nep-sea New Economics Papers
on South East Asia
Issue of 2006‒01‒01
nine papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Is China a Leviathan? By Zhu, Z.; Krug, B.
  2. Psychiatric Disorders and Labor Market Outcomes: Evidence from the National Latino and Asian American Study By Pinka Chatterji; Margarita Alegria; Mingshun Lu; David Takeuchi
  3. The Role of Foreign Currency Debt in Financial Crises: 1880-1913 vs. 1972-1997 By Michael D. Bordo; Christopher M. Meissner
  4. Health systems in East Asia : what can developing countries learn from Japan and the Asian tigers ? By Wagstaff, Adam
  5. Measuring the impact of the investment climate on total factor productivity : the cases of China and Brazil By Lee, Kihoon; Anderson, William P.; Subramanian, Uma
  6. Neither a borrower nor a lender : does China ' s zero net foreign asset position make economic sense? By Kraay, Aart; Dollar, David
  8. South Korea's Experience with International Capital Flows By Marcus Noland
  9. The East Asian Industrial Policy Experience: Implications for the Middle East By Marcus Noland; Howard Pack

  1. By: Zhu, Z.; Krug, B. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: (Last revised version December 2005) To address the problem why China, as a communist country, moves in the opposite direction when the public sector has undergoing a continuous growth in most Western economies since the World War II, we offer a new approach that the de facto fiscal decentralization curtails government size in transition China in addition to conventional explanations. Meanwhile, by analyzing panel data and various variables used by previous empirical studies, this paper tests the Leviathan hypothesis for vertical decentralization, horizontal fragmentation and intergovernmental collusion at central-provincial and provincial-local level. Our empirical results not only explain Chinese shrinking government size, but also lend support to Leviathan hypothesis, especially, under the condition of the absence of traditional democratic electoral constraint.
    Keywords: Leviathan;Fiscal Decentralization;China;Transition Economy;
    Date: 2005–12–19
  2. By: Pinka Chatterji; Margarita Alegria; Mingshun Lu; David Takeuchi
    Abstract: This paper investigates to what extent psychiatric disorders and mental distress affect labor market outcomes among ethnic minorities of Latino and Asian descent, most of whom are immigrants. Using data from the National Latino and Asian American Study, we examine the labor market effects of meeting diagnostic criteria for any psychiatric disorder in the past 12 months as well as the effects of psychiatric distress in the past year. Among Latinos, psychiatric disorders and mental distress are associated with detrimental effects on employment and absenteeism, similar to effects found in previous analyses of mostly white, American born populations. Among Asians, we find mixed evidence that psychiatric disorders and mental distress detract from labor market outcomes.
    JEL: I1
    Date: 2005–12
  3. By: Michael D. Bordo; Christopher M. Meissner
    Abstract: What is the role of foreign currency debt in precipitating financial crises? In this paper we compare the 1880 to 1913 period to recent experience. We examine debt crises, currency crises, banking crises and the interrelation between these varieties of crises. We pay special attention to the role of hard currency debt, currency mismatches and debt intolerance. We find fairly robust evidence that high exposure to foreign currency debt does not necessarily lead to a high chance of having a debt crisis, currency crisis, or a banking crisis. A key finding is some countries do not suffer from great financial fragility despite high exposure to original sin. In the nineteenth century, the British offshoots and Scandinavia generally avoided severe financial meltdowns while today many advanced countries have high original sin but have had few financial crises. The common denominator in both periods is that currency mismatches matter. A strong reserve position or high exports relative to hard currency liabilities helps decrease the likelihood of a debt crisis, currency crisis or a banking crisis. This strengthens the evidence for the hypothesis that foreign currency debt is dangerous when mis-managed. We discuss the robustness of these results and make some general comparisons based on this evidence from over 60 years of intense international capital market integration.
    JEL: N1 N2 E5 F3
    Date: 2005–12
  4. By: Wagstaff, Adam
    Abstract: The health systems of Japan and the Asian Tigers--Hong Kong (China), the Republic of Korea, Singapore, and Taiwan (China)--and the recent reforms to them provide many potentially valuable lessons to East Asia ' s developing countries. All five systems have managed to keep a check on health spending despite their different approaches to financing and delivery. These differences are reflected in the progressivity of health finance, but the precise degree of progressivity of individual sources and the extent to which households are vulnerable to catastrophic health payments depend too on the design features of the system-the height of any ceilings on social insurance contributions, the fraction of health spending covered by the benefit package, the extent to which the poor face reduced copayments, whether there are caps on copayments, and so on. On the delivery side, too, Japan and the Tigers offer some interesting lessons. Singapore ' s experience with corporatizing public hospitals- rapid cost and price inflation, a race for the best technology, and so on-shows the difficulties of corporatization. Korea ' s experience with a narrow benefit package shows the danger of providers shifting demand from insured services with regulated prices to uninsured services with unregulated prices. Japan, in its approach to rate-setting for insured services, has managed to combine careful cost control with fine-tuning of profit margins on different types of care. Experiences with diagnosis-related groups in Korea and Taiwan (China) point to cost-savings but also to possible knock-on effects on service volume and total health spending. Korea and Taiwan (China) both offer important lessons for the separation of prescribing and dispensing, including the risks of compensation costs outweighing the cost savings caused by more " rational " prescribing, and cost-savings never being realized because of other concessions to providers, such as allowing them to have onsite pharmacists.
