nep-sea New Economics Papers
on South East Asia
Issue of 2006‒02‒12
sixteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Real GDP in Pre-War East Asia: A 1934-36 Benchmark Purchasing Power Parity Comparison with the U.S. By Kyoji Fukao; Debin Ma; Tangjun Yuan
  2. What's So Special About China's Exports? By Rodrik, Dani
  3. Cigarette Tax Revenues and Tobacco Control in Japan By Junmin Wan
  4. AMU Deviation Indicator for Coordinated Exchange Rate Policies in East Asia and its Relation with Effective Exchange Rates By Eiji Ogawa; Junko Shimizu
  5. EU Integration and its Implications for Asian Economies – What we Know and What Not By Rolf J. Langhammer; Rainer Schweickert
  6. Umwelttechnikindustrie - Zukunftsmarkt China By Ruperta Lichtenecker
  7. Land, labour and market forces in Tokugawa Japan By Osamu Saito
  8. Are the markets for factories and offices integrated? Evidence from Hong Kong? By Charles Ka Yui Leung; Peiling Wei; Siu Kei Wong
  9. Share Issuing Privatizations in China: Determinants of Public Share Allocation and Underpricing By Qi Quan; Nancy Huyghebaert
  10. Subjective well-being and mortality in Chinese oldest old By Qiang Li
  11. Why Central Banks Should Not Burst Bubbles By Adam S. Posen
  12. Current Account Dynamics and Capital Mobility in Asian Small Economies By Selim, Sheikh Tareq
  13. Labor Contracts, Incentives, and Food Security in Rural Myanmar By Takashi Kurosaki
  14. Exchange Rate Regimes, Capital Account Opening and Real Exchange Rates: Evidence from Thailand By Juthathip Jongwanich
  15. Inter-modal Linkages in Services Trade By Rupa Chanda
  16. Composite Leading Indicators for Major OECD Non-Member Economies: Brazil, China, India, Indonesia, Russian Federation, South Africa By Olivier Brunet; Ronny Nilsson

  1. By: Kyoji Fukao; Debin Ma; Tangjun Yuan
    Abstract: This article provides estimates of purchasing power parity (PPP) converters for expenditure side GDP of Japan/China and Japan/U.S through a detailed matching of prices for more than 50 types of goods and services in private consumption and about 20 items or sectors for investment and government expenditure. Based on our finding and linking with the earlier studies on the relative price levels of Taiwan and Korea, we derive the mid-1930s benchmark PPP adjusted per capita income of Japan, China, Taiwan and Korea at 31%, 10%, 23%, and 12% of the U.S. level respectively for the mid-1930s. These estimates corrected the consistent downward bias in East Asian income levels based on market exchange rate conversions. While confirming Angus Maddisonfs estimates for China and Taiwan based on the 1990 benchmark back-projection method, they do point to a 23% and 85% overestimate in his comparable figures for Japan and Korea respectively for the mid-1930s period. This article develops a preliminary theoretical and empirical framework to demonstrate the possible source of the biases in the back-projection method. We briefly discuss the implications of our findings on the initial conditions and long-term growth dynamics in East Asia and beyond.
    Date: 2006–01
  2. By: Rodrik, Dani
    Abstract: Much more than comparative advantage and free markets have been at play in shaping China's export success. Government policies have helped nurture domestic capabilities in consumer electronics and other advanced areas that would most likely not have developed in their absence. As a result, China has ended up with an export basket that is significantly more sophisticated than what would be normally expected for a country at its income level. This has been an important determinant of China's rapid growth. What matters for China's future growth is not the volume of exports, but whether China will continue to latch on to higher-income products over time.
    Keywords: development; economic growth
    JEL: F1 O4
    Date: 2006–01
  3. By: Junmin Wan (Osaka School of International Public Policy, Osaka University)
    Abstract: The hypotheses of non-addiction, myopia and rational addiction are tested using annual, quarterly and monthly data. Changes in the prices of Japanese cigarettes can be viewed as exogenous from the point of view of consumer behavior, because the Japanese government controls cigarette prices. The empirical results of this paper support the addiction hypothesis. The short-run and long-run price elasticities range from -0.338 to -0.421, and from -0.679 to -0.686, respectively; thus, increases in tax revenues in the long-run are likely to be smaller than those in the short-run. As a result, tax increases would be an effective means of curbing smoking and reducing its social cost. Furthermore, the debt compensation programs for the Japan Railway and the National Forestry will not go according to plan, unless revenues are increased in the future.
