nep-tra New Economics Papers
on Transition Economics
Issue of 2020‒04‒06
fifteen papers chosen by
Maksym Obrizan
Kyiv School of Economics

  1. New Evidence on the Soft Budget Constraint: Chinese Envronmental Policy Effectiveness in Private versus SOEs By Mathilde Maurel; Thomas Pernet
  2. From Workers to Capitalists in Less Than Two Generations: A Study of Chinese Urban Elite Transformation Between 1988 and 2013 By , Stone Center; Yang, Li; Novokmet, Filip; Milanovic, Branko
  3. A Study of Economic Sophistication of China by Using Principle Component Analysis By Takanori Minamikawa
  4. The Impact of Economic Institutions on Finance Sector:Evidence from China By Li, Zhao
  5. Induced Innovation: Evidence from China's Secondary Industry By Fleisher, Belton M.; McGuire, William H.; Wang, Xiaojun; Zhao, Min Qiang
  6. Feverish Stock Price Reactions to COVID-19 By Stefano Ramelli; Alexander F. Wagner
  7. Agriculture in Kazakhstan: mutual influence of infrastructure institutions on the dynamics of agricultural production development By Stukach, Victor; Saparova, Gulnar; Sultanova, Guzel; Saginova, Saniya
  8. Productivity, Efficiency and Firm Size Distribution: Evidence from Vietnam By Hien Thu Pham; Nhan Buu Phan; Shino Takayama
  9. Determinants of Global Value Chain Participation : Cross-Country Evidence By Fernandes,Ana Margarida; Kee,Hiau Looi; Winkler,Deborah Elisabeth
  10. How to Attract Highly Skilled Migrants into The Russian Regions By Vera Barinova; Sylvie Rochhia; Stepan Zemtsov
  11. Provincial Trade, Financial Friction and Misallocation in China By Kwon, Ohyun; Fleisher, Belton M.; McGuire, William H.; Zhao, Min Qiang
  12. Political cycles and bank lending in Russia By Fungáčová, Zuzana; Schoors, Koen; Solanko, Laura; Weill, Laurent
  13. Russian Business under Economic Sanctions: Is There Regional Heterogeneity? By Yoshisada Shida
  14. MONGOLIA’s Pre-1990 ECONOMY: An Extended Overview By Enkhbayar Shagdar
  15. Female Small Business Owners in China: discouraged, not discriminated By Mustafa Caglayan; Oleksandr Talavera; Lin Xiong

  1. By: Mathilde Maurel (CNRS - Centre d'Economie de la Sorbonne - Université Paris 1 panthéon-Sorbonne;; Thomas Pernet (Centre d'Economie de la Sorbonne;
    Abstract: This paper analyses the efficiency of a set of environmental measures introduced by the 11th FYP (Five Years Plan) in China 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 coinced 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
    JEL: Q53 Q56 P2 R11
    Date: 2020–02
  2. By: , Stone Center (The Graduate Center/CUNY); Yang, Li; Novokmet, Filip; Milanovic, Branko
    Abstract: Economic and social transformation of China during the past 40 years is without precedent in human history. While the economic transformation was extensively studied, social transformation was not. In this paper, we use for the first time harmonized household surveys covering the period 1988-2013 to study the changes in the characteristics the richest 5 percent of China’s urban population. We find that the elite changed from being composed of high government officials, clerical staff, and workers in 1988 to professionals and small and large business owners in 2013. The educational level of the elite increased substantially. Membership in CCP has a positive (albeit small) effect on one’s income but is particularly valuable to large business owners. (Stone Center on Socio-Economic Inequality Working Paper)
    Date: 2020–03–09
  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: Li, Zhao
    Abstract: This paper studies how economic institutions affect private firm sectors capital accumulation through finance sector and operation objectives of different ownership firms in socialist market economy with Chinese characteristics, which extended the neo-classical economic growth method. Based on above framework, this paper finds that economic institutions were the main factors affecting the efficiency of capital allocation between private sector and stated-owned sector. Compared with stated-owned sector, economic institutions lead private sector to a decrease in loans and government subsidies through finance sector, and an increase in its production costs. Our evidence suggests that private firms take efforts to improve economic institutions as a substitute for political capital.
