nep-sea New Economics Papers
on South East Asia
Issue of 2005‒06‒05
39 papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Stability of the Demand for Real Narrow Money in lndonesia By Reza Anglingkusumo
  2. Money - Inflation Nexus in Indonesia: Evidence from a P-Star Analysis By Reza Anglingkusumo
  3. Rapid Rise of China’s Dairy Sector: Factors Behind the Growth in Demand and Supply, The By Fuller, Frank H.; Huang, Jikun; Ma, Hengyun; Rozelle, Scott
  4. Capital Flows and Exchange Rate Volatility: Singapore's Experience By Basant K. Kapur
  5. Fiscal Remedies for Japan's Slump By Laurence Ball
  6. South Korea's Experience with International Capital Flows By Marcus Noland
  7. The Opium Wars, Opium Legalization, and Opium Consumption in China By Jeffrey A. Miron; Chris Feige
  8. Development Strategies for Inclusive Growth in Developing Asia By Justin Lifu Lin
  9. Is China's Growth Real and Sustainable By Justin Lifu Lin
  10. The Public Financial System in Japan - Re-verification of the ballooning theory and the privileged government enterprise theory By Nobuyoshi Yamori; Narunto Nishigaki
  11. An Empirical and Theoretical Study on the Wider Use of Local Currencies in the Asia-Pacific Region after the Asian Financial and Currency Crisis: An Analysis Focused on Thailand By Ichiro Inoue
  12. A Missing Link in Decentralization Reform in Japan: “Trinity Reform package” By Takero Doi
  13. Causes of Privatization in China: Testing Several Hypotheses By Kai Guo
  14. Impacts of Privatization on Firm Performance in China By Lingang Song; Yang Yao
  15. Precautionary Saving and Employment Risk in the 1990s By Takero Doi
  16. Japan's Banking System: From the Bubble and Crisis To Reconstruction By Masahiro Kawai
  17. To Establish Sustainability of Government Deficits: Methodology and Application By Takero Doi
  18. Reforming Japan's Capital Markets By Sadakazu Osaki
  19. Structural Change in Japanese Business Fluctuations and Nikkei 225 Stock Index Futures Transactions By Toshiaki Watanabe; Hirokuni Uchiyama
  20. Public Debt and the Macroeconomic Stability of Japan By Keigo Kameda; Masao Nakata
  21. Optimal Capital Investment, Uncertainty and Outsourcing By Justin Y. Lin; Yingyi Tsai; Ching-Tang Wu
  22. Exchange Rate Uncertainty and Free Trade Agreement between Japan and Korea By Kwanho Shin; Yunjong Wang
  23. Trade Structure and Economic Growth A New Look at the Relationship between Trade and Growth By Chan-Hyun Sohn; Hongshik Lee
  24. Marginal Intra-industry Trade, Trade-induced Adjustment Costs and the Choice of FTA Partners By Chan-Hyun Sohn; Hyun-Hoon Lee
  25. Regional Cooperation in East Asia and FTA Strategies By Peter Drysadale
  26. Free Trade Area: Awakening Regionalism in East Asia By Feng Lu
  27. World Trade as the Adjustment Mechanism of Agriculture to Climate Change By Roxana Julia; Faye Duchin
  28. Energy development under regional autonomy: Distributions, poverty alleviation, subsidies and corporate social responsibilities By Hadi Soesastro
  29. Tinjauan Politik Ekonomi-Moneter Internasional dalam Kaitannya dengan Kerjasama Ekonomi dan Keuangan Internasional By Hadi Soesastro
  30. The Evolution of ASEAN+X Free Trade Agreements: Implications for Canada By Hadi Soesastro
  31. Realizing the East Asian Vision By Hadi Soesastro
  32. Accelerating ASEAN economic integration: Moving beyond AFTA By Hadi Soesastro
  33. The political economy of trade policy in Indonesia By Hadi Soesastro; M. Chatib Basri
  34. Risk management for the poor and vulnerable By Ari A. Perdana
  35. "Understanding the Economic History of Postal Services: Some Preliminary Observations from the Case of Meiji Japan" By Janet Elizabeth Hunter
  36. Financial Reform, Institutional Interdependency, and Supervisory Failure in the Post-Crisis Korea By Hong-Bum Kim; Chung Lee
  37. Current Status of East Asian Economic Integration By Cuyvers L.; De Lombaerde Ph.; Verherstraeten S.
  39. Migration and agglomeration with knowledge By Kyoko Hirose

  1. By: Reza Anglingkusumo (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam, and Bank Indonesia, Jakarta)
    Abstract: The stability of the demand for real Ml in Indonesia is empirically examined using quarterly data between 1981 and 2002. A cointegrated VAR methodology that isolates the period of structural breaks in the data generating process of the variables, caused by the Asian crisis, is used. The results show that the nominal Ml demand function is long run homogenous in the price level and the price level itself is endogenous in the equation for nominal Ml. Therefore, a reparameterization towards the real Ml demand function is necessary. In the pre and post Asian crisis era, the demand function for real Ml in Indonesia is empirically stable and consists of a small number of variables. In the long run, the real private household consumption spending forms the permanent part of the demand for real Ml balances. Meanwhile, in the short run, the opportunity cost of holding real Ml balances, measured by the l-month nominal interest rate of time deposits in commercial banks, and agents' seasonal preference for real money balances, are key determinants of the demand for real Ml balances. In addition, there is evidence of a co-breaking relationship between the real Ml balances and the real private household consumption spending in Indonesia during the Asian crisis.
