nep-sea New Economics Papers
on South East Asia
Issue of 2004‒12‒20
nine papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Global Outsourcing of Professional Services By Seshasai, Satwik; Gupta, Amar
  2. On the Causal Links between FDI and Growth in Developing Countries By Henrik Hansen; John Rand
  3. Happy News from the Dismal Science: Reassessing the Japanese Fiscal Policy and Sustainability By Christian Broda; David E. Weinstein
  4. Nonlinear Forecasting Analysis Using Diffusion Indexes: An Application to Japan By Mototsugu Shintani
  5. China's New Regional Trade Agreements By Agata Antkiewicz; John Whalley
  6. A Tale of Two Provinces: The Institutional Environment and Foreign Ownership in China By Huang, Yasheng; Di, Wenhua
  7. "Holding Company and Bank: An Historical Comparative Perspective on Corporate Governance in Japan" By Tetsuji Okazaki
  8. Measuring the Economic Impact of Monetary Union: The Case of Okinawa By Shinji Takagi; Mototsugu Shintani; Tetsuro Okamoto
  9. Is China a Leviathan? By Zhu, Z.; Krug, B.

  1. By: Seshasai, Satwik; Gupta, Amar
    Abstract: As a growing number of firms outsource more of their professional services across geographic and temporal boundaries, one is faced with a corresponding need to examine the long-term ramifications on business and society. Some persons are convinced that cost considerations should reign as the predominant decision-making factor; others argue that outsourcing means permanent job loss; and still others believe outsourcing makes U.S. goods and services more competitive in the global marketplace. We assert that if outsourcing options need to be analyzed in detail with critical objectivity in order to derive benefits for the concerned constituencies.
    Date: 2004–12–10
  2. By: Henrik Hansen (Institute of Economics, University of Copenhagen); John Rand (Institute of Economics, University of Copenhagen)
    Abstract: We analyse the Granger-causal relationships between foreign direct investment (FDI) and GDP in a sample of 31 developing countries covering the period 1970-2000. Using estimators for heterogeneous panel data we find bi-directional causality between the FDI/GDP ratio and the level of GDP. FDI is found to have a lasting impact on the level of GDP, while GDP has no long run impact on the FDI/GDP ratio. In that sense FDI causes growth. Furthermore, in a model for GDP and FDI as a fraction of gross capital formation (GCF) we also find long run effects of shifts in the mean level of FDI/GCF. We interpret this finding as evidence in favour of the hypotheses that FDI has an impact on GDP via knowledge transfers and adoption of new technology.
    Keywords: economic growth; foreign direct investment; Granger causality; panel data
    JEL: O4 F21 C33
    Date: 2004–12
  3. By: Christian Broda; David E. Weinstein
    Abstract: We analyze fiscal policy and fiscal sustainability in Japan using a variant of the methodology developed in Blanchard (1990). We find that Japan can achieve fiscal sustainability over a 100-year horizon with relatively small changes in the tax-to-GDP ratio. Our analysis differs from more pessimistic analyses in several dimensions. First, since Japanese net debt is only half that of gross debt, we demonstrate that the current debt burden is much lower than is typically reported. This means that monetization of the debt will have little impact on Japan's fiscal sustainability because Japan's problem is the level of future liabilities not current ones. Second, we argue that one obtains very different projections of social security burdens based on the standard assumption that Japan's population is on a trend towards extinction rather than transitioning to a new lower level. Third, we demonstrate that some modest cost containment of the growth rate of real per capita benefits, such as cutting expenditures for shrinking demographic categories, can dramatically lower the necessary tax burden. In sum, no scenario involves Japanese taxes rising above those in Europe today and many result in tax-to-GDP ratios comparable to those in the United States.
    JEL: E6 H5 H6
    Date: 2004–12
  4. By: Mototsugu Shintani (Department of Economics, Vanderbilt University)
    Abstract: This paper extends the diffusion index (DI) forecast approach of Stock and Watson (1998, 2002) to the case of possibly nonlinear dynamic factor models. When the number of series is large, a two-step procedure based on the principal components method is useful since it allows the wide variety of the nonlinearity in the factors. The factors extracted from a large Japanese data suggest some evidence of nonlinear structure. Furthermore, both the linear and nonlinear DI forecasts in Japan outperform traditional time series forecasts, while the linear DI forecast, in most cases, performs as well as the nonlinear DI forecast.
