nep-sea New Economics Papers
on South East Asia
Issue of 2006‒05‒06
sixteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Are the Markets for Factories and Offices Integrated? Evidence from Hong Kong By Charles Ka Yui Leung; Peiling Wei
  2. The Rise and Fall of the Land Myth in Japan By Shigeki Morinobu
  3. Decomposing interregional differentials in productivities: An empirical analysis for Japanese data By Mototsugu Fukushige; Noriko Ishikawa
  5. Chicken or egg: financial development and economic growth in China, 1992-2004 By Fan, Xuejun; Jacobs, Jan; Lensink, Robert
  6. Diaspora and Development: Highly Skilled Migrants from East Asia By Robert E. B. Lucas;
  7. Foreign Direct Investment, Management Practices, and Social Capital New Evidence on the Host Country Effects of Japanese Multinationals By Peter Doeringer; David G. Terkla
  8. How Widespread are Non-linear Crowding Out Out Effects? The Response of Private Transfers to Income in Four Developing Countries By John Gibson; Susan Olivia; Scott Rozelle
  9. A Re-examination of the Exchange Rate Disconnect Puzzle: Evidence from Japanese Firm Level Data By Robert Dekle; Hyeok Jeong; Heajin Ryoo
  10. Transition Dynamics in Vintage Capital Models: Explaining the Postwar Catch-up of Germany and Japan By Simon Gilchrist; John C. Williams
  11. Do not forget the strategic architecture of your manufacturing network while offshoring By Vereecke, A.; De Meyer, A.
  12. Dynamic Speculative Attacks By Christophe Chamley;
  13. Banking Crises, Financial Dependence and Growth By Klingebiel, Daniela; Kroszner, Randall S; Laeven, Luc
  14. Volatility Clustering, Leverage Effects, and Jump Dynamics in the US and Emerging Asian Equity Markets By Daal, Elton; Naka, Atsuyuki; Yu, Jung-Suk
  15. International Diversification with American Depository Receipts (ADRs) By Kabir, M. Humayun; Hassan, M. Kabir; Maroney, Neal C.
  16. Real-time model uncertainty in the United States - the Fed from 1996-2003 By Robert J. Tetlow; Brian Ironside

  1. By: Charles Ka Yui Leung (City University Hong Kong); Peiling Wei (City University Hong Kong)
    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,
    JEL: G12 L80 R30
    Date: 2006–02
  2. By: Shigeki Morinobu (MOF - Ministry of Finance Japan)
    Abstract: In Japan, the so-called bubble economy started from the latter half of the 1980s. Then the bubble burst and Japan entered the “lost decade” of the 90s - a long-lasting period of depression and deflation not experienced by any other country since World War II. This paper picks out some lessons that should be learnt from Japan’s experiences, by studying the factors and political problems that powered the bubble economy.
    Keywords: land prices, taxation, bubble economy, asset value
    JEL: E62 Q15 R52
    Date: 2006–03
  3. By: Mototsugu Fukushige (Graduate School of Economics, Osaka University); Noriko Ishikawa (Graduate School of Science and Technology, Kobe University)
    Abstract: We propose a method for decomposing interregional differentials in productivities based on the lifecycle permanent income hypothesis and conduct an empirical analysis using data from prefectural economic accounts in Japan to examine the effectiveness of this method.
    Keywords: Interregional Differentials in Productivities, Decomposition of Inequality, Consumption Inequality
    JEL: R3 D30 H24 E20
    Date: 2006–11
  4. By: Warwick J. McKibbin
    Date: 2005–12
  5. By: Fan, Xuejun; Jacobs, Jan; Lensink, Robert (Groningen University)
    Abstract: This paper contributes to the empirical finance-growth literature by examining the relationship between financial depth, banking sector development, stock market development and economic growth in China. After an extensive survey on recent financial reforms in China, we apply Granger (non-)causality tests for non-stationary variables to examine long-run and short-run causality between economic growth and financial development. We find positive relationships between financial depth, banking sector development and growth. However, stock market development does not seem to have a positive effect on long-run economic growth.
