nep-sea New Economics Papers
on South East Asia
Issue of 2005‒07‒18
eighteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. The Effectiveness of Bank Recapitalization in Japan By Heather Montgomery; Satoshi Shimizutani
  2. The State of Village-Level Infrastructures and Public Services in Indonesia During the Economic Crisis By Jesse Darja; Daniel Suryadarma; Asep Suryahadi; Sudarno Sumarto
  3. A Reassessment of Inequality and Its Role in Poverty Reduction in Indonesia By Daniel Suryadarma; Rima Prama Artha; Asep Suryahadi; Sudarno Sumarto
  4. International Capital Market Imperfections: Evidence from Geographical Features of International Consumption Risk Sharing By Yonghyup Oh
  5. Finance and Economic Development in East Asia By Yung Chul Park; Wonho Song; Yunjong Wang
  6. Location Choice of Multinational Companies in China: Korean and Japanese Companies By Sung Jin Kang,; Hongshik Lee
  7. Finance and Economic Development in Korea By Yung Chul Park; Wonho Song; Yunjong Wang
  8. The Effect of Labor Market Institutions on FDI Inflows By Chang-Soo Lee
  9. Accelerating ASEAN Economic Integration: Moving Beyond AFTA By Hadi Soesastro
  10. Expansion Strategies of South Korean Multinationals By Hongshik Lee
  11. The Decision to Invest Abroad: The Case of Korean Multinationals By Hongshik Lee
  12. Specialization and Geographical Concentration in East Asia: Trend and Industry Characteristics By Soon-Chan Park
  13. Geographic Concentration and Industry Characteristics: An Empirical Investigation of East Asia By Soon-Chan Park,; Hongshik Lee,; Mikyung Yun
  14. "The Impacts of "Shock Therapy" under a Banking Crisis : Experiences from Three Large Bank Failures in Japan" By Shin-ichi Fukuda; Satoshi Koibuchi
  15. "Seasonality and Seasonal Switching Time Series Models"(in Japanese) By Naoto Kunitomo; Makoto Takaoka
  16. Direct and Indirect Causality Between Exports and Economic Output for Bangladesh and Sri Lanka: Horizon Matters By Judith A. Clarke; Mukesh Ralhan
  17. Trade And Structural Adjustment Policies In Selected Developing Countries By Jens Andersson; Federico Bonaglia; Kiichiro Fukasaku; Caroline Lesser
  18. Endogenous Timing in a Mixed Triopoly with a Foreign Competitor By Yuanzhu Lu

  1. By: Heather Montgomery; Satoshi Shimizutani
    Abstract: This study examines the effectiveness of bank recapitalization policies in Japan. Based on a careful reading of the "business revitalization plan" submitted by banks requesting government funds, we identify four primary goals of the capital injection plan in Japan: 1) to increase the bank capital ratios 2) to increase lending, in particular to small and medium enterprises, and avoid a "credit crunch" 3) to increase write-offs of non-performing loans and 4) to encourage restructuring. Using a panel of individual bank data, we empirically estimate the effectiveness of the Japanese government policy of public fund injection in achieving the first three of these stated goals. Our empirical analysis of international and domestic banks reveals that the capital injections going to the larger international banks were more effective than those used toward regional banks in Japan. The first capital injection in 1997 was effective primarily in helping international banks to clear the 8% capital adequacy ratio (BIS ratio) required under the Basel Accord. The second round capital injections seem to have been even more effective, boosting capital adequacy ratios for the regional as well as international banks, and encouraging other policy objectives such as increased lending to small and medium enterprises.
    Date: 2005–06
  2. By: Jesse Darja (SMERU Reasearch Centre); Daniel Suryadarma (SMERU Reasearch Centre); Asep Suryahadi (SMERU Reasearch Centre); Sudarno Sumarto (SMERU Reasearch Centre)
    Abstract: Infrastructures play a crucial role in economic development and poverty reduction. The economic crisis in 1997-98 severely curtailed the government’s capacity to maintain existing infrastructures, negatively impacted the prospects for future economic development and poverty reduction in the country. This study provides an overview of the changes in the availability of village-level infrastructures and public services during the economic crisis. The findings indicate that there were mixed trends in the availability of different types of infrastructures and public services. Furthermore, the changes in the availability of certain infrastructures or public services differ across urban and rural areas as well as between Java-Bali and the outer islands. In the era of regional autonomy, it is essential to involve regional governments in infrastructure development planning, management, and maintenance.
