nep-sea New Economics Papers
on South East Asia
Issue of 2004‒12‒12
twenty-one papers chosen by
Kavita Iyengar
Asian Development Bank

  1. FDI in Space: Spatial Autoregressive Relationships in Foreign Direct Investment By Bruce A. Blonigen; Ronald B. Davies; Glen R. Waddell; Helen T. Naughton
  2. Financial Globalization, Growth and Volatility in Developing Countries By Eswar S. Prasad; Kenneth S. Rogoff; Shang-Jin Wei; M. Ayhan Kose
  4. Banking Crisis in Japan By Kashyap Vattipalli
  5. TIME SERIES ANALYSIS OF U.S.-EAST ASIA COMMODITY TRADE, 1962-1992 By Nirvikar Singh; Terrie Carolan
  6. The 'New Regionalism': Integration as a Commitment Device for Developing Countries By Andreas Waldkirch
  7. Economic Development in China and Its Implications for East Asia By Chung H. Lee
  8. Separability of stochastic production decisions from producer risk preferences in the presence of financial markets By Robert G. Chambers; John Quiggin
  9. Getting it Right: Financing Urban Development in China By Richard M. Bird
  10. Do tax sparing agreements contribute to the attraction of FDI in developing countries ? By Céline Azémar; Rodolphe Desbordes; Jean-Louis Mucchielli
  11. The Role of the State in Vietnam's Economic Transistion By Suiwah Leung; James Riedel
  12. Are women still holding up half of heaven in Vietnam? The gender wage gap By Amy Y.C. Liu
  13. Managing commodity price fluctuations in Vietnam's Coffee Industry By Patrick de Fontenay; Suiwah Leung
  14. Liberalisation, Incentives and Vietnamese Agricultural growth By Tuong Nhu Che; Tom Kompas; Neil Vousden
  15. Technical Efficiency of Vietnamese Industrial SOEs and Non-SOEs By Quoc Ngu Vu
  16. Contingent and ambiguous property rights: The Case of China's Reform By Nhat Le
  17. Gender wage gap in Vietnam 1993 - 98 By Amy Y.C. Liu
  18. Efficiency Gains and Cost Reductions from Individual Transferable Quotas: A Stochastic Cost Frontier for By Tom Kompas; Tuong Nhu Che
  19. Market Reform, Incentives and Development in Vietnamese Rice Production By Tuong Nhu Che; Tom Kompas; Neil Vousden
  20. Market reform, productivity and efficiency in Vietnamese rice production By Tom Kompas
  21. Gender wage gap in transistion in Vietnam By Amy Y.C. Liu

  1. By: Bruce A. Blonigen; Ronald B. Davies; Glen R. Waddell; Helen T. Naughton
    Abstract: Theoretical models of foreign direct investment (FDI) have only recently begun to model the role of third countries, and the empirical FDI literature has almost exclusively examined bilateral FDI data without recognizing the potential interdependence between FDI decisions to alternative host countries. This paper uses spatial econometric techniques to examine the spatial correlation between FDI to alternative (neighboring) regions. The sign of such correlations can provide evidence for or against alternative theories for FDI motivations. Using data on OECD countries from 1980-2000, we find evidence consistent with export platform FDI in Europe.
    JEL: F21 F23
    Date: 2004–12
  2. By: Eswar S. Prasad; Kenneth S. Rogoff; Shang-Jin Wei; M. Ayhan Kose
    Abstract: This paper provides a comprehensive assessment of empirical evidence about the impact of financial globalization on growth and volatility in developing countries. The results suggest that it is difficult to establish a robust causal relationship between financial integration and economic growth. Furthermore, there is little evidence that developing countries have been consistently successful in using financial integration to stabilize fluctuations in consumption growth. However, we do find that financial globalization can be beneficial under the right circumstances. Empirically, good institutions and quality of governance are crucial in helping developing countries derive the benefits of globalization. Similarly, macroeconomic stability appears to be an important prerequisite for ensuring that financial globalization is beneficial for developing countries. Finally, countries that employ relatively flexible exchange rate regimes and succeed in maintaining fiscal discipline are more likely to enjoy the potential growth and stabilization benefits of financial globalization.
