Minimum Wages, Inequality and Globalization
T.H. Gindling; Katherine Terrell
WP No. 700
(May, 2004)
Abstract: This paper contributes to our understanding of the impact of institutions on incomes of workers in developing countries by rigorously addressing the question as to whether changes in minimum wages can change the inequality of the distribution of earnings. More specifically, we analyze whether changes in Costa Rica's complex institution of multiple minimum wages in the 1980s and 1990s acted as a countervailing force to the unequalizing effect of globalization. Using annual data on workers from the 1987-1997 household surveys, it is shown that changes in the legal minimum wages did indeed have an effect on wage inequality and that these changes would not have been captured using the simple interpretation of minimum wages found in much of the literature.
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Jel Codes: J23, J31, J38
Keywords: minimum wages, employment, wages, Costa Rica
Self-Selection And Earnings During Volatile Transition
Ralitza Dimova; Ira N. Gang
WP No. 699
(May, 2004)
Abstract: Using Bulgarian Integrated Household Surveys for 1995, 1997 and 2001 this paper explores determinants of labor force status - not working, public sector employment, private sector employment and self-employment - and earnings for each of the three employment sectors. We find that while skilled labor's pattern of reallocation into the public sector remains roughly the same over time, the inflow of highly educated laborers into the private sector and selfemployment increases. These changes coincide with the erosion of the returns to observed skills in the private sector and self-employment, while the public sector continues to reward all types of education at higher than the elementary level.
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Jel Codes: J21, J23, J31
Keywords: employment selection, earnings, Bulgaria
Ecology And Violence: The Environmental Dimensions Of War
Timothy L. Fort; Cindy A. Schipani
WP No. 698
(May, 2004)
Abstract: Research reported by Thomas Homer-Dixon characterizes five social effects that can significantly increase the likelihood of violence in the emerging world, effects that are far deeper than can be controlled by security forces: (1) constrained agricultural production, often in ecologically marginal regions; (2) constrained economic productivity, mainly affecting people who are highly dependent on environmental resources and who are ecologically and economically marginal; (3) migration of these affected people in search of better lives; (4) greater segmentation of society, usually along existing ethnic cleavages; and (5) disruption of institutions, especially the state.1 These kinds of social effects create tensions that can erupt in violent expression. It is difficult to envision how additional security forces will solve the embedded social problems that link violence with economic, social, ethnic, and even religious frustrations. This manuscript seeks to address these concerns. Part I elaborates ways in which these issues of violence manifest themselves in a globalized economy. Part II discusses the business implications of these tensions and suggests a way in which business can be a mediating actor to lessen these tensions. Part III concludes with a suggestion for a recharacterization of the corporation in a way to sensitize it to the ecological-mindedness necessary to address the potential issues of violence in societies. We propose sustainable peace as an aim to which businesses should orient their actions both for reasons of the good of avoiding the activities that contribute to the spilling of blood as well as for the good of sustainable economic enterprises, which are fostered by stable, peaceful relationships. Thus, business must do what it does best and address economic development, even in terms of the extraction of natural resources. But it must also be attentive to the rights of others, to the development of community and meaning, and to stop violence when it is likely. Given the dangers ecological stresses pose for the planet, it is hard to think of a more compelling reason to reorient business behavior.
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Jel Codes: K22, K23, M14
Keywords: environmental law; peace; social responsibility; corporate governance
Russian Cities in Transition: The Impact of Market Forces in the 1990s
Ira N. Gang; Robert C. Stuart
WP No. 697
(May, 2004)
Abstract: This paper analyses Russian city growth during the command and transition eras. Our main focus is on understanding the extent to which market forces are replacing command forces, and the resulting changes in Russian city growth patterns. We examine net migration rates for a sample of 171 medium and large cities for the period 1960 through 2002. We conclude that while the declining net migration rate was reversed during the first half of the 1990s, restrictions continued to matter during the early years of transition in the sense that net migration rates were lower in the restricted than in the unrestricted cities. This pattern seemingly came to an end in the late 1990s.
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Jel Codes: J6, P20, R23
Keywords: cities; city growth; migration; Russia; urbanization
Firm Ownership and Internal Labor Practices in a Transition Economy: An Exploration of Worker Skill Acquisition in Vietnam
Jed Friedman
WP No. 696
(May, 2004)
Abstract: One feature common to many post-socialist transition economies is a relatively compressed wage structure in the state owned sector. We conjecture that this compressed wage structure creates weak incentives for work effort and worker skill acquisition and thus presents adverse consequences for the entire transition economy if a substantial portion of the labor force works in the state sector. We explore firm wage incentives and worker training, as well as other labor practices and outcomes, in a transition setting with matched firm and worker data collected in one of the largest provinces of Vietnam - Ho Chi Minh City. The Vietnamese state sector exhibits a compressed wage distribution in relation to foreign invested privately owned firms. State wage practices stress tenure over worker productivity and their wage policies result in flatter wage - experience profiles and lower returns to education. The state work force is in greater need for formal training, a need that is, in part, met through direct government financing. In spite of the opportunities for government financed training and at least partly due to inefficient worker incentives, state firms, by certain measures, exhibit lower levels of labor productivity. The private sector comparison group to state firms for all of these findings is foreign owned firms. The internal labor practices of foreign firms are more consistent with a view of profit-maximizing firms operating with no political constraints. This is not the case for Vietnamese de novo private firms that exhibit much more idiosyncratic behavior and whose labor practices are often indistinguishable from state firms. The exact reasons for this remain a topic of ongoing research yet we conjecture that various private sector constraints, including limited access to formal capital, play an important role.
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Jel Codes: J31, P31
Keywords: Vietnam, within-firm incentives, labor productivity, transition
The Unanticipated Effects of Insider Trading Regulation
Art Durnev; Amrita S. Nain
WP No. 695
(May, 2004)
Abstract: Using a sample of 2,827 firms from 21 countries we examine whether insider trading laws achieve the primary objective for which they are introduced - protecting uninformed investors from private information-based trading. We find that when control is concentrated in the hands of a large shareholder, insider trading regulation is less effective in reducing private information-based trading if investor protection is poor. We suggest that controlling shareholders who are banned from trading may resort to covert expropriation of firm resources, creating more information asymmetry and thereby encouraging private information trading by informed outsiders. Consistent with this, we find evidence that when the rights of controlling shareholders are high, insider trading restrictions are associated with greater earnings opacity.
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Jel Codes: G14, G15, G38
Keywords: Insider Trading Regulation, Ownership, Private Information Trading, Earnings Opacity
Volatile Interest Rates, Volatile Crime Rates: A new argument for interest-rate smoothing
Garett Jones; Ali M. Kutan
WP No. 694
(May, 2004)
Abstract: Good monetary policy requires estimates of all of its effects: monetary policy impacts traditional economic variables such as output, unemployment rates, and inflation. But does monetary policy influence crime rates? By extending the vector autoregression literature, we derive estimates of the dynamic effect of higher interest rates on crime rates. Higher interest rates have socially and statistically significant positive effects on rates of theft and knife robberies, while effects on rates of burglary and assault are smaller and statistically insignificant. Higher interest rates have no effect on homicide rates. We conclude that monetary policy influences the rate of economically-motivated crimes.
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Jel Codes: C3, E5
Keywords: crime, monetary policy, vector autoregressive models (VARs)
Money Market Liquidity under Currency Board - Empirical Investigations for Bulgaria
Petar Chobanov; Nikolay Nenovsky
WP No. 693
(May, 2004)
Abstract: Over the last years the efficiency and existence of an automatic adjustment mechanism of currency boards are in the centre of economic discussions. This study is intended to provide an empirical analysis of the volume and interest rate of unsecured overnight deposits at Bulgarian interbank market. Three empirical models are developed in order to explain the behaviour of demand, supply and interest rates. The impact of reserve requirements, operations connected with government budget, transactions in reserve currency (Euro) and some seasonal factors is discussed. The developments of interest rates and volumes are well captured by the employed variables and their statistically significant signs coincide with the theoretical literature.
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Jel Codes: E4, E5
Keywords: money market, currency board, Bulgaria
Credibility And Adjustment: Gold Standards Versus Currency Boards
Jean Baptiste Desquilbet; Nikolay Nenovsky
WP No. 692
(May, 2004)
Abstract: It is often maintained that currency boards (CBs) and gold standards (GSs) are alike in that they are stringent monetary rules, the two basic features of which are high credibility of monetary authorities and the existence of automatic adjustment (non discretionary) mechanism. This article includes a comparative analysis of these two types of regimes both from the perspective of the sources and mechanisms of generating confidence and credibility, and the elements of operation of the automatic adjustment mechanism. Confidence under the GS is endogenously driven, whereas it is exogenously determined under the CB. CB is a much more asymmetric regime than GS (the adjustment is much to the detriment of peripheral countries) although asymmetry is a typical feature of any monetary regime. The lack of credibility is typical for peripheral countries and cannot be overcome completely even by "hard" monetary regimes.
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Jel Codes: E42
Keywords: monetary regime, gold standards, and currency boards
Impact of Cross-listing on Local Stock Returns: Case of Russian ADRs
Elena Smirnova
WP No. 691
(May, 2004)
Abstract: The paper examines the impact of American Depositary Receipt (ADR) listings on the return of the underlying Russian stocks. The contribution of this paper is twofold. First, it looks at a new sample of ADRs issued by Russian companies. Second, the technique used to estimate the market model is different from the previous studies. The returns are modeled to follow GARCH process, as opposed to the regular OLS procedure, which assumes homoscedasticity in residual returns. Average abnormal returns and cumulative average abnormal returns are calculated for the [-25, +25] event window, with the ADR listing date being the event date. The results indicate a significant negative abnormal local market return on an ADR listing day. The return volatilities after the listing are compared to those before the listing. Eleven out of sixteen companies experienced increased volatility of local returns after the cross-listing.
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Keywords: finance, Russia, international cross-listings, ADRs
Executive Compensation, Firm Performance, and State Ownership in China: Evidence from New Panel Data
Takao Kato; Cheryl Long
WP No. 690
(May, 2004)
Abstract: This paper provides the first systematic evidence on compensation for executives of firms listed in China's emerging stock market (currently the eighth largest of the world with market capitalization of over $550 billion). Specifically, using comprehensive financial and accounting data on China's listed firms from 1998 to 2002 (data modeled after Compustat and CRSP in the U.S.), augmented by unique data on executive compensation, we find for the first time statistically significant sensitivities and elasticities of annual cash compensation (salary and bonus) for top executives with respect to shareholder value in China. The size of the estimated sensitivities imply that a 1000 RMB increase in shareholder value yields a 0.020 RMB to 0.053 RMB increase in annual cash compensation, whereas the size of the estimated elasticities suggest that a 10 percent increase in shareholder value results in 3.7 to 4.0 percent increase in annual cash compensation for top executives. The estimated sensitivities and elasticities of cash compensation for top executives in China's listed firms are greater than what has been reported for Japan and the U.S. However, we also find that state ownership of China's listed firms is weakening executive pay-performance link and thus possibly making China's listed firms less effective in solving the agency problem. As such, ownership restructuring may be needed for the "shareholding experiment" to fully succeed in transforming China's emerging listed firms to efficient modernized corporations and for the overall successful economic transition of China. Finally, we find that sales growth is significantly linked to executive compensation and that Chinese executives are penalized for making negative profit although they are neither penalized for declining profit nor rewarded for rising profit insofar as it is positive.
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Jel Codes: G15, G30, J33, M12, M52, O53, P31, P34
Keywords: transition economies, China, executive compensation, firm performance, corporate governance, and ownership structure.
Diverging Paths: Transition in the Presence of the Informal Sector
Maxim Bouev
WP No. 689
(May, 2004)
Abstract: This work suggests a development of the seminal model of transition from plan to market economy by Aghion and Blanchard (1994). We introduce an informal sector to show that its presence can generate qualitatively different steady states, to which the economy converges in the end of transition. Two types of transitional dynamics are considered, and it is argued that they can help explain differences in evolution of formal and informal output exhibited, on the one hand, by East European countries and, on the other hand, by the former Soviet Union republics such as Russia or Ukraine.
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Jel Codes: J41, J42, J64, O17, P29
Keywords: optimal speed of transition, informal economy, search models
What Causes Bank Asset Substitution In Kazakhstan?
