Women in the LAC Labor Market: The Remarkable 1990?s
Suzanne Duryea; Alejandra Cox Edwards; Manuelita Ureta
WP No. 500
(June, 2001)
Abstract: We examine levels and trends of labor market outcomes for women in the 1990?s using household survey data for 18 Latin American countries covering several years per country. The outcomes we analyze include labor force participation rates, the distribution of employment of women across sectors of the economy (formal versus informal) and across industries (agriculture versus non-agriculture), unemployment, and earnings. Overall we document substantial progress made by women in many areas. The gender wage gap is closing steadily in Venezuela, Costa Rica, Brazil and Uruguay, while Colombian women now enjoy higher earnings than those of men. Women?s share of household labor earnings rose from 28% in the early 1990?s to 30% in the late 1990?s. Regarding the quality of jobs, we examine self-employment and employment in small forms as possible indicators of employment in the informal sector. There is no evidence of a systematic increase in self-employment nor in employment in small firms, and contrary to findings by the ILO, we find that the share of female employment accounted by domestic servants did not increase in the 1990?s. Perhaps the salient development of the 1990?s for women in LAC countries was the brisk-paced, secular rise in their labor force participation rates. We examine this development from several angles. We explore the Singh-Goldin-Durand hypothesis that women?s work status changes with economic development. Mammen and Paxson (2000) examine this hypothesis using data for 90 countries, and find that female participation of 45-59 year olds follows a U-shaped profile, with rates rising with GDP per capita increases above $3000. We find that female participation in LAC does not follow the Mammen-Paxson pattern. Next, we examine the role of schooling in explaining the increase in female labor force participation in LAC countries. We find that increases in female schooling account for 30% of the overall increase in female participation rates. The remaining 70% is explained by increases in participation rates at given schooling levels. Finally, we analyze the role of wages, especially the returns to different schooling levels, as a partial explanation for the pattern of changes in labor force participation rates. All of these findings suggest a fair degree of change in the role of women within households and in the labor market. We conclude that the macro economic picture of stagnation for LAC in the 1990s masks non-trivial developments in the division of labor and time allocation by gender.
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Jel Codes: J16, J21
Keywords: labor force participation, earnings, women, Latin America
Human Capital, Growth and Inequality in Transition Economies
Michael Spagat
WP No. 499
(July, 2002)
Abstract: Transition economies have an initial condition of high human capital relative to living standards. I explore the possible implications of this key fact by surveying and adapting literature on growth and inequality. I focus especially on the long run and policy options.
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Jel Codes: I2, O15, P2
Keywords: Transition economies, human capital, growth, inequality, liquidity constraints, educational reform, long run
Understanding Czech Long-Term Unemployment
Stepan Jurajda; Daniel Münich
WP No. 498
(August, 2002)
Abstract: One potential impact of the looming EU accession of Central European economies is unemployment hysteresis working through long-term unemployment (LTU). In this paper, we explore the mechanisms of LTU by providing a detailed description of the recent rise in Czech LTU following the recession of 1997. We place the Czech evidence in international perspective using, e.g., VAR-based simulations, and focus on the role of welfare benefits in driving LTU.
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Keywords: Unemployment, Transition, Flexibility, Czech Republic
Rent Seeking and Government Ownership of Firms: An Application to China?s Township-Village Enterprises.
Jiahua Che
WP No. 497
(January, 2002)
Abstract: Using its control of regulated inputs, a government agency extracts rents from a manager who undertakes an investment. Such government rent-seeking activity leads to a typical hold-up problem. Government ownership serves as a second-best commitment mechanism, through which the government agency will restrain itself from the rent-seeking activity and may even offer the manager assistance in the form of tax breaks and subsidies. This mechanism works at a cost, however, as government ownership also compromises ex post managerial incentives and creates distortion in resource allocation. Nevertheless, government ownership Pareto dominates private ownership under certain conditions. These conditions correspond to a host of stylized empirical observations concerning local government-owned firms, i.e., township-village enterprises, during China?s transition to a market economy.
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Jel Codes: D23, D72, L33
Keywords: Government Rent Seeking, Ownership of Firms, Township and Village Enterprises, China
Labor Market Flexibility in Central and East Europe
Jan Svejnar
WP No. 496
(August, 2002)
Abstract: I explore the extent to which insufficient labor market flexibility is an important factor causing Central and East European (CEE) economies to perform worse than they could and hence slowing down their readiness to enter the European Union. My conclusion is that labor market flexibility is an issue but that it is not a major factor in comparison to imperfections and regulations in other areas such as the housing market, transportation infrastructure, capital market, corporate governance, legal framework, and business environment. In particular, my assessment is that transition labor markets have been as flexible and functional as labor markets in the market economies and that the observed differences across transitional labor markets do not account for cross-country differences in economic performance.
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Jel Codes: J3, J4, J5, J6, P2, P3
When Information Dominates Comparison: A Panel Data Analysis Using Russian Subjective Data
Claudia Senik
WP No. 495
(May, 2002)
Abstract: We propose a micro-econometric investigation into the relation between subjective life satisfaction and income distribution, using a balanced panel survey of the Russian population (RLMS), running from 1994 to 2000, including 4096 individuals. We show that in the context of the Russian very volatile environment, Hirschman?s (1973) ?tunnel effect? conjecture seems to be validated : variables reflecting income distribution do not influence satisfaction through social comparisons; individuals rather seem to use their informational content in order to form their expectations. The reference group?s income exerts a positive influence on individual satisfaction, which contrasts with other studies on the subject. Inequality indices do not affect individual welfare.
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Jel Codes: D60, D63, I31, P30
Keywords: subjective welfare, relative income, inequality, transition, panel data
Corruption and Cross-Border Investment: Firm-Level Evidence
Beata K. Smarzynska; Shang-Jin Wei
WP No. 494
(August, 2002)
Abstract: This paper studies the impact of corruption on inward foreign direct investment using a unique firm-level data set. It examines two effects of corruption simultaneously: a reduction in the volume of foreign investment and a shift in the ownership structure. Corruption makes local bureaucracy less transparent and hence acts as a tax on foreign investors. Moreover, corruption affects the decision to take on a local partner. On the one hand, corruption increases the value of using a local partner to cut through the bureaucratic maze. On the other hand, corruption decreases the effective protection of investor?s intangible assets and lowers the probability that disputes between foreign and domestic partners will be adjudicated fairly, which reduces the value of having a local partner. The importance of protecting intangible assets increases with investor?s technological sophistication, which tilts the preference away from joint ventures in a corrupt country. Empirical evidence shows that corruption reduces inward FDI and shifts the ownership structure towards joint ventures. Technologically more advanced firms are found to be less likely to engage in joint ventures.
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Jel Codes: F23
Keywords: Corruption, Foreign direct investment, Multinational firms
Modeling Sequences of Long Memory Positive Weakly Stationary Random Variables
Dmitri Koulikov
WP No. 493
(August, 2002)
Abstract: In this paper we introduce a new class of covariance stationary long-memory models on the positive half-line. The overall structure of the models is related to that of GARCH processes of Engle (1982) and Bollerslev (1986), whereby sequence of random variables of interest have multiplicative shocks structure. Unlike FIGARCH model of Baillie, Bollerslev and Mikkelsen (1996), our models are weakly stationary with non-summable autocovariances and hence belong to the class of long-memory models according to the criteria of McLeod and Hipel (1978). In addition, we are able to ensure positivity of all underlying components of the model, thereby improving on the results of Giraitis, Robinson, and Surgailis (2000). Apart from volatility modeling, the class of models introduced in this paper will find applications in high-frequency financial data econometrics.
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Jel Codes: C22, C51
Keywords: conditional heteroscedasticity, long-memory, weak stationarity, econometrics of high-frequency financial data
Effects of Ownership and Financial Status on Corporate Environmental Performance
Lubomír Lízal; Dietrich Earnhart
WP No. 492
(August, 2002)
Abstract: This paper analyzes the effects of ownership structure on corporate environmental performance and examines the link from financial performance to environmental performance in a transition economy. In particular, it analyzes these ownership effects and this performance link using an unbalanced panel of Czech firms for the years 1993 to 1998. It considers state ownership and various types of private ownership, while contrasting concentrated and diffuse forms of private ownership. Additionally, it examines whether or not successful financial performance begets or undermines good environmental performance.
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Jel Codes: D21, D62, G39, Q25
Keywords: Czech Republic, environmental protection, pollution, ownership, financial status
Does Economic Uncertainty Have an Impact on Decisions to Bear Children? Evidence from Eastern Germany
Sumon Kumar Bhaumik; Jeffrey B. Nugent
WP No. 491
(July, 2002)
Abstract: Economic agents routinely face various types of economic uncertainty. Seldom have these various forms of uncertainty manifested themselves more sharply than in the transition economies of Central and Eastern Europe. In East Germany, the transition was especially rapid and sharp since East Germany virtually over night made the transition from the Eastern European system to the market economy of Western Germany. Uncertainties increased and many institutional and behavioral adjustments took place in a concentrated period of time. Among the latter was a sharp fall in fertility rates, leading to a growing literature on the explanation for this decline. This paper focuses directly on the link between uncertainty and childbearing decisions and examines the link at the micro level. It develops a stylized overlapping generations model showing that the relationship between economic uncertainty and childbearing decisions is not necessarily monotonic, and hence that the aforementioned inverse relationship is merely a testable hypothesis. It then uses GSOEP data for 1992 and 1996 to estimate the nature of this relationship, and concludes that while this relationship was indeed negative for East German women during these two years, the nature of uncertainty affecting their childbearing decisions differed across the years.
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Jel Codes: D1, D81, J13, J22, P36
Keywords: economic uncertainty, fertility, childbearing decisions, transition
The Reallocation of Workers and Jobs in Russian Industry: New Evidence on Measures and Determinants
J. David Brown; John S. Earle
WP No. 490
(August, 2002)
Abstract: Gross job and worker flows in Russian industry are studied using panel data from a recent survey of 530 firms selected through national probability sampling. The data permit an examination of several important measurement issues ? including the timing and definition of employment, the roles of split-ups and mergers, and the relative magnitudes of rehiring and new hiring and of quits and layoffs ? and they contain a rich set of firm characteristics that may affect job and worker turnover. The results imply that job destruction and worker separation rates in industrial firms rose in the early 1990s, as did job flows as a fraction of worker flows and layoffs as a fraction of separations. By contrast, job creation and worker hiring rates were flat until 1999, the former low and the latter surprisingly high. Heterogeneity in individual firm behavior increased throughout. New firms and old enterprises that have been reorganized display much larger flows compared with unreorganized enterprises. Unions appear to reduce worker flows, but the structure of neither product nor labor markets shows a significant impact. Private ownership has ambiguous effects: insider ownership, particularly by managers, is associated with higher worker flows and excess job reallocation, while outsider ownership, particularly by blockholders, is associated with lower flow rates. A measure of adjustment costs constructed from the worktime necessary to hire and train a new employee is strongly related to variables usually associated with adjustment costs, including worker wage, education, firm size, capital intensity, and labor productivity, but only weakly to job and worker turnover. Little evidence is found that firms? employment adjustments have become more sensitive to adjustment costs during the transition, but worker and manager ownership are associated with more sensitivity than are other types of ownership.
