nep-sea New Economics Papers
on South East Asia
Issue of 2006‒07‒09
nineteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Exchange-rate effects on China’s trade: an interim report By Jaime Marquez; John W. Schindler
  2. China's Innovation System and the Move Toward Harmonious Growth and Endogenous Innovation By Shulin Gu; Bengt-Åke Lundvall
  3. Entrepreneurship in China and Russia Compared By Simeon Djankov; Yingyi Qian; Gerard Roland; Ekaterina Zhuravskaya
  4. Do Borrowing Constraints Matter? An Analysis of Why the Permanent Income Hypothesis Does Not Apply in Japan By Miki Kohara; Charles Yuji Horioka
  5. How will China ' s saving-investment balance evolve ? By Kuijs, Louis
  6. Dual Track Reforms: With and Without Losers By Jiahua Che; Giovanni Facchini
  7. Comparative Analysis on the Job-Broking Market in Japan and Finland By Heikki Räisänen
  8. Who Are China’s Entrepreneurs? By Simeon Djankov; Yingyi Qian; Gerard Roland; Ekaterina Zhuravskaya
  9. International Migration, Remittances, and Household Investment: Evidence from Philippine Migrants%u2019 Exchange Rate Shocks By Dean Yang
  10. Loan Officers and Relationship Lending By Hirofumi Uchida; Gregory F. Udell; Nobuyoshi Yamori
  11. The Dissaving of the Aged Revisited: The Case of Japan By Charles Yuji Horioka
  12. Measuring the miracle: market imperfections and Asia's growth experience By John Fernald; Brent Neiman
  13. Indexed Regulation By Newell, Richard G.; Pizer, William A.
  14. Optimal Currency Shares in International Reserves: The Impact of the Euro and the Prospects for the Dollar By Elias Papaioannou; Richard Portes; Gregorios Siourounis
  15. Is Fiscal Policy Sustainable in Developing Economies? By Subrata Ghatak; José R. Sánchez-Fung
  16. Cost Benefit Analysis on Public Transport Investment by Choice Experiment Method: An Example of Osaka Monorail Saito Linefs Extension (in Japanese) By Junyi Shen; Yusuke Sakata; Yoshizo Hashimoto
  17. Gifted Kids or Pushy Parents? Foreign Acquisitions and Plant Performance in Indonesia By Jens Matthias Arnold; Beata Smarzynska Javorcik
  18. The Lending Channel in Emerging Economics: Are Foreign Banks Different? By Marco Arena; Carmen Reinhart; Francisco Vázquez

  1. By: Jaime Marquez; John W. Schindler
    Abstract: Though China's share of world trade is comparable to that of Japan, little is known about the response of China's trade to changes in exchange rates. The few estimates available suffer from two limitations. First, the data for trade prices are based on proxies for prices from other countries. Second, the estimation sample includes the period of China's transformation from a centrally-planned economy to a market-oriented system. To address these limitations, this paper develops an empirical model explaining the shares of China's exports and imports in world trade in terms of the real effective value of the renminbi. The specifications control for foreign direct investment and for the role of imports of parts to assemble merchandise exports. Parameter estimation uses disaggregated monthly trade data and excludes the period during which most of China's decentralization occurred. The estimation results suggest that a ten-percent real appreciation of the renminbi lowers the share of aggregate Chinese exports by a half of a percentage point. The same appreciation lowers the share of aggregate imports by about a tenth of a percentage point.
    Keywords: Foreign exchange rates - China ; Trade ; Econometric models
    Date: 2006
  2. By: Shulin Gu; Bengt-Åke Lundvall
    Abstract: Observers around the world are impressed by the rapid growth of China’s economy. While outside observers tend to focus on the success story of unprecedented growth policy documents and recent domestic debates in China have pointed to the need for a shift in the growth trajectory with stronger emphasis on ‘endogenous innovation’ and ‘harmonious development’. This paper attempts to capture the current characteristics of China’s production and innovation system; how they were shaped by history and what major challenges they raise for the future. On the basis of the analysis the authors propose that it is possible to link together the two key concepts ‘endogenous innovation’ and ‘harmonious development’ by focusing innovation and development efforts in China on domestic needs, including social needs, rather than a one-sided focus on export-promotion and commodity production.
