nep-sea New Economics Papers
on South East Asia
Issue of 2006‒12‒16
eighteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Economic Integration in Asia: Bilateral Free Trade Agreements Versus Asian Single Market By Hedi Bchir; Michel Fouquin
  2. Can China’s Growth be Sustained? A Productivity Perspective By Zheng, Jinghai; Bigsten, Arne; Hu, Angang
  3. The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data By Charles Yuji Horioka; Junmin Wan
  4. Foreign Direct Investment in China: Reward or Remedy? By Olena Havrylchyk; Sandra Poncet
  5. Foreign bank lending and bond underwriting in Japan during the lost decade By Jose A. Lopez; Mark M. Spiegel
  6. Japan's alternating phases of growth and outlook for the future By Kyoji Fukao; Osamu Saito
  7. Teishicchi deno suiden kaihatsu [in Japanese] By Mataji Umemura
  8. An Optimal Rate of the National Burden in an Aging Japan By OKAMOTO Akira
  9. Financial Versus Monetary Mercantilism-Long-run View of Large International Reserves Hoarding By Joshua Aizenman; Jaewoo Lee
  10. The Long Term Growth Prospects of the World Economy: Horizon 2050 By Sandra Poncet
  11. Investing Under Model Uncertainty: Decision Based Evaluation of Exchange Rate and Interest Rate Forecasts in the US, UK and Japan By Anthony Garratt; Kevin Lee
  12. Consolidation of Cooperative Banks (Shinkin) in Japan:Motives and Consequences By Kaoru Hosono; Koji Sakai; Kotaro Tsuru
  13. Analysis of the Survey Response Behavior: An experience from a pilot survey of the health and living status of the 50s and beyond in Japan By Hidehiko Ichimura; Daiji Kawaguchi; Satoshi Shimizutani
  14. Why do banks promise to pay par on demand? By Gerald P. Dwyer, Jr.; Margarita Samartín
  15. Deflationary shocks and monetary rules: an open-economy scenario analysis By Douglas Laxton; Papa N'Diaye; Paolo Pesenti
  16. Taxing Consumption and Other Sins By James R. Hines Jr.
  17. Prioritizing policies for pro-poor growth: applying bayesian model averaging to Vietnam By Klump,Rainer; Pruefer,Patricia
  18. Evaluating Targeting Efficiency of Government Programmes: International Comparisons By Nanak Kakwani; Hyun H. Son

  1. By: Hedi Bchir; Michel Fouquin
    Abstract: Institutional regionalisation has come late to East Asia compared to Europe, but its pace has accelerated since the mid-1990s. Many agreements, including bilateral ones such as those signed between Singapore and Japan, and plurilateral ones such as those between ASEAN countries (e.g. ASEAN Free Trade Agreement (AFTA below)), cover an ever-increasing portion of the East Asian region, including China. We first analyse regional economic integration in East Asia, questioning the notion of open regionalism. In a second part we explore the possible consequences of different kind of agreements. We rely on the CEPII’s CGE model (MIRAGE), adapted to the specificity of Asia’s economic integration. As regards the geometry of the agreement(s), two sets of scenarios are considered, following a Hub-and-Spoke versus a Full-FTA assumption, with or without sensitive products inclusion. Among the main results, we find that Asian countries do have diverging interests. While ASEAN maximises its benefit in the bilateral scenario including agricultural liberalisation (SC1); Japan and Korea are the best in the Asia global agreement scenario, including sensitive products for Japan (SC2) but excluding these products for Korea (SC 4). For EU- 25, it appears that increased competition within Asia has a negative impact on its goods exports but positive impact on its service exportations. The main losers are the close countries and primary goods producers such as Taiwan, South Asia (excluding India), North of Africa, South America.
