nep-tra New Economics Papers
on Transition Economics
Issue of 2020‒04‒20
twenty papers chosen by
Maksym Obrizan
Kyiv School of Economics

  1. Deep Integration in the Eurasian Economic Union: What are the Benefits of Successful Implementation or Wider Liberalization? By Alexander Knobel; Andrey Lipin; Andrey Malokostov; David G. Tarr; Natalia Turdyeva
  2. Determinants of household’s housing condition in Urban China: A study based on NBS panel data By Erbiao, DAI
  3. Current R&I policy: The future development of China's R&I system By Frietsch, Rainer
  4. The effects of external shocks on the business cycle in China: A structural change perspective By Murach, Michael; Wagner, Helmut
  5. The micro-foundations of an open economy money demand: An application to the Central and Eastern European countries By Claudiu Tiberiu Albulescu; Dominique Pépin; Stephen Miller
  6. Multivariate Unobserved Component Model for an Oil-exporting Economy: The Case of Russia By Polbin, Andrey
  7. Vertical Fiscal Imbalance and Local Fiscal Indiscipline: Empirical Evidence from China By Junxue Jia; Yongzheng Liu; Jorge Martinez-Vazquez; Kewei Zhang
  8. Regional technological systems in transition: Dynamics of relatedness and techno-economic matches in China By Kroll, Henning; Neuhäusler, Peter
  10. Networking topography and default contagion in China’s financial system By Fittje, Jens; Wagner, Helmut
  11. Competitive Neutrality of State-owned Enterprises in China's Steel Industry: Causal Inference on the Impacts of Subsidies By WATANABE Mariko
  12. The Hit of the Novel Coronavirus Outbreak to China's Economy By Hongbo Duan; Qin Bao; Kailan Tian; Yuze; Shouyang Wang; Cuihong Yang; Zongwu Cai; Xi Ming
  13. Social and economic upgrading in the garment supply chain in Vietnam By Chi, Do Quynh
  14. The retirement migration puzzle in China By Chen, Simiao; Jin, Zhangfeng; Prettner, Klaus
  15. Social and Economic Convergence in the EU, 1990-2017 By OLTEANU, DAN CONSTANTIN
  16. Income inequality of destination countries and trade patterns: Evidence from Chinese firm-level data By Miao, Zhuang; Li, Yifan; Duan, Sisong
  17. FDI another day- Russian reliance on European investment By Marta Domínguez-Jiménez; Niclas Poitiers
  18. Impact of Family Planning Policy on Gender Inequality: Evidence from China By Yining Geng
  20. Wage Developments in the Western Balkans, Moldova and Ukraine By Vasily Astrov; Sebastian Leitner; Isilda Mara; Leon Podkaminer; Hermine Vidovic

  1. By: Alexander Knobel; Andrey Lipin; Andrey Malokostov; David G. Tarr; Natalia Turdyeva
    Abstract: We assess deep integration in the Eurasian Economic Union (EAEU) through the reduction of time in trade costs, the reduction of non-tariff barriers in goods and the liberalization of barriers against foreign suppliers of services. We develop an innovative multi-region model of trade and FDI for preferential trade analysis where we incorporate Dixit-Stiglitz endogenous productivity effects from trade and FDI liberalization. This model produces important differences compared with a perfect competition model. We build on numerous surveys and econometric estimates of the trade and FDI barriers in our focus countries that we helped develop. We show that if the EAEU effectively implements its objectives for trade cost reduction, it would lead to significant welfare gains of between 0.8 to 4.8 percent of consumption, depending on the country. If these deep integration measures are extended to third countries, either by a wider liberalization effort or by spillovers, then the estimated welfare gains increase between 2.5 and 4.5 times for Belarus, Kazakhstan and the Russian Federation. Using the neoclassical model of labor migration, we estimate that the right to legally work in the Russian Federation is approximately of equal value to Armenia as the combined aspects of the reduction of trade costs, including FDI liberalization. Our estimates show that all the spillovers are beneficial to all the EAEU countries. Among the various reforms under consideration, we identify which reform is most important for each EAEU member country; and we identify whether the European Union, China or the United States is the most important external region for each member country if the reforms are extended to third countries.
