Energy efficiency in transition economies

This article outlines and estimates a measure of underlying efficiency in electricity consumption for an unbalanced panel of 27 transition economies and 6 European OECD countries between 1994 and 2007. A Bayesian Generalized True Random Effects stochastic frontier model with persistent and transient inefficiency is considered by estimating an aggregate electricity demand function that leads to consumption efficiency scores, giving further insights than a simple analysis of energy intensity. There is evidence of convergence between the CIS countries and a block of Eastern European and OECD countries, although other country groups do not follow this tendency, such as the Balkans.     

Institution building and growth in transition economies

Drawing on the recent literature on economic institutions and the origins of economic development, we offer a political economy explanation of why institution building has varied so much across transition economies. We identify dependence on natural resources and the historical experience of these countries during socialism as major determinants of institution building during transition. Using natural resource reliance and the years under socialism to extract the exogenous component of institution building, we also show the importance of institutions in explaining the variation in economic development and growth across transition economies during the first decade of transition.     

Geography,geopolitics, and policy in the performance of transition economies

The economic performance of the transition economies as of 2015 is well explained by three variables: (1) years of membership in the EU; (2) physical distance from the heart of the EU economy, taken to be Dusseldorf; and (3) annual revenues from oil and gas production, reflecting natural resource deposits. These three factors account for around 86 percent of the variation in per capita income across the 28 transition economies, and reflect the interplay of domestic policy, geopolitics, geography and natural resources.     

The determinants of foreign direct investment into European transition economies

Using a panel dataset of bilateral flows of foreign direct investment (FDI), we study the determinants of FDI from Western countries, mainly in the European Union (EU), to Central and Eastern European ones. We find the most important influences to be unit labor costs, gravity factors, market size, and proximity. Interestingly, host country risk proves not to be a significant determinant. Our empirical work also indicates that announcements about EU Accession proposals have an impact on FDI for the future member countries. Journal of Comparative Economics 32 (4) (2004) 775–787.     

Effects of bank insolvency on corporate incentives in transition economies

In transition countries, the real impact of banking crises has so far been rather moderate. We study the effect of bank insolvency on corporate incentives in a model where incumbent banks possess an informational advantage. We find that bank insolvency reduces the incentive to restructure for firms whose incumbent bank becomes insolvent. However, bank insolvency provides an additional incentive for firms that enter the credit market to develop new projects because it reduces asymmetric information between banks. Firms’ credit costs are thereby lowered. We also explain a path‐dependent development by demonstrating that the firms’ decision to develop new projects depends on the banks’ share of non‐performing loans.     

Seize the state, seize the day: state capture and influence in transition economies

Data from the 1999 Business Environment and Enterprise Performance Survey is used to examine state capture and influence in transition economies. We find that a capture economy has emerged in many transition countries, where rent-generating advantages are sold by public officials and politicians to private firms. While influence is a legacy of the past inherited by large, incumbent firms with existing ties to the state, state capture is a strategic choice made primarily by large de novo firms competing against influential incumbents. Captor firms, in high-capture economies, enjoy private advantages in terms of more protection of their own property rights and superior firm performance. Despite the private gains to captor firms, state capture is associated at the aggregate level with social costs in the form of weaker economy-wide firm performance. Journal of Comparative Economics 31 (4) (2003) 751–773.     

Transition economies in the Middle East: the Syrian experience

There have been no in-depth studies of the post-socialist transition in the Middle East. Syria’s experience is a useful one to explore given its historically important role in the region and its distinctive characteristics. The Syrian economic transition, from the early 1990s to 2011, was in two phases: an incremental liberalisation phase and a transition to a social market economy phase. During both phases, Syrian policymakers showed a preference for a gradualist approach to economic transition, rather than a big-bang approach. This was facilitated by oil revenues and subsidies from the Gulf States. The Syrian experience therefore has its own distinct characteristics, as well as elements in common with the transitions in other post-socialist economies.     

The sequencing of reform in transition economies

In this paper, we examine the consequences of sequencing on the progress of reforms in transition economies. The paper uses panel logit models to determine whether or not progress in some reforms enhances the prospects for other reforms. We find that progress on small-scale privatization is associated with advances in several other reforms, perhaps because small-scale privatization creates lobbies for reform. Our estimations suggest that a comprehensive program of small-scale privatization is needed to stimulate large-scale privatization, trade, and banking reform in a country that has undertaken little reform. Moreover, if restructuring is to occur banking reform is necessary. We also find that relaxing the fiscal constraint stimulates large-scale privatization, restructuring, and trade reform. Finally, we find that negotiations about EU accession negotiations advance the transition but only in banking reform and competition policy. Journal of Comparative Economics 33 (4) (2005) 835–850.     

