nep-sea New Economics Papers
on South East Asia
Issue of 2006‒11‒04
thirteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Exchange rate policy and the relative distribution of FDI among host countries By Xing, Yuqing
  2. Volatility transmissions between renminbi and Asia-Pacific on-shore and off-shore U.S. dollar futures By Colavecchio , Roberta; Funke, Michael
  3. The fiscal framework and urban infrastructure finance in China By Ming Su; Quanhou Zhao
  4. New Rates from New Weights By Bayoumi, Tamim; Jayanthi, Sarma; Lee, Jaewoo
  5. Rules of origin for preferential trading arrangements : implications for the ASEAN Free Trade Area of EU and U.S. experience By Cadot, Olivier; de Melo, Jaime; Portugal-Perez, Alberto
  6. Land leasing and land sale as an infrastructure-financing option By Peterson, George E.
  7. Money at Low Frequencies By Assenmacher-Wesche, Katrin; Gerlach, Stefan
  8. North-South Trade and Economic Growth By Dinopoulos, Elias; Segerstrom, Paul
  9. Economic Appraisal of Profitability and Sustainability of Peri-Urban Agriculture in Bangkok By Vagneron, I.
  10. Dynamic vs. Static Stock Index Futures Hedging: A Case Study for Malaysia By J. L. Ford, Wee Ching Pok and S. Poshakwale
  11. Paternity Deferments and the Timing of Births: U.S. Natality During the Vietnam War By Andrea Kutinova
  12. The Predictability of KLSE CI Stock Index Futures Returns and The Conditional Multifactor APT Model By J. L. Ford, Wee Ching Pok and S. Poshakwale
  13. Trade reforms and welfare : an ex-post decomposition of income in Vietnam By Isik-Dikmelik, Aylin

  1. By: Xing, Yuqing (BOFIT)
    Abstract: This paper examines the FDI-exchange rate nexus in the context of one FDI source and two host countries. It focuses on the effect of exchange rates on relative FDI inflows between the two host countries. The theoretical analysis shows explicitly that relative FDI inflows are a function of relative real exchange rates. In particular, if one host country devalues its currency against that of the source country more than the other does, FDI into the former country will be expected to increase relative to the other country. The theoretical inference is examined with Japanese FDI in manufacturing industries of China and ASEAN-4 (Indonesia, Malaysia, the Philippines and Thailand). The empirical results generally support the theoretical conclusion, suggesting that the real devaluation of the Chinese Yuan undercut FDI into the ASEAN-4.
    Keywords: FDI; exchange rate; China; ASEAN-4
    JEL: F14 F23 F31
    Date: 2006–10–26
  2. By: Colavecchio , Roberta (BOFIT); Funke, Michael (BOFIT)
    Abstract: This paper uses multivariate GARCH techniques to study volatility spillovers between the Chinese non-deliverable forward market and seven of its Asia-Pacific counterparts over the period January 1998 to March 2005. To account for the time-variability of conditional correlation, a dynamic correlation structure is included in the volatility model specification. The empirical results demonstrate that the renminbi non-deliverable forward (NDF) has been a driver of various Asian currency markets but that such co-movements exhibit a substantial degree of heterogeneity. As to the determinants of the magnitude of these co-movements, we test the relevance of potential factors and find that it is the degree of real and financial integration, in particular, that exerts the largest influence on volatility transmission.
    Keywords: China; renminbi; Asia; forward exchange rates; non-deliverable forward market; multivariate GARCH models
    JEL: C22 F31 F36
    Date: 2006–10–26
  3. By: Ming Su; Quanhou Zhao
    Abstract: China has experienced more than 25 years of extraordinary economic growth. Underlying this growth has been a decentralized fiscal system, in which provinces and large cities are given the freedom to make infrastructure investments to stimulate local development, and are allowed to retain a large part of the fiscal revenues that are generated from economic activity. Although successful as a growth strategy, this policy created two problems for national fiscal management. First, it significantly reduced the central government ' s share of fiscal revenues, which fell from 34.8 percent in 1980 to 22 percent in 1992. Second, it widened economic and fiscal disparities between the rapidly growing urban coastal region and the rest of the country. Rapid growth in subnational debt (which rose 23-fold in a decade) and subnational nonperforming loans (estimated by the authors to range between US$100 billion and US$150 billion) has placed pressure on China ' s financial system. Traditionally, China has favored bank lending as a source of finance because the banking system has provided a vehicle for central political control over local debt. But as China ' s financial system matures, creditworthiness standards must become more important. The authors recommend greater use of the revenue streams from infrastructure assets as a financing source, and gradual relaxation of central political control over subnational debt. One step in this direction would permit leading cities to issue municipal bonds based on objective financial standards.
