Showing papers in "Post-communist Economies in 2014"

Income Underreporting by Households with Business Income. Evidence from Estonia

Abstract: This article estimates the extent of income underreporting by households with business income relative to households of wage earners in Estonia. It uses a modified version of the methodology pioneered by Pissarides and Weber. The extent of income underreporting is estimated by comparing food Engel curves for households with and without reported business income. The baseline result is that the reported total income of households with business income above 20% of total income must be multiplied by 2.6 in order to attain the same propensity to food consumption as households of wage earners. In this sense, households with business income underreport 62% of their ‘true’ total income. Households with reported business income above 0 but below 20% also underreport income but to a lesser extent. The estimates are higher than those found for developed countries but consistent with other studies of unreported activities in transition countries.

Do economic crises impede or advance regional economic integration in the post-Soviet space?

Abstract: This article investigates the effect of economic crises on the development of post-Soviet regional integration, focusing on Russia–Kazakhstan relations and particularly the case of the Belarus, Russia and Kazakhstan customs union. While the literature often argues that crises are accompanied by growing protectionism, we observe a substantially more complex relation. We find that crises as a rule result in an increase in integration rhetoric and can also result in an increase in actual economic and institutional integration. However, the actual integration effort goes up only when a crisis has followed a prolonged period of economic growth, i.e. the countries have accumulated sufficient reserves. At the same time, the existing ties must be strong, with no viable alternative available to the policy makers. Otherwise there is too strong an incentive to use protectionist measures to compensate for the decrease in budgetary revenue.

Management practices in Russian manufacturing subsidiaries of foreign multinational corporations: challenging some beliefs about contemporary Russian industrial management

Abstract: This article reports the results of observations of management practices in 20 Russian manufacturing subsidiaries of Western multinational corporations (MNCs). I argue that to counterbalance the higher country-specific risks associated with investing in Russia, MNCs impose on their Russian subsidiaries high demands for superior performance in terms of both technical and economic efficiency. My observations confirm that in most cases such demands are successfully met by the implementation of highly effective practices. Thus I challenge several beliefs about industrial management in Russia, including the myths that Russian firms are hostile towards knowledge sharing and are wary of talent.

Determinants of foreign direct investment in Vietnamese provinces: a spatial econometric analysis

Abstract: This article uses spatial econometric models to explore the determinants of the distribution of foreign direct investment (FDI) inflows among Vietnamese provinces in the period after the Asian crisis. First tests reveal spatial autocorrelation in the OLS estimated errors, justifying the use of spatial error models estimated using the maximum likelihood estimator. Relations between FDI and its traditional determinants are surprisingly robust to the inclusion of spatial interdependence terms. Results show a dominance of the form of regional trade platform FDI, and of regional agglomeration effects. National and provincial economic policies are also found to be important factors for attracting FDI.

Russian housing finance policy: state-led institutional evolution

Abstract: A public policy scholar sets out to investigate the reasons behind the exceptionally high interest rates for mortgage loans in Russia The article argues that this situation can be explained by examining Russian government policy making in the area of housing finance during the post-Soviet period Following comparative literature, the process of policy development over time is argued to be determined by the interaction of such factors as policy legacies, policy ideas, institutional environment and actors' interests The article demonstrates how the agency model of housing finance was institutionalised in policy during the 1990s The initial appeal of this model to the interest of diverse actors at different levels of government is explained The subsequent evolution of this model towards the formation of a ‘state-led model of housing finance’ over the recent decade is traced and its limitations in producing sufficient volumes of mortgage funding are highlighted The analysis, in addition, demonstrates tha

True regional purchasing power: evidence from the Czech Republic

Abstract: There is probably no question that regional price levels must be taken into account when any regional analysis is done and that price levels should be reflected in regional policies as well. The current approach of most researchers and policy makers is to use regional indicators converted, for the case of EU regions, in Purchasing Power Standard (PPS). Although the PPS indicators work well for countries they probably fail for regions. The main reason is that regional purchasing power standards do not reflect actual regional price levels – there is only a national parity (price level) which is equally applied to all the regions within a country. This downgrades the reliability of regional PPS indicators and raises serious analytical and political issues. The key problem is that most regional socio-economic indicators can significantly change when regional price levels are taken into account. The aim of this article is to present results of research focused on regional price levels estimation in the Czech R...

