nep-sea New Economics Papers
on South East Asia
Issue of 2006‒12‒04
sixteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Income convergence? Evidence of non-linearity in the East Asian Economies: A comment By Liew, Venus Khim-Sen; Ahmad, Yusuf
  2. Does Regionalism Lead to More Global Trade Integration in East Asia? By Lee, Jong-Wha; Shin, Kwanho
  3. The impact of trade with China and India on Argentina’s manufacturing employment By Castro, Lucio; Olarreaga, Marcelo; Saslavsky, Daniel
  4. Structural Effects of a Real Exchange Rate Revaluation in China: A CGE Assessment By Willenbockel, Dirk
  5. An Empirical Investigation around the Finance-Growth Puzzle in China with a particular focus on causality and efficiency considerations By Maswana, Jean-Claude
  6. Antecedents for Entrepreneurial Propensity: Findings from Singapore, Hong Kong and Taiwan By Lee, Lena; Wong, Poh Kam; Chua, Bee Leng; Chen, Jennifer
  7. East Asian Financial Crisis of 1997 Revisited: Is it Possible to Devise an Early Warning System? By Feridun, Mete
  8. The Economics of Young Democracies: Policies and Performance By Kapstein, Ethan; Converse, Nathan
  9. Mixing Family Business with Politics in Thailand By Masami Imai
  10. A Joint Test of Price Discrimination, Menu Cost and Currency Invoicing By Gervais, Jean-Philippe; Larue, Bruno
  11. The Lisbon process, re-visited. A reality check of the European social model. By Tausch, Arno
  12. Soft Related Lending: A Tale of Two Korean Banks By John P. Bonin; Masami Imai
  13. Independent regulatory agencies in emerging economies By Sosay, Gül; Zenginobuz, Unal
  14. From the Washington towards a Vienna Consensus? A quantitative analysis on globalization, development and global governance By Tausch, Arno
  15. World Bank Pension reforms and development patterns in the world system and in the "Wider Europe". A 109 country investigation based on 33 indicators of economic growth, and human, social and ecological well-being, and a European regional case study By Tausch, Arno
  16. Industrial Specific Resource Allocation, Incentive Differentiation and Industrial Development Order: the Function Evolvement of Jiangsu Laver Association in Anti-Trade Barrier Litigation By Zheng, Jianghuai; Jiang, Jing

  1. By: Liew, Venus Khim-Sen; Ahmad, Yusuf
    Abstract: This study demonstrates the usefulness of Kapetanois et al. (2003) test in differentiating the two stages of income convergence—long run convergence and catching up. A re-examination of the “Four Asian Dragons” economies, in which their income differentials with respect to Japan have been identified as non-linear stationary in Liew and Lim (2005), reveals that the economy of Hong Kong, Korea and Singapore are catching up, while Taiwan has yet to catch up, with the Japan economy.
    Keywords: Income convergence; catching up; long run convergence; East Asia; non-linear unit root test
    JEL: F43 C32 O40
    Date: 2006–03
  2. By: Lee, Jong-Wha; Shin, Kwanho
    Abstract: Since early 1999, global trade liberalization has moved to the wayside as regional preferentialtrade agreements have become the preferred choice in East Asia. Does this shift toward regional trade agreements (RTA) suggest that global trade and welfare levels will be raised? Regional preferential trade arrangements, in contrast to unilateral trade liberalization, may well cause both 'trade creation’ and ‘trade diversion’. If an RTA raises trade and welfare among its members but hurts the welfare of non-members, its net effect on global trade and welfare becomes ambiguous. The hypothesis of ‘natural trading partners’ suggests that RTAs comprising natural trading partners are more likely to create trade between member countries, and less likely to divert trade from non-member countries, and thus leading to large improvements of economic welfare. Based on the existing RTAs in the world, we find that if an RTA forms between geographically proximate countries (measured either by distance or border), trade significantly increases between member countries. At the same time, we find that geographical proximity also contributes to increasing trade between a member and the rest of the world. We apply our findings to East Asia and examine how the existing or proposed East Asian trading blocs affect intra-bloc and extra-bloc trade, and thereby global trade. We find the East Asian RTAs are likely to create more trade among members without diverting trade from non-members.
