nep-sea New Economics Papers
on South East Asia
Issue of 2005‒12‒09
nineteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Wake Up and Smell the Ginseng: The Rise of Incremental Innovation in Low-Wage Countries By Puga, Diego; Trefler, Daniel
  2. Real-Time Model Uncertainty in the United States: the Fed from 1996-2003 By Ironside, Brian; Tetlow, Robert J.
  3. Do Regional Integration Agreements Increase Business-Cycle Convergence? Evidence from Apec and Nafta By Viviana Fernández; Ali M. Kutan
  4. The International CAPM and a wavelet-based decomposition of Value at Risk By Viviana Fernández
  5. Banking Crises, Deposit Insurance, and Market Discipline: Lessons from the Asian Crises By Kaoru Hosono; Hiroko Iwaki; Kotaro Tsuru
  6. Italy’s Privatization Process and Its Implications for China By Bernardo Bortolotti
  7. Firm’s Intangible Assets and Multinational Activity: Joint-Venture Versus FDI By Valeria Gattai
  8. Poverty and Fertility in Less Developed Countries: A Comparative Analysis By Arnstein Aassve; Henriette Engelhardt; Francesca Francavilla; Abbi Kedir; Jungho Kim; Fabrizia Mealli; Letizia Mencarini; Stephen Pudney; Alexia Prskawetz
  9. Trade Interests of the Tsunami Affected Countries By Hyung-Jong Lee; Karinne Logez
  10. Do the technical indicators reward chartists? A study on the stock markets of China, Hong Kong and Taiwan By Wing-Keung Wong; Jun Du; Terence Tai-Leung Chong
  11. Central Bank Credibility and Monetary Policy: Evidence from Small Scale Macroeconomic Model of Indonesia By Enrico Tanuwidjaja; Choy Keen Meng
  12. Determinants of Job Turnover Intentions: Evidence from Singapore By Xiaolin Xing; Zhenlin Yang
  13. Migration, Household Composition and Child Welfare in Rural Northeast Thailand By Michael Cameron; Steven Lim
  14. Inequality-Driven Growth: Unveiling Aggregation Effects in Growth Equations By Pedro H. Albuquerque
  15. Options Pricing with Arithmetic Brownian Motion and its Implication for Risk-Neutral Valuation By Qiang Liu
  16. NAMA Negotiations in the WTO and Preference Erosion: Concerns of Bangladesh and Other Regional LDCs By Mustafizur Rahman; Wasel Bin Shadat
  17. On The Tyranny of Numbers: East Asian Miracles in World Perspective By Pedro Cavalcanti Ferreira; Samuel de Abreu Pessôa; Fernando A. Veloso
  18. All types of inequality are not created equal: divergent impacts of inequality on economic growth By Stephanie Seguino
  19. The Impact of the Increasing International Division of Labour on Europe’s Foreign Trade By Stephan Betschart; Rita Kobel Rohr; Christoph Mosimann; Christoph Siepmann

  1. By: Puga, Diego; Trefler, Daniel
    Abstract: Increasingly, a small number of low-wage countries such as China and India are involved in innovation - not the `big ideas', but the constant incremental innovations needed to stay ahead in business. We provide some evidence of this and develop a model in which there is a transition from old-style product-cycle trade to trade involving incremental innovation in low-wage countries. We explain why levels of involvement in innovation vary across low-wage countries and even across firms in each low-wage country. We then draw out the implications of this for the location of production, trade, capital flows, earnings and living standards.
    Keywords: international trade; low-wage country innovation
    JEL: F1
    Date: 2005–10
  2. By: Ironside, Brian; Tetlow, Robert J.
    Abstract: We study 30 vintages of FRB/US, the principal macro model used by the Federal Reserve Board staff for forecasting and policy analysis. To do this, we exploit archives of the model code, coefficients, baseline databases and stochastic shock sets stored after each FOMC meeting from the model’s inception in July 1996 until November 2003. The period of study was one of important changes in the US economy with a productivity boom, a stock market boom and bust, a recession, the Asia crisis, the Russian debt default, and an abrupt change in fiscal policy. We document the surprisingly large and consequential changes in model properties that occurred during this period and compute optimal Taylor-type rules for each vintage. We compare these optimal rules against plausible alternatives. Model uncertainty is shown to be a substantial problem; the efficacy of purportedly optimal policy rules should not be taken on faith. We also find that previous findings that simple rules are robust to model uncertainty may be an overly sanguine conclusion.