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Jel Codes: E24, J23, J63, P23, P31
Keywords: job creation, job destruction, labor turnover, layoffs, transition, Russia
The Incidence and Cost of Job Loss in a Transition Economy: Displaced Workers in Estonia, 1989-1999
Hartmut Lehmann; Kaia Phillips; Jonathan Wadsworth
WP No. 489
(February, 2002)
Abstract: We examine the pattern and costs of worker displacement in one of the more reform- oriented transition countries, Estonia, as the transition process develops. Using Labour Force Survey data covering the period 1989-1999, we show that after the initial shock, displacement rates in Estonia have fallen back to levels observed in several western economies, as the economy picks up. The incidence of displacement is also similar to that in the West ? concentrated on the less skilled and those with short job tenure. Roughly half of those displaced find re-employment within two months while the other half lingers on in the state of non-employment. There is less evidence however of a wage penalty to job loss, unlike in some Western countries, a fact one might attribute more to the nature of the transition process than to wage setting institutions in Estonia. The main cost of displacement is then the income loss due to non-employment, which is severe for a minority of workers who experience long-term non-employment.
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Jel Codes: J64, J65, P50
Keywords: Displaced workers, labour markets in transition
Integration: An Empirical Assessment of Russia
Daniel Berkowitz; David N. DeJong
WP No. 488
(February, 2002)
Abstract: In the process of implementing market reforms, many post-socialist countries have struggled to preserve economic and political integration. Using a statistical model of commodity trade, we quantify the evolution of economic integration observed among regions within Russia during 1995-1999, and then explore potential determinants of the patterns of integration we observe. Our measure of integration exhibits rich regional variation that, when aggregated to the national level, fluctuates substantially over time. In seeking to account for this behavior, we draw in part on theoretical models that emphasize the potential role of openness to international trade, regional disparities in income, and inflation volatility in threatening economic and political integration. Controlling for a host of additional regional- and national-level variables, we find a strong negative correspondence between openness to international trade and internal economic integration within Russia. We also find negative links but weaker links between integration and regional-income disparities and inflation volatility.
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Jel Codes: P22, R1
Keywords: openness to international trade, regional income disparities, inflation volatility, economic, political integration
Dual Inflation Under the Currency Board: The Challenges of Bulgarian EU Accession
Nikolay Nenovsky; Kalina Dimitrova
WP No. 487
(July, 2002)
Abstract: The importance of analysing inflation sources and dynamics in Bulgaria is imposed by (i) the long run process of price and inflation convergence to the Euro area and (ii) by the Currency Board operating in the country. In this study we make an attempt to estimate Balassa - Samuelson (BS) effect in Bulgaria (after the introduction of the Currency Board). The BS explanation of inflation (or dual inflation) has acquired both academic recognition and popularity in practice in the recent years. The results of our empirical estimation do not provide a robust verification of the existence of BS effect in spite of the observed prerequisites and the accompanying economic indicators interrelations. Actually there are several factors that interfere with the BS effect lying in the wage convergence process in both sectors and others that influence productivity developments in the sectors. This prompts that the price movement in the country has other driving motions ? above all wage setting and incomplete price liberalization, other factors productivity, imported inflation (pass trough) and inflation generated by the temporary gaps between money demand and money supply.
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Jel Codes: C22, E24, E42, F15
Keywords: inflation, currency board, EU accession, Bulgaria
Worker Flows, Job Flows and Firm Wage Policies: An Analysis of Slovenia
John Haltiwanger; Milan Vodopivec
WP No. 486
(July, 2002)
Abstract: Like many transition economies, Slovenia is undergoing profound changes in the workings of the labor market with potentially greater flexibility in terms of both wage and employment adjustment. We investigate the impact of the changing labor market for Slovenia using unique longitudinal matched employer-employee data that permits measurement of employment transitions and wages for workers and links of the workers to the firms with whom they are employed. We can thus measure worker flows and job flows in a comprehensive and integrated manner. We find a high pace of job flows in Slovenia especially for young, small, private and foreign owned firms and for young, less educated workers. While job flows have approached the rates observed in developed market economies, the excess of worker flows above job flows is lower than that observed in market economies. A key factor in the patterns of the worker and job flows is the determination of wages in Slovenia. A base wage schedule provides strict guidelines for minimum wages for different skill categories. However, firms are permitted to offer higher wages to an individual based upon the success of the worker and/or the firm. Our analysis shows that firms deviate from the base wage schedule significantly and that the idiosyncratic wage policies of firms are closely related to the observed pattern of worker and job flows at the firm. Firms with more flexible wages (measured as less compression of wages within the firm) have less employment instability and also are able to improve the match quality of its workers.
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Jel Codes: J23, J31, J41, J61, P23, P31
Keywords: Job Flows, Worker Flows, Wage Policies
Do Schumpeterian Waves of Creative Destruction Lead to Higher Productivity? Panel Data Evidence from Poland
Frederic Warzynski
WP No. 485
(July, 2002)
Abstract: We look at the determinants and consequences of job reallocation in the 22 2-digit sectors of the manufacturing industry in Poland over the period 1993-1997. Import competition and competitve market structure (weak concentration) are found to lead to more reallocation. Moreover, more reallocation seems to be associated with more poductive industries in some specifications. This confirms implications from neo-Schumpterian growth models: one channel through which competition might positively affect growth is through the reallocation of scarce resources from declining firms to rising ones.
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Jel Codes: F16, J24, J6, O3, P3
Keywords: Schumpeterian growth, job flows, competition, trade
Labor Market Institutions and Restructuring: Evidence from Regulated and Unregulated Labor Markets in Brazil
Jasper Hoek
WP No. 484
(July, 2002)
Abstract: This paper compares patterns of hiring and separations in regulated and unregulated labor markets over the last two decades in Brazil, with an eye toward gauging the effects of employment protection on employment adjustment over the business cycle. Since the difference between the sectors is stark and well-defined, the consequences of employment protection on flows through the labor market are relatively easy to discern. Employment protection causes adjustment to demand fluctuations to come at the expense of the unemployed. A reduction in employment in the regulated labor market is achieved by lowering the rate at which the unemployed get jobs. In the unregulated market, the same reduction is achieved by raising the separation rate. In principle, the restructuring mechanisms of both sectors could be compatible with similar contributions to unemployment. In practice, contributions from the regulated sector are more persistent and erratic. The contribution of the unregulated sector is stable and countercyclical.
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Jel Codes: E24, J64, J65
Keywords: Labor market institutions, incomplete contracts, informal sector, severance pay, business cycle fluctutations
The Balassa-Samuelson effect in Central and Eastern Europe: Myth or reality?
Balázs Égert; Imed Drine; Kirsten Lommatzsch; Christophe Rault
WP No. 483
(July, 2002)
Abstract: This paper studies the Balassa-Samuelson effect in 9 CEECs . Using panel cointegration techniques, we find strong empirical evidence in favour of what we call the internal transmission mechanism since productivity growth in the open sector is found to bring about non-tradable inflation. However, we also shed new light on the fact that the impact of the internal transmission mechanism on overall inflation is considerably attenuated by the low share of non-tradables in the consumer price index. Furthermore, we argue that because of this and the high share of food items and regulated prices, the CPI may be misleading when analysing the Balassa-Samuelson effect. The paper also shows that the appreciation of the transition economies' real exchange rate, which has become something of a stylised fact over the last decade is only partly caused not the Balassa-Samuelson effect. Instead, we argue that a trend increase in tradable prices is behind this phenomenon.
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Jel Codes: C15, E31, F31
Keywords: Balassa-Samuelson effect, Panel cointegration, Transition economies, EMU
Real Exchange Rates in Transition Economies
Bostjan Jazbec
WP No. 482
(July, 2002)
Abstract: Paper attempts to develop a model suitable for an analysis of the real exchange rate determination in transition economies. The main distinction from other approaches to the real exchange rate determination is an introduction of the pre-transition period which enables one to separately examine the role of adverse initial conditions and labor market reallocation between the tradable and non-tradable good sectors believed to characterize the extent of structural reforms in transition economies. Empirical findings seem to confirm that transition - when looking only at the real exchange rate behavior - is over once the progress in structural reforms does not affect the real exchange rate determination relative to other factors. Along the lines of research on growth prospects in transition economies, the effect of structural changes on the real exchange rate in more advanced transition economies has on average diminished in the fifth year of the transition process. The results for less advanced economies are in line with other studies on transition.
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Jel Codes: F31, F41, P22, P27
Keywords: transition economies, real exchange rate, fixed-effects model
Labor Force Participation Dynamics in the Romanian Labor Market
Alexandru Voicu
WP No. 481
(July, 2002)
Abstract: We use micro data from the Romanian Labor Force Survey to analyze the effect of the restructuring process on the Romanian labor market. We identify the reallocation mechanisms at work in the Romanian labor market, and we analyze the way personal characteristics influence inviduals' ability to adjust to labor market transformations. Participation decisions made by individuals are modeled as Markov decision processes. The resulting multivariate probit models are estimated using Markov Chain Monte Carlo techniques.
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Jel Codes: C15, C35, J23
Keywords: labor force participation, transition economy, Markov chain Monte Carlo
Equilibrium Real Exchange Rates in Central Europe's Transition Economies: Knocking on Heaven's Door
Balázs Égert
WP No. 480
(July, 2002)
Abstract: The purpose of this paper is to study the equilibrium real exchange rate (ERER) in 5 CEE transition economies, namely the Czech Republic, Hungary, Poland, Slovakia and Slovenia. In so doing, we combine the fundamental equilibrium exchange rate (FEER) approach developed by Williamson (1994) with the behavioural equilibrium exchange rate (BEER) approach advocated by Clark and MacDonald (1998). Our analysis is based on the theoretical model proposed by Montiel (1999) which defines internal balance in terms of the relative price of nontradables and determines external balance in terms of net foreign assets. The empirical part of the paper consists in estimating a VAR-based 3-equation cointegration system. Long-term equilibrium values for relative prices are determined by using relative productivity and private consumption, while the current account, representing external balance, is linked to terms of trade and openness ([X+M]/GDP). In order to derive the ERER and then to compute total misalignment, we finally substitute the long-run values for external and internal balances in the simultaneously estimated cointegration relationship connecting the RER with relative prices and the current account. Results show that the gap between observed real exchange rate developments and the path of the equilibrium real exchange rate differs substantially among the 5 transition countries.
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Jel Codes: E31, F31, O11, P17
Keywords: Transition, Central and Eastern Europe, Real Exchange Rate, Cointegration
The Impact of Minimum Wages on Wage Inequality and Employment in the Formal and Informal Sector in Costa Rica
Katherine Terrell; Fatma El Hamidi
WP No. 479
(April, 2001)
Abstract: This paper tests the impact of the Costa Rican minimum wage policy on wage inequality and the level of employment in the formal sector (covered by minimum wage legislation) and the informal (uncovered) sector. We also examine the redistributive effects of the minimum wage, between the covered sector and the uncovered sector. Regression analysis using micro data from the Labour Force Surveys over 17 years reveals three important findings. At the median, a unit increase in the minimum wage relative to the average wage is associated with: a) a reduction in wage inequality in the covered sector of between 0.9 percent (using the Gini) and 1.7 percent (using the Theil mean logarithmic deviation) and there is no effect on earnings inequality among the self-employed (using all measures); b) an increase in the level of covered sector employment by 0.56 percent, but no effect on the number of self-employed over time; c) an increase in the average number of hours worked per week by 0.14 percent in the covered sector and 0.34 percent in the uncovered sector. From a theoretical perspective, these finds are counter to the traditional competitive two-sector models of the minimum wage. We interpret them as supporting the monopsonistic and efficiency wage models of the labour market in those industries where the ratio of the minimum wage to the average wage ("toughness") is low but supports the traditional models in those industries where toughness is high. Given that we found overall employment to have increased, minimum wages could be seen as assisting the reallocation of labour from the traditional to the more modern sectors.