    Keywords: money demand; cointegrated V AR; structural breaks; co-breaking; Asian crisis; Indonesia
    JEL: E41 C12
    Date: 2005–05–19
  2. By: Reza Anglingkusumo (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam, and Bank-Indonesia, Jakarta)
    Abstract: In this paper the effect of excess narrow money (MI) on C PI intlation in Indonesia before, during, and after the Asian crisis is empirically examined. The standard model for the monetary analysis of inflation, i.e. the P-Star model by Hallman-Porter-Small (1991), is applied and tested empirically using quarterly Indonesian data between 1981 and 2002. The empirical model is a Markov switching error correction model. The results show that the two regime P-star model, in terms of excess MI, tracks the long run dynamics of CPI inflation in Indonesia remarkably weIl. Hence, there is an empirical support for the assertion that long run CPI intlation in Indonesia is a monetary phenomenon. In addition, there is evidence of a co-breaking relationship between excess MI and consumer prices in Indonesia during the Asian crisis.
    Keywords: inflation; monetary model; structural break; regime switching error correction model; co-breaking; Asian crisis; Indonesia
    JEL: E31 C12
    Date: 2005–05–30
  3. By: Fuller, Frank H.; Huang, Jikun; Ma, Hengyun; Rozelle, Scott
    Abstract: With the rapid growth in China’s dairy industry, a number of recent papers have addressed either the supply or the demand trends for dairy products in China. None, however, presents a systematic explanation for the recent growth in both the supply and demand for dairy products. The goal of this paper is to sketch a more comprehensive picture of China’s dairy sector and to assess the nature of the sector’s development in the coming decades. Drawing upon several empirical studies, we examine the trends in dairy product consumption to create a composite picture of the factors underlying the recent growth. We also empirically investigate the sources of production gains in milk supply and assess the relative importance of expanding herd size, changes in the nature of production, technological change, and improvements in efficiency to the overall growth of milk production.
    Date: 2005–05–27
  4. By: Basant K. Kapur
    Abstract: Singapore%u2019s experience with international capital flows over the past two decades or so has been a rather %u2013 although not completely %u2013 benign one, owing to strong fundamentals and generally well-conceived macro-economic policies. We begin by briefly discussing the experience in 1998 of Hong Kong, another city-state with a well-developed banking system and equities market, and operating on a Currency Board (CB) system (although with some differences from Singapore%u2019s CB system). The discussion serves to identify some %u2018areas of vulnerability%u2019 in the Hong Kong set-up at that time. We next discuss Singapore%u2019s policy background and early experience, and in the light of Hong Kong%u2019s experience are better able to appreciate how Singapore%u2019s policy framework served to circumvent or minimize important vulnerabilities. Particular attention is paid to Singapore%u2019s exchange-rate policy and its policy of non-internationalization of the Singapore dollar. Equity- and currency- market interactions are also considered. We next show how Singapore emerged relatively unscathed from the 1997 Asian Crisis. Lastly, we discuss Singapore%u2019s debt markets, and show how under the imperative of promoting the development of its bond markets the non-internationalization policy has been progressively relaxed, while retaining key safeguards.
    JEL: F4 F3
    Date: 2005–05
  5. By: Laurence Ball
    Abstract: This paper asks how a fiscal expansion would affect Japan. It uses a textbook-style macro model calibrated to fit the Japanese economy. According to the results, Japan%u2019s output slump would be ended by a fiscal transfer of 6.6% of GDP. This policy raises the debt-income ratio in the short run, but it reduces this ratio in the long run through higher inflation and tax revenue. The financing of the transfer -- bonds or money -- affects debt in the short run but not the long run.
    JEL: E3 E6
    Date: 2005–05
  6. By: Marcus Noland
    Abstract: South Korea%u2019s experience is unparalleled in its combination of sustained prosperity, capital controls, and financial crisis. Over several decades, South Korea experienced rapid sustained growth in the presence of capital controls. These controls and the de-linking of domestic and international financial markets were an essential component of the country's state-led development strategy. As the country developed, opportunities for easy technological catch-up eroded, requiring more sophisticated corporate and financial sector decision-making, but decades of financial repression had bequeathed a bureaucratized financial system and a formidable constellation of incumbent stakeholders opposed to transition to a more market-oriented development model. Liberalization undertaken in the 1990s was less a product of textbook economic analysis than of parochial politicking. Capital account liberalization program affected the timing, magnitude, and particulars of the 1997-98 crisis. Despite considerable reforms undertaken since the crisis, concerns remain about both South Korea%u2019s lending culture and its authorities%u2019 capacity to successfully regulate the more complex financial system. The main lesson of the South Korean case appear to be that while the state-led model may deliver impressive initial gains, transitioning out of this approach presents an exceedingly complex challenge of political-economy.
