nep-tra New Economics Papers
on Transition Economics
Issue of 2019‒08‒12
seventeen papers chosen by
J. David Brown
United States Census Bureau

  1. Ownership and Productivity in Vertically-Integrated Firms: Evidence from the Chinese Steel Industry By Loren Brandt; Feitao Jiang; Yao Luo; Yingjun Su
  2. Determinants of Liquidity in Selected CEE Countries By Pavla Klepková Vodová
  3. A Study of Economic Sophistication of China by Using Principle Component Analysis By Takanori Minamikawa
  4. Social Networks and Mental Health Outcomes: Chinese Rural-Urban Migrant Experience By Meng, Xin; Xue, Sen
  5. Current account dynamics and exchange rate regimes in Central and Eastern Europe By Kersti Harkmann; Karsten Staehr
  6. Should we care? : The economic effects of financial sanctions on the Russian economy By Pestova, Anna; Mamonov, Mikhail
  7. The effect of the single currency on exports: comparative firm-level evidence By Tibor Lalinsky; Jaanika Merikull
  8. Short-Run and Long-Run Effects of Sizable Child Subsidy: Evidence from Russia By Ilia Sorvachev; Evgeny Yakovlev
  9. Are Politically Connected Firms More Likely to Export? By Yu Ri KIM; TODO Yasuyuki
  10. Innovation Union: Costs and Benefits of Innovation Policy Coordination By Teodora Borota; Fabrice Defever; Giammario Impullitti
  11. A new approach to estimation of actively managed component of foreign exchange reserves By Dąbrowski, Marek A.
  12. Local entrepreneurship ecosystems and emerging industries: Case Study of Mazowieckie, Poland By OECD
  13. The mirror does not lie: Endogenous ?scal limits for Slovakia By Zuzana Mucka
  14. Foreign currency loan conversions and currency mismatches By Andreas M. Fischer; Pinar Yesin
  15. Investigation on Regional Decomposition Mechanism of Carbon Emission Control Target: China 2021-2030 By Shengbo FENG; Masashi TAKETANI; Yanmin HE; Tun-Yen WANG
  16. Transition Finance Country Study Viet Nam: On the threshold of transition By Jieun Kim; Konstantin Poensgen
  17. Effect of Exchange Rate Volatility on Imports: Evidences from Chinese Firms By Li, Yifan; Miao, Zhuang

  1. By: Loren Brandt; Feitao Jiang; Yao Luo; Yingjun Su
    Abstract: We study productivity differences in vertically-integrated Chinese steel facilities using a unique data set that provides equipment-level information on material inputs and output in physical units and equipment size for each of the three main stages in the steel value chain, i.e., sintering, pig-iron making, and steel making. We find that private vertically-integrated facilities are more productive than provincial state-owned (SOEs) facilities, followed by central SOEs. This ranking lines up with our productivity estimates in the two downstream production stages, but central SOEs outperform in sintering, most likely because of their superior access to higher quality raw materials. The productivity differential favoring private facilities declines with their size, turning negative for facilities larger than the median. These patterns are linked with equipment-level TFP in private firms as size expands, and the internal configuration of vertically-integrated facilities, which reflect the greater constraints facing private firms. Increasing returns to scale at the stage and facility-level partially offset these costs and rationalize firms' choice on larger vertically-integrated facilities.
    Keywords: Total Factor Productivity, Vertically-Integrated, Steel, SOEs, Private, China
    JEL: D24 L11 L23 L61
    Date: 2019–07–31
  2. By: Pavla Klepková Vodová (Department of Finance and Accounting, School of Business Administration, Silesian University)
    Abstract: The aim of this paper is to describe the development of bank liquidity in six selected Central and Eastern European Countries (Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Serbia and Slovenia) and to find out if selected liquidity ratios are influenced by the affiliation of banks with financial conglomerate or if other determinants are more important. The data cover the period from 2011 to 2017. Results of the panel data regression analysis showed that the affiliation of banks with the financial conglomerate does not statistically significant affect values of liquidity ratios in the selected CEE countries. Instead, other bank-specific and macroeconomic factors are important, such as bank solvency and profitability, quality of the loan portfolio, gross domestic product, the unemployment rate, interest rate on loans and interbank interest rate matter, at least for some countries. Focusing on the buffer of liquid assets, size of the bank is important for all six selected CEE countries. Bank profitability, quality of the loan portfolio, gross domestic product, the unemployment rate, interest rate on loans, interbank interest rate and lagged value of bank solvency matter, at least for some countries. In case of the net interbank position, the lagged value of bank solvency, economic cycle, bank size, interbank interest rate, and quality of the loan portfolio are significant.
