nep-tra New Economics Papers
on Transition Economics
Issue of 2019‒07‒22
seventeen papers chosen by
J. David Brown
United States Census Bureau

  2. Chinese regional inequality and sectoral foreign direct investment By Azarhoushang, Behzad; Wu, Jennifer Pédussel; Zaroki, Shahryar
  3. Kyrgyz Republic; 2019 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  4. The Third Round of the Euro Area Enlargement: Are the Candidates Ready? By Milan Deskar-Škrbić; Karlo Kotarac; Davor Kunovac
  5. Directed social economics : China's complicated growth story By Jakhotiya, Girish
  6. China’s Overseas Lending By Sebastian Horn; Carmen M. Reinhart; Christoph Trebesch
  8. Retraditionalization as a pathway to escape lowest-low fertility? Characteristics and prospects of the Eastern European “baby boom” By Sebastian Klüsener; Aiva Jasilioniene; Victoria Yuodeshko
  9. Projections on the sustainability of the pension system in Romania By Ion Stancu; Dragos Haseganu; Alexandra Darmaz-Guzun
  10. Corporate Governance disclosure and implication in the financial audit of banks in Romania By Andreea Claudia Crucean
  11. Euro Area Accession and its Effect on Manufacturing By Magdalena Vlahova-Veleva
  12. Enhancing Connectivity and Freight in Central Asia By ITF
  13. The financial stability index (6) – Estimated by the Institute of Financial Studies By Ion Stancu; Andrei Tudor Stancu; Iulian Panait
  14. Transition from the industrial clusters to the smart specialization: a case study By Yelena Petrenko; Elena Vechkinzova; Viktor Antonov
  15. The role of internally financed capex in rising Chinese corporate debts By Guonan Ma; Jinzhao Chen
  16. Gender Pay Gap Patterns in Domestic and Foreign-Owned Firms By Magda, Iga; Salach, Katarzyna
  17. Local Central Counterparty By Laurentiu Paul Baranga

  1. By: Aleksandra Kordalska (Gdansk University of Technology, Gdansk, Poland); Magdalena Olczyk (Gdansk University of Technology, Gdansk, Poland)
    Abstract: The goal of the paper is to decompose gross exports/imports to/from Germany for seven selected economies in Central and Eastern Europe (CEE): the Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, and Slovakia for 2000 and 2014, to identify the role of German in absorbing, reflecting, and redirecting CEE trade. We use a gross trade decomposition proposed by Borin and Mancini (2017), which is the extended version of the methodology of Koopman, Wang, and Wei (KWW; 2014). Our analysis shows the deep integration of CEE into ‘Factory Germany’ as well as also the overestimated role of Germany as a market of final destination. Germany plays the increasing role in CEE export redirection (and vice versa) to extra-European destinations, especially to the US, China, and Russia. Additionally, we state that the Baltic countries and Poland export domestic value added mostly included in services, while the Visegrád countries do so in manufacturing.
    Keywords: value-added exports, CEE economies, trade linkages, GVC decomposition
    JEL: F1 F14 F1
    Date: 2019–07
  2. By: Azarhoushang, Behzad; Wu, Jennifer Pédussel; Zaroki, Shahryar
    Abstract: Following the 1978 economic reforms, China gradually became first amongst developing countries and the second in the world, after the USA, in terms of stock of inward Foreign Direct Investment (FDI). Sustained GDP growth, a high rate of capital return and brisk economic development made China one of the best destinations for foreign capital; however, the benefits of this spectacular growth have not been evenly distributed throughout the various Chinese regions. There are many low-income and poor economic performing provinces in China although poverty is mainly concentrated in the inland regions. Since the beginning of the 2000s, a series of policies have been designed and implemented by the Chinese government to encourage foreign company investment in central and western provinces to help decrease the regional inequality with limited successes. This paper uses Panel Least Squares method to empirically analyze the impact of industrial sector FDI on Chinese regional inequality during 2003-2013. The resulting analysis shows the connection between FDI in industrial sectors and regional inequality in China. In particular, regional inequality affects FDI location choices. The findings show that economic and non-economic indicators such as human capital, infrastructure, per capita income, and government policies affect regional inequality and foreign firms' location choices. Despite government policies to support inland regional economic development, foreign firms still prefer to invest in coastal provinces further illustrating the effects of clusters in this region.