    Keywords: monetary policy; real-time analysis; uncertainty
    JEL: C5 C6 E37 E5
    Date: 2005–10
  3. By: Viviana Fernández; Ali M. Kutan
    Abstract: Using monthly industrial sector data from January 1971 to March 2004, we test for business cycles convergence among the major APEC members: Japan, South Korea, Malaysia, Mexico, USA, and Canada. In addition, we examine the synchronization of business cycles among Australia, Japan, and South Korea, based on the quarterly data for the 1957-2003 period, as well as among the different economic sectors of the NAFTA countries from January 1970 through March 2004. We apply different techniques to identify business cycles. In particular, we propose a new trend-cycle decomposition method based on wavelet analysis. The results show that convergence of business cycles of Asia-Pacific countries is far from complete, but joining the APEC has increased the mean correlation of industrial production cycles of the member economies. On the other hand, although some economic sectors of the NAFTA countries already exhibited some degree of business cycle co-movement even during pre-NAFTA period, the volatility of pair-wise correlation of business cycles declined during NAFTA. In addition, we conclude that, in general, the transmission of business cycles is relatively slow, and, consequently, business cycles appear to be asynchronous.
    Date: 2005
  4. By: Viviana Fernández
    Abstract: In this article, we formulate a time-scale decomposition of an international version of the CAPM that accounts for both market and exchange-rate risk. In addition, we derive an analytical formula for time-scale value at risk and marginal value at risk (VaR) of a portfolio. We apply our methodology to stock indices of seven emerging economies belonging to Latin America and Asia, the sample period 1990-2004. Our main conclusions are the following. First, the estimation results hinge upon the choice of the world market portfolio. In particular, the stock markets of the sampled countries appear to be more integrated with other emerging countries than with developed ones. Second, value at risk depends on the investor’s time horizon. In the short run, potential losses are greater than in the long run. Third, additional exposure to some specific stock indices will increase value at risk to a greater extent, depending on the investment horizon. Our results go in line with recent research in asset pricing that stresses the importance of heterogeneous investors.
    Date: 2005
  5. By: Kaoru Hosono; Hiroko Iwaki; Kotaro Tsuru
    Abstract: We investigate the effectiveness of market discipline by depositors during the period of 1992-2002 in the four crisis-hit Asian countries: Indonesia, Korea, Malaysia and Thailand. In Indonesia, the crises first weakened and then strengthened market, which is consistent with the wake-up-call effect found for the Latin American crisis-hit countries (Martinez Peria and Schmukler, 2001). Unlike Indonesia, we could not find an increase in depositors' responsiveness to bank risk after the crisis in the other three countries. In Korea and Thailand, depositors' risk sensitivity rather decreased after the crisis. In these countries, market discipline was at play before the crisis and the deposit protection schemes were constructed to ensure its credibility under stable political conditions.
    Date: 2005–12
  6. By: Bernardo Bortolotti (University of Turin and Fondazione Eni Enrico Mattei)
    Abstract: This report provides an overview of the causes and consequences of the Italian State-owned Enterprises (SOE) reform process. Particularly, it analyzes the symbiotic link between share issue privatization (SIP), i.e. privatization in public equity markets, and financial market development, and shows how the sustained policy of sales has jumpstarted the Italian domestic stock market. Based on the Italian and international experience, the report provides some possible guidelines and policy recommendations in order to achieve the same goal in the People’s Republic of China (PRC).
    Keywords: State-owned enterprises, Share issue privatization, Financial development, Italy, China
    JEL: L33 L30 O16 G14
    Date: 2005–09
  7. By: Valeria Gattai (Bocconi University and ISESAO)
    Abstract: This paper provides a theoretical formalisation of the joint-venture contract, as an alternative to Foreign Direct Investment (FDI), within a Dissipation of Intangible Assets framework. In a two-period, two-country equilibrium model, we discuss how the threat of knowledge spillover shapes the boundaries of a Multinational Enterprise. Similarly to the theoretical findings on the FDI-licensing trade off, we show that Foreign Direct Investment is more likely to emerge when know-how easily spills over – i.e. when firms are endowed with more intangible assets or they belong to high tech industries. Probit estimates, from an entirely new firm-level dataset, constructed by the author, show that the experience of Italian multinationals in Asia is in line with our theoretical predictions.
