nep-sea New Economics Papers
on South East Asia
Issue of 2006‒04‒01
nineteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Exchange Rates, Shocks and Inter-Dependency in East Asia - Lessons from a Multinational Model By Sophie Saglio; Yonghyup Oh; Jacques Mazier
  2. Sequencing of Capital Account Liberalization - Japan's experiences and their implications to China By Kenji Aramaki
  3. Shake Hands or Shake Apart? Pre-war Global Trade and Currency Blocs--the role of the Japanese Empire By Toshihiro Okubo
  4. Employment of MNEs in Japan: New Evidence By Kozo Kiyota; Toshiyuki Matsuura
  5. The Government and the Financial System: an Overview By Kazuhito Ikeo; Yasuo Goto
  6. The Changes of Accounting Standards and Structural Reform in Japanese companies By Yasuhiro Asami
  7. Environmental Policy and the Location of Foreign Direct Investment in China By Christer Ljungwall; Martin Linde-Rahr
  8. "Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through" By Takatoshi Ito; Kiyotaka Sato
  9. Does Reporting Heterogeneity bias The Measurement of Health Disparities? By Teresa Bago d'Uva; Eddy van Doorslaer; Maarten Lindeboom; Owen O'Donnell; Somnath Chatterji
  10. The Lost Decade in the Japanese Labor Market: Labor’s share and Okun’s Law By Shigeru Wakita
  11. FDI and Exports: the case of the High Performing East Asian Economies By Johnson, Andreas
  12. Do Population Control Policies Induce More Human Capital Investment? Twins, Birthweight, and China's 'One Child' Policy By Mark R. Rosenzweig; Junsen Zhang
  13. A Roadmap for the Asian Exchange Rate Mechanism By Gongpil Choi; Deok Ryong Yoon
  14. Cost-Effectiveness Analysis and its Application for Policy Evaluation for Medicine or Public Health By Yasushi Ohkusa; Tamie Sugawara
  15. Characterizing Receiver-Active National System of Innovation By Fumio Kodama; Jun Suzuki
  16. Corporate Debt Restructuring and Public Financial Institutions in Japan -Do Government-Affiliated Financial Institutions Soften Budget Constraints?- By Kenya Fujiwara
  17. Do Banks Reduce Lending Preemptively in Response to Capital Losses? By Shinichi Nishiyama; Tae Okada; Wako Watanabe
  18. "Sick of Local Government Corruption? Vote Islamic" By J. Vernon Henderson; Ari Kuncoro
  19. Public Debt Maturity and Currency Crises By Paul Levine; Alexandros Mandilaras; Jun Wang

  1. By: Sophie Saglio (University of Paris 13); Yonghyup Oh (Department of International Economics and Finance of Korea Institute for International Economic Policy); Jacques Mazier (University of Paris 13)
    Abstract: This paper presents a simple macroeconomic model of international interdependency describing Korea, Japan, China, and the rest of East Asia in their relations with the United States and the rest of the world. The model includes both a foreign trade block and an internal demand block analysing demand formation and the price-wage-employment adjustment process. Exchange rates are fixed, but can be manipulated exogenously. The main features of the East Asian trade structure are integrated into the model, and foreign trade price elasticises are higher for Korea and China and smaller for Japan.
    Keywords: Multinational model, East Asian interdependency, exchange rates, asymmetric shocks
    JEL: C52 F15 F17 F42
    Date: 2005–12
  2. By: Kenji Aramaki (University of Tokyo)
    Abstract: This paper reviews Japan's experiences with the liberalization of capital accounts, and tries to identify their implications to China. Liberalization of capital accounts proceeded very gradually in Japan from the adoption of a system of general prohibition of foreign exchange and capital transactions in 1949 through the shift to a generally liberalized system in 1979. Meantime, Japan was exposed to the turbulent international financial markets due to the move from a peg to a float system of its currency and two oil crises. In response to the massive short-term capital flow in and out of the country caused by these shocks, Japan, which was generally headed for the liberalization of the capital accounts, was frequently forced to resort to foreign exchange and capital control measures to stabilize the market. These experiences by Japan seems to give valuable implications to China, for which significant enhancement of the flexibility of its exchange rate movement under the recently revised formal exchange rate regime and the liberalization of capital accounts continue to be important policy agenda in the years to come.