    Keywords: FDI,China,Panel,regional inequality,MNCs
    JEL: F21 F23 F16 C33
    Date: 2019
  3. By: International Monetary Fund
    Abstract: The economy is growing steadily, benefiting from a benign regional environment, particularly in Russia, the source of most remittances and non-gold export receipts. Low inflation, lower fiscal deficits, and a stable banking sector point to the success of stabilization policies implemented by the government and National Bank of the Kyrgyz Republic (NBKR, the central bank) under eight successive Fund-supported programs. However, the economy remains vulnerable to external shocks because of the high level of remittances (29 percent of GDP), the concentration of exports on gold (37 percent of exports of goods), the level and composition of the public debt (56 percent of GDP, 4/5 of which is denominated in foreign currency), and the level of the current account deficit (8.7 percent of GDP). In addition, economic growth has been insufficient to significantly raise living standards and continue to reduce poverty.
    Date: 2019–07–03
  4. By: Milan Deskar-Škrbić (The Croatian National Bank, Croatia); Karlo Kotarac (The Croatian National Bank, Croatia); Davor Kunovac (The Croatian National Bank, Croatia)
    Abstract: In this paper, we study the readiness of Bulgaria, Croatia and Romania to adopt the common monetary policy of the ECB in the context of the third round of euro area enlargement. Following the later stages of the optimal currency area (OCA) theory we focus on the coherence of economic shocks between candidate countries and the euro area and analyse the relevance of euro area shocks for key macroeconomic variables in these countries. Our results, based on a novel empirical approach, show that the overall importance of those shocks that are relevant for the ECB is fairly similar in candidate countries and the euro area. The cost of joining the euro area should, therefore, not be pronounced, at least from the aspect of the adoption of the common counter-cyclical monetary policy. This conclusion holds for all three candidates, despite important differences in monetary and exchange rate regimes.
    Keywords: euro area enlargement, economic shocks, BVAR, common monetary policy, Mundellian trilemma
    JEL: E32 E52
    Date: 2019–07
  5. By: Jakhotiya, Girish
    Abstract: The entire globe has, in varying measures, experienced the good and the bad impact of China’s growth story this past decade. China is hastening to project itself such that, it be viewed as the ‘global growth engine’. Whether duly or unduly, like secretly many a country would want to, China is rushing all out to replace USA from the foray and become the sole unparalleled global leader. The Chinese have already compromised with Russia, by signing a long-term contract for oil supply. China’s economic numbers and the trend displayed so far, reasonably indicates its hunger for growth. China is ambitious to grow vertically on the economic scale and horizontally on the geographic scale. This is what is likely to spell disaster for the world, especially for the democratic countries.
    Keywords: China, Communist Party, Communism, Capitalism, Global Turbulence, Development, Democracy, Growth, Geo-political
    JEL: E66 F51 O11
    Date: 2019–06–27
  6. By: Sebastian Horn; Carmen M. Reinhart; Christoph Trebesch
    Abstract: Compared with China’s dominance in world trade, its expanding role in global finance is poorly documented and understood. Over the past decades, China has exported record amounts of capital to the rest of the world. Many of these financial flows are not reported to the IMF, the BIS or the World Bank. “Hidden debts” to China are especially significant for about three dozen developing countries, and distort the risk assessment in both policy surveillance and the market pricing of sovereign debt. We establish the size, destination, and characteristics of China’s overseas lending. We identify three key distinguishing features. First, almost all of China’s lending and investment abroad is official. As a result, the standard “push” and “pull” drivers of private cross-border flows do not play the same role in this case. Second, the documentation of China’s capital exports is (at best) opaque. China does not report on its official lending and there is no comprehensive standardized data on Chinese overseas debt stocks and flows. Third, the type of flows is tailored by recipient. Advanced and higher middle-income countries tend to receive portfolio debt flows, via sovereign bond purchases of the People’s Bank of China. Lower income developing economies mostly receive direct loans from China’s state-owned banks, often at market rates and backed by collateral such as oil. Our new dataset covers a total of 1,974 Chinese loans and 2,947 Chinese grants to 152 countries from 1949 to 2017. We find that about one half of China’s overseas loans to the developing world are “hidden”.