    Keywords: Eurasian Economic Union; deep integration; foreign direct investment; services liberalization; preferential trade agreements; endogenous productivity effects.
    JEL: F12 F14 F15 F17 F55 O52 O53 C63 C68
    Date: 2019–06
  2. By: Erbiao, DAI
    Abstract: With rapid economic growth and dramatic progress in the market–oriented reform on housing systems since the 1ate 1980s, the housing conditions in urban China have improved significantly. On the other hand, it is widely believed that the introduction of market mechanisms has led to the rise of housing inequality among urban households.Based on panel data of the NBS survey (2004-2007), this paper measures housing inequality among urban households in 162 cities, and examines the determinants of individual household’s housing conditions in China. We find that in the period investigated, there exists a rising trend in housing inequality among urban households.However, the rise of inequality is not simply the result of the market–oriented reform.Our panel analysis demonstrates that although the income factors such as “Household Total Income” have dominant effects on the probability of owning a market-price (i.e., high price) house, the probability of owning a low-price house or renting a public house provided by the government is still significantly affected by some non-income factors, including the employment sectors of household members, and their Hukou (registered residence status). As a whole, both income/market and non-income/institution factors have effects on the probability of having a resident-owned house as well as on the house size. More interestingly, compared to Peking and Shanghai, the two most developed cities in China, the household housing conditions of the rest 160 cities included in the survey receive stronger influence from the old housing allocation system and Hukou system. It means that in the mid-2000s the rising housing inequality in urban China should be the result of a combined influence from ongoing market–oriented reforms and the persisting impact of some traditional systems.
    Keywords: Housing condition, inequality, urban China, determinants, panel data, D6, R31
    Date: 2020–04
  3. By: Frietsch, Rainer
    Abstract: This discussion paper addresses policy learning and policy implementation in China since about 2006. In particular, the potential change of research and innovation policy under Xi Jinping is discussed, as well as core policies and strategies to further improve the Chinese innovation system and to shift it from a low-cost to an innovation-driven economy. The Internet Plus strategy and Made in China 2025 (MIC2025) as the most well-known policies that support the overall and most central "Innovation Driven Devel-opment Strategy" are briefly introduced. A first section, however, discusses policy-making processes and policy learning processes in China in general. It tries to sketch the current debate in the scientific literature, if the reform era ended and if the new au-thoritarianism under Xi Jinping is hampering policy implementation and policy learning as well as the future economic development.
    Date: 2020
  4. By: Murach, Michael; Wagner, Helmut
    Abstract: We study the effects of external shocks on the business cycle in China and its sectors (agriculture, industry, and services) in terms of real GDP growth using several small dimensional VAR models with Cholesky identification for the period 1996--2014. We show that China - in particular its industrial sector - is susceptible to shocks, which can be related to a trade channel, a financial channel, and a confidence channel of business cycle transmission from major trading partner countries to the Chinese economy. We extend the previous literature by explicitly focusing on response of the Chinese economy at the sectoral level and investigating the presence of confidence channels by analyzing the reaction in Chinese business and consumer confidence. If interpreted from the perspective of ongoing structural change and rebalancing in China, our findings can be interpreted as the result of a still very dominant industrial sector, and a previously export- and investment-driven growth model. Tertiarization in China could be one way of increasing the economy's future resilience to external shocks. However, the future structure of both the industrial and service sectors may be very decisive.