    Keywords: trade liberialiazation, China, Japan, capital accounts, China, peg system, float system, foreign exchange,
    JEL: F13 F14 F31
    Date: 2006–12
  3. By: Toshihiro Okubo (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: Despite world-wide bloc economies after the Depression, Japan had a tight relationship with the British Commonwealth and created tight connections with the Sterling and the Gold blocs in the late 1930s. The world-wide bloc economies did not isolate Japan.
    Keywords: International Economics; Exchange Rates; Trade; Whatever Related
    Date: 2006–03–22
  4. By: Kozo Kiyota; Toshiyuki Matsuura
    Abstract: This paper asks two questions. 1) Do multinational enterprises (MNEs) present different patterns of employment from domestic firms? 2) Do workers in MNEs face a higher risk of losing jobs? We distinguish two types of MNEs (i.e., Japanese MNEs and foreign-owned firms) and utilize firm-level data in Japan between 1995 and 2000. It was true that the net job destruction of Japanese MNEs was larger than those of foreign-owned firms and domestic firms. However, this negative employment growth is attributable not to rapid job destruction but to slow job creation. Second, workers in Japanese MNEs and foreign-owned firms did not face a higher risk of losing jobs than did those in domestic firms. This finding contradicts the findings of Barba Navaretti, Turrini, and Checchi (2003) but is consistent with the firm-specific skill hypothesis of Fukao and Otaki (1993). Japanese MNEs and foreign-owned firms might invest heavily in job training, which results in their lower employment volatility.
    Date: 2006–03
  5. By: Kazuhito Ikeo (Keio University); Yasuo Goto (Mitsubishi Research Institute)
    Abstract: This paper surveys the relationship between the government and the financial system in Japan, mainly from the viewpoint of financial stocks, to gain an overall perspective and identify where any problems lie. During this decade, it seems that the relationship between the government and the financial system in Japan has changed significantly. The government has generally become more deeply involved in the financial system. As a result it is no exaggeration to say that current Japanese financial system has become “a financial system of the government, by the government, for the government.” This was for the most part, promoted by the fact that there occurred a huge redistribution of wealth during the realignment process after the bursting of the bubble economy. Considering such circumstances, the aspects of “of the government,” “by the government,” and “for the government” will be surveyed in turn. Furthermore, postal system privatization will be discussed in terms of public debt management. Lastly, reference will be made to the possible problems accompanying the change in trend of investment-savings balances.
    Keywords: financial system, Japan, financial stocks, financial system, government, postal system, privatization, investment-savings balances
    JEL: E61 E62 F16
    Date: 2006–12
  6. By: Yasuhiro Asami (Japan Science and Technology Agency)
    Abstract: In the business year beginning on April 1 1999 or later our accounting standards have been greatly changed. Concretely (1) the disclosure of consolidated financial statements as audited documents, (2) onsolidated statements of cash flows, and (3) tax consequences accounting have been introduced in the business year beginning on April 1 1999 or later. In addition (4) the standard for fair value accounting of financial instruments and (5) the accounting standard for employees’ retirement benefits (Hereafter this accounting standard will be abbreviated to retirement benefits accounting) have been introduced in the business year beginning on April 1 2000 or later. This has been often called, ‘Big Bang Reforms of Accounting Standards’ in our country. The reforms of accounting standards are still now in progress.
