Non-transition Economies Research Articles

Institutional Quality, Regulatory Environment and Microeconomic Performance: Evidence from Transition and Non-transition Developing Countries

Institutional Quality, Regulatory Environment and Microeconomic Performance: Evidence from Transition and Non-transition Developing Countries-Institutional Quality, Labor Market Flexibility, Financial Market Development, Transition Economies, Non-transition Economies

The role of education in explaining technology-intensive exports: a comparative analysis of transition and non-transition economies

This article examines the role of education in explaining the technology-intensive exports of 27 European countries. A comparative analysis of transition and non-transition economies is also conducted in this article. The empirical assessment provides sufficient evidence to support the hypothesized positive link between the stock of population with tertiary education and the share of medium-high and high-technology exports for the full sample of countries, the effect being relatively stronger for the high-technology category. The importance of higher levels of education is further supported by the non-linear relationship between the average years of schooling and technology intensive exports. The empirical findings also reveal a positive and highly significant relationship between the share of population with tertiary education and the export sophistication of the full set of countries. The evidence from country group estimations is weaker. Some supporting evidence is found for the hypothesized role of the quality of education.

Clusters as an adaptable regional development measure to mitigate perceived competitive disadvantages

European public policy is intensively supporting clusters as instruments for regional development. Clusters seem to be ubiquitous across Europe. However, economic conditions and institutional constraints in European regions differ substantially. This paper analyses which competitive disadvantages local companies perceive and how the offered cluster services are tailored to address these perceived problems. With the value adding web perspective we analyse two groups of economically weaker regions: transition economies and structurally weaker regions in non-transition economies. We show that the perceived competitive disadvantages differ essentially. Companies in transition economies mainly face obstacles that are rooted in institutional voids. Companies in structurally weaker regions are confronted with blind spot disadvantages. The article demonstrates, that clusters are adaptable to perceived disadvantages and blind spot disadvantages are perceived as 'less important' local problems. This contributes to recognise clusters as a tool to spur regional development and to the debate on smart specialisation of regions.

Privatisation as a Worldwide Tool of Economic Reform: A Literature Review

This paper aims to present a general overview of the literature relating to privatisation as a worldwide economic phenomenon. It starts by describing the origins, definitions and the rationale for privatisation. The spread of the privatisation phenomenon throughout the world is also discussed. The study then provides justification for privatisation in less developed countries (LDCs). It also summarises privatisation objectives, the sequencing and pace of privatisation, factors influencing privatisation and the agent principal theory. The study then outlines the different privatisation methods and briefly refers to efficiency and effectiveness in the context of privatisation, privatisation and changes in corporate governance as well as arguments on privatisation. A discussion into the role of international agencies in the privatisation process is also provided and summarises the main lessons drawn from privatisation. Previous research including empirical studies comparing the performance of government owned companies, empirical studies in developed countries (non-transition economies), and in developing countries (transition economies) as well as empirical studies comparing pre and post privatisation performance changes are comprehensively discussed.

Temporary employment, work quality, and job satisfaction

Using European Working Conditions Survey, this paper shows that being employed on a temporary, rather than an open-ended, contract has a negative bearing for job satisfaction. While this effect has been established previously, the novelty of this paper is to show that the effect propagates both directly and indirectly, through working conditions and work quality. Accounting for this indirect effect allows to obtain the effect of the contractual status on job satisfaction that is substantially larger in magnitude as compared to simple direct effects, confirming the importance of accounting for unobservable individual, company-specific, and job-specific heterogeneity when addressing this relationship. Moreover, the extent of co-determination of poorer working conditions and temporary contractual status, as well as the resulting bias in estimating only a direct effect of temporary employment on job satisfaction without accounting for such co-determination, vary depending on a country setting. It is shown that in transition economies, this co-determination is larger than in non-transition economies, possibly because of the workers’ weaker bargaining power, strategic use of temporary employment to circumvent labor regulations, the absence of regulations prescribing equal treatment of workers with different contractual arrangements, or lack of compliance with such regulations.