    JEL: F15 F36 F41 F43
    Date: 2004–12
  3. By: Marcelo Braga Nonnemberg; Mario Jorge Cardoso de Mendonça
    Abstract: The objective of this study is to shed light on the determinants of foreign direct investiment (FDI) in developing countries. In order to undertake it, we performe a econometric model based in panel data analysis for 38 developing countries (including transition economies) for the 1975-2000 period. Among the major conclusions we have that the FDI is correlated to level of schooling, economy's degree of openness, risk and variables related to macroeconomic performance like inflation, risk and average rate of economic growth. The results also show that the FDI has been closely associated with stock market performance. Lastly, a causality test between FDI and GDP is performed. There is evidence of the existence of causality in sense that GDP leading to FDI, but not vice versa.
    JEL: F21 F43 F41
    Date: 2004
  4. By: Kashyap Vattipalli (ICFAI)
    Abstract: The Japanese banks played a major role in the economic development of Japan during the post-war period between 1945 and 1973. They financed start-up companies and actively funded their expansion. They were prime financiers since there were restrictions on other options of financing such as equities and bonds. But this changed in the 1970s when reforms in the financial sector took place. These reforms eased the restrictions on bond and equity issuance. Financial markets were deregulated and this allowed the major Japanese companies to reduce their dependence on banks. They were able to substitute cheap bond financing for expensive bank credit. This reduced the role of banks as prime financiers. To overcome this situation, banks reorganised their portfolios and started lending to riskier segments like consumer lending and the real-estate industry. This resulted in an asset price bubble, which finally burst in 1989 resulting in huge non-performing loans for Japanese banks. This case enables the reader to understand the effects of reckless lending and how the continued presence of non-performing loans in the banking sector had a deleterious effect on the Japanese economy.
    Keywords: Japanese banking crisis ; Foreign Exchange and Trade Control Act ; Liberalisation ; Asset price bubble ; Government bonds ; Bond Issuance Committee ; Basle capital accord ; Deposit Insurance Corporation ; Financial Supervisory Agency ; Yakuza and Jusen ; Keiretsu and Zaibatsu ; Big bang reforms ; Non-performing loans ; Capital market deregulation ; Capital adequacy ratio
    JEL: A
    Date: 2004–11–25
  5. By: Nirvikar Singh (University of California, Santa Cruz); Terrie Carolan
    Abstract: We examine the composition of bilateral trade between the United States and each of eight Asian Pacific economies from 1962 to 1992. Two complementary time series analyses of individual commodities at the SITC four-digit level indicate that significant change occurred in trade composition during this period. For the eight bilateral trade relationships, commodities representing from fifty to seventy percent of 1992 dollar trade volume have shown statistically significant change in the magnitude and, in some cases, in the direction of net trade balance, over the thirty-year period. Results support the conclusion that changes in trade patterns in both low-tech industries, such as textiles and clothing, and more high-tech industries, such as electronic parts and electronic goods were important in these so-called Asian tigers as their economies advanced. Keywords: international trade flows, time series, ADF, KPSS, trends, economic development JEL Codes: F02, F14, F17, O14
    Keywords: international trade flows, time series, ADF, KPSS, trends, economic development
    JEL: F02 F14 F17 O14
    Date: 2004–12–06
  6. By: Andreas Waldkirch (Oregon State University)
    Abstract: Increasingly, developing countries embrace foreign direct investment (FDI) and simultaneously pursue economic integration with developed countries. Foreign investment is subject to sovereign risk and free trade agreements may serve as a commitment mechanism in order to achieve higher sustainable levels of FDI. This paper shows that such agreements, by inducing sunk investments in expanding export sectors, can indeed increase the level of self-enforcing FDI. While one might expect FDI from any source to increase, the analysis shows that this need not be true for FDI originating in non-partner countries even though export- platform type FDI will rise. The reason is the offsetting effect from trade diversion, which diminishes the ability to retaliate should a host country renege on its ex ante commitment to a foreign investor. The choice of partner is thus crucial for a country's ability to attract FDI through economic integration.