    Keywords: Regionalism; Global trade integration; Trade creation; Trade diversion
    JEL: F15
    Date: 2005–10
  3. By: Castro, Lucio; Olarreaga, Marcelo; Saslavsky, Daniel
    Abstract: For many in Latin America, the increasing participation of China and India in international markets is seen as a looming shadow of two ‘mighty giants’ on the region’s manufacturing sector. Are they really mighty giants when it comes to their impact on manufacturing employment? This paper attempts to answer this question estimating the effects of trade with China and India on Argentina’s industrial employment. We use a dynamic econometric model and industry level data to estimate the effects of trade with China and India on the level of employment in Argentina’s manufacturing sector. Results suggest that trade with China and India only had a small negative effect on industrial employment, even in a period of swift trade liberalization like the nineties.
    Keywords: China; Latin America; Trade; Import Competition; Trade and Labor Market Interactions; Employment
    JEL: F17 F14 F16 L60 F15
    Date: 2006–10–20
  4. By: Willenbockel, Dirk
    Abstract: The misalignment of the Chinese currency exposed by the rapid build-up of China’s foreign exchange reserves over the past few years has been the subject of considerable recent debate. Recent econometric studies suggest a Renminbi undervaluation on the order of 10 to 30%. The modest revaluation of July 2005 is widely perceived as insufficient to correct China’s balance-of-payments disequilibrium and has not silenced charges that China is engaging in persistent one-sided currency manipulation. Within China there are widespread concerns regarding the adverse employment effects of a major revaluation on labour-intensive export sectors, yet the likely magnitude of these effects remains a controversial issue. The paper aims to shed light on this question by simulating the structural effects of a real exchange rate revaluation that lowers the current account surplus-GDP by 4 percentage-points using a 17-sector computable general equilibrium model of the Chinese economy.
    Keywords: Renminbi undervaluation; real exchange rate misalignment; applied general equilibrium analysis
    JEL: F40 F17 C68
    Date: 2006–04
  5. By: Maswana, Jean-Claude
    Abstract: The paper explores a coherent perspective for understanding the multifaceted puzzle of China’s financial development. Specifically, it tests competing finance-growth nexus hypotheses using Granger causality tests in a VECM framework for China over the period 1980–2002. The empirical results support a complex set of bidirectional causality between the financial development proxies and economic growth variable. Additionally, bidirectional causality shows the Chinese financial system to be more driven by and closely aligned with real sector activities than exposed to speculative finance. Study findings have several policy implications. Notably, the development of financial institutions should not be emphasized unilaterally. Rather, attention should be given to the complementary and coordinated development of financial reforms and changes in other areas.
    Keywords: Financial development; economic growth; China; Granger causality
    JEL: O16
    Date: 2006–01–27
  6. By: Lee, Lena; Wong, Poh Kam; Chua, Bee Leng; Chen, Jennifer
    Abstract: The existing literature identifies a number of antecedent factors that positively influence the propensity of individuals to become entrepreneurs. Key among these are self-efficacy, prior knowledge of other entrepreneurs and perception of opportunities. At the same time, policy makers commonly identify fear of failure as a major deterrent factor for entrepreneurs taking the entrepreneurial plunge. This paper examines the relative impacts of these antecedents and deterrent factor on entrepreneurial propensity, defined as the likelihood of starting one’s own business in the three East Asian newly-industrialised economies (NIEs) of Singapore, Hong Kong, and Taiwan. We also test for possible differences in the variables effects on opportunity vs. necessity entrepreneurial propensities. Our findings highlight significant location differences among the variables in the case of overall, opportunity and necessity entrepreneurship. Finally, we discuss the relevant policy implications from our findings.