    Keywords: Economic institutions, ownership discrimination, Capital allocation, Economic growth
    JEL: P3
    Date: 2019–11–09
  5. By: Fleisher, Belton M. (Ohio State University); McGuire, William H. (University of Washington Tacoma); Wang, Xiaojun (University of Hawaii at Manoa); Zhao, Min Qiang (Xiamen University)
    Abstract: We investigate the effect of rising labor costs on induced technological change in China's secondary industry. While previous studies have focused primarily on induced technology change in agriculture and in energy production/environmental protection, there has been little evidence relating to China's adjustments as rising labor costs affect its global competitiveness in the manufacturing sector. Building on insights developed in a rich literature, we propose a model linking changes in labor productivity to changes in labor costs, and the availability of physical capital. Importantly, we derive testable hypotheses to distinguish induced innovation from standard substitution of capital for labor under fixed technology. These hypotheses are tested using both firm- and provincial-level data. Our empirical results support the hypothesis that rising wages have induced labor-saving innovation in China, at least in the decade of the 1990s, but less so or not at all after the middle of the next decade.
    Keywords: induced innovation, labor productivity growth, China
    JEL: O30 D22 D24 D33
    Date: 2020–03
  6. By: Stefano Ramelli (University of Zurich - Department of Banking and Finance); Alexander F. Wagner (University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute)
    Abstract: This paper studies how markets adjust to the sudden emergence of previously neglected risks. It does so by analyzing the stock price effects of the 2019 novel Coronavirus disease (COVID-19) pandemic. The telecom and health care industries did relatively well, while transportation and energy plummeted. Within industries, US firms reliant on Chinese inputs and those with a strong export orientation towards China suffered. Sophisticated investors appear to have started pricing in the effects of the virus already in the first part of January (the "Incubation" phase), that is, before managers or analysts started paying attention; the first earnings conference call that contained a discussion of "Coronavirus" took place on January 22. The "Outbreak" phase followed, during which China-oriented stocks and internationally oriented stocks more generally strongly underperformed. In the last week of February and early March (the "Fever" phase), the aggregate market first fell strongly and then entered a whipsaw pattern. But behind these feverish and seemingly behaviorally-driven price moves, some patterns emerge. In particular, investors became increasingly worried about corporate debt and liquidity, indicating widespread concerns that the health crisis may evolve into a financial crisis.
    Keywords: Behavioral finance, Corporate debt, Coronavirus, COVID-19, Earnings conference calls, Event study, Global Value Chains, Neglected risks, Pandemic, SARS-CoV-2, Supply Chains
    JEL: G01 G02 G14 G15 F15 F23 F36
    Date: 2020–03
  7. By: Stukach, Victor; Saparova, Gulnar; Sultanova, Guzel; Saginova, Saniya
    Abstract: The article presents the main trends in the indicators of infrastructure development of the agro-industrial complex of the Republic of Kazakhstan. The dependence of agricultural production volumes on the development of social and transport infrastructure is studied. The mutual influence of infrastructure institutions on the dynamics of agricultural production development is shown. The study showed that the development of social and production infrastructure of agriculture in Kazakhstan remains unstable. This circumstance creates prerequisites for the implementation of a negative scenario in the development of rural areas. Shortcomings in the formation of rural infrastructure can lead to inhibition of reproduction processes in the agricultural sector, which will negatively affect the provision of the country's population with products from agricultural raw materials. The article substantiates the position that the formation and development of infrastructure in the agricultural sector is a necessary condition for effective interaction of subjects of main and auxiliary production, which contributes to the formation of general prerequisites for the development of agriculture. The results of the study can be used by the state in the process of developing and implementing agricultural policy, taken into account when investing in social, transport and industrial development of the village.
    Keywords: agricultural products, food security, agriculture, infrastructure, social infrastructure, rural population, investment attractiveness.