    Keywords: China; economic growth; R&D; innovation systems
    JEL: O32 O11
    Date: 2006
  3. By: Simeon Djankov (The World Bank); Yingyi Qian (UC Berkeley and CEPR); Gerard Roland (UC Berkeley and CEPR); Ekaterina Zhuravskaya (New Economic School/CEFIR and CEPR)
    Abstract: We compare results from a pilot study on entrepreneurship in China and Russia. Compared to non-entrepreneurs, Russian and Chinese entrepreneurs have more entrepreneurs in their family and among childhood friends, value work more relative to leisure and have higher wealth ambitions. Russian entrepreneurs have a better educational background and their parents were more likely to have been members of the communist party but Chinese entrepreneurs are more risk-taking and greedy and have more entrepreneurs among their childhood friends.
    Date: 2005–10
  4. By: Miki Kohara; Charles Yuji Horioka
    Abstract: We use micro data on young married households from the Japanese Panel Survey of Consumers in order to analyze the importance of borrowing constraints in Japan. We find (1) that 8 to 15 percent of young married Japanese households are borrowing-constrained, (2) that household assets and the husband’s educational attainment are the most important determinants of whether or not a household is borrowing-constrained, and (3) that the Euler equation implication is rejected for both the full sample and for the subsample of unconstrained households. These results suggest that the life cycle/permanent income hypothesis does not apply in Japan and that the presence of borrowing constraints is not the main reason why it does not apply.
    JEL: D1 D9 E2 G1
    Date: 2006–06
  5. By: Kuijs, Louis
    Abstract: This paper investigates how China ' s saving, investment, and saving-investment balance will evolve in the decades ahead. Household saving in China is relatively high compared with OECD countries. However, much of China ' s high economywide saving, and the difference between China and other countries, are due to unusually high enterprise and government saving. Moreover, cross-country empirical analysis shows that economywide saving and investment in China are higher than what would be expected, even adjusting for differences in economic structure. Combined, these findings suggest that much of China ' s high saving is the result of policies particular to China. Looking ahead, the econometric results suggest that purely on the basis of projected structural developments-including development, changes in economic structure, urbanization, and demographics-saving and investment would both decline only mildly in the coming two decades, with ambiguous impact on the current account surplus. However, the potential effect on saving, investment, and the saving-investment balance of several policy adjustments could be large. Several of these policies are identified and their likely impact assessed and quantified. This exercise suggests that rebalancing along these lines should reduce both saving and the current account surplus over time, although the surplus is unlikely to turn into a deficit soon.
    Keywords: Economic Theory & Research,Investment and Investment Climate,Economic Investment & Savings,Non Bank Financial Institutions,Contractual Savings
    Date: 2006–07–01
  6. By: Jiahua Che (Hong Kong University of Science Technology and William Davidson Institute); Giovanni Facchini (University of Illinois and University of Milan)
    Abstract: The dual track approach to market liberalization has been widely recognized as the key to the success of the Chinese economic reform. In this paper we study the effectiveness of this strategy in economic environments where the status quo government control is incomplete. We show that in a dynamic context intertemporal arbitrage will emerge, potentially resulting in efficiency losses and/or adverse distributional effects. Only when the status quo involves both price and quantity interventions by the government can dual track liberalization maintain its appeal. Our analysis thus suggests some caution as for the broader applicability of this reform mechanism.