    JEL: F3
    Date: 2005–05
  7. By: Jeffrey A. Miron; Chris Feige
    Abstract: The effect of drug prohibition on drug consumption is a critical issue in debates over drug policy. One episode that provides information on the consumption-reducing effect of drug prohibition is the Chinese legalization of opium in 1858. In this paper we examine the impact of China's opium legalization on the quantity and price of British opium exports from India to China during the 19th century. We find little evidence that legalization increased exports or decreased price. Thus, the evidence suggests China's opium prohibition had a minimal impact on opium consumption.
    JEL: K4 N4
    Date: 2005–05
  8. By: Justin Lifu Lin (China Center for Economic Research)
    Abstract: In this paper, I would like to argue that for the countries in developing Asia, like developing countries in other parts of the world, if their governments adopt a right development strategy, they have good opportunities to achieve dynamic growth and equitable income distribution in their process of development. However, many of them followed an inappropriate strategy and impeded their opportunities to realize this growth potential. I would also like to propose an approach for the developing countries to transit from the old to the new development strategy smoothly.
    Keywords: developing countries, developing Asia, development strategy
    JEL: O11 O20 O4
    Date: 2004–10
  9. By: Justin Lifu Lin (China Center for Economic Research)
    Abstract: Since the reform of 1978, China's overall economic performance has been remarkable. The average annual GDP growth rate reached 9.4% in 1978-2002. However, in the last few years, China's economic growth rate has been questioned. A deflation was evident at the end of 1997. In spite of the Chinese government's many efforts, the deflation has continued. A deflation in an economy in general accompanied by stagnation or slow GDP growth. However, China's GDP growth rate reached 7.8% annually during the deflation period in 1998-2002, which was the fastest growth rate in the world. Moreover, the energy consumption dropped in 1998 and 1999. The abnormality prompted some economists to question the reliability of China's statistics. In the paper, the author will analyze why it is possible for china to maintain high growth with reduction of energy consumption during the deflation period and suggest the way for China to absorb excess capacity and get out of the deflation. The author will also discuss the prospect for China's long-term growth.
    Keywords: China, growth, inflation, deflation, GDP, stagnation
    JEL: E31 E43 O4
    Date: 2004–02
  10. By: Nobuyoshi Yamori (Nagoya University); Narunto Nishigaki (Okayama University)
    Abstract: The large weight of public financial institutions is often identified as one of the characteristics of the Japanese financial system. It is believed that reform of the private financial sector is not enough to revitalize the Japanese financial system, but reform of the public financial sector is crucial. There are various opinions concerning ideal public financial institutions, and heated debate continues. We would like to raise attention to the point that much discourse is based on the prerequisite that public financial sector is still increasing (i.e., the ballooning theory). However, only a small number of arguments present grounds for the prerequisite, and even in the case of those based on statistical analyses, such analyses are not rigorously verified. Under these circumstances, the first purpose of this paper is to reverify the ballooning theory of public financial sector which is used as a prerequisite for much of the discourse.
    Keywords: financial institutions, Japan, public financial sector,
    JEL: P11 F36 H24
    Date: 2005–01
  11. By: Ichiro Inoue (Ministry of Finance Japan)
    Abstract: The Asian financial and currency crisis triggered a significant change to the currency composition of private liabilities in Thailand. Namely, the Thai private sector switched the denominations from the US dollar to the yen and at a larger percentage to the home currency (the Thai baht). The private sectors elsewhere in the Asia-Pacific region also switched from the US dollar to home currencies. Japanese banks resident in Thailand increased their local claims in the Thai baht; Japanese banks also increased the share of local currencies elsewhere in the Asia-Pacific region; and the same is true with the non-Japanese banks as they increased the share of local currencies in the region. Countries in the region examined the crisis and their heavy dependency on the US dollar. Their currency switch can be construed as a movement away from that dependency. The author believes that such a movement should not be temporary, but should firmly take root.
    Keywords: Asian Financial, Currency Crisis, Asia-Pacific Region, Thailand, US Dollar, Thai Baht,
    JEL: G32 G15 G18
    Date: 2005–01
  12. By: Takero Doi (Ministry of Finance Japan)
    Abstract: In June 2003, the Koizumi administration created the "Trinity Reform Package." In this context, "trinity" means the decentralization reform process that involves three factors: local tax, local allocation tax grant and national government disbursement. There is, however, a missing link in the reform. This is local bond, which is one of major revenue source for local governments. In particular, system of local bond has a very close relationship with local allocation tax system. Local allocation tax grant also covers debt service expenditure at the local level. Hence, the system itself undermines the sound issuance of local bonds. Moreover current local bond system does not result in awareness as debtors. In this paper, we build a simple theoretical model describing the Japanese local system, and propose a comprehensive decentralization reform including local bond.