    Keywords: Diffusion Index, Dynamic Factor Model, Nonlinearity, Prediction
    JEL: F31 F41
    Date: 2003–10
  5. By: Agata Antkiewicz; John Whalley
    Abstract: This paper discusses the recent regional trade agreements that China has concluded rapidly following accession to the WTO in 2002. Agreements are in place with Hong Kong, Macao, ASEAN, Australia, and New Zealand, and are either in negotiation or under discussion with South Africa, Chile, India, and the Gulf Cooperation Council. These agreements differ sharply in form and substance, and involve process commitments to ongoing negotiation and cooperation on a wide range of issues. Differences relating to the regional agreements negotiated by the EU and the US are emphasized, as are later potential difficulties these agreements create in moving to an Asian trade bloc centred on them.
    JEL: F02 F10 O24
    Date: 2004–12
  6. By: Huang, Yasheng; Di, Wenhua
    Abstract: In this paper, we use a unique dataset covering joint ventures in two provinces of China, Jiangsu and Zhejiang, to test the effect of the institutional environment for domestic private firms on ownership structures of FDI projects. Unlike many studies on this subject, we approach the issue from the perspective of local firms seeking FDI rather than from the perspective of foreign firms seeking to invest in China. Applying the prevailing bargaining framework in studies on ownership structures of FDI projects, we find that a more liberal institutional environment for domestic private firms is associated with less foreign ownership of the joint ventures operating there. Several mechanisms can contribute to this outcome. One is that a more liberal institutional environment may enhance the bargaining power of those domestic firms negotiating with foreign firms to form alliances (the capability effect). The other mechanism is that a more liberal institutional environment may reduce some of the auxiliary benefits associated with FDI - such as greater property rights granted to foreign investors - and thereby attenuate incentive to form alliances with foreign firms (the incentive effect).
    Keywords: China, FDI, private sector, institutional environment, joint venture,
    Date: 2004–12–10
  7. By: Tetsuji Okazaki (Faculty of Economics, University of Tokyo)
    Abstract: In this paper I describe the outline of the historical evolution of corporate governance in Japan, and intend to derive some insights on its future. While two alternative systems, the holding company-based system and the bank-based system were available in the 1920s, the former started to proliferate. However, the experiences during the Second World War made the corporate system choose the other fork in the road, the bank-based system. The changes in employment system and production management were complementary with the changes in corporate governance and finance. The Japanese corporate system, which was faced with a bifurcation in the 1920s and the 1930s, is now facing another bifurcation.
    Date: 2004–12
  8. By: Shinji Takagi (Independent Evaluation Office, International Monetary Fund, Washington, D.C.); Mototsugu Shintani (Department of Economics, Vanderbilt University); Tetsuro Okamoto (Faculty of Economics, Osaka Sangyo University)
    Abstract: Data from Okinawa's monetary union with the United States in 1958 and with Japan in 1972 are used to obtain a quantitative indication of how monetary union might affect the behavior of nominal and real shocks across two economies. With monetary union, the variance of the real exchange rate between two economies declines, and their business cycle linkage becomes stronger. A VAR analysis of output and price data for Okinawa and Japan further indicates that the contribution of asymmetric nominal shocks in business cycles becomes smaller. Monetary union thus seems to facilitate both nominal and real convergence.
    Keywords: Currency union, foreign exchange rates, Japanese economy, price convergence, San Francisco Peace Treaty, vector autoregressions
    JEL: E42 F15 F33 F36
    Date: 2003–07
  9. By: Zhu, Z.; Krug, B. (Erasmus Research Institute of Management (ERIM), Erasmus University Rotterdam)
    Abstract: This paper offers a new data set and window to empirically test Leviathan theory in the sense of China???s transition economy. By combining time series and cross-section regression analysis and various variables used by previous empirical studies, we test the Leviathan hypothesis for vertical decentralization, horizontal fragmentation and intergovernmental collusion at national and provincial level, respectively. Our empirical results lend support to Leviathan hypothesis, especially, under the condition of absence of traditional democratic electoral constraint.
    Keywords: Public Choice;Leviathan;China;Transition Economy;
    Date: 2004–12–10

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