Patrick Paul Walsh

Disorganization in the process of transition. Firm-level evidence from Ukraine

Most post-communist economies are characterized by an initial collapse in aggregate output. Blanchard and Kremer (1997) and Roland and Verdier (1997) have recently modelled supply side distortions (disorganization in the links of production) that can lead to a short-term output contraction after market liberalization and a recovery thereafter. This paper is the first to illustrate and test the effects of disorganization in the transition process by using a unique data set of 300 Ukrainian firms. Our results show that, for firms that existed under central planning, disorganization constrains employment and productivity growth during the transition process to a market economy. In contrast, disorganization plays no role in the determination of employment and productivity growth in newly established private firms.

Evidence of efficiency wage payments in uk firm level panel-data

The authors explicitly model the vertical spillovers that result from imperfections in both labor and product markets. They model the vertical spillovers from wage determination in an upstream labor market to market share performance in a downstream product market and vice versa. Rent sharing due to efficiency wages is shown to create a unique downstream vertical spillover, while rent sharing due to wage bargaining creates a two-way vertical spillover. Using U.K. firm level panel data, the authors show that downstream spillovers due to efficiency wage payments and union activity exist and constitute general direct evidence of efficiency wage payments in U.K. companies. Copyright 1994 by Royal Economic Society.

Firm performance and the political economy of corporate governance: survey evidence for Bulgaria, Hungary, Slovakia and Slovenia

Using survey data for 220 traditional manufacturing firms over 7 years of transition and 4 CEE countries, we find firms that produced for the EU market under planning consistently outperform those that produced for the CMEA market. Within the previously CMEA market, the best firms were selected to outside privatisation and outperformed insider/state owned firms. Outside privatisation was resisted in EU oriented firms and ownership was found to have no effect on performance. We argue that insider/state ownership in previously CMEA and EU markets builds up political support for the market system during its initial stages, ensuring its long-term success.

Evidence of European Trade and Investment U-Shaping Industrial Output in Bulgaria, Hungary, Poland, and Romania

Industrial output in Central and Eastern Europe evolved in a U-Shape during the first seven years of transition. The literature explains the initial collapse of industrial output as an inefficient outcome driven by supply side distortions that constrain the transition process. We show that the U-Shape experience of industrial sectors is an outcome driven by an intra-sector change, induced by investment demand shocks, in the market orientation of production away from products traditionally sold into the CMEA market and towards products traditionally sold into the EU market. This revisionist view has important implications for policy formation.

Modelling price dispersion as an outcome of competition in the Irish grocery market

The paper empirically models price dispersion between related brands within product categories of the Irish Independent Grocery market. Retail brand prices are averaged over the independent shops stocking the brand. Since individual brands are retailed through different groups of shops, brands are priced over heterogeneous consumer segments. Brand price dispersion is estimated to increase with competition when conditioned on brand distribution structures, while controlling for other observed and unobserved deterministic factors. The data suggest that brand pricing across consumer groups induce varying degrees of localised price competition rather than pricing across segments to extract consumer willingness to pay. Copyright 1999 by Blackwell Publishing Ltd

The cyclical pattern of regional unemployment flows in Poland

Abstract Using male unemployment benefit data across Polish regions during 1994–1996, we find that unemployment flows are pro-cyclical and increase with job reallocation, controlling for other factors. At the national level we observe that job reallocation and output are associated with stagnant unemployment flows, low inflows and long duration. This has heretofore been attributed to workers by-passing the unemployment benefit system as they move job to job. We show this to be a fallacy of aggregation. The cyclical behaviour of regional unemployment flows and their response to job reallocation suggests that workers use unemployment benefit system to facilitate transition.

European trade and foreign direct investment u-shaping industrial output in Central and Eastern Europe : theory and evidence

We examine the evolution of industrial output in Bulgaria, Hungary, Poland and Romania over the period 1989-1995 in terms of product trade orientation prior to the transition process, some products traded in a market economy while others traded in the artificial market of the Soviet Bloc. We theoretically and empirically model the growth dynamics of EU oriented output within sectors of industry, ex-post trade and market liberalisation, as Foreign Direct Investment (FDI) induced Schumpeterian (vertical) waves of product innovation. We estimate the growth dynamics of non-EU oriented output within sectors as unobservable deterministic sector and country specific heterogeneity. The results indicate that the evolution of industrial production within sectors that were EU oriented prior to transition grew with increasing convexity over time. This growth was unconstrained by the transition process due to increased access to the European market, foreign capital and foreign expertise. Pre-transition non-EU industrial production is estimated to follow the same pattern as that observed in CIS countries. Hence the faster recovery, or the U-Shape industrial output, observed in CEE as compared with CIS countries is mainly explained by the inherited presence of EU oriented production and its unconstrained growth over the transition period.

Productivity and Trade Orientation in UK Manufacturing

Within a structural model we explicitly allow for the trade orientation of companies to estimate productivity dynamics within 4-digit UK manufacturing industries. We use the FAME data on UK companies over the period 1994-2003. Following Ackerberg et al. (2005) we adjust the algorithm in Olley and Pakes (1996) by augmenting investment and exit decisions to allow for exogenous demand shocks by trade orientation, assuming that labour and capital are state variables, and productivity follows a first-order Markov process. We extend the framework further by allowing exporting to be an additional control variable that is driven by lagged productivity as in Melitz (2003), leading productivity to follow a second-order Markov process. We find that over the period of introduction of the Euro improvements in aggregate productivity were driven by exporters – mainly by market share reallocations away from inefficient and towards efficient export companies. Aggregate productivity also benefited from improvements in productivity of non-exporters but was driven by improvements within companies rather than by market share reallocations. In a period of sustained real exchange rate appreciation both export cleansing and competitive pressure on non-exporters seem to have contributed to improvements of productivity in the UK manufacturing.

The dynamics of Human Development Index

Abstract In criticizing the nature of the Human Development Index, this paper proposes a different way of constructing the HDI in terms of capturing the pure flow of human development in the areas of material well-being, health, and education. Our comparison of the HDIF and the HDI shows that measuring human development with flow variables provides a better human development performance in terms of health and education than the traditional measure which is a mixture of stock and flow variables.

Loss leading and price intervention in multiproduct retailing: welfare outcomes in a second-best world1

Abstract We examine whether loss leading pricing strategies in multiproduct retailing should be a target of antitrust policy. Loss leading is modeled in the presence of imperfect competition and consumer information in a stage game framework. We show that price constraints, used as a second-best instrument, targeted at loss leading can interact with market imperfections to create distortions that can only reduce welfare ex post. Imperfections in the market are moving targets in relation to intervention. Only first-best policy instruments aimed at factors creating endogenous price imperfections can move welfare closer to the bliss point.