Banking sector development and interest rate volatility in emerging economies

Over the last decades, macroeconomic stability is said to be one of the major concerns of emerging economies. Financial sector as a core of macroeconomic stability has been under close consideration of policy makers. The relationship between interest rate uncertainty and banking sector development as one of the most important indicators of financial sector development, especially for emerging economies, has not received enough attention in the literature. Perhaps this article is the most comprehensive study that investigates the relationship between interest rate uncertainty and banking sector development for a large group of emerging economies. To do this, the short-run and long-run models using a bounds testing approach to cointegration for 12 emerging economies over the period 1980–2011 have been developed. Estimated results from all models indicate that interest rate uncertainty has significant effect on banking sector development in both short-run and long-run phenomena in the majority of countries. The findings indicate that the link between interest rate uncertainty and banking sector development in each country depends on each country’s specific structure.     

The effects of agglomeration economies on technical efficiency of manufacturing firms: evidence from Indonesia

This article examines the effects of agglomeration economies and industrial structure upon firm-level technical efficiency in the Indonesian manufacturing industry over the period 2004–2009. A stochastic production frontier and three channels of agglomeration economies consisting of specialization, diversity and competition are used. The empirical results show that the effects of specialization and diversity upon firm-level technical efficiency are positive and negative, respectively, indicating that specialization is more favourable than diversity for stimulating firms’ technical efficiency. Competition has a positive sign, showing that region with high levels of competition tend to be more conducive in accelerating firm-level technical efficiency. In terms of firm location, both dummy for urban region and industrial complex turn out to be positive, indicating that firms located in both areas are experienced higher technical efficiency. Both firm size and age also have positive effect upon technical efficiency.     

Reform reversals and output growth in transition economies*

This paper tests whether reform reversals during transition carry an economic cost. Reform is measured by an average reform index, while reform reversals are characterized by a drop in the average reform index. In the standard empirical framework the current level of reform affects growth negatively, while the lagged level affects growth positively. This non‐linear effect implies a counterintuitive, short‐lived positive effect of a reversal. In a simultaneous equation system with growth and the level of reform as dependent variables we explicitly introduce a reversal parameter. Empirical results suggest that reversals have an immediate negative impact on real output growth. Controlling for the level of reform shows that reversals are more costly at higher levels of reform.     

Enterprise restructuring and bank competition in transition economies

We investigate how bank competition affects the efficiency of credit allocation, using a model of spatial competition. Our analysis shows that bad loans are more likely the larger the number of banks competing for customers. We study further how many banks will be active if market entry is not regulated. Free entry can induce too much entry and thus too many bad loans compared to the social optimum. Finally we analyse how bank competition affects the restructuring efforts of firms. We find that restructuring has positive externalities which give rise to multiple equilibria, with either much or little restructuring activity.
JEL classification: D43, G21, G34, L13, P31, P34.     

Economies of density, scale and scope in the water supply and sewerage sector: a study of four developing and transition economies

Using panel data, we estimate measures of density, scale and scope economies in four countries that differ substantially in their levels of economic development and in their piped water and sewerage coverage: Brazil, Moldova, Romania and Vietnam. We find evidence of economies of scale in Moldova, Romania and Vietnam. In Brazil, we cannot reject the null hypothesis of constant returns to scale. The results of this study show that the cost structure of water and sewerage utilities varies significantly within and between countries and over time.      

Optimal dynamics of environmental quality in economies in transition1

Environmental pressures in the transition economies of the post‐Soviet era affect not only the quality of life for local populations, but also other key economic issues such as privatization and employment by posing obstacles to their progress. Most studies addressing the environment in transition economies are empirical or analyze the effect of environmental protection on economic variables without first establishing an underlying framework together with the optimal path of environmental quality during the transition. This paper presents such a framework and a policy rule for attainment of the optimal balance between capital and environmental quality in economies in transition. Furthermore, the model shows that pollution taxes or tradable pollution permits are by themselves insufficient to implement the social optimum in a decentralized economy. The results of the model are consistent with depressed economic activity in those economies during an initial phase, and with the diversity of environmental policies in both Central and Eastern Europe (CEE) countries and the Newly Independent States (NIS). JEL classification: Q20, P20, O13.     

