Speed and Sequencing of Transition Reforms and Income Inequality: A Panel Data Analysis

An extensive literature has analyzed the economic effects of transition patterns in Central and Eastern European and former Soviet Union countries. With few recent exceptions, analysis of the impacts of speed and sequencing of reforms has not concerned the dynamics of income inequality. In this paper we analyze the heterogeneous effects of transition reforms on inequality by explicitly considering their speed and sequencing. To this aim we identify eight transition models in which the 27 countries considered are classified. The dynamic panel‐data analysis for the period 1989–2009 reveals that balanced transition patterns, which favored a coordination of reforms especially in specific fields, were relatively less pro‐inequality.     

Unemployment and the dynamics of political support for economic reforms

I analyze the dynamics of political support for economic reforms using a version of Rodrik's (1995) two-sector model of the transition economy. The key role is played by the pattern of flows between the state and private sectors and unemployment. It is shown that while the workers in the private sector always support rapid reforms, the workers in the state sector and the unemployed will support rapid reforms only at the outset of the transition. Later, state-sector workers and unemployed vote for a reduction in the speed of reforms.     

Interest rate reforms,financial deepening and economic growth in Tanzania: a dynamic linkage

In this paper we examine the dynamic relationship between interest rate reforms and economic growth in Tanzania using two tests. In the first test, we examine the impact of interest rate reforms on financial deepening using a financial deepening model. In the second test, we examine whether the financial deepening, which results from interest rate reforms, Granger‐causes economic growth – using a trivariate model. The empirical findings of our results reveal that there is a significant positive relationship between interest rate reforms and economic growth in Tanzania. However, the results fail to find any support for finance‐led growth.     

The determinants of economic growth of transition economies: Economic reform versus initial conditions

Abstract

This study analyzes factors for economic recovery of transition economies in Europe and the Commonwealth of Independent States for the period of the 1990s. Covariance structure analysis is employed to estimate the structural equation system, and exploratory factor analysis is conducted to measure initial conditions and economic policy as latent variables. The result of analysis shows that the effect of initial conditions is negative and the impact of economic reform on growth is positive. However, the negative effect of initial conditions had overridden the positive impact of economic policy as of 2000. The reason that transition economies could not recover their pre-transition GDP level (even after ten years of transition history) seems to stem from the negative influence of initial conditions on growth rather than the slow speed of economic reform.     

Has Productivity Contributed to China's Growth?

This paper applies an extended Solow approach to examine the role of productivity in China's economic growth. The extended Solow approach allows the decomposition of output growth into factor contributions, technological progress and efficiency change. It is found that total factor productivity (TFP) has on average contributed to 13.5 percent of China's economic growth in the past two decades. This contribution is mainly due to technological progress which tends to accelerate over time. However, during 1982–97 efficiency change due to catch–up has been very volatile, reflecting the uncertainties associated with economic reforms and transition in China.     

Slovakia's Surge: The New System's Impact on Fiscal Decentralisation

Slovakia's transition history long paralleled that of the Czech Republic, but the former adopted bold new reforms early in this decade. This article is a comparative treatment of fiscal decentralisation since 1993 and more recent reforms of public administration, the two efforts representing the foundation of the New System. Czech experience is invoked simply to provide an appropriate benchmark for the evaluation of Slovakia's New System introduced in 2004, including the 19% ‘flat tax’ and other striking measures in local public finance.

The second focus of the article is on the macroeconomic impact of the New System. It is too early to perceive what its long-term effects will be, so this treatment is more tentative. But because one would like to know whether Slovakia's return to an economic growth path is actually a result of the New System and whether this recent growth will persist, these issues are given some consideration.     

The Impact of Labour Market Reforms and Economic Performance on the Matching of the Short‐term and the Long‐term Unemployed

As a reaction to high and persistent unemployment in Germany, the largest labour market reforms in post‐war history were implemented between 2003 and 2005. We analyse the impact of the reforms and its coincidence with an economic expansion on the efficiency of matching out of unemployment. Especially focussing on searcher heterogeneity, we estimate a system of stock‐flow matching functions for short‐term and long‐term unemployment (three‐stage least squares) on the basis of administrative data. In sum, the reforms increased matching efficiency for both groups, but the effect was larger for the long‐term unemployed. The interaction of reforms and economic expansion, however, was not influential.     