Sharon Eicher
WP No. 688
(May, 2004)
Abstract: Dollarization comes in several forms. The type that this paper examines is asset substitution, when savers hold dollar assets in bank accounts, instead of local currency. It is limited to the transition economy of Kazakhstan. This paper estimates demand for dollar accounts and shows that avoidance of inflation risk, rather than avoidance of exchange rate devaluation of savings, is the most important in explaining dollarization. This result is unexpected. This study examines data from Kazakhstan. Kazakhstan is seen as having a strong banking system and a healthy economy for a former Soviet Republic. It is seen as one of the most market-oriented, FSU countries. However, Kazakhstan also has a large demand for a means of storing savings in dollars, rather than in the local currency. This is particularly curious, when the local currency is appreciating relative to the U.S. dollar. This demand in less prosperous FSU countries is likely to be even greater. The paper combines data and statistical methods with anecdotal information in order to improve our understanding of a paradoxical occurrence.
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Financial Sector Returns and Creditor Moral Hazard: Evidence from Indonesia, Korea, and Thailand
Ayse Y. Evrensel; Ali M. Kutan
WP No. 687
(May, 2004)
Abstract: This paper introduces a framework of investor behavior in which investors form their expectations regarding the credibility of a prospective IMF program in reforming the financial sector characterized by domestic implicit guarantees. We examine the changes in financial sector returns in response to IMF-related news such as announcements of program negotiations and approval to infer investor perception regarding the Fund support associated with the program. We test the implications of our framework based on the East Asian crisis of the late 1990s. Using daily financial sector returns from Indonesia, Korea, and Thailand, we find that news of program negotiations and approval increases financial sector returns in Indonesia and Korea. The findings are consistent with investor perception that negotiated IMF programs are non-credible due to expected continuation of domestic implicit guarantees during the future Fund
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Jel Codes: F32, F33, F34, G15
Keywords: Moral Hazard, the IMF, Asian crisis, Financial markets
Instability in Exchange Rates of the World Leading Currencies: Implications of a Spatial Competition Model among Central Banks
Dirk Engelmann; Jan Hanousek; Evzen Kocenda
WP No. 686
(June, 2004)
Abstract: We use a spatial competition based model in a two-stage game setup to assess whether equilibrium in exchange rates among the leading currencies is attainable. We show that a stable equilibrium can be reached in the case of two leading currencies, but not in the case of three. In our model, central banks of leading currencies attract, through the workings of their objective and policy, small currencies that tie with leading currencies via exchange rate regimes. This can be thought of as a competition to link smaller currencies to a leading currency that is motivated by the fact that such a tie greatly reduces volatility within such an informal "currency area." Our theoretical findings are supported by empirical evidence. Since firms, traders, and countries currently recognize three leading currencies and their economic behavior reflects this, we may expect disagreement on overvaluation or undervaluation of certain currencies to continue.
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Jel Codes: C72, E42, E58, N20, O23
Keywords: exchange rates, exchange rate regimes, central bank policy, monetary union, spatial competition
Spinoffs, Privatization and Corporate Performance in Emerging Markets
Jan Hanousek; Evzen Kocenda; Jan Svejnar
WP No. 685
(May, 2004)
Abstract: We use new firm-level data to examine the effects of spinoffs and privatization on corporate performance in a rapidly emerging market economy. Unlike the existing literature, which analyzes spinoffs almost exclusively in advanced economies, we control for accompanying ownership changes and the fact that spinoffs and ownership are endogenous variables. We find that spinoffs increase the firm's profitability but do not alter its scale of operations, while the effect of privatization depends on the resulting ownership structure - sometime improving performance and sometime bringing about decline that is consistent with tunneling (looting) by managers or (partial) owners. The effects of privatization are hence much less clear-cut than suggested in earlier studies. Methodologically, our study provides evidence that it is important to control for changes in ownership when analyzing spinoffs and generally to control for endogeneity, selection and data attrition when analyzing the effects of spinoffs and privatization.
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Jel Codes: D23, G32, G34, L20, M21, P47
Keywords: Spinoffs, breakups, privatization, corporate performance, endogeneity.
CPI Bias and Real Living Standards in Russia During the Transition
John Gibson; Steven Stillman; Trinh Le
WP No. 684
(May, 2004)
Abstract: An easy and popular method for measuring the size of the underground economy is to use macro-data such as money demand or electricity demand to infer what the legitimate economy needs, and then to attribute the remaining consumption to the underground economy. Such inferences rely on the stability of parameters of the money demand and electricity demand equations, or at the very least on knowledge of how these parameters are changing. We argue that the pace of change of these parameters (such as velocity) is too variable in transition economies for the above methods of estimating the size of the underground economy to be applicable. We make our point by using the Czech Republic and other transition country data from the financial and electricity sectors.
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Jel Codes: C43, E31, O12, P36
Keywords: CPI bias, Living standards, Measurement error, Prices, Russia, Transition
Mission Implausible III: Measuring the Informal Sector in a Transition Economy using Macro Methods
Jan Hanousek; Filip Palda
WP No. 683
(May, 2004)
Abstract: An easy and popular method for measuring the size of the underground economy is to use macro-data such as money demand or electricity demand to infer what the legitimate economy needs, and then to attribute the remaining consumption to the underground economy. Such inferences rely on the stability of parameters of the money demand and electricity demand equations, or at the very least on knowledge of how these parameters are changing. We argue that the pace of change of these parameters (such as velocity) is too variable in transition economies for the above methods of estimating the size of the underground economy to be applicable. We make our point by using the Czech Republic and other transition country data from the financial and electricity sectors.
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Jel Codes: C53, C82, D12, D24, E26, E27, E41, H26, O47, P43
Keywords: shadow economy, measureament of tax evasion, transition economies
The Other Side of the Moon: The Data Problem in Analyzing Growth Determinants
Jan Hanousek; Dana Hajkova; Randall K. Filer
WP No. 682
(May, 2004)
Abstract: Replication of two recent studies of growth determinants shows that results are sensitive to the choice of data from which growth rates are calculated, especially with respect to whether economic convergence has occurred. Previous warnings against using data that has been adjusted to increase cross-country comparability to study within-country patterns over time (growth rates) have been largely ignored at the cost of possibly contaminating the conclusions.
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Jel Codes: C82, O47
Keywords: Growth; Measurement; Developing Economies
Consumers' Opinion of Inflation Bias Due to Quality Improvements
Jan Hanousek; Randall K. Filer
WP No. 681
(May, 2004)
Abstract: Measurement of quality changes has proven to be an especially difficult aspect of calculating unbiased rates of inflation. We propose a new methodology of capturing quality improvements based on consumer focus groups and apply this methodology in an environment where quality changes might be expected to be especially rapid and extensive, a post-communist transition economy. We find that the methodology indicates a substantial understatement of quality improvements during transition, and, therefore, a substantial overstatement of inflation resulting in a serious downward bias in growth rate estimates for post-communist economies. The move to free markets has apparently improved consumers= welfare more by improving what they can purchase than by increasing how much they can purchase. Overall, mismeasurement of quality changes may have understated Czech growth rates during the first decade after communism by as much as 5 percentage points per year.
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Jel Codes: C82, E31, P24
Keywords: Inflation Bias, Quality Change, Transition Economies, Czech Republic
IMF-Related Announcements, Fundamentals, and Creditor Moral Hazard: A Case Study of Indonesia
Ayse Y. Evrensel; Ali M. Kutan
WP No. 680
(May, 2004)
Abstract: Previous tests of creditor moral hazard cannot distinguish between two types of investor behavior: expectations of implicit guarantees or better future economic fundamentals due to a prospective IMF program. The novelty of our approach lies in the inclusion of the forward foreign exchange rate in the empirical tests of creditor moral hazard, which reflects investors' expectations about the country's future fundamentals and allows us to separate the effects of fundamentals from those of moral hazard. Using Indonesian financial markets as a case study, we first conduct tests of creditor moral hazard in the Indonesian bond and stock markets. Then, we use the forward exchange rate to confirm the interpretation of the bond and stock market results. Our results show that IMF-program related news, especially, the announcement of program negotiations, brings about higher stock returns and lower bond spreads, even though the bath sells at a forward discount on the same day. These results suggest creditor moral hazard in the Indonesian bond and equity markets.
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Jel Codes: F32, F33, F34, G15
Keywords: Moral Hazard, the IMF, Asian crisis, Financial markets
Privatization Matters: Bank Efficiency in Transition Countries
John P. Bonin; Iftekhar Hasan; Paul Wachtel
WP No. 679
(April, 2004)
Abstract: To investigate the impact of bank privatization in transition countries, we take the largest banks in six relatively advanced countries, namely, Bulgaria, the Czech Republic, Croatia, Hungary, Poland and Romania. Income and balance sheet characteristics are compared across four bank ownership types. Efficiency measures are computed from stochastic frontiers and used in ownership and privatization regressions having dummy variables for bank type. Our empirical results support the hypotheses that foreign-owned banks are most efficient and governmentowned banks are least efficient. In addition, the importance of attracting a strategic foreign owner in the privatization process is confirmed. However, counter to the conjecture that foreign banks cream skim, we find that domestic banks have a local advantage in pursuing fee-forservice business. Finally, we show that both the method and the timing of privatization matter to efficiency; specifically, voucher privatization does not lead to increased efficiency and earlyprivatized banks are more efficient than later-privatized banks even though we find no evidence of a selection effect.
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Jel Codes: P30, P34, P52
Keywords: bank efficiency, bank privatization, strategic foreign owner, transition
Does Market Liberalisation Reduce Gender Discrimination?
Dean Jolliffe; Nauro F. Campos
WP No. 678
(April, 2004)
Abstract: An alleged achievement of socialism was gender equality in the labour market. Has its collapse shattered this accomplishment? The theoretical literature and attendant empirical evidence are inconclusive. Using data for 2.9 million wage earners in Hungary we find that the male-female difference in log wages declined from 0.31 to 0.19 between 1986 and 1998 and that this is largely explained by a matching decline in "Oaxaca's discrimination," suggesting extraordinary improvement of women's relative situation. Further, we find that variation over time in the wage gaps is associated with public and large firms having progressively smaller gaps than their counterparts.
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Jel Codes: I2, J16, P3
Keywords: Hungary, Transition, Discrimination, Gender, Wage Gap, Education
Governance and Performance of Microfinance Institutions in Central and Eastern Europe
Valentina Hartarska
WP No. 677
(April, 2004)
Abstract: This paper presents the first evidence on the impact of external governance mechanisms, board diversity and independence, and management compensation on outreach and sustainability of microfinance institutions in Central and Eastern Europe and the Newly Independent States. Results indicate that among external governance mechanisms only auditing affects outreach, whereas regulation and rating do not affect performance. Board diversity improves both outreach and sustainability while larger and less independent boards lower sustainability. Performance-based compensation is not effective in aligning the interest of managers and stakeholders, and underpaying managers reduces outreach.
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Jel Codes: G21, G32, L22, L31, O16, P23, Q14
Keywords: Central and Eastern Europe and the Newly Independent States, governance, microfinance, board of directors, managerial compensation, regulation, and rating
Equilibrium Exchange Rates in the Transition: The Tradable Price-Based Real Appreciation and Estimation Uncertainty
Balázs Égert; Kirsten Lommatzsch
WP No. 676
(April, 2004)
Abstract: This paper sets out to estimate equilibrium real exchange rates for the Czech Republic, Hungary, Poland, Slovakia and Slovenia. A theoretical model is developed that provides an explanation for the appreciation of the real exchange rate based on tradable prices in the acceding countries. Our model can be considered as a competing but also completing framework to the traditional Balassa-Samuelson model. With this as a background, alternative cointegration methods are applied to time series (Engle-Granger, DOLS, ARDL and Johansen) and to three small-size panels (pooled and fixed effect OLS, DOLS, PMGE and MGE), which leaves us with around 5,000 estimated regressions. This enables us to examine the uncertainty surrounding estimates of equilibrium real exchange rates and the size of the underlying real misalignments.
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Jel Codes: F31
Keywords: Real Exchange Rate, Equilibrium Exchange Rate, Tradable Prices, Transition, Cointegration
Productivity Growth and the Real Appreciation of the Accession Countries' Currencies
Kirsten Lommatzsch; Silke Tober
WP No. 675
(April, 2004)
Abstract: In the process of catch-up growth the Czech Republic, Hungary and Poland have experienced a transition to the production of higher-quality goods. We incorporate this effect in a theoretical model of exchange rates and econometrically estimate its impact on equilibrium real exchange rates. We find support for our hypothesis that productivity increases in industry can be regarded as one source of the observed PPI-based real appreciation of the accession countries' currencies. The productivity gains experienced during economic catch-up occur as higher-quality goods are produced and imply an increased export capacity as well as import substitution. To some extent real appreciation can therefore be viewed as an equilibrium phenomenon.