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Keywords: minimum wages, employment, wage inequality, monopsony, Costa Rica
Beyond Oaxaca-Blinder: Accounting for Differences in Household Income Distributions Across Countries
François Bourguignon; Francisco H.G. Ferreira; Phillippe G. Leite
WP No. 478
(February, 2002)
Abstract: This paper develops a micro-econometric method to account for differences across distributions of household income. Going beyond the determination of earnings in labor markets, we also estimate statistical models for occupational choice and for the conditional distributions of education, fertility and non-labor incomes. We import combinations of estimated parameters from these models to simulate counterfactual income distributions. This allows us to decompose differences between functionals of two income distributions (such as inequality or poverty measures) into shares due to differences in the structure of labor market returns (price effects); differences in the occupational structure; and differences in the underlying distribution of assets (endowment effects). We apply the method to the differences between the Brazilian income distribution and those of the United States and Mexico, and find that most of Brazil's excess income inequality is due to underlying inequalities in the distribution of two key endowments: access to education and to sources of non-labor income, mainly pensions.
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Jel Codes: C15, D31, I31, J13, J22
Keywords: Inequality, Distribution, Micro-simulations
Participation Behavior of East German Women after German Unification
Holger Bonin; Rob Euwals
WP No. 477
(July, 2002)
Abstract: The paper studies the determinants of labor force participation by East German women after unification. To isolate the role of preferences on labor force participation from individual characteristics, we develop a panel data model that simultaneously explains participation, employment, and wages. The model, estimated for East and West Germany on the basis of the German Socio-Economic Panel, indicates that distinct preferences could explain the regional difference in participation rates at unification. Afterward East German women became less willing to participate, but the negative participation trend was offset on the aggregate level by changes in characteristics and wages promoting participation.
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Jel Codes: C33, J21, J31
Keywords: Transitional Economies, Labor Force Participation, Panel Data
Duration and Risk of Unemployment in Argentina
Sebastian Galiani; Hugo A. Hopenhayn
WP No. 476
(October, 2001)
Abstract: After a decade of structural reforms, unemployment rates have tripled in Argentina. This paper is concerned with the measurement of unemployment risk and its distribution. We show the importance of considering re-incidence in the measurement of unemployment risk and develop a methodolgy to do that. Our estimates for Argentina show that, though the typical unemployment spell is short, once re-incidence is taken into account, unemployment risk is high, has risen substantially in the last decade and is shared very unequally in the labor force. This counters the established view that unemployment is a small risk, short-duration phenomenon, which arises when re-incidence is not considered.
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Jel Codes: J0, J6
Keywords: Developing labor markets, hazard functions, unemployment duration, unemployment risk
After, Before and During: Returns to Education in the Hungarian Transition
Nauro F. Campos; Dean Jolliffe
WP No. 475
(April, 2002)
Abstract: How valuable are the education and skills acquired under socialism in a market economy? This paper uses data for about 3 million Hungarian wage earners, from 1986 to 1998, to throw light on this question. We find that returns to schooling reach 10 percent early on and remain at this high level. These estimates are larger than for other transition economies, but similar to those for middle-income developing countries. With the gap in average years of schooling unremitting, we argue that the Hungarian stock of human capital is considerably less than the existing figures have led us to believe.
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Jel Codes: I20, J20, J24, J31, O15, O52, P20
Keywords: Human Capital, Labor Markets, Transition Economies, Hungary
The Locking-in Effect of Subsidized Jobs
Jan C. van Ours
WP No. 474
(June, 2002)
Abstract: Recent evaluations of active lab or market policies are not very optimistic about their effectiveness to bring unemployed back to work. An important reason is that unemployed get locked-in, that is they reduce their effort to find a regular job. This paper uses an administrative dataset from the Slovak Republic on durations of individual unemployment spells. The focus of the analysis is temporary subsidized jobs. By exploiting the variation in the duration of these jobs it is possible to investigate whether or not the locking-in effect is important. It turns out that it is.
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Jel Codes: C41, J68
Keywords: unemployment, active labor market policy, subsidized jobs, duration models
How Reform Worked in China
Yingyi Qian
WP No. 473
(September, 2002)
Abstract: China's reform worked and produced one of the most impressive growth in the largest developing and transition economy in the world in the past twenty-two years. That China has managed to grow so rapidly despite the absence of many conventional institutions such as rule of law and secure private property rights is puzzling. To understand how reform works in a developing and transition economy that has great growth potential, it is not enough to study the conventional "best-practice institutions" as a desirable goal. One should also study how feasible, imperfect institutions have evolved to complement the initial conditions and to function as stepping stones in the transition toward the goal. Underlying China's reform is a serial of institutional changes concerning the market, firms, and the government in the novel form of "transitional institutions." These institutions succeed when they achieve two objectives at the same time: to improve economic efficiency by unleashing the standard forces of incentives and competition on the one hand, and to make the reform a win-win game and thus interest compatible for those in power on the other.
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Jel Codes: P20, P26
Keywords: China, institution, reform, transition
An Economic Perspective on Russia's Accession to the WTO
Robert M. Stern
WP No. 472
(June, 2002)
Abstract: Russia's application for accession to the WTO is currently in its final phases and may be completed by the end of 2003. In this context, this paper provides some background information on Russia's recent policy and structural reforms, the composition and geographic distribution of trade, tariff rates by commodity groups, and other aspects of trade and domestic policies at issue in the accession process. The accession proce-dure and the current status of the accession process are then discussed. Using a computable general equilibrium (CGE) modeling analysis of China's WTO accession as a prototype, the potential use of CGE model-ing of Russian accession is considered as well as Russia's participation in the Doha Development Round and preferential trading arrangements. It is concluded that Russia may realize significant benefits from WTO accession and from the multilateral trade liberalization to be effected in the Doha Round.
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Jel Codes: F15
Keywords: Russia, WTO Accession.
The Effects of Ownership Forms and Concentration on Firm Performance after Large-Scale Privatization
Jan Svejnar; Evzen Kocenda
WP No. 471
(May, 2002)
Abstract: We analyze the effect of ownership on post-privatization performance in a virtually complete population of medium and large firms privatized in a model large-scale privatization economy (Czech Republic). We reject the hypothesis that domestic or foreign private ownership, in either moderate or high ownership concentrations, leads to increased sales. However, private domestic and foreign majority and significant minority owners, as well as dispersed owners, increase profitability relative to state-owned firms. Firms with dispersed ownership register higher positive effect on profit than firms with more concentrated ownership, thus giving support to theories stressing managerial autonomy and initiative. Foreign owners with high as well as moderate concentrations of ownership uniformly reduce financial leverage, as do majority domestic owners. Domestic banks and portfolio companies as single largest owners (SLO) are incapable of carrying out major restructuring. Foreign industrial company SLOs carry out strategic restructuring in production and financing without deviating from the state ownership benchmark in terms of the labor cost. The effect of SLO does not vary with the SLO's concentration of ownership. Overall, private ownership tends to be associated with superior performance in terms of some indicators but not others, and dispersed ownership results in better or equal performance than more concentrated forms of ownership.
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Jel Codes: C33, D20, G32, G34, L20
Keywords: ownership, performance, privatization, panel data, industrial organization
Ownership and Firm Performance after Large-Scale Privatization
Jan Svejnar; Evzen Kocenda
WP No. 471
(February, 2003)
Abstract: We analyze the effect of ownership on post-privatization performance in a virtually complete population of medium and large firms privatized in a model large-scale privatization economy (Czech Republic). We find that concentrated foreign ownership improves economic performance, but domestic private ownership does not, relative to state ownership. Foreign firms engage in strategic restructuring by increasing profit and sales, while domestic firms reduce sales and labor cost without increasing profit. Ownership concentration is associated with superior performance, thus providing support to the agency theory and evidence against theories stressing the positive effects of managerial autonomy and initiative. Our results are also consistent with the thesis that the presence of a large domestic stockholder may not result in a superior performance if this shareholder ?loots? the firm. We find support for a version of the hypothesis that firms restructure by first lowering and later increasing employment. The state as a holder of the golden share stimulates profitable restructuring while pursuing an employment objective, which is understandable in a period of rising unemployment. Our results hence portray the state as a more economically and socially beneficial agent than do some other recent studies.
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Jel Codes: C33, D20, G32, G34, L20
Keywords: ownership, performance, privatization, panel data, industrial organization
Growth in Transition: What We Know, What We Don't, and What We Should
Nauro F. Campos; Fabrizio Coricelli
WP No. 470
(February, 2002)
Abstract: This essay surveys macroeconomic issues that marked the transition from centrally planned to market economy in Central and Eastern European and former Soviet Union countries. We first establish a set of stylized facts of the transition so far, namely: (1) output fell, (2) capital shrank, (3) labor moved, (4) trade reoriented, (5) the structure changed, (6) institutions collapsed, and (7) transition costs. We then critically survey the theoretical literature on transition, discussing various explanations for the initial output fall as well as medium term issues, such as optimal speed of transition, disorganization, institutions and sectoral reallocation as a source of output dynamics. Last, we review the empirical literature to assess how well it translates the theoretical models and explains the stylized facts. The essay concludes with a succinct list of suggestions for future research.
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Jel Codes: E23, O40, P20, P52
Keywords: Economic Growth, Transition Economies
Barriers to Investment by Russian Firms: Property Protection or Credit Constraints?
Susan J. Linz
WP No. 469
(May, 2002)
Abstract: A multitude of explanations for low investment by Russian firms have been offered: high inflation, high interest rates, falling production, falling GDP, an underdeveloped banking system, a confiscatory tax regime, calls for the re-nationalization of industry, excessive regulations, and an underdeveloped legal system, among others. This paper's basic premise is that investment in Russia will not occur if firms are unable to ensure the security of their property and property rights; that is, if the risk of destruction or expropriation is high. Nor will investment occur if access to investment funds is limited. Data collected from 264 Russian firms in the spring and fall 2001 are used to construct a security index and credit index in order to evaluate the relative importance of property protection and access to financing on the investment activities of manufacturing, retail, and other service sector firms in Moscow, Rostov, Taganrog, and Vladivostok. For the firms participating in this survey, the reported percentage of profit reinvested is significantly higher among firms which responded positively to questions about the effectiveness of police and courts in protecting their property and property rights, and significantly lower among firms which made above-average payments (official and unofficial) for property protection. Unofficial payments alone lower investment by 20%. Firms with access to credit reported reinvesting a significantly greater share of their profits. All other things equal, firms in Moscow, and firms in food processing and food distribution reinvested a significantly greater share of their profits. Manufacturing firms reported reinvesting a significantly smaller share of their profits in comparison to retail shops or other service sector companies. These results do not vary with the amount of collateral a firm has; that is, whether the firm owns or leases its premises.