    Keywords: Decentralization, Reform, Japan, local tax, local allocation tax grant, national government disbursement
    JEL: H71 H77 H63
    Date: 2004–04
  13. By: Kai Guo (China Center for Economic Research)
    Abstract: China has undergone massive yet quiet privatization since the mid-1990s. The number of SOEs has fallen by 40% in the period 1996-2001 and most of the remaining SOEs were scheduled for privatization in one or two years. As recent studies have shown, privatization has brought positive gains to firm efficiency. Contrasting to the top-down approach adopted in the former Soviet States and Eastern European counties, the Chinese privatization, like most other major reform initiatives, has taken a bottom-up approach by which the privatization templates were first experimented in several localities and then sanctioned and promoted by the central government. It is of great academic interests as to what are the economic and political forces that have led to China's spontaneous wave of privatization in transition as well as developed countries. In this paper, we identify five sets of such theories and test their validity for the Chinese case by using firm-level panel data collected on 683 firms in 11 cities for the period 1995-2001.
    Keywords: China, transition, privatization, central government, SOE
    JEL: L33 L22 P31
    Date: 2004–07
  14. By: Lingang Song (Australia–Japan Research Centre); Yang Yao (China Center for Economic Research)
    Abstract: This paper studies the impact of privatization on firm performance in China. Using a unique dataset, we are able to control the selection biases of privatization and handle the missing variable problem that are frequently encountered in the transition economies literature. Privatization is found to have a significantly positive impact in firm profitability, but a weak or no significant impact on unit cost and labor productivity. Clear time trends are found for the effect of privatization. Firms with medium length of privatization and firms in the period 1997-1999 are found to have more robust effects.
    Keywords: privatization, transition economies, Chinese economy
    JEL: L25 P27 P31
    Date: 2004–07
  15. By: Takero Doi (Ministry of Finance Japan)
    Abstract: This paper analyzes the reason that Japan’s household saving rate rose in the 1990s. The unemployment rate as well as saving rate of workers’ households was increasing in the 1990s, and growth rate of disposable income was decreasing in the late 1990s. The evidence may imply that an increase in the saving rate is explained by precautionary saving motive among growing uncertainty (risk) concerning future income and employment. An increase in income risk means that households’ expectation of future income becomes more uncertain. This paper investigates this evidence, and finds that correlation between Japan’s saving rate of workers’ households (using data for the Family Income and Expenditure Survey) and the income risk is significantly positive during the full sample period (from 1976 to 1998), but not significantly positive in the recent years. Therefore it is concluded that the increase in Japan’s household saving rate in the 1990s is not explained by precautionary saving hypothesis with the income risk.
    Keywords: Japan, saving, unemployment rate, household income, disposable income,
    JEL: H24 E21 E24 O16
    Date: 2004–03
  16. By: Masahiro Kawai (university of Tokyo)
    Abstract: The Japanese banking sector is now going through major restructuring, reorganization, and consolidation on a scale unprecedented in its history, all against a background of an increasingly market-oriented, more deregulated and globalized policy environment. This process was set in motion and greatly precipitated by recent economic difficulties, i.e., the asset disinflation and economic stagnation that started in the early 1990s and led to the systemic banking crisis in 1997-98. The focus of this paper is the state of the Japanese banking system that was exposed to an asset price bubble (in the late 1980s), its collapse (in the early 1990s) and subsequent systemic crisis (in the late 1990s), and is undergoing recent reconstruction.
    Keywords: Japan, banking, asset price, reorganization, reconstruction
    JEL: G21 E58 G12
    Date: 2003–12
  17. By: Takero Doi (Ministry of Finance Japan)
    Abstract: The purpose of this paper is to survey methodology of test for fiscal sustainability. The econometrical tests for fiscal sustainability have been improved since the 1980s. We introduce the methods and backgrounds of these tests. Also we apply the tests to the Indonesian and Japanese data. It is important to analyze the sustainability of government bonds consisting with the fiscal system, particularly intergovernmental relationship. Namely, we should investigate debt sustainability of the consolidated government including not only the central government but also local governments and other (off-budget) account of the central government. In the second half of this paper, we explain the Japanese fiscal policy from the viewpoint of the sustainability problem of government bond policy.
