nep-sea New Economics Papers
on South East Asia
Issue of 2006‒10‒14
twenty papers chosen by
Kavita Iyengar
Asian Development Bank

  1. The impact of bank and non-bank financial institutions on local economic growth in China By Cheng,Xiaoqiang; Degryse,Hans
  2. Are Currency Appreciations Contractionary in China� By Jianhuai Shi
  3. Removing border protection on wheat and rice: effects on rural income and food securities in China By Yinhua Mai
  4. Innovations and Economic Growth in a Fast Changing Global Economy: Comparative Experience of Asian Countries By Singh, Lakhwinder
  5. Firm ownership and FDI spillovers in China By Galina Hale; Cheryl Long
  6. Regional business cycle phases in Japan By Howard J. Wall
  7. An economic interpretation of suicide cycles in Japan By Jahyeong Koo; W. Michael Cox
  8. The Evolution of Income Concentration in Japan, 1886-2002: Evidence from Income Tax Statistics By Chiaki Moriguchi; Emmanuel Saez
  9. Policy distortions in the segmented rice market: By Rakotoarisoa, Manitra A.
  10. Trade in Northeast Asia: Why do Trade Costs Matter? By Prabir De
  11. The great inflation and early disinflation in Japan and Germany By Edward Nelson
  12. The demography of youth in developing countries and its economic implications By Lam, David
  13. Philippine rice and rural poverty: an impact analysis of market reform using CGE By Cororaton, Caesar B.
  14. Technological Progress, Structural Change and Productivity Growth in Manufacturing Sector of South Korea By Singh, Lakhwinder
  15. Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade By Richard Baldwin
  16. Contagious Capitalism. By Peter T. Leeson; Russell S. Sobel
  17. Do Television and Radio Destroy Social Capital? Evidence from Indonesian Villages By Benjamin A. Olken
  18. On Measuring Influence in Non-Binary Voting Games By Vincent C H Chua; C H Ueng
  19. Multivariate Stochastic Volatility Models: Bayesian Estimation and Model Comparison By Jun Yu; Renate Meyer
  20. Skill-Upgrading and the Savings of Immigrants By Cristobal, Adolfo

  1. By: Cheng,Xiaoqiang; Degryse,Hans (Tilburg University, Center for Economic Research)
    Abstract: This paper provides evidence on the relationship between finance and growth in a fast growing country, such as China. Employing data of 27 Chinese provinces over the period 1995-2003, we study whether the financial development of two different types of institutions - banks and non-bank financial institutions - have a (significantly different) impact on local economic growth. Our findings indicate that only banking development shows a statistically significant and economically relevant impact on local economic growth.
    Keywords: growth;financial development;Chinese provinces;banks
    JEL: E44 G21
    Date: 2006
  2. By: Jianhuai Shi
    Abstract: The Chinese economy has been in a state of external and internal imbalances for some years, which has something to do with the undervaluation of renminbi (RMB). But the Chinese Government hesitates to allow RMB to appreciate because of the worry that RMB appreciations are contractionary thus have negative impact on China's economic growth and employment. The purpose of this paper is to empirically assess the effects of RMB real exchange rate on China's output. The econometric results of the paper show that (1) even after source of spurious correlation is controlled for, RMB appreciation has led to a decline in China’s output, suggesting that RMB appreciations are contractionary, and that (2) once the international finance linkage of Chinese economy is accounted for, the effect of RMB real exchange rate shocks on China’s output and the power of the shocks in explaining the change of China’s output are diminished. The paper gives some possible explanations to those findings, and points out that the findings do not necessarily imply that China should continue maintaining the undervaluation of RMB.
    JEL: F31 F41 O53
    Date: 2006–10
  3. By: Yinhua Mai
    Abstract: In this paper, I use the Monash Multi-Country (MMC) model - a dynamic CGE model of China, Australia and the Rest of the World - to analyse the effects of removing border protection on wheat and rice in China. The analysis points to the possibility that removing border protection on wheat and rice may lead to an increase in rural income in China. This is due mainly to the following two factors. First, while removing border protection on wheat and rice leads to a contraction in agricultural activities, it also leads to an expansion in manufacturing and services activities. Second, on average, rural households in China obtain over half of their income from manufacturing and services activities.