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Jel Codes: L21, P26, P31
Keywords: Russia, investment, property protection, credit, transition cost
Job Satisfaction Among Russian Workers
Susan J. Linz
WP No. 468
(May, 2002)
Abstract: Why do Russians work without wages? This paper investigates the extent to which job satisfaction and attitude toward work in general may account for the observed behavior of Russian workers. To analyze the level and determinants of job satisfaction among Russian workers, this paper utilizes survey data collected from 1,200 workers and managers employed in seventy-six organizations in Moscow, Saratov and Taganrog The paper is divided into five parts. Part 1 presents the three measures of job satisfaction used in this analysis. Response patterns, analyzed by occupational status, gender, and generation, are discussed. Part 2 first explores gender and generational differences in attitudes toward work in general, and then examines the relationship between attitude toward work and job satisfaction. The results indicate that both gender and generation are significant in response patterns regarding attitudes toward work. Generational differences also are significant in response patterns relating the results of working hard to performance, productivity, and doing the job well. Regression analysis documents the positive relationship between attitude toward work and the level of job satisfaction. Part 3 focuses on the relationship between job satisfaction and performance. Three noteworthy results emerge. First, regardless of the specification or measure, there is a strong positive correlation between job satisfaction and performance. The relationship is not affected by gender, age, or educational attainment level of the respondents. Second, it is not possible using these data to establish causality between job satisfaction and performance. It appears, instead, that unspecified factors may be affecting the two conditions simultaneously. Finally, the results generated from these data are not significantly different from results based on previous surveys of U.S. workers, as well as a survey completed in 1996 of Russian and Polish workers. Part 4 analyzes the relationship between job satisfaction and organizational commitment. Among the workers participating in this survey there is, generally, only a moderate degree of organizational commitment. Commitment is highest among workers who feel they are making a contribution. The results document a positive relationship between job satisfaction and organizational commitment, although the causality is not well-defined. Concluding remarks are offered in Part 5.
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Jel Codes: J28, P23
Keywords: Russia, job satisfaction, performance, organizational commitment
Assessing the Problem of Human Capital Mismatch in Transition Economies
Viliam Druska; Byeong ju Jeong; Michal Kejak; Viatcheslav Vinogradov
WP No. 467
(March, 2002)
Abstract: In transition economies, there may be a significant mismatch between the types of skills that workers possess and the types of skills that the new economy demands. We consider this problem of human capital mismatch along the dimensions of training type (holding the level) and occupation. We document that in the Czech Republic and Poland the wage rate grew faster in business occupations than in technical occupations in the 1990's, and that in response the technical training/occupations contracted while the business training/occupations expanded. We do not find this pattern in Hungary. We construct a neoclassical model with endogenous occupational choice and calibrate it to the Czech and Polish data. We estimate that the discounted sum of output loss due to human capital mismatch amounts to 44% of the aggregate output of the beginning year of transition.
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Jel Codes: E13, J31, J62, P23
Keywords: human capital, mismatch, occupation, training
Motivating Russian Workers: Analysis of Age and Gender Differences
Susan J. Linz
WP No. 466
(February, 2002)
Abstract: What motivates Russians to work? This paper utilizes survey data collected in May/June 2000 from 1200 employees in three regions of Russia to analyze the gender and generational differences in factors influencing motivation to work. Five main results emerge. First, Russians are not significantly different from their counterparts in the United States in terms of what is important to them at their place of work. Organizational commitment, however, emerges as only weakly positive among Russian workers; among managers the signal is much stronger. Second, there is little confusion on the part of managers regarding what is important to their workers. Managers' only mistake was to think workers valued their praise. Third, Russian workers have very low expectations of receiving any reward which they desire. This result, similar to results generated by American workers in the mid-1980s, is especially strong among the women and the older generation of workers participating in this survey. Fourth, gender differences involve the relative importance of particular motivators rather than differences in the ranking of motivators from most important to least important. That is, the Russian women participating in this project tended to express stronger feelings toward each of the motivators than the men, but the women did not rank order the motivators any differently than the men. Fifth, in many instances, generational differences disappeared when work experience was held constant. Age was only significant when expectation of receiving a particular reward was involved.
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Jel Codes: J28, P23
Keywords: Russia, motivation, gender, transition
Virtual Reality: Barter and Restructuring in Russian Industry
Gary Krueger; Susan J. Linz
WP No. 465
(April, 2000)
Abstract: A general consensus in the transition economies literature links the existence of enterprise restructuring with the pace of the transition process and the potential for economic growth. The existing literature is less clear, however, about whether the lack of economic growth is caused by the lack of enterprise restructuring. Complicating the debate in Russia is the confusion regarding the role of barter transactions in enterprise restructuring. Much of the confusion is generated by proponents of a "virtual economy" interpretation of how the Russian economy and Russian enterprise managers operate. This paper dispels much of the confusion about the existence of enterprise restructuring and the corresponding role of barter by demonstrating why the virtual economy model fails to accurately depict economic actions or outcomes in Russia. We develop the argument that barter is closely related to an absence of liquidity in the Russian economy, using both macro-level and micro-level data to document the consequences of "structural illiquidity." Our results are unambiguous: both the incidence and volume of barter transactions are inversely related to liquidity. We conclude that analyses using barter transactions as evidence of the lack of enterprise restructuring in Russia stem from: (1) the lack of clear consensus about what constitutes enterprise restructuring in transition economies and how it varies with the stage of the transition process; (2) errant assumptions about managers' objective functions; (3) the relative mix of formal and informal restructuring mechanisms; (4) the lack of attention to industry variation and, within industry, to managerial characteristics; and (5) the Texan complex (if it ain't big, it ain't ...) which causes analysts to ignore changes in enterprise operations unless they occur on a grandiose scale.
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Jel Codes: C22, C23, E5, P2
Keywords: Russia, barter, restructuring, transition
Lending of Last Resort, Moral Hazard and Twin Crises: Lessons from the Bulgarian Financial Crisis 1996/1997
Michael Berlemann; Kalin Hristov; Nikolay Nenovsky
WP No. 464
(May, 2002)
Abstract: In 1996/1997 Bulgaria was hit by a severe financial crisis, spreading from a banking crisis to a currency crisis. While being widely neglected by the financial crisis literature and the international discussion we argue that the Bulgarian Financial Crisis might serve as an illustrative example of a twin crisis primarily (but not only) due to systematic moral hazard behaviour of the banking sector. Thus, the Bulgarian Financial Crisis might be closer to the story of third generation moral hazard models of currency crises than the Asian Crisis. We also show how Bulgaria managed to overcome the crisis by introducing a second generation currency board allowing the central bank to act as a strictly limited lender of last resort thereby (hopefully) making the country less prone to a financial crisis in the future.
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Jel Codes: E42, E5, F02, P34
Keywords: Financial Crises, Bulgaria, Lender of Last Resort, Twin Crises, Currency Boards
Deindustrialisation: Lessons from the Structural Outcomes of Post-Communist Transition
Tomasz Mickiewicz; Anna Zalewska
WP No. 463
(January, 2002)
Abstract: Theoretical and empirical studies show that deindustrialisation, broadly observed in developed countries, is an inherent part of the economic development pattern. However, post-communist countries, while being only middle-income economies, have also experienced deindustrialisation. Building on the model developed by Rowthorn and Wells (1987) we explain this phenomenon and show that there is a strong negative relationship between the magnitude of deindustrialisation and the efficiency and consistency of market reforms. We also demonstrate that reforms of the agricultural sector play a significant role in placing a transition country on a development path that guarantees convergence to EU employment structures.
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Jel Codes: O11, O57, P27, R11
Keywords: economic transition, employment structures, deindustrialisation, liberalisation, convergence
Joint Liability Lending and the Rise and Fall of China's Township and Village Enterprises
Albert Park; Minggao Shen
WP No. 462
(July, 2001)
Abstract: Using data from a recent survey of bank and enterprise managers and government officials in southern China, we present a new explanation for the rise and fall of collectively-owned township and village enterprises (TVEs) based on the willingness of banks to finance collective enterprise development. Until recently bank loans to TVEs exhibited the key features of joint liability lending, supported by the unique sanctioning ability of local leaders. Beginning in the mid 1990s, liquidation costs fell, firm performance deteriorated, real interest rates rose, and financial competition increased. These changes led to a dramatic change in the lending preferences of banks in favor of private firms. Empirical estimates of the determinants of bank lending preferences, the involvement of township leaders in lending, and the ability of firms to obtain loans support our explanation.
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Jel Codes: G2, O1, P3
Keywords: joint liability, banking, China, privatization, collective
A Refinancing Model of Decentralization with Empirical Evidence from China
Albert Park; Minggao Shen
WP No. 461
(April, 2002)
Abstract: Decentralization can complement market liberalization by strengthening incentives of agents to exploit local information in response to market signals. In China, however, banks centralized lending authority following financial reforms in the mid-1990s. We offer a new theory of financial decentralization in which centralization provides a credible commitment not to refinance bad projects by reducing available information. Using data from Chinese rural financial institutions, we empirically assess the determinants of decentralization and the likelihood of collateral seizure, strongly confirming the predictions of the refinancing model. We conclude that the inability of financial systems to exploit local information in weak institutional environments may limit the efficiency of financial intermediation despite financial market liberalization.
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Jel Codes: D8, G2, P3
Keywords: banking, decentralization, refinancing, transition, China
The Effects of Market Liberalization on the Relative Earnings of Chinese Women
Margaret Maurer-Fazio; James Hughes
WP No. 460
(March, 2002)
Abstract: In this paper we first explore the effects of differences in labor market institutions and the degree of market liberalization on the size and composition of gender wages gaps in China's urban labor markets. We use enterprise-ownership type, enterprise age, and workers' methods of finding employment as proxies for the extent of market liberalization. We find both the size of the wage gaps and the proportion of the gap left unexplained by differences in productive characteristics largest in the most liberalized (joint venture) sector, and smallest in the least liberalized (state) sector. We next investigate the effects of differences in wage structure on the gender wage gaps. We find that differences in wage structure, in general, and the degree of wage dispersion, in particular, are extremely important in accounting for the larger wage gaps in the joint venture and collective sectors relative to the state-owned sector.
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Jel Codes: J16, J31, J71, O15, O53, P23
Keywords: China, gender wage gap, labor, market liberalization, earnings
The Role of Education in Determining Labor Market Outcomes in Urban China's Transitional Labor Markets.
Margaret Maurer-Fazio
WP No. 459
(April, 2002)
Abstract: Chinese urban workers are no longer shielded from market forces. They are bearing the brunt of the adjustment costs as enterprises shed redundant workers. This paper focuses on the role of education in determining labor market outcomes in China's rapidly changing urban labor environment. The empirical work, based on enterprise and worker survey data gathered in the fall of 1999 and spring of 2000, demonstrates that education is a key determinant of labor market outcomes. Educational attainment is an important and significant factor in the lay-off decision-the more education a worker has the better his/ her protection from lay off. Similarly, the more education a worker has the better his/her chances of finding new employment once laid off. The human capital accumulation of re-employed workers is rewarded more, as measured in terms of incremental earnings for each additional year of schooling, than that of continuously employed workers.
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Jel Codes: I20, J23, J31, J63, O15, O53, P23
Keywords: China, human capital, Lay-offs, education, labor
Real and Monetary Convergence within the European Union and Between the European Union and Candidate Countries: A Rolling Cointegration Approach
Josef C. Brada; Ali M. Kutan; Su Zhou
WP No. 458
(April, 2002)
Abstract: We use rolling cointegration to measure the convergence of base money, M2, the consumer price index and industrial output between two reference countries, Germany and France, and recent EU members and some transition economy candidates. Counties that recently joined the EU exhibit time-varying cointegration with the reference countries over much of the 1980-2000 sample period. Cointegration for the transition economies was comparable for M2 and prices, but less so for monetary policy and industrial output. This suggests that a peg to the Euro upon accession is feasible for the East European candidates, but the benefits of joining the Euro zone are as yet limited.
