nep-sea New Economics Papers
on South East Asia
Issue of 2005‒01‒23
fifteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Emerging Market Economies: The Aftermath of Volatility Contagion in a Selection of Three Financial Crises By Felipe Jaque
  2. Speculative Trading and Stock Prices: An Analysis of Chinese A-B Share Premia By Jianping Mei; Jose Scheinkman; Wei Xiong
  3. Does Tariff Liberalization Increase Wage Inequality? Some Empirical Evidence By Branko Milanovic; Lyn Squire
  4. Interest Rate, Inflation, and Housing Price: With an Emphasis on Chonsei Price in Korea By Dongchul Cho
  5. Protecting Education for the Poor in Times of Crisis: An Evaluation of a Scholarship Program in Indonesia By Robert Sparrow
  6. Collateral-Based Lending in Emerging Markets: Evidence from Thailand By Lukas Menkhoff; Doris Neuberger; Chodechai Suwanaporn
  7. Does Praxis of Chinese Regionalism Threaten Multilateral Trade? By M. Ulric Killion
  8. Have US-Japan Trade Agreements Made a Difference? By Byron Gangnes; Craig Parsons
  9. Modular Production Networks in Electronics: The Nexus between Management and Economics Research By Byron Gangnes; Ari Van Assche
  10. Why Is China So Competitive? Measuring and Explaining China’s Competitiveness By F. Gerard Adams; Byron Gangnes; Yochanan Shachmurove
  11. Impact of Population Aging on Japanese International Travel By James Mak; Lonny Carlile; Sally Dai
  12. Fragmentation and East Asia’s Information Technology Trade By Carl Bonham; Byron Gangnes; Ari Van Assche
  13. Post-Crisis Financial Reform in Korea: A Critical Appraisal By Hong-Bum Kim; Chung H. Lee
  14. Economic Development in China and Its Implications for East Asia By Michael G. Plummer; Chung H. Lee
  15. Economic Development in China and Its Implications for East Asia By Chung H. Lee

  1. By: Felipe Jaque
    Abstract: This paper examines the volatility contagion resulting from intra- and inter- regional links among emerging economies, on the basis of three major financial crises, namely Mexico 1994, East Asia 1997 and Argentina 2002. In particular, it presents a methodology that uses the sovereign bond spread as the financial time series to determine the impact of the volatility of the first-infected country on the behaviour of other emerging economies. Our main results reveal that only the Asia 1997 crisis had negative effects —both within and outside the region— on other emerging economies, in the form of increased sovereign spread volatility. On the other hand, the crises of Mexico 1994 and Argentina 2002 seem to have caused a minor additional effect on the stability of international markets for emerging bonds.
    Date: 2004–12
  2. By: Jianping Mei; Jose Scheinkman; Wei Xiong
    Date: 2005–01–17
  3. By: Branko Milanovic; Lyn Squire
    Abstract: The objective of the paper is to answer an often-asked question : if tariff rates are reduced, what will happen to wage inequality ? We consider two types of wage inequality : between occupations (skills premium), and between industries. We use two large data bases of wage inequality that have become recently available and a large dataset of average tariff rates all covering the period between 1980 and 2000. We find that tariff reduction is associated with higher inter-occupational and inter-industry inequality in poorer countries (those below the world median income) and the reverse in richer countries. The results for inter-occupational inequality though must be treated with caution.
    JEL: F1 F13 D31 J31
    Date: 2005–01
  4. By: Dongchul Cho
    Abstract: This paper discusses the relationship between interest rate and inflation rate on one part and the house price relative to chonsei price (up-front lump-sum deposit from the tenant to the owner for the use of the property with no additional requirement for periodic rent payments) on the other. The key point of the paper is that the relative price of sales to chonsei depends on the ratio of inflation to real interest rate, and thus even when the monetary authority maintains a pre-announced target level of inflation rate, the relative price of sales to chonsei rises if the real interest rate is lowered. This finding seems to help understand the recent hikes of the house prices despite the stabilizing chonsei prices. Recognizing this relationship, it may be sensible to lower the target inflation rate in an economy where real interest rates permanently decline, if the society wishes to reduce its adverse effect on the wealth distribution between house owners and chonsei tenants.
