nep-sea New Economics Papers
on South East Asia
Issue of 2007‒01‒02
sixteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. The Evolution of the East Asian Currency Baskets – Still Undisclosed and Changing By Gunther Schnabl
  2. Asian Economic Integration: ASEAN+3+1 or ASEAN+1s? By Amita Batra
  3. Tripolar century: USA, China and India By Arvind Virmani
  4. China's Socialist Market Economy: Lessons of Success By Arvind Virmani
  5. Revealed comparative advantage: An analysis for India and China By Amita Batra; Zeba Khan
  6. Are Financial Distortions an Impediment to Economic Growth? Evidence from China By Alessandra Guariglia; Sandra Poncet
  7. Rural People’s Perception of Poverty in China By Bjorn Gustafsson; Ximing Yue
  8. Polarizações e desigualdades: desenvolvimento regional na China (1949-2000) By Ricardo Machado Ruiz
  9. Rural Income Volatility and Inequality in China By John Whalley; Ximing Yue
  10. Understanding the Latest Wave and Future Shape of Regional Trade and Cooperation Agreements in Asia By Biswanath Bhattacharyay
  11. Missing Women and the Price of Tea in China: The Effect of Sex-Specific Earnings on Sex Imbalance By Qian, Nancy
  12. The Long Run Health and Economic Consequences of Famine on Survivors: Evidence from China's Great Famine By Meng, Xin; Qian, Nancy
  13. Market Access Impact on Individual Wage: Evidence from China By Laura Hering; Sandra Poncet
  14. Changing Patterns of Ethnic Minority Self-Employment in Britain: Evidence from Census Microdata By Ken Clark; Stephen Drinkwater
  15. Black Market and Official Exchange Rates: Long-Run Equilibrium and Short-Run Dynamics By Guglielmo Maria Caporale; Mario Cerrato
  16. Endogenous Timing in a Mixed Duopoly and Private Duopoly - ‘Capacity- then-Quantity’ Game By Yuanzhu Lu; Sougata Poddar

  1. By: Gunther Schnabl
    Abstract: Both before and after the Asian crisis, the dollar has been the dominant anchor and reserve currency in East Asia. Due to underdeveloped capital markets and the limited international role of their domestic currencies, the East Asian countries (except Japan) are likely to continue to stabilize exchange rates and to accumulate international reserves. Yet expectations of further dollar depreciation may trigger a re-orientation of exchange rate policies based on basket strategies. Rolling econometric estimations of the basket structures in East Asia suggest growing weights for the Japanese yen in most East Asian currency baskets. The role of the euro as a reserve currency in East Asia remains uncertain.
    Keywords: East Asia, currency basket, exchange rate policies, international role of the euro
    JEL: E58 F31 G15
    Date: 2006
  2. By: Amita Batra (Indian Council for Research on International Economic Relations)
    Abstract: In this paper an attempt is made to evaluate the most efficient approach to regional economic integration in Asia. For the purpose, Asia is defined as inclusive of ASEAN, the plus three economies of China, Japan, Korea and India that is the ASEAN plus four. Given that ASEAN is an existing regional bloc in Asia, alternative approaches to the alignment of the plus four economies with ASEAN for the formation of the ASEAN+4 trade bloc have been evaluated to determine if there are efficiency costs by way of distortion in the patterns of trade away from those expected on the basis of comparative advantage. The findings of our analysis underscore the efficiency of a prior alignment with ASEAN for all the plus four economies.
    Keywords: regional economic integration, Asia, efficiency cost, comparative advantage, first mover advantage, trade diversion.
    JEL: F13 F14 F15
    Date: 2006–09
  3. By: Arvind Virmani (Indian Council for Research on International Economic Relations)
    Date: 2005–03
  4. By: Arvind Virmani (Indian Council for Research on International Economic Relations)
    Date: 2005–12
  5. By: Amita Batra (Indian Council for Research on International Economic Relations); Zeba Khan (Indian Council for Research on International Economic Relations)
    Date: 2005–08
  6. By: Alessandra Guariglia; Sandra Poncet
    Abstract: Using data for 30 Chinese provinces over the period 1989-2003, this study examines the relationship between the level of financial intermediary development, and real GDP growth, physical capital accumulation, and total factor productivity (TFP) growth. We find that traditionally used indicators of financial development and China-specific indicators measuring the level of state interventionism in finance are generally negatively associated with growth and its sources, while indicators measuring the degree of market driven financing in the economy are positively associated with GDP and TFP growth, and capital accumulation. These effects have gradually declined over time and are weaker for high FDI recipients.
    Keywords: Financial intermediation; economic growth; capital accumulation; productivity growth; China
    JEL: E44 G21 N15 O16 O40
    Date: 2006–12
  7. By: Bjorn Gustafsson (University of Göteborg and IZA Bonn); Ximing Yue (Renmin University of China)
    Abstract: Subjective Poverty Line methodology is applied to rural China 2002 using a sample from 22 provinces. Respondents were asked two questions: one on amount of food necessary and another on amount of cash necessary for their households. The respondent’s perception of how much cash is needed varies profoundly and positively by income in the county where the respondent lives. The findings provide an argument for increasing the official poverty line for China as average household income increases. Poverty in rural China is disproportionally concentrated to the western regions and to poor counties. Most of rural China’s poverty can be attributed to households living outside classified poor areas. People living in a household with many members, those with a household head with a short education, and children face higher poverty risks than other persons.
