nep-tra New Economics Papers
on Transition Economics
Issue of 2020‒11‒16
nine papers chosen by
Maksym Obrizan
Kyiv School of Economics

  2. Gulags, crime, and elite violence : origins and consequences of the Russian mafia By Lonsky, Jakub
  3. Foreign Direct Investment in the Czech Republic: A Visegrád Comparison By Septimiu Szabo
  4. Can I live with you after I retire? Retirement, old age support, and internal migration of older adults in China By Simiao Chen; Zhangfeng Jin; Klaus Prettner
  5. Wage Dynamics in Romania By Gaetano D'Adamo; Nora Hesse; Julien Hartley; Nicolae Bîea
  6. Digital labour platforms and labour protection in China By Zhou, Irene.
  7. Shadow of the Colossus: Euro Area Spillovers and Monetary Policy in Central and Eastern Europe By Makram El-Shagi; Kiril Tochkov
  8. FDI and Investment Uncertainty in the Baltics By Jorge Durán
  9. Labour Taxation in Romania: Revised, but not changed By Wojciech Balcerowicz; Anamaria Maftei; Janos Varga

  1. By: Hartmut Lehmann (National Research University Higher School of Economics); Aleksey Oshchepkov (National Research University Higher School of Economics); Maria Giulia Silvagni (University of Bologna)
    Abstract: This paper studies the convergence in per capita gross regional products (GRPs) across Russian regions in the period from 1996 to 2017. We estimate growth equations, which are directly derived from a neoclassical growth model, augmented with human capital and migration. To our knowledge, this is the first paper that explicitly applies a neoclassical model to analyze regional convergence in Russia. We also take into account possible spatial effects and do a series of other robustness checks. Our main estimates establish a convergence rate of around 2% per year. While we fail to find any role of human capital for regional economic growth, we find that interregional migration and the interdependencies of the growth of Russian regions contribute to the economic convergence between them.
    Keywords: convergence, economic growth, regional economics, migration, Russia
    JEL: O47 R11 P2
    Date: 2020
  2. By: Lonsky, Jakub
    Abstract: This paper studies the origins and consequences of the Russian mafia (vory-v-zakone). I web scraped a unique dataset that contains detailed biographies of more than 5,000 mafia leaders operating in 15 countries of the (former) Soviet Union at some point between 1916 and 2017. Using this data, I first show that the Russian mafia originated in the Gulag – the Soviet system of forced labor camps which housed around 18 million prisoners in the 1920s - 1950s period. Second, I document that the distance to the nearest camp is a strong negative predictor of mafia presence in Russia’s communities in the early post-Soviet period. Finally, using an instrumental variable approach which exploits the spatial distribution of the gulags, I examine the effects of mafia presence on local crime and elite violence in mid-1990s Russia. In particular, I show that the communities with mafia presence experienced a dramatic rise in crime driven by turf wars which erupted among rival clans around 1993 and persisted for much of the 1990. Further heterogeneity analysis reveals that mafia presence led to a spike in attacks against businessmen, fellow criminals, as well as law enforcement officers and judges, while politically-motivated violence remained unaffected.
    JEL: K42 N40 P16 P37
    Date: 2020–11–03
  3. By: Septimiu Szabo
    Abstract: This brief provides an analysis of foreign direct investment (FDI) in the Czech Republic since the 1990s, looking at its evolution over time and its distribution across regions and economic sectors. As the ratio of the FDI stock to GDP has grown six-fold since 1993, FDI has become a major contributor to the country's development. Encouraged by record-high rates of profitability, many foreign investors have directed their businesses towards the Czech Republic, especially to Prague. The largest sources of FDI are the Netherlands and Germany, and the main sectors are financial services, wholesale and retail, and motor vehicle manufacturing. As many investments reached maturity in the late 2000s, many foreign-controlled companies started to distribute a significant amount of dividends to their parent enterprises abroad. This outflow of dividends has particularly increased since the financial crisis, leading to an increasing GDP-GNI gap and a reduction in FDI inflows on the back of a low level of new capital acquisition. Nonetheless, even though a high proportion of profits have been repatriated, FDI has made a significant contribution to the domestic economy. The overall combination of new greenfield and brownfield investment, employment creation, taxes and social contributions, fiscal revenues, and domestic spillovers has had a much larger impact. Going forward, Czech authorities should encourage foreign investors to reinvest more of their earnings in the country by ensuring a viable business environment and a stable macroeconomic and political climate.