    Keywords: Japan, Indonesia, government bonds, debt sustainability, fiscal policy
    JEL: O23 H30 E62
    Date: 2004–03
  18. By: Sadakazu Osaki (Nomura Institute of Capital Market Research)
    Abstract: The Japanese version of the Big Bang announced in November 1996 was a major plan to drastically reform the financial and capital markets in Japan through significant revisions to laws such as the Securities and Exchange Law. The Japanese Big Bang was planned because of mounting worries about the lowering of the international status of Japanese markets and deadlock of the existing financial structure which depended excessively on indirect financing, mainly of bank loans. The Japanese Big Bang was supposed to have been completed by the end of March, 2001, but in reality system reforms for financial and capital markets are still continuing including revisions of the Securities and Exchange Law and of the taxation system of securities. Reform of the financial structure -- the goal of Big Bang -- has not made notable progress, an example being that most privately held financial assets are still in the form of deposits, because of the following reasons. The first reason is that participation of individual investors in the security market has not significantly increased. This is due to lack of familiarity with security companies that broker investments in securities and lack of knowledge of the market and investments. The second reason is that the use of financial and capital markets to procure funds is being hindered by the irrational behavior of banks, an example of which is the placement of loans at interest rates which are not commensurate with the risks involved. This is particularly problematic. It is necessary to reveal the values of securities in the trading market to the maximum extent and to promote conversion of bank credit into securities in order to normalize the behavior of banks. To bring this about it is necessary to strengthen supervision to prevent unjust behavior in the market in order to raise investor confidence in the market. As a consequence of the Japanese Big Bang and subsequent reforms, the financial and capital market systems of Japan now bear comparison with those in the UK and the US, at least procedurally. However, the system reforms implemented in Japan may just become a state of tilling the ground and failing to sow if there is no change in the attitude of control that experts (including the managing authorities who design the systems) persist in maintaining and no change in the way of thinking of companies that regard procurement of funds in the market as merely being the means to make adjustments for bank borrowing.
    Keywords: financial reform, capital market, Japan, Security law, Exchange law, Big bang, bank borrowing
    JEL: P41 P11 K39 F31
    Date: 2005–01
  19. By: Toshiaki Watanabe (Institute for Monetary and Economic Studies, Bank of Japan); Hirokuni Uchiyama (Institute for Monetary and Economic Studies, Bank of Japan)
    Abstract: Structural changes in business fluctuations have been gathering attention in Europe and the US in recent years. It has become clear that business fluctuations in the US began to stabilize from the middle of the 1980s, and similar structural changes have been observed in Europe. On the other hand, there have been only a few studies concerning structural changes in Japanese business fluctuations. With this background, this paper presents an analysis as to whether or not there has been a structural change in Japanese business fluctuations in recent years, and if so, when and what kind of change.
    Keywords: business fluctuations, Japan, Europe, US
    JEL: L11 L22 E32 E44
    Date: 2005–01
  20. By: Keigo Kameda (Niigata university); Masao Nakata (Ministry of Finance Japan)
    Abstract: Recently, the outstanding debt of the Japanese government amounts to 695 trillion yen, which implies 139.5% of GDP. In this paper, we constructed three IS-LM type dynamic models and estimate the eigenvalues of their differential systems. Then we confirm whether or not the huge amount of public debt violates the stability conditions for the Japanese economy. Our estimation concludes the Japanese economy to be unstable with the existence of a saddle-point equilibrium. Our simulation also shows that severe tax reform would be required to restore the economic stability. Concretely, the government has to raise the consumption tax rate to 15% from 5%, and in addition, allowing the income elasticities of income taxes and inhabitant taxes to increase by 0.033 each, which is equivalent to tax hikes of about 8.3 trillion yen. We assert that structural reform for the government budget including a tax system is essential and emergent.
    Keywords: Public Debt, Macroeconomic Stability, Japan, Yen, GDP, consumption tax, saddle-point equilibrium, IS-LM type dynamic models, eigenvalues
    JEL: C30 H61 H63 H20
    Date: 2005–01
  21. By: Justin Y. Lin (China Center for Economic Research); Yingyi Tsai (China Center for Economic Research); Ching-Tang Wu (China Center for Economic Research)
    Abstract: This paper provides an explanation for outsourcing based on uncertainty. We study an optimal capital investment model both with and without the possibility to outsource under uncertainty. We show, in the presence of uncertainty, that outsourcing is Pareto-improving and that a brand-producing monopolistic reduces its fixed-asset investment if outsourcing is possible. We also show that the cost of undertaking outsourcing can have a significant impact on the monopolist's choices of optimal capital investment and outsourcing quantity.
    Keywords: Outsourcing, Investment, Uncertainty
    JEL: D24 D40 D81 E22 L23
    Date: 2003–11
  22. By: Kwanho Shin (Korea Development Institute); Yunjong Wang (Korea Institute of International Economic Policy)
    Abstract: In this paper, we empirically analyze how increased exchange rate volatility influences the volume of trade between Japan and Korea and between these two countries and the United States. Out results strongly suggest that the increased exchange rate volatility is negatively related to the trade volume between Japan and Korea and the U.S., Japan and Korea. Despite the evidence that exchange rate stability promotes trade, the discussions on the Japan-Korea FTA are proceeding without emphasis on exchange rate coordination. While the EU integration process was fortified initially by exchange rate coordination and later by the introduction of a monetary union, NAFTA presents a contrasting case of pure trade integration without monetary cooperation. The crucial elements in EU that facilitated monetary cooperation were: a large trade share among involved countries and strong political will from member countries. As the Japan-Korea trade integration process, at least in isolation, lacks both elements, it is not likely that any explicit monetary or exchange rate coordination will naturally rise.
