DO CHOICE & SPEED OF REFORMS MATTER FOR HUMAN RIGHTS DURING TRANSITION?
Krishna Chaitanya Vadlamannati
WP No. 927
(July, 2008)
Abstract: Conventional wisdom posits absence of systematic relationship between economic reforms and human rights. Taking the case of transition economies, Vadlamannati & Soysa (2008) shows significant positive relationship between economic reforms and
various forms of human rights. This brings us to the next question on the impact of choice and speed of reforms on human rights performance. In other words, does speed and choice of reforms increase or decrease government respect for human rights in transition economies? This is the question our paper tries to address. The Anglo-Saxon perspective is that speed of reforms lead to growth and development which inturn generates respect for human rights. While skeptics contend that rushing towards a free market economy would always be destructive as development process tends to be exclusive creating exogenous shocks leading to social and economic unrest. This leads to
domestic violence and conflicts, allowing governments to resort to repressive measures. We use a new method to construct ‘speed of reforms’ variable for transition economies for the period 1993 – 2006 to estimate its impact on all forms of human rights. Further, using the methodology of Wolf (1999) on discrete groupings of choice of reforms of transition economies, we classify the countries under radical, gradual and laggard
reformer groups. We measure the impact of speed of reforms on human rights performance conditioned by choice of reforms.
Our findings show that speed of reforms significantly improves government respect for all forms of human rights, while volatility in reforms is associated with human rights abuses. But the interesting finding is that, controlling for the speed of reforms attained, the choice with which the country has reformed plays pivotal role in determining human rights performance. While radical reforming countries are associated with better human
rights performance, gradualists and laggards share poor human rights performance.
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Jel Codes: P0, P21, P30, P36, P48
Keywords: Speed & choice of economic Reforms; Human rights; Transition economies.
SOCIOECONOMIC, INSTITUTIONAL & POLITICAL DETERMINANTS OF HUMAN RIGHTS ABUSES:
Krishna Chaitanya Vadlamannati
WP No. 926
(July, 2008)
Abstract: We conduct an econometric analysis of socioeconomic, institutional and political factors determining government respect for human rights within India. Using time series crosssectional
data for 28 Indian states for the period 1993 – 2002, we find that internal threat poised by number of social violence events, presence of civil war and riot hit disturbed areas are strongly associated with human rights abuses. Amongst socioeconomic factors, ‘exclusive’ economic growth, ‘uneven’ development, poor social development spending, youth bulges and differential growth rates between minority religious groups explain the
likelihood of human rights violations. Capturing power at the state and central level by Hindu national parties’ viz., Bharatiya Janata Party (BJP) and Shiv Sena, further help understand the incidence of human rights violations within India. We also address the possible endogenity problem between human development and human rights. Using a system of simultaneous equation, we find that improvement in human development have positive impact on government respect for human rights within
India.
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Jel Codes: R10, R11, R50, Z12
Keywords: Human rights; civil war; socioeconomic conditions; sub national politics;Human development; India.
Does the Entry Mode of Foreign Banks Matter for Bank Efficiency? Evidence from the Czech Republic, Hungary, and Poland
Ngoc-Anh Vo Thi; Dev Vencappa
WP No. 925
(July, 2008)
Abstract: This paper investigates the impact of specific modes of entry of foreign banks, i.e. greenfield investment versus merger and acquisition, on bank performance in three transition economies – the Czech Republic, Hungary, and Poland. We use stochastic
frontier analysis to model and measure the cost efficiency of banks. We adopt a maximum likelihood approach to estimation in which the variance of the one-sided error term is modeled jointly with the cost frontier, thus enabling us to retrieve efficiency
scores, as well as estimating the various determinants of X-inefficiency. We first find that foreign banks are generally more cost efficient than their domestic counterparts, a result
that confirms those of the existing empirical literature. We then turn our focus to comparative performance of greenfield banks versus merger and acquisition banks (M&As), and of M&As versus domestic banks. The results show that on average, M&As are surpassed in terms of efficiency by greenfields banks, but no cost efficiency difference is apparent between M&As and domestic banks. However, we find a strong age effect with respect to M&As which suggests that the evolution of M&As’ efficiency follows an inverse U-shape, that means M&As tend to get more inefficient following the acquisition, but approximately 4 years and a haft later, their efficiency starts to improve.