    Keywords: smoking, rational addiction, tax revenues
    JEL: D12 E21 H29
    Date: 2004–06
  4. By: Eiji Ogawa; Junko Shimizu
    Abstract: The monetary authorities in East Asian countries have been strengthening their regional monetary cooperation since the Asian Currency Crisis in 1997. In this paper, we propose a deviation measurement for coordinated exchange rate policies in East Asia to enhance the monetary authorities' surveillance process for their regional monetary cooperation. We calculate the AMU as a weighted average of East Asian currencies following the method used to calculate the European Currency Unit (ECU) and the AMU Deviation Indicators, which how the degree of deviation from the hypothetical benchmark rate for each of the East Asian currencies in terms of the AMU. Furthermore, we investigate the relationships between the AMU and its Deviation Indicators and the effective exchange rates of each East Asian currency. As a result, we found the strong relationships between the AMU or the AMU Deviation Indicators and the effective exchange rates except for some currencies. These results indicate that the AMU Deviation Indicators have positive relationship with their effective exchange rates. Accordingly, we should monitor both the AMU and the AMU Deviation Indicator for the monetary authorities' surveillance in order to stabilize effective exchange rate in terms of trader partners'currencies.
    JEL: F31 F33
    Date: 2006–01
  5. By: Rolf J. Langhammer; Rainer Schweickert
    Abstract: In this paper, we analyse effects of EU integration on Asian countries. Since the early 1990s, it is especially the trade creation effect of monetary integration (so-called Rose effect) which is heavily debated in the literature. Recent papers seem to indicate that the Rose effect seems to be significant especially for countries like the old EU members which are already highly integrated in terms of trade and factor mobility. The potential discrimination effect against trade with third countries tends to increase with new member states entering EMU and could also affect Asian economies’ exports to Europe. At the same time, so-called overlap or similarity indices for trade patterns show an increasing similarity between EU, US, and Japanese exports to Asia on the one hand and Asian and European exports to industrialized countries on the other hand. These observations are consistent with recent policy responses, i.e., the focus of European contingent protection on Asian competitors, the desire of Asian countries to negotiate free trade agreements (FTA) with the US and Japan, and the EU’s response by probably entering into FTA negotiations with Asian countries, including ASEAN.
    Keywords: Trade, Monetary Integration, Protection, FTA, Overlap Index, Europe, Asia
    JEL: F13 F15 F31 O52 O53
    Date: 2006–01
  6. By: Ruperta Lichtenecker (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: China, das Reich der Mitte, ist mit schwerwiegenden Umweltproblemen konfrontiert die hohe Kosten verursachen. Mit der zunehmenden Anwendung der Umwelttechnik kann der Herausforderung diese Problemfelder zu beheben sinnvoll begegnet werden. Die Indikatoren Wirtschaftswachstum, notwendiger Schutz der natürlichen Ressourcen, externe Kosten, politische und institutionelle Faktoren prognostizieren einen stark wachsenden Absatzmarkt für Umwelttechnik in China. Um dieses Marktpotential tatsächlich auszuschöpfen ist es notwendig in China und in Österreich verschiedene Anforderungen zu erfüllen die in diesem Artikel erörtert werden.
    JEL: Q01 Q42 Q53 Q55 Q56 Q58
    Date: 2006–01
  7. By: Osamu Saito
    Abstract: Tokugawa Japan was a land of peasants who accounted for 80 per cent of the population. This percentage may suggest that land was hardly a commodity while the size of the workforce in industry and trade was small. Under Tokugawa rule (1603-1868) institutional frameworks for land and labour markets were never favourable for the flexible use of land and people as factors of production. However, given a recent consensus that Tokugawa Japan achieved Smithian growth, a gradual process of market-led output growth, with rural industrialisation and agricultural improvements as major engines of progress, how could such a picture of factor markets be consistent with the rural-centred growth scenario? In order to answer this question, the paper will go over land and labour markets in traditional Japan. It will be shown that the market size for both land and labour was actually small, yet that the factor markets that existed functioned well, so well that market forces must have played an indispensable part in the process of Tokugawa Japan's Smithian growth.