    Keywords: Foreign Direct Investment, Economic Integration, Commitment
    JEL: F15 F21 O19
    Date: 2004–12–07
  7. By: Chung H. Lee (Department of Economics, University of Hawaii at Manoa)
    Abstract: In the aftermath of the economic crisis of 1997-98 South Korea has undertaken a number of major institutional reforms. What are these reforms? Why were they undertaken? What is the outcome of the reforms? In answering these questions the paper examines the influence that the ideas of political leaders on political economy had in setting forth the reform agenda and the role that various interest groups have played in implementing the reform. It argues that there was a shift in the developmental paradigm in the early 1980s, that the new paradigm guided reforms in Korea during the 1980s and 1990s but with initial conditions and interest politics influencing the implementation and actual outcome of reform, and that the post-crisis reform was a culmination of the reform process that began in the early 1980s.
    Keywords: Korea, Institutional Reform, Asian Financial Crisis.
    JEL: O5 P1 G1
    Date: 2004
  8. By: Robert G. Chambers (Dept of Agricultural and Resource Economics, University of Maryland, College Park); John Quiggin (Department of Economics, University of Queensland)
    Abstract: Separation results, as they are usually understood, refer to conditions under which a firm's production decisions are independent of its risk attitudes. Well-understood situations where separation occurs typically include those where technically feasible production opportunities are replicable in financial markets. This paper gives necessary and sufficient conditions for separation that go beyond these well-understood spanning conditions. To do so, we present a unified treatment of the production and financial decisions available to a firm facing frictionless financial markets and a stochastic production technology under minimal assumptions about the firm's technology and objective function.Our main analytical tool is the derivative-cost function, which gives the minimum cost of achieving a state-contingent return vector through a combination of production choices and trade in financial assets.
    Keywords: state-contingent production
    JEL: D81
    Date: 2003–09
  9. By: Richard M. Bird (International Tax Program, Rotman School of Management, University of Toronto)
    Abstract: This paper is a brief review of some issues in urban finance facing China’s larger cities. It argues that at present many key aspects of the ways in which local and metropolitan governments finance infrastructure and services are financed in China seem to be both too obscure for proper accountability and too perverse for efficient use of scarce urban land and capital. Given the importance of urban areas for sustained national development, it is important to get urban finance “right” in the sense of providing the right signals to both public and private actors in urban development. Some suggestions are made on how this might perhaps be done by better designed user charges, property taxes, and other instruments.
    Keywords: China, urban finance, user charges, local taxes, infrastructure finance, public-private partnerships
    Date: 2004–08
  10. By: Céline Azémar (TEAM); Rodolphe Desbordes (TEAM); Jean-Louis Mucchielli (TEAM)
    Abstract: This paper analyses the impact of tax sparing agreements on Japanese foreign direct investment (FDI) distribution in developing countries. These agreements are sometimes concluded between a developed country and a developing country which grants fiscal incentives to foreign investors. In that case, the former agrees not to tax its outward investors in order that the host country fiscal advantage is not compensated for by the increase in its own income taxes. Apart from the United States, the majority of developed countries have included these tax sparing provisions in their fiscal bilateral treaties with developing countries. Their inmpacts are observed on the distribution of Japanese FDI outflows and average size of capital transaction, on the Japanese firm sales and employment as well as on the difference between the Japanese and U.S. FDI shares, over the 1989-2000 period. The empirical results suggest that each additional year, subsequent to the signature of a tax sparing agreement, increases Japanese FDI activity by 1.7-11%. These findings are robust to the use of an instrumental variable specification and give empirical support to the debate on the exclusion or not of these provisions under the bilateral tax treaty. Thus, this study confirms that tax sparing agreements can be useful instruments to increase the attractiveness of a developing country.
