nep-tra New Economics Papers
on Transition Economics
Issue of 2019‒05‒06
twenty-two papers chosen by
J. David Brown
United States Census Bureau

  1. Effects of Industry 4.0 on reshoring investments - Hungarian experiences By Andrea Elteto
  2. Style consistency and mutual fund returns: the case of Russia By Adiya Bayarmaa; Guglielmo Maria Caporale
  3. Bosnia and Herzegovina; Technical Assistance Report-Report on Government Finance Statistics Technical Assistance Mission, (October 1-5, 2018) By International Monetary Fund
  4. Demographic Aging, Industrial Policy, and Chinese Economic Growth By Michael Dotsey; Wenli Li; Fang Yang
  5. The direction and intensity of China’s monetary policy conduct : A dynamic factor modelling approach By Funke, Michael; Tsang, Andrew
  6. Financing Entrepreneurship and Innovation in China: A Public Policy Perspective By Cong, Lin William; Lee, Charles M. C.; Qu, Yuanyu; Shen, Tao
  7. The Effects of Exposure to Air Pollution on Subjective Well-being in China By Zhang, Xin; Chen, Xi; Zhang, Xiaobo
  8. The Effect of Air Pollution on Body Weight and Obesity: Evidence from China By Deschenes, Olivier; Wang, Huixia; Wang, Si; Zhang, Peng
  9. Government Support and Firm Performance in Vietnam By Nguyen, Hoai Thu Thi; Vu, Huong Van; Bartolacci, Francesca; Quang Tran, Tuyen
  10. Is an Army of Robots Marching on Chinese Jobs? By Giuntella, Osea; Wang, Tianyi
  11. Economic Opportunities and Gender Equity: The Migration and Education Decisions of Young Women from Rural China By Xing, Chunbing; Sun, Yan
  12. The Limits (And Human Costs) of Population Policy: Fertility Decline and Sex Selection in China under Mao By Kimberly Singer Babiarz; Paul Ma; Grant Miller; Shige Song
  13. Government credit and trade war By Cai, Ning; Feng, Jinlu; Liu, Yong; Ru, Hong; Yang, Endong
  14. The role of Yin-Yang leadership and cosmopolitan followership in fostering employee commitment in China: a paradox perspective By Lee, Hyun-Jung; Reade, Carol
  15. The Two-Pillar Policy for the RMB By Jermann, Urban J.; Wei, Bin; Yue, Vivian Z.
  16. To Where Is China Running? Challenges and Perceptions after 40 Years of Chinese Reforms, Transformation, and Integration into the World Economy By Bahri Yilmaz
  17. Does People’s Bank of China communication matter? Evidence from stock market reaction By Bennani, Hamza
  18. Local entrepreneurship ecosystems and emerging industries: Case study of Malopolskie, Poland By OECD
  19. Indian companies’ technological investments in the EU with a special focus on Central and Eastern Europe By Tamas Gerocs
  20. You Are Suffocating Me! Firm-Level Evidence on Crowding Out By Serhan Cevik
  21. Political donations, public procurement and government efficiency By Vitezslav Titl; Kristof De Witte; Benny Geys
  22. Building an Innovation Ecosystem as an Alternative of Oil Sector Exports in Azerbaijan (on the basis of the study of Israeli practice) By Babayev, Bahruz

  1. By: Andrea Elteto (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: After the 2008 crisis, the topic of reshoring previously outsourced production was raised in the EU and the USA, in parallel to reindustrialization and competitiveness discourses. This paper clarifies the definition of reshoring, backshoring and nearshoring, while enumerating the possible motivations for them (eg. higher-than-expected labour or transport costs, strategic decision-making, insufficient product quality). Automation and robotization (parts of the ‘Industry 4.0’ concept) can provide a push in the global production chain for various forms of ‘shoring’. This can be highly relevant for CEE countries, given their high-levels of integration into global production chains. Advanced robotics increasingly allows the substitution of labour, thus a wave of reshoring can take place from low-cost labour-intensive countries to developed countries that previously exported capital and technology. This paper addresses reshoring impacting Hungary (backshoring from Hungary and nearshoring to Hungary from Far-Eastern countries). Apart from theoretical writings, little work has been done on the empirics of reshoring and its correlation with robotization. This paper summarises these empirical studies in a targeted literature review, while recent trends are mapped based on press information and interviews. The major conclusions are that backshoring from Hungary because of Industry 4.0 is practically non-existent, but examples of nearshoring to Hungary can be found. Certain country-specific characteristics (e.g. labour shortages, legal instability, tax policy) contribute to investment and automation decisions of foreign producers. Moreover, domestic SMEs are generally not prepared to the introduction of Industry 4.0 technologies in Hungary in comparison to the foreign affiliates.