    Date: 2005
  6. By: Robert E. B. Lucas (Institute for Economic Development, Boston University);
  7. By: Peter Doeringer (Institute for Economic Development, Boston University); David G. Terkla (University of Massachusetts Boston)
  8. By: John Gibson (University of Waikato); Susan Olivia (University of California, Davis); Scott Rozelle (University of California, Davis)
    Abstract: This paper investigates whether there is a non-linear relationship between income and the private transfers received by households in developing countries. If private transfers are unresponsive to household income, expansion of public social security and other transfer programs is unlikely to crowd out private transfers, contrary to concerns first raised by Barro and Becker. There is little existing evidence for crowding out effects in the literature, but this may be because they have been obscured by methods that ignore non-linearities. If donors switch from altruistic motivations to exchange motivations as recipient income increases, a sharp non-linear relationship between private transfers and income may result. In fact, threshold regression techniques find such non-linearity in the Philippines and after accounting for these there is evidence of serious crowding out, with 30 to 80 percent of private transfers potentially displaced for low-income households [Cox, Hansen and Jimenez 2004, 'How Responsiveare Private Transfers to Income?' Journal of Public Economics]. To see if these non-linear effects occur more widely, semiparametric and threshold regression methods are used to model private transfers in four developing countries - China, Indonesia, Papua New Guinea and Vietnam. The results of our paper suggest that non-linear crowding-out effects are not important features of transfer behaviour in these countries. The transfer derivatives under a variety of assumptions only range between 0 and -0.08. If our results are valid, expansions of public social security to cover the poorest households need not be stymied by offsetting private responses.
    Keywords: crowding out; private transfers; social security
    JEL: H55 O15
    Date: 2006–03–31
  9. By: Robert Dekle; Hyeok Jeong; Heajin Ryoo
    Abstract: The empirical literature examining aggregate data has generally found small or insignificant effects of exchange rate fluctuations on export volumes. This lack of association between real quantities, such as export volumes and the exchange rate is the so-called “exchange rate disconnect puzzle.” Using firm level data, however, the relationship between export volumes and exchange rates turns to significantly negative. This paper attempts to reconcile these aggregate and firm level findings, using firm level data from Japan. We estimate a simple microeconomic model of exports to show that an appreciation of the exchange rate reduces export volumes at the firm level. After consistent aggregation, the relationship still remains significant at aggregate levels. However, we show that the omission of some key productivity variables, or ignoring the distributions of heterogeneous firm level characteristics biases the elasticity of exports to exchange rates toward zero.
  10. By: Simon Gilchrist (Institute for Economic Development, Boston University); John C. Williams (Board of Governors, Federal Reserve System)
    Abstract: We consider a neoclassical interpretation of Germany and Japan’s rapid postwar growth that relies on a catch-up mechanism through capital accumulation where technology is embodied in new capital goods. Using a putty-clay model of production and investment, we are able to capture many of the key empirical properties of Germany and Japan’s postwar transitions, including persistently high but declining rates of labor and total-factor productivity growth, a U-shaped response of the capital-output ratio, rising rates of investment and employment, and moderate rates of return to capital.
    Keywords: putty-clay, embodied technology, productivity growth, convergence
    JEL: D24 E22 N10 O41
  11. By: Vereecke, A.; De Meyer, A.
    Abstract: Offshoring manufacturing to low labor cost countries has become trendy. Nearly everyday one sees an announcement in the business press of companies moving to China or India. Whilst production cost is an important consideration in choosing a location for the factory, we argue that one should not become victim of a herd effect and that other parameters e.g. quality, flexibility, transportation and energy costs, etc. need to be taken into consideration in the determination of the optimal manufacturing network. Relocating a factory is changing the strategic architecture of the company’s manufacturing network and requires a long term view and a good model to design the architecture of the manufacturing network. Based on empirical survey research and a set of case studies we provide such a model to think about the roles of factories in the strategic manufacturing network of the firm. But we go beyond a classification and a descriptive model and we provide a set of six managerial issues that require senior management’s attention in determining the optimal manufacturing network and its dynamic evolution. We argue for example that senior management needs to build a balanced portfolio of different types of factories, has to have a performance measurement system adapted to the type of factory, as well as the appropriate leadership for each of the different types of factories and needs to actively manage the dynamics and the flows of innovation in the factory network.