    Keywords: International transmission channels,Transmission of shocks,Structural vector autoregression,Structural change
    JEL: F43 F44 C32
    Date: 2019
  5. By: Claudiu Tiberiu Albulescu (UPT - Politehnica University of Timisoara - Politehnica University of Timisoara); Dominique Pépin (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers); Stephen Miller (WGU Nevada - University of Nevada [Las Vegas])
    Abstract: This paper investigates and compares currency substitution between the currencies of Central and Eastern European (CEE) countries and the euro. In addition, we develop a model with microeconomic foundations, which identifies difference between currency substitution and money demand sensitivity to exchange rate variations. More precisely, we posit that currency substitution relates to money demand sensitivity to the interest rate spread between the CEE countries and the euro area. Moreover, we show how the exchange rate affects money demand, even absent a currency substitution effect. This model applies to any country where an international currency offers liquidity services to domestic agents. The model generates empirical tests of long-run money demand using two complementary cointegrating equations. The opportunity cost of holding the money and the scale variable, either household consumption or output, explain the long-run money demand in CEE countries.
    Keywords: currency substitution,cointegration,money demand,open economy model,CEE countries
    Date: 2019–06
  6. By: Polbin, Andrey
    Abstract: This paper presents an unobserved component model for real GDP, real household consumption, and real investment of an oil-exporting economy. The model decomposes domestic variables’ dynamics into permanent and transitory components, accounting for dependence on oil prices in the short and long-run, as well as for the common long-run economic growth and the common cyclical behavior. Estimated on the Russian macroeconomic variables, the model exhibits strong dependence on oil prices.
    Keywords: oil prices; GDP; consumption; investment; unobserved component model; common growth
    JEL: C13 C32 C51 E20
    Date: 2020–03
  7. By: Junxue Jia (Renmin University of China); Yongzheng Liu (Renmin University of China); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA); Kewei Zhang (Boston University, USA)
    Abstract: Based on a Chinese city-level panel dataset, this paper examines the effects of vertical fiscal imbalances (VFI) on local fiscal indiscipline in a partial fiscal decentralization setting. We find that higher VFI induces a form of fiscal indiscipline: a reduction of tax collection effort by local governments. In addition, by exploiting the unique Chinese fiscal institution of “extra-budgetary” revenues, we show that in this case higher VFI does not alter local governments’ tax collection efforts. Even though local governments also possess full taxing power for “extra-budgetary” revenues, these revenues do not contribute to the determination of central fiscal transfers to local governments, thus creating very different incentives for local governments’ response to VFI. Our results shed light on the working mechanism of VFI and provide significant implications for improving the design of fiscal decentralization policy in China and elsewhere.
    Date: 2020–04
  8. By: Kroll, Henning; Neuhäusler, Peter
    Abstract: Based on a newly compiled set of Chinese data, this paper puts established assump-tions on the role of technological variety in perspective. It does so from two main an-gles. First, by documenting whether, in China, technological variety has played a simi-lar role for regional development as in Western economies. Second, by exploring how, more recently, this may change as China transitions towards an innovation driven economy. In summary, its findings suggest that, while technological variety has indeed so far mattered differently for China's regional development, more recently, first traces of systemic change can be identified in the both evolution of related variety and its emerging impact on aspects of regional development.
    Date: 2019
  9. By: CHIVU, LUMINIÈšA (National Institute of Economic Research - Romanian Academy); GEORGESCU , GEORGE (National Institute of Economic Research - Romanian Academy)
    Abstract: The labour market in Romania is under the pressure of divergent factors, at the intersection of the labour demand and supply determinants. This paper is focusing on quantitative and qualitative analysis of the labour market in Romania, trying to identify its imbalances and to find ways for their mitigation considering the main trends, including the European labour market developments. From the perspective of the labour supply, despite massive emigration, is found that Romania still has an important human potential including an unused workforce reserve, but the performances of the education and training should improve for increasing the quality of competences and skills needed on the labour market. Looking at the demand for labour force, although under the circumstances of the lack of information for an accurate assessment, starting with 2012, as a general trend, the number of jobs created exceeded the number of job vacancies, the new created companies, with a higher degree of technology and more competitive, having significantly contributed to the increase in the employment rate. However, imbalances between the labour demand and supply have emerged and are growing, likely to become a severe obstacle hindering the development of Romania in the medium and long term.