    Keywords: Computable general Equilibrium Models; economic integration; Asia; trade simulation; models; Mirage; FTA; market access
    JEL: D58 F15 N85
    Date: 2006–10
  2. By: Zheng, Jinghai (Department of Economics, School of Business, Economics and Law, Göteborg University); Bigsten, Arne (Department of Economics, School of Business, Economics and Law, Göteborg University); Hu, Angang (Center for China Studies, School of Public Policy and Management)
    Abstract: China’s unorthodox approach to economic transition has resulted in sustained high growth. However, in recent years Chinese economists have increasingly referred to the growth pattern as “extensive”, generated mainly through the expansion of inputs. Our investigation of the Chinese economy during the reform period finds that reform measures often resulted in one-time level effects on TFP. China now needs to adjust its reform program towards sustained increases in productivity. Market and ownership reforms, and open door policies have improved the situation under which Chinese firms operate, but further institutional reforms are required to consolidate China’s move to a modern market economy. <p>
    Keywords: Growth; Productivity; China
    JEL: D24 O47 O53
    Date: 2006–11–28
  3. By: Charles Yuji Horioka; Junmin Wan
    Abstract: In this paper, we conduct a dynamic panel analysis of the determinants of the household saving rate in China using a life cycle model and panel data on Chinese provinces for the 1995-2004 period from China's household survey. We find that China's household saving rate has been high and rising and that the main determinants of variations over time and over space therein are the lagged saving rate, the income growth rate, and (in some cases) the real interest rate and the inflation rate. However, we find that the variables relating to the age structure of the population usually do not have a significant impact on the household saving rate. These results provide mixed support for the life cycle hypothesis, are consistent with the existence of inertia or persistence, and imply that China's household saving rate will remain high for some time to come.
    JEL: D12 D91 E21 J10
    Date: 2006–12
  4. By: Olena Havrylchyk; Sandra Poncet
    Abstract: In his book "Selling China" Huang (2003) states that a high level of foreign direct investment (FDI) in China is not necessarily a sign of strength, but can be partly attributed to the distortive nature of state policies that put restrictions on private enterprises. The Chinese financial system allocates resources to the least efficient firms – state-owned enterprises – while denying the same resources to Chinese private enterprises, forcing them to look for a foreign investor. We propose to analyze determinants of FDI in Chinese provinces to test the above hypothesis. We control for traditional determinants of FDI such as market access, labor costs, productivity, infrastructure, reform advances and banking sector size in order to assess the impact of inter-provincial heterogeneity in terms of the access that private enterprises have to credit.
    Keywords: China; banking sector; FDI; government intervention; banking system; credit; monetary policy; international integration
    JEL: F15 F22 G28
    Date: 2006–08
  5. By: Jose A. Lopez; Mark M. Spiegel
    Abstract: We examine foreign intermediation activity in Japan during the so-called "lost decade" of the 1990s, contrasting the behavior of lending by foreign commercial banks and underwriting activity by foreign investment banks over that period. Foreign bank lending is shown to be sensitive to domestic Japanese conditions, particularly Japanese interest rates, more so than their domestic Japanese bank counterparts. During the 1990s, foreign bank lending in Japan fell, both in overall numbers and as a share of total lending. However, there was marked growth in foreign underwriting activity in the international yen-denominated bond sector. A key factor in the disparity between these activities is their different clienteles: While foreign banks in Japan lent primarily to domestic borrowers, international yen-denominated bond issuers were primarily foreign entities with yen funding needs or opportunities for profitable swaps. Indeed, low interest rates that discouraged lending activity in Japan by foreign banks directly encouraged foreign underwriting activity tied to the so-called "carry trades." Regulatory reforms, particularly the "Big Bang" reforms of the 1990s, also play a large role in the growth of foreign underwriting activity over our sample period.
    Keywords: Banks and banking, Foreign - Japan ; Bank underwriting
    Date: 2006
  6. By: Kyoji Fukao; Osamu Saito
    Date: 2006–12
  7. By: Mataji Umemura
    Date: 2006–12
  8. By: OKAMOTO Akira
    Abstract: This paper examines an optimal rate of the national burden to establish guidelines for fiscal reform in Japan's graying society. The paper looks at Japanese tax and social security systems through an extended life-cycle general equilibrium simulation model. It explicitly considers the benefits that the government provides to households, which enables us to comprehensively evaluate the balance between benefits and burdens. Simulation results show that an optimal rate of the national burden is high when households put a great utility weight on the benefits coming from public services, and that it is low when the degree of publicness of government expenditure is high. The results also suggest that an optimal rate of the national burden would rise as Japan ages and may exceed 50% during the rapid aging of its population.
    Date: 2006–12
  9. By: Joshua Aizenman; Jaewoo Lee
    Abstract: The sizable hoarding of international reserves by several East Asian countries has been frequently attributed to a modern version of monetary mercantilism -- hoarding international reserves in order to improve competitiveness. Taking a long-run perspective, we point out that manufacturing exporters in East Asia frequently used financial mercantilism -- subsidizing the cost of capital -- during decades of high growth. The switches to sizable hoarding of international reserves happened when growth floundered or deep crises erupted, exacerbating financial fragility as the legacy of past financial mercantilism. As financial fragility may lead to currency crises, the rise of non-performing loans provides impetus for the precautionary hoarding of international reserves, making it harder to disentangle the monetary mercantilism from precautionary response to the heritage of past financial mercantilism. Monetary mercantilism also raises the prospects of competitive hoarding -- exporters of competing manufacturing goods to third markets would adopt a similar hoarding policy, in order to mitigate their deteriorating competitiveness following the adoption of monetary mercantilism by a competitor. Competitive hoarding, owing to the negative externalities associated with it, can dissipate competitiveness gains and result in excess reserves. It may also encourage the formation of institutions like regional funds, in an attempt to curb these adverse externalities.