    Keywords: Japan-Korea trade integration, Exchange Rate Uncertainty, Free Trade Agreement
    JEL: F15 F31 F36 F41
    Date: 2003–10
  23. By: Chan-Hyun Sohn (Korea Institute for International Economic Policy); Hongshik Lee (Korea Institute for International Economic Policy)
    Abstract: What is the relationship between trade and economic growth? Due to the ambiguity of the relationship between trade and growth, the empirical relationship remains open. This paper introduces "trade structure" variables, borrowing from the structure-conduct-performance (SCP) paradigm of Industrial Organization literature, and applying them to the relationship. A dynamic panel estimation for the data of 66 countries during 1991-2001 is used to verify the validity and robustness of the relationship. Trade structure variables that represent Heckscher-Ohlin model and Product Differentiation model respectively show strong evidence of positive effects on growth. This paper concludes that trade structures, not trade, well explain growth.
    Keywords: Trade Structure, Growth, Dynamic panel, SCP paradigm
    JEL: F14 F43 L16
    Date: 2003–12
  24. By: Chan-Hyun Sohn (Korea Institute for International Economic Policy); Hyun-Hoon Lee (Kangwon National University)
    Abstract: In recent years a new regionalism has begun to emerge in East Asia. Korea is no exception. In side Korea, however, there are many arguments against opening its domestic market for the foreign competition resulting from a free trade agreement (FTA). The main reason behind the FTA would result in costly factor adjustment. It has been argued by many researchers that intra-industry trade generates smaller inter-industry factor adjustment than inter-industry trade, and hence intra-industry trade involves lower adjustment costs than inter-industry trade. The purpose of this paper is to understand the extents and the nature of Korea's intra-industry trade (IIT) and its dynamic version, so-called marginal intra-industry trade (MIIT), and is to help predict the relative degree of adjustment costs when Korea would have an FTS with different trading partners. For this purpose, the paper first calculates the weighted average of the unadjusted Grubel-Lloyd IIT indices for different trading partners, using the data at three-digit SITC for 1991 and 2001, and the weighted average of Brulhart's (1994) A indices between 1991 and 2001. This paper then evaluates the country characteristics that have effects on the extent of IIT and MIIT. Finally, the paper assesses the desirability of an FTA with different trading partners form the perspective of trade-induced adjustment costs.
    Keywords: Trade-induced adjustment costs, marginal intra-industry trade, partial adjustment model, Korea
    JEL: F12 F14
    Date: 2004–12
  25. By: Peter Drysadale (Australia-Japan Resarch Centre)
    Abstract: The need for deeper financial and trade cooperation in East Asia became clear through the experience of the East Asian financial crisis. The imperatives of East Asian cooperation mean that the quest for East Asian influence and leadership on regional and international affairs through ASEAN + 3 will continue. However, the creation of an East Asian Economic Community requires leadership and a model that is consistent with East Asian (not European or American) circumstances. Japan’s changing role in the regional economy prompted policy initiatives such as espousal of bilateral free trade agreements (FTAs) aimed at closer East Asian regional economic and political links. This fundamental shift in Japan’s trade policy diplomacy was effected without public debate in Japan and the reactions to it from partner countries, almost entirely unanticipated by Japanese policymakers, led to some confusion in policy strategy. Discriminatory regional trade arrangements do not reflect the needs and circumstances of the East Asian economy at the beginning of the twenty-first century, and specifically the need to accommodate the growth and opening of the Chinese economy within the regional and global economic systems. The proliferation of FTA arrangements, with increasingly complicated rules of origin, is more likely to distort and derail rather than to encourage broader and deeper economic integration. The objectives of ‘closer economic partnership’ arrangements are better served by nondiscriminatory trade agreements than by distorting and limited bilateral FTAs. Many of the features of the East Asian economy have not fundamentally changed. It continues to be distinguished by its extra-regional trade and economic reach. Large flows of FDI, particularly into China, cement economic interaction with the global economy. Both economic and political considerations have influenced thinking among the Chinese leadership about the change in trade policy strategy. The sensible and rational choice for China is a global choice, the acceptance and entrenchment of global obligations and responsibilities in a multilateral ‘pluralist’ setting.
    Keywords: East Asia, ASEAN, free trade agreements, FTA, FDI, China
    JEL: R12 P45 O19 F14 F15
    Date: 2005–01
  26. By: Feng Lu (China Center for Economic Research)
    Abstract: Recent years witness a strong up-surging Free Trade Area (FTA) movement in East Asia. The events signal a sharp departure from the region's traditional development model of "regionalization with regionalism" and may have important implications for its future growth pattern and regional alignments of the global economy. The paper investigates various aspects of the subject. It examines the background and causes of the new movement, reviews the literature on assessment of FTA's impact and discusses potential agenda and evolving path of the East Asian FTA drive.
