita; (iii) the military burden, namely the ratio between military expenditure and GDP. Findings highlight a positive relationship between military expenditures and income inequality captured by means of three different measures of inequality. Results are also confirmed after we performed a variety of robustness tests. However, other results are worth noting and contradictory. For example, military conscription appears to have a redistributional effect and when considering a non-linearity the results show that there could be a concave relationship between military spending and income inequality. In addition, when testing for the ‘crowding-out argument’ results show that expenditures for subsidies are negatively influenced by military spending so confirming the crowding-out argument but there is no significant evidence when considering education and health expenditures.
    Keywords: military expenditures, inequality income, human capital, political regime
    JEL: J24 I24 H56
    Date: 2018–01

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