    Keywords: liquidity, liquidity ratios, liquid assets, net interbank position, panel data regression analysis, commercial banks
    JEL: G21 C33
    Date: 2019–07–31
  3. By: Takanori Minamikawa (Economic Research Institute for Northeast Asia (ERINA))
    Abstract: Following the Global Recession in 2008, European countries and U.S. recognized irreversible changes resulting from financial shock that lead their own countries into a new stage of economy, called “New Normal”. Since the Chinese economy is not independent of the global economy, China also recognized that its own economy was entering the “New normal”, or “Xin Changtai” in Chinese. Furthermore, to suit their economy to “Xin Changtai”, new economic growth policy was necessary. During the 2014 APEC meeting, President Xi Jinping declared that China aimed to change their engine of economic growth from foreign trade and investment to innovation and consumption, in addition to the harmonious upgrade of the region and society between each province to achieve sustainable economic growth. Although existing literatures suggest the use of Genuine Progress Indicator (GPI) to evaluate the sophistication of society, there is no consensus on the construction of the components or the evaluation of each component of GPI, therefore, a more objective evaluation index is needed. This study employs the principle component analysis method to calculate an indicator to evaluate the sophistication of society. This indicator reflects the degree of the characteristics readily used in developed countries, and in the present study it is applied in the evaluation of China’s 31 provinces. Empirical results show that a few provinces in coastal areas developed their society, while most inland provinces were left behind. Moreover, as a result from the examination of the correspondence between the geographic distribution of the index and China’s seven geographic divisions, it is shown that a disparity in social sophistication occurred in each division.
    Keywords: Chinese Economy, New Normal, Principle Component Analysis (PCA), Economic Disparity
    JEL: M2 F51 P20 R11
    Date: 2019–07
  4. By: Meng, Xin; Xue, Sen
    Abstract: Over the past two decades, more than 160 million Chinese rural workers have migrated to cities to work. They are separated from their familiar rural networks to work in an unfamiliar, and often hostile environment. Many of them thus face significant mental health challenges. This paper is the first to investigate the extent to which migrant social networks in host cities can mitigate these adverse mental health effects. Using a unique longitudinal survey data of Rural-to-Urban Migration in China (RUMiC), we find that network size matters significantly for migrant workers. Our preferred IV estimates suggest that one standard deviation increase in migrant city networks, on average, reduces the measure of mental health problem by 0.47 to 0.66 of a standard deviation. Similar effects are found among less educated, those working longer hours, and those without access to social insurance. The main channel of the network effect is through boosting confidence and reducing anxiety of migrants.
    Keywords: Mental Health,Social Networks,Migration,China
    JEL: I12 I15 J61
    Date: 2019
  5. By: Kersti Harkmann; Karsten Staehr
    Abstract: The paper seeks to determine the factors that drive the current account dynamics of the 11 EU members from Central and Eastern Europe (CEE). Panel data models are estimated on annual data for the period 1997–2017 and both domestic pull factors and external push factors are included. The models are, as a key innovation, estimated separately for floating and fixed exchange rate regimes. The current account exhibits substantial persistence in both cases. For the floaters, the current account has been driven by domestic factors while external factors appear unimportant. For the fixers, the current account has mainly been driven by external factors, suggesting there is substantial vulnerability to external developments. The analysis underscores the importance of the exchange rate regime for the drivers of the current account balance in the CEE countries.