Step or trap? Transition from fixed-term contracts in Central Eastern Europe

Abstract: This article investigates the transition from fixed-term contracts to permanent jobs from the viewpoint of the ‘stepping stone versus trap’ theoretical framework. The main contribution of this research is that it examines what function fixed-term contracts have in the EU new member states, countries that have not yet been investigated in this regard. This research tests which individual characteristics influence the transition to permanent employment and how labour market institutions can help in understanding the differences among countries. The analysis covers the eight post-communist countries which joined the EU in 2004. The period analysed is 2005–10. We make use of the EU-SILC dataset and employ multinomial logistic regression to perform the analysis. The findings reveal that, on average, a temporary job is more a trap than a stepping stone, although considerable differences exist across countries. Surprisingly, most of the individual demographic and human capital characteristics do not have an effe...

Religion and economic attitudes in post-communist transition

Abstract: The role of religion has been discussed as a possible explanation of divergent economic development ever since Max Weber. This article examines its role in the post-communist transition. It adopts the approach of Guiso et al. which is based on data collected at the individual level rather than a cross-country analysis. However, with regard to recent literature we allow for a different interpretation of results. The analysis shows that religion still has an impact on individuals' economic attitudes, even after many decades of communist rule. Generally, religion is supportive of pro-market and pro-growth attitudes. The impact of different religions is not uniform, although none of them appears to be an obstacle in transition from a centrally planned economy to the free market. Further, the micro-level findings are compared with the macro-level to explain the differences in the course of transition among post-communist countries.

The Russian gas industry: challenges to the ‘Gazprom model’?

Abstract: The Russian gas sector is undergoing significant changes which are opening the way for an original reform. Because of the particular institutional and economic context of the country, this reorganisation is not taking place along the lines of the de-integrated model of the EU. It is characterised by increasingly significant competitive fringes. Gazprom remains the main actor in the Russian gas industry but the company is facing challenges on its main export market and increasing competition at home with the arrival of new gas firms, independents and Russian oil companies. For Gazprom, the aim is to develop more flexible strategies for export markets but also on its internal market. These internal changes will not be without consequences for the country's export strategy and the implications for international markets could be considerable.

Informal credit institutions in transition countries: a study of urban money lenders in post-communist Uzbekistan

Abstract: Research on informal financial institutions in transition economies is scant. This study investigates behaviour of urban money lenders in Uzbekistan. Money lending in Uzbekistan is a relatively new business which emerged mostly in response to targeted demand from fellow entrepreneurs during transition. We find that their lending behaviour is more stringent than suggested by previous studies of rural money lenders. They always require collateral, do not engage with the poor and avoid lending for consumption purposes. Their lending is short-term and targeted on specific business opportunities which enjoy healthy cash flows and offer quick returns. They have limited outreach from serving networks of connections within small geographical localities. Since they rely exclusively on their own resources for loanable funds, they often have to ration their loans. They actively use all available information and instruments to reduce default risks. Although borrowers live in closer geographical proximity to lenders i...

Demand for food during economic transition: an AIDS econometric model for Slovenia, 1988–2008

Abstract: This article investigates the demand for food in Slovenia in 1988–2008 by employing an Almost Ideal Demand System based on Household Budget Survey datasets with own production included. It was established that the demand for food was mostly inelastic, while the responsiveness of households to income and food prices was in general increasing with time. Even though expenditure shares for food did not vary much by income brackets, there were some differences in the elasticities. Taking own production into account, the elasticities of food demand decreased. Overall, Slovenians preserved quite uniform nutritional habits during the transition period; changing to some extent with time but not much in structure by disposable income.