The curse of natural resources in the transition economies*

The curse of natural resources is a well‐documented phenomenon for developing countries. Economies that are richly endowed with natural resources tend to grow slowly. Among the transition economies of the former ‘Eastern Bloc’, a similar pattern can be observed. This paper shows that a large part of the variation in growth rates among the transition economies can be attributed to the curse of natural resources. After controlling for numerous other factors, there is still a strong negative correlation between natural resource abundance and economic growth. Among the transition economies the prime reasons for the curse of natural resources were corruption and a neglect of basic education. In order to overcome the curse of natural resources and move to a sustainable path of development, the resource abundant transition countries should fight corruption and ensure that their resource revenues are invested in human capital or the preservation of natural capital.     

Privatization and corruption in transition economies: a panel study

By using three corruption indices, six privatization indicators, and taking the endogeneity problem into consideration, we test the hypothesis that privatization contributes to a decrease in corruption in transition economies. We identified a highly statistically significant and negative association between privatization and corruption in transition economies for three different corruption indices and six different privatization indicators.     

Informational efficiency properties of rational expectations equilibria in non-convex economies

Summary. A simple example shows that although non-convexities might prevent the existence of a fully revealing rational expectations equilibrium, they need not prevent the existence of a non-informative one. Indeed, the economy in this example does not possess any fully revealing equilibria, but does have a continuum of non-informative ones. Received: February 9, 1999; revised version: October 20, 1999     

Regulation and efficiency in transition: the case of Romanian banks

Using disaggregated panel data for the period 1996–2002, this paper estimates the cost efficiency of Romanian banks and relates it to regulation implemented by the National Bank of Romania. We estimate efficiency using a model that combines the frameworks of both stochastic frontier analysis and shadow cost functions. Our results indicate that, for all types of banks, the cost of technical inefficiency decreases in the years following tightening of regulation. A significant part of this decrease can be attributed to the policy change. Overall, the short-run increase in cost due to additional regulation exceeds the benefits from reduced technical inefficiency. However, our model does not account for other benefits, besides changes in X-inefficiency, such as stability of the banking system, which may be significant.      

The J-Curve phenomenon in European transition economies: A nonlinear ARDL approach

This article examines the J-curve phenomenon for 16 European transition economies. While previous studies assume a linear relationship between the exchange rate and the trade balance, this paper allows for nonlinearity. Following Bahmani-Oskooee and Fariditavana (2015 Bahmani-Oskooee, M., and H. Fariditavana. 2015. “Nonlinear ARDL Approach, Asymmetric Effects and the J-curve.” Journal of Economic Studies 42 (3): 519–530. doi:10.1108/JES-03-2015-0042.[Crossref], [Web of Science ®] , [Google Scholar], 2016 Bahmani-Oskooee, M., and H. Fariditavana. 2016. “Nonlinear ARDL Approach and the J-curve Phenomenon.” Open Economies Review 27 (1): 51–70. doi:10.1007/s11079-015-9369-5.[Crossref], [Web of Science ®] , [Google Scholar]), the empirical method used is the nonlinear cointegrating autoregressive distributed lag (NARDL) model of Shin et al. (2013 Shin, Y., B. Yu, and M. J. Greenwood-Nimmo. 2013. “Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework.” In Festschrift in Honor of Peter Schmidt, edited by William C. Horrace and Robin C. Sickles. New York, NY: Springer Science and Business Media. [Google Scholar]) in which short-run and long-run nonlinearities are introduced via positive (appreciation) and negative (depreciation) partial sum decompositions of the real exchange rate. We argue that the lack of support for the J-curve phenomenon could be due to the linearity assumption. This issue is examined by utilizing the linear and the NARDL models. Using the linear autoregressive distributed lag (ARDL) model, we are unable to find support for the J-curve phenomenon in any case. However, when the NARDL model is used, we are able to find evidence for the J-curve in 12 out of the 16 countries. This suggests that allowing for nonlinearity in the adjustment process is important when studying the J-curve phenomenon.     

Economic reforms and human development: evidence from transition economies

Do market-oriented economic reforms result in higher levels of human well-being? This article studies the impact of macro-level institutional and infrastructure reforms on the economic, educational and health dimensions of human well-being among 25 transition economies. We use panel data econometrics based on the LSDVC technique to analyse the effects of market-oriented reforms on the human development index (HDI), as a measure of human well-being, from 1992 to 2007. The results show the complexity of reform impacts in transition countries. They show that institutional and economic reforms led to positive economic effect and significant impacts on other dimensions of human development. We find some positive economic impacts from infrastructure sectors reforms. However, not every reform measure appears to generate positive impacts. Large-scale privatizations show negative effects in health and economic outcomes. The overall results show the importance of the interaction among different reform measures and the combined effect of these on human development.