    Keywords: demographic trends, population aging, emigration, demographic and economic dependency ratio, labour market, demand and supply, labour market tensions, internal mobility, labour shortages
    JEL: E60 F22 F66 I20 J08 J10 J21 J23 J61
    Date: 2020–03
  10. By: Fittje, Jens; Wagner, Helmut
    Abstract: The topography of China's financial network is unique. Is it also uniquely robust to contagion? We explore this question using network theory. We find that networks that are more concentrated are less fragile when connectivity is low. However, they remain in a robust-yet-fragile state longer than decentralized networks, when connectivity is increased. We implement Chinese characteristics into our model and simulate it numerically. The simulations show, that the large state-controlled banks act as effective stop-gaps for contagion, which makes the Chinese network relatively robust. This robustness is significantly reduced, if a significant share of the smaller banks are high-risk institutions.
    Date: 2020
  11. By: WATANABE Mariko
    Abstract: This study investigates whether subsidies to state-owned enterprises (SOEs) in China's steel industry are distorting competitive neutrality. The Subsidy and Countervailing Measures Agreement of the World Trade Organizations defines ''specific'' and ''harmful'' subsidies as being subject to discipline, because they distort the allocation of resources. During the recession in the steel industry between 2008 to 2015, China produced excessively and exported aggressively at a lower price. This study hypothesizes that subsidies given by local governments to specific SOEs with undefined conditions softened the budget constraints of these SOEs and that the market equilibrium price would have been lower had no subsidy been provided. Using data from the financial statements of listed steel and iron firms and other relevant sources, I find that firms with operating deficits received subsidies that were large enough to compensate for their deficits. This preferential treatment of these specific SOEs induced them to engage in price cutting behavior, harming competitiveness in the market.
    Date: 2020–02
  12. By: Hongbo Duan (School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China); Qin Bao (Center for Forecasting Science, Chinese Academy of Sciences, Beijing 100190, China); Kailan Tian (Faculty of Economics and Business, University of Groningen, 9700 AV Groningen, The Netherlands); Yuze (Center for Forecasting Science, Chinese Academy of Sciences, Beijing 100190, China); Shouyang Wang (School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China and Center for Forecasting Science, Chinese Academy of Sciences, Beijing 100190, China); Cuihong Yang (School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China, Center for Forecasting Science, Chinese Academy of Sciences, Beijing 100190, China, and Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, China); Zongwu Cai (Department of Economics, The University of Kansas, Lawrence, KS 66045, USA); Xi Ming (School of Economics and Trade, Hunan University, Changsha 410006, China)
    Abstract: Broke out at the end of 2019, the novel coronavirus pneumonia (COVID-19) has been spreading in over 185 countries and territories, leading to more than 1,350,000 confirmed infections and 74,000 fatalities; the dismal performance of the global stock market and the collapse of oil prices are mostly attributed to this outbreak. Motivated by this, we evaluate the economic impacts of COVID-19 outbreak on both national and industrial levels by employing quarterly computable general equilibrium (CGE) model. Our results reveal that the epidemic may lower China’s economic growth in 2020 by 1.2%, versus 1.9% and 0.2% for consumption and investment, respectively. The service industry suffers the most from the outbreak, and the Accommodation-Food-Beverage service, Entertainment, Wholesale-Retail Trade are identified as the most vulnerable sectors, with the negative impact on output reaching as high as 5.6%. This study indicates that implementing effective measures for preventing and controlling the epidemic and policies for post-disease economic recovery play critical role in curbing the potential economic damage.
    Keywords: coronavirus pneumonia (COVID-19); Damage assement; Economic impacts; Economy recovery; Global stock market; SARS.