    Keywords: economic development, poverty reduction, economic crisis, village-level, infrastructure development, public services, Java-Bali, Indonesia
    JEL: H54 P43 P46
    Date: 2004–06
  3. By: Daniel Suryadarma (SMERU Reasearch Centre); Rima Prama Artha (SMERU Reasearch Centre); Asep Suryahadi (SMERU Reasearch Centre); Sudarno Sumarto (SMERU Reasearch Centre)
    Abstract: This study provides an overview of inequality in Indonesia for the period of 1984 to 2002 using several widely used measurements of inequality. Firstly, unlike previous studies, our paper uses real consumption expenditure that takes into account the high regional price disparity across regions in Indonesia. Secondly, we found that, although during the crisis all measures indicate a decrease in inequality, it actually increased for those below the poverty line. Finally, this study also provides an estimation of ‘distribution corrected’ growth elasticity of poverty for Indonesia. This proves to be an important explanation for the fact that the poverty rate decreased very rapidly between 1999 and 2002: because inequality during the peak of the economic crisis in 1999 was at its lowest level in 15 years.
    Keywords: inequality, Indonesia, real consumption expenditure, disparity, poverty, economic crisis, Indonesia
    JEL: P46 E31 E21
    Date: 2005–01
  4. By: Yonghyup Oh (Korea Institute for Internation Economic Policy)
    Abstract: This paper tests the validity of gravity variables to explain the degree of international consumption risk sharing. Our data show that consumption and output cycles for selected economies in the EU, NAFTA, East Asia and English-speaking countries have synchronized during the four decades since 1950s, but the lack of consumption risk sharing is evident. For the panel of 27 countries our results first show that the gravity variables such as distance, economic size, richness, sharing the same border and sharing the same language are valid in explaining consumption correlations, but among these variables sharing the same border is not significant in explaining correlation. Only richness, sharing the same border and sharing the same language turn out to be significant in explaining consumption risk sharing. When used for each of the four economic blocks in our sample, gravity variables have even less explanatory power with one notable exception that richness matters for the English speaking countries. Richer English speaking countries seem to share consumption risk better than any other group in our sample.
    Keywords: Capital market imperfection, consumption risk sharing, gravity model, real business cycle
    JEL: E32 F36 G15
    Date: 2004–11
  5. By: Yung Chul Park (Korea University); Wonho Song (Korea Institute for Internation Economic Policy); Yunjong Wang (Korea Institute for Internation Economic Policy)
    Abstract: Despite the increasing trend toward market-based finance systems, most East Asian countries still have bank-based systems. The purpose of this paper is to examine the extent to which bank-based financial development in East Asia has contributed to economic growth. To do this, a series of empirical analyses are conducted to gauge the effects of changes in the exogenous component of financial development on economic growth by using data on East Asian and Latin American countries for the 1960-97 period. Out empirical results show that the exogenous changes to financial development in East Asia have a strong, positive impact on growth rates. However, we find that there is weak evidence of a negative relationship between finance and growth for Latin American countries, a finding consistent with that of de Gregario and Guidotti (1995).
    Keywords: Economic development, East Asia, finance, financial develoment, GMM
    JEL: G10 G20 O12 O16
    Date: 2003–10
  6. By: Sung Jin Kang, (Korea University); Hongshik Lee (Korea Institute for Internation Economic Policy)
    Abstract: By using aggregate and firm level data of Korean and Japanese forign affiliates in Chin, we investigate the recent FDI trends and the determinants of location choice. The comparison of the FDI trends of Japanese and Korean companies show that Korean companies are concentrated into China, especially in three regions of northeast of China. The conditional logit estimation results differ between Korean and Japanese companies. Even though agglomeration variable is shown to be positive and significant for two countries, regional income is shown to be positive for Japan but negative for Korea. For Korean companies, the college graduate, the railway variables and trade share are shown to be positive and significant but other variables such as the number of economic zones and the share of production are shown to be negative. In addition, the distance from Korea and the ethnicity factor might play more significant role sin FDI decisions as well. Thus, we can interpret that the main determinants such as agglomeration, vertical, horizontal FDI and infrastructure variables play significant roles in explaining recent FDI location. However, explanatory power of those variables above for location decision of Japanese companies is not significant.
    Keywords: location choice, multinationals, agglomeration, conditional logit
    JEL: F11 F12
    Date: 2004–12
  7. By: Yung Chul Park (Korea University); Wonho Song (Korea Institute for Internation Economic Policy); Yunjong Wang (Korea Institute for Internation Economic Policy)
    Abstract: This paper focuses on the following two issues. First, the paper investigates the extent to which financial development has contributed to economic growth in Korea. For this purpose, we introduce four well-know financial development indicators, and seek to find a long-ruin relationship between output growth and financial development. Second, the effects of financial repression on economic growth are examined. A financial index is constructed based on five related measures, and this index is augmented to the growth-finance equation. For the robustness of the results, the model with per capita capital stock is also estimated.