MACROECONOMIC POLICY REFORMS AND PRODUCTIVITY GROWTH IN AFRICAN AGRICULTURE

This article employs a two‐stage procedure to investigate the impact of macroeconomic policy reforms on the agricultural productivity growth of 33 African countries from 1981 to 2001. In the first stage, we measure agricultural productivity using a nonparametric Malmquist productivity index. In the second stage, we build a generalized method of moments (GMM) model with a measure of structural adjustment program (SAP) intensity as a key instrument for macroeconomic policy reforms. We also control for the effects of globalization, civil violence, level of development of physical and financial infrastructure, and other economic variables as well as natural resource factors that directly affect agricultural productivity. Our results indicate a strong positive correlation between the extent of SAP intensity and agricultural productivity, suggesting that the macroeconomic policy reforms improved agricultural productivity growth in the sample countries. (JEL E6, O13, O41)     

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.     

Transition Problems in Policy Reform: Agricultural Trade Liberalization in India

What will be the domestic growth and distributional effects of agricultural trade liberalization in India? How fast should Indian agriculture be liberalized and what policies should characterize the transition? This paper uses Indian agriculture to analyze medium‐term transition problems that arise in many major economic reforms. Employing a dynamic applied general‐equilibrium model, the paper focuses on the implications for policy design of the absence of efficient capital and labor markets and on the distributional consequences of economic reform in the presence of realistic limits on available intervention instruments. The key finding is that trade adjustment should be supplemented by policies that raise land productivity and, because this takes time, the adjustment should be gradual.     

Optimal speed of transition with a shrinking labour force and under uncertainty*

In the 1990s – during the restructuring of large state enterprises – Central European economies experienced high unemployment. Social policy expenditures, particularly targeted to the non‐employed, grew faster than expected due to the need to finance the out‐of‐the‐labour categories. In 1992, after the Passive Labour Market Policies’ reforms, the pace of transition decelerated. Unemployment dynamics, speed of transition and non‐employment policies are modelled based on the assumption that the labour force is shrinking over time. Dismissed workers have the opportunity to choose an outside‐option alternative to labour force participation. Individual uncertainty is assumed in a first phase of transition, while aggregate uncertainty – generating opposition to restructuring – is modelled in a second phase. The model predicts a slowdown in the speed of transition.     

Output decline and recovery in the transiton economies: causes and social consequences1

This paper suggests that output in the transition economies of eastern Europe and the countries of the former Soviet Union is related to, firstly, macroeconomic stabilization, and secondly, the speed of transition. The statistical analysis suggests that those countries which have been most successful in reducing inflation have experienced a lower level of output decline and have been first to achieve recovery in real output. There is also strong evidence that the economies which have been boldest in adopting reforms have been most successful in limiting the fall in output and promoting growth. No support is found for the assertion that the faster the speed of transition the greater the adverse impact on basic social indicators, such as mortality rates.     

Married women's labor supply and economic development: Evidence from Sri Lankan household data

Women's labor supply in Sri Lanka has increased steadily since the early 1990s following economic reforms, but remains well below the level predicted by national income, a feature shared by a number of Asian and Latin American countries that have undergone similar reforms and economic growth. To understand the microeconomic determinants of women's work in Sri Lanka's growing economy, this paper estimates a binary‐choice model of married women's labor supply using household survey data spanning a 23‐year period. Decomposition and cohort analysis reveal that women have been drawn into the workforce through falling fertility rates, rising tertiary education, and declining income effects among younger generations, but other factors have undermined this positive trend. Educational attainment reduces married women's labor supply except at the tertiary level, consistent with social stigmas associated with married women in non‐white‐collar employment. The strict sectoral segregation of married women by education level supports this hypothesis. In addition, growth has been concentrated in low‐skilled sectors with self‐employment more prevalent, reducing employment prospects of educated women and prompting their labor force withdrawal. This suggests it is the structure of economic development, rather than speed, that matters for women's labor force activity.     

Growth and Crisis in Transition: A Comparative Perspective

The paper provides an empirical analysis of the growth performance of transition countries in a comparative perspective, separating episodes of crises from those of growth. Performance is measured by the output response following recessions, by the capacity to rebound, as well as the depth and length of the crisis rather than average rates of growth that aggregate periods of recessions and periods of growth. Results highlight that the post‐recession performance in Central and Eastern Europe resembles that of emerging and developing countries in the aftermath of banking and financial crises, often following significant liberalizations. In contrast, the post‐crisis performance of CIS countries resembles the output response observed during episodes of civil wars, and remains significantly different from the normal response of an average market country. Moreover, performance depends on economic reforms and especially on the complementarities among different reforms.     

