nep-sea New Economics Papers
on South East Asia
Issue of 2006‒12‒01
eighteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Evaluating China’s integration in world trade with a gravity model based benchmark By Matthieu Bussière; Bernd Schnatz
  2. Chinese Trade Expansion and Development and Growth in Today's World By Henry Wan Jr.
  3. Foreign Direct Investment (FDI) Flows and Sustained Growth: A Case Study of India and China By U. Arabi
  4. Hot Money Inflows in China : How the People's Bank of China Took up the Challenge By Vincent Bouvatier
  5. Shift versus traditional contagion in Asian markets By Thomas Flavin; Ekaterini Panopoulou
  6. Optimal currency shares in international reserves - the impact of the euro and the prospects for the dollar By Elias Papaioannou; Richard Portes; Gregorios Siourounis
  7. Entrepreneurs, HRM Orientations and Environmental Fit: A UK-Japan Comparison in High Tech Manufacturing By Hugh Whittaker; Philippe Byosiere; Junpe Higuchi; Thelma Quince
  8. Export Outsourcing and Foreign Direct Investment: Evidence from Taiwanese Exporting Firms By Bih Jane Liu; An-Chi Tung
  9. A Signaling Model of Quality and Export: with application to dumping By C. Simon Fan; Yifan Hu
  10. Analysis of the Socioeconomic Difficulties Affecting the Suicide Rate in Japan By Ryoichi Watanabe; Masakazu Furukawa; Ryota Nakamura; Yoshiaki Ogura
  11. The yen real exchange rate may be stationary after all: evidence from non-linear unit root tests By Georgios Chortareas; George Kapetanios
  12. Factor Replacement versus Factor Substitution, Mechanization and Asymptotic Harrod Neutrality By Danny Givon
  13. Why England? Demographic factors, structural change and physical capital accumulation during the Industrial Revolution By Nico Voigtländer; Hans-Joachim Voth
  14. Forensic Accounting: Hidden balance of payments of the Philippines By Beja Jr., Edsel
  15. Catch Up at the Micro-Level: Evidence from an Industry Case Study Using Manufacturing Census Data By Michiel Van Dijk; Adam Szirmai
  16. Investissements directs étrangers et intégration régionale en Asie de l'Est By Pascal Petit
  17. The Hong Kong Declaration and Agriculture: Implications for Bangladesh By Uttam Kumar Deb; Narayan Chandra Das
  18. Human Capital, Trade, FDI and Economic Growth in Thailand: What causes What? By Sailesh Tanna; Kitja Topaiboul

  1. By: Matthieu Bussière (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Bernd Schnatz (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: The rapid transition of China from a closed agricultural society to an industrial powerhouse has been associated with a rapid increase in the share of China in world trade. As the world is taking the full measure of this phenomenon, tensions have been arising ranging from holding China partly responsible for global imbalances to complaints about the “excessive” competitiveness of Chinese products. Without a quantifiable benchmark, however, such claims are difficult to judge. This paper therefore provides an assessment of China’s “natural” place in the world economy based on a new set of trade integration indicators. These indicators are used as a benchmark in order to examine whether China’s share in international trade is consistent with fundamentals such as economic size, location and other relevant factors. They constitute a better measure of trade integration that incorporates many more factors than traditional openness ratios. Results show that the model tracks international trade well and confirm that China is already well integrated in world markets, particularly with North America, several Latin American and East Asian emerging markets and most euro area countries. JEL Classification: C23, F15, F14.
    Keywords: Gravity Model, Panel Data, Trade, China.
    Date: 2006–11
  2. By: Henry Wan Jr.
    Abstract: The current Chinese trade expansion brings benefit to many parties, both outside and inside the Chinese Mainland. It also poses huge challenges to others, in foreign countries, also in China. The event is important for its own sake, but also what it implies when rapid growth happens to countries large in population and size (including India, Russia, Brazil). It has to be understood in context. Conventional wisdom in economics and popular explanations cannot explain Chinese growth, let alone its implications. Only with suitable adaptations of what the economic discipline has to offer, can one assess the nature of what we observe and the policy measures needed for today. Like other episodes after Industrial Revolution, the late industrialization in China also relies on outside technology, often gained through trade and foreign investment. Because of the de-colonization after 1945, such growth can succeed even with scanty domestic resource. Like other East Asian economies, participation in cross border supply chains along its neighbors offers China an effective entrée. What makes China different from the other East Asian economies is size. The presence of a huge labor reserve keeps wage down, profit up, attracts foreign investment coming with technology, but may also lead to deteriorated terms of trade and income inequality at home, de-industrialization and the loss of development opportunities abroad, also resource shortage and environment damage, some of these are irreversible in nature. Over all, the development is the result of efficiency gain, which is basically desirable. It takes international cooperation to steer such development toward mutually beneficial paths. It is also desirable for China to accelerate job creation at home and avoid irreversible environment harm. These are well recognized by Chinese decision makers. More can be done.