    Keywords: current account balance, exchange rate regime, economic policies, Central and Eastern Europe
    JEL: F32 F33 P33
    Date: 2019–01–23
  6. By: Pestova, Anna; Mamonov, Mikhail
    Abstract: We employ a Bayesian VAR model to estimate the economic effects on the Russian economy from Western financial sanctions imposed in 2014. Sanctions caused a decrease in the amount of out-standing Russian corporate external debt, but it occurred during an episode of falling oil prices. We disentangle the effects of sanctions and oil prices by computing out-of-sample projections of key Russian macroeconomic variables conditioned solely on the oil price drop and on both the oil price drop and external debt deleveraging. Declining oil prices alone do not explain the depth of economic crisis in Russia, but we get rather accurate conditional forecasts when the actual path of external debt deleveraging is added. We treat the difference between these two projections as the effect of sanctions against Russia. The effect is modest, yet significant, for most of the variables discussed. While our estimate of the impact of sanctions on GDP growth has large uncertainty, over two-thirds of the density lies in the negative area.
    JEL: C51 E37 E44 F34
    Date: 2019–07–29
  7. By: Tibor Lalinsky; Jaanika Merikull
    Abstract: We investigate how adopting the euro affects exports using firm-level data from Slovakia and Estonia. In contrast to previous studies, we focus on countries that adopted the euro individually and had different exchange rate regimes prior to doing so. Following the New Trade Theory we consider three types of adjustment: firm selection, changes in product varieties and changes in the average value of the exports that compose the exports of individual firms. The euro effect is identified by a difference in differences analysis comparing exports by firms to the euro area countries with exports to the EU countries that are not members of the euro area. The results highlight the importance of the transaction costs channel related to exchange rate volatility. We find the euro has a strong pro-trade effect in Slovakia, which switched to the euro from a floating exchange rate, while it has almost no effect in Estonia, which had a fixed exchange rate to the euro prior to the euro changeover. Our findings indicate that the euro effect manifested itself mainly through the intensive margin and that the gains in trade were heterogeneous across firm characteristics.
    Keywords: international trade, common currency areas, euro adoption, transaction costs, Slovakia, Estonia, firm-level data
    JEL: F14 F15
    Date: 2019–01–23
  8. By: Ilia Sorvachev (Department of Economics, University of Wisconsin-Madison); Evgeny Yakovlev (New Economic School)
    Abstract: This paper utilizes a large-scale natural experiment aimed to increase fertility in Russia. Motivated by a decade-long decrease in fertility and population, the Russian government introduced a sequence of sizable child subsidies (called Maternity Capitals) in 2007 and 2012. We find that the Maternity Capital resulted in a significant increase in fertility both in the short run (by 8%) and in the long run (by 20%), and has already resulted in an increase in completed cohort fertility for a large cohort of Russian women. The subsidy is conditional and can be used mainly to buy housing. We find that fertility grew faster in regions with a shortage of housing and with a higher ratio of subsidy to housing prices. We also find that the subsidy has a substantial general equilibrium effect. It affected the housing market and family stability. Finally, we show that this government intervention comes at substantial costs: the government's willingness to pay for an additional birth induced by the program equals approximately 50,000 dollars.
    Date: 2019–07
  9. By: Yu Ri KIM; TODO Yasuyuki
    Abstract: Political connection may facilitate firms' exporting activities particularly in developing countries, because politically connected firms may be more likely to receive informational and financial support, allowing them to overcome barriers to export. We test this hypothesis using a unique, firm-level dataset from traditional apparel and textile clusters in the Red River Delta Region in Northern Vietnam. We find that political connection of certain types increases the chance of receiving valuable information or financial support from the government. Moreover, those firms which have access to information from the government have higher chances of being direct exporters. However, firms which receive financial support from the government are not necessarily engaged in exporting activities. Although politically connected firms are more willing to export, they do not necessarily engage in more exporting activities than firms without such connections. These results suggest that the misallocation of information and financial resources to politically connected but insufficiently productive firms leads to a failure in the promotion of exporting activities. In contrast, political connection increases the chance of importing materials and parts, possibly because high productivity is necessary for exporting, but not importing.