    Keywords: Banks & Banking Reform,Urban Economics,Public & Municipal Finance,Municipal Financial Management,Intergovernmental Fiscal Relations and Local Finance Management
    Date: 2006–11–01
  4. By: Bayoumi, Tamim; Jayanthi, Sarma; Lee, Jaewoo
    Abstract: This paper describes the result and the methodology of updating the IMF's nominal and real effective exchange rate weights on the basis of trade data over 1999-2001. The underlying framework is an updated version of the IMF's current effective exchange rate calculation, which uses weights largely based on 1989-91 data. Since then, substantial changes have occurred in international trade relations, warranting a recalculation of effective exchange rate indices on the basis of new trade patterns. Updated weights show that the United States and developing countries (most notably China) have grown in their importance in global trade, while Japan and the European Union have declined, with substantial implications for the path of the dollar and exchange rate effects of emerging market crises since 1995.
    Keywords: effective exchange rate; weight
    JEL: F10 F30
    Date: 2006–10
  5. By: Cadot, Olivier; de Melo, Jaime; Portugal-Perez, Alberto
    Abstract: With free trade areas (FTAs) under negotiation between Japan and the ASEAN Free Trade Area (AFTA) members and between the Republic of Korea and AFTA members, preferential market access will become more important in Asian regionalism. Protectionist pressures will likely increase through rules of origin, the natural outlet for these pressures. Based on the experience of the European Union and the United States with rules of origin, the authors argue that, should these FTAs follow in the footsteps of the EU and the U.S. and adopt similar rules of origin, trading partners in the region would incur unnecessary costs. Using EU trade under the Generalized System of Preferences with Africa, Caribbean, and Pacific partners, the authors estimate how the use of preferences would likely change if AFTA were to veer away from its current uniform rules of origin requiring a 40 percent local content rate. Depending on the sample used, a 10 percentage point reduction in the local value content requirement is estimated to increase the utilization rate of preferences by between 2.5 and 8.2 percentage points.
    Keywords: Free Trade,Rules of Origin,Trade and Regional Integration,Economic Theory & Research,Trade Policy
    Date: 2006–09–01
  6. By: Peterson, George E.
    Abstract: Municipal land sales provide one option for financing urban infrastructure investment. In countries where land is owned by the public sector, land is by far the most valuable asset on the municipal balance sheet. Selling land or long-term leasing rights to land use while investing the proceeds in infrastructure facilities can be viewed as a type of portfolio asset adjustment. This paper shows that in China many municipalities have financed more than half of their high rates of infrastructure investment from land sales, for periods of 10 to 15 years. Much of the remaining investment has been financed by municipal borrowing against the collateral of land values. Other countries also have turned to land sales and leasing for infrastructure finance. From a local perspective, land sales have the advantage that they typically are free from the intergovernmental restrictions that require higher-level approval for increases in local tax rates or user fees and that restrict local government borrowing. However, financing municipal infrastructure investment through land sales creates special risks that are not recognized in most intergovernmental fiscal frameworks. One danger involves the use of proceeds to finance operating budgets. Risk exposure is exaggerated by the highly volatile nature of urban land markets and evidence that in some countries urban land values in 2006 reflected a real estate bubble. In the past, Hong Kong, a jurisdiction that has relied heavily on land-leasing to finance its infrastructure budget, has seen land sales fall to zero at the bottom of the real estate cycle. The greatest financial sector risk stems from municipal borrowing based on inflated land values offered as collateral to banks. Sound intergovernmental fiscal management will require tighter regulation of municipalities ' financial leveraging of land assets to avoid excessive risk taking by local governments.
    Keywords: Public Sector Economics & Finance,Municipal Financial Management,Public Sector Management and Reform,Regional Governance,Urban Governance and Management
    Date: 2006–11–01
  7. By: Assenmacher-Wesche, Katrin; Gerlach, Stefan
    Abstract: Many central banks have abandoned monetary targeting because the link between money growth and inflation seemed to disappear in the 1980s. Using spectral regression techniques, we show that for the euro area, Japan, the UK and the US there is a unit relationship between money growth and inflation at low frequencies when the impact of interest rate changes on money demand is accounted for. We estimate Phillips-curve equations in which the low-frequency information from money growth is combined with high-frequency information from the output gap to explain movements in inflation.
    Keywords: frequency domain; Phillips curve; Quantity theory; spectral regression
    JEL: C22 E3
    Date: 2006–10
  8. By: Dinopoulos, Elias; Segerstrom, Paul
    Abstract: This paper develops a dynamic general equilibrium model of North-South trade and economic growth. Both innovation and imitation rates are endogenously determined as well as the degree of wage inequality between Northern and Southern workers. Northern firms devote resources to innovative R&D to discover higher quality products and Southern firms devote resources to imitative R&D to copy state-of-the-art quality Northern products. The steady-state equilibrium and welfare implications of three aspects of globalization are studied: increases in the size of the South (i.e., countries like China joining the world trading system), stronger intellectual property protection (i.e., the TRIPs agreement that was part of the Uruguay Round) and lower trade costs.
