nep-sea New Economics Papers
on South East Asia
Issue of 2005‒04‒24
24 papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Forecasting China's Carbon Dioxide Emissions: A Provincial Approach By Maximilian Auffhammer; Richard Carson; Teresa Garin-Munoz
  2. China's Income Distribution over Time: Reasons for Rising Inequality By Ximing Wu; Jeffrey Perloff
  3. Strategic Intellectual Property Rights Policy and North-South Technology Transfer By Alireza Naghavi
  4. Technology Transfer Through Trade By Mombert Hoppe
  5. Application of Technological Control Measures on Vehicle Pollution: A Cost-Benefit Analysis in China By Paulo Augusto Nunes; Qiang Wu
  6. Regional and Sub-Global Climate Blocs.A Game-Theoretic Perspective on Bottom-up Climate Regimes By Carlo Carraro; Barbara Buchner
  7. Should Latin America Fear China? By Eduardo A. Lora
  8. Income Distribution, Intra-industry Trade and Foreign Direct Investment in East Asia By Chan-Hyun Sohn; Zhaoyong Zhang
  9. The ASEAN +3 Trading Bloc By Yum K. Kwan; Larry D. Qiu
  10. Competitiveness and Efficiency of the Forest Product Industry in Indonesia By Haryo Aswicahyono
  11. The Evolution and Upgrading of Indonesia’s Industry By Haryo Aswicahyono; Tubagus Feridhanusetyawan
  12. Towards a U.S.-Indonesia Free Trade Agreement By Hadi Soesastro
  14. Roads and Poverty in Rural Laos By Peter Warr
  15. "The Effects of the Bank of Japan's Zero Interest Rate Commitment and Quantitative Monetary Easing on the Yield Curve: A Macro-Finance Approach" By Nobuyuki Oda; Kazuo Ueda
  16. "An Analysis of Shareholders' Lists for 60 Cotton Spinning Companies in 1898" (in Japanese) By Tsuneo Suzuki; Yoichi Kobayakawa; Kazuo Wada
  21. Spatial Price Differences in China: Estimates and Implications By Loren BRANDT; Carsten A HOLZ
  22. New Capital Estimates for China By Carsten A. Holz
  23. China's Reform Period Economic Growth: Why Angus Maddison Got It Wrong and What That Means By Carsten A. Holz
  24. Explaining the Real Exchange Rate during Sudden Stops and Tranquil Periods By Akiko Terada-hagiwara

  1. By: Maximilian Auffhammer (University of California, Berkeley); Richard Carson (University of California, San Diego); Teresa Garin-Munoz (UNCED - Madrid)
    Keywords: carbon dioxide emissions, climate change,
    Date: 2004–02–03
  2. By: Ximing Wu (University of Guelph); Jeffrey Perloff (University of California, Berkeley, and Giannini Foundation)
    Abstract: We use a new method to estimate China's income distributions using publicly available interval summary statistics from China's largest national household survey. We examine rural, urban, and overall income distributions for each year from 1985-2001. By estimating the entire distributions, we can show how the distributions change directly as well as examine trends in traditional welfare indices such as the Gini. We find that inequality has increased substantially in both rural and urban areas. Using an inter-temporal decomposition of aggregate inequality, we determine that increases in inequality within the rural and urban sectors and the growing gap in rural and urban incomes have been equally responsible for the growth in overall inequality over the last two decades. However, the rural-urban income gap has played an increasingly important role in recent years. In contrast, only the growth of inequality within rural and urban areas is responsible for the increase in inequality in the United States, where the overall inequality is close to that of China. We also show that urban consumption inequality (which may be a better indicator of economic well-being than income inequality) rose considerably.
