nep-tra New Economics Papers
on Transition Economics
Issue of 2020‒03‒16
seventeen papers chosen by
Maksym Obrizan
Kyiv School of Economics

  1. External Threat, Group Identity, and Support for Common Policies - The Effect of the Russian Invasion in Ukraine on European Union Identity By Kai Gehring
  2. New Evidence on the Soft Budget Constraint: Chinese Environmental Policy Effectiveness in Private versus SOEs By Mathilde Maurel; Thomas Pernet-Coudrier
  3. China’s Debt Revisited By Sun, Lixin
  4. The Process of Economic Development in West Sichuan: The Case of Daocheng County By Carsten A. Holz
  5. Understanding PRC Investment Statistics By Carsten A. Holz
  6. Incentive Pay and Firm Productivity: Evidence from China By Jin, Zhangfeng; Pan, Shiyuan
  7. Business Environment and Dual-Track Private Sector Development : China's Experience in Two Crucial Decades By Long,Cheryl Xiaoning; Xu,L. Colin; Yang,Jin
  8. The Impact of Trade Liberalization on Firms' Product and Labor Market Power By Dobbelaere, Sabien; Wiersma, Quint
  9. Financial Inclusion in the Europe and Central Asia Region : Recent Trends and a Research Agenda By Demirguc-Kunt,Asli; Hu,Bingjie; Klapper,Leora
  10. E-Commerce Development and Household Consumption Growth in China By Luo,Xubei; Wang,Yue-000541442; Zhang,Xiaobo
  11. PRC Industrial Policies Postdate Rather Than Lead Economic Activity By Carsten A. Holz
  12. Does e-commerce reduce traffic congestion? Evidence from Alibaba single day shopping event By Peng, Cong
  13. Are the stock indices of FTSE Malaysia, China and USA causally linked together ? By Nasir, Nur Alissa; Masih, Mansur
  14. Innovation union: costs and benefits of innovation policy coordination By Borota, Teodora; Defever, Fabrice; Impullitti, Giammario
  15. Production shocks, exports and market prices: An analysis of the rice sector in Myanmar: By Dorosh, Paul; Win, Myat Thida; Van Asselt, Joanna
  16. Does the belt and road initiative stimulate Chinese exports? The role of state-owned enterprises By Görg, Holger; Mao, Haiou
  17. Learning from Power Sector Reform Experiences: The Case of Vietnam By Lee,Alan David; Gerner,Franz

  1. By: Kai Gehring
    Abstract: A major theory from social psychology claims that external threats can strengthen group identities and cooperation. This paper exploits the Russian invasion in Ukraine 2014 as a sudden increase in the perceived military threat for eastern European Union member states, in particular for the Baltic countries bordering Russia directly. Comparing low versus high-threat member states in a difference-in-differences design, I find a sizeable positive effect on EU identity. It is associated with higher trust in EU institutions and support for common EU policies. Different perceptions of the invasion cause a polarization of preferences between the majority and ethnic Russian minorities.
    Keywords: external threats, group identity, nation-building, trust, fiscal federalism, European Union, EU identity, Russia, Ukraine, Baltic
    JEL: D70 F50 H70 N44 Z10
    Date: 2020
  2. By: Mathilde Maurel (CNRS - Centre National de la Recherche Scientifique, CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, UP1 - Université Panthéon-Sorbonne); Thomas Pernet-Coudrier (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, UP1 - Université Panthéon-Sorbonne)
    Abstract: This paper analyses the efficiency of a set of environmental measures introduced by the 11th FYP (Five Years Plan) in China in 2006, using a rich and unique dataset borrowed from the Ministry of Environmental Protection (MEP) and from the State Environmental Protection Agency (SEPA). The objective is to provide new evidence of the Soft Budget Constraint (SBC), which is a key concept coined by Janos Kornai. The main finding is that TCZ (Two Control Zone) cities are successful in bringing down the emission of SO2, and more importantly that this success is driven by the private sector. Sectors dominated by State-Owned Enterprises (SOEs) are less sensitive to the environmental target-based evaluation system, by a factor of 42%. We also find that one channel, through which this adjustment takes place, is Total Factor Productivity (TFP), but not in the case of SOEs. We interpret these results as pointing to the evidence of a still ongoing SBC surrounding Chinese SOEs.
    Keywords: Environmental regulation,China Kornai,Soft Budget Constraint
    Date: 2020–02
  3. By: Sun, Lixin
    Abstract: This paper updates the dataset on the structure of China’s debt published in Sun (2015, 2019) with the debt effects. The new dataset extends the sample to the end of 2018 including the collected annual and the estimated quarterly data covering the period 1985-2018, and presents the updated changes in deleverage ratios for all debt categories in China. In addition, we examine the effects of the debt on the monetary policy transmission and the macroeconomy in China with the GMM approach and a VAR model. We find that the monetary policy transmissions have been weakened in times of high indebtedness by both the public and the private debt despite at the heterogenous magnitude. Our study sheds new lights to policy design and debt management in China.