    Keywords: Intangible assets, Internalisation, FDI, Joint-venture, Asia
    JEL: F23 C25 O5
    Date: 2005–10
  8. By: Arnstein Aassve; Henriette Engelhardt; Francesca Francavilla; Abbi Kedir; Jungho Kim; Fabrizia Mealli; Letizia Mencarini; Stephen Pudney; Alexia Prskawetz
    Abstract: Poverty and fertility are two important and closely related aspects of welfare. In this paper we use unique longitudinal data sources to study the relationship between poverty and fertility at household level in Albania, Ethiopia, Indonesia and Vietnam. These countries differ greatly in their history, average income, social structure, economic institutions and demographic features. We find that there is a substantial difference in the relative importance of the determinants of poverty dynamics and fertility; the persistence of high levels of fertility and poverty in Ethiopia is driven by lack of economic growth and poor access to family planning; education and health provision are crucial elements in reducing poverty and fertility, as is clear from Vietnam, Indonesia and Albania.
    Date: 2005–11
  9. By: Hyung-Jong Lee; Karinne Logez
    Abstract: Since a catastrophic Tsunami hit coastal areas around the Indian Ocean on 26 December 2004, many have suggested that trade could be a more useful instrument to assist the recovery of affected countries than aid transfers alone. To probe this argument, this paper examines the economies of the affected countries and identifies their overall trade interests and market access concerns. In addition, it summarizes EU and US trade measures which aim to help the recovery. It is argued in the paper that, despite even when trade measures benefit the tsunami-affected countries overall, they may have limitations in delivering benefits directly to the affected people and region.
    Date: 2005–10–14
  10. By: Wing-Keung Wong (Department of Economics, National University of Singapore); Jun Du (Department of Economics, National University of Singapore); Terence Tai-Leung Chong (Department of Economics, The Chinese University of Hong Kong, Hong Kong)
    Abstract: This paper studies the profitability of applying technical analysis that signals the entry and exit from the stock market in three Chinese stock markets - the Shanghai, Hong Kong and Taiwan Stock Exchanges. The Simple Moving Average (MA) and its extensions, Exponential MA, Dual MA, Triple MA, MACD and TRIX for both long and short strategies are examined. Applying the trading signals generated by the MA family to the Greater China markets, significantly positive returns are generated, which outperform the buy-and-hold strategy. The cumulative wealth obtained also surpasses that of the buy-and-hold strategy regardless of transaction costs. In addition, we study the performance of the MA family before and after the 1997 Asian Financial Crisis and find that the MA family works well in both sub-periods and in different market conditions of bull runs, bear markets and mixed markets. That technical analysis can forecast the directions of these markets implies that the three China stock markets are not efficient.
    Keywords: Technical analysis, Moving Average, buy-and-hold strategy
    JEL: G1 C0
  11. By: Enrico Tanuwidjaja (Singapore Centre for Applied and Policy Economics, Department of Economics, National University of Singapore); Choy Keen Meng (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore)
    Abstract: In this paper, we develop a forward-looking small scale macroeconomic model (SSMM) of the Indonesian economy which is potentially useful for carrying out monetary policy analysis. The Batini-Haldane (1999) model is used as the theoretical underpinning for the development of the model along with the well -known Taylor policy rule (1993). The tracking performance of the model is found to be satisfactory. We conduct deterministic and stochastic simulations to examine the role of the central bank’s credibility in achieving the inflation target and to suggest appropriate monetary policy responses. Policy simulations indicate that it is crucial for the Indonesian authority to address its credibility for Indonesia to achieve a lower inflation rate. Simulations to trace out the inflation-output tradeoff frontier also show that a monetary policy rule that targeted both the inflation and output gap will result in less macroeconomic volatility. We also found that the inclusion of the exchange rate into the monetary policy rule as an additional feedback variable warrants serious consideration in the future course of monetary policy management.