    Keywords: accounting standards, Japan, reform, structural reform
    JEL: D21 D23 D24 H25
    Date: 2006–12
  7. By: Christer Ljungwall (China Center of Economic Research, Peking University); Martin Linde-Rahr (Department of economics and statistics, Goteborg University)
    Abstract: This paper introduce an environmental policy variable, i.e., the provincial pollution levy paid by an average firm, and measure its impact on the foreign investors' location decisions over the 1987 to 1998 period. We argue that less developed regions in China are more inclined to sacrifice environmental policies as an instrument to attract foreign direct investment (FDI). National level results show that stringent environmental policies have insignificant effect on foreign investors' location decision, and that transportation, economic growth, and regional location matters more. At the provincial level stringent environmental policies reduce FDI in the less developed regions.
    Keywords: Foreign Direct Investment, Environmental policy
    JEL: C23 E24 F21 H25 O53 Q28
    Date: 2005–12
  8. By: Takatoshi Ito (Faculty of Economics, University of Tokyo); Kiyotaka Sato (Faculty of Economics, Yokohama National University)
    Abstract: The pass-through effects of exchange rate changes on the domestic prices in the East Asian countries are examined using a VAR analysis including several price indices and domestic macroeconomic variables as well as the exchange rate. Results from the VAR analysis show that (1) the degree of exchange rate pass-through to import prices was quite high in the crisis-hit countries; (2) the pass-through to CPI was generally low, with a notable exception of Indonesia: and (3) in Indonesia, both the impulse response of monetary policy variables to exchange rate shocks and that of CPI to monetary policy shocks are positive, large and statistically significant. Thus, Indonesia's accommodative monetary policy as well as the high degree of the CPI responsiveness to exchange rate changes was important factors that resulted in the spiraling effects of domestic price inflation and sharp nominal exchange rate depreciation in the post-crisis period.
    Date: 2006–03
  9. By: Teresa Bago d'Uva (University of York); Eddy van Doorslaer (Erasmus Universiteit Rotterdam and Netspar); Maarten Lindeboom (Vrije Universiteit Amsterdam, HEB, IZA, and Netspar); Owen O'Donnell (University of Macedonia, and Netspar); Somnath Chatterji (World Health Organization)
    Abstract: Heterogeneity in reporting of health by socio-economic and demographic characteristics potentially biases the measurement of health disparities. We use anchoring vignettes to identify reporting heterogeneity in self reports on health for Indonesia, India and China. Correcting for reporting heterogeneity tends to reduce estimated disparities in health by age, sex (not Indonesia), urban/rural and education (not China) and to increase income disparities in health. Overall, while homogeneous reporting by socio-demographic group is significantly rejected, the results suggest that the size of the reporting bias in measures of health disparities is not large.
    Keywords: health measurement; vignettes; self-reported health; reporting heterogeneity
    JEL: D30 D31 I10 I12
    Date: 2006–03–28
  10. By: Shigeru Wakita (Tokyo Metropolitan University)
    Abstract: The purpose of this study is to reexamine two empirical regularities in the Japanese labor market: the constant labor share and Okun's law. The former law relates to the price of labor in the labor market while the latter is a quantity law; they represent suitable benchmarks for judging the condition of the labor market. Although there are more elaborate statistical techniques, these laws are frequently used because they can clarify the macroeconomic situation at a glance. First, a constant labor share is implied in theory by the Cobb–Douglas production function. Thus, labor’s share should be based on the production function. Labor’s share based on income has only been rising because of massive depreciation. Secondly, there have been several structural breaks in Okun's law since the bubble collapsed, and the potential growth rate has fallen.
    Keywords: Okun's Law, Japan, labour market, labor market, Cobb-Douglas,
    JEL: J24 J30 J88
    Date: 2006–12
  11. By: Johnson, Andreas (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: The paper investigates the flows of FDI and trade in eight high performing East Asian economies with a focus on the relationship between FDI and host country exports. The development and importance of FDI and trade for the region is described. The empirical part of the paper examines the relationship between FDI and host country exports, using data for the period 1980 to 2003. Time series regressions for individual economies as well as panel data estimation indicate that FDI inflows have a significant and positive effect on host country exports, suggesting that export-platform FDI may be important for the East Asian economies. No clear link between outflows of FDI and exports was found, allowing FDI outflows to function as both a complement and a substitute for source country exports. Granger causality tests find indications of FDI inflows causing exports, providing further evidence that the export-platform FDI strategy applies for the East Asian economies.