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Jel Codes: F36, G21, C01
Keywords: Banking, Transition Economies, Foreign Bank Entry, Greenfield, Mergers and Acquisitions, Stochastic Frontier Analysis, Cost Efficiency
IMPACT OF ECONOMIC REFORMS ON POVERTY – INDIAN EXPERIENCE
Krishna Chaitanya Vadlamannati
WP No. 924
(July, 2008)
Abstract: The purpose of this study is to investigate the impact of economic reforms on poverty levels in India during the period 1975 - 2006. We construct a comprehensive measure of
economic reforms index made up of seven subcomponents and percentage of population living below poverty line is used as proxy for aggregate level of poverty levels. The empirical study is conducted within the frame work of unit root, cointegration and Vector Error Correction Method tests. The results display long run equilibrium relationship between the two and the direction of causality flowing from reforms to poverty. Further, it is interesting to find that the current level of economic reforms is having a positive effect on poverty levels. But, the past level of reforms (stock of reforms) has a significant negative effect on poverty levels. Meaning, the immediate adjustment cost of current level of economic reforms is counterbalanced by the negative effects by the level of past reforms during the study period.
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Jel Codes: C22, I30, I32, O10
Keywords: Poverty; Economic Reforms; Unit root; Cointegration
INDIA & SOUTH ASIA – INDIAN ECONOMIC REFORMS & DIRECT FOREIGN INVESTMENTS: HOW MUCH DIFFERENCE DO THEY MAKE TO NEIGHBORS?
Krishna Chaitanya Vadlamannati
WP No. 923
(July, 2008)
Abstract: The unprecedented emergence of a country as large as India in South Asian region raises the issue of how it will affect neighboring economies interms of attracting FDI inflows. Does huge FDI inflows of India lead to ‘investment creating effect’ or otherwise for its neighbors? If so, do FDI inflows in India exploit the economic reforms process and thereby affect other economies in the region?
In this paper, we explore these issues empirically using data for four South Asian economies (Pakistan, Sri Lanka, Bangladesh and Nepal) from 1975 to 2006 and control for other key determinants of FDI inflows. Using Chantasasawat (2004) and Mercereau (2005) approach, we develop five different methodologies to create ‘India effect’ and examine its impact on FDI inflows of its neighbors.
Using all the five methods, the results suggest that the India effect is positively related to the levels of FDI inflows of its neighbors. The volatility in FDI inflows of India is not the most important factor in having a detrimental affect on inflows of FDI in the region. Finally, there is a positive spillover effect of Indian economic reforms on FDI inflows of India, which inturn is leading to increase in attractiveness of FDI of its neighbors. Also found is the negative effect of cost of reversal of Indian reforms on neighbors FDI inflows.
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Jel Codes: F20, O53
Keywords: FDI inflows, India & South Asia
The Effects of Monetary Policy in the Czech Republic: An Empirical Study
Magdalena M Borys; Roman Horvath
WP No. 922
(June, 2008)
Abstract: In this paper, we examine the effects of Czech monetary policy on the economy within VAR, structural VAR, and the Factor-Augmented VAR framework. We document a well-functioning transmission mechanism similar to the euro area countries, especially in terms of persistence of monetary policy shocks. Subject to various sensitivity tests, we find that contractionary monetary policy shock has a negative effect on the degree of economic activity and price level, both with a peak response after one year or so. Regarding the prices at the sectoral level, tradables adjust faster than non-tradables, which is in line with microeconomic evidence on price stickiness. There is no price puzzle, as our data come from single monetary policy regime. There is a rationale in using the real-time output gap instead of current GDP growth as using the former results in much more precise estimates. The results indicate a rather persistent appreciation of domestic currency after monetary tightening with a gradual depreciation afterwards.