    Keywords: economic development, income distribution,
    Date: 2004–02–01
  3. By: Alireza Naghavi (University College Dublin and CERAS)
    Abstract: This paper analyzes welfare implications of protecting intellectual property rights (IPR) in the framework of TRIPS for developing countries (South) through its impact on innovation, market structure and technology transfer. In a North-South trade environment, the South sets its IPR policy strategically to manipulate multinationals’ decisions on innovation and location. Firms can protect their technology by exporting or risk spillovers by undertaking FDI to avoid tariffs. A stringent IPR regime is always optimal for the South as it triggers technology transfer by inducing FDI in less R&D-intensive industries and stimulates innovation by pushing multinationals to deter entry in high-technology sectors.
    Keywords: Intellectual property rights, Technology transfer, Multinational firms, Foreign direct investment, North-South trade
    JEL: O34 F23 F13 L13 O32 L11 O38
    Date: 2005–01
  4. By: Mombert Hoppe (DG Development, European Commission)
    Abstract: This paper examines the role that trade plays in economic development through the channel of technology transfer, approximated by total factor productivity. Three strains of factors influence the process of technology transfer; direct effort that is taken to transfer technologies, the capacity to adopt technologies, and differences in the underlying conditions between donor- and receiving countries. In this context, trade in (capital) goods allows technology import and improved input decisions. Second, trade opens export markets, allowing learning-by-doing. Third and most importantly, trade increases the set of accessible technologies, increasing the scope for imitation. The theoretical insights are compared to the empirical literature that deals with trade and technology transfer. Not surprisingly, it turns out that openness and human capital have a positive influence on the transfer of technology. Yet methodological problems with the data weaken the practical significance of the results, especially as the precise and fundamental mechanism of spillovers and the factors that condition the degree of technology transfer are not profoundly illuminated. These underlying processes have to be better understood in order to be able to give valuable policy recommendations that will go beyond the general advice of increasing openness and human capital formation.
    Keywords: Technology transfer, Trade, Economic growth, Total factor productivity
    JEL: F10 F43 O40
    Date: 2005–01
  5. By: Paulo Augusto Nunes (University Ca' Foscari of Venice); Qiang Wu (Bologna Center, SAIS and Johns Hopkins University)
    Abstract: For the past two decades, China has experienced strong, continuous economic growth. At the same time, the number of motor vehicles in China has rapidly increased. As a direct result of such a phenomenon, China has been registering significant increases in air pollution. In spite of recent advances in air pollution control, it remains a serious problem for China’s major cities, and constitutes an important issue in the agenda of its policy makers. The object of this paper is to explore the use of cost-benefit analysis (CBA) to evaluate and rank alternative policy scenarios regarding the control of air pollution emitted by motor vehicles. The empirical analysis carried out relates specifically to the Chinese context, over a twenty year period, from 2001 to 2020, and focuses on emission changes of the following three principal pollutants: CO, HC and NOx.
    Keywords: Vehicle, Pollution, CO, HC, NOx, Scenario, Standard, Cost, Benefit, China
    JEL: O33 O53
    Date: 2005–01
  6. By: Carlo Carraro (University of Venice, Fondazione Eni Enrico Mattei, CEPR and CEPS); Barbara Buchner (Fondazione Eni Enrico Mattei)
    Abstract: No international regime on climate change is going to be fully effective in controlling GHG emissions without the involvement of countries such as China, India, the United States, Australia, and possibly other developing countries. This highlights an unambiguous weakness of the Kyoto Protocol, where the aforementioned countries either have no binding emission targets or have decided not to comply with their targets. Therefore, when discussing possible post-Kyoto scenarios, it is crucial to prioritise participation incentives for all countries, especially those without explicit or with insufficient abatement targets. This paper offers a bottom-up game-theoretic perspective on participation incentives. Rather than focusing on issue linkage, transfers or burden sharing as tools to enhance the incentives to participate in a climate agreement, this paper aims at exploring whether a different policy approach could lead more countries to adopt effective climate control policies. This policy approach is explicitly bottom-up, namely it gives each country the freedom to sign agreements and deals, bilaterally or multilaterally, with other countries, without being constrained by any global protocol or convention. This study provides a game-theoretic assessment of this policy approach and then evaluates empirically the possible endogenous emergence of single or multiple climate coalitions. Welfare and technological consequences of different multiple bloc climate regimes will be assessed and their overall environmental effectiveness will be discussed.