    Date: 2005–06
  3. By: U. Arabi
    Date: 2005–06
  4. By: Vincent Bouvatier (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: This paper investigates hot money inflows in China. The financial liberalization comes into effect and the effectiveness of capital controls tends to diminish over time. As a result, China is fuelled by hot money inflows. The US interest rate cut since 2001 and expectations of exchange rate adjustments are the main factors explaining these capital inflows. This study use the Bernanke and Blinder (1988) model extended to an open economy to examine implications of hot money inflows for the Chinese economy. A Vector Error Correction Model (VECM) on monthly data from March 1995 to March 2005 is estimated to investigate the recent upsurge in foreign reserves and shows that the interaction between domestic credit and foreign reserves was stable and consistent with monetary stability. Granger causality tests are implemented to show how the People's Bank of China (PBC) achieved this result.
    Keywords: Hot money inflows, domestic credit, VECM, Granger causality.
    Date: 2006–11–03
  5. By: Thomas Flavin; Ekaterini Panopoulou
    Abstract: We test for shift contagion between pairs of East Asian equity markets over a sample including the financial crisis of the 1990’s. Employing the methodology of Gravelle et al. (2006), we find little evidence of change in the mechanism by which common shocks are transmitted between countries. Furthermore, we analyze the effects of idiosyncratic shocks and generate time-varying conditional correlations. While there clearly is significant time variation in the pair wise correlations, this is not more pronounced during the Asian crisis than it had been historically.
    Keywords: Shift contagion; Financial market crises; Regime switching; Structural transmission; Emerging markets
    Date: 2006–11–16
  6. By: Elias Papaioannou (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Richard Portes (London Business School, Sussex Place, Regent's Park, London NW1 4SA, United Kingdom); Gregorios Siourounis (London Business School, Sussex Place, Regent's Park, London NW1 4SA, United Kingdom)
    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 Classification: F02, F30, G11, G15.
    Keywords: Currency optimizer, euro, foreign reserves, international currencies.
    Date: 2006–11
  7. By: Hugh Whittaker; Philippe Byosiere; Junpe Higuchi; Thelma Quince
    Abstract: Entrepreneurs cannot develop a business single handedly. One of the most important tasks the entrepreneur faces is to recruit, allocate work to, motivate and retain employees who will help the business to grow. Based on survey data, this paper examines the HRM orientations of UK and Japanese high tech manufacturing entrepreneurs, and identifies fundamentally different approaches to these tasks, at least as expressed by the entrepreneurs. The UK entrepreneurs espouse an employment relationship based on 'give and take' flexibility, while the Japanese entrepreneurs are more focused on raising or nurturing their employees. Reasons for the differences are explored, and relate to the entrepreneurs' backgrounds, as well as the business and social environment. Implications for the 'new employment relationship' are explored.
    Keywords: Entrepreneurship; HR management; High-tech small firms
    JEL: L60 M12 M13 M14 M50
    Date: 2006–09
  8. By: Bih Jane Liu; An-Chi Tung
    Abstract: Exporting and FDI have traditionally been two major firm-level responses to globalization. Export outsourcing (EO), a new strategy that gained in importance recently, has now become another alternative. This paper seeks to examine how firms choose between EO and outward FDI by looking into firm-level productivity differences. A special data set is constructed by consolidating two micro data sets of Taiwanese manufacturing firms. The paper contributes in four main ways. First, it provides a causality analysis of labor productivity and EO, whereas previous studies deal only with correlations. Second, it shows that EO can be interpreted as an indirect way of exporting. Third, it points out that outward FDI itself may not help with productivity if it is not linked with EO, which finding contradicts conventional wisdom. Finally, most evidences seem to imply that the intricate Taiwan-China interconnection is a significant factor that facilitates or contributes to all above-mentioned findings.
    Keywords: productivity, exports, foreign outsourcing, FDI, firm-level data
    Date: 2005–06
  9. By: C. Simon Fan; Yifan Hu
    Abstract: Extending the literature on quality and trade and supported by the empirical evidence obtained from China, this paper demonstrates that in a developing country, a firm’s export to developed countries has a potential signaling effect on domestic consumers’ perception of its product quality. The model analyzes the signaling and imitating strategies of different types of firms in their decisions to export, and characterizes the conditions for the separating, pooling, and hybrid equilibria. Next, the analysis shows that the strategic exporting of low-quality producers under informational asymmetry can result in dumping. Moreover, the model shows that the implementation of antidumping measures of foreign countries can lead to a Pareto improvement for the firms and consumers of the home country under some circumstances.