    JEL: R2 E4 E1
    Date: 2005–01
  5. By: Robert Sparrow (Vrije Universiteit Amsterdam & Tinbergen Institute)
    Abstract: This paper analyses the impact of an Indonesian scholarship program, which was implemented in 1998 to preserve access to education for the poor during the economic crisis. Scholarships were targeted pro-poor and the allocation process followed a decentralised design, involving both geographic and individual targeting. The identification strategy exploits this decentralised structure, relying on instrumental variables constructed from regional mis-targeting at the initial phase of allocation. The program has increased enrolment, especially for primary school aged children from poor rural households. Moreover, the scholarships seem to have assisted households in smoothing consumption during the crisis, relieving pressure on households' investments in education and utilisation of child labour.
    Keywords: Social safety net, program evaluation, education, child labour, Asian economic crisis
    JEL: I28 J22 O15
    Date: 2005–01–20
  6. By: Lukas Menkhoff (University of Hannover, Germany); Doris Neuberger (University of Rostock, Germany); Chodechai Suwanaporn (Chulalongkorn University, Thailand)
    Abstract: This paper examines the role and determinants of collateral in emerging markets compared to mature ones. Analyzing a data set of 560 credit files of Thai commercial banks, we find that both the incidence and degree of collateralization are higher there than in developed markets. Thai banks use collateral primarily to reduce the higher credit risks of small and relatively young firms. Long credit relationships do not reduce collateral requirements by lowering information asymmetry. Market imperfections result from housebanks demanding higher collateral than non-housebanks, suggesting a lock-in effect for their borrowers, and from larger banks realizing higher collateral claims.
    Keywords: Bank lending, collateral, credit risk, relationship lending, emerging economies
    JEL: G O
    Date: 2005–01–14
  7. By: M. Ulric Killion (Shanghai International Studies University)
    Abstract: The issue presented is whether praxis of Chinese regionalism poses threat to multilateral trade. It is a question directly related to the recent 2004 ASEAN-China accord, which proposes to establish the world largest free trade area (FTA). Assuming regionalism promoted by exclusionary motivations, such as, political considerations, in entirety or in part, they tend to produce trade distortion, and is welfare reducing. An exclusionary trading area of such magnitude may pose a threat to multilateral trade. In such an event, trade distortion may result in great harm to the global economy, producing disastrous economic and social consequences worldwide. This article examines the issue of the consequences that may flow from the recent 2004 ASEAN-China accord, and the tangential issues of Chinese praxis of regionalism, trade distortion versus trade creation, and finally, whether the 2004 ASEAN-China accord threatens the WTO and multilateral trade.
    Keywords: China, regionalism, multilaterl trade, WTO, 2004 ASEAN-China accord, FTAs, trade diversion, trade creation, welfare-reducing
    JEL: F1 F2
    Date: 2005–01–16
  8. By: Byron Gangnes (Department of Economics, University of Hawaii at Manoa); Craig Parsons (Department of Economics, Yokohama National University)
    Abstract: The few existing empirical studies of U.S.-Japan trade agreements have relied primarily on descriptive statistics or univariate time series methods. We conduct a more powerful test by evaluating agreements in the context of well-specified econometric models. Consistent with trade theory, import demand is modeled as a cointegrating relationship with income and relative price variables, where a trade agreement may cause a structural break in the cointegrating vector. In several cases, we find evidence that market-opening trade agreements may have increased the volume of Japanese imports, while other agreements appear to have had no significant impact.
    Keywords: Structural break test, U.S.-Japan trade agreements, import promotion policies
    JEL: F13 F14 C32
    Date: 2004–03
  9. By: Byron Gangnes (Department of Economics, University of Hawaii at Manoa); Ari Van Assche (Department of Economics, University of California at Santa Cruz)
    Abstract: In the last two decades, the electronics industry has evolved from a vertically integrated in-dustry to a vertically segmented one. This transformation has often been attributed to the modularization of electronic products. In this paper, we argue that the degree of modularity is an active choice variable for a firm. As a result, it is necessary to focus on the underlying fac-tors that drive both modularity and the organization of production. This provides insights into the transformation taking place in global electronics production, with vertical fragmentation, horizontal consolidation, and the growth of Asian electronics production.