    Keywords: Foreign Direct Investment in the Czech Republic; A Visegrad comparison; Szabo; FDI; GDP; GNI.
    JEL: F21 F23 F43
    Date: 2019–02
  4. By: Simiao Chen (Heidelberg Institute of Global Health, Heidelberg University); Zhangfeng Jin (College of Economics, Zhejiang University); Klaus Prettner (Department of Economics, Vienna University of Economics and Business)
    Abstract: This study examines the causal impact of retirement on migration decisions. Using a regression discontinuity (RD) design approach, combined with a nationally representative sample of 228,855 Chinese older adults, we find that retirement increases the probability of migration by 12.9 p.p. (an 80% increase in migration). Approximately 38% of the total migration effects can be attributed to inter-temporal substitution. Retirement-induced migrants are lower-educated, have restricted access to social security, and come from origins with high living costs. Relying on old age support from adult children in migration is a likely mechanism. These findings are consistent with a simple theoretical model of migration for older adults.
    Keywords: Retirement, Internal migration, Old age support, China, Regression discontinuity design
    JEL: J14 J26 J61
    Date: 2020–10
  5. By: Gaetano D'Adamo; Nora Hesse; Julien Hartley; Nicolae Bîea
    Abstract: Economy-wide real wage growth in Romania has been accelerating since 2015. While wages in Romania are low relative to the rest of the EU and they are expected to continue growing faster than the EU average as the economy catches up, wage growth in excess of productivity gains could lead to losses in competitiveness. Overall, the increase in real compensation per employee was broadly in line with that of labour productivity between 2011 and 2016. Already in 2016, however, real compensation started to race ahead and in 2017 unit labour costs expanded by more than 11%. While Romania's exports have fared well in recent years, the current account deficit has been gradually increasing since 2014 as imports accelerated in line with booming private consumption, itself stimulated by a persistently pro-cyclical fiscal policy. Thus, a deteriorating external competitiveness and export performance due to rising production costs could pose significant macroeconomic risks. Against this background, this paper seeks to investigate the role of public sector wages in leading wage changes in the economy as a whole, which in turn might influence Romania's cost competitiveness. The analysis shows that, over the period 2000-2017, the public sector was the leader in the wage setting process while the "tradable" (i.e. manufacturing) sector and the market "non-tradable" (i.e. services) sector have been the followers. These results suggest that, notwithstanding nominal exchange rate developments, spillovers from wage growth in the public sector to the private sector could undermine Romania's external competitiveness. Therefore, a responsible wage setting policy is needed to ensure that overall wage dynamics are attuned to productivity developments in the tradable sector and reflect prevailing conditions on the labour market.
    Keywords: Wage policy, wage developments, competitiveness, labour productivity, wage setting policy, Romania, Wage Dynamics, D'Adamo, Hesse, Hartley, Bîea.
    JEL: C32 J31
    Date: 2019–05
  6. By: Zhou, Irene.
    Abstract: The growth of digital labour platforms worldwide creates both opportunities and challenges to the world of work as well as the traditional approaches of regulating work and setting minimum stand- ards. This paper explores the implications of the digital labour platforms for labour regulation in China and the potential applicability of existing laws and regulations to platform work. It begins by defining platform work and reviewing its scope, composition and characteristics, with a focus on working con- ditions in China, followed by analysis on how labour regulation is complicated by the platform business models. In analysing the existing regulatory frameworks, the regulatory gaps become apparent. The paper concludes with policy options based on relevant international standards and the approaches to regulating platforms in other countries and the Chinese context, including its economic and policy environment as well as its industrial relations system.