Government size and efficiency as constraints to economic growth: comparing Croatia with other European countries

Abstract: The goal of this article is to discover binding constraints to economic growth in Croatia relating to government. Following a growth diagnostics framework, we limit our analysis to government size and efficiency as potential constraints to growth. We calculate the optimal size of government and estimate the efficiency of government spending by applying data envelopment analysis and Tobit regression models. Apart from Croatia, our results also relate to other European Union member states, Iceland and Norway. We find that a binding constraint to Croatia's economic growth is not a big government but rather a weak government plagued by corruption. The average optimal size of government in old EU member states is larger than that in new EU member states but the former need to cut their government expenditure more sharply in order to reach the optimal size. Their government spending on economic growth factors is however more efficient on average than that of the latter countries.

Quality of life and social exclusion in rural Southern, Central and Eastern Europe and the CIS

Abstract: This article will focus on household access to essential social services provision (in particular examining access to public utilities) in countries of Southern, Central and Eastern Europe (SEE/CEE) and the Commonwealth of Independent States (CIS). The article uses original household data from two rounds of the Life in Transition Survey (LiTS) of the European Bank for Reconstruction and Development (EBRD) and the World Bank, conducted in 2006 and 2010, and from the Social Exclusion Survey, which the United Nations Development Programme (UNDP) conducted in late 2009. We will focus our analysis on differentiation according to the locality where households were residing, in rural and urban areas. Large differences in access to essential public utilities (such as piped tap water, sewerage systems, telephone and internet) are shown between urban and rural areas, combined with marked inequality within rural areas. In addition, issues of social exclusion (including access to social services) and life satisfaction are investigated. While objective gaps in access are wide, subjective satisfaction with the quality of life is still higher in rural areas, including among those who are found to be socially excluded, indicating greater resilience of the rural population.

Dualism and growth in transition economies: a two-sector model with efficient and subsidised enterprises

Abstract: We develop a growth model distinguishing between a private sector that generates learning-by-doing and technological spillovers and a sector of technologically obsolete and subsidised state-owned enterprises. This distinction allows us to trace the inescapable dual-economy stage of development observed in transition economies. While in some of them this stage was rather brief, laggard reformers continue to display this pattern. The model predicts that the larger the initial fraction of the workforce employed in the obsolete sector and the stronger the politico-ideological hostility towards reform, the lower will be the speed of convergence to the income level of the most advanced countries.

Human capital and Russia's agricultural future

Abstract: Russian agriculture has rebounded from the depths of the 1990s but significant challenges remain. This article documents deficiencies in rural human capital, specifically, a contracting rural labour force, a shortage of skilled workers, and migratory outflow of the rural young. These problems are compounded by emerging budgetary constraints, slower economic growth and de-mechanisation of agricultural labour. State policy prioritises food production but does not allocate sufficient resources to supporting human capital on which food production depends. As a result, the base of human capital will continue to erode, thereby damaging leadership aspirations and Russian competitiveness in the global food market.

Social capital in Russian agricultural production co-operatives

Abstract: When the Soviet kolkhozy and sovkhozy were converted, a large number of agricultural production co-operatives was created. Most of these co-operatives still exist in Russia and some of them have a strong market position, accounting for almost one-third of the aggregate volume produced by large farms. This study explores whether social capital might be the explanation for this relative success, i.e. that members support their co-operative because they trust their fellow members as well as the leadership. Interviews with co-operative members resulted in 1401 usable answers. The results from an ordered logit model indicate that social capital plays a partial role. Members who consider co-operatives to be an efficient business form value social ties to other members, even though the leadership does not enjoy much social capital.

Perpetuation of subsistence farming in Kosovo: the role of farm integration in input markets

Abstract: This article investigates the determinants of agricultural households' product commercialisation in Kosovo in 2005, and in particular whether the integration of farms into input markets plays a role. Using data from a survey of 4187 agricultural households, a two-stage selection model is used, taking account of potential endogeneity of input prices. Results show that high labour price and low land availability are strong impediments to commercialisation of agriculture in the region.