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Jel Codes: C32, F41, P3
Keywords: relative productivity growth, catch-up growth, real exchange rates, transition economies
Exchange Rate Policy and Inflation in Acceding Countries: The Role of Pass-through
Fabrizio Coricelli; Bostjan Jazbec; Igor Masten
WP No. 674
(April, 2004)
Abstract: This paper analyzes the link between the choice of exchange rate regime and inflationary performance in four acceding countries to the EU: the Czech Republic, Hungary, Poland and Slovenia. The results allow a clear ranking of countries according to the size of the pass-through effect and the importance of exchange rate shocks to overall inflationary performance. In particular, perfect pass-through effect can be associated with accommodative exchange rate policy, which can moreover become the most important source of inflationary pressures. The analysis suggests that for CEEC-4 an early adoption of the Euro can provide the most efficient framework for reducing inflation.
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Jel Codes: C32, E42, E52, E58
Keywords: EMU accession, pass-through effect, I(2) cointegration analysis, policy accommodation
Is Kazakhstan a Market Economy Yet? Getting warmer...
Sharon Eicher
WP No. 673
(April, 2004)
Abstract: Transition from planned to a market economy is an evolutionary process. Evolutions do not have finite beginning and ending points. We may look to the beginning of transition in 1991 when the Soviet Union broke up, or we may see it as beginning earlier, when the Soviet Union began to allow its firms to engage in private sales of output that exceeded state plans and to independently take part in international trade agreements. At what point do we say that transition is complete? Hence, it is quite difficult to say when any country begins and completes its transition. The United States and the European Union have categorized Kazakhstan differently with regard to its degree of transition. The United States removed "non market economy" status from Kazakhstan, whereas the EU gave Kazakhstan an intermediate status. The first question that this work asks is how do these political bodies rank a country's market orientation, and how did they arrive at different conclusions? These results are then compared to what transitional economists have to say on the evolution from a planned to a market economy. The second question is, how do theoretical, academic economists differ in their analysis of the transition process? By creating unique criteria sets from several papers, can one say that, according to any set, Kazakhstan is a market economy? We conclude that the reform process in Kazakhstan is still underway. The government and the economy have experienced many radical reforms, but none completely satisfies the necessary conditions for being categorized as a market economy.
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Keywords: Market economy, non-market economy, Kazakhstan, CIS, Kornai, Svejnar
Financial Institutions and The Wealth of Nations: Tales of Development
Jian Tong; Chenggang Xu
WP No. 672
(April, 2004)
Abstract: Interactions between economic development and financial development are studied by looking at the roles of financial institutions in selecting RandD projects (including for both imitation and innovation). Financial development is regarded as the evolution of the financing regimes. The effectiveness of RandD selection mechanisms depends on the institutions and the development stages of an economy. At higher development stages a financing regime with ex post selection capacity is more effective for innovation. However, this regime requires more decentralized decision-making, which in turn depend on contract enforcement. A financing regime with more centralized decision-making is less affected by contract enforcement but has no ex post selection capacity. Depending on the legal institutions, economies in equilibrium chose regimes that lead to different steady-state development levels. The financing regime of an economy also affects development dynamics through a "convergence effect" and a "growth inertia effect." A backward economy with a financing regime with centralized decision-making may catch up rapidly when the convergence effect and the growth inertia effect are in the same direction. However, this regime leads to large development cycles at later development stages. Empirical implications are discussed.
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Jel Codes: G0, K0, O1, O3, O4, P0
Keywords: development, transition, financial institutions, RandD
Interest Rate Pass-Through in New EU Member States: The Case of the Czech Republic, Hungary and Poland
Jesús Crespo-Cuaresma; Balázs Égert; Thomas Reininger
WP No. 671
(May, 2004)
Abstract: The characteristics of the interest rate pass-through in the Czech Republic, Hungary and Poland are studied making use of autoregressive distributed lags (ARDL) models. Significant differences are found across market interest rates and countries concerning long-run elasticities of market interest rates to changes in the key policy rate. While the null hypothesis of complete pass-through cannot be rejected for any interest rate in Poland, deviations from complete pass-through are present for several interest rates in the Czech Republic and Hungary. Except for the case of the short-term loan rate for enterprises in Hungary, no significant deviation from symmetry in the speed of adjustment to equilibrium is found in the data.
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Jel Codes: C22, E43, E50, E52, G21, O52
Keywords: Interest Rates, Pass-Through, Monetary Transmission Mechanism, ARDL Models, Transition, Accession, Acceding Countries
A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth
Wendy Carlin; Mark Schaffer; Paul Seabright
WP No. 670
(March, 2004)
Abstract: This paper examines the importance of competition in the growth and development of firms. We make use of the large-scale natural experiment of the shift from an economic system without competition to a market economy to shed light on the factors that influence innovation by firms and their subsequent growth. Using a dataset from a survey of nearly 4,000 firms in 24 transition countries, we find evidence of the importance of a minimum of rivalry in both innovation and growth: the presence of at least a few competitors is effective both directly and through improving the efficiency with which the rents from market power in product markets are utilised to undertake innovation.
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Jel Codes: L1, L33, O12, P0
Keywords: competition, productivity growth, innovation, rivalry, transition
Dual Track Liberalization: With and Without Losers
Jiahua Che; Giovanni Facchini
WP No. 669
(March, 2004)
Abstract: The success of the Chinese economic reforms has been linked by many observers to the implementation of a dual track liberalization mechanism. This approach, relying upon the continued enforcement of existing contracts and the simultaneous creation of a free market sector, represents a powerful mechanism in economic reform. If not anticipated, it implements an outcome that is both Pareto improving and efficiency enhancing as compared to the status quo. When the reform is instead anticipated, intertemporal arbitrage arises, potentially undermining these properties. Only when the original policy involves both price setting and quantity restrictions can anticipated dual track liberalization maintain its attractiveness. While these conditions correspond well to the circumstances faced by transition economies, our analysis invites some caution as for the further applicability of the Chinese approach to economic reform.
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Jel Codes: F1, P2
Keywords: Dual Track Liberalization, Intertemporal Arbitrage, Pareto Improving Reforms, China
Enterprise Restructuring and Firm Performance: A Comparison of Rural and Urban Enterprises in Jiangsu Province
Xiao-Yuan Dong; Louis Putterman; Bulent Unel
WP No. 668
(March, 2004)
Abstract: We examine the contrast in the experience of ownership reforms between urban SOEs and rural TVEs using a panel of industrial enterprises in Nanjing municipality for the period from 1994 to 2001. Our objectives are twofold. First, we study how the reform program of "grasp the large and let go of the small" has been carried out in practice by comparing the patterns of enterprise restructuring in the SOEs and the TVEs. Second, we investigate how the alternative reform strategy has affected firm performance in terms of the growth of labor productivity, total factor productivity (TFP), profitability, and worker earnings. We find a sharp contrast in the reform strategies of the SOEs and TVEs in two respects. First, the changes in the SOE sector were more gradual and involved more limited transfer of property rights than did the reform of the TVEs. Secondly, the reforms in both sectors exhibited selection bias but in opposite directions, with worse performing ones being the principal targets of reforms, among SOEs, and better performing enterprises being more likely to be picked for privatization, among TVEs. Our analysis discerns strikingly strong, robust positive effects of ownership restructuring on the growth of labor productivity, TFP and profitability in the reformed SOEs, indicating that the evolutionary reform policy for the SOEs has successfully reversed the trends of declining productivity and profits in these enterprises in Nanjing. We also find that among reformed urban enterprises, those in which private ownership accounts for less than 50% of shares performed better than those in which the majority of shares are owned privately. We find mixed evidence for the TVEs: privatization had no effect on firm performance in a group fixed-effects model but significant, positive effects in a firm fixed-effects model.
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Jel Codes: P23, P26, P31
Keywords: China, ownership reform, privatization, SOE, TVE
A Tale of Two Provinces: The Institutional Environment and Foreign Ownership in China
Yasheng Huang; Wenhua Di
WP No. 667
(March, 2004)
Abstract: In this paper, we use a unique dataset covering joint ventures in two provinces of China, Jiangsu and Zhejiang, to test the effect of the institutional environment for domestic private firms on ownership structures of FDI projects. Unlike many studies on this subject, we approach the issue from the perspective of local firms seeking FDI rather than from the perspective of foreign firms seeking to invest in China. Applying the prevailing bargaining framework in studies on ownership structures of FDI projects, we find that a more liberal institutional environment for domestic private firms is associated with less foreign ownership of the joint ventures operating there. Several mechanisms can contribute to this outcome. One is that a more liberal institutional environment may enhance the bargaining power of those domestic firms negotiating with foreign firms to form alliances (the capability effect). The other mechanism is that a more liberal institutional environment may reduce some of the auxiliary benefits associated with FDI - such as greater property rights granted to foreign investors - and thereby attenuate incentive to form alliances with foreign firms (the incentive effect).
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Keywords: China, FDI, private sector, institutional environment, joint venture
Ownership Characteristics and Access to Finance: Evidence from a Survey of Large Privatised Companies in Hungary and Poland
Natalia Isachenkova; Tomasz Mickiewicz
WP No. 666
(March, 2004)
Abstract: We examine financial constraints and forms of finance used for investment, by analysing survey data on 157 large privatised companies in Hungary and Poland for the period 1998 - 2000. The Bayesian analysis using Gibbs sampling is carried out to obtain inferences about the sample companies' access to finance from a model for categorical outcome. By applying alternative measures of financial constraints we find that foreign companies, companies that are part of domestic industrial groups and enterprises with concentrated ownership are all less constrained in their access to finance. Moreover, we identify alternative modes of finance since different corporate control and past performance characteristics influence the sample firms' choice of finance source. In particular, while being industry-specific, the access to domestic credit is positively associated with company size and past profitability. Industrial group members tend to favour bond issues as well as sells-offs of assets as appropriate types of finance for their investment programmes. Preferences for raising finance in the form of equity are associated with share concentration in a non-monotonic way, being most prevalent in those companies where the dominant owner holds 25%-49% of shares. Close links with a leading bank not only increase the possibility of bond issues but also appear to facilitate access to non-banking sources of funds, in particular, to finance supplied by industrial partners. Finally, reliance on state finance is less likely for the companies whose profiles resemble the case of unconstrained finance, namely, for companies with foreign partners, companies that are part of domestic industrial groups and companies with a strategic investor. Model implications also include that the use of state funds is less likely for Polish than for Hungarian companies.
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Jel Codes: F23, G32, L33, P31, P34
Keywords: financial constraints, investment, enterprises, foreign ownership, industrial groups, concentrated ownership, leading bank, proportional-odds model, Bayesian updating.
Testing Creditor Moral Hazard in Sovereign Bond Markets: A Unified Theoretical Approach and Empirical Evidence
Ayse Y. Evrensel; Ali M. Kutan
WP No. 665
(March, 2004)
Abstract: This paper critically evaluates the existing empirical literature on creditor moral hazard in sovereign bond markets, proposes a unified theoretical approach to test for IMF-induced creditor moral hazard, and provides empirical evidence, using daily sovereign bond market spreads of Indonesia and Korea. The results suggest that IMF-related news regarding program negotiations and approval may be associated with creditor moral hazard, but their impact on spreads is short-lived, indicating that creditor moral hazard could be best described as a short-run phenomenon.
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Jel Codes: F32, F33, F34
Keywords: Creditor moral hazard, financial markets, the IMF, and news
Assessing Equilibrium Exchange Rates in CEE Acceding
Balázs Égert
WP No. 664
(February, 2004)
Abstract: The ambition of this paper is to provide a thorough overview of equilibrium exchange rates in the acceding countries of Central and Eastern Europe. Therefore, theoretical models of equilibrium exchange rates are reviewed first and presented in a structured way. Subsequently, the existing body of the empirical literature aimed at investigating real exchange rate determination and possible misalignments is analyzed in a systematic manner. Finally, an attempt is made to sum up where we stand at the moment and what the major shortcomings of the approaches currently used in the literature are.
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Jel Codes: E31, F31, O11, P20
Keywords: Equilibrium Exchange Rate, BEER, DEER, FEER, NATREX, Balassa-Samuelson
Modelling Stock Returns in the G-7 and in Selected CEE Economies: A Non-linear GARCH Approach
Balázs Égert; Yosra Koubaa
WP No. 663
(February, 2004)
Abstract: This paper investigates conditional variance patterns in daily return series of stock market indices in the G-7 and 6 selected economies of Central and Eastern Europe. For this purpose, various linear and asymmetric GARCH models are employed. The analysis is conducted for Canada, France, Germany, Italy, Japan, the UK and the US for which the TSX, CAC-40, DAX-100, BCI, Nikkei-225, FTSE-100 and DJ-30 indices are respectively considered over the period 1987 to 2002. Furthermore, the official indices of Czech, Hungarian, Polish, Russian, Slovak and Slovene stock markets are also studied, i.e. the PX-50, BUX, WIGI, RFS, SAX-16 and SBI, respectively, over 1991/1995 to 2002. The estimation results reveal that the selected stock returns for the G-7 can be reasonably well modelled using linear specifications whereas the overwhelming majority of the stock indices from Central and Eastern Europe can be much better characterised using asymmetric models. In other words, stock markets of the transition economies exhibit much more asymmetry because negative shocks hit much harder these markets than positive news. It also turns out that these changes do not occur in a smooth manner but happen pretty brusquely. This corroborates the usual observation that emerging stock markets may collapse much more suddenly and recover more slowly than G-7 stock markets.