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Jel Codes: E31, E52, E58
Keywords: monetary policy transmission, VAR, real-time data, sectoral prices
Goods Market Integration in Russia during the Economic Upturn
Konstantin Gluschenko
WP No. 921
(May, 2008)
Abstract: This paper obtains an evolving pattern of goods market integration in Russia, considering the period of economic upturn, since the second half of 2000 through the end of 2007. In an
integrated market, the price of a tradable good at any location is determined by the national market, not local demand. Based on this, the strength of dependence of local prices on local
demands is used to detect and measure market segmentation. The costs of a staples basket across almost all Russian regions with a monthly frequency are used as the empirical stuff. The pattern obtained suggests that in the time span under consideration the degree of Russia’s goods market
integration was relatively stable, fluctuating around some level; no sufficient improvements or deteriorations were detected.
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Jel Codes: P22, R10, R15
Keywords: market integration, law of one price, price dispersion, Russian regions.
LABOUR MARKET MATCHING EFFICIENCY IN THE CZECH REPUBLIC TRANSITION
Pablo de Pedraza
WP No. 920
(April, 2008)
Abstract: Using the matching function and the monthly and yearly data from 1992 to 2000 of 76 Czech districts, this paper studies district specific characteristics affecting matching efficiency. Among the conclusions, it was found that the higher the educational level of the labour force and the higher the number of firms in new sectors, except in the commercial one, the more efficient the matching process. The results give evidence
supporting the idea that employed workers participate in the matching process and, therefore, they are one of the sources of increasing returns to scale in the Czech matching function. Small new enterprises in the commercial sector are also a source of
increasing returns.
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Jel Codes: J6, J64, J69
Keywords: Transition Labour Markets, matching efficiency
The Emerging Aversion to Inequality: Evidence from Poland 1992-2005
Irena Grosfeld; Claudia Senik
WP No. 919
(May, 2008)
Abstract: This paper provides an illustration of the changing tolerance for inequality in a context of radical political and economic transformation and rapid economic growth. We focus on the
Polish experience of transition and explore self-declared attitudes of the citizens. Using monthly representative surveys of the population, realized by the Polish poll institute (CBOS)
from 1992 to 2005, we identify a structural break in the relation between income inequality and subjective evaluation of well-being. The downturn in the tolerance for inequality (1997)
coincides with the increasing distrust of political elites.
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Jel Codes: C25, D31, I30, P20, P26
Keywords: inequality, subjective satisfaction, breakpoint, transition.
EXPLORING THE RELATIONSHIP BETWEEN MILITARY SPENDING & INCOME INEQUALITY IN SOUTH ASIA
Krishna Chaitanya Vadlamannati
WP No. 918
(April, 2008)
Abstract: The basic objective of this paper is to examine the effect of military spending on income inequality in four major South Asian economies. In the process, we also control for other possible key determinants of income inequality subject to data availability. Using panel regression fixed effects analysis for the study period 1975 to 2005, we find from our estimates that there is a positive effect of military expenditure on income inequality. Also we find there is a direct relationship between wartime military spending and income inequality and an inverse relationship between peacetime military spending and income inequality. Given the wide range of socio economic and political problems ailing South
Asia, these results gain paramount importance, suggesting that reduction in military spending could reduce income inequality, thereby paving way for economic development and progress.
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Jel Codes: H56, I30, O53
Keywords: Defense Spending; Income Inequality & South Asia
Productive, Unproductive and Destructive Entrepreneurship: A Theoretical and Empirical Exploration
Arnis Sauka
WP No. 917
(April, 2008)
Abstract: Drawing on Baumol’s concepts of productive, unproductive and destructive entrepreneurship and relevant amendments, this thesis aims to contribute to the entrepreneurship literature by developing a conceptual framework which allows operationalising the concepts for empirical assessment. Furthermore, using data from longitudinal survey, author makes one of the first attempts to address the concepts empirically. The results provide with support for the conceptual framework highlighting the importance to shift the focus from firms’ activities to output on both, venture and societal levels, short and long term, when concepts are addressed empirically. Overall findings suggest that productive entrepreneurs are those who are less involved in behaviour such as tax avoidance or illegal business and show a higher level of entrepreneurial orientation.