    Keywords: Foreign direct investment, fiscal incentives, tax sparing
    JEL: F23 H25 H32
    Date: 2004–06
  11. By: Suiwah Leung; James Riedel
    Abstract: This paper discusses Vietnam’s economic development for the three decades since the early 1980s, and the changing role that the state played in this process. The success of the first major liberalization step (Doi Moi ) is attributed, in large part, to the microeconomic/structural reforms that occurred throughout the 1980s and to the confluence of economics and politics. This did not continue into the second half of the 1990s when reforms stalled. Since the Asian financial crisis in 1997/98, the pace of reforms has accelerated. This paper argues that, for the reforms to be effective, the state has to be viewed as performing a catalytic role whilst permitting the private sector to contribute directly to economic growth.
    JEL: O1 P2
    Date: 2001
  12. By: Amy Y.C. Liu
    Abstract: The coexistence of the government sector, state-owned enterprises (SOEs), and private sector provides a natural setting to examine the impact of economic reform in Vietnam on gender earning differentials. The three sectors reflect different degrees of influence of the Socialist ideology, with the private sector most liberalised. Have women fared better during the transition into a market economy? One might expect, a priori, female workers in the private sector may be more likely to be discriminated against especially because employees can freely choose whom to employ. Using the Vietnam Living Standards Survey 1992-1993, this paper has found that gender wage differences are evident in the private sector and SOEs. Further, discrimination accounts for more of the gender wage gap in the private sector than in the SOEs.
    JEL: J71 P23
    Date: 2001
  13. By: Patrick de Fontenay; Suiwah Leung
    Abstract: Not available
    JEL: Q11 Z00
    Date: 2002
  14. By: Tuong Nhu Che; Tom Kompas; Neil Vousden
    Abstract: This paper uses a dynamic model to analyse the effects of liberalisation on the longrun output and transitional growth of the Vietnamese rice sector during the period of reform from 1981 to the present. In particular, the paper attempts to allow for the incentive effects which can result if liberalisation induces individuals to work harder and use land more efficiently. Each new stage of liberalisation is shown to result in a higher steady-state level of physical capital and rice output. It is shown that, even with an assumed zero rate of growth in the ‘Solow residual’ component of total factor productivity, liberalisation may increase the long-run production of rice output by an order of two times its initial value. The analysis also predicts a significantly higher transitional growth rate of rice output for the more pervasive second stage of liberalisation than that for the first stage, suggesting that incentives and open markets matter greatly.
    JEL: Q18 Q33
    Date: 2002
  15. By: Quoc Ngu Vu
    Abstract: Not available
    JEL: L32 O33 H89
    Date: 2002
  16. By: Nhat Le
    Abstract: We reconsider the theory of ambiguous property rights in China. In a static game context, this ownership allocation is good because a local entrepreneur can probably get services provided by local bureaucrats at lower costs than a private owner; but bad because once knowing the firm’s unobservable income, local bureaucrats are likely to encroach the firm. In an ongoing relationship, such a predatory behaviour may be limited if local bureaucrats care enough about future returns. Ironically, they often discount future too much. An additional device to supplement the shadow of future is needed. In China, this is the contingent delegation from the central. Under this policy, local bureaucrats must compete to gain more autonomy on the basis of local economy’s performance. If the expected gain from the competition is sufficiently large, it may become incentive compatible for capable local bureaucrats to enhance local firms, despite incapable ones shirks. For those shirkers, the central still keeps regulating their activities as if they were under the central planing regime. One then sees that the pace of reform is slow and uneven across regions or sectors. It may be seen as a step back compared with a rapid and large-scale reform such as the one in the Former Soviet Union. However, this policy has served reasonably well to solve some incentive problems in reform, including the central contradiction: the local agencies blame the central for lack of autonomy; and the central blames them for lack of accountability.
    JEL: C7 O1 P2
    Date: 2003
  17. By: Amy Y.C. Liu
    Abstract: This paper uses the Vietnam Living Standards Surveys 1992–93 and 1997–98 to examine changes in the gender wage gap. The intertemporal decomposition of Juhn et al. (1991) indicates that changes in observed variables, skill prices and wage inequality have tended to narrow the gap, but the gap effect has tended to widen it, with the net effect being one of little change. This finding is in contrast with that for the EEC but in line with the experience of China. Improving education about equity practices in the workplace to combat discriminatory attitudes, and further decentralisation to facilitate the growth of the private sector, are two of the policy implications drawn.