    Keywords: Dual Track Liberalization, Intertemporal Arbitrage, Pareto Improving Reforms, China
    JEL: H2 P2 F1
    Date: 2005
  7. By: Heikki Räisänen
    Abstract: This study compares the job-broking market of Japan and Finland. The study is based on statistical and literature analysis and interviews at the Public Employment Service. The Japanese labour market can be divided into a new graduate market and a mid-career market. The Japanese recruitment market is more lively compared with the Finnish market. In Japan substituting those retired is an important reason for recruiting, as in Finland new jobs and turnover of labour force are main reasons. Recruiting new graduates is based on longer-term assessment is Japan. There are many similarities in job-broking technology between the Japanese and the Finnish PES. The use of the Internet is broad and efficient, but also selectivity is being emphasised. The PES sees its role in both countries as being one recruitment channel among others and the PES introduces all recruitment channels in a versatile way to its customers. The mobile phone is not considered as good as the Internet as to job-broking technology in either of the countries, because the amount of information is limited in the mobile technology. In the skill issues of the PES there are many differences between the countries. In Japan the PES sees its role being more between the employers and the job-seekers, as in Finland this traditional role is about to change more into promoting direct contacts between the two. The use of multiple and overlapping recruitment channels is more common in Finland than in Japan where the use of channels is more well-established.
    Keywords: Job-Broking, Job-Broking Technology, Skills, Recruitment, The Public Employment Service, Japan, Finland
    JEL: O57 J68 H41
    Date: 2005–11–30
  8. By: Simeon Djankov (The World Bank); Yingyi Qian (UC Berkeley and CEPR); Gerard Roland (UC Berkeley and CEPR); Ekaterina Zhuravskaya (New Economic School/CEFIR and CEPR)
    Abstract: Social scientists studying the determinants of entrepreneurship have emphasized three distinct perspectives: the role of institutions, the role of social networks and the role of personal characteristics. We conduct a survey from five large developing and transition economies to better understand entrepreneurship in view of these three perspectives. Using data from a pilot study with over 2,000 interviews in 7 cities across China, we find that compared to non entrepreneurs, entrepreneurs are much more likely to have family members who are entrepreneurs as well as childhood friends who became entrepreneurs, suggesting that social networks play an important role in entrepreneurship. Entrepreneurs also differ strongly from non entrepreneurs in their attitudes towards risk and their work-leisure preferences.
    Date: 2005–10
  9. By: Dean Yang
    Abstract: Millions of households in developing countries receive financial support from family members working overseas. How do migrant earnings affect origin-household investments? This paper examines Philippine households’ responses to overseas members’ economic shocks. Overseas Filipinos work in dozens of foreign countries, which experienced sudden (and heterogeneous) changes in exchange rates due to the 1997 Asian financial crisis. Appreciation of a migrant’s currency against the Philippine peso leads to increases in household remittances received from overseas. The estimated elasticity of Philippine-peso remittances with respect to the Philippine/foreign exchange rate is 0.60. These positive income shocks lead to enhanced human capital accumulation and entrepreneurship in migrants’ origin households. Child schooling and educational expenditure rise, while child labor falls. In the area of entrepreneurship, households raise hours worked in self-employment, and become more likely to start relatively capital-intensive household enterprises.
    JEL: D13 F22 I2 I3 J22 J23 J24 O12 O15
    Date: 2006–06
  10. By: Hirofumi Uchida; Gregory F. Udell; Nobuyoshi Yamori
    Abstract: Theoretical and empirical work suggests that commercial loan officers play a critical role in relationship lending by producing soft information about their SME borrowers. We test whether loan officers in the Japanese SME loan market perform this role in a manner that is consistent with the theoretical predictions in the relationship lending literature. While we find limited evidence that soft information may benefit SME borrowers, we do not find evidence that is on balance consistent with theoretical predictions that loan officers produce soft information that is not easily transmitted to others within the bank. These results are consistent with alternative explanations including the possibility that the social environment in Japan leads to a credit culture where it is easier to transmit soft information from one loan officer to another. It could also be consistent with the possibility that the relationship lending may not be particularly important in the Japanese SME loan market.
    Date: 2006–06
  11. By: Charles Yuji Horioka
    Abstract: In this paper, I survey the previous literature on the saving behavior of the aged in Japan and then present some survey data on the saving behavior of the aged in Japan that became available recently. To summarize the main findings of this paper, all previous studies as well as the newly available data I analyze find that the retired aged dissave and that even the working aged dissave at very advanced ages. These findings are consistent with the life cycle model and suggest that this model is highly applicable in the case of Japan.