    Keywords: Modularity, electronics, outsourcing, contract manufacturing, East Asia
    JEL: L14 L23 L63
    Date: 2004–08
  10. By: F. Gerard Adams (Department of Economics, Northeastern University); Byron Gangnes (Department of Economics, University of Hawaii at Manoa); Yochanan Shachmurove (City University of New York)
    Abstract: This paper evaluates factors responsible for the competitiveness of China in the world economy and relative to its East Asian rivals. China has been highly successful in capturing world export markets. Chinese competitiveness is not just a matter of an undervalued exchange and extremely low labor costs. It reflects primarily the coincidence of favorable cost conditions with improvements in China’s ability to produce products that meet world market specifications. These improvements are closely related to foreign participation in China’s economy through foreign direct investment and joint venture enterprises.
    Keywords: China exports, comparative advantage, competitiveness, purchasing power parity, exchange rate, undervaluation, international comparisons, foreign direct investment, joint ventures
    JEL: D9 Q3 Q4
    Date: 2004–03
  11. By: James Mak (Department of Economics, University of Hawaii at Manoa); Lonny Carlile (Center for Japanese Studies, University of Hawaii at Manoa); Sally Dai (East-West Center)
    Abstract: In this paper we forecast Japanese international travel to 2025. In addition to the usual economic variables, our model also captures both population aging and cohort effects on Japanese travel abroad. We predict the number of future Japanese overseas trips for males and females separately by five-year age groups and in five-year increments. We conclude that the Japanese will continue to travel abroad in increasing numbers but population aging will dramatically slow overall future Japanese overseas travel. While the number of “senior” travelers is predicted to increase sharply, we foresee fewer overseas trips taken by Japanese, especially among women, in the 20s and early 30s age groups. Finally, we examine the responses of the industry and the public sector in Japan to implications of a rapidly aging population on future international travel
    JEL: C53 D12 F14 J14
    Date: 2004
  12. By: Carl Bonham (Department of Economics, University of Hawaii at Manoa); Byron Gangnes (Department of Economics, University of Hawaii at Manoa); Ari Van Assche (Department of Economics, University of California at Davis)
    Abstract: This paper studies the growth and determinants of information technology (IT) trade in the Asia-Pacific region. We argue that the rise of IT trade must be understood within the context o increasing vertical fragmentation of production processes that has occurred over the past two decades. To evaluate this empirically, we estimate a set of pooled bilateral IT export equations for eight Asian countries, the U.S. and the E.U., where FDI inflows are introduced as a proxy for fragmentation. We apply a panel cointegration approach that allows for heterogeneity in short-run dynamics and in fixed effects. Consistent with production fragmentation, we find that the evolution of IT trade can be explained in part by traditional income and relative price effects but also by FDI inflow.
    Keywords: fragmentation, information technology, FDI and trade, trade elasticities, panel data
    JEL: C33 F14 F23
    Date: 2004
  13. By: Hong-Bum Kim (Geongsang National University); 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 financial reforms under IMF auspices. One of such reforms was in financial supervision, which created the Financial Supervisory Commission and the Financial Supervisory Service. In spite of these reforms Korea has recently experienced a costly financial instability relating to credit-card companies and household debts. Korea’s success in bringing about rapid economic recovery from the crisis may have lessened, as suggested by the World Bank, the urgency for full financial reform. This paper, however, argues that the newly created supervisory agencies, although created as independent agencies, have not in fact functioned as such and thus failed to carry out proper supervision over credit-card companies. It is argued that those agencies have not been able to function independently due to institutional constraints imposed on them by other extant, formal as well as informal, institutions in Korea.
    Keywords: Financial reform, financial supervision, institutions
    JEL: G2
    Date: 2004
  14. By: Michael G. Plummer (Johns Hopkins University SAIS-Bologna); Chung H. Lee (Department of Economics, University of Hawaii at Manoa)
    Keywords: Economic development in China, East Asia, trade adjustment
    JEL: F1 F2
    Date: 2004
  15. 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

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