    Date: 2020–03
  13. By: Chi, Do Quynh
    Abstract: The textile and garment industry in Vietnam has achieved fast expansion in terms of production capacity and export value in all three areas of fibre, textile and clothing manufacturing since the early 2000s. However, the growth of the industry has been mainly attributed to the increase of labour and capital rather than economic upgrading. Most of the garment companies in Vietnam are still participating at the lowest value-added sections of global value chains. This report finds little progress in product, functional and sectoral upgrading at the production level. The reasons for the stagnation in economic upgrading originate both in the international buyers' policy to limit technology transfer to protect their business advantage and the lack of an effective industrial policy by the Vietnamese government. Social upgrading has been achieved mostly in the larger, export-oriented firms that are under the scrutiny of international buyers, while the SMEs and household businesses have been plagued with forced overtime, wildcat strikes, and low wages.
    Keywords: economic upgrading,social upgrading,global value chains,industrial policy,labour rights,garment industry
    JEL: F16 F23 L16
    Date: 2020
  14. By: Chen, Simiao; Jin, Zhangfeng; Prettner, Klaus
    Abstract: We examine whether and how retirement affects migration decisions in China. Using a regression discontinuity (RD) design approach combined with a nationally representative sample of 228,855 adults aged between 40 and 75, we find that retirement increases the probability of migration by 12.9 percentage points. Approximately 38% of the total migration effects can be attributed to inter-temporal substitution (delayed migration). Retirement-induced migrants are lower-educated and have restricted access to social security. Household-level migration decisions can reconcile different migration responses across gender. Retirees migrate for risk sharing and family protection mechnisms, reducing market production of their families in the receiving households.
    Keywords: Retirement,Migration decision,Regression discontinuity design
    JEL: J14 J26 J61
    Date: 2020
  15. By: OLTEANU, DAN CONSTANTIN (National Institute of Economic Research - Romanian Academy)
    Abstract: The present study represents an empirical analysis of the well-being convergence between EU Member States, using a set of 14 socio-economic indicators, grouped into 4 categories: population health status; financial situation of households; social conditions; education. To these we added the gross domestic product per capita, for comparison between economic and welfare convergence. We also aim to highlight the dynamics of the gap between the Eastern and Western European countries, as well as the evolution of convergence within these two groups. For the last 10 years analyzed, more precisely in the period 2007-2017, the calculation of standard deviation indicates a tendency of convergence within the EU, for 11 of the 14 welfare indicators analyzed. The variation within the group of Eastern European countries is higher than that recorded between the Western European countries, in 9 of 14 indicators. There is also a tendency for convergence between the two groups although, for some indicators (including GDP), the trends corresponding to their averages tend to remain parallel.
    Keywords: social convergence; economic convergence; welfare
    JEL: I31 I15 I25 O47
    Date: 2019–12
  16. By: Miao, Zhuang; Li, Yifan; Duan, Sisong
    Abstract: In this paper, we investigate the relation between the export patterns and the income inequality of the destination countries using the Chinese firm-level data. Our empirical analysis finds two main results: (i) export price decreases in the income inequality of the destination countries; while (ii) the exporting firm number and export value will increase in the inequality level. With a conventionally theoretical framework, we discuss the potential influencing mechanism. A higher income inequality leads to higher share of poor consumers in a country, which will lower the quality threshold for Chinese exporters. In this case, the firms with less competitive and producing low quality products are able to enter this market. As a result, we observe that in response to a higher income inequality, more firms enter the market while the exporting price decreases in this market.
    Keywords: Income Inequality; Trade Patterns; Chinese Firm-level Data
    JEL: F12 F14 L11
    Date: 2020–04–01
  17. By: Marta Domínguez-Jiménez; Niclas Poitiers
    Abstract: This Policy Contribution is a version of a paper prepared for ‘Russian economy at the crossroads- how to boost long-term growth?’, a seminar co-organised by the Delegation of the European Union to Russia and Bruegel, with the support of the EU Russia Expert Network on Foreign Policy. The seminar was funded by the European Union. The content of this paper does not represent the official position of the European Union....