    Keywords: economic growth; globalization; North-South trade; trade costs; welfare
    JEL: F12 F43 O31 O34
    Date: 2006–10
  9. By: Vagneron, I.
    Abstract: Promoters of urban and peri-urban agriculture generally stress its positive role in terms of food security, income, employment and improvement of the urban environment. Unfortunately, competition with agricultural and non-agricultural uses of peri-urban farm land often translates into intensive farming systems that are detrimental to the environment. Based on two original surveys of peri-urban farms in the area of Bangok, this paper ranks four cropping systems (fish, shrimp, rice, and fruits) according to their economic profitability. A second step of the analysis aims at taking into account the cost of water into the analysis, so as to assess whether the hierarchy formerly established is modified. Although all environmental costs are not introduced and environmental benefits are ignored, this work paves the way for further research in the area of taking into account the environmental impact of farming activities. ...French Abstract : Les tenants de l'agriculture urbaine et péri-urbaine invoquent généralement son rôle positif en termes de sécurité alimentaire, de génération d'emplois et de revenus et d'amélioration de l'environnement urbain. Toutefois, la concurrence entre usages agricoles et non agricoles de la terre en zone péri-urbaine est malheureusement souvent à l'origine de systèmes agricoles intensifs préjudiciables à l'environnement. A partir de deux enquêtes effectuées dans des exploitations de la zone péri-urbaine de Bangkok, cet article tente de classer quatre systèmes productifs (aquaculture, pisciculture, riziculture et arboriculture fruitière) en fonction de leur rentabilité économique. Dans une seconde partie, nous cherchons à évaluer dans quelle mesure l'introduction du coût de l'eau (l'eau propre étant paradoxalement une ressource rare à Bangkok) dans l'analyse économique de la rentabilité des activités modifie la hiérarchie précédemment établie. Bien qu'imparfait (tous les coûts environnementaux ne sont pas inclus et d'éventuels bénéfices environnementaux sont ignorés), cet article constitue une tentative de prise en compte de l'impact environnemental dans les l'analyse économique des activités agricoles.
    JEL: D24 O13 Q12 Q51
    Date: 2006
  10. By: J. L. Ford, Wee Ching Pok and S. Poshakwale
    Abstract: Employing a bivariate GARCH(1,1) process for spot and futures markets returns, this paper determines the structure of the variance-covariance matrix in the BEKK model. Daily data from December 1995 to April 2001 are used for estimation. The differing structures, dynamic, diagonal and constant, are used to obtain hedging ratios which are then used to determine the variance reduction (and expected utility levels) that the alternative ratios produce. This is also accomplished for three sub-periods which accommodate the currency crisis period in Malaysia. Observations from April 2001 to July 2001 are used to evaluate the relative merits of the alternative hedging strategies in forecasting futures returns in Malaysia.
    Date: 2006–01
  11. By: Andrea Kutinova (University of Canterbury)
    Abstract: During the conflict in Vietnam, married men with dependents could obtain a deferment from the draft. In 1965, following President Johnson's Executive Order 11241 and a subsequent Selective Service System announcement, the particulars of this policy changed substantially in a way which provided strong incentives for childless American couples to conceive a first-born child. This study examines the effects of the intervention on the decision to start a family. In my empirical analysis, I extract data from the Vital Statistics for the period 1963-1968 and employ a difference-in-differences methodology. The estimated magnitude of the effect is substantial.
    Keywords: Timing of Births; Draft; Vietnam War
    JEL: J18
    Date: 2006–04–04
  12. By: J. L. Ford, Wee Ching Pok and S. Poshakwale
    Abstract: Numerous studies have shown that returns on stocks and futures can to some extent be predicted over time, and that for developed financial markets, the predictions are compatible with the beta-asset pricing (APT) paradigm. Increasingly more studies have been undertaken of the veracity of such a paradigm in emerging markets. It has been contended that the paradigm is inapplicable to those markets and will, in any event, be unable to account for predicted asset returns. In this study we consider the Stock Exchange futures market in Malaysia, which has been neglected in the literature. Our econometric findings (using GMM) indicate that the APT model can be used as a rationale for the predictability of asset returns using local information, with the betas’ being constant and the expected risk premia being time-varying.
    Date: 2006–01
  13. By: Isik-Dikmelik, Aylin
    Abstract: This paper analyzes the impact of trade reforms on household welfare. In particular, it studies the importance of each of the links that together constitute the impact using data from the Vietnamese experience in the 1990s. The implementation of trade reforms in the 1990s, most noteworthy of which was the liberalization of rice, resulted in substantial improvement in welfare as evidenced by the drastic decline in poverty. Using analytical and empirical methods, the author examines the role of each channel (direct versus indirect) in this improvement for different groups of households. Results indicate that the growth has been broad based and pro-poor. Poorer households experienced more growth for each and every group analyzed. And contrary to the standard literature, net buyer households had more growth compared with net sellers, emphasizing the importance of indirect links. Decomposition of the growth shows that for rural households, both the direct effect and the multiplier effect drive growth while the multiplier effect was key in urban areas. The importance of the secondary effects underscores the need for a broader model to estimate the impact of trade reforms fully.
    Keywords: Rural Poverty Reduction,Economic Theory & Research,Small Area Estimation Poverty Mapping,Inequality,Consumption
    Date: 2006–11–01

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