Benign Neglect or Malign Select?: Entry Cost to GATS/WTO

WTO was established in 1995 and as many as 36 new members joined WTO until December 2017. Thus it would be interesting to see if new members have committed higher or lower levels of market opening compared to the original members. In this regard, a sophisticated scoring scheme is needed to quantify market opening commitments. After proper econometric model is established for the original members, same model can be applied to the new members for comparison. It was found that new members committed a much higher level of commitment than the original members. In addition, it was also found that transition economies committed higher levels than the non-transition economies. More interesting finding is that among the new members, the larger the economies or the larger the trading volume are, the closer was the level of commitment to the predicted level. Then the question is whether this difference was due to benign neglect by the new members or due to malign select by the original members.

Benign Neglect or Malign Select?: Entry Cost to GATS/WTO

WTO was established in 1995 and as many as 36 new members joined WTO until December 2017. Thus it would be interesting to see if new members have committed higher or lower levels of market opening compared to the original members. In this regard, a sophisticated scoring scheme is needed to quantify market opening commitments. After proper econometric model is established for the original members, same model can be applied to the new members for comparison. It was found that new members committed a much higher level of commitment than the original members. In addition, it was also found that transition economies committed higher levels than the non-transition economies. More interesting finding is that among the new members, the larger the economies or the larger the trading volume are, the closer was the level of commitment to the predicted level. Then the question is whether this difference was due to benign neglect by the new members or due to malign select by the original members.

The Heterogeneity of Job Creation and Destruction in Transition and Non-transition Developing Countries: The Effects of Firm Size, Age and Ownership

The Heterogeneity of Job Creation and Destruction in Transition and Non-transition Developing Countries: The Effects of Firm Size, Age and Ownership-Developing Countries, Transition Economies, Non-transition Economies, Entrepreneurship, Firm Age, Firm Size, Ownership, Job Creation, Job Destruction, Gibrat’s Law, Learning Model, Soft Budget Constraint

The Heterogeneity of Job Creation and Destruction in Transition and Non-Transition Developing Countries: The Effects of Firm Size, Age and Ownership

This paper investigates how firm age, size and ownership are related with job creation and destruction, and how these patterns differ across transition and non-transition economies. The analysis finds that age is inversely related with gross job creation and net job creation in the two samples. This finding is consistent with the theory of the learning effect. The relationship between age and job destruction is indifferent in non-transition economies. On the contrary, old firms in transition economies destroy more jobs than young ones. The paper further establishes an inverse relationship between size and gross job creation in the two groups. However, there is divergence between the two samples; small firms in non-transition economies also exhibit a higher gross job destruction rate. Consequently large firms have a higher net job creation rate. In transition economies, small and large firms exhibit similar rates of job destruction. But small firms retain a higher net job creation rate. A more intriguing finding is that state owned firms do not underperform domestic private ones. This means these countries may be using soft budget constraint which allows state owned firms to overstaff. Finally, crowding out of SMEs by foreign owned firms is not evident in transition economies.

An International Comparison and Assessment of the Structure of Bank Supervision

International Review of Finance, 3:3/4, 2002: pp. 163±188 Bank Safety and Soundness and the Structure of Bank Supervision: A Cross-Country Analysis* y J AMES R. B ARTH y , L UIS G. D OPICO z , D ANIEL E. N OLLE § AND J AMES A. W ILCOX { Auburn University and The Milken Institute, z Macrometrix, § Office of the Comptroller of the Currency and { University of California, Berkeley ABSTRACT Two central questions about the structure of bank supervision are whether central banks should supervise banks and whether to have multiple supervisors. We use data for 70 countries across developed, emerging and transition economies to estimate statistical connections between banking performance, the structure of bank supervision, permissible banking activities, legal environments, banking market structure and macro- economic conditions. We find that where central banks supervise banks, banks tend to have more non-performing loans. Countries with multiple supervisors have lower capital ratios and higher liquidity risk. We also find that conclusions from non-transition economies may not necessarily apply to transition economies. I. INTRODUCTION Debate about the appropriate structure and purview of bank supervision has taken on more urgency in recent years. 1 In part, this is because banking crises have become much more frequent in the past two decades than previously and have often imposed on taxpayers huge, direct resolution costs and indirect costs through disruptions to macroeconomic performance. 2 In addition, many transition economies privatized their banks and needed to build bank supervision virtually from scratch. Analytical and technological advances in telecom- munications further blurred traditional distinctions between banking and other * The authors would like to thank Richard Levich, John J. McConnell, Joe Peek, Gary Whalen, conference participants at the 2001 FMA Meetings and anonymous referees for their comments and suggestions. The opinions expressed in this paper are those of the authors alone and do not necessarily represent those of the Office of the Comptroller of the Currency or the United States Department of the Treasury. The authors alone are responsible for any errors. 1 The term supervision is used to represent regulation as well except where otherwise noted. 2 Caprio and Klingebiel (2002) provide a comprehensive cataloguing of 113 systemic banking crises in 93 countries since the late 1970s. s International Review of Finance Ltd. 2004. Published by Blackwell Publishing Ltd., 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