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Jel Codes: F15, F36, F42
Keywords: European Union, convergence, currency areas, enlargement, cointegration, policy coordination
Credit Ratings as Coordination Mechanisms
Arnoud W.A. Boot; Todd T. Milbourn
WP No. 457
(March, 2002)
Abstract: In this paper, we provide a novel rationale for credit ratings. The rationale that we propose is that credit ratings can serve as a coordinating mechanism in situations where multiple equilibria can obtain. We show that credit ratings provide a "focal point" for firms and their investors. We explore the vital, but previously overlooked implicit contractual relationship between a credit rating agency and a firm. Credit ratings can help fix the desired equilibrium and as such play an economically meaningful role. Our model provides several empirical predictions and insights regarding the expected price impact of ratings changes, the discreteness in funding cost changes, and the effect of the focus of organizations on the efficacy of credit ratings.
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Jel Codes: G23, G24, G32
Keywords: coordination, credit ratings, multiple equilibria
Balkan and Mediterranean Candidates for European Union Membership: The Convergence of their Monetary Policy with that of the European Central Bank
Josef C. Brada; Ali M. Kutan
WP No. 456
(April, 2002)
Abstract: We compare the convergence with German monetary policy of the Balkan and Mediterranean country candidates for EU membership with that of countries that have recently joined the EU. Significant linkages exist between German base money stock and that of recent members of the EU; the same holds true for some of the Mediterranean region candidates for EU membership and for Slovenia and Croatia. Among the other Balkan economies and Turkey, the ability to follow the policies of the Bundesbank is nonexistent. Such weak policy coordination suggests the need for strengthening the financial sectors of these countries, for macroeconomic stabilization and for a period in which they tie their policies more closely to the ECB before they can be considered serious candidates for EU membership.
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Jel Codes: E58, F15, F36, P52
Keywords: convergence, economic integration, monetary policy, transition economies, Balkans
Russian Financial Transition: The Development of Institutions and Markets for Growth
David M. Kemme
WP No. 455
(October, 2000)
Abstract: A well-developed financial intermediation industry increases domestic savings, efficiently allocates investment resources to the most productive uses in the economy and increases the rate of economic growth. In the Soviet economy the banking system served as a means of collecting household savings and a means of distributing centrally determined capital grants to enterprises. Banks then audited enterprise financial activities to ensure compliance to the financial plan. After a decade the transition from the Soviet banking system to a market oriented banking system is incomplete and fraught with uncertainty. While the number of financial institutions has increased dramatically, the state sector still dominates financial sector activity, the legal and regulatory framework is incomplete, information necessary for risk management is of poor quality and policy makers and regulators have been slow to act to improve intermediation services. While significant progress has been made, the commonly recognized characteristics of a sound financial system are not yet met.
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Keywords: Russia, Finance, Institutions, Markets, Economic Development
Does the Market Pay Off? Earnings Inequality and Returns to Education in Urban China
Xiaogang Wu; Yu Xie
WP No. 454
(April, 2002)
Abstract: The paper examines earnings inequality and earnings returns to education in China among four types of workers characterized by their labor market history. Compared to workers staying in the state sector, early market entrants no longer enjoyed advantages. The commonly observed higher earnings returns to education in the market sector are only limited to recent market entrants. This results from the aggregation of two very different types of workers: those who were "pushed" and those who "jumped" into the market in later stage of the reform. The findings challenge the prevailing wisdom that education is necessarily more highly rewarded by the market sector.
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Keywords: Labor Market, Earnings, Education, China's Transition
Entrepreneurs' Access to Private Equity in China: The Role of Social Capital
Bat Batjargal; Mannie M. Liu
WP No. 453
(April, 2002)
Abstract: Drawing on Social network theory, this article argues for enhancing effects of social capital of entrepreneurs on investment selection decisions of venture capitalists (to invest versus not to invest), and main effects of social capital on investment process decisions such as venture valuation, investment delivery speed and contractual warrants/provisions. The core idea of enhancing effects is that the presence of particularistic ties between venture capitalists and entrepreneurs will affect positively investment selection decisions of venture capitalists if only other main factors for investment making such as management team, industry, market attractiveness, proprietary technologies and products are perceived as strong by investors. The context of the study is People's Republic of China. The empirical data is composed of 158 venture capital investment decisions in Beijing and Shanghai. The main finding is that social capital is supplementary and additive to other investment determining factors such as project and team qualities at selection stage, and social capital is a main factor for investment process decisions once a venture has been selected for funding. The main theoretical implication is that social capital may affect outcome variables in interaction with other factors. The main practical implication for entrepreneurs is that social capital is probably necessary but insufficient for raising venture capital successfully.
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Keywords: Social capital, private equity, entrepreneurship, China
The Determinants of Privatised Enterprise Performance in Russia
Saul Estrin; Mark E. Schaffer; Alan A. Bevan; Manuela Angelucci; Boris Kuznetsov; Julian Fennema; Giovanni Mangiarotti
WP No. 452
(June, 2001)
Abstract: Using data from a large enterprise-level panel designed to address this issue, we account for enterprise performance in Russia. We link performance to four aspects of the economic environment: enterprise ownership; corporate governance; market structures and competition; and financial constraints. We conclude that private ownership and improved performance are not correlated, though restructuring is positively associated with the competitiveness of the market environment. These findings on private ownership support those of previous studies, e.g. Earle and Estrin (1997). Moreover, we find evidence that financially unconstrained firms are better in their undertaking of restructuring measures then financially constrained firms. Further analysis suggests that causality runs from restructuring to financial constraint, rather than the reverse. Finally, our findings indicate strong complementarities between the four factors influencing improved company performance, confirming the view that these factors need to be considered jointly.
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Jel Codes: D21, G34, L10, P31
Keywords: Privatisation, enterprise performance, competition, corporate governance, investment
Determinants of Financial Distress: What Drives Bankruptcy in a Transition Economy? The Czech Republic Case
Lubomír Lízal
WP No. 451
(January, 2002)
Abstract: The main factors influencing the probability of bankruptcy are analyzed on Czech Republic 1993-1999 firm data. Basic models of the bankruptcy are compared: neoclassical, financial and corporate governance. The corporate governance hypothesis does not receive support in the ownership but the indicator of voucher privatization supports it. The initial conditions from early 90's were not the driving the financial distress. The voucher-scheme privatization results in poorer corporate governance. These firms are more likely to go bankrupt, ceteris paribus. On the other hand, former large SOEs are less likely to bankrupt than firms with a similar debt structure - this is an evidence of soft budget constraints.
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Jel Codes: G33, G34, K2, P21, P31, P34
Keywords: Banking and Finance, Corporate Governance, Privatization, Czech Republic, bankruptcy, privatization, soft budget constraint, financial distress
Corporate Governance And The Global Social Void
Lee A. Tavis
WP No. 450
(August, 2001)
Abstract: abstract
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Keywords: Corporate Governance
Financial Architecture and Economic Performance: International Evidence
Solomon Tadesse
WP No. 449
(August, 2001)
Abstract: The paper examines the relations between the architecture of an economy's financial system - its degree of market orientation - and economic performance in the real sector. We argue that the relative effectiveness of bank-based versus market-based financial systems depends on the strength of the contractual environment and the extent of agency problems in the economy. We find that while market-based systems outperform bank-based systems among countries with developed financial sectors, bank-based systems fare better among countries with underdeveloped financial sectors. Countries dominated by small firms grow faster in bank-based systems and those dominated by larger firms in market-based systems. The findings suggest that recent trends in financial development policies that indiscriminately prescribe market-oriented financial-system-architecture to emerging and transition economies might be misguided because suitable financial architecture, in and of itself, could be a source of value.
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Jel Codes: G1, G21, O1, O4
Keywords: Banking and Finance, Corporate Governance
Growth Slowdown Under Central Planning: A Model of Poor Incentives
Zuzana Brixiová; Ales Bulír
WP No. 448
(March, 2002)
Abstract: Centrally planned economies tend to be less efficient than economies in which agents are free to choose their output targets, as well as the means to meet them. This paper presents a simple model of planner-manager interactions and shows how planned economies can end up in a low-effort, low-output equilibrium even though they may have started in a high-effort, high-output equilibrium.
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Jel Codes: D73, O41, P21
Keywords: Political Economy, Central planning, incentives, growth
Disentangling Treatment Effects of Polish Active Labor Market Policies: Evidence from Matched Samples
Jochen Kluve; Hartmut Lehmann; Christoph M. Schmidt
WP No. 447
(January, 2002)
Abstract: This paper estimates causal effects of two Polish active labor market policies - Training and Intervention Works - on employment probabilities. Using data from the 18th wave of the Polish Labor Force Survey we discuss three stages of an appropriately designed matching procedure and demonstrate how the method succeeds in balancing relevant covariates. The validity of this approach is illustrated using the estimated propensity score as a summary measure of balance. We implement a conditional difference-in-differences estimator of treatment effects based on individual trinomial sequences of pre-treatment labor market status. Our findings suggest that Training raises employment probability, while Intervention Works seems to lead to a negative treatment effect for men. Furthermore, we find that appropriate subdivision of the matched sample for conditional treatment effect estimation can add considerable insight to the interpretation of results.
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Jel Codes: C41, J68
Keywords: Labor and Human Resources, Active Labor Market Policy, transition, exact matching, propensity score, Poland
The Impact of Socialist Imprinting and Search for Knowledge on Resource Change: An Empirical Study of Firms in Lithuania
Aldas Kriauciunas; Prashant Kale
WP No. 446
(March, 2002)
Abstract: In this paper we examine how firms change their resources in response to exogenous shocks in their business environment. Building on core ideas from the literatures on organizational imprinting and firm resources, we suggest that founding conditions differentially imprint firm resources. These initial imprinting differentials in turn influence the search for knowledge required to adapt or change firm resources in the face of external change in their business environment. We also suggest that the level of imprinting and the location of search independently and jointly influence the success with which firms are able to change their resources. We use survey-based data from a set of firms in Central Europe that experienced an exogenous shock in 1989-1991 to test our arguments. We develop a measure of pre-shock imprinting (called socialist imprinting) on resources and use it to predict where firms will search for knowledge to undertake change in the post-shock period and how successful that change will be. We find that the level of socialist imprinting influences the search location for knowledge to change key resources and activities following the shock. In terms of the success of change undertaken, we see that distant search for knowledge is positively linked to it. We also observe that the level of imprinting and search location jointly impact the success of change; for resources with higher socialist imprinting, distant search was more effective than local search. This research makes three important contributions in the context of existing research on organizational imprinting and firm level change. One, it focuses on firm-level resources to examine the impact of imprinting. Two, we examine how differences in resource level imprinting influence the search for new knowledge required to transform these resources. Three, we demonstrate that the interaction between the level of imprinting and the nature of search has important influences on firm performance. Our findings also provide insights to practitioners and policy makers who deal with firms in transitional economies. Practitioners can better understand how to undertake firm level change more effectively in the context of sudden exogenous shock. For policy makers, both of domestic and international institutions, understanding the change process can help formulate assistance programs more effectively.
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Keywords: organizational imprinting, transitional economies, change, Lithuania
The Costs, Wealth Effects, and Determinants of International Capital Raising: Evidence from Public Yankee Bonds
Darius P. Miller; John J. Puthenpurackal
WP No. 445
(October, 2001)
Abstract: This paper examines the costs, wealth effects, and determinants of international capital raising for a sample of 260 public debt issues made by non-U.S. firms in the U.S. (Yankee) market. We find that investors demand economically significant premiums on bonds issued by firms that are located in countries that do not protect investors' rights and do not have a prior history of on-going disclosure. The results provide support for the literature that suggests better legal protections and more detailed information disclosure increases the price investors will pay for financial assets. We also find that the average stock price reaction to Yankee bond offerings is significantly positive and that abnormal returns are largest for first-time Yankee bond issuers. In addition, we show that foreign firms tend to issue in the Yankee market when the relative interest cost is low, indicating that potential differences in borrowing costs influence where firms choose to sell bonds.