    Date: 2020–02
  18. By: Yining Geng
    Abstract: The investments parents make in their children can be gender specific. I study the impact of family planning policies on gender-specific outcomes. Empirically, this paper uses China’s Family Planning Policy (FPP), enacted in 1971, to understand how a reduction in the number of children in a family can generate gender-specific outcomes. I mainly use the diff-in-diff strategy to compare the educational outcomes of boys and of girls born before and after the FPP was implemented. I find that while post-FPP-born children generally complete higher levels of education, this effect is particularly stronger for girls. This finding is robust to (1) using the diff-in-diff-in-diff strategy by incorporating another dimension of variation: different fertility constraints imposed by the FPP on the ethnic majority Han than those imposed on ethnic minorities; and (2) using a different measure of educational outcomes: the probability of pursuing an education beyond the compulsory education period. In addition, I document that the FPP also has an impact on changing women’s preference for their child’s gender. Post-FPP-born women show a more pronounced change in gender attitudes and exhibit less son preference than their male counterparts.
    Keywords: Family Planning Policy; Fertility; Education; Gender Inequality.
    Date: 2020–03
  19. By: Natalia Turdyeva
    Abstract: The principal interest of the paper is the quantification of terms of trade shocks response of the Russian economy on a detailed computable general equilibrium (CGE) model calibrated with Russian input-output data. The results suggest a decrease of welfare of the representative consumer and real GDP with the deterioration of the terms of trade. In the Central scenario (a 10% decrease in the world price of crude oil, a 3% decrease in the world price of natural gas and an 8% decrease in the world price of petroleum products) welfare of the representative consumer decreases by -1,17% of benchmark consumption level or -0,58% of the base year GDP in the comparative static model. Percentage change of the GDP in the Central scenario of the comparative static model is of the same magnitude as decrease in representative consumer’s welfare in terms of the benchmark GDP: -1,55%. Welfare changes associated with the Central scenario of the steady-state model, where capital stock adjusts to its long-term level, indicate a significant decrease in the welfare of the representative consumer up to -2,64% of benchmark consumption level or -1,23% of the base year GDP. Percentage change of the GDP in the Central scenario of the steady-state model exceeds representative consumer’s decrease in welfare in terms of the benchmark GDP: -2,51%. The model was validated by historical simulation with observed levels of exogenous parameters, mimicking change in economic environment from 2011 to 2015. The results of the historical simulation stress the importance of fiscal parameters (i.e. export taxes) in analysis of production behaviour of Russian extraction industries.
    Keywords: terms of trade, oil price shock, computable general equilibrium models, input-output table, industry output; CGE model validation.
    JEL: F17 C68 D58
    Date: 2019–10
  20. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In recent years, the general economic recovery has finally fed through to a significant increase in real wages in the Western Balkan countries, Moldova and Ukraine. Nevertheless, wage shares have barely picked up, and have even declined slightly in several places. Only in Kosovo has significant convergence with the Austrian wage level been registered. The improvement in labour market conditions in the countries covered has had only a moderately positive effect on wage developments. Despite recent declines, many countries continue to record double-digit unemployment rates, meaning that the bargaining power of employees has improved only slightly. The gradual decentralisation of wage-setting mechanisms has also slowed wage growth. In general, collective-bargaining mechanisms are much less developed than, for example, in Austria. Their scope is limited by the low share of employees in total (formal) employment. High unemployment and large wage gaps, especially in comparison with Western Europe, have led to considerable outward migration and population decline in many of these countries. This trend is expected to continue in the future. In the long run, this will result in the loss of an important share of the human capital of these countries, which might affect their prospects for convergence with Western European levels, including in terms of wages. Disclaimer The study was commissioned by the Arbeiterkammer Wien. This is a translation of the German version that was published as wiiw Research Report in German language No. 15 in September 2019.
    Keywords: Wages, wage share, demographic trends, migration, Phillips curve, wage-setting mechanisms
    JEL: J11 J31 J4 J50
    Date: 2020–04

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