nep-tra New Economics Papers
on Transition Economics
Issue of 2020‒07‒27
ten papers chosen by
Maksym Obrizan
Kyiv School of Economics

  1. Provincial interdependence and China’s “irrational” outward foreign direct investment By Mengheng Liu; Xingwang Qian
  2. Voluntary adoption of environmental standards and limited attention: Evidence from the food and beverage industry in Vietnam By Massimo Filippini; Suchita Srinivasan
  3. The role of demographics and migration for the future of economic growth in China By Juan Carlos Conesa; Yan Wang
  4. How do machine learning and non-traditional data affect credit scoring? New evidence from a Chinese fintech firm By Gambacorta, Leonardo; Huang, Yiping; Qiu, Han; Wang, Jingyi
  5. Corporate Profitability and the Global Persistence of Corruption By Ferris, Stephen; Hanousek, Jan; Tresl, Jiri
  6. How Did the 2003 SARS Epidemic Shape Chinese Trade? By Ana P. Fernandes; Heiwai Tang
  7. Shock-Dependent Exchange Rate Pass-Through in Russia By Ivan Khotulev
  8. Blinder-Oaxaca Approach to Identify Innovation Differences in Transition Countries By Raul Caruso; Antonella Biscione; Dorothée Boccanfuso; Annunziata de Felice
  9. Numerological preferences, timing of births and the long-term effect on schooling By Cheng Huang; Xiaojing Ma; Shiying Zhang; Qingguo Zhao

  1. By: Mengheng Liu (Zhejiang University); Xingwang Qian (SUNY Buffalo)
    Abstract: China’s outward foreign direct investment (OFDI) has increased by more than 70-fold since early 2000. A sudden plummet of 30% OFDI in 2017 particularly merits explanation. We suggest that the interdependent behavior of Chinese provincial OFDI plays a key role in the astonishing increase and sudden decease in China’s OFDI. Using OFDI data from 31 Chinese provinces, we find that OFDI from one province positively depends on neighboring provinces’ OFDI. While the spillover from neighbors’ behavior increases provincial OFDI, it tends to lead to more OFDI than warranted by economic fundamentals, resulting in an irrational OFDI bubble. Further, we argue that the “follow the leader” firm behavior and the OFDI promotional policies under China’s political tournament environment give rise to the neighboring interdependence. Finally, based on our results, we make a plausible estimation of the amount of irrational OFDI in China in 2016.
    Keywords: China’s outward FDI; provincial interdependence; spillover effect; government promotion policy
    JEL: F21 F63
    Date: 2020–04–30
  2. By: Massimo Filippini (Center of Economic Research (CER-ETH), ETH Zurich and Universita della Svizzera italiana, Switzerland); Suchita Srinivasan (Center of Economic Research (CER-ETH), ETH Zurich, Switzerland)
    Abstract: Voluntary approaches to environmental policy can contribute to stemming environmental degradation in developing countries with weak institutions. We evaluate the role of a behavioral anomaly, limited attention paid by owners or managers, in explaining the voluntary adoption of environmental certification by small and medium enterprises (SMEs) in the food and beverage industry in Vietnam. We find that firms where owners or managers were inattentive were 30 percentage points less likely to receive environmental certification. Moreover, this effect is larger for firms that were previously inspected for technical violations, and that exported or bribed, and it is weaker for household enterprises.
    Keywords: Voluntary environmental standards; Limited attention; Small and medium enterprises; Food and beverage industry; Vietnam
    JEL: D22 D83 D91 O13 Q56 Q59
    Date: 2020–07
  3. By: Juan Carlos Conesa; Yan Wang
    Abstract: China's real GDP has been growing by almost 10 percent a year for the last three decades. For how long should we expect this spectacularly high growth to continue? We evaluate in a quantitative two sector model with segmented labor markets and nancial frictions the prospects for China's future growth under different policy scenarios. In our model the high growth rate observed in China since the early 1990s is fueled by the large increase in urban labor supply, because of rural-urban migration, and the emergence of private enterprises that absorb those migrant workers. Our simulations suggest that the rapid aging of its population will signicantly decelerate urban labor force and economic growth starting around 2040. In a counterfactual exercise we show that substantial relaxation of labor market segmentation and nancial constraints faced by private enterprises cannot compensate for that deceleration.