    JEL: O3 O31 O32 Q1 Q13 Q18
    Date: 2019–06
  8. By: Hien Thu Pham (CSIRO, QLD, Australia); Nhan Buu Phan (School of Economics, University of Queensland); Shino Takayama (School of Economics, University of Queensland)
    Abstract: By applying recently developed methodologies to Vietnamese data from 2000 to 2016, this paper studies production efficiencies and total factor productivity in manufacturing industries, using two separate empirical methodologies. The paper shows that middle-sized firms’ production efficiencies tend to be lower than those of small-sized or large-sized firms in most of the manufacturing industries, and that the middle-sized firms are quite diverse in terms of efficiencies. Further, we show that the level of productivity is also quite diverse across different firm sizes in most industries. Given these observations, we present a simple theoretical analysis to indicate how our empirical findings could affect a firm’s decision in expanding business size. Over the past few decades, the Vietnamese government has conducted policies to promote small-sized and middlesized firms. Our findings indicate the importance of adopting policies that reduce the uncertainty that those firms may possibly face, such as financial support.
    Date: 2020–03–26
  9. By: Fernandes,Ana Margarida; Kee,Hiau Looi; Winkler,Deborah Elisabeth
    Abstract: The past decades witnessed big changes in international trade with the rise of global value chains. Some countries, such as China, Poland, and Vietnam, rode the tide, while other countries, many in the Africa region, faltered. This paper studies the determinants of participation in global value chains, based on empirical evidence from a panel data set covering more than 100 countries over the past three decades. The evidence shows that factor endowments, geography, political stability, liberal trade policies, foreign direct investment inflows, and domestic industrial capacity are very important in determining participation in global value chains. These factors affect participation in global value chains more than traditional exports.
    Date: 2020–03–26
  10. By: Vera Barinova (RANEPA University); Sylvie Rochhia (Université Côte d'Azur, France; GREDEG CNRS); Stepan Zemtsov (RANEPA University)
    Abstract: In this work, we examine the factors and patterns of attracting highly skilled migrants by the Russian regions. Attracting such specialists is particularly relevant for large developing countries with territories actively losing qualified personnel, and, accordingly, opportunities for long-term development. The results of an econometric study show that there are a number of objective factors that are poorly modifiable but have a significant positive effect on staff recruitment: the demographic potential of neighbouring regions, the size of accessible markets, and the natural comfort of living. Adverse socio-economic conditions in the region, such as high unemployment, negatively affect the possibility of emigration. However, there are factors that the regional authorities and the federal government are able to influence in the medium term. One of the most important determinants remains the income of highly qualified specialists and the availability of housing. Highly qualified specialists also strive to move to regions with a high level of education and a good healthcare system. The creation of favourable conditions for entrepreneurship has a positive effect on attracting active migrants, providing opportunities for new firms' establishments. As recommendations for regional policy, in particular, attracting highly qualified specialists to the Russian rare-populated Far East, efforts are needed to develop rental housing and zero-interest mortgages, create high-performance jobs, especially in education, science and medicine, as well as general improvement of institutional conditions for conducting business.
    Keywords: Russian regions, migration, gravity model, market access, institutions, human development index, regional policy, high-tech sector
    JEL: P23 J61 P36 R23
    Date: 2020–03
  11. By: Kwon, Ohyun (Drexel University); Fleisher, Belton M. (Ohio State University); McGuire, William H. (University of Washington Tacoma); Zhao, Min Qiang (Xiamen University)
    Abstract: We study the implications of financial-market imperfections on labor and capital misallocation in China. Financial friction stems from private sectors' credit constraints that limit the efficient use of capital relative to state firms. Our model can jointly explain labor flows out of and capital flows into the Chinese provinces with high capital market distortion. To formally test this hypothesis, we propose a measure of regional financial friction based on our model. We show that the underlying financial friction can be inferred by differences-in-differences in the market shares of private and state sectors and their marginal rental rates of capital. Our regression results show that our measure of financial friction has robust explanatory power regarding interprovincial capital and labor flows. Our structural analysis shows that improving financial friction in China can lead to 3.9% welfare gain in China.