    JEL: F15 F31 F43 F51
    Date: 2006–12
  10. By: Sandra Poncet
    Abstract: This study develops long-term forecasts for world economic growth, based on a production function according to which an economy can grow by (1) deploying more inputs (labor and capital inputs) to production and/or by (2) becoming more efficient, i.e. producing more output per unit of input. An econometric analysis of past performance is carried out to describe the process by which physical capital accumulates over time and to estimate the parameters of a catch-up model of technology diffusion. We moreover account for the modification of real exchange rates against the US dollar. The results suggest that today’s advanced economies are to become a shrinking part of the world economy: in less than 50 years, China and India together could match the size of the US in current dollars (26.6 against 26.9% of the world GDP in 2050). China and India will stand out as an engine of new demand growth and spending, their GDP will grow at yearly average rate of 4.6 and 4.5%, respectively between 2005 and 2050. The largest economies in the world (by GDP) may no longer be the richest (in terms of income per capita).
    Keywords: Growth projections; emerging countries; human capital; technology diffusion; convergence
    JEL: O10 O40
    Date: 2006–10
  11. By: Anthony Garratt (School of Economics, Mathematics & Statistics, Birkbeck); Kevin Lee
    Abstract: We evaluate the forecast performance of a range of theory-based and atheoretical models explaining exchange rates and interest rates in US, UK and Japan. The decision-making environment is fully described for an investor who optimally allocates portfolio shares to domestic and foreign assets. Methods necessary to compute and use forecasts in this context are proposed, including the means of combining density forecasts to deal with model uncertainty. An out-of-sample evaluation exercise covering the 1990’s is described, comparing statistical criteria with decision-based criteria. The theory-based models are found to perform relatively well when their forecasts are judged by their economic value.
    Keywords: Model Averaging, Buy and Hold, Exchange rate and interest rate forecasts.
    JEL: C32 C53 E17
    Date: 2006–12
  12. By: Kaoru Hosono; Koji Sakai; Kotaro Tsuru
    Abstract: We investigate the motives and consequences of the consolidation of cooperative banks (Shinkin) in Japan during the period 1984-2002. Our major findings are as follows. First, less profitable and less cost efficient banks are more likely to be an acquirer and a target, though even less profitable and less cost efficient banks are more likely to be a target rather than an acquirer. In addition, a larger bank is more likely to be an acquirer and smaller one a target. These results are consistent with the regulators' motive for stabilizing the local banking system.¡¡Second, acquiring banks improved cost efficiency after the consolidation. M&As also raised the loan interest rate and improved profitability and X-efficiency particularly since the latter half of the 1990s. Nonetheless, the improvement of ROA after the merger was not sufficient to fill in the initial gap of the capital ratio between merging banks and peers, resulting in the deterioration of the capital ratio of consolidated banks relative to peers. M&As did not contribute to sufficiently stabilize the local banking system despite the regulators' motive. Third, the consolidation tended to improve the profitability of merging banks when the difference in profitability and healthiness between acquiring banks and target banks were large, which is consistent with the relative efficiency hypothesis (e.g., Akhavein, Berger, and Humphrey, 1997).Length: 48 pages
    Date: 2006–08
  13. By: Hidehiko Ichimura; Daiji Kawaguchi; Satoshi Shimizutani
    Abstract: Exploiting a survey of aged population implemented in Tokyo, we examine the targeted individual's decision to respond the survey. The sampling of potential respondents is based on the resident registry compiled by the local governments that carries all targeted individual's information on sex, age and exact street address. We matched this data with the land price of the street address and the survey administrative information that records interviewer's information. Our empirical findings reveal that whether targeted individual responds the survey or not depends on age, gender and land price. Most significantly the decision critically depends on interviewers' unobserved heterogeneity. We speculate the interviewer's effort to obtain responses crucially determine whether the targeted individual responds to the survey. Given the random assignment of interviewers to the targeted individuals, we argue that interviewers' heterogeneity can be used as an excluded variable for the Heckman sample selection correction.