    Date: 2020
  4. By: Gambacorta, Leonardo; Huang, Yiping; Qiu, Han; Wang, Jingyi
    Abstract: This paper compares the predictive power of credit scoring models based on machine learning techniques with that of traditional loss and default models. Using proprietary transaction-level data from a leading fintech company in China for the period between May and September 2017, we test the performance of different models to predict losses and defaults both in normal times and when the economy is subject to a shock. In particular, we analyse the case of an (exogenous) change in regulation policy on shadow banking in China that caused lending to decline and credit conditions to deteriorate. We find that the model based on machine learning and non-traditional data is better able to predict losses and defaults than traditional models in the presence of a negative shock to the aggregate credit supply. One possible reason for this is that machine learning can better mine the non-linear relationship between variables in a period of stress. Finally, the comparative advantage of the model that uses the fintech credit scoring technique based on machine learning and big data tends to decline for borrowers with a longer credit history.
    Keywords: credit risk; credit scoring; Fintech; Machine Learning; non-traditional information
    JEL: G17 G18 G23 G32
    Date: 2019–12
  5. By: Ferris, Stephen; Hanousek, Jan; Tresl, Jiri
    Abstract: We examine the persistence of corporate corruption for a sample of privately-held firms from 12 Central and Eastern European countries over the period 2001 to 2015. Creating a proxy for corporate corruption based on a firm's internal inefficiency, we find that corruption enhances a firm's profitability. A channel analysis further reveals that inflating staff costs is the most common approach by which firms divert funds to finance corruption. We conclude that corruption persists because of its ability to improve a firm's return on assets, which we refer to as the Corporate Advantage Hypothesis.
    Keywords: Central and Eastern Europe; Corruption; Inefficiency; Performance; Private firms
    JEL: F38 G30
    Date: 2020–01
  6. By: Ana P. Fernandes; Heiwai Tang
    Abstract: This paper examines the impact of the Severe Acute Respiratory Syndrome (SARS) epidemic on China’s trade. Using quarterly transaction-level trade data of all Chinese firms, we find that firms in regions with local transmission of SARS experienced lower import and export growth at both the intensive and extensive margins, compared to those in the unaffected regions. The affected firms’ trade growth remained lower two years after SARS. Products that are more capital-intensive, skill-intensive, upstream in the supply chains, and differentiated experienced a smaller export decline but a stronger recovery. Small exporters were more likely to exit, slowing down trade recovery.
    Keywords: Covid-19, SARS, trade collapse, post-pandemic recovery, natural disasters, disruption, global supply chains
    JEL: F12 F14
    Date: 2020
  7. By: Ivan Khotulev (Bank of Russia, Russian Federation)
    Abstract: In this note, we study shock-dependent exchange rate pass-through (ERPT) to consumer prices in Russia. First, we estimate a traditional "shock-independent" ERPT on aggregate quarterly time series of the exchange rate, CPI, and control variables. Estimated coefficients confirm previous studies and official statements by the Bank of Russia. Rolling regression in different periods shows that the ERPT becomes more stable and more precisely estimated after 2014-2015 when the Bank of Russia switched to inflation targeting. We compare results with the ERPT from an estimated structural model. We obtain a forecast of macroeconomic time series from a DSGE model conditional on foreign variables observed. We run the same regression on forecasted data and obtain estimates of the "shock-independent" ERPT from the structural model. We compute shock-dependent ERPT from model impulse responses. The magnitude of the ERPT varies for different shocks with the highest value attributed to domestic monetary policy shocks. When estimating the pass-through of the exchange rate to prices, care must be taken of which shock caused changes in the exchange rate. Since monetary policy shocks appear to be associated with the highest ERPT, and the ERPT becomes more stable after 2014-2015, the Russian economy may be reaping an additional benefit of inflation targeting in the form of reduced monetary policy shocks and a more stable ERPT.