    Keywords: China, Wheat and rice, CGE modelling, rural income
    JEL: C68 F14 Q17
    Date: 2006–05
  4. By: Singh, Lakhwinder
    Abstract: Innovations spur growth and economic transformation is widely acclaimed in economic growth literature. The transition in the national innovation system is the fundamental determinant of long-run economic growth and development. This is being reflected through the changes which are occurring in the economic structure of an economy as well as in the structure of the innovation system. Since the national economies are growing in the interdependent world, therefore national innovation system is continuously being influenced by the changes occurring in other parts of the world. Transformation of East Asian countries from imitation to reaching the frontier areas of innovations in a short span of time is a question that has been explored in this paper. Asian continent has emerged as the hub of innovative activities in the fast pace of globalization. Within Asian continent, there are wide differentials in the stage of economic development and transformation as well as in the national innovation systems. Two distinct patterns of economic transformation and systems of innovations which has evolved over time are-one, based on building strong industrial sector as an engine of innovations and growth; two, the engine of growth is the service sector and innovation system is heavily dependent on foreign capital. Recently, while recognizing the innovative capacity of some of the Asian countries, foreign R&D has devastated the boundaries of the Asian innovation system. Domestic agents of production have realized that there lies a dire need for the support of the state when innovations are being done on the frontiers of knowledge. Situational assessment surveys have also supported the view that Asian countries are fast approaching towards the frontiers of knowledge and innovations. Asian countries, themselves are competing to fast approach towards frontiers of knowledge and innovations so that newer areas of commercial activities can be explored and exploited in the global market. This paper while learning from East Asian innovation policies has also explored the role of national and international agencies in strengthening the national innovation systems of the less developed countries in the fast changing global economy.
    Keywords: Technology policy; technological indicators; national innovation system; structural transformation; innovation institutions; economic growth; Asia
    JEL: O33
    Date: 2006–10–03
  5. By: Galina Hale; Cheryl Long
    Abstract: Using firm-level data, we find that the presence of foreign firms in China is positively associated with the performance of private firms, but is negatively associated with the performance of state owned enterprises (SOEs). In particular: (1) the presence of foreign direct investment (FDI) is aggravating the differences in the wages and the quality of skilled workers between SOEs and private firms; (2) the total factor productivity (TFP) and market share tend to be lower in the presence of FDI for SOEs, but not for the private firms; (3) FDI presence is positively associated with private firms' sales, especially their sales to foreign firms and foreign consumers, but not with the sales of SOEs. We argue that these differences are due to the fact that private firms have more flexible wage and personnel policies, which allows them to attract talents that facilitate positive FDI spillovers. In addition, we find that regulatory environment has improved for private firms in the cities and industries with high FDI presence.
    Keywords: Investments, Foreign ; China
    Date: 2006
  6. By: Howard J. Wall
    Abstract: This paper uses a Markov-switching model with structural breaks to characterize and compare regional business cycles in Japan for 1976-2005. An early 1990s structural break meant a reduction in national and regional growth rates in expansion and recession, usually resulting in an increase in the spread between the two phases. Although recessions tended to be experienced across a majority of regions throughout the sample period, the occurrence and lengths of recessions at the regional level have increased over time.
    Keywords: Business cycles ; Economic conditions - Japan
    Date: 2006
  7. By: Jahyeong Koo; W. Michael Cox
    Abstract: Suicide rates in Japan have increased dramatically in recent years, making Japan's male rate the highest among developed economies. This study revises the standard economic model of suicide to accommodate Japan's experience, focusing on the change in human capital for the unemployed. We then use the new model and de-trended data to emperically investigate the relationship between the suicide cycle and the unemployment cycle. Unlike previous aggregate time series studies, we find that the relationship between the suicide rate and the unemployment rate is significantly and robustly positive for both males and females even after controlling for several social variables.