    Keywords: Agreements, Climate, Incentives, Negotiations, Policy
    JEL: C72 H23 Q25 Q28
    Date: 2005–02
  7. By: Eduardo A. Lora (Research Department, Inter-American Development Bank)
    Abstract: This paper compares growth conditions in China and Latin America to assess fears that China will displace Latin America in the coming decades. China’s strengths include the size of the economy, macroeconomic stability, abundant low-cost labor, the rapid expansion of physical infrastructure, and the ability to innovate. China’s weaknesses, stemming from insufficient separation between market and State, include poor corporate governance, a fragile financial system and misallocation of savings. Both regions share important weaknesses: the rule of law is weak, corruption endemic and education is poor and very poorly distributed
    Keywords: China, Latin America, economic growth, investment climate
    JEL: E66 O57 P52
    Date: 2004–10
  8. By: Chan-Hyun Sohn (Korea Institute for International Economic Policy); Zhaoyong Zhang (Korea Institute for International Economic Policy)
    Abstract: The purpose of this paper is to empirically investigate how intra-industry trade is linked to cross-country income difference and foreign direct investment. We distinguish intra-industry trade as either horizontally or vertically differentiated, using bilateral exports and imports data for Japan and the rest of the East Asian countries at the 5-digir SITC during 1990 to 2000. Our empirical results show that the income difference has a negative relationship with the share of horizontal IIT, but a significant positive with vertical IIT. This finding answers to the sign changes in the previous empirics, including Hummels and Levinsohn (1995). Our resutls also show that cross-country foreign direct investment has a positive relationship with the share of horizontal intra-industry trade, and a negative relationshiops with the share of vertically differentiated trade. The findings have an important implication for the agglomeration effect of FDI on intra-industry trade.
    Keywords: intra-industry trade, fdi, horizontal/vertical differentiation, East Asia, Korea
    JEL: F12 F14
  9. By: Yum K. Kwan (City university of Hong Kong); Larry D. Qiu (Hong Kong University of Science and Technology)
    Abstract: The ASEAN +3 proposal has attracted attention in Asia and the world. We argue that a free trade agreement (FTA) for ASEAN +3 is beneficial to all member countries due to three factors (i) existing and expected vertical foreign direct investment linkage between Japan/ Korea and ASEAN member countries, (ii) high expected growth rate of the Chinese economy, and (iii) the economic diversity among members of ASEAN +3 group.
    Keywords: ASEAN, ASEAN +3, trading bloc, free trade agreement, FTA, direct invesment, Japan, Korea, China
    Date: 2003–07
  10. By: Haryo Aswicahyono (Department of Economics, Centre for Strategic and International Studies)
    Abstract: This paper provides an assessment on policy and structural changes in the Indonesian woodbased industries. The author shows that the tremendous growth of production and exports has been made possible through heavy subsidies, resulting in inefficiencies in harvesting and production. Subsidies created an incentive to delay the use of cost- and wood-saving technology. Constant market share analysis revealed that competitiveness of forest product exports declined during the period 1993-2003, and could only be partially compensated by an increased shift towards pulp and paper exports. Indonesia is losing competitiveness in slow growing industries like wood products, especially plywood. Further restructuring of the forest product industry in favor of pulp and paper industry with proper environmental management is the right policy direction, but there are also concerns that the huge demand for wood by the industry is already exceeding sustainable harvest levels.
    Keywords: Indonesia, forestry, competitiveness, trade.