    JEL: F21 F34 F42 G15 H63 N25 O10
    Date: 2019–07
  7. By: Aleksandra Kordalska (Gdansk University of Technology, Gdansk, Poland); Magdalena Olczyk (Gdansk University of Technology, Gdansk, Poland)
    Abstract: This study examines labour productivity performance and its determinants in Eastern European and Central Asian (EECA) firms using micro-level data. We find significant differences in labour productivity among members of the European Union in Eastern Europe and other Eastern European and Central Asian countries. We also confirm the important impact of foreign ownership, exporter status, and highly skilled workers on productivity levels. However, we reveal a non-linear relationship between firm age and their labour productivity. Additionally, significant differences in labour productivity determinants between the services and manufacturing are found. The productivity of service firms, unlike manufacturing firms, is much more sensitive to changes in productivity factors.
    Keywords: Eastern Europe and Central Asia, firm-level analysis, labour productivity
    JEL: C21 J24 O52 O53
    Date: 2019–07
  8. By: Sebastian Klüsener (Max Planck Institute for Demographic Research, Rostock, Germany); Aiva Jasilioniene (Max Planck Institute for Demographic Research, Rostock, Germany); Victoria Yuodeshko
    Abstract: Over the last two decades, Belarus and Russia have witnessed substantial fertility increases that have catapulted their total fertility rates from lowest-low fertility to levels above 1.7 children per woman. While it is frequently argued that greater gender equality is an important mechanism for overcoming low fertility, these developments seem to have instead been accompanied by a retraditionalization of gender attitudes. This paper uses the 2017 Belarusian Generations and Gender Survey to investigate the characteristics and prospects of the Eastern European “baby boom.” We show that the fertility increases are driven by two main components: the recuperation of births postponed during the preceding post-communist transition crisis, and fertility increases among cohorts born in the 1980s. These cohorts also display very traditional gender attitudes. While the recuperation will not have a long-term impact, it is more uncertain whether or not the cohort fertility increases will be sustained.
    Keywords: Belarus, below-replacement fertility, cohort fertility, cumulative fertility, fertility increase, life tables
    JEL: J1 Z0
    Date: 2019–07
  9. By: Ion Stancu (Bucharest Academy of Economic Studies and Institute of Financial Studies, Bucharest,Romania); Dragos Haseganu (Financial Supervisory Authorityand Institute of Financial Studies, Bucharest, Romania); Alexandra Darmaz-Guzun (West University of Timisoara, Romania and Institute of Financial Studies, Bucharest,Romania)
    Abstract: The social pension system is a matter of particular complexity for any country and national authorities. National and international statistical and forecasting institutions, as well as research institutions, assume the complexity of the pension system as a major scientific and professional challenge for identifying social protection phenomena and designing a sustainable pension system.In this context, the Institute of Financial Studies (ISF) in Bucharest takes over this rebellion of concerns, proposing a series of studies on the sustainability of the Romanian pension system. Fortunately, our intention is to support previous studies conducted by demographics and social protection teams, as well as projections freely provided by relevant bodies (Eurostat, US Census Bureau, INS, CNSP, CNPP, EFOR, etc.).In this first ISF study we summarize, in the first part, the specialized literature, especially Romanian, with approaches to the specificities of pensions in Romania compared to the European countries, in the second part, the demographic evolution and tendencies in Romania, in the third part and fourth, the projections on the number of pensioners versus the number of taxpayers and, respectively, the projection of the financial balance of the pension system in Romania. Our studyassumes, with appreciation, the updating of the many previous projections of the established institutions and the attempt to explain contextually demographic and social protection phenomena.
