nep-sea New Economics Papers
on South East Asia
Issue of 2006‒11‒12
fifteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Regional and Global Financial Integration in East Asia By Kim, Soyoung; Lee, Jong-Wha; Shin, Kwanho
  2. Linearity and stationarity of South Asian real exchange rates By Liew, Venus Khim-Sen; Lee, Hock-Ann; Lim, Kian-Ping; Lee, Huay-Huay
  3. Winners and Losers during a Deep Economic Crisis: Firm-level Evidence from Indonesian Manufacturing By Dionisius Narjoko; Hal Hill
  4. Hedge funds, exchange rates and causality: Evidence from Thailand and Malaysia By Azman-Saini, W.N.W.
  5. Real interest rates equalization: The case of Malaysia and Singapore By Ling, Tai-Hu; Liew, Venus Khim-Sen; Syed Khalid Wafa, Syed Azizi Wafa
  6. Gender and Corruption: Insights from an Experimental Analysis By Vivi Alatas; Lisa Cameron; Ananish Chaudhuri; Nisvan Erkal; Lata Gangadharan
  7. Can We Predict GDP Through Examining the Past Values of Money? Empirical Evidence from an Asian Tiger By Feridun, Mete
  8. Stock prices, exchange rates and causality in Malaysia: a note By Azman-Saini, W.N.W.; Habibullah, M.S.; Law, Siong Hook; Dayang-Afizzah, A.M.
  9. Calendar anomalies in the Malaysian stock market By Chia, Ricky Chee-Jiun; Liew, Venus Khim-Sen; Syed Khalid Wafa, Syed Azizi Wafa
  10. Subject Pool Effects in a Corruption Experiment: A Comparison of Indonesian Public Servants and Indonesian Students By Vivi Alatas; Lisa Cameron; Ananish Chaudhuri; Nisvan Erkal; Lata Gangadharan
  11. A complementary test for ADF test with an application to the exchange rates returns By Liew, Venus Khim-Sen; Lau, Sie-Hoe; Ling, Siew-Eng
  12. Finance and growth in a small open emerging market By Law, Siong Hook; Azman-saini, W.N.W.; Smith, Peter
  13. An Empirical Analysis of Indirect Network Effects in the Home Video Game Market By James E. Prieger; Wei-Min Hu
  14. The Financial System of the EU 25 By Allen, Franklin; Laura, Bartiloro; Oskar, Kowalewski
  15. Exchange Rate Pass-Through:Evidence Based on Vector Autoregression with Sign Restrictions By An, Lian

  1. By: Kim, Soyoung; Lee, Jong-Wha; Shin, Kwanho
    Abstract: We examine the degree of regional vs. global financial integration of East Asian countries in three ways; (1) comparing the size of cross-border assets such as securities and bank claims, (2) estimating the gravity model of bilateral financial asset holdings, and (3) estimating consumption risk sharing model. The results suggest that East Asian financial markets, particularly compared to the European ones, are relatively less integrated with each other than to global markets. We also find relatively more evidence of regional financial integration in bank claim markets than portfolio asset markets. The low financial integration within East Asia is attributed to the low incentives for portfolio diversification within the region, the low degree of development and deregulation of financial markets, and the instability in monetary and exchange rate regime.
    Keywords: Regional financial integration; Global financial integration; East Asia
    JEL: F36
    Date: 2006–05
  2. By: Liew, Venus Khim-Sen; Lee, Hock-Ann; Lim, Kian-Ping; Lee, Huay-Huay
    Abstract: The linearity and stationarity of the real exchange rates of India, Nepal, Pakistan and Sri Lanka are investigated using formal linearity and the recently developed nonlinear stationary test procedures. Results obtained show that these real exchange rates are stationary albeit the presence of nonlinearity.
    Keywords: Nonlinearity; Real exchange rates; South Asia; linearity test; nonlinear stationary test
    JEL: N15 F14 C51
    Date: 2006–02
  3. By: Dionisius Narjoko; Hal Hill
    Abstract: What happens to firms during periods of deep economic crisis? Depending on the nature of the crisis, the general effects are well known. But, owing to data availability, there are relatively few detailed firm-level studies. With the aid of an unusually rich data base, this paper investigates the effects of Indonesia??s 1997-98 crisis on manufacturing establishments. Consistent with studies of other crisis episodes, foreign ownership and prior export orientation are found to be highly significant determinants of survival and recovery. The effects of firm size are ambiguous. The industry in which firms are located, in particular its factor proportions, is also found to be significant.
    Keywords: crisis, manufacturing, industrial adjustment
    Date: 2006
  4. By: Azman-Saini, W.N.W.
    Abstract: This article contributes to the debate on hedge funds and exchange rates in Thailand and Malaysia. It examines causal relations using a new Granger non-causality procedure proposed by Toda and Yamamoto (Journal of Econometrics, 66, 225-50, 1995). Monthly observations are utilized over a sample period from January, 1994 to April, 2002. The results show that the funds lead Thai baht for the crisis period. The results also reveal that the funds lead Malaysian ringgit for the pre-crisis period.