Price transmission along the food supply chain in Slovakia

Abstract: This article examines the price relationship along the food supply chain in Slovakia. We analyse a long-run relationship between farm and retail level in the vertical chain of milk, beef, pork, chicken, potatoes and apples. A cointegration approach is used to study the long-run relationship. We test for the existence of a structural break in the time series data (Gregory Hansen test) in the period observed and allow for the existence of a non-linear relationship between prices at various levels of the vertical chain by using threshold autoregressive models. We find evidence of asymmetry in price transmission along the food supply chain.

Innovation strategies and productivity in the Polish services sector

Abstract: Industry and firm-level research into both innovation and productivity has long been limited to manufacturing. In this article we aim to contribute to the stream of literature that seeks to extend the scope of such investigations to the services sector. To this end we analyse the innovation strategies in several service sectors in Poland in 2006–08 and examine their relationship to productivity. Our results show that service firms differ considerably in their innovation strategies, but that most of those strategies lead to productivity gains.

Challenges of Russian economic policy: modernisation or acceleration? (perestroika or uskorenie)

Abstract: This article deals with current Russian social and economic development and economic policy as well as their mid-term trends. The author discusses the logic and trends of the global crisis that started in 2008. This is the basis for further analysis of Russian economic performance with special emphasis on the problem of growth rate deceleration, its reasons and possible instruments for renewed acceleration. Special attention is paid to economic risks and priorities of economic policy.

Testing the ‘trilemma’ in post-transition Europe – a new empirical measure of capital mobility

Abstract: This article develops a new empirical measure of capital mobility. It tests the hypothesis that the degree of capital mobility can be estimated by measuring the reaction intensity of capital flows ...

Systemic competitiveness of post-socialist and capitalist economies: a broader look at the competitiveness debate

Abstract: International competitiveness studies have hitherto mainly been focused on constructing ranking schemes. This article adds to the literature by analysing World Competitiveness Yearbook data in order to econometrically pinpoint the crucial competitiveness determinants for 35 countries. Applying the system GMM panel data estimator to post-socialist (PS) and capitalist countries separately, several conclusions emerge: i) small and medium enterprises are the main competitiveness generator in the PS block (in contrast to large corporations in the capitalist economies), ii) credit rating is highly relevant in both groups, iii) increasing labour market flexibility in PS countries plays a vital role in boosting competitiveness.

Could Russia become more innovative? Coordinating key actors of the innovation system

Abstract: This article studies the current development of the Russian innovation system, using a typology derived from a ‘national innovation systems’ framework. The institutional framework for research and development in Russia has changed. Public resources devoted to R&D have increased significantly. Nevertheless, results have been disappointing so far, driving policy makers to develop an extensive vision of the state's role, ranging from the definition of objectives and priorities to the building of organisations designed to give decisive impetus to targeted sectors. The article supports the view that, beyond top-down planning, subsidies and fiscal incentives, a systemic – and so far overlooked – task of the state is to set the institutional conditions that can foster collaboration between actors who do not spontaneously develop cooperation skills.

Age–productivity patterns in talent occupations for men and women: a decomposition

Abstract: One could expect that in the so-called talent occupations, while access to these professions may differ between men and women, the gender wage gap should actually be smaller owing to the high relevance of human capital quality. Wage regressions typically suggest an inverted U-shaped age–productivity pattern. However, such analyses confuse age, cohort and year effects. Deaton decomposition allows us to disentangle these effects. We apply this method to investigate the age–productivity pattern for the so-called ‘talent’ occupations. Using data from a transition economy (Poland) we find that talent occupations indeed have a steeper age–productivity pattern. However, gender differences are larger for talent occupations than for general occupations.