    Keywords: Human capital ; Unemployment
    Date: 2006
  8. By: Chiaki Moriguchi; Emmanuel Saez
    Abstract: This paper studies the evolution of income concentration in Japan from 1886 to 2002 by constructing long-run series of top income shares and top wage income shares, using income tax statistics. We find that (1) income concentration was extremely high throughout the pre-WWII period during which the nation underwent rapid industrialization; (2) a drastic de-concentration of income at the top took place in 1938-1945; (3) income concentration has remained low throughout the post-WWII period despite the high economic growth; and (4) top income composition in Japan has shifted dramatically from capital income to employment income over the course of the 20th century. We attribute the precipitous fall in income concentration during WWII primarily to the collapse of capital income due to wartime regulations and inflation. We argue that the change in the institutional structure under the occupational reforms made the one-time income de-concentration difficult to reverse. In contrast to the sharp increase in wage income inequality observed in the United States since 1970, the top wage income shares in Japan have remained remarkably stable over the recent decades. We show that the change in technology or tax policies alone cannot account for the comparative experience of Japan and the United States. Instead we suggest that institutional factors such as corporate governance and union structure are important determinants of wage income inequality.
    JEL: H24 N15
    Date: 2006–10
  9. By: Rakotoarisoa, Manitra A.
    Abstract: "High production and export subsidies in developed countries and high protection in both developed and developing countries have distorted rice trade. This study estimates the impact of rice policy distortions on developing countries' rice production and trade potential. Because rice markets are highly segmented, major rice types are differentiated to estimate the impact of current and likely policy reforms. Analysis in long-grain, high-quality rice focuses on rice import and export markets in Latin America and shows that reduction of direct and implicit export subsidies in the US will benefit regional suppliers such as Argentina and Uruguay. Analysis of Indonesia's import market of ordinary long-grain rice, where protection is high, reveals that tariff hikes in this large importing country are in part a response to increased support from the exporting side. Level of domestic stocks also determines tariff movements. In the short/medium grain rice market, this study focuses on the highly supported and protected rice market in Japan and find that only aggressive rates of increase in import tariff-rate quota and reduction in production subsidies would have significant impact on import volume and price. Prices and trade would also be affected by a reduction of the high over-quota tariff." from Authors' Abstract
    Keywords: exports, subsidies, Rice trade, Rice markets, tariffs, Imports,
    Date: 2006
  10. By: Prabir De
    Abstract: Trade costs are often cited as an important determinant of the volume of trade. This paper provides enough evidences to ascertain that today’s trade issues in Northeast Asia go beyond the traditional mechanisms of tariffs, and include “behind-the-border” issues. By estimating a modified gravity equation, controlling for endogeneity and remoteness, we find that variations in transaction costs along with trade infrastructure facilities have significant influence on regional trade flows in Northeast Asia. On average, 10 percent saving in transaction costs increases imports by about 5 percent in Northeast Asia. This paper concludes that when tariffs tend to become low in Northeast Asia, the economies in this region could potentially benefit substantially from higher trade provided trade costs are well controlled.
    Keywords: trade costs, transaction costs, infrastructure, regional trade, tariff
    JEL: F02 F10 F15
    Date: 2006
  11. By: Edward Nelson
    Abstract: This paper considers the Great Inflation of the 1970s in Japan and Germany. From 1975 onward these countries had low inflation relative to other large economies. Traditionally, this success is attributed to a stronger discipline on the part of Japan and Germany*s monetary authorities*for example, more willingness to accept temporary unemployment, or stronger determination not to monetize government deficits. I instead attribute the success of these countries from the mid-1970s to their governments* and monetary authorities* acceptance that inflation is a monetary phenomenon. Symmetrically, their higher inflation in the first half of the 1970s is attributable to the fact that their policymakers over this period embraced nonmonetary theories of inflation.