    Keywords: exchange rate pass-through, monetary policy, Russia
    Date: 2020–06
  8. By: Raul Caruso (Department of Economic Policy and CSEA, Catholic University of Sacred Heart; CESPIC, Catholic University "Our Lady of Good Counsel"); Antonella Biscione (CESPIC, Catholic University "Our Lady of Good Counsel"); Dorothée Boccanfuso (Faculté de Gouvernance, Sciences Economiques et Sociales, Université Mohammed VI Polytechnique); Annunziata de Felice (Department of Law, University of Bari Aldo Moro)
    Abstract: By the use of firm-level data coming from the Business Environment and Enterprise Performance Survey (BEEPS V) conducted in 2012-2014, this paper aims to investigate the sources of the possible gender ownership gap in innovativeness in a set of Transition economies. Through the Blinder-Oaxaca decomposition that allows us to define the factors responsible for the differences in the propensity to innovate between female-owned and male-owned firms, we find that the innovation disparity between firms with females among their owners and those having only male owners is mainly due to the differences in endowment effects. Tangible and intangible assets affect the innovation gap between the two groups of firms.
    Keywords: Blinder-Oaxaca decomposition; non-linear model; gender ownership; innovation gap; Transition Countries
    JEL: O32 J12 P23
    Date: 2020–04
  9. By: Cheng Huang (George Washington University); Xiaojing Ma (School of Economics and Management, Harbin Institute of Technology); Shiying Zhang (School of Economics and Management, Harbin Institute of Technology); Qingguo Zhao (Family Planning Research Institute of Guangdong Province)
    Abstract: Cultural beliefs may affect demographic behaviors. According to traditional Chinese astrology, babies born on auspicious days will have good luck in their lifetime, whereas those born on inauspicious days will have bad luck. Using administrative data from birth certificates in Guangdong, China, we provide empirical evidence on the short-term effects of such numerological preferences. We find that approximately 3.9% extra births occur on auspicious days and 1.4% of births are avoided on inauspicious days. Additionally, there is a higher male/female sex ratio for births on auspicious days. Since such manipulation of the birthdate is typically performed through scheduled C-sections, C-section births increase significantly on auspicious days. Moreover, we use a second dataset to examine the long-term effect of numerological preferences and find that people born on auspicious days are more likely to attend college
    Keywords: s Numerological preferences, Birthdate, Timed births, Chinese astrology
    JEL: I21 Z10 J13 D19
    Date: 2019
  10. By: Liis Roosaar; Urmas Varblane; Jaan Masso
    Abstract: The purpose of this paper is to clarify whether domestic or foreign firms gained more from labour churning while adjusting to the Great Recession in Estonia. During times of high unemployment, all firms can raise their requirements for new employees, but in times of crisis foreign firms may have more resources available for restructuring. We analysed matched employee-employer data from Estonian firms from 2006 to 2013, and show that an increase in labour churning is related to a positive change in labour productivity during economic crisis. During boom years churning is related to a negative change in labour productivity. In both cases a slightly upward convex pattern can be noticed. Only in services during the crisis did foreign firms have a stronger positive relationship between labour churning and labour productivity changes than domestic firms. However, our analysis at the individual level does not confirm that during a crisis foreign firms hire more employees with characteristics that have been found to be related to productivity increases. We also show empirically that hiring employees who relatively often change jobs is negatively related to changes in labour productivity. In light of the world-wide virus-related crisis of 2020, this paper proves that economic downturns can be a good opportunity to restructure the pool of employees.
    Keywords: labour productivity, labour churning, economic recession/crisis, Estonia
    Date: 2020

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