    Keywords: East Asia, Free Trade Area, FTA, regionalization
    JEL: F13 F14 F15
    Date: 2003–10
  27. By: Roxana Julia (Department of Economics, Rensselaer Polytechnic Institute,1403 Park Boulevard, Troy, NY, 12180,USA); Faye Duchin (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)
    Abstract: This paper evaluates the role of trade as mechanism of economic adjustment to the impacts of climate change on agriculture. The study uses a model of the world economy able to reflect changes in comparative advantage; the model is used to test the hypotheses that trade can assure that, first, satisfying global agricultural demand will not be jeopardized, and, second, general access to food will not decrease. The hypotheses are tested for three alternative scenarios of climate change; under each scenario, regions adjust to the climatic assumptions by changing the land areas devoted to agriculture and the mix of agricultural goods produced, two of the major mechanisms of agricultural adaptation. We find that trade makes it possible to satisfy the world demand for agricultural goods under the changed physical conditions. However, access to food decreases in some regions of the world. Other patterns also emerge that indicate areas of concern in relying on trade as a mechanism for the adjustment of agriculture to likely future changes in climate.
    JEL: Q54 Q17 C61
    Date: 2005–05
  28. By: Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia)
    Abstract: This paper examines problems and policies in regard to energy development under regional autonomy, distributions - in the sense of distributional or equity issues, poverty alleviation, subsidies, and corporate social responsibilities. The paper examines the problem from a simplified perspective, namely that of a centralized system versus decentralized system of energy development.
    Keywords: Indonesia, energy policy, fuel subsidies
    Date: 2004–11
  29. By: Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia)
    Abstract: An overview of the direction of financial cooperation in relation to international trade cooperation, and its relevance to Indonesia
    Keywords: Multilateral cooperation, financial cooperation
    Date: 2005–02
  30. By: Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia)
    Abstract: This essay examines the question of whether Canada should also form an FTA with ASEAN. The first section will provide an update on the status of the various FTA agreements that ASEAN has signed since 2002. This will be followed by an examination of these FTA agreements in relation to the ASEAN Community project and the proposal to form an East Asian Free Trade Area (EAFTA). The concluding section briefly discusses the implications for Canada and other major trading partners as well as for APEC and trans-Pacific relations in general, and suggests ways to improve Canada's diplomatic and commercial relations with ASEAN.
    Keywords: ASEAN, Canada, free trade arrangement (FTA)
    JEL: F15
    Date: 2005–02
  31. By: Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia)
    Abstract: This paper examines the developments of three separate FTAs between ASEAN and the +3 countries. It is still unclear how these separate FTAs will be amalgamated into an EAFTA, and whether that can happen before 2020. This paper argues that much will depend on the pace of ASEAN's own economic integration. The likely alternative is that China will become the main driver of the process.
    Keywords: East Asia, ASEAN, ASEAN+3, free trade agreement
    JEL: F15
    Date: 2005–02
  32. By: Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia)
    Abstract: Progress and realisation of the ASEAN Economic Community (AEC) can only be achieved if there is a clear blueprint, which identifies the end goal, the process to reach the end goal and a framework for proper assessment of the costs and benefits of an ASEAN Economic Community. AEC should not be based on the AFTA in which an agreement was reached first and the details negotiated afterwards earning it the nickname of "Agree First Talk After". A "new ASEAN way" will have to be developed and accepted as the rule of the game before the AEC has any serious chance of fulfilling the role of making ASEAN more competitive and attractive for world business.
    Keywords: ASEAN Economic Community (AEC), regional integration, economic cooperation
    JEL: F15
    Date: 2005–03
  33. By: Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia); M. Chatib Basri (Institute for Economic and Social Research, Faculty of Economics-University of Indonesia, Jakarta, Indonesia)
    Abstract: This paper focuses on Indonesia's trade policies after the economic crisis. It examines the trend towards protection and addresses the issues of competitiveness. The concluding part briefly discusses Indonesia's policies on and involvement in free trade agreements (FTAs), which have recently proliferated in the Asia Pacific region.
    Keywords: Indonesia, political economy, trade policy, economic crisis, free trade agreement
    JEL: F13 F14
    Date: 2005–03
  34. By: Ari A. Perdana (Centre for Strategic and International Studies, Jakarta, Indonesia)
    Abstract: This paper reviews some literatures on the mechanisms available for the poor in managing risk. Lacking access to formal mechanisms of risk management, the poor rely on informal mechanisms, which are built based on the existing social networks and trust. But when the shocks are big or affecting the entire community, these informal mechanisms may not be adequate. Some policy interventions are then required to help improving the ability of poor people in managing risk. Policy intervention should aim to provide access for the poor on saving, credit and insurance. Microfinance schemes have been applauded as a successful `best practice' in providing access to saving and credit. However, microfinance institutions still have some room for improvement by expanding their role in providing insurance schemes.
    Keywords: poverty, vulnerability, risk management, microfinance.