    Keywords: foreign direct investment; East Asia; international trade; exports
    JEL: F14 F21 F23
    Date: 2006–03–29
  12. By: Mark R. Rosenzweig (Economic Growth Center, Yale University); Junsen Zhang (Chinese University of Hong Kong)
    Abstract: In this paper we use a new data set describing households with and without twin children in China to quantify the trade-off between the quality and quantity of children using the incidence of twins that for the first time takes into account effects associated with the lower birthweight and closer-spacing of twins compared to singleton births. We show that examining the effects of twinning by birth order, net of the effects stemming from the birthweight deficit of twins, can provide upper and lower bounds on the trade-off between family size and average child quality. Our estimates indicate that, at least in one area of China, an extra child at parity one or at parity two, net of birthweight effects, significantly decreases the schooling progress, the expected college enrollment, grades in school and the assessed health of all children in the family. We also show that estimates of the effects of twinning at higher parities on the outcomes of older children in prior studies do not identify family size effects but are confounded by inter-child allocation effects because of the birthweight deficit of twins. Despite the evident significant trade-off between number of children and child quality in China, however, the findings suggest that the contribution of the one-child policy in China to the development of its human capital was modest.
    Keywords: Family size, Birthweight, Schooling, China
    JEL: J13 I12 I21
  13. By: Gongpil Choi (Korea Institute of Finance); Deok Ryong Yoon (Korea Institute for Internation Economic Policy)
    Abstract: Given the increasing importance of capital market development for financial stability and multilateral cooperation for sustained growth, a country's choice of exchange rate regime is hardly trivial. Instead of relying on a series of individually managed floats, it would be better for each country to target its currency against a basket of other currencies. A still much better alternative would be to form a regional block, which would tie Asian currencies together and create a regional currency while allowing them to float against major currencies. Whether the type is an individual peg to a tailored basket or a multilateral peg to a common basket remains to be determined. Under any plausible scenario, some type of regional currency needs to be developed to promote an environment suitable for financial and monetary cooperation that is, in turn, conducive to capital market development. Since conditions in the region are increasingly favourable for an OCA (Optimal Currency Area), such cooperation would be mutually beneficial as well as globally desirable.
    Keywords: ACU, Asian Exchange rate,
    JEL: F33 F36
    Date: 2005–12
  14. By: Yasushi Ohkusa (Japanese National Institution of Infectious Disease); Tamie Sugawara (University of Tsukuba)
    Abstract: In comparison to the policy for other field, the policy for medicine and public health is to consider the value of life or the value of the quality of life. Quality of life is very well known as a concept of QOL. Also, Quality Adjusted Life of Years (QALY) which integrates QOL over life of years is widely used as a measure of the value of life. Cost-effectiveness analysis for medicine and public health adopts two approaches to incorporate value of QOL or QALY. We summarize those advantage and disadvantage briefly at first. Unfortunately, cost-effectiveness analysis has not been committed and operated as an official rule for the method of policy evaluation for medicine or public health in Japan, yet. Thus we show some researches about it which examines ex post or ex ante policy evaluation using cost-effectiveness analysis. In other countries, some political decision making in medicine or public health is based on cost-effectiveness analysis. However, the pressure of the financial deficit will require more accountability about evidence. Therefore, cost-effectiveness analysis must be more important even in political decision making in medicine or public health in Japan.