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Jel Codes: F3
Keywords: Banking and Finance, Yankee bonds, International Capital Raising
Financial Institutions, Contagious Risks, and Financial Crises
Haizhou Huang; Chenggang Xu
WP No. 444
(January, 2001)
Abstract: In this paper contagious risks and financial crises are endogenized through the interactions among corporations, banks, and the interbank market. We show that the lack of financial discipline in a single-bank-financing economy generates informational problems and thus the malfunction of the interbank market, which constitutes a mechanism of financial contagion and may lead to a financial crisis. In contrast, financial discipline in an economy with diversified financial institutions leads to timely information disclosure from firms to banks and improves the informational environment of the interbank market. With symmetric information in the interbank market, bank runs are contained to insolvent banks and financial crises are prevented. Our theory sheds light on the causes and timing of the East Asian crisis; it also has important policy implications for the lender of last resort and banking reform.
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Keywords: Banking and Finance, International Trade and Finance, financial institutions, contagious risks, financial crises
Banks as Catalysts for Industrialization
Marco Da Rin; Thomas Hellmann
WP No. 443
(October, 2001)
Abstract: We provide a new theory of the role of banks as catalysts for industrialization. In their influential analysis of 19th century continental European industrialization, Gerschenkron and Schumpeter accorded banks a central role, arguing that they promoted the creation of new industries. We formalize this role of banks by introducing financial intermediaries into a 'big push' model. We show that banks may act as `catalysts' for industrialization provided that they are sufficiently large to mobilize a critical mass of firms, and that they possess sufficient market power to make profits from coordination. The theory provides simple conditions that help to explain why banks seem to play a creative role in some but not in other emerging markets. The model also shows that universal banking helps to reduce the cost of coordination. Finally, we show that one disadvantage of catalytic banks is that they may favor concentration in the industrial sector.
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Keywords: Coordination Failures, Financial Institutions, Financial History, Banks, Banking and Finance
Bank-Based or Market-Based Financial Systems: Which is Better?
Ross Levine
WP No. 442
(February, 2002)
Abstract: For over a century, economists and policy makers have debated the relative merits of bank-based versus market-based financial systems. Recent research, however, argues that classifying countries as bank-based or market is not a very fruitful way to distinguish financial systems. This paper represents the first broad, cross-country examination of which view of financial structure is more consistent with the data. The results indicate that although overall financial development is robustly linked with economic growth, there is no support for either the bank-based or market-based view.
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Jel Codes: G0, K2, O4
Keywords: Banking and Finance, Banks, Stock Markets, Law, Economic Growth
Migration and Regional Adjustment and Asymmetric Shocks in Transition Economies
Jan Fidrmuc
WP No. 441
(February, 2002)
Abstract: Does migration facilitate regional adjustment to idiosyncratic shocks? The evidence from post-communist economies indicates that the efficacy of migration in reducing inter-regional unemployment and wage differentials has in fact been rather low. High wages appear to encourage, and, similarly, high unemployment tends to discourage, overall migration - inbound and outbound - rather than induce a net flow from depressed regions to those with better economic conditions. Even when the impact of unemployment and wages on net migration is statistically significant, it is economically very small. Finally, migration flows have actually been declining in the course of transition, even as inter-regional disparities have been rising.
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Jel Codes: F22, J61, P23
Keywords: Migration, Unemployment, Regional Shocks, Labor and Human Resources
Employment and Wage Behaviour of Enterprises in Transitional Economies
Swati Basu; Saul Estrin; Jan Svejnar
WP No. 440
(June, 2000)
Abstract: This paper presents a comparative analysis of employment and wage behavior of firms in the Czech Republic, Slovakia, Poland, Hungary and Russia during the late 1980s to the early 1990s. The four main findings are: 1) There is evidence of some (not excessive) labor hoarding before the transition and it disappeared shortly thereafter; 2) The estimated elasticities of demand grew over the transition, starting from zero in Russia, the Czech Republic and Slovakia and from sizeable levels in Hungary and Poland. By the end of the period, the elasticities for the four East European countries were quite similar and those for Russia had not changed significantly; 3) Once other factors are controlled for, there is no significant difference in the employment behavior among firms by ownership or legal status. However, Czech, Slovak and Polish private firms did pay higher wages than state-owned firms immediately after the start of the transition; 4) A closer examination in the Czech Republic of state-owned enterprises (SOEs) and newly established firms indicates that SOEs had lower elasticities of employment and allowed less rent sharing than the newly established firms.
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Keywords: Russia, Central Europe, employment, wages, Labor and Human Resources
Small business in Russia: A Case Study of St. Petersburg
Alessandro Kihlgren
WP No. 439
(January, 2002)
Abstract: The reasons why small business development has been disappointing in Russia compared with other transition countries such as Poland and the Czech Republic are here analyzed. It is, however, suggested that the picture may not be so gloomy as official statistics suggest. As far as St. Petersburg is concerned, it has witnessed an exceptional - by Russian standards - growth in this sector in the 1990s, although it still trails compared with Moscow. This, despite the lack of support from the local administration and despite having an income per capita close to the Russian average. Again official data may be at fault through undervaluing the importance of the small business sector in the early 1990s.
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Keywords: Russia, small business, entrepreneurship, St. Petersburg, statistics, Law and Economics
Foreign Direct Investment as Technology Transferred: Some Panel Evidence from the Transition Economies
Nauro F. Campos; Yuko Kinoshita
WP No. 438
(January, 2002)
Abstract: Although the theoretical literature has identified various sizeable benefits from foreign direct investment inflows (FDI), the empirical literature has been unable to establish a positive and significant impact of FDI on the rates of economic growth of host countries. One reason for this difficulty is that theory equates FDI to technology transferred, while in most countries and regions of the world FDI encompasses an array of arrangements that goes well beyond pure technology transfer. This paper tests for the effects of FDI on growth in a set of countries in which FDI is purer technology transferred: the 25 Central and Eastern European and former Soviet Union transition countries between 1990 and 1998. Our main finding is that, in this more appropriate setting, FDI has a positive and significant impact on economic growth as theory predicts.
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Keywords: Foreign Direct Investment, economic growth, transition economy
Whistleblowing, MNC's and Peace
Terry Morehead Dworkin
WP No. 437
(February, 2002)
Abstract: abstract
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Jel Codes: G34
A Note on Measuring the Unofficial Economy in the Former Soviet Republics
Michael Alexeev; William Pyle
WP No. 436
(July, 2001)
Abstract: This note argues that the most commonly used estimates of the size of the unofficial economies in the former Soviet republics are flawed. Most important, they are based on calculations that disregard the variation in unofficial economic activity across space in the pre-transition Soviet Union. In addition, these estimates appear to understate the size of the unofficial economies in these countries. We propose alternative estimates and find that they are more strongly related to the institutional factors commonly used to explain the size of the unofficial sector. Our estimates also show that the size of a country's pre-transition unofficial economy is an important predictor of its size during the transition. This suggests that the size of the unofficial economy is to a large extent a historical phenomenon only partly determined by contemporary institutional factors.
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Keywords: A Note on Measuring the Unofficial Economy in the Former Soviet Republics
The Ownership School vs. the Management School of State Enterprise Reform: Evidence from China
David D. Li; Changqi Wu
WP No. 435
(January, 2002)
Abstract: There are two schools of thoughts on the important issue of reforming state-owned enterprises (SOEs). We call them the ownership school and the management school. The ownership school argues that the key to the reform is to diversify SOEs' ownership, including privatization, in order to eliminate government control of SOEs. The management school emphasizes the need to improve government's management of SOEs by, for example, granting SOE employees autonomy and profit incentives. Utilizing a data set of 680 SOEs in China, covering the period of 1980 to 1994, we test the relative effectiveness of these two kinds of reform measures. This is possible due to the fact that reform measures based on each of these two schools of thoughts were practised in China. Our results yield strong support for the ownership school while leaving very mixed evidence for the management school. Moreover, we find that the impact of ownership diversification was of the same order of magnitude on the economic performance of state enterprises as that of enhancing product market competition.
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Keywords: State-Owned Enterprise, Privatization, Gradual Privatization, Managerial Reform, Enterprise Restructuring, Managerial Autonomy, and Managerial Incentives
The Effect of Ownership and Competitive Pressure on Firm Performance in Transition Countries: Micro Evidence from Bulgaria, Romania and Poland
Saul Estrin; Jozef Konings; Manuela Angelucci; Zbigniew Zolkiewski
WP No. 434
(January, 2002)
Abstract: This paper uses a unique representative firm level data set to analyse the effect of domestic and international competitive pressure and ownership changes in three emerging economies, Bulgaria Poland and Romania. Our main findings can be summarized as follows: Domestic competitive pressure, measured by market structure, and increased import penetration are associated with higher firm performance in Poland irrespective of the ownership structure of firms. Furthermore the positive effects of increased import competition are reinforced for foreign owned firms. In contrast, in Bulgaria and Romania, increased import penetration is associated with lower firm performance, while there is some evidence that more competitive market structures are associated with higher total factor productivity. However, these effects depend on the ownership structure of firms, which suggests the existence of complementarities between competitive pressure and ownership changes. The results also indicate that privatisation has positive effects on firm performance. In particular, domestic private firms and foreign owned firms outperform state owned firms. Furthermore, there is evidence that foreign owned firms do better than domestically owned private firms especially in Bulgaria and Poland. The results on ownership are somewhat weaker for Romania.
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Jel Codes: D24, D40, D42, J42, L10, L33, P23, P31
Keywords: competitive pressure, privatization, firm performance
The End of Moderate Inflation in Three Transition Economies?
Josef C. Brada; Ali M. Kutan
WP No. 433
(January, 2002)
Abstract: This paper examines the moderation of inflation in three transition economies, the Czech Republic, Hungary and Poland at the end of the 1990s. We argue that the institutions for the conduct of monetary policy in these countries were relatively weak and that monetary policy was unsupported by fiscal policy and hampered by multiple objectives. Using a VAR model of inflation, we show that, under a variety of assumptions, foreign prices and the persistence of inflation were the key determinants of inflation in these countries. From this finding we conclude that the moderation of inflation in the Czech Republic, Hungary and Poland was due largely to the decline in import prices from 1997 on, and thus it is likely be a temporary phenomenon.
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Jel Codes: E5, P2
Keywords: monetary and fiscal policy, transition economies, moderate inflation and inflation targeting
What Drives the Speed of Job Reallocation During Episodes of Massive Adjustment?
Stepan Jurajda; Katherine Terrell
WP No. 432
(January, 2002)
Abstract: This paper uses individual-level data to characterize economy-wide job creation and destruction during periods of massive structural adjustment. We contrast the gradualist Czech and the rapid Estonian approach to the destruction of the communist economy to provide evidence on selected macroeconomic theories of reallocation with frictions. We find that gradualism (slowing down job destruction) effectively synchronizes job creation and destruction. Drastic job destruction leads to little or no slowdown of job creation. Small newly established firms are the under-researched fountainhead of jobs during the transition from communist to market oriented economies.