    Keywords: the social pension system, demographic trends, social contributions and benefits, the financial balance of the pension system
    JEL: C15 C87 H55
    Date: 2019–05
  10. By: Andreea Claudia Crucean (West University of Timisoara, Romania)
    Abstract: Thispaperaims topresents the relevant aspects regarding the implementation of principles and rulesof corporate governance in the Romanian banking system.The purpose of the articleis to investigate the theoretical and legislative basis whichcontrolsthis area, but also research practical cases on this subject. Based on the review of nationaland international literature, the case study was based on a sample of 17 commercial banks from Romania.Usingcollected data from the official banks' websites, it was analyzed the details of chosen corporate governance elements: the management system, the shareholder and organizational structure, the financial control and audit, as well as if the banks offer disclosure for theapplicable governance codes. The main conclusion which resultsfrom thisstudy case is that,the information available to public provides details about the management structure and the audit department, but this information is not very detailed, the information about the professional experience of the members or the benefits that these credit institutions obtained from the application of corporate governance codes are not described, in some cases even missing.
    Keywords: corporate governance, financial audit, disclosure, banking system, dual system, unitary system
    JEL: G30 M14 M41 M42 M48
    Date: 2019–05
  11. By: Magdalena Vlahova-Veleva (Sofia University “St. Kliment Ohridski”, Faculty of Economics and Business Administration)
    Abstract: A single currency could bring both benefits and challenges, hence, this paper examines one of the various dimensions of euro adoption. Moreover, although previous studies have illuminated the euro effect on inflation and trade, the research on manufacturing remains limited. The paper aims to make an assessment of whether euro area accession has an impact on industrial output in the context of the manufacturing sector, as this sector is considered to have a crucial role for sustainable economic growth. The research fits a panel regression model for seven-euro area member states from Central and Eastern Europe and covers a 16-year period from 2003 to 2018. The findings suggest that the participation in the monetary union might increase manufacturing turnover for its members.
    Keywords: Economic and Monetary Union, euro, panel regression, manufacturing.
    JEL: E50 L60 O52
    Date: 2019–07
  12. By: ITF
    Abstract: This report assesses freight connectivity in Central Asia, focusing on Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan. It provides recommendations for improving connectivity and the policy processes required to achieve this. The report also offers advice on how regional co-ordination can improve freight efficiency and connectivity. The analysis, both qualitative and quantitative, covers questions related to hard infrastructure, policies and regulatory frameworks.
    Date: 2019–05–14
  13. By: Ion Stancu (Institute of Financial Studies Bucharest); Andrei Tudor Stancu (Norwich Business School, UK); Iulian Panait (Financial Supervisory Authority)
    Abstract: In each issue of the Financial Studies Review, we update and publish the Financial Stability Index (FSI) of our Institute of Financial Studies, which tracks the correlation between economic growth and macroeconomic and financial factors in Romania.We constructeda composite index using a linear combination of financial variables that are considered to have a significant impact on economic activity. These financial variables are weighted with respect to their cumulated two quarters impulse response on GDP growth, as estimated by a VAR model.Developing such a composite index of financial stability or financial stresshas two main utilities:•The analysis of the correlation between financial variables and the real economy placed in the context of different historical episodes of financial crisis. Also, this correlation analysis reveals, in each period, the significant positive or negative contribution of each financial variable to real economic growth. Following this analysis, the FSIcan measure the impact of economic and financial policy measures aimed at mitigating financial crises. The short-term prediction of real economic growth estimated by forecasting the next period evolution of the real economic activity (GDPt+1) using current period GDPtand FSItand economic and financial variables in the FSItcomposition.