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Jel Codes: C52, G10, P52
Keywords: volatility modelling, conditional variance, non-linearity, asymmetric GARCH, G-7, transition economies
Institutional Change and Product Composition: Does the Initial Quality of Institutions Matter?
Johannes Moenius; Daniel Berkowitz
WP No. 662
(February, 2004)
Abstract: We argue that the quality of institutions that enforce contracts and protect property rights influences the costs of producing high-value added (complex) versus low-value added (simple) products. Since data is hardly available for domestic transactions, we generate predictions about the relationship between the quality of institutions and product composition with an international trade model and use a rich international trade data set for empirical tests. We find that improvements in institutional quality increase the share and volume of a country's complex product exports. However, the initial quality of institutions is important, since in countries with the least developed institutions, the share of complex products in exports is generally small and, institutional reform has almost no influence on simple product exports. These findings cast doubts on the efficacy of institutional reform in countries with underdeveloped institutions.
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Jel Codes: F14, K33, O24, P14
Keywords: Complex and simple products, volume effect of institutions, compositional effect of institutions
Dual Track Liberalization: With and Without Losers
Jiahua Che; Giovanni Facchini
WP No. 661
(February, 2004)
Abstract: Dual track liberalization, relying upon the continued enforcement of existing contracts and the simultaneous creation of a free market sector, represents a powerful mechanism in economic reform. If not anticipated, the reform implements an outcome that is both Pareto improving and e±ciency enhancing as compared to the status quo. We show that when the reform is anticipated, intertemporal arbitrage arises potentially undermining these properties. Only when the original policy involves both price setting and quantity restrictions can anticipated dual track liberalization maintain its attractiveness. These conditions correspond well to the circumstances faced by transition economies.
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Jel Codes: F1, P2
Keywords: Dual Track Liberalization, Intertemporal Arbitrage, Pareto Improving Reforms, China
Who Is in Favor of Enlargement? Determinants of Support for EU Membership in the Candidate Countries’ Referenda
Orla Doyle; Jan Fidrmuc
WP No. 660
(February, 2004)
Abstract: We analyze support for EU membership as expressed in voting patterns in the candidate countries' referenda on EU membership, using regional referendum results and individual survey data on voting intentions. We find that favorable individual and regional characteristics are positively correlated with support for accession and voter participation. In contrast, those who should benefit from future EU transfers are less likely to vote and/or support EU membership. We argue that voters in the candidate countries assign greater weight on future benefits from liberalization and integration than on potential gains through redistribution.
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Jel Codes: J61, P26, P33, Z13
Keywords: Voting, referendum, EU enlargement, integration
Creditor Moral Hazard in Equity Markets: A Theoretical Framework and Evidence from Indonesia and Korea
Ali M. Kutan; Ayse Y. Evrensel
WP No. 659
(February, 2004)
Abstract: This paper expands on the work of Sarno and Taylor (1999) and develops three alternative models in which creditor moral hazard might occur in equity markets under different assumptions regarding the existence of asset market bubbles and implicit guarantees. Incorporating IMF-related news associated with the own country and with other countries to our models, we are able to predict the expected change in investor behavior and its effect on stock returns. Using daily stock returns for Indonesia and Korea, we test the ability of the models to predict the expected changes in stock returns on the days of IMF-related news such as program negotiations and program approval. Our results regarding Korea and, to a lesser extent, Indonesia are consistent with the creditor moral hazard models that assume implicit guarantees and asset price bubbles. Our results show that, if there is creditor moral hazard in equity markets, its duration could be measured only by days, suggesting that creditor moral hazard is a short-term phenomenon.
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Jel Codes: F32, F33, F34
Keywords: Creditor moral hazard, financial markets, the IMF, and news
Worsening of the Asian Financial Crisis: Who is to Blame?
Ali M. Kutan; Brasukra G. Sudjana
WP No. 658
(February, 2004)
Abstract: Some observers have argued that the IMF's focus on the institutional weaknesses of the Asian crisis countries that are inherently difficult to remedy and not necessarily relevant for the crisis, and that their inclusion in IMF programs exacerbated the crisis. This paper argues that besides IMF actions, it is important to consider other factors such as governments' own policy actions and the degree of socio-political instability in affected countries to better assess the factors that might have exacerbated the crisis. Using Indonesia as a case study, we show that political turmoil and government policy actions taken independent of IMF programs lowered the dollardenominated stock market returns, while IMF-related news did not have any significant effect the returns. However, the negative impact of independent government policy announcements on investor wealth was larger than that of political instability.
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Jel Codes: F3, G1, O53
Keywords: Asian crisis, the IMF, Asset Markets
European Integration, Productivity Growth
Taner M. Yigit; Ali M. Kutan
WP No. 657
(February, 2004)
Abstract: This paper derives a stochastic endogenous growth model that investigates the impact of European Union integration on convergence and productivity growth. We deviate from the general strand of literature by not only deriving a theoretical model for the effects of integration on the rate of economic growth, but also by using more appropriate estimation techniques. The outcome of a series of panel and structural break tests examining the accession process of five recent members to the Union generally show improved rates of productivity growth and convergence to EU standards. We then draw from the experience of these recent members to derive implications for the first-round EU candidate countries. Subsequent tests on the first-round candidate countries find a high level of heterogeneity in growth rates, and a fast-paced convergence to EU standards.
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Jel Codes: O4, O52, P2
Keywords: European integration, growth, transition economies, convergence
The Impact of News, Oil Prices, and Global Market
Bernd Hayo; Ali M. Kutan
WP No. 656
(February, 2004)
Abstract: This paper analyzes the impact of news, oil prices, and international financial market developments on daily returns on Russian bond and stock markets. First, regarding returns, energy news affects returns, while news from the war in Chechnya is not significant. Market volatility does not appear to be sensitive to either type of news. Second, a significant effect of the growth in oil prices on Russian stock returns is detected. Third, the international influence on Russian financial markets depends upon the degree of financial liberalization. The higher the degree of financial liberalization, the stronger is the impact of U.S. stock returns on Russian financial markets. In addition, banking reform and interest rate liberalization efforts seem to dictate the globalization of Russian stock markets, while it is the progress in liberalizing securities markets and non-bank financial institutions that matters more for the globalization of Russian bond markets.
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Jel Codes: C5, F36, G12, G15
Keywords: financial market behavior, financial market integration, stock market
Politics and Economic Reform in Malaysia
Bryan K. Ritchie
WP No. 655
(February, 2004)
Abstract: Malaysia's admirable economic growth is often attributed to liberal, open economic policies. Aggregate measures of openness, however, often veil the way coalitional politics drove illiberal government intervention in the economy to correct ethnically based economic inequality, create national heavy industries, and favor politically well-connected entrepreneurs. A more nuanced analysis reveals a complex mix of liberal and illiberal economic policies designed to balance competing coalitional interests. These policies created a "dual economy" that successfully replaced growing political and social instability with rapid economic growth sufficient to support redistributive politics. Yet this same dual economy also slowed further reform and retarded technological development, leaving Malaysia mired in mediocrity: neither price competitive with China nor technologically competitive with Singapore, the East Asian NICs, or the OECD countries.
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Jel Codes: F43, O14, O38
Keywords: Malaysia, Economic Reform, Technological Upgrading, Coalitions, Dualism
The Evolution of Income Inequality in Rural China
Dwayne Benjamin; Loren Brandt; John Giles
WP No. 654
(February, 2004)
Abstract: We document the evolution of the income distribution in rural China, from 1987 through 1999, with an emphasis on investigating increases in inequality associated with transition and economic development. With a backdrop of perceived improvements in average living standards, we ask whether increases of inequality may have offset, or even threaten welfare gains associated with economic reforms. The centerpiece of the paper is an empirical analysis based on a set of household surveys conducted by the China's Research Center for Rural Economy (RCRE) in Beijing. These surveys permit us to construct a set of comparable estimates of household income and consumption from a panel of over 100 villages from nine Chinese provinces. We provide a variety of summary statistics, including Gini coefficients, as well as more nonparametric summaries of the income distribution (i.e., Lorenz curves). In addition, we decompose the sources of inequality, exploring the contributions of spatial inequality to overall inequality, and the role of non-agricultural incomes in explaining rising dispersion of incomes. We find that the distribution of income improved by most measures during the early part of the period, as average incomes rose substantially with only a modest increase in inequality. However, the distribution has worsened significantly since 1995, with rising inequality, and falling absolute incomes, especially at the bottom end of the income distribution. We attribute most of the recent decline in welfare to collapsing agricultural incomes, probably brought about by lower farm prices. At the same time, increasing non-farm incomes have widened the gaps between those with and without access to nonagricultural opportunities. Based on explorations with different data sets, our RCRE-based results probably understate the divergence due to non-agricultural income growth and the increase in inequality over time. Our results highlight the need for further evaluation of the role of farming as a source of income in the countryside, and also underline the limitations of a land-based (and essentially grain-based) income support and redistribution mechanisms.
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Jel Codes: D3, O15, P36
Keywords: Rural inequality; China; welfare and transition; poverty; farm incomes
The sources of Real Exchange Fluctuations in Developing Countries : an Econometric Investigation
Imed Drine; Christophe Rault
WP No. 653
(February, 2004)
Abstract: In this paper we address the two following questions: (1) what are the major sources of real exchange rate fluctuations in developing countries? (2) do economic policy makers have room to face possible real exchange rate fluctuations? To answer these questions, we estimate a structural VAR model for 3 developing countries (Morocco, The Philippines, Uruguay) and carry out the conventional exercises of impulse response functions and of variance decomposition of forecast error. Our investigatation suggest that domestic shocks dominate real exchange rate fluctuations and that the contribution of external shocks is relatively low. Besides, the low contribution of the nominal shock put into question monetary policies which seek to promote competitiveness through a currency devaluation. Moreover, our estimations confirm that the real exchange rate also depends on shocks on foreign interest rate and/or on the terms of exchange which can make it move from its equilibrium level. The budgetary tool therefore remains efficient to stabilize the real exchange rate with respect to possible external shocks.
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Jel Codes: P20, P27
Keywords: Serbia, post-socialist transformation, transition, blocked transition,
Ownership, Control and Corporate Performance After Large-Scale Privatization
Jan Hanousek; Evzen Kocenda; Jan Svejnar
WP No. 652
(February, 2004)
Abstract: We analyze the effects of ownership type and concentration on performance of a population of firms in a model large-scale privatization economy (Czech Republic). Using specifications based on first-differences and unique instrumental variables, we find that few types of private ownership improve dynamic post-privatization performance. Concentrated foreign (but not domestic) ownership improves some measures of performance relative to state ownership. Foreign investors engage in strategic restructuring by increasing the rate of change of sales, while domestic private owners reduce the rate of change of sales and labor cost without increasing profitability. The effects of concentrated foreign ownership support the agency theory and go against theories stressing the positive effects of managerial autonomy and initiative. Our results are also consistent with the thesis that large domestic stockholders are not improving performance because they loot the firms. We find some support for the hypothesis that firms restructure by first lowering and later increasing the rate of change of employment. The state as a holder of the golden share has a positive effect on employment, while stimulating profitable restructuring. The state hence appears as a more economically and socially helping agent than in some recent studies.
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Jel Codes: C33, D20, G32, G34, L20
Keywords: ownership, performance, privatization, corporate governance, panel data,
Czech Social Reform/Non-reform: Routes, Actors and Problems
Jiri Vecernik
WP No. 651
(February, 2004)
Abstract: In this contribution, the author first considers the characteristics of the Czechoslovak communist welfare state and its theoretical alternatives. Throughout the reform process, dependency on both corporatist and socialist regimes won out, while residualist efforts were promoted in the beginning, but were later held back. The author then considers the possible actors involved in social reforms. In this respect, when proceeding from a general to a more concrete level, thought should first be devoted to the social classes and their ideologies, and second to political parties and their leaders. The author goes on to summarise the particular problems and traps in individual sections of the Czech social system. While no objection to decent standards of social protection and health care could be raised, the poor efficiency of their achievement should evoke concern. The author concludes by reflecting on the possible specificities of Czech social reform in comparison with the other countries undergoing reform and the EU. The current lethargy of the Czech welfare system corresponds to a "frozen edifice," just as in most Western countries. However, such stagnation is apparently acceptable to both the politicians (who mask it in reformist rhetoric) and the population (which learned to master taking advantage of the generous welfare state) and thus is basically sustainable in the long run.