    Keywords: Hedge Funds; Exchange Rates; Granger Non-Causality; Thailand; Malaysia
    JEL: G2 F31
    Date: 2006–10
  5. By: Ling, Tai-Hu; Liew, Venus Khim-Sen; Syed Khalid Wafa, Syed Azizi Wafa
    Abstract: This study provides some evidences showing high degree of financial integration from both evidences of common shocks and real interest parity in the context of two small and open economies, that is, Malaysia and Singapore. Few key policy implications may be suggested from the findings in this study. First, foreign investors who invest in these two countries may need to look for sources of diversification to protect their wealth against the occurrence of contagion effect due to the strong trade and finance relationship between these two countries. Second, the banks and businesses that set rules for interest rates on deposits and loans should be kept consistently with commercial banking practices and key developments in the financial sectors for the betterment of both Malaysia and Singapore economies. Third and most importantly, as two financial markets are highly linked, the monetary and fiscal authorities of both countries should work hand-in-hand to avoid any potential macroeconomic instability in this region.
    Keywords: Real Interest Rate Parity; Malaysia; Singapore
    JEL: F36 R12
    Date: 2006–09–26
  6. By: Vivi Alatas; Lisa Cameron; Ananish Chaudhuri; Nisvan Erkal; Lata Gangadharan
    Abstract: In recent years, a substantial body of work has emerged in the social sciences exploring differences in the behavior of men and women in various contexts. This paper contributes to this literature by investigating gender differences in attitudes towards corruption. It departs from the previous literature on gender and corruption by using experimental methodology. Attitudes towards corruption play a critical role in the persistence of corruption. Based on experimental data collected in Australia (Melbourne), India (Delhi), Indonesia (Jakarta) and Singapore, we show that while women in Australia are less tolerant of corruption than men in Australia, there are no significant gender differences in attitudes towards corruption in India, Indonesia and Singapore. Hence, our findings suggest that the gender differences found in the previous studies may not be nearly as universal as stated and may be more culture-specific. We also explore behavioral differences by gender across countries and find that there are larger variations in women’s attitudes towards corruption than in men’s across the countries in our sample.
    Keywords: Gender, Corruption, Experiments, Punishment, Multicultural Analysis
    JEL: C91 J16 K42 O12
    Date: 2006
  7. By: Feridun, Mete
    Abstract: The paper aims at establishing whether the fluctuations of money help predict future fluctuations of income, that are not already predictable on the basis of fluctuations of income itself or other readily observable variables. For this purpose vector autoregression (VAR) modelling is used to test whether changes in money supply (M2) has any deterministic or predictive content for movements in Income (GDP). The analysis is performed using quarterly macroeconomic data from Singapore spanning the period between 1980 and 2001. The results suggest that money (M2) and interest rates have information content for future movements in real GDP beyond that contained in past values of GDP itself. This relationship only establishes itself with a fairly long lag. The finding suggests the possibility of making use of the money-income relationship for forecasting purposes.
    Keywords: Vector autoregression (VAR); cointegration; causality
    JEL: E30
    Date: 2005–07
  8. By: Azman-Saini, W.N.W.; Habibullah, M.S.; Law, Siong Hook; Dayang-Afizzah, A.M.
    Abstract: This article contributes to the debate on stock prices and exchange rates in Malaysia. It examines causal relations using a new Granger non-causality test proposed by Toda and Yamamoto (Journal of Econometrics, 66, 225-50, 1995). Among the findings of interest, there is a feedback interaction between exchange rates and stock prices for the pre-crisis period. The results also reveal that exchange rates lead stock prices for the crisis period. In a financially liberalized environment, exchange rates stability is important for stock market well-being.
    Keywords: Exchange rates; Stock prices; Causality; Malaysia
    JEL: G1 F31
    Date: 2006–10
  9. By: Chia, Ricky Chee-Jiun; Liew, Venus Khim-Sen; Syed Khalid Wafa, Syed Azizi Wafa
    Abstract: This study examines the calendar anomalies in the Malaysian stock market. Using various generalized autoregressive conditional heteroskedasticity models; this study reveals the different anomaly patterns in this market for before, during and after the Asian financial crisis periods. Among other important findings, the evidence of negative Monday returns in post-crisis period is consistent with the related literature. However, this study finds no evidence of a January effect or any other monthly seasonality. The current empirical findings on the mean returns and their volatility in the Malaysian stock market could be useful in designing trading strategies and drawing investment decisions. For instance, as there appears to be no month-of-the-year effect, long-term investors may adopt the buy-and-hold strategy in the Malaysia stock market to obtain normal returns. In contrast, to obtain abnormal profit, investors have to deliberately looking for short-run misaligned price due to varying market volatility based on the finding of day-of-the-week effect. Besides, investors can use the day-of-the-week effect information to avoid and reduce the risk when investing in the Malaysian stock market. Further analysis using EGARCH and TGARCH models uncovered that asymmetrical market reactions on the positive and negative news, rendering doubts on the appropriateness of the previous research that employed GARCH and GARCH-M models in their analysis of calendar anomalies as the later two models assume asymmetrical market reactions.
