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.     

Relative price shifts,economies of scale and poverty during economic transition1

Economic transition is associated with significant shifts in relative prices between private and public goods. If, as a result, public goods claim a larger share of total expenditures, economies of scale in consumption increase. We show how relative price changes might alter the welfare of different‐sized households in the short run and over time. We illustrate, for a selection of transition economies, that conventional poverty profiles are quite sensitive to assumptions made about economies of scale in consumption. In particular, the common view that large households with many children are poor relative to small households (such as those comprising the elderly) is shown to be highly non‐robust.     

What explains persistent inflation differentials across transition economies?1

We document that a persistent inflation differential has opened across different groups of transition economies since 2001, with the CIS‐West seeing particularly high outcomes. We consider a range of non‐monetary explanations discussed in the literature (economic structure, policy and institutions), and controlling for economic shocks, we find a role for political stability, as emphasized in previous cross‐country work. However, our results suggest that lagging internal and external liberalization have been the key disincentives to disinflation. Consequently, lower inflation targets would not be credible in the absence of stronger structural and monetary policy frameworks.     

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.     

On the dynamics of inequality in the transition

Inequality has increased in many of the transition economies. At the same time, spending on education has declined. In this paper we survey the factors driving these changes. We then set up a small general equilibrium model to simulate the effect of different policy choices on the path of inequality over the transition. We show that the policies selected in Central Europe engender a relatively rapid spike in inequality but with a Kuznets curve. In the simulations that broadly capture features of the policy regime dominating in Russia and the FSU, we find no Kuznets curve. We then turn to the longer run and look at the way in which both trade liberalization and technological and organizational change are likely to affect the relative demand for types of labour. We show how substantial technological and organizational change - obvious features of transition - can result in raising inequality. Persistence in inequality can be expected to depend critically on the pace at which the acquisition of skills takes place in the economy - and, hence, on the evolution of the educational system. As such, policies aimed at raising adaptability - such as quality educational systems - can be expected to dampen the increase in wage inequality.     

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.     

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.     

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.     

Optimal growth when environmental quality is a research asset

We advance an original assumption whereby a good state of the environment positively affects labor productivity in R&D such that deteriorating environmental quality negatively impacts R&D. We study the implications of this assumption for the optimal solution in an R&D-based model of growth, where the use of a non-renewable resource generates pollution. We show that in such a case, it is socially optimal to postpone extraction, as opposed to the situation in which the environment has no effect on productivity in R&D. Furthermore, insofar as environmental quality declines and subsequently recovers, we find that it is optimal to re-allocate employment to R&D in line with productivity changes. If environmental quality recovers only partially from pollution, R&D effort optimally begins above its long-run level, then progressively declines to a minimum and eventually increases to its steady-state level.     

Banking efficiency in transition economies

An increasing share of the banking sector is controlled by foreign capital in the majority of transition countries. To analyse the effects of this trend on the performance of the banking sector in these countries, this study conducts a comparative analysis of the performance of foreign‐owned and domestic‐owned banks operating in the Czech Republic and Poland. We use the stochastic frontier approach to compute cost efficiency scores. Following Mester (1996 ), financial capital is included in the cost frontier model to control for risk preferences. Our finding is that on average foreign‐owned banks are more efficient than domestic‐owned banks. We conclude, however, that this advantage does not result from differences in the scale of operations or the structure of activities.     

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.     

Structure and performance of the service sector in transition economies1

This paper examines the performance of the service sector in the Eastern European transition economies during the 1997–2004 period. The performance of the service sector as a whole and of its sub‐sectors is very heterogeneous within the region. Service sub‐sectors that are information and communications technology producers or users and those using skilled labour more intensively exhibit the highest labour productivity growth. Our estimates show a positive and significant effect of liberalization on service labour productivity growth that is stronger for sub‐sectors that are more distant from the technological frontier. Service liberalization is also shown to have a positive effect on labour productivity levels and growth of downstream manufacturing industries.     

Methods of privatization and economic growth in transition economies1

We examine how different methods of privatization might have affected growth in transition economies. Using several econometric specifications, including fixed effects and GMM, we estimate a cross‐country panel growth model for 1990–2003. We find only voucher privatization to have been significantly associated with faster growth. Moreover, neither private sector development per se nor capital market development exercised a significant influence. We speculate that voucher privatization may have been effective because of the speed with which links between firms and the state were severed.     

Export variety and economic growth in East European transition economies*

Utilizing panel data for 14 East European transition economies, we discuss the link between product variety and growth. The empirical work relies upon some direct measures of product variety calculated from 5‐digit OECD trade data. On balance, the results suggest that the growth patterns of the East European transition countries may be best represented by Ventura's (1997 ) model of outward orientation and integration with the world economy.     

Trade in quality goods,trading regimes and unemployment in transition economies1

One of the most important consequences of the transition in Central and Eastern Europe (CEE) has been the dismantling of the Council for Mutual Economic Assistance (CMEA). It is argued in this paper that the abrupt loss of trading partners for the former CMEA countries and the Newly Independent States (NIS) are partly responsible for the ensuing contraction of output and the emergence of unemployment. A model in which trade is conducted in vertically-differentiated products is constructed with the implication that the dismantling of ‘clearing trade’arrangements among CMEA countries may make unemployment more than just a short-term phenomenon.     

Distance in time between transition economies and the European Union

The time distance methodology used offers a new perspective to the problem, an additional statistical measure, and a presentation tool for policy analysis and debate readily understood by policy makers, media and general public. Disparity between the analysed transition economies and EU countries is considerably smaller for other indicators than for GDP per capita. Compared with Ireland, Portugal and Greece Slovenia was in 1995 in 13 cases behind (but time lag of Slovenia never exceeded 10 years) and in 13 cases ahead of them. Sicherl (1997a) discusses application of S-distance to time series regressions, models, forecasting and monitoring. First version received: October 1995/final version received: April 1998     

Determinants of cross‐border bank acquisitions in transition economies1

We analyse the microeconomic determinants of cross‐border bank acquisitions in 11 transition economies over the period 1992–2006. We find that foreign banks target relatively large and efficient banks when they enter transition economies with weak institutions. This evidence provides support for the ‘market power’ hypothesis. However, when foreign banks enter more developed transition economies that have made progress in economic reform, they acquire less efficient banks. This result is in line with the efficiency hypothesis. We use a multilevel mixed effects logit model that allows us to explicitly incorporate the macroeconomic and institutional heterogeneity of the transition economies into our analysis.     

Regional unemployment and human capital in transition economies1

Differences in regional unemployment in post‐communist economies are large and persistent. We show that within‐country regional variation in inherited human capital in four such economies explains the bulk of regional variation in unemployment; we explore potential explanations. Our evidence suggests that internal skill‐biased migration and the flow of foreign direct investment are not working as adjustment mechanisms but rather help explain the lack of convergence in regional unemployment rates. Although this capital and labour mobility pattern is consistent with the presence of regional skill spillovers, we find little support for this hypothesis. Instead, the observed migration pattern appears to arise from different skill‐specific adjustments to regional shocks brought about in part by labour‐market institutions such as guaranteed welfare income.     

Law and credit constraints in transition economies1

Using a survey of over 4,000 firms in 21 transition economies, this paper investigates how legal extensiveness (law on the books) and legal effectiveness (law in practice) affect availability of bank finance. Our findings suggest that both law on the books and law in practice are important, but that they impact firms of different sizes differently. Small firms appear to be the most credit constrained in countries with weak creditor rights and with weak contract enforcement, while large firms are the most credit constrained in countries with weak courts and unclear and inconsistent laws pertaining to firms’ business operations.     

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.