    Keywords: Inflation (Finance) ; Economic conditions - Japan ; Economic conditions - Germany
    Date: 2006
  12. By: Lam, David
    Abstract: The number of young people is reaching unprecedented levels in most developing countries. In many countries, especially in East Asia and Latin America, youth populations are at or near their peak, and will decline in coming decades. In other countries, especially in Africa and South Asia, youth populations will continue growing for several decades. From an economic perspective, absolute numbers may be less important than the growth rate or relative size of youth cohorts. Growth rates and the ratio of youth to working-age population reached a peak in the 1970s or 1980s in most developing countries. The worst economic pressures of youth demography may have already occurred in many countries, although significant pressure will continue in Africa and South Asia.
    Keywords: Population Policies,Youth and Governance,Adolescent Health,Demographics,Health Indicators
    Date: 2006–10–01
  13. By: Cororaton, Caesar B.
    Abstract: "This paper looks at how Philippine trade reform which consists of tariff reduction and elimination of quantitative restrictions (QR) on rice imports will affect poverty within two world trade scenarios: Doha and free world trade. The impact of Doha is very small and generates biased effects against agriculture. The impact of Philippine trade reform within the Doha agenda magnifies this biased effect, making rural households worse-off compared to urban households. However, eliminating rice QR generates a set of effects where consumer price reduction dominates nominal income decline. Thus, real income improves and poverty declines across household groups, but the net effects are lower in rural than in urban households. The impact of a free world trade economy is favorable in terms of higher export prices and export demand for agriculture and agriculture-related manufacturing industries. This mitigates the biased effects against agriculture, and is therefore favorable to rural households. However, if Philippine trade reform is added to the analysis, the result switches back to the previous biased effects on agriculture and on rural households." Author's Abstract
    Keywords: rice, Impact analysis, Agriculture, Poverty, Computable general equilibrium (CGE), Trade reform, Doha agreement, Free trade, Rural households, Urban households, consumer prices,
    Date: 2006
  14. By: Singh, Lakhwinder
    Abstract: This paper focuses on the impact of technology, structural change on the aggregate productivity growth in manufacturing sector of South Korea, using the eight firm size classes over the period 1970-2000. The conventional shift-share analysis is used to measure the impact of shift of both labor and capital inputs. The results show that structural change on average has been conducive to productivity growth during the 1970s and this pattern reversed afterwards. Small and medium industries were more dynamic in terms of reallocation of resources, however, their positive impact out-weighed because of the dominance of large sized firms in the manufacturing sector. Deliberate state policy favoring large sized firms has impeded restructuring process facilitated by technical progress may have a penalty in terms of forgone growth.
    Keywords: Productivity growth; structural share analysis; technological change; manufacturing employment growth; South Korea
    JEL: L6 O4 O33
    Date: 2006–10–04
  15. By: Richard Baldwin
    Abstract: This paper addresses the final steps to global free trade -- the political economy forces that might drive them, and the role the WTO might play in guiding them. Two facts form the departure point: 1) Regionalism is here to stay; 2) the motley assortment of regional trade agreements is not the best way to organise world trade. Moving to global duty-free trade will require a multilateralisation of regionalism. The paper presents the political economy logic of trade liberalisation and uses it to structure a narrative of world trade liberalisation since 1947. The logic is then used to project the world tariff map in 2010, arguing that the pattern will be marked by fractals – fuzzy, leaky trade blocs made up of fuzzy, leaky sub-blocs (fuzzy since the proliferation of FTAs makes it impossible to draw sharp lines around the 3 big blocs, and leaky since some FTAs create free trade ’canals’ linking the blocs). The paper then presents a novel political economy mechanism – spaghetti bowls as building blocs – whereby offshoring creates a force that encourages the multilateralisation of regionalism. Finally, the paper suggests three things the WTO could do to help multilateralise regionalism.