    Keywords: Economic development, finance, financial development, financial repression, Korea
    JEL: G10 G20 O12 O16
    Date: 2005–08
  8. By: Chang-Soo Lee (Korea Institute for International Economic Policy)
    Abstract: This study examines the impact of strengthening employment protection legislation, the structure of collective bargaining (centralization and coordination) and the labor market variables (national levels of unionization, strike levels and tax wedges on labor income) on a country's FDI inflows. Examining 29 OECD nations, our statistical analysis shows that strict EPL, which increases labor market rigidity, is usually associated with lower levels of FDI shares. Japanese investors are more sensitive to employment protection measures in choosing destinations for FDI than others. A 1-percentage-point increase in EPL causes a decrease of about 4.2 percent to Japan’s FDI share, compared to the decrease of 2.2 percent that results in the worldwide share. Finally, we discuss the implications of the recent employment protection policies in Korea that focus only on the interests of inside labor, reducing FDI inflows as well as neglecting the interests of outside labor (unemployed and future labor). Thus, policies for spending on outside labor and promoting entrepreneurship are necessary for national welfare to increase.
    Keywords: Labor Market , FDI Inflows, entrepreneurship
    JEL: E24 J23 J31 J51
    Date: 2003–10
  9. By: Hadi Soesastro (Centre for Strategic and International Studies)
    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: E61 F33 F41
    Date: 2005–03
  10. By: Hongshik Lee (Korea Institute for International Economic Research)
    Abstract: The purpose of this paper is to study the motivations of South Korean direct investment. Using recent, detailed data on a selective sample of South Korean multinational firms, I examined the export and import behaviour of the affiliates abroad of South Korean multinational corporations. In doing so, I investigated, on the one hand, to what extent multinational activity is consistent with the factor proportions theory, i.e., to what extent multinational activity is related to cheap factor supplies. On the other hand, I study the market access motivation for multinational activity. I also provide some suggestive evidence about foreign affiliates that are export platforms. The obtained results are broadly consistent with the recent findings for US multinationals.
    Keywords: FDI, multinationals, factor proportions, market access, affiliates
    JEL: F14 F21 F23
    Date: 2004–08
  11. By: Hongshik Lee (Korea Institute of International Economic Policy)
    Abstract: Recent firm-based empirical studies find that firms that serve foreign markets either through exports or foreign direct investment (FDI) are more efficient than their domestically orientated counterparts. However, recent empirical literature attributes these differences to only exports. The purpose of this paper is to extend some recent works to study the link between firm performance of multinationals and choice to participate in the foreign investment. In so doing, this paper explicitly differentiates exports and FDI decisions.
    Keywords: Export, FDI, Self-selection, Dynamic Choice model, learning-by doing
    JEL: F14 F15 F23
    Date: 2003–12
  12. By: Soon-Chan Park (Korea Institute for International Economic Policy)
    Abstract: In this paper, we examine changes in patterns of specialization and geographical concentration in East Asia. we found that relative specialization, on average, has decreased in East Asia, implying that the economic structures of East Asian countries have been converging. Investigation in the industrial characteristics, it is shown that the differences in economies of scale between east Asian countries have been greatly reduced over time. I addition, we also identified that geographical concentration has increased. During the 1989/91-1995/96 period, 17 industries experience the increase of geographical concentration more than 10 percent, while only three industries show the decline in geographical concentration more than 10 percent. The industries with increased concentration are characterized by above the medium level of economies of scale, capital and skill intensity. In comparison with the United States and the EU, East Asian countries show a low level of specialization and concentration. Thus, if East Asia countries follow the development patterns of the more integrated regions, a regional trading agreement in this region may lead to further specialization and concentration.
    Keywords: Economic geography, specilization, industrial concentration
    JEL: C21 F14 F15
    Date: 2003–12
  13. By: Soon-Chan Park, (Korea Institute of International Economic Policy); Hongshik Lee, (Korea Institute of International Economic Policy); Mikyung Yun (Korea Institute of International Economic Policy)
    Abstract: In this paper we assess the geographic concentration of 26 manufacturing industries over the 1986-1997 period, based on annual employment data for 8 East Asian countries. The average level of geographic concentration, in the relative term, has decreased continuously during the period in this regio. We show that intra-industry linkage and inter-industry linkage have a positive and significant influence on relative concentration. Furthermore, the industries with large demand bias, high scale intensity and low capital intensity are geographically concentrated. Finally, we find the evidence that regional integration in East Asia will lead to agglomeration of industries.