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Jel Codes: H5, I3, P26
Keywords: social policy, social reforms, Czech Republic
Financial Integration, Exchange Rate Regimes in CEECs, And Joining the EMU: Just Do It...
Mathilde Maurel
WP No. 650
(February, 2004)
Abstract: Candidate countries of central and eastern Europe (CEECs) are suppose to join the EU in 2004, June, which imply that they will face important challenges in the conduct of macroeconomic policy, in order to be able to enter the ERM-II system and eventually enter the EMU (European Monetary Union). Abandoning an independent monetary policy might entail significant costs for countries, which have succeeded in recovering and are in a process of catching-up. However those costs have probably been exaggerated, and their estimation biased by the traditional optimal currency area criteria. The main criticism against a too strong emphasis on the latter rests on two arguments. The first one is that assessing the trade-off for joining the EMU does not deliver the same conclusion ex ante and ex post. Meanwhile, the degree of financial integration will likely increase dramatically, which in turns will decrease the opportunity cost of loosing the monetary policy for absorbing country specific shocks. In a world of capital mobility, the room left for an independent monetary policy is very narrow, maybe close to zero in small, emerging countries, more vulnerable to speculative attacks than countries in the core. The second argument is more empirical. While the link between the exchange rate regime and the fundamentals is rather weak, the political agenda of joining the EU and subsequently the EMU seems to explain the choice of the exchange rate regime.
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Jel Codes: F15, F41
Keywords: exchange rate arrangements, accession to the EMU, EU enlargement, international capital
Corporate Investments, Liquidity and Bank Financing: Empirical Evidence from an Emerging Market
Arun Khanna
WP No. 649
(February, 2004)
Abstract: A number of studies in the prior literature have found a link between cash flow and firm investment [Hubbard (1998) and cites therein]. Findings of most of these studies have the caveat that cash flow could simply be capturing expectations of future profitability because the empirical proxy (typically a version of average Q or market to book ratio) for marginal Q is imperfect. This study removes this caveat while retaining the Fazarri, Hubbard and Petersen's (1988) a-priori sorting of firms into liquidity constrained and non-liquidity constrained regression framework. This study focuses on inventory investments of two sets of Indian manufacturing firms: issuers and non-issuers of short-term arm's length debt during 1996-97, a time period of robust economic growth and simultaneously an inward shift in the supply of bank loans instituted by the Reserve Bank of India (RBI). Non-issuer firms have significantly higher investment-liquidity sensitivities vis-à-vis issuer firms for inventory investments in 1996-97. Issuer and non-issuer firms investing less than their internal funds have no differences in liquidity coefficients while firms investing more than their internal funds do. Issuer and non-issuer firms that do not face an increase in the cost of external debt (ergo not an increase in inferred external and internal cost of funds wedge) have no differences in liquidity coefficients while the two set of firms that face an increase do. Differences in investment-liquidity sensitivities between the two set of firms arise from their differences in bank dependence and hypotheses including pure bank dependence, priority lending and loans above banks' rule for estimating a firm's debt capacity find empirical support. Bank characteristics based hypotheses including single banking relationship and weak banks with below Basle capital standards cannot explain differences in liquidity constraints. Alternative explanations including agency problems, the flypaper effect, over-investment, legal regimes of parent companies and crony capitalism do not find empirical support. Debt overhang hypothesis is supported by the data.
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Keywords: Liquidity Constraints, Inventories, Bank Financing, Agency Problems,Flypaper Effect, Capital Investments and India.
Financial Constraints in Investment - Foreign Versus Domestic Firms.
Tomasz Mickiewicz; Kate Bishop; Urmas Varblane
WP No. 648
(February, 2004)
Abstract: Using data from Estonian manufacturing firms during the period 1995-1999 we apply panel data techniques, in particular the Arellano-Bond (1991) method to investigate the investment behaviour. We employ the model of optimal capital accumulation in the presence of convex adjustment costs. We find that the domestic companies seem to be more financial constrained than those with the presence of foreign investors. Furthermore we find that smaller firms are more constrained than their larger counterparts.
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Jel Codes: C23, F23, G32, P31
Keywords: Investment, Cash Flow, Foreign Ownership, Firm Size, Estonia
Legal Minimum Wages and the Wages of Formal and Informal Sector Workers in Costa Rica
T.H. Gindling; Katherine Terrell
WP No. 647
(February, 2004)
Abstract: The classic dual economy models of developing countries hold minimum wages (among other institutions) accountable for persistent dualism. They note that applying or enforcing minimum wage laws in only one sector of the economy will create wage differentials which will not be eroded with labor mobility to the high wage sector. In this paper we use 12 years of micro data on thousands workers living in Costa Rica to test whether legal minimum wages have a differential impact on the wages of workers in the formal sector vs. informal sector, defined in various ways in accordance with the dual development models. The evidence from Costa Rica is contrary to the assumptions of these models. We find that increases in minimum wages not only raise the wages of workers in the urban formal sector (large urban enterprises) who are covered by minimum wage law, but they also increase the wages of all other workers covered by minimum wage legislation in what are traditionally regarded as informal sectors and where the legislation is often considered not to be enforced.
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Jel Codes: J23, J31, J38
Keywords: dual economy, informal sector, minimum wages, wages, Costa Rica, Latin America
Employment Expectations and Gross Flows by Type of Work Contract
Catalina Amuedo-Dorantes; Miguel Á. Malo
WP No. 646
(January, 2004)
Abstract: There is growing interest in understanding firms' temporary and permanent employment practices and how institutional changes shape them. Using data on Spanish establishments, we examine: (a) how employers adjust temporary and permanent job and worker flows to prior employment expectations, and (b) how the 1994 and 1997 labour reforms promoting permanent employment affected establishments' employment practices. Generally, establishments' prior employment expectations are realized through changes in all job and worker flows. However, establishments uniquely rely on temporary hires as a buffer to confront diminishing long-run employment expectations. None of the reforms significantly affected establishments' net temporary or permanent employment flows.
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Jel Codes: J2, J20, J21, J23, J41
Keywords: Gross job flows, gross worker flows, temporary, permanent, expectations, Spain
Transition on the Shop Floor - The Restructuring of a Weaving Mill, Hungary 1988-97
János Köllo
WP No. 645
(January, 2004)
Abstract: While a variety of studies analysed the benign effects of privatisation on firm performance under post-socialist transition using financial data very little is known about how the apparent productivity gains were achieved. This paper follows a weaving mill from 1998 to 1997 on its way of becoming a capitalist enterprise and gives a detailed account of the sources and limits of productivity growth. The data suggests that the factory was not far from the competitive optimum given the size of "plant and equipment" - efficiency gains were mostly achieved by plant size reduction and asset stripping. The gains from this sort of initial restructuring helped many former state enterprises stay on the market but they did not necessarily indicate high levels of adaptability, capacity to innovate and ability to attract outside investors. In economies with many `seemingly restructured` privatised enterprises the elimination of the former state sector jobs is likely to continue within the private sector. The process may last for years after privatisation as a legal act had been fully accomplished.
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Jel Codes: D21, J31, L2
Keywords: firm behaviour, firm objectives, compensation, transition, Hungary
Fighting “Low Equilibria” by Doubling the Minimum Wage ?
Gábor Kertesi; János Köllo
WP No. 644
(January, 2004)
Abstract: In January 2001 the Hungarian government increased the minimum wage from Ft 25,500 to Ft 40,000. One year later the wage floor rose further to Ft 50,000. The paper looks at the short-run impact of the first hike on small-firm employment and flows between employment and unemployment. It finds that the hike significantly increased labor costs and reduced employment in the small firm sector; and adversely affected the job retention and job finding probabilities of low-wage workers. While the conditions for a positive employment effect were mostly met in depressed regions spatial inequalities were amplified rather than reduced.
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Jel Codes: J38, P23, R23
Keywords: Minimum wages, Regional labor markets, Transition, Hungary
Mind the Break! Accounting for Changing Patterns of Growth during Transition
Jan Fidrmuc; Ariane Tichit
WP No. 643
(January, 2004)
Abstract: We argue that econometric analyses based on transition countries' data can be vulnerable to structural breaks across time and/or countries. We demonstrate this argument by identifying structural breaks in growth regressions estimated with data for 25 countries and 12 years. Our method allows identification of structural breaks at a-priori unknown points in space or time. The only prior assumption is that breaks occur in relation to progress in implementing market-oriented reforms. We find robust evidence that the pattern of growth in transition has changed at least two times, yielding thus three different models of growth associated with different stages of reform. The speed with which individual countries progress through these stages differs dramatically, however.
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Jel Codes: O47, P26, P27
Keywords: Growth, reform, structural breaks, transition
The Monetary Approach to Exchange Rates in the CEECs
Jesús Crespo-Cuaresma; Jarko Fidrmuc; Ronald MacDonald
WP No. 642
(January, 2004)
Abstract: A panel data set for six Central and Eastern European countries (the Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia) is used to estimate the monetary exchange rate model with panel cointegration methods, including the Pooled Mean Group estimator, the Fully Modified Least Square estimator and the Dynamic Least Square estimator. The monetary model is able to convincingly explain the long-run dynamics of exchange rates in CEECs, particularly when this is supplemented by a Balassa-Samuelson effect. We then use our long-run monetary estimates to compute equilibrium exchange rates. Finally, we discuss the implications for the accession of selected countries to the European Economic and Monetary Union.
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Jel Codes: C33, F31, F36
Keywords: Exchange rates, monetary model, panel unit root tests, panel cointegration, EMU.
Community Norms and Organizational Practices: The Legitimization of Wage Arrears in Russia, 1992-1999
John S. Earle; Andrew Spicer; Klara Sabirianova Peter
WP No. 641
(January, 2004)
Abstract: What role do community norms play in the diffusion and persistence of new organizational practices? We explore this question through an examination of the widespread practice of wage arrears, the late and nonpayment of wages, in Russia during the 1990s. Existing research on wage arrears most often examines this practice as a means of flexible wage adjustment under difficult economic conditions. We develop an alternative theory that explains wage arrears through their acceptance as a legitimate form of organizational behavior within local communities. Our empirical analysis finds some support for the neoclassical position that wage arrears reflect adjustment to negative shocks, but this perspective fails to account for a number of important facts, including a high level of arrears among apparently successful firms. In contrast, our results find strong support for the institutional perspective. The statistical analysis demonstrates powerful and robust community effects both in firm adoption of this practice, controlling for firm performance, liquidity, and fixed firm effects, and in workers' reaction to arrears, through their quit (exit) and strike (voice) behavior.
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Jel Codes: A12, A14, B52, J30, L14, O17, P31, P37
Keywords: institutions, norms, legitimacy, arrears, organizational practices, sociology, Russia
Trust In Transition: Cross Country And Firm Evidence
Martin Raiser; Alan Rousso; Franklin Steves
WP No. 640
(January, 2004)
Abstract: This paper uses data from a large survey of firms across 26 transition countries to examine the determinants of trust in the transition process. We first introduce a new measure of trust between firms: the level of prepayment demanded by suppliers from their customers in advance of delivery. Using this new measure, we confirm earlier findings that trust is higher where firms have confidence in third party enforcement through the legal system. However, the fairness and honesty of the courts are a more important determinant of interfirm trust than are the courts? efficiency or ability to enforce decisions. We then examine the role of business networks in building trust and find that networks based around personal ties - family and friends - and business associations actively promote the development of trust, while business networks based on enterprise insiders and government agencies do not. Finally, we find that country-level effects are significantly more important determinants of interfirm trust than are firm-level effects.
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Jel Codes: C14, C22, C51, E43, F31, F33, F36, P59
Keywords: Trust, Prepayment, Courts, Business Networks
Finance, Human Capital, Technical Assistance, and the Business Environment in Romania
J. David Brown; John S. Earle; Dana Lup
WP No. 639
(January, 2004)
Abstract: Although the development of a new private sector is generally considered crucial to economic transition and development, there has been little empirical research on the determinants of startup firm growth. This paper uses panel data techniques to analyze a survey of 297 new small enterprises in Romania containing detailed information from the startup date through 2001. We find strong evidence that access to external finance (loans) increases the growth of both employment and sales. Taxes appear to constrain growth. There is some evidence that entrepreneurial skills increase growth, but only weak evidence for the effectiveness of technical assistance, and only when it is provided by foreign partners or international agencies. A wide variety of alternative measures of the business environment (contract enforcement, property rights, and corruption) are tested, but are found to have little or no association with firm growth.