    Keywords: reshoring, industry 4.0, Hungary, automation, nearshoring
    JEL: F23 M11 M15 O33
    Date: 2019–04
  2. By: Adiya Bayarmaa; Guglielmo Maria Caporale
    Abstract: This paper carries out style analysis for Russian mutual funds using monthly data from the National Managers’ Association over the period January 2008-December 2017; specifically, it applies the RSBA method developed by Sharpe (1992) for evaluating the impact of style on returns, and uses the Style Drift Score (SDS) introduced by Idzorek (2004) as a measure of a fund’s style drifting activity. The main findings can be summarised as follows. In the Russian case there is a significant positive relationship between style consistency and profitability of funds. Further, Russian funds are characterised by a high level of style drift, namely deviations from the investment strategy declared at the time of registration as required by Russian law.
    Keywords: mutual funds, style consistency, performance, Russia
    JEL: C23 G14 G19
    Date: 2019
  3. By: International Monetary Fund
    Abstract: A technical assistance (TA) mission was conducted by Mr. Deon Tanzer, the government finance statistics (GFS) advisor1 for South East Europe during the period October 1–5, 2018, to support the Bosnia and Herzegovina authorities, with a specific focus on the Republic of Srpska (RS), in improving GFS for decision making. This mission was conducted within the context of the second phase of the Swiss State Secretariat for Economic Affairs (SECO) GFS capacity building project. The mission met with officials from the Ministry of Finance of the Republic of Srpska (MOF RS), and the Republic of Srpska Institute of Statistics (RZS).
    Date: 2019–04–17
  4. By: Michael Dotsey (Federal Reserve Bank of Philadelphia); Wenli Li (Federal Reserve Bank of Philadelphia); Fang Yang (Louisiana State University)
    Abstract: We examine the role of demographics and changing industrial policies in accounting for the rapid rise in household savings and in per capita output growth in China since the mid-1970s. The demographic changes come from reductions in the fertility rate and increases in life expectancy, while the industrial policies take many forms. These policies cause important structural changes; first benefiting private labor-intensive firms by incentivizing them to increase their share of employment, and later on benefiting capital-intensive firms resulting in an increasing share of capital devoted to heavy industries. We conduct our analysis in a general equilibrium economy that also features endogenous human capital investment. We calibrate the model to match key economic variables of the Chinese economy and show that demographic changes and industrial policies both contributed to increases in savings and output growth but with differing intensities and at different horizons. We further demonstrate the importance of endogenous human capital investment in accounting for the economic growth in China.
    Keywords: aging, credit policy, household saving, output growth, China
    JEL: E21 J11 J13 L52
    Date: 2019–04
  5. By: Funke, Michael; Tsang, Andrew
    Abstract: The recent upgrade of the People’s Bank of China’s monetary policy framework establishes a corridor system of interest rates. As the revamped policy arrangement now features a multiple-instrument mix of liquidity tools and pricing signals, we employ a dynamic factor modelling approach to derive an indicator of China’s monetary policy stance. The approach is based on the notion that comovements in several monetary policy instruments have a common element that can be captured by a single underlying, unobserved component. To clarify and interpret the derived index, we employ a baseline DSGE model that can be solved analytically and allows tracing of the expansionary and contractionary on-and-off phases of Chinese monetary policy.
    JEL: C54 E52 E58 E61 E32
    Date: 2019–04–24
  6. By: Cong, Lin William (University of Chicago - Booth School of Business); Lee, Charles M. C. (Stanford University - Graduate School of Business); Qu, Yuanyu (University of International Business and Economics (UIBE) - School of Banking and Finance); Shen, Tao (Tsinghua University)
    Abstract: This study reports on the current state-of-affairs in the funding of entrepreneurship and innovations in China and provides a broad survey of academic findings on the subject. We discuss the implications of these findings for public policies governing the Chinese financial system. In particular, we conclude that regulations governing the initial public offering (IPO) process in China are antiquated and in dire need of reform. We also identify and discuss promising areas for future research.
    Date: 2018–08
  7. By: Zhang, Xin (Beijing Normal University); Chen, Xi (Yale University); Zhang, Xiaobo (Peking University)
    Abstract: This paper studies the impact of six main air pollutants on three key dimensions of subjective well-being (SWB) – life satisfaction, hedonic happiness and mental health. We match a nationally representative survey in China with local air quality and rich weather conditions according to the exact date and county of each interview. By making use of variations in exposures to air pollution across similar respondents living in the same county, we find that PM2.5 reduces hedonic happiness and increases the rate of depressive symptoms, but does not affect life satisfaction. Our results show that the benefits of reducing air pollution would be higher if the hidden costs of air pollution on SWB in China are taken into account.