    Keywords: Small Scale Macroeconomic Model, Monetary Policy, Central Bank Credibility, Policy Frontier, Indonesia
    JEL: C15 C51 E17 E52 O53
  12. By: Xiaolin Xing (Department of Economics, National University of Singapore); Zhenlin Yang (School of Economics and Social Sciences, Singapore Management University)
    Abstract: This paper explores both observable and unobservable variables that would affect employed workers’ decisions on job change. We find that age, job satisfaction, satisfaction with working environment or job security, and firm size are among the major factors determining workers’ intentions of job-to-job mobility. Younger workers and workers in smaller firms are more likely to look for other jobs. We also find that men are more likely to consider a change in job than women, but when “actually looking for another job” is concerned, men and women do not differ. Furthermore, monthly income and working sector contribute significantly to looking for other jobs.
    Keywords: Voluntary job-to-job mobility; Job satisfaction; Logistic regression model
    JEL: J60 J63 C25
  13. By: Michael Cameron (University of Waikato); Steven Lim
    Abstract: In many developing countries, the composition of rural households is influenced by the migration of adult household members to urban locations in search of employment. Children may be left in the care of their mother alone, or in the care of grandparents when both parents have migrated. Using representative data from a household survey conducted in rural Northeast Thailand in 2003, this paper investigates whether household composition has any effect on the welfare of children, as measured by anthropometric measurements including height-for-age, weight-for-age, and weight-for-height. Our findings suggest that household types other than nuclear families result in some significantly worse child nutritional outcomes. The implication is that governments should protect the welfare of the children of migrants, either through targeted programs or through increased opportunities for employment in rural areas.
    Keywords: migration; household composition; children; Thailand
    JEL: I12 O15 O18
    Date: 2005–12–01
  14. By: Pedro H. Albuquerque (Texas A&M International University)
    Abstract: It is well known from nonlinear aggregation theory that distributions play a central role in the determination of aggregate relations. This paper establishes a bridge between the aggregation and the inequality and growth literature by applying a log-linear aggregation method to a simple heterogeneous AK growth model. The aggregation effect is explicitly captured in the growth equation by the changes of the mean logarithmic deviation (MLD or Theil’s second measure) of the income, implying that increases in income inequality may be unambiguously associated with temporary increases in a country’s growth rate, in agreement with the empirical findings of Forbes (AER, 2000). Consequently, empirical studies of the long-run effects of income inequality may suffer from aggregation bias if the temporary effects of the MLD changes are not considered. The accelerated growth episodes observed in Brazil and China demonstrate that the increase in income inequality may have resulted in substantial temporary increases in the aggregate growth rates experienced by those countries.
    Keywords: Inequality, Growth, Income Distribution, Aggregation, Heterogeneity, AK Model, Brazil, China
    JEL: O15 O41 O50
    Date: 2005–11–26
  15. By: Qiang Liu (School of Management, University of Electronic Science & Technology of China)
    Abstract: Risk-neutral valuation is used widely in derivatives pricing. It is shown in this paper, however, that the naïve approach of simply setting the growth rate of the underlying security to risk-free interest rate, which happens to work for a geometric Brownian motion (GBM) process, fails to work when the underlying price follows the arithmetic Brownian motion (ABM). Therefore, the formal approach using a martingale measure should be used instead when the underlying process is not a GBM.