    Keywords: Entrepreneurial Propensity; Self-Efficacy; Perception of Opportunities; Prior Knowledge of other Entrepreneurs; Fear of Failure; East Asia
    JEL: M2
    Date: 2005
  7. By: Feridun, Mete
    Abstract: This study examines the causes of the East Asian financial crisis and presents an early warning system based on data from Mmalaysia, Iindonesia, Tthailand, Ssingapore, and Pphilippines during 1982:1–1998:1 through a panel probit regression model using 20 monthly macroeconomic and financial sector variables. Results indicate that the significant variables are current account/GDPgdp, domestic credit/terms of trade, lending and deposit rate spread, and foreign direct investment/GDPgdp. Evidence further suggests that the probability of the crisis increases with an increase in domestic credit/Mm1, imports, and foreign direct investment/Tthe probability of the crisis increases with a decrease in exports, stock prices, terms of trade, current account, and lending and deposit rate spread. model correctly indicates 64% of the crises and 77% of the tranquil periods even with a cut-off probability of 10%.
    Keywords: Asian financial crisis; probit model; early warning systems
    JEL: F0
    Date: 2006–01
  8. By: Kapstein, Ethan; Converse, Nathan
    Abstract: Since the “third wave” of democratization began in 1974, nearly 100 states have adopted democratic forms of government, including, of course, most of the former Soviet bloc nations. Policy-makers in the west have expressed the hope that this democratic wave will extend even further, to the Middle East and onward to China. But the durability of this new democratic age remains an open question. By some accounts, at least half of the world’s young democracies—often referred to in the academic literature as being “unconsolidated” or “fragile”—are still struggling to develop their political institutions, and several have reverted back to authoritarian rule. Among the countries in the early stages of democratic institution building are states vital to U.S. national security interests, including Afghanistan and Iraq. The ability of fledgling democracies to maintain popular support depends in part on the ability of their governments to deliver economic policies that meet with widespread approval. But what sorts of economic policies are these, and are they necessarily the same as the policies required for tackling difficult issues of economic stabilization and reform? Conversely, what sorts of economic policies are most likely to spark a backlash against young and fragile democratic regimes? Do the leaders of young democracies face trade-offs as they ponder their electoral and economic strategies? These are among the questions we explore in this paper, which provides an overview of the monograph we are currently writing on the economics of young democracies. We do so first by exploring the hypothesized relationships between democratic politics and economic policy, as well as the findings of several important empirical studies with respect to the economic performance of young democracies around the world. We then provide some descriptive statistics on how the new democracies have fared in practice, making use of a new dataset that we have compiled (and which, among other things, is more up-to-date than most others cited herein). Do the data reveal any distinctive economic patterns with respect to democratic consolidation and reversal? We will show that they do. In particular, we find that deteriorating or stagnant economic performance constitutes a red flag or warning signal that the country is at risk of democratic reversal. Moreover, we find considerable variation in economic performance, suggesting that the design of political institutions in new democracies may have a significant influence on the probability of their survival.
    Keywords: democracy; economic growth; inflation; political development
    JEL: P16 P17 E52 E62
    Date: 2006–03
  9. By: Masami Imai (Economics and East Asian Studies, Wesleyan University)
    Abstract: This paper uses newly compiled data on Thai family businesses and their direct participation in politics to examine whether the political participation of family business yields private economic payoff. The paper finds that the political participation of family members is positively associated with the profitability of family businesses. Furthermore, this “political benefit” is found to be particularly large when firms are connected to the cabinet members. These results support the crony capitalism view that powerful business groups in Thailand have an incentive to directly hold influential public offices in order to influence the economic policy in their favor.
    Keywords: Cronyism, Political Connection, Family Business, Thailand
    JEL: G38 O53 P16
    Date: 2006–05
  10. By: Gervais, Jean-Philippe; Larue, Bruno
    Abstract: This paper investigates price discriminating behaviour and currency invoicing decisions of Canadian pork exporters in the presence of menu costs. It is shown that when export prices are negotiated in the exporter’s currency, menu costs cause threshold effects in the sense that there are bounds within (outside of) which price adjustments are not (are) observed. Conversely, the pass-through is not interrupted by menu costs when export prices are denominated in the importer’s currency. The empirical model focuses on pork meat exports from two Canadian provinces to the U.S. and Japan. Hansen’s (2000) threshold estimation procedure is used to jointly test for currency invoicing and incomplete pass-through in the presence of menu costs. Inference is conducted using the bootstrap with pre-pivoting methods to deal with nuisance parameters. The existence of menu cost is supported by the data in three of the four cases. It also appears that Quebec pork exporters price discriminate and invoice in Japanese yen their exports to Japan. Manitoba exporters also seem to follow the same invoicing strategy, but their ability to increase their profit margin in response to large enough own-currency devaluations is questionable. Our currency invoicing results for sales to the U.S. are consistent with subsets of Canadian firms using either the Canadian or U.S. currency.