    Keywords: life satisfaction, hedonic happiness, depressive symptoms, air pollution, China
    JEL: I31 Q51 Q53
    Date: 2019–04
  8. By: Deschenes, Olivier (University of California, Santa Barbara); Wang, Huixia (Hunan University); Wang, Si (Hunan University); Zhang, Peng (Hong Kong Polytechnic University)
    Abstract: We provide the first study estimating the causal effect of air pollution on body weight. Using the China Health and Nutrition Survey, which provides detailed longitudinal health and socioeconomic information for 13,226 adult individuals over 1989-2011, we find significant positive effects of air pollution, instrumented by thermal inversions, on body mass index (BMI). Specifically, a 1 μg/m3 (1.59%) increase in average PM2.5 concentrations in the past 12 months increases BMI by 0.31%, and further increases the overweight and obesity rates by 0.89 and 0.19 percentage points, respectively. Our paper identifies a new cause of obesity, and sheds new light on the morbidity cost of air pollution.
    Keywords: air pollution, obesity, weight gain, China
    JEL: I12 I15 Q53
    Date: 2019–04
  9. By: Nguyen, Hoai Thu Thi; Vu, Huong Van; Bartolacci, Francesca; Quang Tran, Tuyen
    Abstract: Using a sample of private manufacturing SMEs (small and medium-sized enterprises) in the period 2007-15, we analyze the effect of government support on firms’ financial performance in Vietnam. Contrary to many previous studies, we find that government support affects firms’ financial performance after controlling for heterogeneity, unobservable factors and dynamic endogeneity. The finding supports the viewpoint of institutional theory. Also, the study reveals that assistance measures, such as tax exemptions, soft loans and investment incentives to promote financial performance, are vital for the development of Vietnamese private SMEs.
    Keywords: Government support; innovation; firm financial performance; SMEs; Vietnam
    JEL: H7 H71 M2 M21 O3
    Date: 2018–08–04
  10. By: Giuntella, Osea (University of Pittsburgh); Wang, Tianyi (University of Pittsburgh)
    Abstract: A handful of studies have investigated the effects of robots on workers in advanced economies. According to a recent report from the World Bank (2016), 1.8 billion jobs in developing countries are susceptible to automation. Given the inability of labor markets to adjust to rapid changes, there is a growing concern that the effect of automation and robotization in emerging economies may increase inequality and social unrest. Yet, we still know very little about the impact of robots in developing countries. In this paper we analyze the effects of exposure to industrial robots in the Chinese labor market. Using aggregate data from Chinese prefectural cities (2000-2016) and individual longitudinal data from China, we find a large negative impact of robot exposure on employment and wages of Chinese workers. Effects are concentrated in the state-owned sector and are larger among low-skilled, male, and prime-age and older workers. Furthermore, we find evidence that exposure to robots affected internal mobility and increased the number of labor-related strikes and protests.
    Keywords: emerging economies, labor markets, robots
    JEL: J23 J24 O33
    Date: 2019–04
  11. By: Xing, Chunbing (Beijing Normal University); Sun, Yan (Beijing Normal University)
    Abstract: We study how the migration decision of young women in rural China is shaped by the return arrangement and opportunities of college education. Women outnumbered men in young rural-urban migrants in the early 2000s, but the surplus of young women has recently disappeared. We propose that the temporary nature of migration and an earlier return time relative to men are the major reasons that women migrate at a younger age. When higher education expansion increased women's chance of permanent migration, women stayed in school longer. Empirical evidence is consistent with this hypothesis. Marriage motives and demand factors are also considered.
    Keywords: migration, gender, education expansion, marriage
    JEL: J12 J16 O15 R23
    Date: 2019–04
  12. By: Kimberly Singer Babiarz (Stanford University); Paul Ma (University of Minnesota); Grant Miller (Stanford University; NBER; Center for Global Development); Shige Song (City University of New York)
    Abstract: Most of China’s fertility decline predates the famous One Child Policy—and instead occurred under its predecessor, the Later, Longer, Fewer (LLF) policy. Studying LLF’s contribution to fertility and sex selection behavior, we find that it i) reduced China’s total fertility rate by 0.9 births per woman (explaining 28% of China’s modern fertility decline), ii) doubled the use of male-biased fertility stopping rules, and iii) promoted postnatal neglect (implying 210,000 previously unrecognized missing girls). Considering Chinese population policy to be extreme in global experience, our paper demonstrates the limits of population policy—and its potential human costs.