    Keywords: risk-neutral valuation, arithmetic Brownian motion, options price formula
    JEL: G
    Date: 2005–12–01
  16. By: Mustafizur Rahman; Wasel Bin Shadat
    Abstract: The ongoing negotiations on non-agricultural market access (NAMA) in the WTO are expected to lead to substantive reductions in the tariff rates on industrial goods in both the developed and the developing countries. Although an agreement on the formula and coefficient(s) is yet to be reached, it is becoming increasingly clear that countries are moving towards a differentiated swiss-type formula with deeper cuts for higher tariffs. The July (2004) Framework Agreement stipulated that LDCs will not be required to undertake any tariff reduction commitments under the NAMA. However, LDCs are likely to suffer substantive tariff preference erosion as a consequence of NAMA negotiations since any tariff reduction by the developed countries will result in a fall in the preferential margins currently enjoyed by the LDCs under the various GSP schemes operated by the developed countries. Consequently, the competitive edge currently enjoyed by the LDCs by taking advantage of the preferential treatment under the various GSP schemes is set to suffer erosion. This is a major concern for Bangladesh and other LDCs in the Asia-Pacific region. This paper attempts to make an estimate about the range of preferential erosion for Bangladesh given her current trade pattern and preferential treatment enjoyed by her exports. The paper finds that for Bangladesh, the preferential erosion could be substantial (e.g. $42.1 million worth of net preference erosion in the EU alone for RMG products under one of the possible scenarios). Reduced preference margin will also undermine future competitiveness in the developed country markets. It is also to be noted that tariff reductions under NAMA will have positive implications for Bangladesh in the US market where most of Bangladesh’s industrial goods do not enjoy GSP treatment. Thus, tariff reduction under NAMA is expected to have diverse implications for Bangladesh’s export of industrial goods. NAMA, thus, may increase Bangladesh’s competitive edge vis-à-vis Caribbean and Sub-Sahara African countries which are currently enjoying zero-tariff access for apparels under the AGOA and the CBI. The paper reviews some of the proposals that are being discussed to address the possible negative consequences of preference erosion for the LDCs
    Keywords: WTO-General Council, NAMA, Bangladesh
    JEL: F10 F13
    Date: 2005–09
  17. By: Pedro Cavalcanti Ferreira (EPGE/FGV); Samuel de Abreu Pessôa (EPGE/FGV); Fernando A. Veloso (IBMEC Business School - Rio de Janeiro)
    Abstract: In a widely cited paper, Young (1995) showed that the East Asian miracles (Hong Kong, Korea, Singapore and Taiwan) grew mostly through input accumulation during the period 1966-1990. Using data for 83 countries taken from the Penn World Table, version 6.1, and Barro and Lee (2000), we use a common methodology in order to compare the growth performance of the East Asian miracles with the rest of the world. We find that, even though the TFP growth rates of the four East Asian miracles were not remarkable in absolute values, they were very high in relative terms. We argue that, since Young (1995) focused only on the four East Asian miracles, he did not notice that 1966-1990 was a period of particularly low TFP growth and particularly high factor accumulation in the world. Despite the fact that they had high rates of physical capital accumulation, the distinguishing feature of these miracles was their relative productivity growth performance.
    Keywords: East Asian miracles, TFP Growth, Growth Decomposition
    JEL: O11 O47 O41
    Date: 2005–11–30
  18. By: Stephanie Seguino (Department of Economics, University of Vermont)
    Abstract: Evidence of an increase in inequality since the 1970s has motivated research on its relationship to growth and development. The findings of that research are contradictory and inconclusive. One source of these divergent results is that researchers rely on different group measures of inequality. Inequality by gender, household, class, and ethnicity may produce divergent effects on growth since they operate on macroeconomic outcomes via alternative pathways. Further, even within groups, the effect of inequality on growth depends on the measure used. For example, inequalities in capabilities (such as education and health status) may operate differently on growth than inequality in wages and income. This paper explores the different conceptual approaches to measuring between-group and within-group inequality and delineates the sometimes-contradictory pathways by which these measures affect economic growth and development. The typology is applied to the case of East Asia and Latin America.
    Keywords: Gender, ethnicity, inequality, economic growth
    JEL: O4 E12 F16 J15 J16
    Date: 2005–07
  19. By: Stephan Betschart (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH)); Rita Kobel Rohr (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH)); Christoph Mosimann (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH)); Christoph Siepmann (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: What are the consequences of European economies’ goods structure for their exports as they face Asian competition? Over the last 30 years, the share of East Asian nations in international merchandise trade has been growing noticeably. This rise is often explained by the notion that Asian countries developed a network in which the production of mainly machinery goods has been split up along the production chain over different (Asian) countries and firms. Even though European imports from and exports to Asian countries currently account for only a relatively small fraction of Europe’s total trade, this share is increasing. Thus, the question regarding export perspectives of the European industry facing Asian competition arises. Based on the goods structure of eleven European and five Asian economies as well as the USA using the Standard International Trade Classification at the 1- and 2-digit level, similarities, differences and trends over time are analysed. The additional distinction of the export structure by stage of production (on the basis of the Broad Economic Categories of the United Nations) provides some information with respect to whether an economy is more assembly-based and less research-based or not. Moreover, special attention is given to the share in high-tech goods of the selected countries. Exports of hightech products expand more strongly with spill-over effects on other sectors of an economy. A look at the development of trade balances completes the picture, which of the European economies considered have more favourable export perspectives in the medium term and which ones less so.
    Date: 2005–06

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