    JEL: F14 Q17 C22
    Date: 2006–06–02
  11. By: Tausch, Arno
    Abstract: This article portrays a bleak picture of European realities. Analyzing world social, gender, ecological and economic development on the basis of the main 9 predictors, compatible with the majority of the more than 240 published studies on the cross-national determinants of the “human condition” around the globe, we first present results of 32 equations about development performance in 131 countries with available data. We come to the conclusion that while there is some confirmation for the “blue”, market paradigm as the best and most viable way of world systems governance concerning economic growth, re-distribution and gender issues, the “red-green” counter-position is confirmed concerning such vital and basic indicators as life expectancy and the human development index. We also show that Europe’s crisis is not caused by what the neo-liberals term a “lack of world economic openness” but rather, on the contrary, by the enormous amount of passive globalization that Europe – together with Latin America – experienced over recent years. Our combined measure of the velocity of the globalization process is based on the increases of capital penetration over time, on the increases of economic openness over time, and on the decreases of the comparative price level over time: the United States, Mexico, larger parts of Africa and large sections of West and South Asia escaped from the combined pressures of globalization, while Eastern and Southern Latin America, very large parts of Europe, Russia and China were characterized by a specially high tempo of globalization. The “wider Europe” of the EU-25 is not too distantly away from the social realities of the more advanced Latin American countries. From the viewpoint of world systems theory such tendencies are not a coincidental movement along the historic ups and downs of social indicators, but the very symptom of a much more deep-rooted crisis, which is the beginning of the real re-marginalization and re-peripherization of the European continent. We finally also show the relevance of these assumptions for the analysis of European regional inequality. Established economics teaches us that for economic gaps to be bridged, a process of convergence sets in that was described by Bela Balassa and Paul Samuelson, independently from each other, more than 4 decades ago, and which is called ever since the “Balassa-Samuelson effect”. But a reversal of what was once known as the Balassa/Samuelson effect has set in, with falling prices of non-tradables in the highly developed European center countries. Our macro-quantitative calculations show that considering other important intervening factors, like development levels and human capital formation, the ultraliberal thinking inherent in the recent “Bolkestein directive” that should lead to a considerable lowering of price levels in the formerly “non-tradable” sectors of services in Europe would be certainly compatible with some aspects of growth and better employment (and thus also gender relations), but our three main other indicators of globalization, i.e. high foreign saving, “economic freedom” and high MNC penetration ratios, are still very systematically linked with severe deficits in the social sphere, whatever the research design chosen. And in addition, powerful forces of agglomeration propel Europe in the direction of further regional income concentration and inequality, thus blocking the hopes of the poorer segments of the East European new member countries. A process of catching up development seems under these conditions a very remote hope indeed.
    Keywords: Cross-Section Models; Income Distribution; Prices; Business Fluctuations; and Cycles – General; International Economic Order; Inequality; Economic Integration: General
    JEL: F15 C21 F5
    Date: 2006
  12. By: John P. Bonin (Economics Deapartment, Wesleyan University); Masami Imai (Economics and East Asian Studies, Wesleyan University)
    Abstract: In this paper, we present indirect evidence that the IMF’s insistence on foreign control of two large nationwide Korean banks in exchange for short-term support during the 1997 financial crisis helped restrain soft related lending practices. News signaling the likely sale of a bank to a foreign financial institution yields an average daily decrease of about 2% in the stock price of related borrowers. News indicating difficulty in finding an interested foreign investor generates an increase in the stock price of related borrowers of about the same magnitude. These signals have larger impacts on less-profitable, less-liquid, and more bank-dependent firms.