    Keywords: international manufacturing, network management, outsourcing
    Date: 2006–04–26
  12. By: Christophe Chamley (Institute for Economic Development, Boston University);
    Keywords: speculative attach, currency crisis, coordination, informational externalities, social learning
  13. By: Klingebiel, Daniela; Kroszner, Randall S; Laeven, Luc
    Abstract: This paper investigates the growth impact of banking crises on industries with different levels of dependence on external sources of finance to analyze the mechanisms linking financial shocks and real activity. If the banking system is the key element allowing credit constraints to be relaxed, then a sudden loss of these intermediaries in a system where such intermediaries are important should have a disproportionately contractionary impact on the sectors that flourished due to their reliance on banks. Using data from 38 developed and developing countries that experienced financial crises during the last quarter century, we find that sectors highly dependent on external finance tend to experience a substantially greater contraction of value added during a banking crisis in deeper financial systems than in countries with shallower financial systems. On average, in a country experiencing a banking crisis, a sector at the 75th percentile of external dependence and located in a country at the 75th percentile of private credit to GDP would experience a 1.6 percent greater contraction in growth in value added between the crisis and pre-crisis period than a sector at the 25th percentile of external dependence and private credit to GDP. This effect is sizeable compared with an overall mean decline in growth of 3.5 percent between these two periods. Our results, however, do not suggest that on net the externally dependent firms fare worse in deep financial systems.
    Keywords: banking and financial crises; credit channel; financial development; financing constraints
    JEL: G21 O16
    Date: 2006–04
  14. By: Daal, Elton (University of New Orleans); Naka, Atsuyuki (University of New Orleans); Yu, Jung-Suk (University of New Orleans)
    Abstract: This paper proposes asymmetric GARCH-Jump models that synthesize autoregressive jump intensities and volatility feedback in the jump component. Our results indicate that these models provide a better fit for the dynamics of the equity returns in the US and emerging Asian markets, irrespective whether the volatility feedback is generated through a common GARCH multiplier or a separate measure of volatility in the jump intensity function. We also find that they can capture several distinguishing features of the return dynamics in emerging markets, such as, more volatility persistence, less leverage effects, fatter tails, and greater contribution and variability of the jump component.
    Keywords: Volatility feedback, Time-varying jump intensity, Volatility clustering, Leverage effect, Leptokurtosis
    JEL: C22 F31 G15
    Date: 2006–01–20
  15. By: Kabir, M. Humayun (Massey University); Hassan, M. Kabir (University of New Orleans); Maroney, Neal C. (University of New Orleans)
    Abstract: It is already well known that U.S. investors can achieve higher gains by investing directly in emerging markets (De Santis, 1997). Given the opportunity to invest directly in the shares of stocks in the developed (DCs) and emerging (EM) markets, it is interesting to know whether the U.S. investors can potentially gain any benefits by investing in ADRs. We test both index models, and SDF-based model.Our findings show that U.S. investors needed to invest in both ADRs and country portfolios in developed in the eighties, and in Latin American countries in early nineties. During the early and late nineties, we find substitutability between ADRs and country portfolios in DCs. As more and more ADRs are enlisted in the US market from developed countries over time, the ADRs become substitutes to country. Similarly, countries with higher number of ADRs irrespective of regions show the same pattern of substitutability between ADRs and country indices. However, such substitutability does not exist for countries with the highest number of ADRs by the end of sample period, 2001. On the other hand, U.S. investors can achieve the diversification benefits by investing ADRs along with U.S. market index in Asia. The significant marginal contribution of one-third of developed countries requires investment in ADRs and U.S. market in the developed countries. And investors do not need to hold both ADRs and country as it was the case in the eighties. On the other hand, investors need to hold both ADRs and country portfolios in most of the Asian countries to achieve diversification benefits at margin.
    Keywords: Emerging markets, American Depository Receipts (ADR), Diversification
    JEL: G15 C12 C39
    Date: 2005
  16. By: Robert J. Tetlow (Contact address: Federal Reserve Board, Division of Research and Statistics 20th and Constitution Avenue NW, Washington, D.C. 20551, United States.); Brian Ironside (Safeco Insurance Companies, Safeco Plaza, SPI Actuarial, T-14, Seattle, WA 98185-0001, United States.)
    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 U.S. 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.
    Keywords: Monetary policy, uncertainty, real-time analysis.
    JEL: E37 E5 C5 C6
    Date: 2006–04

This nep-sea issue is ©2006 by Kavita Iyengar. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.