    Date: 2004–02
  11. By: Haryo Aswicahyono (Department of Economics, Centre for Strategic and International Studies); Tubagus Feridhanusetyawan (Department of Economics, Centre for Strategic and International Studies)
    Abstract: This paper presents an overview of Indonesia’s rapid economic development, by focusing on the changing patterns of trade and industrial structure, the changing trade and industrial policies, and the process of industrial upgrading. It analyzes the process of industrialization, including the policy deficits and challenges, and discusses the strategy to facilitate further industrial upgrading in future.
    Keywords: Indonesia, trade, industrial upgrading, industrialisation policy
    Date: 2004–01
  12. By: Hadi Soesastro (Department of Economics, Centre for Strategic and International Studies)
    Abstract: This paper examines the main issues in designing a FTA between Indonesia and the United States. The first section briefly examines current trade relations and issues between Indonesia and the United States. It also addresses the strategic and economic impact of a possible FTA between Indonesia and the United States for Indonesia. The second section examines elements of a possible Indonesia-United States FTA with a view on similar agreements concluded between Singapore and the United States and between Thailand and Australia. The third and concluding section discusses the kind of preparations needed on the Indonesia side to successfully negotiate a FTA with the United States.
    Keywords: Indonesia, United States, free trade agreement
    Date: 2004–05
  13. By: Peter Warr
    Abstract: Indonesia is the world’s largest importer of its staple food, rice. Since the economic crisis of 1998, rice import policy has become increasingly protectionist and since early 2004, imports have been banned. This paper uses a general equilibrium model of the Indonesian economy to analyze the effects of an import ban on rice, including its effects on poverty. The analysis recognizes 1,000 individual households. The results indicate that the rice import ban raises poverty incidence by a little less than one per cent of the population. Poverty rises in both rural and urban areas. Among farmers, only the richest gain.
    Keywords: poverty; general equilibrium; rice imports; trade policy. Length (pages): 36
    JEL: Q18 F13 C68 O53
    Date: 2005–03
  14. By: Peter Warr
    Abstract: The relationship between poverty incidence and road development is analyzed in this paper, in the context of rural Laos. The results indicate that improving road access is an effective way of reducing rural poverty. Between 1997-98 and 2002-03, rural poverty incidence in Laos declined by 9.5 per cent. The results suggest that about 13 per cent of this decline can be attributed to improved road access to areas already having dry season access. There is now a high return to providing dry weather access to the most isolated households of Laos – those with no road access at all.
    Keywords: poverty incidence; rural roads; Lao PDR. Length (pages): 34
    JEL: H53 I32 O53 R41
    Date: 2005–04
  15. By: Nobuyuki Oda (Monetary Affairs Department, Bank of Japan); Kazuo Ueda (Faculty of Economics, University of Tokyo)
    Abstract: This paper provides an empirical investigation of monetary policy in Japan in the zero interest rate environment that has held sway since 1999. In particular, we focus on the effects of the zero interest rate commitment and of quantitative monetary easing on mediumto long-term interest rates in Japan. In the study we apply a version of the macro-finance approach, involving a combination of estimation of a structural macro-model and calibration of time-variant parameters to the yield curve observed in the market. This enables us to decompose interest rates into expectations and risk premium components and simultaneously to extract the market's perception of the Bank of Japan's (BOJ's) willingness to carry on its zero interest rate policy. In the analysis we make clear the counterfactual policy that would have been practiced in the absence of the actual policies followed by the BOJ since 1999. From this analysis, we tentatively conclude that the BOJ's monetary policy since 1999 has functioned mainly through the zero interest rate commitment, which has led to declines in medium- to long-term interest rates. We also find some evidence that, up until the end of 2003, raising the reserve target may have been perceived as a signal indicating the BOJ's accommodative policy stance although the size of the effect is not large. The portfolio rebalancing effect -- either by the BOJ's supplying ample liquidity or by its purchases of long-term government bonds -- has not been found to be significant.