    Keywords: Related Lending, Korean Banks, Privatization, Globalization
    JEL: G21 O53
    Date: 2005–12
  13. By: Sosay, Gül; Zenginobuz, Unal
    Abstract: While the diffusion of independent regulatory agencies (IRAs) across economically advanced countries has attracted much scholarly attention in recent years, systematic work on their spread across developing countries is still scarce. In an effort to address this gap in literature, this paper aims to analyze the diffusion of regulatory agencies in emerging economies in Latin America, Asia, and Central and Eastern Europe. At this early stage of our research, we aim to emprically map out regulatory agencies in economic regulation sectors (e.g. competition, finance, and utilities/infrastructure) enjoying some degree of autonomy or independence in emerging economies, rather than limiting our focus solely on those that meet all the criteria for independence in the strictest definition of the term. Such exploratory analysis constitutes the first step towards studying processes of diffusion in general and the mechanisms that lead to the creation of regulatory agencies in these economies in particular. The second objective of this paper is to examine the mechanisms which we expect to be at work in the spread of IRAs in the selected emerging economies. We argue that despite the creation of a number of agencies in the countries concerned before 1990, diffusion has become evident and “interdependent”, as opposed to spurious in the 1990s.
    Keywords: independent regulatory agencies; emerging economies
    JEL: L50 H83
    Date: 2005–09–05
  14. By: Tausch, Arno
    Abstract: This publication empirically evaluates and develops core aspects of the literature on global governance. Analyzing world social, gender, ecological and economic development on the basis of the main 9 predictors, compatible with the majority of the more than 240 published studies on the cross-national determinants of the “human condition” around the globe, it presents the results of 32 equations about development performance from 131 countries. We come to the conclusion that while there is some confirmation for the “blue”, market paradigm as the best and most viable way of world systems governance concerning economic growth, re-distribution and gender issues, the “red-green” counter-position is confirmed concerning such vital and basic indicators as life expectancy and the human development index. This work also challenges the neo-liberal consensus about democracy and the pure market economy as the way to development, equality, a good environment and peace by showing that selected market interventions and the fairly regulated regime of the early post-war years assured stability in Europe and Japan and contributed to social and economic recovery from the Great Depression and the Second World War. Present attempts to stabilize the world order by bringing in the major western industrialized countries plus Russia (the so-called G-8, composed by France; United States; United Kingdom; Russian Federation; Germany; Japan; Italy; Canada; European Union) must face up to the fact that these countries represent a declining part of world purchasing power. The rise of Asia makes the present G7/G8 structure increasingly irrelevant. This publication also re-establishes the notion that capitalist development is of cyclical nature, with strong fluctuations every 50 years. For us 1756, 1832, 1885, 1932 and 1975 are the beginnings of new Kondratiev waves, while 1756, 1774, 1793, 1812, 1832, 1862, 1885, 1908, 1932, 1958, 1975, and 1992 are the turning points (troughs) of the Kuznets cycles. So, where are we now? 1870? 1913? 1938? World systems theory is full of speculation about the future, and much of world systems research writing projects a major global war by around 2020 or 2030. The danger arises that instability and not democratization will triumph in the end in the countries of the periphery and the semi-periphery, especially in countries like those of the former USSR. We also show that Europe’s crisis is not caused by what the neo-liberals term a “lack of world economic openness” but rather, on the contrary, by the enormous amount of passive globalization that Europe – together with Latin America – experienced over recent years. The “wider Europe” of the EU-25 is not too distantly away from the social realities of the more advanced Latin American countries. So, what should be done? By the governments of the world, and by the globalization critical social movements? Only a movement towards global democracy is the valid answer to the fact that the peoples of the world live in a single global social system. The establishment of a European democratic federal state would be the first and most important step in the direction of a socio-liberal world democracy.