    JEL: J40 J71 P23 O15
    Date: 2003
  18. By: Tom Kompas; Tuong Nhu Che
    Abstract: In this paper efficiency gains and associated cost reductions from increases in traded quota are estimated with a stochastic cost frontier for the Australian South East Trawl Fishery (SETF). Estimation of this frontier also provides key information on the relative importance of input costs in the SETF, returns to scale, variations in costs as a result of trade in quota and the economic performance of each fishing vessel, year to year. Final estimations indicate that increases in the volume of quota traded have resulted in considerable efficiency gains and cost reductions in the SETF, ranging from 1.8 to 3.5 cents per kilogram for surveyed vessels for every one per cent increase in the volume of quota traded, or 1 to 2.4 per cent of total variable costs, with considerable gains also accruing to crew and skipper in the form of larger share payments. Mean vessel efficiency is relatively high in the SETF, estimated at over 90 per cent, and increases further to 92 per cent over the sample period with increased trades in quota.
    JEL: Q22 Q28
    Date: 2003
  19. By: Tuong Nhu Che; Tom Kompas; Neil Vousden
    Abstract: This paper analyzes the dramatic increases in rice output and productivity in Vietnam due in large part to market reform, inducing farmers to work harder and use land more efficiently. The reform process is captured through changes in effort variables and a decomposition of total factor productivity (TFP) for Vietnam as a whole as well as for the north and south of the country taken separately. The results show that the more extensive is market reform the larger the increase in TFP and the share of TFP growth due to incentive effects, suggesting that more competitive markets and secure property rights matter greatly.
    JEL: O13 O47 Q10
    Date: 2003
  20. By: Tom Kompas
    Abstract: This paper analyzes the dramatic increases in rice output and productivity in Vietnam due largely to market reform, inducing farmers to work harder and use land more efficiently. The reform process is captured through changes in effort variables and a decomposition of total factor productivity (TFP) due to enhanced incentives for two main reform periods: output contracts (1981-87) and trade liberalization (1988-94). The results show that the more extensive is market reform the larger the increase in TFP and the share of TFP growth due to incentive effects, suggesting that more competitive markets and secure property rights matter greatly. However, in the post-reform period (1995-99), the incentive component of TFP dissipates as a result of falls in the price of rice and slow increases in input prices, especially for hired labour, fertilizer and capital. A stochastic production frontier is estimated to determine what farm-specific factors limit efficiency gains. Results show that farms in the main rice growing regions, those with larger farm size and farms with a higher proportion of rice land ploughed by tractor are more efficient, suggesting the need for additional reforms to augment productvity. In particular, the requirement that rice be grown in every province in Vietnam, restrictions on farm size (especially in the north) and the slow development of rural credit markets for capital and land are seen to restrict the level and growth of efficiency substantially.
    JEL: O13 O47 Q10
    Date: 2004
  21. By: Amy Y.C. Liu
    Abstract: The impact of sectoral location on the gender earnings gap is important in the context of Vietnam’s transition into a market-oriented economy. More and more women are seeking employment in the private sector either in response to retrenchment in the public sector or in response to increasing economic opportunities in the private sector. We apply the Appleton et al. (1999) decomposition technique to the Vietnam Living Standards Survey data collected in 1992- 93 and 1997-98, to decompose the gender earnings gap into within sector and between-sector differences. It has found that sectoral location has become more important in 1997-98 and that the changes have had an adverse impact on the gender gap. To further examine the results, conventional decomposition methods are used on different sectors. Three main conclusions are drawn. First, the absolute gender earnings gap has risen over time in the private sector. Second, discrimination has increasingly accounted for more of the gender earnings differences in the private sector over time. Third, discrimination accounts for more of the gap in the private sector than in SOEs in 1997-98 than in 1992-93.
    JEL: J3 J7 P23
    Date: 2001

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