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Jel Codes: M13, O16, O19, P26
Keywords: small firms, entrepreneurship, microfinance, business environment
The Politics of Economic Reform in Thailand: Crisis and Compromise
Allen Hicken
WP No. 638
(January, 2004)
Abstract: What explains the varying responses by Thai governments to changes in the international economic environment over time. To answer this the paper emphasizes the link between the nature of the political structure/policymaking environment and the government's reform capacity. Thailand's political structure typically undercuts the government's reform capacity in two way. First, it is difficult to get needed reforms on the political agenda. Second, it is even harder to push reforms through the policy process to implementation. During the 1980s, Thailand was able to overcome some of the challenges inherent in its political system via an informal compromise between party politicians and technocratic reformers. This 'pork-policy compromise' gave the government the capacity to adopt certain reforms-reforms that laid the foundation for the economic boom of the late 1980s and early 1990s. Changes in the political structure in the late 1980s brought an end to this compromise, thereby reducing the government's reform capacity.
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Jel Codes: H1, H3, H4
Keywords: Thailand, reform, political economy, capacity
How Much Restructuring did the Transition Countries Experience? Evidence from Quality of their Exports
Yener Kandogan
WP No. 637
(January, 2004)
Abstract: The increase in exports to market economies is a good sign, but it is not conclusive about the extent of restructuring of production technologies experienced in transition countries. This paper explores the source of the increase with an analysis of their exports' quality, interprets the results for the extent of restructuring, and discusses the potential factors behind them. Changes in factor intensity and unit values of both CEEC and CIS exports in different manufacturing sectors during 1992-1999 are analyzed. Although CEEC are in a significantly better position than CIS due to Europe Agreements, there is still large number of products with structural problems in CEEC. Insufficient FDI, the OPT in the Europe Agreements, and not fully exploited human capital are suggested as possible factors.
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Jel Codes: F14, F15, O19, P27
Keywords: Unit values, Restructuring, Eastern Europe, Commonwealth of Independent
Estimating the Size and Growth of Unrecorded Economic Activity in Transition Countries: A Re-evaluation of Electric Consumption Method Estimates and their Implications
Edgar L. Feige; Ivica Urban
WP No. 636
(December, 2003)
Abstract: It is widely acknowledged that underground (unrecorded) economic activities play a major role in transition economies. Evaluations of the success and failure of the transition experience should therefore be based on total economic activity [TEA], namely, the sum of recorded and unrecorded economic activity. Substantive conclusions concerning the effects of unrecorded activities on the transition process as well as investigations of the causes and consequences of unrecorded activities have to date, relied extensively on estimates of unrecorded income based on variants of the electric consumption method [ECM] during the first half of the transition process. We first attempt to replicate these estimates employing improved data series. We then go on to extend and update alternative versions of the ECM estimates of unrecorded income for twenty five transition countries for the period 1989-2001. These new estimates enable us to examine the sensitivity of the results to alternative specifying assumptions, particularly, initial conditions. We find that our updated ECM estimates of the size of the unrecorded sector are not only highly sensitive to initial conditions, but they produce negative estimates of unrecorded income for many transition countries. Our findings are also compared to the new national accounting procedures that attempt to estimate exhaustive measures of the 'non-observed economy.' Our disturbing results call into question many of the substantive conclusions reached by other scholars who relied on earlier ECM estimates to draw inferences about the transition process as well as the causes and consequences of underground economies in transition.
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Jel Codes: D78, H2, H26, O17, O40, O5, P20
Measuring the Value Added by Money in Trade
Vlad Ivanenko
WP No. 635
(November, 2003)
Abstract: The paper tests the proposition that money generates value in trade. It examines the data for 5,746 Russian companies for 1997 and finds that money accounts for 24.6 percent of their value-added. The functional form of the return on money in trade is determined to be positive and marginally declining. The paper imputes that Russian GDP lost 8.1 percent in 1997 because of diminished use of money in trade. It hypothesizes that the severity of the Great Depression in the USA of 1930s could have been significantly reduced if the proposed barter networks were implemented at the time.
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Jel Codes: E4, N10, P34
Keywords: Money, Value-added, Empirical econometrics
Sensitivity of the Exporting Economy on the External Shocks: Evidence from Slovene Firms
Janez Prasnikar; Velimir Bole; Ales Ahcan; Matjaz Koman
WP No. 634
(November, 2003)
Abstract: In this paper we investigate the export participation of Slovene firms. We first show that sunk costs are an important factor for explaining the export behavior of Slovene firms. Next we show that when the absorption power of the exporting market declines, firms still trade with their established buyers (hysteresis) despite the fact that due to lower prices their exporting revenues decline. We show that this can be explained with high exit costs, which consist of switching costs (costs of replacing stable buyers with new ones) and cost of reducing the production (compensation money for excess workers) and high re-entry costs.
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Jel Codes: C20, F10, L10
Keywords: International trade, export, distressed export, entry costs, exit costs, credit raiting
Reputation Flows: Contractual Disputes and the Channels for Inter-firm Communication
William Pyle
WP No. 633
(November, 2003)
Abstract: Inter-firm information exchange with respect to the reliability of trade partners may be unmediated in the sense that it involves direct communication between the personnel of two firms. Alternatively, this information flow may be channeled by or through an organization such as a trade association. We assess the relationship between these two mechanisms for conveying reputational information. Based on evidence from five transition countries, we find that trade associations' role as informational intermediaries in this regard is sensitive to the geographic relationship between a potential supplier (demander) of reputational information and the firm whose behavior may be reported (acquired). What is more, the use of trade associations as conduits for reputation flows seems to be more strategic than the use of unmediated communication in that it is highly sensitive to the effects of market structure.
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Jel Codes: D83, L2, O17, P3
Keywords: reputation, transition, trade associations
The Politics of Development Policy and Development Policy Reform in New Order Indonesia
Michael T. Rock
WP No. 632
(November, 2003)
Abstract: How can we account for Indonesia's astonishing development performance between 1965 and 1997-rapid growth, massive reduction in the incidence of poverty, low income-inequality and substantial diversification of the economy-in the face of extremely dirigiste microeconomic policies, even by developing country standards, and massive, systemic and endemic rent-seeking and corruption? This question is answered by demonstrating that Suharto, the leader of Indonesia's New Order government, was extremely successful in building and sustaining a procapitalist, pro-integration with the world economy, and pro-growth with equity political coalition in which corruption played a central role.
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Jel Codes: F14, N15, N55, N65, O53, Q1
Keywords: Suharto, New Order, corruption, Indonesia, development policy, economic reform
The Reorientation of Transition Countries' Exports: Changes in Quantity, Quality and Variety
Yener Kandogan
WP No. 631
(November, 2003)
Abstract: The paper analyzes the factors behind the reorientation of transition countries' exports to their non-traditional partners outside their former block. First, the amount of reorientation is calculated using a gravity model. Then, reasons for the cross-country differences in the rate of closing the gap between the actual and potential exports, such as increases in quantity, quality, and variety, are analyzed using a variety of measures from the literature. The results show that although exports have increased significantly, as of 1999 they are still far below the potential in CIS and to a lesser extent in CEEC. Change in quantity has been the primary reason behind the reorientation of CIS exports. However, it had smaller effect on CEEC reorientation, where increase in product variety has been important. Although some quality improvement is observed in both CEEC and CIS, it had small effect on the extent of reorientation.
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Jel Codes: F14, F15, P33
Keywords: Eastern Europe, Commonwealth of Independent States, Intra-industry Trade
Inequality of Outcomes and Inequality of Opportunities in Brazil
François Bourguignon; Francisco H.G. Ferreira; Marta Menéndez
WP No. 630
(November, 2003)
Abstract: This paper departs from John Roemer's theory of equality of opportunities. We seek to determine what part of observed outcome inequality may be attributed to differences in observed 'circumstances', including family background, and what part is due to 'personal efforts'. We use a micro-econometric technique to simulate what the distribution of outcomes would look like if 'circumstances' were the same for everybody. This technique is applied to Brazilian data from the 1996 household survey, both for earnings and for household incomes. It is shown that observed circumstances are a major source of outcome inequality in Brazil, probably more so than in other countries for which information is available. Nevertheless, the level of inequality after observed circumstances are equalized remains very high in Brazil.
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Jel Codes: D31, D63, J62
Keywords: Inequality of Opportunities, Intergenerational Educational Mobility
Job Search Behavior of Unemployed in Russia
Natalia Smirnova
WP No. 629
(November, 2003)
Abstract: This paper explores the determinants of job search behavior, search intensity and choices of search methods of the unemployed workers in transitional Russia. We use pooled data from rounds 5-9 of the Russia Longitudinal Monitoring Survey (RLMS) to estimate the effects of socio-economic factors on the choices workers make while looking for a job. The results show that women are significantly less likely than men to engage in job search, they lag significantly behind men in search intensity, and significantly differ from men in their search strategies. Job search behavior of workers living in metropolitan areas of Moscow and St. Petersburg varies substantially from the behavior of workers living in other regions of Russia. The most frequently used search strategy in Russia, as in other countries, is contacting friends and relatives for job leads.
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Jel Codes: J64, P23
Keywords: Russia, Transition, Job Search, Search Intensity, logit
How has Economic Restructuring Affected China's Urban Workers?
John Giles; Albert Park; Fang Cai
WP No. 628
(October, 2003)
Abstract: Using data from the China Urban Labor Survey conducted in five large Chinese cities at year end 2001, we quantify the nature and magnitude of shocks to employment and worker benefits during the period of economic structuring from 1996 to 2001, and evaluate the extent to which adversely affected urban workers had access to public and private assistance. Employment shocks were large and widespread, and were particularly hard on older workers and women. Unemployment reached double digits in all sample cities and labor force participation declined by 8 percent. Urban residents faced modest levels of wage and pension arrears, and sharp declines in health benefits. Public assistance programs for dislocated workers had limited coverage, with most job-leavers relying upon private assistance to support consumption, mainly from other household members.
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Jel Codes: J23, J32, J64, J65, O53, P30
Keywords: labor, unemployment, China, restructuring
The Life Cycle of Government Ownership
Jiahua Che
WP No. 627
(October, 2003)
Abstract: Government ownership may dominate private ownership under government failure. Such dom- inance disappears as product markets grow mature, giving rise to the need for privatization. Buyers' limited wealth imposes a constraint on how and when privatization takes place. In particular, ¯rms may be underpriced during privatization, and privatization may take place at a sub-optimal timing which results in ¯rm performances to deteriorate in the short run, and to improve only in the long run. Partial privatization may alleviate the constraint in some cases but exacerbates the e±ciency loss in others. When the government is lesser an interventionist or when the product market grows mature very rapidly, privatization is likely to take place at a sub-optimal timing. The analysis is applied to the dynamics of the Chinese non-state sector.
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Jel Codes: K40, L20, P30
Keywords: government rent seeking, government ownership, privatization
Blocked Transition And Post-Socialist Transformation: Serbia in the Nineties
Silvano Bolcic
WP No. 626
(October, 2003)
Abstract: This paper is showing that Serbia in the nineties was an interesting case of postsocialist transformation in spite of the greatly blocked transition. The key sign of the post-socialist transformation has been the formation of a new transformative social force ? formation of entrepreneurs and of the strata of social owners. Initial transformation of ownership relations in Serbia began in the 1990-1991. period, with limited privatization of some 40% of all former ?socially owned? enterprises . Privatization of such firms was practically blocked in 1992-2000. period. Some comments on ownership transformation after the regime change at the end of year 2000 are given in the paper. There was an autonomous growth of the private sector during the nineties generated by the formation of some 200.000 new private firms. It was shown in the paper that some branches, like retail trade, have been de facto privatized thanks to the predominance in trade business of new private retail trade firms. Social features of new entrepreneurs in Serbia have been analyzed, based on author? s surveys. Positive impact of new entrepreneurs has been not only in generating and enforcing systemic changes by the end of nineties, but also in preventing overall aggravation of living conditions of people in Serbia in this period. New entrepreneurs were spreading new life orientations, innovativeness, readiness to take responsibility for one?s life, especially among the young generations. The author believes that post-socialist transformation in the nineties facilitated regime change in the Fall of year 2000.
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Jel Codes: P20, P27
Keywords: Serbia, post-socialist transformation, transition, blocked transition,
Generalizing the Causal Effect of Fertility on Female Labor Supply
Guillermo Cruces; Sebastian Galiani
WP No. 625
(October, 2003)
Abstract: Abstract We study the effect of fertility on labor supply in Argentina and Mexico exploiting a source of exogenous variability in family size first introduced by Angrist and Evans (1998) for the United States. Our results constitute the first external validation of the estimates obtained for the US. External validation of empirical results is central to the making of rigorous science, but there are very few attempts to establish it. We find that the estimates for the US can be generalized both qualitatively and quantitatively to the populations of two developing countries where, compared to the US, fertility is known to be higher, female education levels are much lower and there are fewer facilities for childcare.