    Keywords: Key words: Cross-Section Models; Income Distribution; Prices; Business Fluctuations; and Cycles – General; International Economic Order; Inequality; Economic Integration: General
    JEL: F02 D31 E00 C21 F5
    Date: 2006
  15. By: Tausch, Arno
    Abstract: This research paper compares the cross national effects of pension reform on 33 indicators of social, economic, political and ecological well-being of nations with the effects on these 33 variables by dependency, the adherence to the advice by international financial institutions, world political or world cultural identities; the aging process; feminism, militarism; the public education effort and the development level. Traditionally, world system approaches explain human and economic misery by the dependent insertion of the periphery and the semi-periphery into the global economy. It is true that the ascending countries of East Asia, whose investment is often much higher than their savings rate, are at the winning side in the global social equation. It is also true that unequal exchange (1/ERDI) is still an important phenomenon, significantly explaining many processes of development. However, the privatization of public education, especially at the Third level, the developmental negative consequences of female distribution coalitions as well as the imperative of pension reform have been up to now neglected in cross-national devel-opment research. Interestingly enough, „economic freedom“ as such is also not as relevant as pension reform in explaining economic or social success in the world system. We can say that foreign savings and pension reforms are among the most highly influential positive determi-nants of development today, while culturalist theories and dependency theories fail to achieve the levels of significance we had originally expected when compared to the new cross-national variable “pension reform”. These findings have important repercussions for the European debate on pension reform and the Lisbon strategy to catch up with the US by 2010 to make Europe the most competitive region in the world economy. European Union membership years by themselves are lamentably enough a rather negative determinant of the processes of development due to the cumbersome mechanisms and distri-bution coalitions that European institutions present, and the reliance of many countries in the European Union on publicly financed systems of education also has to be re-considered. Po-litical feminism is another master variable of the European political discourse and it is the main loser in the 1990s and the early years of the 21st Century, indicating again that political distribution coalitions are likely to lose today and tomorrow. The results reported clearly indi-cate that world systems studies would be well advised to take the processes of pension reform very seriously. To neglect pension funds in investigations about the capitalist world economy would be mis-leading at any rate. Private pension funds already amount to 44 % of current world GDP, with countries like the United States; Japan; United Kingdom; Netherlands; Canada; Switzerland; Australia; Sweden; Ireland; Finland; and Denmark taking the lead in fund development either via the introduction of a “World Bank” three pillar models or simply via a strong element of private pensions (“the third pillar”) besides the first, traditional PAYGO pillar (like presently in the United States of America). Slow pension fund development in most countries of the €-zone determines that the overall share of private pension funds from the €-zone is just over 2 % of world GDP. If Europe wants to fulfill its Lisbon agenda of catching up with the United States, it must overhaul its pension systems and introduce some form or other of private pen-sion funds, which are a major force in financing technological advance in the capitalist world economy today. Our investigations also clearly show that World Bank pension reforms are associated in a positive way with the rates of change of a country’s performance to the better.
    Keywords: Pension reform; World Bank;
    JEL: J32 H55 G23 F5
    Date: 2005
  16. By: Zheng, Jianghuai; Jiang, Jing
    Abstract: For sake of actualizing anti-trade barrier and changing the situation of price war after China’s taking part in WTO, Jiangsu laver association was founded. By using the Bayesian Cournot model, this paper analyzes the basis of trade association’s foundation is the ability of improving product quality and technique which is distributed heterogeneously in the firm of the industry. The paper defines this kind of ability as industrial specific resources which are formed during the process of industrial competition and development. Actually they are potential rents and laver firms can acquire them selectively by laver association’s enforcement of transaction rules in laver exchange office. It changes the industrial competition from reducing quality and price to upgrading quality and price and forms the basis of association’s existence. Whether the function is strong or not depends on association’s understanding of industrial specific resources and incentive benefits which is given to the member firms. It is not that association comes into being by the appearance of industrial specific resources and dies because of disappearance of industrial specific resources, but that association uses industrial specific resource into firms and it can reach a kind of separated equilibrium during the competition of improving quality and raising price. Association improves the quality of transaction governance continually and keeps the separated equilibrium maintained steadily. It makes the whole industry in good development order.
    Keywords: trade association; industrial specific resources; selective incentive
    JEL: Q13 L31 P23
    Date: 2006–08

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