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Jel Codes: E26, H26, L26
Keywords: value creation; productive, unproductive and destructive entrepreneurship; transition context, small firms
MARKET RISK DYNAMICS AND COMPETITIVENESS: AFTER THE EURO: Evidence from EMU Members
Juan P. Chousa; Artur Tamazian; Davit N. Melikyan
WP No. 916
(February, 2008)
Abstract: In this paper we propose an empirical model that considers theoretical facts on the relationship between real exchange rates and the net exports of the economy to supplement the interaction of a number of financial and economic factors with the stock market. We discuss the impact of exchange rate
fluctuations on market risk in terms of Value at Risk (VaR). Our empirical findings show that common currency introduction produced increments in VaR whereas European stock returns are more sensitive to changes in competitiveness regarding the EMU rather than national exports. Finally, we show that the
synchronisation of variation in competitiveness through the introduction of a single currency has made these changes more decisive in explaining financial market fluctuations.
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Jel Codes: F33, G24, G28, O24
Keywords: Euro, Competitiveness, Market Risk, Net Export, Value-at-Risk, Volatility
An Impact Analysis of Microfinance in Bosnia and Herzegovina
Valentina Hartarska; Denis Nadolnyak
WP No. 915
(December, 2008)
Abstract: This paper applies the financing constraint approach to study whether microfinance institutions improved access to credit for microenterprises in Bosnia and Herzegovina. According to this approach, microenterprises with improved assess to credit rely less on internal funds for their investments. Thus, we compare investment sensitivity to internal funds of micorenterprises in municipalities with significant presence of MFIs to that of
micorenterprises in municipalities with no (or limited) presence of MFIs using Living Standards Measurement Survey and MFI branch location data. Results indicate that MFIs alleviated microbusinesses’ financing constraint. This approach is applicable to evaluating microfinance impact in other countries.
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Jel Codes: G11, G21, O16, P20
Keywords: microfinance, impact study, Microfinance Institutions, financing constraints, Eastern Europe, Bosnia and Herzegovina
WHY ARE OPTIMISTIC ENTREPRENEURS SUCCESSFUL? AN APPLICATION OF THE REGULATORY FOCUS THEORY
Ruta Aidis; Tomasz Mickiewicz; Arnis Sauka
WP No. 914
(March, 2008)
Abstract: Does entrepreneurial optimism affect business performance? Using a unique data set based on repeated survey design, we investigate this relationship empirically. Our measures of ‘optimism’ and ‘realism’ are derived from comparing the turnover growth expectations of 133 owners-managers with the actual outcomes one year later. Our results indicate that entrepreneurial optimists perform significantly better in terms of profits than pessimists. Moreover, it is the optimist-realist combination that performs best. We interpret our results using regulatory focus theory.
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Jel Codes: D21, L21, M13, L26
Keywords: Entrepreneurship, Optimism, Venture Growth, Regulatory Focus Theory, Latvia
Measuring Underground (Unobserved, Non-Observed, Unrecorded) Economies in Transition Countries: Can We Trust GDP?
Edgar L. Feige; Ivica Urban
WP No. 913
(March, 2008)
Abstract: This paper compiles alternative estimates of underground economies in twenty five transition countries during the transition decade and finds a disturbing lack of convergence between them, calling into question the reliability of GDP figures
(which in varying degrees now include non-transparent imputations for the “nonobserved economy”) as well as the macro model estimates of the unrecorded economy. A corollary of this finding is that substantive results from many studies
examining the consequences of the radical transition from planned to market economies must be viewed with considerable skepticism. Underground (unobserved, non-observed, unrecorded) economic activities play a major role in transition economies. Evaluations of the success and failure of the transition experience should be based on estimates of total economic activity (TEA) namely, recorded plus unrecorded economic activity. We examine the conceptual and empirical relationships between new National Income and Product Accounts (NIPA) methods for obtaining “exhaustive” measures of total economic activity and the two most popular macro-model approaches (electric consumption and currency ratio models) for estimating the size and growth of the unrecorded sector.
Our updated empirical results detailing the size and trajectory of unrecorded activities obtained from different estimation methods reveal a disturbing lack of convergence. Until these important differences are resolved, investigations of the relationship between economic reforms and economic outcomes during the
transition decade must be viewed with considerable caution. Given the shortcomings of conventional macro model estimates of the underground economy and the lack of transparency and consistency of NOE estimates, it is high time that the profession acknowledges how little we really know about underground economies and their causes and consequences.