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Jel Codes: J13, J22
Keywords: Causality, Internal and External Validity, Childbearing and Female Labor
The Allocation and Monitoring Role of Capital Markets: Theory and International Evidence
Solomon Tadesse
WP No. 624
(October, 2003)
Abstract: Capital markets perform two distinct functions: provision of capital and facilitation of good governance through information production and monitoring. I argue that the governance function has more impact on the efficiency with which resources are utilized within the firm. Based on industry level data across thirty-eight countries, I present evidence suggesting a positive relation between market-based governance and improvements in industry efficiency. The measures of governance are also positively correlated with productivity improvements and growth in real output. Furthermore, while governance affects efficiency, the capital provision services induce technological change. The evidence underscores the role of capital markets as a conduit of socially valuable governance services as distinct from capital provision.
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Jel Codes: E44, G14, G3, G34, O16
Keywords: Corporate Governance, Information Aggregation, Monitoring, Economic
Firm-Specific Variation and Openness in Emerging Markets
Kan Li; Randall Morck; Fan Yang; Bernard Yeung
WP No. 623
(October, 2003)
Abstract: This paper compares the comovement of individual stock returns across emerging markets. Campbell et al. (2001) and Morck et al. (2000) show that the US in the post war period saw rising firm specific stock return variations and thus declining comovement. We detect a similar, albeit weaker, pattern in most, but not all, emerging markets. We further find that higher firm-specific variation is associated with greater capital market openness, but not goods market openness. Moreover, this relationship is magnified by institutional integrity (good government). Goods market openness is associated with higher market-wide variation.
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Jel Codes: F21, F36, G1, O19
Exchange Rate Regimes and Volatility: Comparison of the Snake and Visegrad
Juraj Valachy; Evzen Kocenda
WP No. 622
(October, 2003)
Abstract: Exchange rate stability was defined as one of the prerequisites for monetary integration in Europe. In this paper, we analyze recent developments in the volatility of exchange rates of the Central European countries (the Visegrad Group) and a selected group of European Union countries (the Snake) participating in the former European Monetary System. We compare volatilities in the currencies of both groups under specific exchange rate regimes using two different approaches to modeling exchange rate volatility: squared returns parametric model and GARCH. Both methods provide identical results for the currencies of the Visegrad group: an increase in volatility after a floating exchange rate regime was introduced. The case of the Snake countries exhibits mixed results for two currencies and a concurring result for the others: a decrease in volatility. In one case we are left with an insignificant coefficient. We consider the results as robust and suitable for policy making decisions.
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Jel Codes: C14, C22, C51, E43, F31, F33, F36, P59
Keywords: exchange rate regime, volatility, transition, integration, Central Europe, European
Do Market Pressures Induce Economic Efficiency: The Case of Slovenian
Peter F. Orazem; Milan Vodopivec
WP No. 621
(October, 2003)
Abstract: The Slovenian transition represents a slow but steady liberalization of constraints on competition. Using a unique longitudinal data set on all manufacturing firms in Slovenia over the period 1994-2001, this study analyzes how firm efficiency changed in response to changing competitive pressures, holding constant firm attributes. Results show that the period was one of atypically rapid growth of total factor productivity (TFP) relative to levels in OECD countries, and that the rise in firm efficiency occurs across almost all industries and firm types: large or small; state or private; domestic or foreign-owned. Changes in firm ownership type have no impact on firm efficiency. Rather, competitive pressures that sort out inefficient firms of all types and retain the most efficient, coupled with the entry of new private firms that are at least as efficient as surviving firms, prove to be the major source of TFP gains. Market competition from new entrants, foreign-owned firms, and international trade also raise TFP in the industry. Results strongly confirm that market competition fosters efficiency.
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Jel Codes: L1, P27
Keywords: Efficiency, Competition, Growth, Total Factor Productivity, Slovenia
Compensating Differentials in Emerging Labor and Housing
Mark C. Berger; Glenn C. Blomquist; Klara Sabirianova Peter
WP No. 620
(October, 2003)
Abstract: The existence of compensating differentials in Russian labor and housing markets is examined using data from the Russian Longitudinal Monitoring Survey (RLMS) augmented by city and regional-specific characteristics from other sources. While Russia is undergoing transition to a market economy, we find ample evidence that compensating differentials for location-specific amenities exist in the labor and housing markets. Our estimated wage and housing value equations suggest that workers are compensated for differences in climate, environmental conditions, ethnic conflicts, crime rates, and health conditions, after controlling for worker characteristics, occupation, industry, and economic conditions, and various housing characteristics. Moreover, we find evidence that these compensating differentials exist even after controlling for the regional pay differences (?regional coefficients?) used by the Russian government to compensate workers for living in regions that are designated as less desirable. We rank 953 Russian cities by quality of life as measured by a group of eleven amenities. Sizable variation in the estimated quality of life across cities exists. The highest ranked cities tend to be in relatively warm areas and areas in the western, European part of the country. In addition, our quality of life index is positively correlated with net migration into a region, suggesting workers are attracted to amenity-rich locations. Overall, we find that sufficient market equilibrium exists and a model of compensating differentials with controls for disequilibrium yields useful information about values of location-specific amenities and quality of life in this large transition economy.
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Jel Codes: D5, H4, J3, J6, P2, P3, Q2, R1, R2
Keywords: compensating differentials, equilibrium, hedonic, quality of life, amenities,
Are Foreign Banks Bad for Development Even If They Are Efficient?
Sumon Kumar Bhaumik; Jenifer Piesse
WP No. 619
(October, 2003)
Abstract: Most papers on banking focus on profitability and cost efficiency as measures of performance. In doing so, these papers ignore the fact that, unlike in the manufacturing and services sector industries, the long term viability of a bank depends more on its ability to assess credit worthiness of potential borrowers and provide credit, than on static measures of financial performance. At the same time, the political economy of economic growth and economic reforms cannot overlook the impact of ownership and reforms on credit infusion, which is a major determinant of economic growth. Specifically, there is widespread belief that while foreign banks are perhaps more efficient and profitable than domestic banks in emerging markets, these banks are content to ?cherry pick? and limit disbursal of loans. Using bank-level data from India, for six years (1995-96 to 2000-01), we show that given a favourable atmosphere involving economic reforms and banking sector liberalisation, as well as time needed to overcome the informational disadvantages vis a vis the domestic banks, foreign banks are willing to be aggressive in credit markets of emerging economies. The policy implication of our paper is that it provides a strong rationale for policy initiatives that encourages entry of foreign banks into emerging markets and the expansion of their activities in these economies.
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Jel Codes: G21, O16
Keywords: Indian banking, Development, Credit Market, Stochastic frontier analysis
The Echo of Job Displacement
Marcus Eliason; Donald Storrie
WP No. 618
(October, 2003)
Abstract: This paper examines whether the loss of a job increases the likelihood of future difficulties on the labour market. We study displacement resulting from all plant closures (with ten or more employees) in Sweden in 1987 and follow their labor market outcome up to 1999. The control group is extracted from a random sample of non-displaced employees by matching on propensity scores. We find a rapid and almost total initial recovery of those displaced in 1987 compared to the control group up to 1990, both with respect to employment and unemployment measures. However, with the advent of the deep recession in 1990, the two groups again diverge. There is some relative recovery in the mid to late 1990s. However, by the end of the 1990s, the echo of the job loss 13 years earlier had still not subsided. We attribute the long-term effects as being either due to recurrent loss of match-specific capital or statutory seniority lay-offs rules.
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Jel Codes: J63, J64, J65
Keywords: Plant closure, displaced workers, unemployment scarring, linked employeremployee
Deposit Insurance During EU Accession
Nikolay Nenovsky; Kalina Dimitrova
WP No. 617
(October, 2003)
Abstract: The paper presents a brief review of the systems of deposit insurance in accession countries, comparing their level of harmonization with the perspective of their EU integration. Studying the different practices of deposit insurance in the context of developing financial safety nets in future Europe we have found that: (i) there is overinsurance of deposits in accession countries, and (ii) that this could lead to increasing moral hazard, incentives deformation and increasing costs of banking intermediation in the whole euro area.
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Jel Codes: G1, P2
Keywords: deposits insurance, financial regulation, accession countries
Skill-Biased Transition:
Klara Sabirianova Peter
WP No. 616
(October, 2003)
Abstract: This study attempts to explain why the transition to a market economy is skill-biased. It shows unequivocal evidence on increased skill wage premium and supply of skills in transition economies. It examines whether similar skill?favoring shifts in the Russian and U.S. economies are driven by the same set of factors. Our analysis elaborates on the model of alternative theories of the increased wage skill premium and then evaluates three main hypotheses: skillbiased technological change, the market adjustment hypothesis, and the institutional factor hypothesis. To test these hypotheses, the study uses unique linked employer-employee data that spans the 16 years of the Soviet and transition periods in Russia (1985-2000), with a special emphasis on data quality, measurement errors, and retrospective biases. The main conclusion is that there is no uni-causal and time-invariant explanation for skill-biased changes in wages and employment in the Russian economy. The increased skill wage premium has been driven mainly by institutional factors during the early period and by productivity and technological change during the late transition period, and reinforced by market adjustment of wage ratio to the true differences in labor productivity.
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Keywords: technological change, wage inequality, human capital, transition, Russia, linked
Initial Conditions, Institutional Dynamics and Economic Performance:
Daniel Berkowitz; Karen Clay
WP No. 615
(September, 2003)
Abstract: Using state-level data from the United States, we find that differences in colonial legal institutions affect the current quality of state legal institutions. These differences in colonial legal institutions arose because some states were settled by Great Britain, a common law country, and other states were settled by France, Spain, and Mexico, all civil law countries. To explain these findings, we develop a transplant-civil law hypothesis that highlights the disruption associated with large-scale legal transplantation and the possible relative inefficiencies of colonial civil law. We find strong support for the transplant-civil law hypothesis. Our results are robust to inclusion of additional variables capturing climate, geography, initial population and resource endowments. Given the 150-200 year gap between the initial conditions and the measures of the current quality of legal institutions, we provide indirect evidence on the persistence of legal institutions. We then use initial legal systems and climate to quantify the substantial impact of current institutions on current economic performance.
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Jel Codes: K4, O1, P1
Keywords: common law, civil law, transplant, initial conditions, state courts and public corruption
Labor Market Dynamics and Wage Losses of Displaced
Arnaud Lefranc
WP No. 614
(September, 2003)
Abstract: The objective of this paper is to provide a comparative assessment of the consequences of worker displacement in France and the United States. I estimate wage losses of displaced workers in the two countries and examine the relative contribution of two important sources of post-displacement wage adjustments. The first one relates to the loss of seniority-accumulated firmspecific earnings potential. The second one arises from match heterogeneity. Identification of the relative contribution of these two sources can be achieved given separate estimates of returns to seniority. I show that, while the order of magnitude of total wage losses are comparable in the two economies (10 to 15%), the sources of wage adjustments di_er strongly: all of the wage decline in France seems to be due to the loss of accumulated firm-specific earnings potential, while in the US, more than half of measured wage losses arise from a downgrading of displaced workers into lower quality job matches.