    Date: 2005–04
  16. By: Tsuneo Suzuki (Department of Economics, Gakushuin University); Yoichi Kobayakawa (Department of Management, College of Business, Administration and Information Science, Chubu University); Kazuo Wada (Faculty of Economics, University of Tokyo)
    Abstract: The cotton spinning companies played an important role in Japanese economic development during the Meiji era. Setting up these businesses required large capital investments. Who financed these companies? More concretely, who were their shareholders? This paper aims to identify shareholders' characteristics at 60 cotton spinning companies in 1898. In order to do this, we have created a database of all shareholders in these companies in 1898, as well as a database of all merchants and industrialists listed in the National Directory of Commerce and Industry (1898 edition). Our main findings are as follows: 1) Most of the shares were owned by people who lived outside the Tokyo or Osaka areas, in the local areas where a company was established. 2) The income level of most shareholders was mainly in the range of 500 - 2000 yen. The role of those with very high incomes as shareholder should not be overemphasized.
    Date: 2005–04
  17. By: Irfan ul Haque
    Abstract: The paper discusses the issue of globalization from the perspective of employment and labour. It argues that it is the ideological basis of policy prescriptions advanced in support of globalization, rather than the increasing global interdependence, that is the real source of controversy and anxiety over globalization. The paper discusses the impact of the neoliberal policies on economic growth, employment, and income distribution, and examines the issue of labour market rigidities from the perspective of industrial as well as developing countries. It argues that developing countries face conflicting pressures: the new liberal policies prescribe liberalization of labour markets, while the organized labour in the industrial countries is pushing for higher labour standards in developing countries. The paper concludes with a section containing ideas on how the process of globalization may be humanized, so that the gains from the growth in incomes and trade are more widely shared within as well as across countries in an increasingly interdependent world.
    Date: 2004
  18. By: Jörg MAYER
    Abstract: The paper draws broad predictions from the developmental elements of new economic geography models and subjects them to empirical scrutiny. Industrial activity has spread from developed to geographically close developing countries in sectors that are intensive in immobile primary factors and not too heavily dependent on linkages with other firms. Only developing countries with an already established industrial base achieved industrialization in other sectors. The sizable change in both the size and structure of manufactured exports from developing countries has not been associated with corresponding changes in manufacturing value added. To benefit more from relocating industrial activities, developing countries need to create the critical mass of linkages that provide pecuniary externalities to industrial firms.
    Date: 2004
    Abstract: The main purpose of this paper is to discuss the limitations of the market and the risks of government failure, and to present an alternative approach on coordination of economic activities by introducing the concept of “coordination system”. In such a system, economic activities are coordinated by market, firms and government requiring the availability of “non-price factors” such as infrastructure, institutions and organizations. This approach is practical, country specific and dynamic. It is practical because it is based on the realities of the world economy and the situations of developing countries. It is country specific because the relative role of each coordination mechanism – market, government and enterprises – changes from one country to another, depending on their level of development and other socio-economic characteristics. It is dynamic because in each country the relative role of each mechanism changes over time during the course of economic development of the country.
    Date: 2004
  20. By: Jörg MAYER
    Abstract: The impact of ATC-termination on the rise in China’s market share in global textiles and clothing trade is likely to be lower than often suggested by CGE models because the models (i) neglect the industry structure and sourcing strategies of buyers; (ii) take insufficient account of current patterns of tariff protection, preference schemes, and rules-of-origin regulations that allow managing textiles and clothing trade after ATC-termination; (iii) assume smooth and overly rapid responses to changes in the trading environment particularly in quota-imposing developed countries; and (iv) ignore that achieving China’s development objectives requires structural change towards production and exports of manufactures that are more skill-intensive than clothing.