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Jel Codes: E01, E26, H26, O11, O17, P24
Keywords: Underground, unrecorded, unobserved, non-observed, NOE, hidden, informal, shadow, GDP, national accounts, transition economies.
On the Trade Balance Effects of Free Trade Agreements Between EU-15 & CEEC-4 Countries
Guglielmo Maria Caporale; Christophe Rault; Robert Sova; Ana Maria Sova
WP No. 912
(March, 2008)
Abstract: The expansion of regionalism has spawned an extensive theoretical literature analysing the effects of Free Trade Agreements (FTAs) on trade flows. In this paper we focus on FTAs (also called European agreements) between the European Union (EU-15) and the Central and Eastern European countries (CEEC-4, i.e. Bulgaria, Hungary, Poland and Romania) and model their effects on trade flows by treating the agreement variable as endogenous. Our theoretical framework is the gravity model, and the econometric method used to isolate and eliminate the potential endogeneity bias of the agreement variable is the fixed effect vector decomposition (FEVD) technique. Our estimation results indicate a positive and significant impact of FTAs on trade flows. However, exports and imports are affected differently, leading to some disparity in trade flow performance between countries. Therefore, there is an asymmetric impact on the trade balance, the agreement variable resulting in a trade balance deficit in the CEEC.
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Jel Codes: C25, E61, F13, F15
Keywords: Regionalisation, European integration, Panel data methods.
Does Growth & Quality of Capital Markets drive Foreign Capital?
Juan P. Chousa; Krishna Chaitanya Vadlamannati; Artur Tamazian
WP No. 911
(March, 2008)
Abstract: Is there any interrelationship between firm level FDI in the form of cross border Mergers & Acquisitions and capital markets growth and quality? We addressed this question using panel data of cross border M&A for nine emerging economies. Our study period goes from 1987 to 2006. We find that the stock market variables, viz., capitalization and value addition encourage the number of deals and value of cross border Mergers & Acquisitions. However, the association with regulatory and financial reforms is much stronger and robust. We then interact both the stock market variables with financial and regulatory reforms variables only to find much stronger results. The coefficients proved to be higher than other variables, suggesting that higher reforms in capital markets could increase firm level FDI. Moreover, the results are found to be extremely robust when we replace stock market variables with squared values of the same, reiterating the fact that larger is the growth, greater is the inflow of firm level FDI in the form of cross border Mergers & Acquisitions.
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Jel Codes: E44, O53, O54, O55, M16
Keywords: Financial Markets, Cross border M&A & Emerging Economies
DETERMINANTS OF BARRIES TO QUALITY OF DIRECT FOREIGN INVESTMENTS – EVIDENCES FROM SOUTH & EAST ASIAN ECONOMIES
Juan P. Chousa; Krishna Chaitanya Vadlamannati; Bitzenis Aristidis; Artur Tamazian
WP No. 910
(February, 2008)
Abstract: The objective of this paper is to examine whether FDI inflows in South & East Asian economies posses any barriers which are deterring to attract FDI of their actual potential? If so, what are those various set of barriers? These questions are addressed in this study using cross section time series data for 17 South and East Asian economies from 1996 to 2005. We coin the term ‘quality of FDI’ which is a function of higher percapita FDI inflows, lower volatility in FDI inflows and higher bilateral investment treaties between the host country and rest of the word. We test this against the possible set of barriers, including, Socio-economic, Labour, Policy and Institutional barriers using pooled regression analysis. In the process, we also check as to how fragile our results are to the small but important changes which we bring in the conditioning information set using robustness check. Our empirical evidence suggests that all the possible set of barriers which we have identified has a negative effect in stimulating the ‘quality of FDI’. There is an urgent need for South and East Asian economies to address these set of barriers which are acting as stumbling block in not allowing to attract FDI of their actual potential.
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Jel Codes: F21, O53
Keywords: FDI Inflows, Barriers, South & East Asia
Further Theoretical and Empirical Evidence on Money to Growth Relation
Alexandru Minea; Ch