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Jel Codes: J31, J63, J64, J65
Keywords: Wage losses; Unemployment; Displaced workers; Returns to seniority;
Firm Size Distribution and EPL in Italy
Fabiano Schivardi; Roberto Torrini
WP No. 613
(September, 2003)
Abstract: We study the role of employment protection legislation (EPL) in explaining the relative small average size of Italian firms. We construct a simple model that shows that the smooth relation between size and growth probability is disturbed in proximity of the thresholds at which EPL applies di.erentially. We use a comprehensive dataset of all Italian firms between 1986 and 1998 to estimate the e.ects of EPL in terms of discouraging small firms from growing. We then construct a stochastic transition matrix for firm size that, together with the estimates, allows for a quantitative evaluation of the e.ects of EPL in the long run. Our results show that EPL does influence firm size distribution, but that its e.ects are quantitatively modest: average firm size would increase by less than 1% when removing the threshold e.ect. In terms of policy, these findings suggest that changes in EPL are not likely to have a large impact on the propensity of small firms to grow
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Jel Codes: D21, J65, L11
Keywords: Firm size distribution, Employment protection, Firing costs
The Effect of Employee Involvment on Firm Performance: Evidence from an Econometric Case Study
Derek C. Jones; Takao Kato
WP No. 612
(September, 2003)
Abstract: We provide some of the most reliable evidence to date on the direct impact of employee involvement through participatory arrangements such as teams on business performance. The data we use are extraordinary --daily data for rejection, production and downtime rates for all operators in a single plant during a 35 month period, almost 53,000 observations. Our key findings are that: (i) membership in offline teams initially enhances individual productivity by about 3% and reduces rejection rates by more than 25%; (ii) these improvements are dissipated, typically at a rate of 10 to 16% per 100 working days; (iii) the introduction of teams is initially accompanied by increased rates of downtime and these costs diminish over time. In addition: (iv) the performance-enhancing effects of team membership are greater and more long-lasting for team members who are solicited by management to join teams; similar relationships exist for more educated team members. These findings, which are best interpreted as lower bound estimates of the effects of teams, are consistent with the diverse hypotheses including propositions that: (i) employee involvement will produce improved enterprise performance through diverse channels including enhanced discretionary effort by employees; (ii) various kinds of complementarities accompany many changes in organizational design (such as between teams and formal education); (iii) the introduction of high performance workplace practices are best viewed as investments, though there are significant learning effects; (iv) differences in performance for team members solicited by mangers compared to those who volunteer are consistent with various hypotheses including management signaling and opportunistic behavior by employees, but inconsistent with hypotheses based on Hawthorne effects
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Jel Codes: D20, J41, J50, M54
Keywords: Productivity, High Performance Work Practices, Employee Participation, Human Resource Management Practices
Working Inflow, Outflow, and Churning
Pekka Ilmakunnas; Mika Maliranta
WP No. 611
(September, 2003)
Abstract: Linked employer-employee data from the Finnish business sector is used in an analysis of worker turnover. The data is an unbalanced panel with over 219 000 observations in the years 1991-97. The churning (excess worker turnover), worker inflow (hiring), and worker outflow (separation) rates are explained by various plant and employee characteristics in type 2 Tobit models where the explanatory variables can have a different effect on the probability of the flow rates to be non-zero and on the magnitude of the flow rate when it is positive. Most of the characteristics are defined as 5-group categorical variables defined for each industry separately in each year. We compare the Tobit results to OLS estimates, and also use weighting by plant employment. It turns out that weighted OLS results are fairly close to Tobit results. The probabilities of observing non-zero churning, inflow, and outflow rates increase with plant size. The magnitudes of the non-zero churning and inflow rates depend positively on size, but the magnitude of outflow rate negatively. High-wage plants have low turnover, whereas plants with large within-plant variation in wages have high turnover. Average tenure of employees has a negative impact on turnover. High plant employment growth increases churning and separation but reduces hiring in the next year. We also control various other plant and average employee characteristics like average age and education, shares of women and homeowners, foreign ownership, ownership changes, and regional unemployment.
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Jel Codes: J23, J41, J63
Keywords: worker turnover, churning, employer-employee data
Signaling in The Labor Market: New Evidence On Layoffs, and Plant Closings
Nuria Rodriguez-Planas
WP No. 610
(September, 2003)
Abstract: In my asymmetric -information model of layoffs, high-productivity workers are more likely to be recalled to their former employer and may choose to remain unemployed rather than to accept a low-wage job. In this case, unemployment can serve as a signal of productivity, and duration of unemployment may be positively related to post-laid-off wages even among workers who are not recalled. In contrast, because workers whose plant closed cannot be recalled, longer unemployment for them should not have a positive signaling benefit. Analysis of the data from the January 1988-2000 Displaced Workers Supplements to the Current Population Survey reveals that the wage/unemployment duration relation differs between laid-off workers and workers displaced through plant closings in the predicted way, and finds evidence consistent with asymmetric information in the U.S. labor market.
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Jel Codes: J30, J60
Keywords: laid-off workers, signaling, unemployment, and wages
Job Flows and Establishment Characteristics: Variations Across U.S.
R. Jason Faberman
WP No. 609
(September, 2003)
Abstract: This paper addresses the role played within metropolitan areas by heterogeneous agent models of constant churning. The evidence shows positive relationships between job turnover, young establishments, and metropolitan employment growth. Most areas, however, differ in their levels of job creation rather than job destruction. Results persist after controlling for regional differences in industry, but less so when controlling for differences in the establishment age distribution, and are consistent overall with standard models of creative destruction. Evidence from several entering cohorts, however, contradicts the vintage replacement process of creative destruction models. Namely, job destruction decreases as establishments age and there is no clear inverse relation between establishment entry rates and exit ages. These patterns are instead consistent with a turnover process seen in standard models of firm learning. Further evidence suggests that these patterns vary systematically with the overall employment growth of a region. Together, the results suggest that (i) processes of both creative destruction and firm learning may matter for local labor dynamics, but future models will have to reconcile with this new evidence, and (ii) intrinsic local factors, such as the ?business climate?, may affect the dynamics of both processes.
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Jel Codes: E24, J63, R11
Keywords: job turnover, regional and urban growth, creative destruction, firm learning
Dowry and Intrahousehold Bargaining: Evidence from China
Philip H. Brown
WP No. 608
(September, 2003)
Abstract: This paper analyzes the relationship between a woman?s intrahousehold bargaining position and her welfare within marriage. Simultaneity problems common to the literature are overcome by using dowry to proxy for bargaining position. Omitted variable bias is addressed by using grain shocks in the year preceding marriage and sibling sex composition as instruments for dowry. Instrumented dowry positively impacts several measures of a wife?s welfare, including time allocation, household purchases, and the wife?s decision-making authority, thereby offering strong evidence to support collective models of the household.
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Jel Codes: D13, J12, J16, O12
Keywords: Intrahousehold Allocation, Dowry and Brideprice, Marriage, China
Policy Regime Change And Corporate Credit In Bulgaria: Asymmetric Supply And Demand Responses
Rumen Dobrinsky; Nikolay Markov
WP No. 607
(September, 2003)
Abstract: The paper seeks to assess how a major policy regime change ? such as the introduction of the currency board in Bulgaria ? affects the flow of bank credit to the corporate sector. An attempt is made to identify the determinants of corporate credit separately from the viewpoint of lenders and borrowers. The estimated credit supply and credit demand equations provide empirical evidence of important changes in microeconomic behavioral patterns which can be associated with the policy regime change. The results also suggest a considerable asymmetry in the response of credit supply and credit demand to the policy shock: while the supply shifts were quite pronounced, the patterns of firms? credit demand remained fairly stable. The policy implications of the detected asymmetry in microeconomic adjustment are also discussed in the paper.
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Jel Codes: G21, G32, G38
Keywords: corporate credit, credit supply and credit demand, regime change, currency board,
Corporate Performance and Market Structure During Transition
László Halpern; Gábor Kõrösi
WP No. 606
(September, 2003)
Abstract: ITransition started by a sudden collapse of corporate efficiency, as one important element of the transformational recession. It was followed by a consolidation period, with rapidly increasing efficiency and improving returns to scale. During this period performance was frequently improved by downsizing, thus fast improving corporate performance could not be translated into economic growth. This consolidation period ended in 1995-6, after that mean firm level efficiency only changed slowly. However, the March 1995 stabilization created a favourable environment for substantial investments into the Hungarian corporate sector. These investments largely increased the market share of the better performing firms and sectors, and the massive investments, together with substantial structural improvements brought about rapid economic growth. Market characteristics play a changing role during transition. Import competition, sectoral concentration and efficiency are important explanatory factors for the development of market share of a firm. Heterogeneity can be observed across sectors, according to ownership and to size. The differences, however, are not that large and were diminishing, what makes the hypothesis of the importance of market environment in the determination of corporate performance plausible. 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 analyse the relationship of market structure, market imperfections and corporate performance by mark-up pricing. Our results clearly indicate that substantial market imperfections exist in the Hungarian manufacturing sector. These imperfections can yield substantial rents. However, foreign owned firms have larger chance for exploiting market imperfections and can collect larger rents than domestic firms.
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Jel Codes: C23, D21, D24
Keywords: Firm in transition economy, efficiency, market structure
Culture Rules: The Foundations of the Rule of Law and Other Norms of Governance
Amir N. Licht; Chanan Goldschmidt; Shalom H. Schwartz
WP No. 605
(July, 2003)
Abstract: This study presents evidence about relations between national culture and social institutions. We operationalize culture with data on cultural dimensions for over 50 nations adopted from cross-cultural psychology and generate testable hypotheses about three basic social norms of governance: the rule of law, corruption, and accountability. These norms correlate systematically and strongly with national scores on cultural dimensions and also differ across cultural regions of the world. Regressions indicate that quantitative measures of national culture are alone remarkably predictive of governance, that economic inequality and British heritage add to predictive power, but that economic development and other factors add little. The results suggest a framework for understanding the relations between fundamental institutions of social order as well as policy implications for reform programs in transition economies.
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Jel Codes: K00, O10, O19, P20, P26, P50, Z13
Keywords: Rule of Law, Corruption, Accountability, Culture, Governance, Economic Inequality, Economic Development
Institutional Subversion: Evidence from Russian Regions
Irina Slinko; Evgeny Yakovlev; Ekaterina Zhuravskaya
WP No. 604
(July, 2003)
Abstract: What are the effects of institutional subversion on small business development, fiscal policies, economic growth, and firm performance? This paper provides an empirical investigation of institutional subversion in Russia?s regions. We develop a complete account of preferential treatments to the largest regional firms in texts of regional legislation during 1992-2000. The concentration of preferential treatments is used as a proxy for legislative subversion. Based on cross-section and panel data analysis, we find that regional institutional subversion has an adverse effect on small business growth, tax collection, social public spending, and federal tax arrears. Robustness of these results is verified by looking at a proxy for potential subversion based on size concentration in regional economies. The alternative approach produces similar results. Regional political influence generates substantial gains to firms both in the long and the short run. These firms exhibit faster growth in sales, market share, profitability, employment, and capital compared to their counterparts who are not politically connected. Yet, firms that exercise political influence have lower labor productivity.
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Jel Codes: D71, D72, P26, P27
Keywords: Institutional subversion, capture, Russia, reforms
The Effects Of Privatization And International Competitive Pressure On Firms? Price-Cost Margins: Micro Evidence From Emerging Economies
Jozef Konings; Patrick Van Cayseele; Frederic Warzynski
WP No. 603
(January, 2003)
Abstract: This paper uses representative firm level panel data of 1,701 Bulgarian and 2,047 Romanian manufacturing firms to estimate price-cost margins and to analyze how these are affected by privatization and increased competitive pressure. The estimation method used, which is based on Roeger (1995), deals with potential endogeneity problems that are associated with estimating firm performance, by making use of the properties of the primal and dual Solow residual. We find that privatization is associated with higher price-cost margins in both Bulgaria and Romania. Moreover, foreign owned firms have higher markups than domestic privatized firms. Our results suggest that the sequencing of reforms, such as demonopolization prior to privatization and the establishment of competition policy, may be important. In addition, our results give support to the idea that opening to trade has a disciplining effect on firms? market power. We find that increased import penetration is associated with lower price-cost margins in sectors where product market concentration is relatively high. Our results can be of relevance for other emerging economies, such as China and Vietnam, which still have to undergo major privatization programs.
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Jel Codes: L1, L33, P3, P5
Keywords: market power, privatization, firm performance, transition
The Usefulness of Corruptible Elections
Loren Brandt; Matthew Turner
WP No. 602
(August, 2003)
Abstract: The belief that elections reduce rent seeking by government officials is widely held, likewise the belief that rent seeking decreases as elections are less subject to corruption. In this paper we develop and test a model in which these beliefs are carefully examined. Our model indicates that, while elections may provide a disincentive for rent seeking, this disincentive (1) need not actually materialise, and (2), is not necessarily correlated with the integrity of the electoral protocol. We next consider the ability of village-level elections in rural China to reduce rent seeking, and the extent to which this ability varies as the elections are more or less corruptible. We find that in practice, even elections that appear quite corruptible provide a strong disincentive to rent seeking. Moreover, our results indicate which types of electoral reform lead to more effective popular oversight of leaders, and which do not.
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Jel Codes: D7, H0, H7, Q0
Keywords: Elections, Property rights, China
Banking Reform In Russia: A Window Of Opportunity?
Abdur Chowdhury
WP No. 601
(August, 2003)
Abstract: Only a successful implementation of an overall reform program will enable Russian banks to provide financial intermediation and assist in the country's development from a nascent market economy to a mature financial system. The chances for reform are better now than at any time during the last decade. Favorable political and economic conditions and a change in attitude among bank management have created an unusual window of opportunity. The paper analyzes the past performance of the Russian banking industry, evaluates the reform agenda of the monetary authority, and argues for an overall reform program in order to seize the available opportunity.
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Jel Codes: G2, P3
Keywords: Russia, banking reform, transition.