    Keywords: Health Monitoring & Evaluation,Health Economics & Finance,Health Systems Development & Reform,Health Law,Technology Industry
    Date: 2005–12–01
  5. By: Lee, Kihoon; Anderson, William P.; Subramanian, Uma
    Abstract: This study measures the impact of investment climate factors on total factor productivity (TFP) of firms in Brazil and China. The analysis is conducted in two steps: first an econometric production function is estimated to produce a measure of TFP at the firm level. In the second step, variation in TFP across firms is statistically related to a indicators of the investment climate as well as firm characteristics. The results yield a number of insights about the factors underlying productivity. In both countries, and in a variety of industry groups, indicators of poor investment climate, especially delays in customs clearance and interruptions in utility services, have significant negative effects on TFP. Reducing customs clearance time by one day in China could increase TFP by 2-6 percent. Indicators such as email usage have positive effects on TFP. In the case of China, state-owned firms and firms located in t he interior are shown to be much less productive than privately owned firms and firms located in the east. In Brazil, the results present an interesting contrast between the apparel industry and the electronics industry. In the apparel industry, older firms in competitive markets are more productive, while in the case of electronics, newer firms with higher market shares are more productive.
    Keywords: Economic Theory & Research,Technology Industry,Water and Industry,ICT Policy and Strategies,Economic Growth
    Date: 2005–12–01
  6. By: Kraay, Aart; Dollar, David
    Abstract: China in the past few years has emerged as a net foreign creditor on the international scene with net foreign assets slightly greater than zero percent of wealth. This is surprising given that China is a relatively poor country with a capital-labor ratio about one-fifth the world average and one-tenth the U.S. level. The main questions that the authors address are whether it makes economic sense for China to be a net creditor and how they see China ' s net foreign asset position evolving over the next 20 years. They calibrate a theoretical model of international capital flows featuring diminishing returns, production risk, and sovereign risk. The calibrations for China yield a predicted net foreign asset position of -17 percent of China ' s wealth. The authors also estimate nonstructural cross-country regressions of determinants of net foreign assets in which China is always a significant outlier with 5 to 7 percentage points more of net foreign assets relative to wealth than is predicted by its characteristics. China ' s extensive capital controls can explain why its current net foreign asset position is far away from what is predicted by open-economy models and cross-country empirics. It seems reasonable to assume that China ' s international financial integration will increase over time. The authors calibrate and predict different scenarios out to 2025. These scenarios are necessarily speculative, but it is interesting that they typically imply negative net foreign asset positions between 3 and 9 percent of wealth. What may be counter-intuitive for many policymakers is that successful institutional ref orm and productivity growth are likely to lead to more negative net foreign asset positions than occurs with stagnation. Starting from China ' s zero net foreign assets position, it would take current account deficits in the range of 2-5 percent of GDP to reach any of these net foreign assets positions. These are not unreasonable deficits, but they require a large adjustment from the present 6 percent of GDP current account surplus.
    Keywords: Economic Theory & Research,Investment and Investment Climate,Capital Flows,Economic Growth,Banking Law
    Date: 2005–12–01
  7. By: Sarmistha Pal (Brunel University)
    Abstract: One of the central explanations of the recent Asian Crisis has been the problem of moral hazard as the source of over-investment and excessive external borrowing. There is however rather limited firm-level empirical evidence to characterise inefficient use of internal and external finances. Using a large firm-level panel data-set from four badly affected Asian countries, this paper compares the rates of return to various internal and external funds among firms with low and high debt financing (relative to equity) among financially constrained and other firms. Selectivity corrected estimates obtained from random effects panel data model do suggest evidence of significantly lower rates of return to long-term debt, even among firms relying more on debt relative to equity in our sample. There is also evidence that average effective interest rates often significantly exceeded the average returns to long- term debt in the sample countries in the pre-crisis period.
    Keywords: Asian Crisis, Efficiency of internal and external funds, Moral hazard of bad loans, Financial constraint, Random effects model with selection
    JEL: G32 O16
    Date: 2005–12–21
  8. By: Marcus Noland (Institute for International Economics)
    Abstract: South Korea's 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's lending culture and its authorities' 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.
    Keywords: Korea, capital controls, financial crises, financial liberalization
    JEL: F3 G15 O53
    Date: 2005–06
  9. By: Marcus Noland (Institute for International Economics); Howard Pack (Wharton School)
    Abstract: Japan, South Korea, and Taiwan are regarded as primary examples of countries that have derived great benefits from increasing integration with the international economy, without surrendering national autonomy in the economic or cultural spheres, by pursuing decidedly nonneutral policies with respect to the promotion of specific sectors and activities. This working paper addresses a series of questions in an attempt to assess the relevance of their experiences for the contemporary Middle East: Was industrial policy a major source of growth in these three economies? Can these outcomes be duplicated in the Middle East today, or do special circumstances or changes in the international policy environment prevent replication of the East Asian experience? Given the revealed costs and benefits, is replication advisable? And, if not, are there other, positive lessons that Middle Eastern countries can derive from the experiences of the East Asians?
    Keywords: industrial policy, Asia, Middle East
    JEL: L5 O38 O14
    Date: 2005–12

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