    Keywords: calendar anomalies; Malaysia; stock market; GARCH models; day-of-the-week effect; month-of-the-year effect
    JEL: G14 C50
    Date: 2006–09–19
  10. By: Vivi Alatas; Lisa Cameron; Ananish Chaudhuri; Nisvan Erkal; Lata Gangadharan
    Abstract: We report results from a corruption experiment with Indonesian public servants and Indonesian students. Our results suggest that although both subject pools show a high level of concern with the extent of corruption in Indonesia, the Indonesian public servant subjects have a significantly lower tolerance of corruption than the Indonesian students. We find no evidence that this is due to a selection effect. The reasons given by the public servants for either engaging in or not engaging in corruption suggest that the differences in behavior across the subject pools are driven by their different real life experiences. For example, when abstaining from corruption public servants more often cite the need to reduce the social costs of corruption as a reason for their actions, and when engaging in corruption they cite low government salaries or a belief that corruption is a necessary evil in the current environment. In contrast, students give more simplistic moral reasons. We conclude by arguing that experiments such as the one considered in this paper can be used to measure forward-looking attitudinal change in society and that results obtained from different subject pools can complement each other in the determination of such attitudinal changes.
    Keywords: Corruption, Experiments, Subject Pool Effects
    JEL: C91 D73 O12 K42
    Date: 2006
  11. By: Liew, Venus Khim-Sen; Lau, Sie-Hoe; Ling, Siew-Eng
    Abstract: This study shows that augmented Dickey-Fuller (ADF) test failed to detect covariance nonstationary series. Supportive of Ahamada (2004), this study finds that the cumulative sums of squares procedure in Inclán and Tiao (1994) is useful to complement the ADF test. As illustration, the ADF test indicates that there is no unit root in the returns of Japanese yen/US dollar, British pound/ US dollar and Swiss franc/US. However, the complementary test reveals that each of these returns contains heterogeneous variance. To sum, it can be concluded that these exchange rate returns are covariance nonstationary although there is no unit root.
    Keywords: cumulative sums of squares; covariance nonstationary; exchange rate returns
    JEL: C22 F31 C12
    Date: 2005
  12. By: Law, Siong Hook; Azman-saini, W.N.W.; Smith, Peter
    Abstract: This study contributes to the debate on financial development and economic growth in Malaysia using quarterly observations for a sample period from 1980 to 2002. It utilises a battery of financial indicators. Based on multivariate framework which takes real interest rate and capital stock into account, the findings are suggestive that finance does play a crucial role in promoting economic growth. Policymakers should, therefore, focus their attention on the creation and promotion of modern financial institutions including banks, non-banks, and stock markets in delivering both short- and long-run economic benefits.
    Keywords: financial development; economic growth; Malaysia
    JEL: O40 G20 O16 O11 G10
    Date: 2006–10
  13. By: James E. Prieger (Pepperdine University); Wei-Min Hu (University of California, Davis)
    Abstract: We explore the indirect network effect in the market for home video games. We examine the video game console makers’ strategic choice between increasing demand by lowering console price and by encouraging the growth of software variety. We also explore the existence of an applications barrier to entry in the console market, and find that there is little evidence for such a barrier. Finally, we assess the applicability of the model to out-of-sample situations, to look at whether our model and previous similar models can generalize to other markets for purposes of marketing or antitrust inquiry. We find that the model generalizes reasonably well to the Japanese market for the same generation of gaming systems, but poorly to previous generations in the US market.
    Date: 2006–10
  14. By: Allen, Franklin; Laura, Bartiloro; Oskar, Kowalewski
    Abstract: We present an overview of the financial structure of the enlarged European Union with 25 countries. We start by describing the financial system development in all member states since 1995, and then compare the structure between the old and new countries. Using financial measures we document the prevailing substantial differences in the financial structure between new and old member states after the enlargement in 2004. Finally, we compare the financial structures of an enlarged EU with those of the United States and Japan.
    Keywords: Financial System
    JEL: G20
    Date: 2005–06
  15. By: An, Lian
    Abstract: Abstract: This paper provides cross-country and time-series evidence on the extent of exchange rate pass-through at different stages of distribution - import prices, producer prices and consumer prices - for eight major industrial countries: United States, Japan, Canada, Italy, UK, Finland, Sweden and Spain. The analysis is based on a vector autoregreesion (VAR) model that includes the distribution chain of pricing. Instead of the conventional choleski decomposition as used in the literature, I propose to identify the exchange rate shock by the more recent sign restriction approach. For the first time in the literature, estimates of pass-through based on the sign restriction procedure are provided. I find exchange rate pass-through incomplete in many horizons, though complete pass-through is observed occasionally. The degree of pass-through declines and time needed for complete pass-through lengthens along the distribution chain. Furthermore, I find that a greater pass-through coefficient is associated with an economy that is smaller in size with higher import shares, more persistent and less volatile exchange rates, more volatile monetary shocks, higher inflation rate, and less volatile GDP.
    Keywords: Keywords: pass-through; vector autoregression; sign restrictions; exchange rates
    JEL: F31 F41
    Date: 2006–10–24

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