The happiness gap between transition and non-transition countries

Since 1989, post-communist countries have undergone profound changes in their political, economic, and social structures and institutions. Across a range of development outcomes—in terms of the speed and success of reforms—transition is an “unhappy process.” The “happiness gap,” i.e. the difference in average happiness levels between the populations of transition and non-transition economies, is closing, but at a slower pace than the process of economic convergence. Economic growth, as the determinant of a country’s collective well-being, has been superseded by measurements of institutional quality and social development.

Minding the happiness gap: Political institutions and perceived quality of life in transition

Along with political and economic changes, the fall of the socialist regimes in Central and Eastern Europe and the former Soviet Union brought about fundamental institutional reforms. Several studies have examined the causes of the increasing unhappiness that accompanied the transition process, including deteriorating public goods, rising inequality, income volatility, stagnating labor market conditions and changing norms. However, few papers have sought explanations for the life satisfaction differentials between transition and non-transition economies. In this paper, I specifically examine the life satisfaction gap between post-socialist and advanced countries and the role of political institutions for explaining this gap. My results imply that both macro-economic factors and the rule of law explain the overall life satisfaction differential between the advanced and transition societies. The rule of law played an additional role in reducing the happiness gap in the 1990s and may have even reversed it in the post-crisis years. As institutions and macro-economic conditions continue to improve, post-socialist countries may complete their transformation processes and achieve quality-of-life levels comparable with those in the West.

The Penn Effect and Transition: The New EU Member States in International Perspective

We aim to put comparative price developments of transition economies in an international perspective. We argue that estimating simple price-productivity relationships without the inclusion of other explanatory factors connected to reform effort might severely bias estimates for CEEC and CIS economies. Our results imply that, when controlling for reform effort and therefore avoiding this endogeneity problem, the price-productivity elasticity for CEEC and CIS economies was not different from that of non-transition economies during the first 15 years of transition.

State or Private Ownership? A Survey of Empirical Studies

State or Private Ownership? A Survey of Empirical StudiesThis paper focuses on property rights and performance of enterprises. The objective of this paper is to summarize existing knowledge from empirical studies dealing with the question of whether private property and privatization of enterprises encourage firms to increase their performance measured as growth of profitability, labor productivity, investments, costs effectiveness, etc. On the basis of empirical studies, it is also determined what the influence of institutional frameworks of property rights and privatization is on the firm performance. The first part of the paper reviews results of studies on the non-transition economies privatized by 1990. The second one evaluates the impact of private ownership on performance of enterprises from transition economies of Central and Eastern Europe, and the Former Soviet Union. The results of the studies suggest that private ownership is an important but not sufficient determinant of firm prosperity, subsequently resulting in overall rise of wealth of nations. The positive impact of private ownership on economic performance can occur only in an appropriate institutional environment with relevant legal standards (righteous and enforceable contracts, the protection of shareholders and creditors, adequate banking system, functioning bankruptcy courts, capital market supervision, etc.).