    Keywords: composite index, financial stress index, economic growth, VAR model, short-term prediction
    JEL: E63 G01 G28
    Date: 2019–05
  14. By: Yelena Petrenko (PRUE - Plekhanov Russian University of Economics [Moscow]); Elena Vechkinzova (ICS RAS - Trapeznikov Institute of Control Sciences - RAS - Russian Academy of Sciences [Moscow]); Viktor Antonov (State University of Management)
    Abstract: Kazakhstan faced the problem of falling industrial production and decrease in efficiency of former managerial methods of territorial development. Transition to the new Smart Specialization approach provides better understanding of the specifics of the region and provides the highest return on investment in innovation. The authors produce rationale for the selection of regions of Kazakhstan to determine their smart specialization. There were determined the regions, in which it is advisable to develop the general purpose technologies, and the territories, where it is more profitable to focus on applied research and transmitting them into practice in relation to existing products and technological processes.
    Keywords: industrial policy,smart specialization,innovations,development of industrial regions,Kazakhstan
    Date: 2019–06–30
  15. By: Guonan Ma (About Capital Management, Hong Kong); Jinzhao Chen (ESSCA School of Management, France)
    Abstract: Our paper aims to understand potential drivers behind China’s rising corporate leverage, using an international aggregate panel dataset. We find strong evidence of significantly negative effects of the internally financed share of capex on the change of corporate debt/GDP: a rise in corporate earnings relative to corporate investment consistently slows corporate debt buildup. This finding is robust to choices of benchmark models, control variables, and data samples. Our regressions also confirm more important roles played by real economic factors than monetary factors. While the investment rate contributes to rising corporate debt, a higher saving rate dampens corporate leveraging. Finally, we find some evidence of consistently negative impacts of government debt on corporate leveraging, suggesting possible interactions between corporate and government debts.
    Keywords: Corporate Debt, Corporate earnings, Internal financing, Capital expenditure, China
  16. By: Magda, Iga (Warsaw School of Economics); Salach, Katarzyna (University of Warsaw)
    Abstract: We investigate differences in gender wage gaps between foreign-owned and domestically-owned firms in Poland, a country that has experienced large FDI inflows over the past three decades. In line with the findings of several other studies, we show that according to standard estimates of adjusted gender wage gaps, these differences are much larger in the foreign-owned companies than in the domestic firms. However, we also find that these estimates cannot be trusted because the domestically-owned firms have considerably higher levels of gender segregation, and because the OLS estimates of the adjusted gender wage gaps in this sector are more likely to be biased. Using a matching and decomposition technique (Ñopo 2008) that allows us to capture gender wage differentials over a common support, we find that gender wage gaps in domestically-owned firms are only slightly smaller than those in foreign-owned companies. Our results also indicate that women tend to segregate into low-paid jobs in the domestic sector, whereas there is no evidence of such a pattern in the foreign sector. The analysis furthers shows, however, that foreign-owned companies have much larger within-firm differences in earnings (net out of composition effects), and that these earnings they pay vary less across firms. In sum, we find that the nature of gender wage gaps and the factors that underlie them differ between domestic and foreign-owned companies.
    Keywords: gender wage gaps, domestic ownership, foreign ownership, FDI
    JEL: F23 J16 J31 J71
    Date: 2019–06
  17. By: Laurentiu Paul Baranga (Bucharest Academy of Economic Studies, Bucharest, Romania)
    Abstract: On the 29thof January 2019, the Extraordinary General Meeting of Shareholdersof the company Bucharest Stock Exchange(BVB) decided to incorporate a joint-stock company in order to authorize and operate it as a central counterparty. The business scope of this company would be to carry out operations such as clearing, calculation of net liabilities, and ensuring the availability of financial instruments, money funds (or of both)to cover the resulting exposures.Thecentralcounterparty will be able to provide guarantee services for transactions based on financial instruments carried out both onthe spot trading venues currently managed by the BVB and on the derivative market, supposing that BVB developedsuch a market.Seeing that the financial instruments listedon the trading venues managed by the BVB are heterogenousin terms of liquidity and volatility,the possibility for the local central counterparty to provide clearing services would be limited to certain financial instruments,at least during the first stage.If the clearing services are extended to all the securities listedon the BVB, the guarantee level will reach, in certain situations, up to 100% of the transaction value, which would actually entail a pre-validation activity.
    Keywords: centralcounterparty, financial instruments, netpositions, market risk, creditrisk
    Date: 2019–05

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