    JEL: D12 D91 E21
    Date: 2006–07
  12. By: John Fernald; Brent Neiman
    Abstract: The newly industrialized economies (NIEs) of Asia are the fastest-growing economies in the world since 1960. A clear understanding of their rapid development remains elusive, with continuing disputes over the roles of technology growth, capital accumulation, and international trade and investment. We reconcile seemingly contradictory explanations by accounting for imperfections in output and capital markets. For instance, in Singapore, growth-accounting studies using quantities (the primal approach) find rising capital-output ratios and a constant labor share; but studies using real factor prices (the dual approach) find a constant user cost. We provide evidence that "favored" firms reaped economic profits and received preferential tax treatment, subsidies, and access to capital-- market imperfections that are difficult to capture when implementing the dual approach. Further, declining pure profits can reconcile the constant or rising labor shares in revenue in the NIEs with theories of international trade that predict falling labor shares in cost. We provide empirical support for the quantitative importance of profits and heterogeneous user costs, describe the two-sector dynamics, and derive measures of technology growth, corrected for the imperfections that we quantify. We then discuss implications for broader disputes about Asian development.
    Keywords: Asia ; Economic conditions ; Productivity
    Date: 2006
  13. By: Newell, Richard G. (Resources for the Future); Pizer, William A. (Resources for the Future)
    Abstract: Seminal work by Weitzman (1974) revealed that prices are preferred to quantities when marginal benefits are relatively flat compared to marginal costs. We extend this comparison to indexed policies, where quantities are proportional to an index, such as output. We find that policy preferences hinge on additional parameters describing the first and second moments of the index and the ex post optimal quantity level. When the ratio of these variables’ coefficients of variation divided by their correlation is less than two, indexed quantities are preferred to fixed quantities. A slightly more complex condition determines when indexed quantities are preferred to prices. Applied to the case of climate change, we find that quantities indexed to GDP are preferred to fixed quantities for about half of the 19 largest emitters, including the United States and China, while (consistent with previous work) prices dominate for all countries.
    Keywords: price, quantity, regulation, uncertainty, policy, environment, climate change
    JEL: Q28 D81 C68
    Date: 2006–06–20
  14. By: Elias Papaioannou; Richard Portes; Gregorios Siourounis
    Abstract: Foreign exchange reserve accumulation has risen dramatically in recent years. The introduction of the euro, greater liquidity in other major currencies, and the rising current account deficits and external debt of the United States have increased the pressure on central banks to diversify away from the US dollar. A major portfolio shift would significantly affect exchange rates and the status of the dollar as the dominant international currency. We develop a dynamic mean-variance optimization framework with portfolio rebalancing costs to estimate optimal portfolio weights among the main international currencies. Making various assumptions on expected currency returns and the variance-covariance structure, we assess how the euro has changed this allocation. We then perform simulations for the optimal currency allocations of four large emerging market countries (Brazil, Russia, India and China), adding constraints that reflect a central bank’s desire to hold a sizable portion of its portfolio in the currencies of its peg, its foreign debt and its international trade. Our main results are: (i) The optimizer can match the large share of the US dollar in reserves, when the dollar is the reference (risk-free) currency. (ii) The optimum portfolios show a much lower weight for the euro than is observed. This suggests that the euro may already enjoy an enhanced role as an international reserve currency ("punching above its weight"). (iii) Growth in issuance of euro-denominated securities, a rise in euro zone trade with key emerging markets, and increased use of the euro as a currency peg, would all work towards raising the optimal euro shares, with the last factor being quantitatively the most important.
    JEL: F02 F30 G11 G15
    Date: 2006–06
  15. By: Subrata Ghatak; José R. Sánchez-Fung
    Abstract: This paper investigates fiscal policy sustainability in Peru, the Philippines, South Africa, Thailand, and Venezuela using competing methodologies. Standard unit roots and cointegration analyses do not endorse the validity of the intertemporal budget constraint. In contrast, to varying degree across-countries, alternative testing employing a fiscal policy reaction function indicates sustainability defined as surplus adjustments in response to higher debt to income ratios. Corresponding debt-dynamics analyses show that corrective measures were put in place to revert non-sustainable trends in government debt. However, ancillary variables in the debt modeling produce statistically weak evidence of procyclical fiscal behavior in the Latin American countries.