    Date: 2004
  21. By: Loren BRANDT (University of Toronto); Carsten A HOLZ (Hong Kong University of Science & Technology)
    Abstract: Prices differ across space: from province to province, from rural (or urban) areas in one province to rural (or urban) areas in another province, and from rural to urban areas within one province. Systematic differences in prices across a range of goods and services in different localities imply regional differences in the costs of living. If high- income provinces also have high costs of living, and low-income provinces have low costs of living, the use of nominal income measures in explaining such economic outcomes as inequality can lead to misinterpretations. Income should be adjusted for costs of living. We are interested in the sign and magnitude of the adjustments needed, their changes over time, and their impact on economic outcomes in China. In this article, we construct a set of (rural, urban, total) provincial- level spatial price deflators for the years 1984-2002 that can be used to obtain provincial-level income measures adjusted for purchasing power. We provide illustrations of the significant effect of ignoring spatial price differences in the analysis of China's economy.
    JEL: O18 D63 D3
    Date: 2005–04–21
  22. By: Carsten A. Holz (Hong Kong University of Science & Technology)
    Abstract: Data on physical capital are an indispensable part of economic growth and efficiency studies. In the case of China, fixed asset time series are usually derived either by aggregating gross fixed capital formation data over time, net of depreciation, or by correcting the limited official fixed asset data available. These procedures, to varying degrees, ignore that (i) gross fixed capital formation does not equal investment, (ii) investment does not equal the value of fixed assets newly created through investment, (iii) depreciation is an accounting measure that has no impact on changes in the production capacity of fixed assets, (iv) official fixed asset data, where available, incorporate significant revaluations in the 1990s, and (v) the variable 'net fixed assets,' frequently used in the literature, is an inappropriate measure of fixed assets for the purpose of growth or efficiency studies. This paper derives economy-wide fixed asset values for 1954-2002, correcting for these shortcomings. It also uses the so far unexplored method of combining economy-wide depreciation data (in the income approach to the calculation of gross domestic product) with an economy-wide depreciation rate to directly yield economy-wide fixed assets. The fixed asset time series derived here are contrasted with each other as well as with those presented in the literature. The reliability of the different series is evaluated, leading to the recommendation of a specific choice of fixed asset time series.
    Keywords: Capital, fixed assets, investment, national income accounting, production function estimations, measurement of economic growth, Chinese statistics
    JEL: C80 D24 O47 P23 P24
    Date: 2005–04–21
  23. By: Carsten A. Holz (Hong Kong University of Science & Technology)
    Abstract: China's economic growth statistics of the late 1990s have repeatedly been questioned. Angus Maddison in a 1998 OECD study goes further in that he revised China's official average annual real growth rate for the first seventeen years of economic reform, 1978 through 1995, downward by 2.39 percentage points per year. His study is the most thorough criticism of Chinese official statistics to date, and the one with the largest impact on the data. By 1995, the revisions imply 150% less output, in 1978 terms, than the official data do. Angus Maddison's revisions were subsequently incorporated into the Penn World Tables; the findings of countless cross-country studies are therefore affected by Angus Maddison's growth estimates for China. This paper examines Angus Maddison's revisions to official data and finds them invalid. Angus Maddison's growth estimates for China in the reform period constitute no alternative to the official data.
    JEL: O4 P27 O53 C82
    Date: 2005–04–21
  24. By: Akiko Terada-hagiwara (Asian Development Bank)
    Abstract: This paper untangles the causes behind real exchange rate devaluation events with particular attention paid to the Sudden Stop of capital flows. By utilizing cumulative impulse response function and variance decomposition analysis, we argue that there is the asymmetric response across Sudden Stop and tranquil times. Further comparison across the Sudden Stop in the 80s (gdebt crisish) and 90s (gSudden Stop crisish), however, reveals that the Sudden Stop disturbance has become more prominent in explaining the real exchange rate disturbance in Sudden Stop crisis of the 1990s rather than debt crisis of the 1980s.
    Keywords: Exchange rate depreciation, Capital flows, Sudden Stop, Asia, and Latin America
    JEL: F31 F32 F41
    Date: 2005–04–20

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