Benchmarking competitiveness in transition economies

This paper constructs an indicator for the current level of international competitiveness of countries in transition. We find that Hungary is the most competitive country in the group while Turkmenistan is the least. Competitiveness measurement, in our view, is a way to use uniform criteria to gauge the extent to which a country makes use of various levers to promote sustained improvements in its well-being. We construct our measure of competitiveness drawing upon both the popular literature on competitiveness as well as modern economic theory. The approach acknowledges the importance of synergies between firms, markets, and government and, above all, the crucial role of institutions. Our choice of variables stresses the special characteristics of transition countries. By bringing to bear all the existing data on these countries, together with new survey data collected for the purpose, we are able to go beyond the mere ranking of countries to decompose the sources of competitiveness into their constituent parts. This allows policy makers to identify areas where their countries are lagging behind relative to other countries in their region. Our indicator is also compatible with the Global Competitiveness Report series categories, thus allowing us to benchmark transition countries against the rest of the world.
JEL classification: C82, O47, O57, P27, P52.     

Financial market spillovers in transition economies

This paper examines financial market comovements across European transition economies and compares their experience to that of other regions. Correlations in monthly indices of exchange market pressures can partly be explained by direct trade linkages, but not by measures of other fundamentals. Higher-frequency data during three crisis periods reveals the presence of structural breaks in the relationship between exchange-, but not stock markets. While the reaction of markets during the Asian and Czech crises is muted, the pattern of high-frequency spillovers during the Russian crisis looks very similar to that observed in other regions during turbulent times. With greater financial market integration, the financial markets of the more advanced transition economies can be expected to behave more and more like their Asian and Latin American counterparts.     

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 role of government aid to firms during the transition to a market economy: Russia 1992-1994

The paper develops two economic grounds for gradualism in the context of the Russian move toward a market economy: one for the support of output through subsidies, another for similar support through credit. The first argument relates to the usual case for softening the blow to a sector hit by an adverse, permanent shock. The other argument depends on the absence of a well-functioning capital market. Having presented the two arguments, we discuss the extent to which they justify the course of Russian policy. Essentially we show that the arguments support much less gradualism than actually took place in Russia in 1992 and 1993.     

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.     

Institutional design and the closure of public facilities in transition economies

As part of the reforms of their systems for financing and delivering health care, many transition economies, particularly in central and eastern Europe, have adopted national insurance funds that are institutionally separate from ministries of health. Most of these countries have also grappled with the problem of restructuring the delivery system, especially the need to reduce hospital capacity. Although improving the performance of medical care providers through a shift from passive budgeting to explicitly incentive mechanisms is important, why this change in financial relations between the government and providers could not be implemented simply by reforming the role of health ministries is not obvious. This paper presents an explicit rationale for the separation of powers between the regulator (the ministry of health) and the financing body (the insurance fund), based on the inability of a single agency to commit to closing hospitals. JEL classification: L51, P20, P35, I18.     

Crime and corruption in transitional economies: lessons for Cuba

Trends in aggregate crime rates across Europe reveal significant increases in crime in transitional countries. We identify causal mechanisms associated with the economic transition. Historical experience of corruption in the Soviet Union is reviewed, and connections between corruption and transition are analyzed. We apply the results to Cuba's current circumstances, examining the potential for growth in crime and corruption in Cuba and suggesting policies to ameliorate it.     

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.     

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     

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.      

A portfolio approach to a cross-sectoral and cross-national investment strategy in transition economies

This paper takes a systematic look at the portfolio choice problem faced by Investment Banks or Funds investing in transition economies. We relate the performance of projects in the transition economies to the broader macroeconomic and international environments, which affect the project through their input-output structures and financial balance sheets. Among the macroeconomic determinanst of enterprise behaviour are productivity growth, real wage growth, movements in the international terms of trade, shocks to the relative price of traded and non-traded goods, domestic and foreign interest rates, currency depreciation and the rate of inflaction. We evaluate the attractiveness of alternative investment strategies and provisioning rules from the perspective of portfoio theory.     

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.     

Market structure and competition in transition: results from a spatial analysis

The present article provides first microlevel (indirect) empirical evidence on changes in entry barriers, the determinants of firm profitability as well as the nature of competition for a transition economy. We estimate size thresholds required to support different numbers of firms for several retail and professional service industries in a large number of geographic markets in Slovakia. The 3 time periods in the analysis (1995, 2001 and 2010) characterize different stages of the transition process. Specific emphasis is given to spatial spill-over effects between local markets. Estimation results obtained from a spatial ordered probit model suggest that entry barriers have declined considerably (except for restaurants) and that the intensity of competition has increased on average. We further find that demand spill-overs and/or the effects associated with a positive correlation in unobservable explanatory variables seem to outweigh negative spill-over effects caused by competitive forces between neighbouring cities and villages. The importance of these spatial spill-over effects differs across industries.     

On the continuity of equilibrium and core correspondences in economies with differential information

Summary. We study upper semi-continuity of the private and coarse core and the Walrasian expectations equilibrium correspondences for economies with differential information, with Boylan (1971) topology on agents information fields.Received: 16 January 2004, Revised: 28 October 2004, JEL Classification Numbers: D50, D82, C70. Correspondence to: Ezra EinyWe wish to thank Carlos Herves, Nicholas Yannelis, and an anonymous referee for their helpful comments.     

Monopolistic security design in finance economies

Summary. The purpose of this paper is to analyze endogenous asset innovation by an entrepreneurial exchange owner in a general equilibrium model of incomplete security markets with financial transaction fees. A monopolistic market maker has the technology to introduce a new option into the economy and charge investors proportional transaction fees if they trade on the exchange. The market maker's objective is to choose the security and transaction fee that maximize revenues when opening the exchange. A computational analysis of this problem is necessary since there are no interesting models with closed-form solutions. We compute the price and welfare effects of the option introduction. Received: March 14, 2000; revised version: December 12, 2000     

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.     

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.     

The choice of exchange rate regime: An empirical analysis for transition economies*

We analyze the choice of exchange rate regimes of the 25 transition economies in Europe and the CIS after 1990. The empirical results show that the traditional Optimum Currency Area considerations provide relevant guidance for the regime choices in these countries. Moreover, regime choices are influenced by inflation rates, cumulative inflation differentials, and international reserves sufficiency. That is, macroeconomic stabilization and the ability to commit to exchange rate pegs also play important roles. Large government deficits have ambiguous effects; they increase the likelihood of moving from flexible to intermediate regimes as well as that of moving from fixed to intermediate ones.