    JEL: F1 F15
    Date: 2006–10
  16. By: Peter T. Leeson (Department of Economics, West Virginia University); Russell S. Sobel (Department of Economics, West Virginia University)
    Abstract: Is capitalism contagious? Since WWI, global foreign policy has treated economic freedom/repression like a virus that spreads between countries. Most recently, the "domino theory" of freedom has played prominently in U.S. foreign policy toward Asia, Latin America, and the Caribbean during the Cold War, and the Middle East during the War on Terror. This paper investigates the spread of economic freedom between nations. Our analysis considers two potential channels of this spread: geography and trade. We estimate two models of spatial dependence using panel data that cover more than 100 countries between 1985 and 2000. We find that capitalism is in fact contagious. Countries consistently "catch" about 20 percent of their average geographic neighbors'and trading partners' levels and changes in economic freedom. We also explore American foreign military intervention's ability to spread economic freedom abroad. We find that although intervention may increase freedom in U.S.-occupied countries, this freedom is not contagious. Using our estimates of freedom's spread when it is contagious, we simulate the impact of successful Iraqi occupation on Middle Eastern freedom. Even under the most favorable assumptions, we find that U.S. occupation would minimally improve freedom in this region.
    Date: 2006
  17. By: Benjamin A. Olken
    Abstract: In "Bowling Alone," Putnam (1995) famously argued that the rise of television may be responsible for social capital's decline. I investigate this hypothesis in the context of Indonesian villages. To identify the impact of exposure to television (and radio), I exploit plausibly exogenous differences in over-the-air signal strength associated with the topography of East and Central Java. Using this approach, I find that better signal reception, which is associated with more time spent watching television and listening to radio, is associated with substantially lower levels of participation in social activities and with lower self-reported measures of trust. I find particularly strong effects on participation in local government activities, as well as on participation in informal savings groups. However, despite the impact on social capital, improved reception does not appear to affect village governance, at least as measured by discussions in village-level meetings and by corruption in a village-level road project.
    JEL: Z13
    Date: 2006–10
  18. By: Vincent C H Chua (School of Economics and Social Sciences, Singapore Management University); C H Ueng (Victoria Junior College)
    Abstract: In this note, we demonstrate using two simple examples that generalization of the Banzhaf measure of voter influence to non-binary voting games that requires as starting position a voter’s membership in a winning coalition is likely to incompletely reflect the influence a voter has on the outcome of a game. Generalization of the Banzhaf measure that takes into consideration all possible pivot moves of a voter including those moves originating from a losing coalition will, on the other hand, result in a measure that is proportional to the Penrose measure only in the ternary case.
    Keywords: Penrose measure, Banzhaf index, ternary games, multicandidate weighted voting games
    JEL: C6 D7
    Date: 2004–12
  19. By: Jun Yu (School of Economics and Social Sciences, Singapore Management University); Renate Meyer (University of Auckland)
    Abstract: In this paper we show that fully likelihood-based estimation and comparison of multivariate stochastic volatility (SV) models can be easily performed via a freely available Bayesian software called WinBUGS. Moreover, we introduce to the literature several new specifications which are natural extensions to certain existing models, one of which allows for time varying correlation coefficients. Ideas are illustrated by fitting, to a bivariate time series data of weekly exchange rates, nine multivariate SV models, including the specifications with Granger causality in volatility, time varying correlations, heavytailed error distributions, additive factor structure, and multiplicative factor structure. Empirical results suggest that the most adequate specifications are those that allow for time varying correlation coefficients.
    Keywords: Multivariate stochastic volatility; Granger causality in volatility; Heavy-tailed distributions; Time varying correlations; Factors; MCMC; DIC.
    JEL: C11 C15 C30 G12
    Date: 2004–11
  20. By: Cristobal, Adolfo
    Abstract: This note derives positive and normative implications about the effects of immigration on welfare and the skill composition of the labor force in receiving economies. The main channel through which immigration affects labor-market outcomes is the availability of new loanable funds for investment, which results in endogenous skill-upgrading. Given their high training costs and their lifelong working period, immigrants self-select as net lenders, which facilitates the upgrading of both new generations of natives and migrants. Under sufficient altruism towards future generations, this induces a Pareto-improvement among the current generations of natives.
    JEL: J61 J31
    Date: 2006–06–27

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