    Keywords: China’s Debt Dataset; Non-financial Private and Public Debt; Monetary Policy Transmission; GMM Approach; VAR Model; Chinese Economy
    JEL: E50 H63
    Date: 2019–12
  4. By: Carsten A. Holz
    Abstract: Economic development of a remote, mountainous region is a challenge for any country. This paper examines how this development challenge has been addressed in a high-altitude backward region of the People’s Republic of China. Is this region increasingly being left behind or has it entered a sustainable development trajectory? What form does economic development take? What is the role of the government vs. the private sector? What are the broader socio-economic and cultural consequences? The focus is on Daocheng County, Ganzi Tibetan Autonomous Region, West Sichuan. The fact that it is a predominantly Tibetan county adds a nationality dimension to the issue of economic development.
    Keywords: economic development, tourism development, infrastructure development, poverty alleviation, backward region, fiscal transfers, Tibet
    JEL: O12 O23 O25 O53 L83 Z32
    Date: 2020
  5. By: Carsten A. Holz
    Abstract: Investment statistics of the People’s Republic of China are a source of many puzzles. Some investment data are of dubious quality, while the particular concepts of investment and their changing definitions over time are often poorly understood. Fixed asset investment, a remnant of the planned economy, comes with severe limitations in terms of data coverage and compilation. Detailed sector data are available, but only for a repeatedly changing subset. Gross fixed capital formation, an alternative investment measure based on the national accounts, may be more reliable but only the most aggregate data are available. The researcher or policy-maker in need of investment data encounters a veritable minefield of data issues that this paper helps navigate.
    Keywords: fixed asset investment, gross fixed capital formation, newly increased fixed assets, national accounts, Chinese statistics, data falsification
    JEL: E22 C82 O53
    Date: 2020
  6. By: Jin, Zhangfeng; Pan, Shiyuan
    Abstract: This study examines the causes and consequences of incentive pay adoption among Chinese manufacturing firms. First, we find that a higher degree of labor scarcity encourages firms to adopt more incentive pay. Second, using an instrumental variables approach, we find that a 10 percentage point increase in the intensity of incentive pay results in 38% higher firm productivity. Third, the average productivity differences between SOEs and non-SOEs decrease by about 65% after controlling differences in incentive pay adoption. Therefore, facilitating incentive pay adoption among firms with better labor endowments (e.g. SOEs) increases productivity while reduces resource misallocation in developing countries.
    Keywords: Incentive Pay,Firm Productivity,Labor Scarcity,China,Instrumental Variables
    JEL: O14 O33 M52 J33 P31
    Date: 2020
  7. By: Long,Cheryl Xiaoning; Xu,L. Colin; Yang,Jin
    Abstract: A void in the literature on the business environment is how it evolves over time. Focusing on China during its crucial two decades of transition (from the early 1990s to the early 2010s), this paper documents how the country's business environment and the characteristics of entrepreneurs evolved, along with the role played by local governments. Relying on multiple comprehensive data sets, the paper shows that many aspects of local business environments improved: infrastructure, development of the court system, and access to external finance. Meanwhile, the share of politically connected private firms remained large, and their advantage in accessing key resources increased. Under this dual-track private sector development, private firms became larger and more innovative and adopted more formal corporate governance mechanisms. Entrepreneurs became much better educated, with more diverse sectoral experience. Market competition increased over time, especially after China's World Trade Organization entry. The paper offers suggestive evidence that this dual track development had negative consequences, such as a lower tendency to innovate by politically connected firms.
    Date: 2020–02–25
  8. By: Dobbelaere, Sabien (Vrije Universiteit Amsterdam); Wiersma, Quint (Vrije Universiteit Amsterdam)
    Abstract: This paper examines the impact of trade liberalization on firms' product and labor market power. We estimate the prevalence and intensity of firm-level price-cost markups and either wage markups or wage markdowns. We take the dependence between these model-consistent measures of product and labor market power explicitly into account. To identify the effect of trade shocks on product and labor market power, we exploit China's reductions in input and output tariffs upon its accession to the World Trade Organization. We find that trade liberalization has not switched firms away from exercising product and labor market power. Reducing tariffs on intermediate inputs has increased a firm's price-cost markup but decreased the degree of wage-setting power that it possesses, conditional on exercising product/labor market power. Finally, we find heterogeneous effects of trade liberalization on the intensity of firms' product and labor market power, giving insights into the true consequences of trade shocks.