    JEL: D82 F10 F13 L15 O12
    Date: 2006–06
  10. By: Ryoichi Watanabe (Institute of Economic Research, Kyoto University); Masakazu Furukawa (Graduate School of Economics, Kyoto University); Ryota Nakamura (Graduate School of Economics, Kyoto University); Yoshiaki Ogura (Hitotsubashi Institute of Economic Research, Hitotsubashi University)
    Abstract: This paper focuses on the drastic increase observed in the Japanese male suicide rate in the late 1990s and early 2000s and confirms unemployment and personal bankruptcy to be the associated socioeconomic factors behind the male suicide variation. Personal bankruptcy is also confirmed to be significant in the female suicide variation. The relationship is confirmed through a pooled data analysis by a middle-aged group and by prefecture. Further, the paper focused on the association between the unemployment rate and suicide mortality by incorporating the reasons for unemployment in the monthly regression. Next, we identified a significant association between male suicide variations and changes in some of the reasons for being unemployed. The interpretation of the results implies that the risk of unemployment among men has been mitigated by the unemployment insurance rather than the bias in the reasons reported and/or mental disorder in Japan.
    Date: 2006–12
  11. By: Georgios Chortareas; George Kapetanios
    Abstract: The empirical literature that tests for purchasing power parity (PPP) by focusing on the stationarity of real exchange rates has so far provided, at best, mixed results. The behaviour of the yen real exchange rate has most stubbornly challenged the PPP hypothesis and deepened this puzzle. This paper contributes to this discussion by providing new evidence on the stationarity of bilateral yen real exchange rates. We employ a non-linear version of the Augmented Dickey-Fuller test, based on an exponentially smooth-transition autoregressive model (ESTAR) that enhances the power of the tests against mean-reverting non-linear alternative hypotheses. Our results suggest that the bilateral yen real exchange rates against the other G7 and Asian currencies were mean reverting during the post-Bretton Woods era. Thus, the real yen behaviour may not be so different after all but simply perceived to be so due to the use of a restrictive alternative hypothesis in previous tests.
  12. By: Danny Givon
    Abstract: This paper views technical change as a labor-saving, but capital-using, mechanization process, whereby capital replaces labor; though within any given technique, factors have a limited ability to substitute one another. This is formalized by reinterpreting the “distribution-parameters” of a low substitution CES aggregate production function as time-varying weights, such that technical change corresponds to a decrease in labor’s weight, along with an increase in capital’s. This “direction” of shift is considered a natural outcome of the fact that ideas are embedded within capital. As capital’s weight tends to one, changes in it become increasingly negligible and balanced-growth is attained. Thus the proposed non-neutral mechanism is asymptotically equivalent to Harrod-neutrality. But during industrialization, when capital grows faster than output, its “dis-augmentation” is still significant; the result being constant factor-shares. This resolves a recent controversy regarding the measurement of TFP growth, specifically in East Asian NICs. The capital-using aspect of factors’ replacement, along with the limited degree of factor substitution, also lead to time-ranked “appropriate-technologies”, which are broadly consistent with under-development; despite the lack of non-convexities.
    Keywords: Mechanization, Non-Neutral Technical Change, Dis-Augmentation, CES
    JEL: O33 O11 O14 E25
    Date: 2006–06
  13. By: Nico Voigtländer; Hans-Joachim Voth
    Abstract: Why did England industrialize first? And why was Europe ahead of the rest of the world? Unified growth theory in the tradition of Galor-Weil (2000) and Galor-Moav (2002) captures the key features of the transition from stagnation to growth over time. Yet we know remarkably little about why industrialization occurred so much earlier in some parts of the world than in others. To answer this question, we present a probabilistic two-sector model where the initial escape from Malthusian constraints depends on capital deepening and the use of more differentiated capital inputs. Weather-induced shocks to agricultural productivity cause changes in prices and quantities, and affect wages. In a standard model with capital externalities, these fluctuations interact with the demographic regime and affect the speed of growth. Our model is calibrated to match the main characteristics of the English economy in 1700 and the observed transition until 1850. We capture one of the key features of the British Industrial Revolution emphasized by economic historians – slow growth of output and productivity. The paper explores one additional aspect of inequality in the transition to the Post-Malthusian economy – the availability of nutrition for poorer segments of society. We examine the influence of redistributive institutions such as the Old Poor Law, and find they were not decisive in fostering industrialization. Simulations using parameter values for other countries show that Britain’s early escape was only partly due to chance. France could have attained a greater workforce in manufacturing than Britain, but the probability was less than 30 percent. Contrary to recent claims in the literature, 18th century China had only a minimal chance to escape from Malthusian constraints.