    Date: 2006–01
  8. By: Charles Ka Yui Leung; Peiling Wei; Siu Kei Wong
    Abstract: Due to the relocation of manufacturing facilities from Hong Kong to Mainland China, it is widely believed that some vacant private factories have been used as offices in Hong Kong. Yet there is no direct and systematic evidence to support this speculation. In fact, according to MacGregor and Schwann (2003), industrial and commercial real estate shares some common features. Our research attempts to investigate empirically the price and volume relationship between industrial and commercial real estate, using both aggregate and disaggregate data from the industrial and commercial property markets in Hong Kong. The study was built on the observation that economic restructuring and geographical distance will affect the substitutability (and thus the correlation) of different types of property, and utilizes commonly used time series techniques for analysis. Policy implications are discussed.
    Keywords: aggregation bias, geographical distance, industrial real estate, substitutability
    JEL: G12 L80 R30
    Date: 2006–02
  9. By: Qi Quan; Nancy Huyghebaert
    Abstract: Using data on 451 Chinese privatizations over the period 1994-2002, this paper empirically investigates the firm and stock market characteristics that determine the size of the portion of new shares sold to the general public and underpricing at SIP-time. We find that poor performance and financing constraints, reflected by a low profitability and high leverage, mainly drive public share allocation. Also, the government widens ownership to a larger extent in firms that receive substantial subsidies. By contrast, stock market returns pre-SIP and variables capturing the firm’s growth opportunities do not positively affect public share allocation. Yet, in firms with a low market-to-book ratio, the government is more likely to relinquish its majority stake at SIP-time. The determinants of underpricing further illustrate the uniqueness of SIPs compared to private-firm IPOs. Overall, there is little evidence that information asymmetries regarding firm value influence first-day returns whereas stock market conditions have an impact. After accounting for the endogeneity of the public share allocation decision, we find that the fraction of ownership divested is significantly positively related to underpricing.
    Keywords: privatization; motives for going public; government divestment; underpricing
    JEL: G32 G38
    Date: 2005
  10. By: Qiang Li (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: The present study investigates the relationship between subjective well-being (SWB) and mortality risk, using a large sample (N=7852) from the Chinese Longitudinal Healthy Longevity Study (age range 80-105) conducted in 2000 and 2002. Initially, we intended to contribute to the understanding of system relations between SWB, mortality risk, and unobserved heterogeneity by treating SWB as an endogenous variable, using a multi-process model. However, failure to identify unobserved heterogeneity in the mortality equation prevents us from employing this model. Given this limitation, the study examines three issues. First, we argue that the mortality model with duration dependency on the age of the study subjects is specified and that the model with duration dependency on time since the interview is misspecified. Second, we address problems associated with the identification of unobserved heterogeneity in the mortality equation. Third, we examine the association between SWB and mortality risk in the Chinese oldest old as well as the risk pattern by gender, without considering unobserved heterogeneity. We find that SWB is not a significant predictor of mortality risk when we control for socio-demographic characteristics and health status. Health plays a very important role in the relationship between SWB and mortality risk in the oldest old. Gender differences in the predictive pattern of SWB on this risk are negligible in the sample.