    Date: 2019–07
  10. By: Teodora Borota; Fabrice Defever; Giammario Impullitti
    Abstract: In this paper, we document large heterogeneity in innovation policy and performance between old and new EU member states, and present firm-level evidence on the close link between foreign direct investment (FDI) spillovers and eastern European _firms' innovation. Guided by these facts and motivated by the pressing debate on further EU integration, we build a two-region endogenous growth model to analyse the gains from innovation policy cooperation in an economic union. The two regions, the West (the old members) and the East (the new post-2004 members), feature firms competing in innovation for market leadership, are integrated via free trade and costly technology transfer via FDI and have different innovation performance and policy. Calibrating the model to reproduce key features of the EU economy, we compare the outcomes of an East-West R&D subsidy war with a cooperation scenario with unified subsidy across regions, and obtain three main results. First, we find that the dynamic gains spurring from the impact of cooperation on the economy's growth rate are sizable and substantially larger than the static gains obtained internalising the strategic motive for subsidies. Second, our model suggests that the presence of FDI and multinational production alleviates the strategic motive and increases the gains from cooperation. Third, separating FDI and innovation policy generates larger gains from cooperation, a policy complementarity driven by the knowledge spillovers carried by FDI.
    Keywords: Optimal innovation policy, growth theory, international policy coordination, EU integration, FDI spillovers
    JEL: O41 O31 O38 F12 F42 F43
    Date: 2019–08
  11. By: Dąbrowski, Marek A.
    Abstract: Changes in foreign exchange (FX) reserves are difficult to measure in an economically meaningful way because central banks do not decompose reported data into passive and active components. Only the latter should be used when the usefulness of FX reserves in crisis management is assessed or symptoms of currency manipulations are looked for. The applicability of the existing approach to identification of active component of FX reserves is highly limited as it relies on data that are available for a relatively short timespan. To overcome these problems the new approach to estimation of active component of FX reserves is laid out. It makes use of a time-varying coefficient model estimated with Bayesian techniques. The empirical results are obtained for 20 countries over 1995-2017 period. The main finding is that the estimates from the new approach are highly correlated with those from the existing approach, but the timespan of the former is substantially larger than that of the latter. The estimates based on the new approach are cross-checked against the data on FX market interventions of the Czech National Bank. It is demonstrated that the estimates are in general superior to plain changes in FX reserves as a measure of FX interventions and are not worse than those from the existing approach.
    Keywords: foreign exchange reserves, foreign exchange interventions, open economy macroeconomics, Czech National Bank, state space models
    JEL: C32 E58 F31 F41
    Date: 2019–07–22
  12. By: OECD
    Abstract: This report examines the local entrepreneurship ecosystem of the Mazowieckie 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: 2019–08–06
  13. By: Zuzana Mucka (Council for Budget Responsibility)
    Abstract: We study the interactions among ?scal policy, ?scal limits and the associated sovereign risk premium. The ?scal limit distribution, which measures the ability of the government to service its debt, arises endogenously from dynamic Laffer curves. We assume a feedback loop between the ?scal limit distribution and the risk premium and determine them simultaneously using and ef?cient iterative scheme. A nonlinear relationship between the sovereign risk premium and the level of government debt then emerges in equilibrium. The model is calibrated to Slovak data assuming steeply growing age-related transfers and volatile business cycle. We study the impact of various model parameters on the conditional (state-dependent) and unconditional distributions of the ?scal limit. Fiscal limit distributions obtained via Markov–Chain–Monte–Carlo regime switching algorithm depend on the rate of growth of government transfers, the degree of countercyclicality of policy, and the distribution of the underlying economic conditions. We ?nd that both distributions are considerably more heavy-tailed compared with those usually obtained in the literature for advanced economies, and are very sensitive to the size and rate of growth of transfers, the business cycle phase and the ?scal policy credibility. The main policy message is that the Maastricht debt limit of 60 percent of GDP is not safe enough for Slovakia. Furthermore, credible reforms reining in age-related spending and thus stabilising public ?nance in the long-run, should be a priority.