    Keywords: financial friction, regional capital flows, Chinese economy
    JEL: R12 H3 E5 O5 F4
    Date: 2020–03
  12. By: Fungáčová, Zuzana; Schoors, Koen; Solanko, Laura; Weill, Laurent
    Abstract: State-owned banks tend to increase lending before elections for the purpose of boosting the reelection odds of incumbent politicians. We employ monthly data on individual banks to study whether Russian banks increased their lending before presidential elections during 2004–2019, a period covering four presidential elections. In contrast to the literature, we find that both state-owned and private banks increased their lending before presidential elections. This result stands for all loans, as well as separately for firm and household loans. The pre-election lending surge is followed by a deterioration of loan quality the following year, indicating the lending increase was not driven by higher growth prospects or some positive economic shock. The effect is substantially greater for large banks and banks more involved in lending activities. Our main finding that all types of banks in Russia increase their lending before presidential elections supports the view that the authorities in an electoral autocracy like Russia can influence lending of both private and state-owned banks for political reasons.
    JEL: G21 P34
    Date: 2020–03–25
  13. By: Yoshisada Shida (Economic Research Institute for Northeast Asia (ERINA))
    Abstract: The sanctions against Russia, beginning in early 2014, provide us with a unique opportunity to study whether, and how sanctions affect a vast territorial global superpower. This study attempts to empirically examine the economic impact of this event, paying particular attention to the existence or inexistence of its regional heterogeneity. For these purposes, this study used a dataset from a survey that asked the executive managers of Russian regional companies to assess the impact on their management activities in late 2015. The key findings are as follows. First, approximately half of those interviewed perceived the economic sanctions as having a negative impact. Second, no regional variations in the impact of the sanctions could be found. It follows that financial, institutional-framework sanctions, aimed at an entire nation, exert a significant and geographically uniform impact. Moreover, even regional businesses near the Asia-Pacific region, holding strong connections with Asian countries, cannot avoid its impact.
    Keywords: economic sanctions, enterprise survey, Far East, Russian economy
    JEL: M2 F51 P20 R11
    Date: 2019–04
  14. By: Enkhbayar Shagdar (Economic Research Institute for Northeast Asia (ERINA))
    Abstract: Mongolia, the second socialist country in the world, pursued non-capitalist and socialist paths of development and practiced a centrally planned economic system under the rule of one political party up to 1990. During this course, Mongolia was successful in transforming from a poor, pastoral livestock based agrarian economy into a dynamic, industry-driven economy. Former CMEA members were its donors and development partners, where the FSU played a dominant role. Owing to its manufacturing industry development based on the country's abundant livestock-origin raw materials, Mongolia could achieve relatively high and sustained economic growth. Rapidly expanding manufacturing industries and economy-wide increases in productivity drove overall improvements in the country’s living standards. Social sectors, such as health, social security, education, culture and sports, maintained a stable share of total budget expenditure. There were no unemployment or income inequalities during this period. However, Mongolia continued to rely on foreign sources for its investments and foreign loans as the share of primary revenues grew. Also, per capita real growth was lower than that of the overall economy. Despite population growth, population income as a share of final expenditure and household consumption share of total use decreased, whereas that of administration expenditures increased. Overall, investments into tangible assets were preferred over boosting intangible assets or human capital incentives. This situation might have triggered dissatisfaction among the population and led to the demands for change that eventually put an end to the planned economy and socialist system practiced in Mongolia for nearly 70 years.
    Keywords: Mongolian economic history, Mongolian economic study, socialist systems
    JEL: N15 O53 P20
    Date: 2020–03
  15. By: Mustafa Caglayan (Heriot-Watt University); Oleksandr Talavera (University of Birmingham); Lin Xiong (Robert Gordon University)
    Abstract: Using a unique small business loan application dataset from a peer-to-peer (P2P) digital loan platform in China, we show that lenders do not discriminate against female business owners. However, female entrepreneurs are more likely to be discouraged from applying for funds after a failed attempt compared to their male counterparts. We also find that borrower discouragement is prominent among those from less developed regions or those who need finance for working capital. Although, digitization of financial markets has made external funding more accessible to small business owners, provision of better information on application process would help those who may be discouraged from posting a new funding application.
    Keywords: Peer-to-peer (P2P) lending; Small business owners, Gender discrimination, Discouraged borrowers, Repeat rejections, Fintech, Digitization, China
    JEL: G14 G32 M10
    Date: 2020–03

This nep-tra issue is ©2020 by Maksym Obrizan. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.