    Keywords: fertility, sex selection, family planning
    JEL: J13 J16
    Date: 2019–03–21
  13. By: Cai, Ning; Feng, Jinlu; Liu, Yong; Ru, Hong; Yang, Endong
    Abstract: By merging transaction-level trade data from China Customs and loan data from the China Development Bank (CDB), we analyze the effects of government credit on trade activities. We find that CDB credit mainly flows to SOEs in strategic industries at the top of the supply chain. These up-stream loans lead to the lower price and higher amount of export goods of private firms in down-stream industries, which leads to decreases in employment and performance of the US firms in the same industry. In contrast, the US firms in downstream industries use cheaper intermediate goods imported from China and perform better subsequently.
    JEL: E51 F30 G21 G28
    Date: 2019–04–23
  14. By: Lee, Hyun-Jung; Reade, Carol
    Abstract: Purpose – Utilizing a paradox perspective, this paper investigates the leadership-followership dynamic in foreign firms in China, specifically, the extent to which Yin-Yang leadership behaviors of Japanese expatriates and cosmopolitanism of Chinese employees influence employee commitment. Design/methodology/approach – Data was collected through an online survey of Chinese employees who directly report to a Japanese supervisor in a Japanese subsidiary in China. Based on responses from 97 Chinese employees in three Japanese subsidiaries in China, we test if their cosmopolitan orientation and perceived Yin-Yang leadership behaviors of Japanese supervisors are related to employee commitment. Findings - Yin-Yang leadership and cosmopolitan followership have a positive effect on employee commitment. Further, cosmopolitanism moderates the link between Yin-Yang leadership and employee commitment such that the follower's cosmopolitanism compensates for lower levels of Yin-Yang leadership, especially a relative lack of Yin leadership behaviors. Research limitations/implications- Results suggest that Yin-Yang leadership and cosmopolitan followership work together as a two-way street of cultural adaptability to build employee commitment, highlighting the interplay between leadership and followership in multinational enterprises. Future research should attempt to further refine the Yin-Yang leadership construct, and to gain a larger sample representing multiple expatriate nationalities to corroborate the relationships found in this study.
    Keywords: cosmopolitanism; Yin-Yang; cross-cultural leadership; employee commitment; China
    JEL: J50
    Date: 2018–05–08
  15. By: Jermann, Urban J. (University of Pennsylvania); Wei, Bin (Federal Reserve Bank of Atlanta); Yue, Vivian Z. (Emory University)
    Abstract: We document stylized facts about China's recent exchange rate policy for its currency, the renminbi (RMB). Our empirical findings suggest that a "two-pillar policy" is in place, aiming to balance RMB index stability and exchange rate flexibility. We then develop a tractable no-arbitrage model of the RMB under the two-pillar policy. Using derivatives data on the RMB and the U.S. dollar index, we estimate the model to assess financial markets' views about the fundamental exchange rate and sustainability of the policy. Our model is able to predict the modification of the two-pillar policy in May 2017, when a discretion-based "countercyclical factor" was introduced for the first time. We also examine the model's ability to forecast RMB movements.
    Keywords: exchange rate policy; two-pillar policy; managed float; Chinese currency; renminbi; RMB; central parity; RMB index
    JEL: F31 G12 G13 G15
    Date: 2019–04–01
  16. By: Bahri Yilmaz (Sabanci University)
    Abstract: If we look at the last four decades, without any doubt we can argue that China is the rising economic power of the 21st century, which may be called the Chinese Century. It is an economic miracle but not an economic mystery. In 2018, China celebrated the 40th anniversary of reform and opening to global trade. Since 1978, the country has transformed from one of the poorest low-income countries to one of the three leading economies in the world. The country has changed from an agricultural-led economy to an industrial one and from a purely command economy to a world market-oriented economy. The country accounts for one-third of global growth. Over 800 million people have been carried over the poverty line, and many in China have reached upper middle-class status. This paper has been divided into three parts. In the first part, we will discuss the economic performance of China and its place in the world economy from 1978 until today. In the second part, we will examine the major macroeconomic problems China faces in the beginning of 2019. In the last part, we will draw some conclusions with regard to China’s main external and internal challenges and make some recommendations for solutions to China’s economic problems.