    Date: 2020
  7. By: Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Kiril Tochkov (Texas Christian University, Fort Worth, TX, US)
    Abstract: Closer integration between Central and Eastern Europe (CEE) and the EUCloser integration between Central and Eastern Europe (CEE) and the EU has opened up channels facilitating the propagation of economic shocks from the core to the eastern periphery. This paper examines the effects of such shocks to economic activity and monetary conditions originating in the Euro area (EA) on output, prices, money, and interest rates in 10 CEE countries over the period 2005-2018 using a bilateral restricted VAR framework. In contrast to previous studies, we use Divisia monetary aggregates and compare the effects of EA spillovers to domestic shocks. The results indicate that EA shocks explain the majority of variation across all macroeconomic indicators, with money supply shocks playing the most prominent role. Despite some heterogeneity, the impulse response of monetary aggregates to domestic andEA monetary shocks is almost identical across countries. The impact of the EA shock increases over time and persists, while the domestic shock dies out relatively quickly. Accordingly, we find no meaningful monetary independence in the majority of CEE countries. This is likely to prove detrimental to the effectiveness of monetary policies in CEE.
    Keywords: Monetary policy, spillover, Divisia, Central and Eastern Europe
    JEL: E52 E43 E58
    Date: 2020–11
  8. By: Jorge Durán
    Abstract: Foreign direct investment (FDI) flows into the Baltic states collapsed during the crisis, experienced a short-lived recovery, and then plunged again. Today it remains subdued despite a modest but sustained recovery. This is worrying because FDI is a channel for technology transfers and its shortfall could imply that the Baltic states risk falling into a ‘middle income trap’ at around 70% of the EU-15 average income. This paper argues that the slow recovery of FDI is rather due to poor international market conditions, holding back investment in general and FDI in particular. Accordingly, FDI is expected to pick up once the economic environment improves. Still, further improving the framework conditions for investment could help to attract and reap the benefits of FDI in the future, particularly in Latvia and Lithuania.
    Keywords: Foreign direct investment, capital formation, unit labor costs, FDI and investment uncertainty in the Baltics, Jorge Durán, Héctor Navarrete-Plana.
    JEL: F2 F6 O1
    Date: 2019–03
  9. By: Wojciech Balcerowicz; Anamaria Maftei; Janos Varga
    Abstract: In 2018 the structure of labour taxation in Romania changed substantially: the social security contributions' (SSC) burden shifted almost entirely to employees, the flat personal income tax (PIT) rate was cut and the PIT-free allowance increased. These changes followed the Unified Wage Law (UWL) adopted in 2017, which significantly increased the wages in the public sector. The government also increased the gross minimum wage and encouraged the social partners to re-negotiate salaries in the private sector, so that net wages would not decrease following the shift of social contributions to the employee side. This economic brief analyses the redistributive and macroeconomic impact of all of these reforms using EUROMOD, the microsimulation model for the European Union Member States, with QUEST, the European Commission’s dynamic stochastic general equilibrium model. According to our simulation results, the cumulative impact of the reforms slightly increases both market and disposable income inequality. Low-income employees gain marginally from the higher minimum wage, while the self-employed would be better off only by opting not to pay the social contributions, i.e. renouncing national insurance protection. In the longer run, the reforms are likely to have a negative effect on GDP and employment due to the wage pressure from higher public sector salaries and increased minimum wages. The general government deficit increases, although by significantly less than the raise that would have happened if the UWL had not been accompanied by the SSC shift.
    Keywords: Romania, labour taxation reforms, tax shift, inequality, minimum wages, public sector wages, country focus, economic brief, Balcerowicz, Martei, Varga.
    JEL: H10 H24 H25 H50 H60
    Date: 2019–09

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