    Date: 2006–09
  14. By: Gerald P. Dwyer, Jr.; Margarita Samartín
    Abstract: We survey the theories of why banks promise to pay par on demand and examine evidence about the conditions under which banks have promised to pay the par value of deposits and banknotes on demand when holding only fractional reserves. The theoretical literature can be broadly divided into four strands: liquidity provision, asymmetric information, legal restrictions, and a medium of exchange. We assume that it is not zero cost to make a promise to redeem a liability at par value on demand. If so, then the conditions in the theories that result in par redemption are possible explanations of why banks promise to pay par on demand. If the explanation based on customers’ demand for liquidity is correct, payment of deposits at par will be promised when banks hold assets that are illiquid in the short run. If the asymmetric-information explanation based on the difficulty of valuing assets is correct, the marketability of banks’ assets determines whether banks promise to pay par. If the legal restrictions explanation of par redemption is correct, banks will not promise to pay par if they are not required to do so. If the transaction explanation is correct, banks will promise to pay par value only if the deposits are used in transactions. After the survey of the theoretical literature, we examine the history of banking in several countries in different eras: fourth-century Athens, medieval Italy, Japan, and free banking and money market mutual funds in the United States. We find that all of the theories can explain some of the observed banking arrangements, and none explain all of them.
    Date: 2006
  15. By: Douglas Laxton; Papa N'Diaye; Paolo Pesenti
    Abstract: The paper considers the macroeconomic transmission of demand and supply shocks in an open economy under alternative assumptions about whether the zero interest rate floor (ZIF) is binding. It uses a two-country general-equilibrium simulation model calibrated to the Japanese economy relative to the rest of the world. Negative demand shocks have more prolonged and conspicuous effects on the economy when the ZIF is binding than when it is not binding. Positive supply shocks can actually extend the period of time over which the ZIF may be expected to bind. Economies that are more open hit the ZIF for a shorter period of time, and with less harmful effects. The implications of deflationary supply shocks depend on whether the shocks are concentrated in the tradables or the nontradables sector. Price-level-path targeting rules are likely to provide better guidelines for monetary policy in a deflationary environment, and have desirable properties in normal times when the ZIF is not binding.
    Keywords: Economic forecasting ; Monetary policy ; Interest rates ; Macroeconomics
    Date: 2006
  16. By: James R. Hines Jr.
    Abstract: Throughout American history, the U.S. federal and state governments have imposed excise taxes on commodities such as alcohol and tobacco (and more recently, gasoline and firearms). Rates of such "sin" taxation, and consumption taxation broadly (including sales taxes and value-added taxes), are currently much lower in the United States than they are in Europe, Japan, and other affluent parts of the world. In part, this reflects relative government sizes, but that is not the whole story, since even controlling for total tax collections, levels of national income, government decentralization, and openness to international trade, the United States imposes unusually low excise and consumption taxes. As a result, the United States relies to a much greater degree than other countries on personal and corporate income taxes, thereby affording fewer opportunities to use the tax system to protect individuals and the environment by discouraging the consumption of "sinful" commodities, and instead simply discouraging saving and investment.
    JEL: H20 H23 H71
    Date: 2006–12
  17. By: Klump,Rainer; Pruefer,Patricia (Tilburg University, Center for Economic Research)
    Abstract: Pro-Poor Growth (PPG) is the vision of combining high growth rates with poverty reduction. Due to the myriad of possible determinants of growth and poverty a unique theoretical model for guiding empirical work on PPG is absent, though. Bayesian Model Averaging is a statistically robust framework for this purpose. It addresses the existent parameter and model uncertainty by not choosing a single model but averaging over all possible ones. Using data for the 61 Vietnamese provinces we are able to ascertain a prioritization of all used determinants of poverty, growth and of PPG of our large set of explanatory variables.
    Keywords: poverty determinants;growth determinants;pro-poor growth;model uncertainty; Vietnam
    JEL: C11 C52 R11
    Date: 2006
  18. By: Nanak Kakwani; Hyun H. Son
    Abstract: This paper suggests how the targeting efficiency of government programmes may be better assessed. Using the “pro-poor policy” (PPP) index developed by the authors, the study investigates not only the pro-poorness of government programmes geared to the poorest segment of the population but also basic service delivery in education, health and infrastructure. The paper also shows that the targeting efficiency for a particular socio-economic group should be judged on the basis of a ‘total-group PPP index’, to capture the impact of operating a programme for the group. Using micro-unit data from household surveys, the paper presents a comparative analysis for Thailand, the Russian Federation, Viet Nam and 15 African countries.
    Keywords: Targeting, universalism, pro-poor, poverty
    JEL: C15 I32
    Date: 2006–02

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