    Keywords: China, mortality
    JEL: J1 Z0
    Date: 2005–04
  11. By: Adam S. Posen (Institute for International Economics)
    Abstract: Central banks should not be in the business of trying to prick asset price bubbles. Bubbles generally arise out of some combination of irrational exuberance, technological jumps, and financial deregulation (with more of the second in equity price bubbles and more of the third in real estate booms). Accordingly, the connection between monetary conditions and the rise of bubbles is rather tenuous, and anything short of inducing a recession by tightening credit conditions prohibitively is unlikely to stem their rise. Even if a central bank were willing to take that one-in-three or less shot at cutting off a bubble, the cost-benefit analysis hardly justifies such preemptive action. The macroeconomic harm from a bubble bursting is generally a function of the financial system’s structure and stability—in modern economies with satisfactory bank supervision, the transmission of a negative shock from an asset price bust is relatively limited, as was seen in the United States in 2002. However, where financial fragility does exist, as in Japan in the 1990s, the costs of inducing a recession go up significantly, so the relative disadvantages of monetary preemption over letting the bubble run its course mount. In the end, there is no monetary substitute for financial stability, and no market substitute for monetary ease during severe credit crunch. These two realities imply that the central bank should not take asset prices directly into account in monetary policymaking but should be anything but laissez-faire in responding to sharp movements in inflation and output, even if asset price swings are their source.
    Keywords: bubbles, asset prices, monetary policy, central banks
    JEL: E44 G18 E52 E58
    Date: 2006–01
  12. By: Selim, Sheikh Tareq (Cardiff Business School)
    Abstract: This paper explores current account dynamics in eight small economies of Asia to examine whether or not capital flows have been excessive in these countries. Standard assumptions of perfect capital mobility and small open economy are jointly instrumental in simplifying theoretical tractability of many open economy models. In empirical estimations, however, the identification of a small open economy is often oversimplified, which makes celebrated results, such as excessive or too low capital flows in OECD economies, questionable. This paper establishes that the actual extent of capital mobility in small open economies cannot be generally too high or too low. This in turns implies that the general idea of excessive capital flows in small open economies requires revision.
    Keywords: Current account dynamics; intertemporal approach; consumption-smoothing; capital mobility
    Date: 2006–01
  13. By: Takashi Kurosaki
    Abstract: This paper develops an agency model of contract choice in the hiring of labor and then uses the model to estimate the determinants of contract choice in rural Myanmar. As a salient feature relevant for the agricultural sector in a low income country such as Myanmar, the agency model incorporates considerations of food security and incentive effects. It is shown that when, possibly due to poverty, food considerations are important for employees, employers will prefer a labor contract with wages paid in kind (food) to one with wages paid in cash. At the same time, when output is responsive to workers' effort and labor monitoring is costly, employers will prefer a contract with piecerate wages to one with hourly wages. The case of sharecropping can be understood as a combination of the two: a labor contract with piecerate wages paid in kind. The predictions of the theoretical model are tested using a crosssection dataset collected in rural Myanmar through a sample household survey which was conducted in 2001 and covers diverse agroecological environments. The estimation results are consistent with the theoretical predictions: wages are more likely to be paid in kind when the share of staple food in workers' budget is higher and the farmland on which they produce food themselves is smaller; piecerate wages are more likely to be adopted when work effort is more difficult to monitor and the farming operation requires quick completion.
    Keywords: contract, incentive, selection, food security, Myanmar
    JEL: J33 Q12 O12
    Date: 2006–01
  14. By: Juthathip Jongwanich
    Abstract: This paper examines the roles of pegged exchange rate regime and capital account opening inducing persistent RER appreciation in the lead-up to the 1997 currency crisis in Thailand. The three-sector (primary, manufacturing, and nontradable) economy-wide model is constructed and policy simulation experiments are undertaken. Key findings are imposing capital control under a pegged exchange rate regime would have averted the persistent internal RER appreciation and boom in nontradable sector. However, it would not have averted persistent external RER appreciation. Exports and output would have eventually declined because of the capital shortage. A freely floating regime only with a high developmental level of foreign exchange and financial markets would have been able to avert both persistent internal and external RERs appreciation. The export and output would have eventually increased. However, this regime would have generated fluctuations in domestic prices and output. The managed floating regime (combined with inflation targeting) would have helped reduce such adverse effects while retaining the benefit from exchange rate flexibility. In a context where the foreign exchange and financial markets are not well developed, capital control measures could be beneficial to ensure smooth functioning of a managed floating regime.