The dynamics of market structure and firm-level adjustment to India's pro-market economic liberalizing reforms, 1988–2006: A Time Varying Panel Smooth Transition Regression (TV-PSTR) approach

This paper for the first time employs the Time Varying Panel Smooth Transition Regression (TV-PSTR) approach to model the dynamic adjustments of firms and the evolution of industrial structure in the bigger setting of decades against the backdrop of India's dramatic liberalizing reform starting from 1991. Using Indian manufacturing firm data, it finds that the transition of market structure and productivity after liberalization did follow a smooth transition process. Instead of the previously assumed instantaneous ‘big-bang’ shift just after reforms, it actually took years for the Indian manufacturing industries start to react to the reforms, and the transitional impact of reforms took approximately four to eight years to complete. There is strong evidence of increased competition after the transition, with shrinked returns to scale (RTS) in most industries except for leather and chemical industries. The results on total factor productivity (TFP) are mixed: most import-competing industries, which suffer most from the shrinking of market size experienced no change or decreasing TFP growth; whereas the export-oriented industry, as the industry which benefits most from economy of scale, enjoyed a huge TFP growth following the reforms.     

Growth effects of FDI in 80 developing economies: the role of policy reforms and institutional constraints

Theoretical and empirical literatures have identified several channels through which foreign direct investment (FDI) influences economic growth. This paper examines the impact of FDI on economic output growth per worker using aggregate production function augmented with FDI inflows, economic policy reforms and institutional constraints. The paper covers 80 developing countries over the period 1980–2006. We use panel data and employ fixed, random effects and GMM methods for estimation. Our results highlight the importance of FDI, policy reforms and institutional development for growth in developing economies. Finally, we demonstrate that irrespective of reforms and institutions, an increase in FDI affects output growth positively.     

Did support for economic and political reforms increase during the post‐communist transition,and if so,why?

We study the dynamics of individual support for changes in the economic and political system, using a unique dataset for 12 transition economies over the period 1991–2004. We document that support for transition was initially lower in the CIS countries and that there has been a converging trend in the support for reforms between the CIS and the Baltic and Central and Eastern European countries. We suggest several explanations for the initial divergence and the post‐98 convergence in support for transition between these three groups of countries, and show that economic growth, declining income inequality and improving quality of governance have contributed to increase the support for transition. In addition, we find that increased support for the market economy and democracy in the CIS is accompanied by a larger increase in trust towards the political institutions. Our results also confirm the implications of Aghion et al. ( 2010 )'s model of a negative correlation between trust and the demand for government regulation.     

The sequencing of reform policies in China's agricultural transition*

This paper provides evidence regarding gains due to agricultural market liberalization in China. We empirically identify the different effects that incentive and farm restructuring reforms and gradual market liberalization have on China's agricultural economy during its transition period. We find that average gains within the agricultural sector due to reforms that improved incentives and increased decision‐making authority of producers exceed gains due to market liberalization by a large margin. Our method of analyzing the effects of transition policies on economic performance can be generalized to other reform paths in other transition economies.     

The quality and quantity of bank intermediation and economic growth: evidence from Asia Pacific

We investigate the impact of the quantity and quality of bank intermediation on economic growth across 14 Asia-Pacific economies over 2003–2015. Measures of bank shareholder value efficiency as well as profit and cost efficiency are used as indicators of intermediation quality. We also employ measures of liquidity creation (fat and nonfat) as a proxy for the quantity of bank intermediation. Our main finding is that the quality of bank intermediation (enhanced credit allocation) is a driver of economic growth in developed Asia-Pacific economies, whereas it is the quantity of bank intermediation (capital accumulation) that positively influences growth in developing nations. From a policy perspective, our findings suggest that policymakers in developed nations should concentrate their efforts on reforms that enhance bank efficiency. Second, reforms that stimulate capital accumulation should be encouraged in developing economies because this is the main channel that spurs economic growth.     

基于质量指数的经济增长转型测度研究——以深圳经济增长为例

中国经济如何实现由"速度型"向"质量型"转化是一个充满了探索性的问题,学者们从不同理论视角给予了广泛关注。而如何设计一个指数从定量角度测评速度向质量转化进程,以便直观地反映经济增长转型的度是理论研究不可或缺的部分。通过借鉴市场化指数的经济原理与设计思路,设计了质量指数作为测量经济增长模式转型的定量指标,定量测算了由"深圳速度"到"深圳质量"跨越的实现程度。实证测评结果显示:"深圳速度"已经开始向"深圳质量"转化,但人民生活水平提高的幅度与深圳经济发展水平存在较大的落差。以此为契机,为定量测度我国经济增长转型提供一个分析思路。