    Keywords: Simulation Methods and Modelling, Fiscal Policy, Government Expenditures, Debt Management and Sovereign Debt
    JEL: C15 C63 E62 H5 H63
    Date: 2019–05
  14. By: Andreas M. Fischer; Pinar Yesin
    Abstract: This paper examines the effect of currency conversion programs from Swiss franc-denominated loans to other currency loans on currency risk for banks in Central and Eastern Europe (CEE). Swiss franc mortgage loans proliferated in CEE countries prior to the financial crisis and contributed to the volume of non-performing loans as the Swiss franc strongly appreciated during the post-crisis period. Empirical findings suggest that Swiss franc loan conversion programs reduced currency mismatches in Swiss francs but increased currency mismatches in other foreign currencies in individual countries. This asymmetric effect of conversion programs arises from the loan restructuring from Swiss francs to a non-local currency and the high level of euro mismatches in the CEE banking system.
    Keywords: Loan conversion programs, emerging markets, currency mismatch
    JEL: F15 F21 F32 F36 G15
    Date: 2019
  15. By: Shengbo FENG (Energy Research Institute, China Academy of Macroeconomic Research, The National Development and Reform Commission); Masashi TAKETANI (Institute of Economic Research, Kyoto University); Yanmin HE (Faculty of economics, Otemon Gakuin University); Tun-Yen WANG (Institute of Economic Research, Kyoto University)
    Abstract: China already set up national target for carbon emission control before 2030. Based on experience of former target allocation, the way of both local voluntary commitments and negotiation between the central government and local governments to allocate the targets would help local governments set up energy conservation and carbon emission control initiatives. A target decomposition scheme is thus developed in this study. Combining the anticipation for the economic and social development situation during 2021-2030, the initial idea of decomposition mechanism of carbon emission control target is suggested.
    Keywords: carbon emission control, target decomposition, index evaluation system, clustering analysis
    JEL: O13 O38
    Date: 2019–07
  16. By: Jieun Kim; Konstantin Poensgen
    Abstract: Based on the “ABC” approach targeted to assess all available sources of financing (official development finance, private investment, domestic resources, and remittances), the Viet Nam country pilot study explores the challenges of transition finance in a middle-income country in the Asia-Pacific region. After launching a series of successful reforms beginning in the late 1980s, Viet Nam has undergone an impressive transformation, which turned the country from a centrally planned to a market-oriented economy and from a low-income to a lower middle-income country. At the same time, Viet Nam is moving from a relatively high reliance on ODA and other external sources towards non-concessional sources and domestic sources. Through evolving partnerships, development partners can align their support with newly arising needs, actively supporting Viet Nam overcome the middle-income trap and move towards a trajectory for more sustainable development.
    Keywords: Addis Ababa Action Agenda, concessional finance, debt sustainability, financing for sustainable development, IDA graduation, LDC, middle-income trap, SDGs, transition finance, Viet Nam
    JEL: O2 H6 H2 F35 O1 F34 H00
    Date: 2019–08–06
  17. By: Li, Yifan; Miao, Zhuang
    Abstract: The effect of exchange rate movement on trade has been studied widely for a long history. Most literatures focus on its impacts on firms' export performances, and the performances usually refer to the intensive and extensive margins of export. Adding to the existing studies, we explore how firms adjust their imports in response to varying levels of exchange rate volatility using Chinese customs data. Our contributions include three points: (i) we are the first one to test this issue using the Chinese firm level data; (ii) besides the intensive and extensive margins, we also detect how firms adjust the number of import varieties; and (iii) our study detects the role of financial constraints on the effect of the exchange rate risk. Our empirical estimations find that firms reduce their import value, varieties, and import probability from the origin country with relatively high level of exchange rate volatility. The last finding is different from the existing literature.
    Keywords: Exchange Rate Volatility; Import Performance; Firm-level Evidences; China
    JEL: F14 F31
    Date: 2019–06–15

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