Pension reform in the Czech Republic after 2010

Abstract: The aim of this article is to analyse pension reform in the Czech Republic after 2010. Pension reform in the Czech Republic has gained new pace. The panel of consultants and experts on pension reform recommended mandatory saving in funds. The Constitutional Court ruled that citizens with higher incomes during their professional careers should receive higher pensions. The government responded by a minor amendment to the Pension Insurance Act and also prepared a major pension reform, which has introduced an opt-out, albeit on a fairly modest scale. The political risks of the current pension reform are considerable. The Czech government is introducing an opt-out in times when the neighbouring countries are slowly abandoning this approach. People are quite sensitive to the problems which are associated with the reform in Central Europe. They have the feeling that government is forcing on them something that does not work elsewhere. A genuine reform should be fiscally neutral, i.e. it should not generate any n...

Can cooperation with the BRICs and other Growth Markets help EU member states exit the crisis

Abstract: This article explores potential differences in the level and speed of adjustment to the new centres of economic growth (BRICs and other Growth Markets) between the industrial member states (EU-15) and the new members of the European Union (NMS). It seeks to examine whether such differences can be attributed to differences in policies and the countries' crisis exit strategies. It establishes that the NMS have been more successful in adjusting to the new centres of economic growth (more by way of exports than inward FDI), but not if Russia, easily the biggest partner of the NMS, is excluded from the analysis. It therefore cannot be claimed that this success was the result of far-sighted strategies.

Productivity and factor misallocation in Ukraine: the role of state ownership

Abstract: This study explores firm dynamics and the efficiency of factor allocation in manufacturing and business service sectors of Ukraine. The period under study was one of rapid growth at the economy level, while the main sectors have undergone considerable churn and reallocation. The findings are based on an analysis of firm-level data and display dramatically different pictures for the two main sectors. In business services large establishments that are mostly state-owned use an important portion of production factors inefficiently. Firms need to be very productive to enter the market and, on average, exiting firms are more productive than incumbents in business services. In contrast, in manufacturing industries the market selection mechanism is effective, the state-owned firms are as productive as private establishments and factor allocation is more efficient.

Private governance under public constraints

Abstract: Private communities in Chinese cities are under various constraints from the government. The ex ante constraints set limits on how the homeowners association (HOA) can be designed and set up. The ex post constraints affect the operation of the HOA. It is argued that these constraints reduce the competition among private communities. However, there are also unintended benefits such as mitigating the impact of housing segregation. Our empirical study on two communities in Chongqing shows the importance of public constraints and finds that they can become an important channel for government subsidy to low-income communities.

Explaining money demand in China during the transition from a centrally planned to a market-based monetary system

Abstract: We examine the transition process from a centrally planned to a market-based monetary system in China, with the objective of giving a functional form to the transition in money demand. Applying the cointegrating Time-Varying Smooth Transition Regression model proposed by Choi and Saikkonen (2004) on a constructed dataset spanning the period from 1984 to 2010, and using a seasonal unit-root test developed by Hylleberg et al. (1990), our findings invalidate much of the earlier literature. Our examination of disaggregate as well as aggregate money balances yields the following findings.

The effect of industry maturity, turnover and competition on firm survival: evidence from Slovenian firms

Abstract: A complementary log-log firm survival model using a 10-year panel of firm-level data for the Slovenian manufacturing sector during the late transition period provide evidence that firms have a smaller chance of surviving in less concentrated industries with tougher competition, in mature industries characterised by higher industry average firm age and lower net entry rates, and in industries with high turnover rates, indicating low sunk cost and other entry/exit barriers. Observing the hazard functions of various industry groups further suggests that an industry's entry/exit conditions are even more relevant to firm survival than an industry's life-cycle phase. Moreover, a firm's age seems to be of greater importance for its survival during the early stages of the industry's life cycle than in the industry's maturity. Our findings suggest that economic policy measures aimed at providing support for start-up firms will be more efficient in young industries at the formative stage of the life cycle or in ent...