    Keywords: fiscal policy sustainability, fiscal policy reaction functions, developing countries
    Date: 2006–03–21
  16. By: Junyi Shen (Institute of Social and Economic Research, Osaka University); Yusuke Sakata (School of Economics, Kinki University); Yoshizo Hashimoto (Osaka Prefectural Institute for Advanced Industry Development)
    Abstract: The necessity of applying Cost Benefit Analysis (CBA) in evaluating the validity of a public transport investment is well recognized by policy makers in recent days. Originating in a sense of this fact, we implement CBA in a new project called Osaka Monorail Saito Linefs extension by applying a Choice Experiment (CE) method. It is estimated that the benefit cost (B/C) ratio is 1.87 under a basic scenario. In addition, with a consideration on different kinds of uncertainty in the future, a number of sensitivity analyses are implemented. The results of sensitivity analysis indicate that the possibility of generating net benefit is extremely high for the project studied here.
    Keywords: Cost Benefit Analysis, Choice Experiment (CE) method, Monorail, Sensitive Analysis
    JEL: C25 D61 R42
    Date: 2006–07
  17. By: Jens Matthias Arnold (World Bank and Bocconi University); Beata Smarzynska Javorcik (World Bank and CEPR)
    Abstract: This paper uses micro data from the Indonesian Census of Manufacturing to analyze the causal relationship between foreign ownership and plant productivity. To control for the possible endogeneity of the FDI decision, a difference-in-differences approach is combined with propensity score matching. An advantage of this method, which has not been previously applied in this context, is the ability to follow the timing of observed changes in productivity and other aspects of plant performance. The results suggest that foreign ownership leads to significant productivity improvements in the acquired plants. The improvements become visible in the acquisition year and continue in subsequent periods. After three years, the acquired plants outperform the control group in terms of productivity by 34 percentage points. The data also suggest that the rise in productivity is a result of restructuring, as acquired plants increase investment outlays, employment and wages. Foreign ownership also appears to enhance the integration of plants into the global economy through increased exports and imports.
    Keywords: foreign direct investment, productivity
    JEL: F23 O33 D24
    Date: 2005
  18. By: Marco Arena; Carmen Reinhart; Francisco Vázquez
    Abstract: This paper assembles a dataset comprising 1,565 banks in 20 Asian and Latin American countries during 1989-2001 and compares the response of the volume of loans, deposits, and bank-specific interest rates on loans and deposits, to various measures of monetary conditions, across domestic and foreign banks. It also looks for systematic differences in the behavior of domestic and foreign banks during periods of financial distress and tranquil times. Using differences in bank ownership as a proxy for financial constraints on banks, the paper finds weak evidence that foreign banks have a lower sensitivity of credit to monetary conditions relative to their domestic competitors, with the differences driven by banks with lower asset liquidity and/or capitalization. At the same time, the lending and deposit rates of foreign banks tend to be smoother during periods of financial distress, albeit the differences with domestic banks do not appear to be strong. These results provide weak support to the existence of supply-side effects in credit markets and suggest that foreign bank entry in emerging economies may have contributed somewhat to stability in credit markets.
    JEL: E51 G21
    Date: 2006–06
  19. By: Lundahl, Mats (Department of Economics); Sjöholm, Fredrik (European Institute of Japanese Studies)
    Abstract: Timor-Leste began its independence as one of the poorest nations in the world. Substantial progress has been made thereafter but the challenges for future development are numerous. High population growth and modest growth of GDP means that per capita income is declining and that the extent of poverty is increasing. For this situation to change, income opportunities other than those provided by subsistence agriculture are needed. Considering the low level of education and the keen competition for skilled personnel this, however, is difficult. So far, it seems that most skilled workers are being absorbed by the public sector and that this is pushing up the already high skilled wage level. That, in turn, affects the competitiveness of the private sector negatively and acts as an obstacle to the creation of employment opportunities outside agriculture.
    Keywords: Timor-Leste; Job Creation; Development; Industry
    JEL: O10 O14 O15
    Date: 2006–06–27

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