    Keywords: cost-effectiveness, public health, quality of life
    JEL: H51
    Date: 2006–02
  15. By: Fumio Kodama; Jun Suzuki
    Abstract: The rise in biomedical research predates the passage of Bayh-Dole Act in the United States. Our measurements of science linkage based on the Japanese patents also show that biotechnology is extremely high in science linkage. We will describe an in-depth case study about how a Japanese sanitary ware company could commercialize a totally new toilet system, by use of scientific findings discovered by university professors. The firm played a more proactive role in technology transfer than the role implied by the term of "absorptive capacity." The Japanese national system of innovation has been built to stimulate absorptive capacity functions proactively.
    Date: 2006–03
  16. By: Kenya Fujiwara (Kobe University)
    Abstract: There are two different views on the effects of public financial institutions on corporate debt restructuring: the soft budget view and the hard budget view. The former view, which is held by Kornai (1979, 1983), Dewatripont and Maskin (1995), and others insists that because centralized public financial institutions have difficulty committing themselves to refrain from providing additional funds to distressed firms, corporate reorganizations often result in overinvestment. On the other hand, the latter view argues that public financial institutions should prefer corporate liquidation rather than the continuation of business because public financial institutions are secured by mortgages to a greater extent and are more reluctant to forgive the debts than private financial institutions.
    Keywords: public financial institutions, debt restructuring, soft budget view, hard budget view, Kornai, Dewatripont, Maskin, corporate reorganizations, corporate liquidation, private financial institutions, debt
    JEL: G28 G33 G34
    Date: 2006–12
  17. By: Shinichi Nishiyama; Tae Okada; Wako Watanabe
    Abstract: We empirically examined whether declining bank loans in Japan in the late 1990s are the result of banks' downward adjustments of lending supply (a "credit crunch") in response to capital losses (a "capital crunch"). Estimating the new lending supply function as a non-linear function of the capital to asset ratio, we found that the (new lending supply) function is not only increasing in bank capital but also concave in bank capital, which supports the view that a "credit crunch" occurs since forward-looking banks have an incentive to avoid failing to meet regulatory requirements in the future.
    Date: 2006–03
  18. By: J. Vernon Henderson; Ari Kuncoro
    Abstract: Indonesia has a tradition of corruption among local officials who harass and collect bribes from firms. Corruption flourished in the Suharto, pre-democracy era. This paper asks whether local democratization that occurred after Suharto reduced corruption and whether specific local politics, over and above the effects of local culture, affect corruption. We have a firm level data set for 2001 that benchmarks bribing activity and harassment at the time when Indonesia decentralized key responsibilities to local democratically elected governments. We have a second data set for 2004 on corruption at the end of the first democratic election cycle. We find that, overall, corruption declines between these time periods. But specific politics matter. Islamic parties in Indonesia are perceived as being anti-corruption. Our data show voting patterns reflect this belief and voters' perceptions have some degree of accuracy. In the first democratic election, localities that voted in legislatures dominated by secular parties, including Megawati's party, experienced significant relative increases in corruption, while the reverse was the case for those voting in Islamic parties. But in the second election in 2004, in those localities where corruption had increased under secular party rule, voters "threw the bums out of office" and voted in Islamic parties.
    JEL: H7 O1 P16 R5
    Date: 2006–03
  19. By: Paul Levine (University of Surrey); Alexandros Mandilaras (University of Surrey); Jun Wang (University of Surrey)
    Abstract: This paper provides a theoretical and empirical examination of the e®ect of debt structure on the probability of a currency crisis and the slope of the yield curve. We employ an open-economy version of the Barro-Gordon model with public debt, as in Benigno and Missale (2004) and generalize the analysis to allow for the case where the monetary authority can fully commit itself to an escape clause monetary rule. Comparing the latter with the discretionary outcomes motivates the asymmetric information game where the signalling e®ect of defending the parity competes with the fundamentals of the debt burden. Two key predictions of the model are tested with positive results.
    Keywords: Currency crisis, debt management
    JEL: F31
    Date: 2006–03

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