The Entrepreneurial Ladder in Transition and Non-Transition Economies

Abstract This paper compares (former) transition and non-transition economies in Europe and Asia with respect to the opportunities available to achieve entrepreneurial progress. In addition, the differential impacts of three perceived environmental barriers to new venture creation are investigated. Entrepreneurial progress is measured using five levels of incremental entrepreneurial involvement. Data from the 2009 “Flash Eurobarometer Survey on Entrepreneurship, No. 283” by the European Commission, which covers all 27 EU Member States, five other European countries, China, Japan, South Korea, and the U.S., are used. China is found to have a forward position during the early stages of entrepreneurial progress, which contrasts with a lack of early-stage entrepreneurial potential in Japan and South Korea. However, converting nascent activities into a business start-up seems to be the most difficult in China and the U.S. Furthermore, we find that perceived environmental constraints hinder entrepreneurial progress most in (former) European transition countries.

The Penn Effect and Transition: The New EU Member States in International Perspective

Recent panel studies have found relatively high point estimates for the elasticity of aggregate price measures with respect to productivity in (former) transition economies, while other studies report price-productivity elasticity estimates to depend positively on average productivity in the sample. We aim to reconcile both results by putting comparative price developments of transition economies in an international perspective. We argue that estimating simple price-productivity relationships without the inclusion of other real factors connected to reform effort might severely bias estimates for CEEC economies. Our results imply that, when controlling for reform effort and therefore avoiding this endogeneity problem, the price-productivity-elasticity for CEEC economies was not different from that of non-transition economies during the first 15 years of transition.

Operating Performance of Newly Privatized Firms in Central European Transition Economies

This study examines the operating performance of privatised firms in three Central European Transition Economies between 1990 and 1998. Overall, we find no evidence of a significant improvement in operating performance for the first six years after privatisation. Contrary to the increasing empirical evidence for non-transition economies, our privatised firms experience no improvement in profitability, capital investments, efficiency, and output, a significant drop in employment, as well as a significant increase in leverage. The most important determinants of the performance changes following privatisation were country effects, timing of the privatisation sales, industry classification, and state ownership after privatisation. Our findings are consistent with the empirical evidence that the transition process proved to be more difficult than expected and that, although necessary, privatisations do not necessarily produce equal efficiency gains in transition economies (Megginson, 2005; Havrylyshyn and McGettigan, 1999).

The financial economics of privatization

This book explores the different aspects of privatization. It charts the emergence of privatization and looks at how and why countries privatize their state-owned enterprises (SOEs). It examines the impact of privatization on financial markets, and transition and nontransition economies. It analyzes the privatization experiences of five industries that have seen the largest number of state ownership sales: telecommunications, banking, oil and gas, electricity production and distribution, and commercial airlines. The key lessons of privatization based on experience and empirical research as well as unresolved issues in privatization policy and research are discussed.

Russia In Transition

The history of transition in Russia is analyzed in this paper. Issues ranging from managerial incentives to the changing structure of trade are considered in an attempt to present a comprehensive sketch of the state of the Russian economy. The transition in Russia can be compared with demobilization. Demobilization process is often accompanied by large output declines. For instance, during the post World War II demobilization the US GNP declined by 25%. In light of this, the great contraction of the Russian economy does not appear to be a major outlier when the militaristic nature of the Soviet economy is taken into account. We point out a previously unexplored factor detrimental for incentives of Russian managers, which we call soft taxation. Soft taxation is a free market analog of soft-budget constraints. Due to the inefficiency of institutions, managers have an incentive to take costly actions in order to signal that the profitability of the firm is low. Also, we suggest a few indices of aggregate economic shocks including one based on the structure of foreign trade. The values of the indices of aggregate shocks for the Russian economy are compared to those of several other countries. The data seem to indicate that the changes in the structure of Russian trade have been far greater than in non-transition economies. However, other indices of economic adjustment do not paint a picture of a rapid transition.

Does governance explain unofficial activity?

The cross-country results presented here show that most aspects of governance affect transition and non-transition economies differently. For governments in transition, more regulation, greater voice and accountability, heightened government effectiveness, and stronger rule of law surprisingly matter very little. What matters most for these transition economies is political stability and insulating the country's business environment from corruption.