    Keywords: Exchange rate regime, Capital account, and Real exchange rate
    JEL: O11 F32 F41
    Date: 2006
  15. By: Rupa Chanda
    Abstract: According to the GATS, services can be traded through four different modes of supply, namely, cross border supply, consumption abroad, commercial presence, and movement of natural persons, termed modes 1, 2, 3, and 4, respectively. There is much evidence to indicate interdependence across these four modes in services trade. There are essentially two types of linkages, namely, positive and negative linkages, across the various modes of supply. Positive linkages take the form of (i) complementarities across modes, where one or more mode is simultaneously used for providing the service across borders; and (ii) facilitation across modes, where trade through one mode creates conditions that are conducive for trading through other modes. Negative linkages take the form of (i) substitution across modes, where trade through one mode is substituted by another; (ii) restrictions on one mode which affect trade through other modes of supply and distort the way in which a service is trade; and (iii) restrictions which apply across multiple modes and constrain several modes simultaneously. In addition to these first order linkages, there are also extended spillover effects across the modes that arise indirectly over the medium and long run. This paper discusses the various kinds of linkages that are found in service sector trade, using evidence from companies, countries, and surveys and from a wide range of services. The objective is to provide an integrated perspective on service sector trade and related multilateral negotiations under the GATS so that countries can better leverage cross modal and cross-subsectoral trade opportunities, address constraints in a holistic manner, and maximize the overall gains from services trade.
    Date: 2006–01–27
  16. By: Olivier Brunet; Ronny Nilsson
    Abstract: The OECD developed a System of Composite Leading indicators for its Member countries in the early 1980's based on the 'growth cycle' approach. Today the OECD compiles composite leading indicators (CLIs) for 23 of its 30 Member countries and it is envisaged to expand country coverage to include all Member countries and the major six OECD non-member economies (NMEs) monitored by the organization in the OECD System of Composite Leading Indicators. The importance of the six major NMEs was considered the first priority and a workshop with participants from the six major NMEs was held at the OECD in Paris in April 2005 to discuss an initial OECD selection of potential leading indicators for the six major NMEs and national suggestions for alternative and/or additional potential leading indicators for calculation of country specific composite leading indicators. The outcomes of this meeting and followup activities undertaken by the OECD in co-operation with the participating national agencies are reflected in the results presented in this final version of the document. The OECD indicator system uses univariate analysis to estimate trend and cycles individually for each component series and then a composite indicator is obtained by aggregation of the resulting de-trended components. Today, statistical techniques based on alternative univariate methods and multivariate analysis are increasingly used in cyclical analysis and some of these techniques are used in this study to supplement the current OECD approach in the selection of leading components and the construction of composite indicators. L’OCDE a développé un système d’indicateurs composites avancés pour ses pays membres au début des années 80 basé sur les "cycles de croissance". Aujourd’hui, l’OCDE calcule les indicateurs composites avancés pour 23 des 30 pays membres et envisage d’étendre la couverture du système des indicateurs composites avancés à tous les pays membres ainsi qu’aux six principales économies non membres suivies par l’Organisation. L’importance des six principales économies non membres est considérée comme prioritaire et un séminaire regroupant ces six principales économies non membres fut organisé au siège de l’OCDE à Paris en avril 2005 afin de discuter d’une première sélection par l’OCDE d’indicateurs avancés potentiels pour les six principales économies non membres et discuter des suggestions des pays pour des indicateurs avancés potentiels alternatifs et/ou supplémentaires pour le calcul des indicateurs composites avancés spécifiques aux pays. Les résultats de cette réunion et les futures activités entreprises par l’OCDE en collaboration avec les agences nationales participantes sont décrits dans la version finale de ce document. Le système des indicateurs composites avancés de l’OCDE utilise une analyse univariée afin d’estimer la tendance et les cycles individuellement pour chaque série composante et ensuite un indicateur composite est obtenu par aggrégation des composantes sans tendance. Aujourd’hui, les techniques statistiques basées sur d’autres méthodes d’analyse univariée ainsi que multivariée sont de plus en plus utilisées en analyse cyclique et certaines de ces techniques sont utilisées dans l’étude afin de compléter l’approche courante de l’OCDE dans la sélection des composantes avancées et dans la construction des indicateurs composites.
    Date: 2006–01–25

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