    JEL: I3
    Date: 2005–05
  35. By: Janet Elizabeth Hunter (Economic History Department, London School of Economics and Political Science)
    Abstract: This object of this paper is to raise some methodological issues relating to the economic history of postal services, an area relatively neglected by Western economic historians, and to use Japan in the second half of the 19th century as a case study for exploring some of these issues. The first half of the paper surveys the previous historical literature on 19th century postal systems, and then considers several key analytical issues, in particular the fact that postal systems were government monopolies, the nature of postal systems as technologies, and the significance of the improved information flow that these systems offered to an industrializing economy. The second half of the paper looks at the economic significance of the Meiji governments's postal regulatory framework, the use that was made of these provisions, and how this use changed over time. The analysis focuses in particular on the issue of demand for and supply of postal services, and suggests that in most cases the increasing use made of the service was supply-led. The conclusion puts Japan's postal usage in this period in comparative perspective, and suggests possibilities for future research.
    Date: 2005–05
  36. By: Hong-Bum Kim (Gyeongsang National University, Seoul, Korea); Chung Lee (Department of Economics, University of Hawaii at Manoa)
    Abstract: In the wake of the economic crisis of 1997-98 South Korea undertook a number of reforms in financial supervision. In spite of these reforms doubts have been raised as to whether Korea has in fact succeeded in creating a system of financial supervision capable of dealing with certain risks and responding to new challenges appropriately. This paper argues that because of institutional interdependency a successful institutional reform requires changing not only the particular institution at issue but also other inter-related institutions; that Korea’s post-crisis reform in financial supervision was limited to changing formal institutions for financial supervision; and that further reforms are needed in other institutions—formal as well as informal—if Korea is to further improve financial supervision.
    Keywords: financial reform, institutional interdependency, Korea’s post-crisis reform in financial supervision
    JEL: G20 N20 O17
    Date: 2005
  37. By: Cuyvers L.; De Lombaerde Ph.; Verherstraeten S.
    Abstract: This paper gives an overview of recent developments in the process of Asian economic integration. A large part will focus on the integration initiatives undertaken within the framework of the Association of Southeast Asian Nations (ASEAN). ASEAN was not only the first regional integration arrangement in Asia, it also remains the centre for current and future economic integration initiatives in the wider East Asian region. The progress that has been made by ASEAN’s member countries in establishing an ASEAN Free Trade Area (AFTA) will be analysed. Given the important and reasonably successful integration initiatives in other parts of the world, such as the EU and NAFTA, academics and politicians have devoted much attention to the possibilities of both deepening and widening economic collaboration in the (East) Asian region. Ten ASEAN countries already decided to establish an ASEAN Economic Community by the year 2020 and some other countries seem eager to join. We will have a closer look at the recent initiatives taken in this direction. We also devote attention to the role ASEAN plays in the regional monetary integration and co-operation schemes adopted in the region. Empirical tests, using the optimum currency area (OCA) theory, will be reviewed to determine whether a common currency would be beneficial for certain groups or sub-groups of Asian countries. The paper concludes with the authors’ thoughts on the viability of a wider East Asian Free Trade Area and East Asian monetary union in the long term and on the role ASEAN would have to play in its establishment.
    Date: 2005–05
  38. By: Nguyen Trung Kien (Osaka School of International Public Policy (OSIPP), Osaka University); Yoshizo Hashimoto (Osaka School of International Public Policy (OSIPP), Osaka University)
    Abstract: This paper is an attempt to use the Hausman-Taylor (HT) estimation to examine the determinants of trade flows of Asean Free Trade Area (AFTA). Based on the two-way error component form of the gravity model, we employ the HT technique to estimate export flows by a country panel data of 39 countries for the period 1988-2002. The estimations have shown the following important results. Firstly, export flows among two countries increase more proportionately with GDPs. More interestingly, trade is higher between countries of identical preferences than those of different ones. Secondly, the most crucial result is that AFTA has only produced the trade creation among its members. Finally, this study suggests the importance of trade facilitation policy to support the targets of FTA.
    Keywords: AFTA, gravity models, panel data, trade.
    JEL: F1 F15 C23
    Date: 2005–05
  39. By: Kyoko Hirose (Graduate School of Economics, Osaka University)
    Abstract: In this paper, a Grossman-Helpman-Romer-type endogenous growth model is developed with two regions in which there are mobile workers and linkage between consumption goods and differentiated intermediate goods. The economy has the potential to reach the following spatial configuration: full agglomeration, partial agglomeration, and segmented agglomeration. In perfect agglomeration, the innovation sector and intermediate goods sector agglomerate in one region. In partial agglomeration, intermediate goods firms partially agglomerate in the region where the innovation sector agglomerates perfectly. In segmented agglomeration, the innovation sector agglomerates in the region where both intermediate goods sector and final good sector do not agglomerate perfectly. In addition, we show the comparison of the welfare of skilled workers in each steady state. Not surprisingly, the welfare of the skilled in full agglomeration is always the highest. However, even though there are transportation costs of final good, the welfare in segmented agglomeration is not necessarily the lowest.
    Keywords: knowledge spillovers, transportation costs, inter-regional trade
    JEL: F43 O18 R11
    Date: 2005–06

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