    Keywords: price-cost markups, wage markups, wage markdowns, trade liberalization, tariffs
    JEL: F14 F16 L11 P31
    Date: 2020–01
  9. By: Demirguc-Kunt,Asli; Hu,Bingjie; Klapper,Leora
    Abstract: Financial inclusion can help promote development. Inclusive financial systems allow people to invest in their education and health, save for retirement, capitalize on business opportunities, and confront shocks. In the Europe and Central Asia region, there is great variation in financial inclusion. In the euro area, most adults already own an account. Account ownership -- which is the first step of entry into the formal financial system has increased in the developing countries in the region, to 65 percent of the adult population from 45 percent in 2011. Tajikistan, Armenia, Moldova, the Kyrgyz Republic, and Georgia are among the countries that have seen the greatest increases globally, despite starting from a very low base. These experiences underline the potential role of digital payments in driving financial inclusion. Nevertheless, almost 30 percent of unbanked adults report lack of trust in banks as a barrier, which is nearly double the developing country average. And in some countries, gender and income gaps in account ownership remain significant. For example, the gender gap is close to 30 percentage points in Turkey, which is three times the average gap in developing countries. And in Romania, the gap between richest 60 percent of the population and poorest 40 percent is 33 percentage points, which is more than twice the average gap in developing countries. But there are many opportunities to increase account ownership. Over 80 percent of the unbanked have a mobile phone, and simply moving public sector pension payments into accounts would reduce the number of unbanked adults in the region by up to 20 million, including 8 million in the Russian Federation alone. Given the heterogeneity of experiences, there are ample opportunities for countries in the region to learn from each other, which lays out a rich research and operational agenda going forward.
    Keywords: Financial Sector Policy,Telecommunications Infrastructure,ICT Economics,Inequality,Educational Sciences
    Date: 2019–04–24
  10. By: Luo,Xubei; Wang,Yue-000541442; Zhang,Xiaobo
    Abstract: China has quickly become the largest e-commerce market in the world. By matching a nationally representative China Family Panel Studies survey with county-level e-commerce information obtained from Alibaba, this paper examines how e-commerce development has shaped household consumption growth in China. The paper presents three major findings. First, e-commerce development is associated with higher consumption growth. Second, the relationship is stronger for the rural sample, inland regions, and poor households, suggesting that e-commerce development helps reduce spatial inequality in consumption. Third, the consumption of durable goods and in-style goods has grown faster than the consumption of local services.
    Date: 2019–04–10
  11. By: Carsten A. Holz
    Abstract: Industrial policies are widely credited with upgrading the economic structure of the People’s Republic of China (PRC) and advancing its economy towards and beyond the current technological frontier. Yet the data suggest that the PRC’s economy-wide investment patterns—with investment embodying technological progress—are largely divorced from industrial policies, and, if anything, predate them. The significant shifts in investment across sectors and ownership forms that have taken place since the early 2000s are driven more by profitability considerations and private entrepreneurship than by government policies.
    Date: 2020
  12. By: Peng, Cong
    Abstract: Traditional retail involves traffic both from warehouses to stores and from consumers to stores. Ecommerce cuts intermediate traffic by delivering goods directly from the warehouses to the consumers. Although plenty of evidence has shown that vans that are servicing e-commerce are a growing contributor to traffic and congestion, consumers are also making fewer shopping trips using vehicles. This poses the question of whether e-commerce reduces traffic congestion. The paper exploits the exogenous shock of an influential online shopping retail discount event in China (similar to Cyber Monday), to investigate how the rapid growth of e-commerce affects urban traffic congestion. Portraying e-commerce as trade across cities, I specified a CES demand system with heterogeneous consumers to model consumption, vehicle demand and traffic congestion. I tracked hourly traffic congestion data in 94 Chinese cities in one week before and two weeks after the event. In the week after the event, intra-city traffic congestion dropped by 1.7% during peaks and 1% during non-peak hours. Using Baidu Index (similar to Google Trends) as a proxy for online shopping, I found online shopping increasing by about 1.6 times during the event. Based on the model, I find evidence for a 10% increase in online shopping causing a 1.4% reduction in traffic congestion, with the effect most salient from 9am to 11am and from 7pm to midnight. A welfare analysis conducted for Beijing suggests that the congestion relief effect has a monetary value of around 239 million dollars a year. The finding suggests that online shopping is more traffic-efficient than offline shopping, along with sizable knock-on welfare gains.