    Keywords: Industrial Revolution, Unified Growth Theory, Endogenous Growth, Transition, Calibration, British Economic Growth before 1850
    JEL: E27 N13 N33 O14 O41
    Date: 2006–06
  14. By: Beja Jr., Edsel
    Abstract: An examination of the available data between 1990 and 2005 reveals that the balance of payments of the Philippines does not record large amounts of international transactions. Total unrecorded international transactions reached US$ 192 billion (in 1995 prices) during this period. Results imply a problem in macro economic management: there is weak or weakening capacity in the governance of resource flows.
    Keywords: Balance of Payments; Philippines
    JEL: C82 F40 O53 B50 B40
    Date: 2006–11–25
  15. By: Michiel Van Dijk; Adam Szirmai
    Abstract: In this paper we provide a first attempt to analyse catch up at the micro level, not possible in conventional macro-studies. The Indonesian pulp and paper industry has been selected as case-study because it experienced spectacular investment and growth, becoming one of the world’s largest exporters and producers of paper in the world. We apply stochastic frontier analysis to compare technical efficiency of Indonesian paper mills with Finnish plants, which can be considered as the world technological leaders in the industry. The analysis is performed on a pooled dataset based on manufacturing census data for the period 1975-1997. In the paper we address the following questions: What is the distribution of Indonesian plant performance vis-à-vis the technological frontier? What is the role of entry, exit and survival on catch up? And, what are the characteristics of catching-up plants. Although we find that on average the Indonesian paper industry has closed the gap with the technology frontier during the 1990s, catch up has been a highly localised process in which only a few large establishments have achieved near best-practice performance, while most other plants have stayed behind.
    Date: 2005–06
  16. By: Pascal Petit (CEPN - Centre d'économie de l'Université de Paris Nord - [CNRS : UMR7115] - [Université Paris-Nord - Paris XIII])
    Abstract: On cherche dans ce chapitre à caractériser le processus de régionalisation en Asie de l'Est, en tenat compte des dimensions économiques mais aussi politiques te citoyennes. On apprécie l'ampleur des processu de rattrappage en faisant référence au schéma d'intégration qu'implique la division régionale hiérarchisée du travail impulsée par les grandes firmes multinationales en particulier japonaises. Une partie prospective évalue l'impact du choc financier de 1997 sur cette dynamique d'intégration.
    Keywords: Intégration régionale, Asie de l'Est, multinationales japonaises
    Date: 2006–11–09
  17. By: Uttam Kumar Deb; Narayan Chandra Das
    Abstract: This paper reviews the developments in WTO negotiation on agriculture in the light of the Hong Kong Ministerial Declaration. It has critically analysed the decisions and negotiating proposals adopted through the Declaration. The paper has also analysed possible impacts of the adopted decisions and proposals for Bangladesh’s agriculture sector and its economy. Potential impacts are measured in terms of reduction in tariff, domestic support and export subsidy. More importantly, the paper has quantified potential impacts of agricultural trade liberalisation under Doha Round negotiations on prices and welfare gains, production, consumption and trade of agricultural commodities in Bangladesh. Based on the research findings, the paper has suggested some negotiating strategies for Bangladesh to be pursued in the on-going WTO negotiations on agriculture.
    Keywords: Agriculture, WTO, Hong Kong Ministerial, Bangladesh
    Date: 2006–05
  18. By: Sailesh Tanna; Kitja Topaiboul
    Abstract: We investigate the causal links between human capital, openness through trade and FDI, and economic growth using quarterly data for Thailand over the period 1973:2-2000:4. A number of hypotheses are investigated including, in particular, FDI-led growth and export-led growth, as well as the reverse linkages from growth to FDI and exports. The importance of human capital is highlighted as complementary to trade and FDI inflows, underlying the importance of technology adoption. We find that, after controlling for domestic investment, government expenditure and imports, support for FDI-led growth is not as strong as export-led growth, although allowing for the joint interaction of FDI and human capital reveals a positive FDI effect above a minimum threshold of human capital, estimated to be around 4.5 years of average secondary schooling attainment. Extending our study using multivariate causality tests conducted within a vector error correction framework, we also find significant effects of domestic investment and trade openness, providing support for import-led growth, but direct support for FDI-led growth as well as growth-led FDI is again relatively weak, reinforcing the conclusion that trade openness has played a more significant role than FDI in influencing Thai economic growth. But the results reveal a subtle role for technology transfer through the complementary effect of trade on FDI, and FDI on government expenditure, which thereby influences human capital development with spillovers onto domestic investment and growth. This leads us to argue that there is a potential role for FDI interacting with human capital in influencing the future development of the Thai economy, given its recently active policy of FDI promotion.
    Keywords: Trade Openness, FDI, Growth, VECM, Technology Adoption
    Date: 2005–06

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