    Keywords: economic integration, location of industries, economic geography, industry characteristics
    JEL: F12 F13
    Date: 2004–12
  14. By: Shin-ichi Fukuda (Faculty of Economics, University of Tokyo); Satoshi Koibuchi (University of Tokyo)
    Abstract: A bank failure can have various adverse consequences for the clients. The adverse impacts might, however, differ depending on who takes over the operation of the failed banks. In this paper, we show that how to manage the new banks is important in mitigating the short-run and long-run consequences of bank failures. In the analysis, we focus on clients of three large failed Japanese banks - Hokkaido Takushoku Bank, the Long-term Credit Bank of Japan (LTCB), and the Nippon Credit Bank. We examine when the number of bankruptcies increased and how the market valuation changed for the client firms after the banks' operations were taken over by new banks. As for the clients of LTCB, there were dramatic increases of bankruptcies in the short-run but the surviving clients showed significant recovery of their stock prices. In contrast, as for the clients of the other two banks, there was neither dramatic increase of bankruptcies nor significant recovery of their stock prices. The result implies that "shock therapy" or "soft budget constraints" had dramatically different consequences in solving bad loan problems in Japan.
    Date: 2005–07
  15. By: Naoto Kunitomo (Faculty of Economics, University of Tokyo); Makoto Takaoka (Research Center for Advanced Science and Technology, University of Tokyo)
    Abstract: In the recent X-12-ARIMA program developed by the United States Census Bureau for seasonal adjustments, the RegARIMA modeling has been extensively utilized. We shall discuss some problems in the RegARIMA modeling when the time series are realizations of non-stationary integrated stochastic processes with fixed regressors. We propose to use the seasonal switching autoregressive moving average (SSARMA) model and the regression SSARMA (RegSSARMA) model to cope with seasonality commonly observed in many economic time series. We investigate the basic properties of the SSAR (seasonal switching autoregressive) models. We argue that the phenomenon called "spurious seasonal unit roots" could be an explanation for a good fit of the seasonal ARIMA models to actual data. Some results of economic data analyses are reported.
    Date: 2005–07
  16. By: Judith A. Clarke (Department of Economics, University of Victoria); Mukesh Ralhan (Department of Economics, University of Victoria)
    Abstract: The extensive body of research that examines for (Granger, 1969) causality from exports to output for developing countries, including Bangladesh and Sri Lanka, using vector autoregressions and/or vector error correction models, is limited in only examining for one-period ahead or direct causality; the exception is in bivariate systems. This (usually unrecognized) focus on one-period causality in multivariate systems has often led to conclusions that exports do not Granger-cause economic output. We show that moving to Granger-causality at longer horizons, in a commonly used multivariate system, leads to bidirectional causality between exports and output, even when there is not one-period causality; the longer horizon causality arises indirectly through one or more of the auxiliary variables.
    Keywords: Economic growth, Granger causality, export-led growth, vector autoregressions
    JEL: C32 O4
    Date: 2005–07–15
  17. By: Jens Andersson (Swedish Minsitry of Foreign Affairs); Federico Bonaglia (OECD Development Centre); Kiichiro Fukasaku (OECD Development Centre); Caroline Lesser (OECD Development Co-operation Directorate)
    Abstract: The experience of the five examined industries (agro-food in Chile, cut flowers in Kenya,garment in Lesotho and in Mauritius and seafood in Thailand) demonstrates that non-traditional industries can emerge and achieved strong growth rates in very diverse settings in terms of geography and initial economic and social conditions. In most of these cases, the government adopted a relatively export-oriented, business- friendly attitude and adapted its policies as the industries developed. Hence, a key factor for successful structural adjustment has been the pro-active role of government in establishing an enabling economic and policy environment that allows local firms to operate on a level-playing field and strengthen their competitive edge in international markets. This highlights the importance of implementing trade policies in the framework of comprehensive development strategies and establishing a consultative national policy-making process for ensuring a coherent approach to trade and structural adjustment. The case studies also underscore that countries (government and industry) are compelled to constantly adapt in light of new sources of competition, growing wage levels, environmental constraints, technological advances and demanding product and process standards. Policy-makers in most countries under review are aware of this challenge. As a consequence, some of them have taken the initiative to set up specific mechanisms or programmes for further enhancing the competitiveness of existing export sectors and/or promoting emerging non-traditional export industries.
    Keywords: Trade and structural adjustment, export diversification, trade capacity building
    JEL: O P
    Date: 2005–07–11
  18. By: Yuanzhu Lu (National University of Singapore)
    Abstract: Endogenous order of moves is analyzed in a mixed triopoly with one public firm, one domestic private firm and one foreign private firm. The public firm produces most inefficiently, the foreign private firm produces most efficiently, and the efficiency of the domestic private firm is in between. We consider the observable delay game of Hamilton and Slutsky (1990) in the context of a quantity setting mixed triopoly where firms first choose the timing of choosing their quantities before quantity choice and find subgame perfect Nash equilibria (SPNE). The main result is that the public firm chooses to produce in the last period while the domestic private firm chooses to produce in any period except the last one in such a mixed triopoly, provided that efficiency differential between domestic and foreign private firm is not big.
    Keywords: Mixed Oligopoly; Endogenous Timing; Foreign Competitor; Simultaneous; Sequential; Efficiency Differential
    JEL: C72 D43 H42 L13
    Date: 2005–07–12

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