    Keywords: e-commerce; traffic congestion; heterogeneous consumers; shopping vehicle demand; air pollution
    JEL: R40 O30
    Date: 2019–08
  13. By: Nasir, Nur Alissa; Masih, Mansur
    Abstract: In this paper, we test the causal linkages among the FTSE Malaysia, FTSE China and FTSE USA stock market indices. The investigation is conducted using the standard time series econometric techniques using monthly data. The issue is approached from two perspectives: (i) whether these markets move together (ii) and the dynamic linkages of the lead-lag relationships. Our analysis finds one significant cointegrating relationship among the selected markets, with the FTSE Malaysia being the follower and the FTSE China being being the most leading one. These findings tend to suggest that the FTSE Stock Indices of these three markets have a strong long-run equilibrium relationship mostly driven by fundamental elements of the economy. In addition, the strong leading role of the FTSE China Index implies that the China market may have a strong influence over the other regional markets. These findings have strong policy implications.
    Keywords: FTSE stock indices, causal linkages, VECM, VDC
    JEL: C22 C58 E44
    Date: 2018–05–30
  14. By: Borota, Teodora; Defever, Fabrice; Impullitti, Giammario
    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 theroy; international policy coordination; EU integration; FDI spillovers
    JEL: O41 O31 O38 F12 F42 F43
    Date: 2019–08
  15. By: Dorosh, Paul; Win, Myat Thida; Van Asselt, Joanna
    Abstract: Since 2012/13, rice exports to China (which may have reached two million tons in 2015/16) boosted total demand for Myanmar’s rice and rice prices. In mid-2016, however, China stopped rice imports through the main land entry point, putting substantial downward pressure on prices. Analysis presented in this paper, based on econometric estimates of consumption parameters and a simple model of Myanmar’s rice supply and demand, suggests that market prices would fall by 26 to 43 percent or more (in real terms) in the absence of increased exports to the world market and/or government domestic procurement. Such a decline in prices could have seriously harmed Myanmar’s rice producers, including many poor farmers with marketable surpluses. Model simulations suggest that government procurement of about one million tons would limit the estimated price decline to only 17 to 30 percent. Further refinements in the simulations are needed to take account for the seasonal nature of paddy production in Myanmar, possible price-responsiveness of export demand and the effects of changes in paddy incomes on farmer demand for rice. Medium-term analysis of procurement, storage and future sales is needed to analyze fiscal costs under various scenarios, as well, covering alternative shocks to production, export demand and world prices. Nonetheless, the main results are clear: without substantial market interventions on the order of one million tons (milled rice equivalent), the paddy (rice) price could fall dramatically when production increases or export demand declines.
    Keywords: MYANMAR, BURMA, SOUTHEAST ASIA, ASIA, rice, market prices, foreign trade, trade, agricultural production, price stabilization, domestic consumption, product quality, exports, agricultural trade, rice price, rice production, agricultural trade policy, rice economy, rice consumption,
    Date: 2019
  16. By: Görg, Holger; Mao, Haiou
    Abstract: This paper evaluates firms' exporting responses to BRI and considers their heterogeneity in ownership types, product types, regional origin and trade mode. This is done by analyzing firm-product-destination level customs data from 2011 to 2015 in a gravity model framework. Our empirical results show that aggregate export behavior did not change significantly after BRI. However, ownership matters when evaluating firms' reactions. SOEs increase their total exporting and average export value (the intensive margin) to BRI countries, while private domestic firms show no reaction to BRI at any margin. Further, our results on regional heterogeneity suggests that "open through the west", i.e., boosting the development of western regions in China, did not appear to work in the short term. Our findings show clearly the implications of BRI's impact from a firm level perspective.
    Keywords: Belt and Road Initiative,firm's export,extensive margin,intensive margin,state-owned firms
    JEL: F10 O24
    Date: 2020
  17. By: Lee,Alan David; Gerner,Franz
    Abstract: Vietnam's power sector has developed rapidly since the 1990s to become a top performer among developing countries. This success has occurred mostly under a state-owned utility, Electricity Vietnam. Select market-oriented reforms to date have also had some positive impact. By the late 1990s, the Government realized the need to gradually introduce competition to ensure long-term sustainability without jeopardizing security of supply for the fast-growing economy. Vietnam's 2004 Electricity Law has provided the framework to develop a competitive power market, unbundle Electricity Vietnam, set prices that better reflect costs, promote private investment, and establish a regulatory authority. Today, state-owned entities continue to dominate the sector. Whereas the power market is partially competitive, improved operational efficiency and financial performance of generators in this market has contributed to keeping generation costs relatively low. Plans are broadly on track for further extensive reforms, including a clean energy transition. Lessons include that state-centric institutions can develop the power sector with top-level government commitment, highly-qualified staff, and consensus among sector institutions. Gradual reforms offer an opportunity to learn by doing; yet, the sequence of reforms matters. Introducing market mechanisms ahead of other elements may limit the market effectiveness and even make subsequent reform steps more difficult.
    Date: 2020–03–02

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