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Jel Codes: E0, J2, O1, O4, P2
Keywords: job creation, job destruction, transition
Competition and Corporate Governance in Transition
Saul Estrin
WP No. 431
(December, 2001)
Abstract: This paper examines the elements of institutional development critical to the enhancement of company performance in transition economies. This includes initial conditions, forms of privatization, institutional frameworks and the competitiveness of markets. Comparing empirical evidence, this paper concludes that there is a clear distinction in effectiveness of policies followed and their impact between Central Europe and CIS countries. This divergence is attributed to fundamentally different political attitudes toward reform, the need of CIS governments to gain political support for reform and as a consequence of the desire of Central European countries to join European Union.
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Jel Codes: D21, G34, L10, P21, P31
Keywords: privatization, corporate governance, competition, soft budget, transition economies
Corporate Governance in the Cause of Peace: An Environmental Perspective
Don Mayer
WP No. 430
(January, 2002)
Abstract: abstract
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Why do Governments Privatize
Loren Brandt; Hongbin Li; Joanne Roberts
WP No. 429
(December, 2001)
Abstract: The role of township-owned enterprises in the rapid growth of the Chinese economy during reform is widely acknowledged. Beginning in the mid-1990s, however, these firms began to be privatized. Perhaps the most striking feature of this process is that it has not occurred uniformly across townships. This raises the simple question: When and why do government leaders privatize? Drawing on a unique data set we collected in the summers of 1998 and 2000, this paper provides a simple theoretical and empirical investigation into this question. We focus on the effect of bank liquidity and bank objectives in determining the value of the firm in the event of privatization. We consider how bank decisions interact with those of governmental leaders and firm managers and ultimately determine the attractiveness of privatization. We also analyze the conditions under which shutdown might be preferred to privatization as a method to divest of government-owned firms. We find that this simple model of the privatization decision yields insights which can be tested with this unique data set.
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Keywords: privatization, township and village enterprises, financial institutions,
Testing Russia's Virtual Economy
Vlad Ivanenko
WP No. 428
(December, 2001)
Abstract: In the aftermath of sovereign default of August 1998, the hypothesis of virtual economy in Russia developed by Gaddy and Ickes has gained popularity. The hypothesis states that the country has not moved towards free-market economy but developed a system of implicit price subsidization similar to what had existed before. Non-viable sectors that the state supported with subsidies before survive by over-pricing their output. Customers pass the bill back to the government by reducing their tax liabilities. We test the proposition that the distribution of the value-added across sectors is biased because of price distortions and estimate the distribution at world prices. The results support the claim that Russian price structure is different from the world level and three out of fifteen sectors, for which we construct price indices, become "value-destroying". We investigate the reasons behind price differentials and find that difference in processing and the use of barter explain a large part of it.
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Jel Codes: P2, P3
Keywords: Russia, virtual economy, virtual value-added
War And The Business Corporation
Eric W. Orts
WP No. 427
(December, 2001)
Abstract: abstract
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Partial Privatization And Firm Performance: Evidence From India
Nandini Gupta
WP No. 426
(December, 2001)
Abstract: abstract
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Direct Foreign Investments And Productivity Growth In Hungarian Firms, 1992-1999
Jérôme Sgard
WP No. 425
(November, 2001)
Abstract: The impact of FDI on total factor productivity in Hungary during the 1990s' is assessed with a large enterprise panel. Foreign equity is associated with higher productivity levels and has a substantial, positive spillover effect on aggregate TFP growth. However, this benefit is significant only when associated with export orientation, while inward-looking FDI has negative side effects. Regionally, the north-western area, close to EU borders, benefits much more from FDI, whether foreign-owned or locally-owned private firms are considered. Otherwise, only the later absorb a reduced volume of externalities. Finally, State ownership implies lower levels of productivity, but does not hinder the capacity to respond to market incentives, including FDI induced externalities.
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Jel Codes: F21, G14, L11, P31
Keywords: foreign direct investment, productivity, Hungary, transition, panel, localization, property rights
Banking Passivity And Regulatory Failure In Emerging Markets: Theory And Evidence From The Czech Republic.
Jan Hanousek; Gerard Roland
WP No. 424
(July, 2001)
Abstract: We present a model of bank passivity and regulatory failure. Banks with low equity positions have more incentives to be passive in liquidating bad loans. We show that they tend to hide distress from regulatory authorities and are ready to offer a higher rate of interest in order to attract deposits compared to banks that are not in distress. Therefore, higher deposit rates may act as an early warning signal of bank failure. We provide empirical evidence that the balance sheet information collected by the Czech National Bank is not a better predictor of bank failure than higher deposit rates. This confirms the importance of asymmetric information between banks and the regulator and suggests the usefulness of looking at deposit rate differentials as early signals of distress in emerging market economies where banks' equity positions are often low.
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Jel Codes: C53, E58, G21, G33
Keywords: bank failures, bank supervision, Czech banking crisis, default risk, transitional economies
Conceptions of the Corporation and the Prospects of Sustainable Peace
Jeffrey Nesteruk
WP No. 423
(December, 2001)
Abstract: I begin this essay with a brief overview of the corporation in legal discourse. In this overview, I draw upon current corporate law scholarship, considering the notions of the corporation as (1) property, (2) person, (3) contract, and (4) community. Following this overview, I explore the particular significance of legal language, detailing some of the central ways the law constructs the world in which we live. The law plays this constructive role by constituting and transforming our understandings of "character," "culture," and "community." Examining the ways in which our basic corporate conceptions contribute to our understanding of these three central elements of the business environment brings into view how legal language can structure the sensibility and vision we bring to corporate law problems. Each conception of the corporation presents it in a certain light, giving to the corporation a certain "character." Each character thus presented is in turn intertwined with a culture - "a set of ways of claiming meaning" - that can justify a greater or lesser sense of community. My conclusion is that while the notions of the corporation as property and contract predominate in current corporate law scholarship, the conceptions of the corporation as person and community offer better prospects for the goal of sustainable peace. They do so because of the way they enlarge our sense of corporate responsibility for the harms associated with corporate undertakings. Because this greater sense of corporate responsibility works to eliminate or minimize such harms, it contributes to the corporation's ability to foster long-term cooperative relationships among all its stakeholders. Thus, if we wish corporations to contribute to the creation of a more peaceful world, legal discourse can help by revitalizing one of its old notions, the corporation as person, and more fully embracing a new one, the corporation as community.
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Keywords: corporate theory, corporate governance, law and literature, jurisprudence
The Role of the Corporation in Fostering Sustainable Peace
Timothy L. Fort; Cindy A. Schipani
WP No. 422
(November, 2001)
Abstract: abstract
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Wage Arrears and the Distribution of Earnings in Russia
Hartmut Lehmann; Jonathan Wadsworth
WP No. 421
(December, 2001)
Abstract: The increase in wage inequality in Russia during its transition process has far exceeded the increase in wage dispersion observed in other European countries undergoing transition. Russia also has an extremely large incidence of wage arrears. We analyse to what extent wage arrears affect the wage distribution and measures of wage inequality in Russia. We present counterfactual distributions, derived from a variety of different methods, which suggest that conventional measures of earnings dispersion would be some 20 to 30 per cent lower in the absence of arrears. We then go on to show how wage gaps at various points in the pay distribution across gender, education, region and industry are influenced by a failure to allow for wage arrears. Using our counterfactual estimates we show, for example, that the median gender wage gap would be around twenty-five points higher than the actual gap that we observe. Similarly, the counterfactual ratio of mean graduate pay to mean pay of those with primary education is around twenty points lower than observed. We show that the parameters of the counterfactual wage distributions are very similar to the parameters of the observed wage distributions of those not in arrears. This means that for those wishing to study aspects of wage differentials and inequality in Russia, it may be feasible to use the subset of those not in arrears and still get close to the true population parameters.
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Jel Codes: J6
Keywords: wage arrears, earnings inequality, counterfactuals, transition economies, Russia
Transferring Collective Knowledge: Collective and Fragmented Teaching and Learning in the Chinese Auto Industry
Jane Zhou; Jaideep Anand; Will Mitchell
WP No. 420
(December, 2001)
Abstract: Collective knowledge, consisting of tacit group-embedded knowledge, is a key element of organizational capabilities. This study undertakes a multiple-case study of the transfer of collective knowledge, guided by a set of tentative constructs and propositions derived from organizational learning theory. By focusing on the group-embeddedness dimension of collective knowledge, we direct our attention to the source and recipient communities. We identify two sets of strategic choices concerning the transfer of collective knowledge: collective vs. fragmented teaching, and collective vs. fragmented learning. The empirical context of this study is international RandD capability transfer in the Chinese auto industry. From the case evidence, we find the expected benefits of collective teaching and collective learning, and also discover additional benefits of these two strategies, including the creation of a bridge network communication infrastructure. The study disclosed other conditions underlying the choice of strategies of transferring collective knowledge, including transfer effort and the level of group-embeddedness of the knowledge to be taught or re-embedded. The paper provides a group-level perspective in understanding organizational capabilities, as well as a set of refined constructs and propositions concerning strategic choices of transferring collective knowledge. The study also provides a rich description of the best practices and lessons learned in transferring organizational capabilities.
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Keywords: knowledge transfer, collective knowledge, organizational capabilities, RandD capabilities, organizational learning, network, China
Liberalization, Corporate Governance, and the Performance of Newly Privatized Firms
Narjess Boubakri; Jean-Claude Cosset; Omrance Guedhami
WP No. 419
(December, 2001)
Abstract: This paper seeks to provide an answer to the following question, namely when and how does privatization work? Using a unique sample of 201 firms headquartered in 32 developing countries, we document a significant increase in profitability, efficiency, investment and output. Next, using univariate tests, we show that corporate governance mechanisms and economic reforms and environment have an effect on the changes in operating performance. For example, we find that privatization yields better results when stock market and trade liberalizations precede it. The results of a regression analysis, across a number of specifications, indicate that economic reforms and environment as well as corporate governance variables explain the post-privatization performance changes. In particular, economic growth, control relinquishment by the government and foreign ownership are key determinants of profitability changes. We also find higher improvements in efficiency and output for firms in countries in which stock markets are more developed and where property rights are better protected and enforced. Finally, our results suggest that trade openness is an important determinant of the post-privatization increase in investment.
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Keywords: liberalization, corporate governance, privatization, performance
The European Union Data Privacy Directive and International Relations
Steven Salbu
WP No. 418
(December, 2001)
Abstract: abstract
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Capital Markets and Capital Allocation: Implications for Economies in Transition
Artyom Durnev; Randall Morck; Bernard Yeung
WP No. 417
(November, 2001)
Abstract: abstract
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Jel Codes: G3, K2, O4
Keywords: capital markets, institutional environment, ownership structure, growth
Data Watch: Research Data from Transition Economies
Randall K. Filer; Jan Hanousek
WP No. 416
(December, 2001)
Abstract: abstract
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Transition Economies: Performances and Challenges
Jan Svejnar
WP No. 415
(December, 2001)
Abstract: abstract
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The Great Divide and Beyond: Financial Architecture in Transition
Erik Berglof; Patrick Bolton
WP No. 414
(December, 2001)
Abstract: abstract
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The Political Economy of Transition
Gerard Rpland
WP No. 413
(December, 2001)
Abstract: abstract
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The Response of Consumption in Russian Households to Economic Shocks
Steven Stillman
WP No. 412
(October, 2001)
Abstract: This paper examines the extent to which consumption in Russian households responds to exogenous income shocks. During the time period studied in this paper (1994 - 1998), Russia experienced two major economic crises. Both featured extreme movements in the real ruble-dollar exchange rate. The price of oil, which is typically thought to have a strong effect on the Russian economy, was also quite volatile during this time period. This paper exploits these large changes in oil prices and exchange rates, as well as community-level variations in wage and pension arrears, to identify exogenous shocks to household income. Using representative panel data on urban households from the Russian Longitudinal Monitoring Survey, I find that a household which experiences an exogenous shock of 10% of its total income changes both its food and total non-durable expenditure by 7-11%. Most evidence indicates that these shocks are transitory in nature and thus the traditional Life Cycle/Permanent Income Hypothesis model is firmly rejected as describing the behavior of Russian households. Additional results indicate that changes in household savings are negatively related to exogenous income shocks, with this relationship strongest for low wealth households. Only models of consumption which include precautionary savings motives can explain why poorer households both reduce their consumption and increase their savings in response to an exogenous decline in income.