    Date: 2019–05
  17. By: Bennani, Hamza
    Abstract: This paper tests whether the People's Bank of China's communication affects expectations of market participants and matters as a monetary policy instrument. For that purpose, we first rely on a computational linguistic tool to measure the tone of PBC speeches and second, we use a high frequency methodology to estimate the effect of tone on stock prices. Our results show that positive changes of the tone affect positively stock prices in the Shanghai and the Shenzhen stocks markets. Additional extensions show that PBC communication does not have a persistent e ect on stock prices and that the tone of PBC communication still has a positive and significant impact on stock prices even when controlling for all the monetary policy instruments implemented by the central bank. Hence, our findings show that PBC communication matters as a monetary policy instrument to shape market expectations and to move asset prices.
    JEL: E52 E58
    Date: 2019–04–25
  18. By: OECD
    Abstract: This report examines the local entrepreneurship ecosystem of the Malopolskie region in Poland and its capacity to promote productivity upgrading and industrial renewal. It forms part of the OECD’s work stream on local entrepreneurship ecosystems and emerging industries.
    Date: 2019–05–03
  19. By: Tamas Gerocs (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: India is one of the fastest growing economies in the world whose global share in “outward foreign direct investment” (OFDI) among the developing countries increased from a low level to second only to China. It has not only been a spectacular rise in Indian overseas investment activity, but the nature and the structure of Indian OFDI have also changed in the last decades. In the following paper we will examine the reasons and driving forces behind this spectacular rise, concentrating mostly on those host country characteristics that are the pull factors in attracting Indian investments. We follow the most recent literature on global value-chain specialization as much of Indian outward foreign investment is following a technology-seeking strategy currently. We choose Central and Eastern Europe as our case study because the region combines attributions of both advanced and developing countries in attracting Indian investment.
    Keywords: Central and Eastern Europe, technology-seeking investment, India, OFDI, internationalization, global value chains, production system, global contender, absorptive capacity, medium-tech manufacturing, level of productivity, R&D
    JEL: F14 F23 H63 L22
    Date: 2018–11
  20. By: Serhan Cevik
    Abstract: Literature on whether government spending crowds out or crowds in the private sector is large, but still without an unambiguous conclusion. Using firm-level data from Ukraine, this paper provides a granular empirical investigation to disentangle the impact of state-owned enterprises (SOEs) on private firm investment in Ukraine—a large transition economy. Controlling for firm characteristics and systematic differences across sectors, the results indicate that the SOE concentration in a given sector has a statistically significant negative effect on private fixed capital formation, and that the impact of SOEs is stronger in those industries in which SOEs have a more dominant presence. These findings imply that private firms operating in sectors with a high level of SOE concentration invest systematically less than businesses that are not competing directly with SOEs.
    Date: 2019–04–24
  21. By: Vitezslav Titl; Kristof De Witte; Benny Geys
    Abstract: Firms’ political donations can induce distortions in the allocation of public procurement contracts. In this article, we employ an advanced non-parametric efficiency model to study the public sector (cost) efficiency implications of such distortions. Using a unique dataset covering the Czech regions over the 2007-2014 period, we find that the efficiency of public good provision is lower when a larger share of public procurement contracts is awarded to firms donating to the party in power (‘party donors’). We link this efficiency difference to two underlying mechanisms: i.e. shifts in procurement contract allocations from firms with previous procurement experience to party donors, and the use of less restrictive allocation procedures that benefit party donors.
    Keywords: political connections, non-parametric efficiency analysis, benefit-of-the-doubt
    JEL: H57 D72 C23
    Date: 2019
  22. By: Babayev, Bahruz
    Abstract: Building a successful innovation ecosystem is a key factor in innovation, growth, and development, and it can be an alternative to reducing Azerbaijan’s dependency on oil exports. Formation of a favorable innovation ecosystem remains an essential policy priority for the government of Azerbaijan too. President of the Republic of Azerbaijan signed a decree on the establishment of the Innovation Agency under the Ministry of Transport, Communications and High Technologies of the Republic of Azerbaijan on November 6th, 2018. The Innovation Agency to be established in 2019 will be a coordinating body to draft and implement an innovation roadmap of an Azerbaijani ecosystem. This paper reviews world practice, including an Israeli practice of success to deduct results and models to build an ecosystem in Azerbaijan. The aim is to determine factors that made the Israeli ecosystem successful and study if these factors can be applied to the development and implementation of similar benchmarks in Azerbaijan. The methodology that is used for this research is the case study from Israel. Through systematic analysis and logical generalization, the paper analytically discusses and deducts conclusions from Israel’s experience to spell out some key public policy lessons.
    Keywords: Business model, Ecosystem, Innovation, Innovation ecosystem, non-oil economy
    JEL: O3 O38 O4
    Date: 2019–04–30

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