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Jel Codes: D12, D91, O16, P36
Keywords: consumption, savings, consumption smoothing, precautionary savings, economic shocks, Russia
Mark-ups in the Hungarian Corporate Sector
László Halpern; Gábor Kõrösi
WP No. 411
(August, 2001)
Abstract: One of the major tasks facing a transition economy is to create the competitive environment of a properly functioning market economy. This paper attempts to analyze the relationship of market structure, market imperfections and corporate performance by mark-up pricing. There is clear evidence for the existence of such market imperfections. However, these imperfections cannot be attributed to one single factor. We develop a varying coefficient model for the relationship between the factors facilitating rent-collection and the sectoral mark-ups.
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Jel Codes: C23, D21, D24
Keywords: firms in transition economy, market imperfections, mark-up pricing
Economic Development, Legality, and the Transplant Effect
Daniel Berkowitz; Katharina Pistor; Jean-Francois Richard
WP No. 410
(September, 2001)
Abstract: We analyze the determinants of effective legal institutions (legality) using data from forty-nine countries. We show that the way the law was initially transplanted and received is a more important determinant than the supply of law from a particular legal family. Countries that have developed legal orders internally, adapted the transplanted law, and/or had a population that was already familiar with basic principles of the transplanted law have more effective legality than countries that received foreign law without any similar pre-dispositions. The transplanting process has a strong indirect effect on economic development via its impact on legality, while the impact of particular legal families is weaker and not robust to alternative legality measures.
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Jel Codes: K00, O1, O57
Development Strategy, Viability, and Economic Convergence
Justin Yifu Lin
WP No. 409
(October, 2001)
Abstract: The paper argues that an economy's industry/technology structure is endogenously determined by the economy's endowment structure. For the convergence to occur, the government of an LDC should target the upgrading of endowment structure instead of the industry/technology structure in its development strategy. If the government chooses to pursue an industry/technology structure, which is inconsistent with the comparative advantage determined by the economy's endowment structure, the firms in the government's priority sectors will be nonviable and the government needs to suppress the function of market and distort all kinds of prices as a way to protect the nonviable firms. Convergence will fail to occur as a result. Regression results from cross-country panel data are consistent with the predictions of the above arguments.
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Keywords: economic development, development strategy, role of government, institution
Labor Supply, Informal Economy and Russian Transition
Maxim Bouev
WP No. 408
(October, 2001)
Abstract: The literature on economics of transition has suggested a number of scenarios to explain unemployment and labour reallocation in Eastern Europe. However, it has recently been argued that these so-called Optimal Speed of Transition (OST) studies do not account for many stylized facts concerning transitional labour markets (such as a drop in participation rates, job-to-job shifts of workers, development of an informal labour market, etc.). The transformation in Russia has witnessed an increase in moonlighting opportunities for workers and a rapid growth of the informal sector. To allow for this fact, which has a strong structural and qualitative effect on Russian transition, I attempt to incorporate secondary job holding in the OST framework. I first consider a time-allocation model in the spirit of Gronau (1977), which takes account of institutional peculiarities of the Russian state sector allowing workers to moonlight in the informal market. I introduce the motivational factor describing a heterogeneous worker's propensity to informal activity. The time-allocation model leads into an OST-type dynamic model with on-the-job search, labour shifts underground and state sector hirings. Numerical simulations of the model help look at Russian transition from a new angle and explain several stylized facts.
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Jel Codes: J22, J63, J64, P20
Keywords: time allocation, moonlighting, informal economy, job reallocation, structural change, speed of transition, earnings inequalities, Russia
Corporate Governance in China: Then and Now
Cindy A. Schipani; Liu Junhai
WP No. 407
(November, 2001)
Abstract: Corporate governance has become a globally debated topic. As multinational corporations enter new global markets, complications abound due to the myriad of corporate governance rules existing among the various legal systems. One example of the new markets becoming more available to American investment is the Chinese market. In light of both the grant of permanent normal trade relations (PNTR) to China and China's anticipated membership in the World Trade Organization (WTO), the American business community is apt to find more opportunity for investment in China. American investors are likely to be increasingly interested in understanding the current Chinese corporate governance regime as they consider the Chinese market for investment of their assets. The goal of this paper is to provide an analysis of the corporate governance system in China and offer some suggestions for improvement to make the Chinese market more attractive to foreign investors. This paper is organized as follows. Part I provides general background information on the historical corporate governance structures prevalent in China. Part II then analyzes current governance issues, in particular those occurring in the context of corporatization of China's State-owned enterprises. Part III offers proposals for reform and is followed in Part IV by our concluding remarks.
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Keywords: corporate governance, law reform, China, corporate law
Entrepreneurship and Post-Socialist Growth
Daniel Berkowitz; David N. DeJong
WP No. 406
(October, 2001)
Abstract: A growing body of national-level survey evidence indicates that small-scale entrepreneurial activity has been an important engine of growth in post-socialist economies. Here we use a rich regional data set to obtain a statistical characterization of the relationship between entrepreneurial activity and economic growth within post-Soviet Russia. Russia is a useful laboratory for evaluating links between entrepreneurial activity and growth because of the striking variation in initial conditions, the adoption of policy reforms, and entrepreneurial activity observed across its large number of regions in the early stages of transition. Russia has also experienced striking regional variation in subsequent growth. Conditional on variations in initial conditions and policy reform measures, we find that regional entrepreneurial activity exhibits a strong and enduring relationship with subsequent growth.
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Jel Codes: O4, P3, R1
Keywords: economic transition; small legal enterprises
Policy Reform and Growth in Post-Soviet Russia
Daniel Berkowitz; David N. DeJong
WP No. 405
(October, 2001)
Abstract: In pursuit of its transition from a command to a market economy, Russia has witnessed enormous regional differences in economic growth rates. Moreover, the implementation of economic reforms has also differed markedly across regions. We analyze whether regional differences in reform policies can account for regional differences in growth rates, and conclude that to a considerable degree, they can. Most notably, we find that regional differences in price liberalization policies exhibit a positive direct correspondence with growth. We also find that regional differences in large-scale privatization exhibit a positive correspondence with the regional formation of new legal enterprises, which in turn exhibits a strong positive correspondence with growth.
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Jel Codes: O4, P3, R1
Keywords: new enterprise formation, privatization, price liberalization
Social Policies and Structures: Institutional Frictions and Traps in the Czech Republic After 1989
Jiri Vecernik
WP No. 404
(November, 2001)
Abstract: This paper compares the standard economic and a complementary socio-economic approach to the transition. While the economic approach looks at social problems from the outside and views them as costs of transition, the socio-economic approach looks at these problems from the inside and views them as a part of the changing social structure. Both approaches are used to analyze four frictions which appear in contemporary Czech society. The first friction concerns the pension system which produces direct intergenerational dependence and turns pensioners into a socially needy population. It produces a socio-political redistributional trap, strengthening political support for further redistribution. The second friction concerns the relation between low market wages and a higher guaranteed subsistence minimum. It opens a socio-cultural trap and leads to a benefit dependency. The third friction concerns the impeding development of the middle class. Here, a socio-economic trap appears: a socially polarized society cannot take full advantage of its human capital and entrepreneurial spirit. The fourth friction involves tensions between various sections of the middle class. The socio-structural trap of unbalanced dynamics inside the middle class may cause an autonomous corporatization of individual groups to the detriment of citizenship principles and social integration.
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Jel Codes: H31, J23, J26, P26
Keywords: distributional conflict, middle classes, pension reform, unemployment, Czech Republic
Investment, Efficiency, and Credit Rationing: Evidence from Hungarian Panel Data
Mathilde Maurel
WP No. 403
(November, 2001)
Abstract: Relying upon a rich and unique panel of Hungarian firms over 7 years, from 1992 up to 1998, this paper estimates simultaneously TFP, Total Factor Productivity, identified as efficiency, and the parameters of a model where investment depends upon internal funds, wages, and sales, as in Prasnikar J. and Svejnar J. (2000). It shows that while real investment is higher in foreign firms, the improvement in efficiency due to investment is significantly higher in Hungarian domestic firms. We test the possibility that this higher than average foreign investment may exacerbate other firms credit constraints by crowding them out of domestic capital markets. Of course one must control for that foreign firms may simply be more profitable and have access to more collateral, hence be a better investment for lending institutions. All firms (foreign, private and domestically owned, and State-owned) are credit rationed, including foreign firms. State-owned firms do not have an investment behaviour compatible with profit maximisation, a result which emphasises the soft budget constraint persistence (but not through the providing with soft credit). For these firms, wages increase together with investment.
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Jel Codes: D21, D92, E22, G32, P21
Keywords: Investment, credit rationing, soft budget constraint, ownership, transition to a market economy, Hungary
Subduing High Inflation in Romania. How to Better Monetary and Exchange Rate Mechanisms?
Daniel Daianu; Radu Vranceanu
WP No. 402
(August, 2001)
Abstract: Romania's overall economic performance during the first ten years of transition can be termed so far as disappointing: the country has not been able to deliver steady growth, low unemployment and low inflation. This paper focuses on the effectiveness of monetary mechanisms and policies during this period. Special emphasis is set on the exchange rate mechanism. The first part of the text develops a short introduction to relevant monetary theory in the transition context. In the second part, we analyse the stylised facts pertaining to Romanian economy and put forward some weaknesses of its banking system and monetary policies. The conclusion presents a set of recommendations for a reform of the going monetary policy.
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Keywords: monetary policy, banking system, exchange rate mechanism, Romania, policy reform
The Gender Wage Gap in Bulgaria: A Semiparametric Estimation of Discrimination
Dean Jolliffe
WP No. 401
(July, 2001)
Abstract: Bulgaria's transition to a market economy has coincided with a large increase in wage inequality. Given the emphasis on wage leveling in pre-transition Bulgaria, the rise in wage inequality may be due to managers rewarding more productive workers; or it may be the result of rewarding non-economic characteristics such as gender. Using data from the 1995, nationally representative Bulgaria Integrated Household Survey, I examine whether gender discrimination is an important factor determining the gap in wages between men and women and the extent to which gender discrimination affects wage inequality. I model wage determination with a correction for sample selection as a Type III Tobit and estimate this model with the Honoré et al. (1997) semiparametric estimator. Unlike the classic Heckman correction for sample selection, this estimator is consistent in the presence of heteroscedasticity. I bootstrap to estimate standard errors. Using separate wage regression estimates for men and women, an Oaxaca decomposition indicates that women's wages are 25 percent lower than men's wages and 85 percent of this differential is due to discrimination, or more precisely, due to differences in how men and women are rewarded for the same characteristics.
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Jel Codes: C14, I2, J16
Keywords: human capital, wage differentials, Bulgaria, discrimination, gender, sample selection model, type 3 Tobit, semiparametric estimation