    Keywords: China, poverty, poverty line
    JEL: I32 O15 P36
    Date: 2006–12
  8. By: Ricardo Machado Ruiz (Cedeplar-UFMG)
    Abstract: The regional development in China in the period 1949-2000 has two stages. In the first one (1949-1978), the aim was to control the territory. During three decades the government encouraged the convergences of per capita income among regions, rural, and urban areas, the industry was decentralized, the growth of central regions was induced, and the growth of coastal regions was constrained. In the second period (1979-2000), the so called "coastal and uneven strategy of development" determined the regional development of China. During this period the regional disparity decreased only at the beginning, then the differences between rural and urban areas, regions, and provinces were amplified and political conflicts increased.
    Keywords: China; regional economics; economic development; regional policy
    JEL: R58 R11 O14 O18
    Date: 2006–12
  9. By: John Whalley; Ximing Yue
    Abstract: Available data indicates a growing urban-rural income gap (the ratio of mean urban to rural incomes) with a significant increase from around 1.8 in the late 1980's to over 3 today. These estimates do not take into account the higher volatility of rural incomes in China. Current literature based on analyses of rural income volatility in China decomposes poverty into chronic and transient components using longitudinal survey data and assesses the fraction of the Foster, Greer and Thorbecke poverty gap attributable to mean income over time being below the poverty line. Resulting estimates of 40-50 % transient poverty point to the policy conclusion that poverty may be a less serious social problem than it appears in annual data due to rural income volatility. Here we use a direct method instead to adjust rural income for volatility using a certainty equivalent income measure and recompute summary statistics for the distribution of volatility corrected incomes, including the urban-rural income gap on which much of current poverty debate in China focuses. Since an uncertain income stream is worth less in utility terms than a certain income stream we argue that heightened rural volatility increases the effective urban-rural income gap and intensifies not weakens poverty concerns. Using Chinese longitudinal rural survey data for which current decompositions can be replicated, we make adjustments for certainty equivalence of rural household income streams which not only widen the urban-rural income gap in China but also increases other distributional summary statistics. Depending upon values used for the coefficient of relative risk aversion, the measured urban-rural income gap increases by 20-30% using a certainty equivalent measure to adjust rural incomes for volatility. We also conduct similar analyses using consumption data, for which slightly larger increases occur.
    JEL: O15 O20 O53
    Date: 2006–12
  10. By: Biswanath Bhattacharyay
    Abstract: Asia accounts for more than 30% of world GDP and contributes half of the global growth in recent years. Despite high growth rates, Asia is still facing considerable socio-economic challenges. If Asia is to reemerge as a major power in the global economy and in order for the region to successfully address its own challenges and issues there is a need to make the region’s economies more integrated regionally and internationally. Following the recent global trend, Asia witnessed a wave of subregional and bilateral trade agreements. This paper analyzes the recent trends and patterns and nature of regional trade and cooperation agreements (RTCAs) in Asia and associated problems and prospects. It also attempts to understand the latest wave and the future shape of RTCAs and examines if these RTCAs provide the basis for a new Asia-wide cooperation or for the emergence of new regional trade in blocs of several subregional groupings.
    Keywords: Asia, regional economic cooperation and integration, trade, bilateral and regional trade and cooperation agreements, ASEAN
    JEL: F10 F20 Q10 Q40 R40
    Date: 2006
  11. By: Qian, Nancy
    Abstract: Economists long have argued that the severe sex imbalance that exists in many developing countries is caused by underlying economic conditions. This paper uses plausibly exogenous increases in sex-specific agricultural income caused by post-Mao reforms in China to estimate the effects of total income and sex-specific income on sex ratios of surviving children. The results show that increasing income alone has no effect on sex ratios. In contrast, increasing female income, holding male income constant, increases survival rates for girls; increasing male income, holding female income constant, decreases survival rates for girls. Moreover, increasing the mother's income increases educational attainment for all children, while increasing the father's income decreases educational attainment for girls and has no effect on boys' educational attainment.
    Keywords: development; gender; household bargaining
    JEL: I12 J13 J16 J24 O13 O15
    Date: 2006–12
  12. By: Meng, Xin; Qian, Nancy
    Abstract: In the past century, more people have perished from famine than from the two World Wars combined. Many more were exposed to famine and survived. Yet we know almost nothing about the long run impact of famine on these survivors. This paper addresses this question by estimating the effect of childhood exposure to China's Great Famine on adult health and labor market outcomes of survivors. It resolves two major empirical difficulties: 1) data limitation in measures of famine intensity; and 2) the potential joint determination of famine occurrences and survivors' outcomes. As a measure of famine intensity, we use regional cohort size of the surviving population in a place and time when there is little migration. We then exploit a novel source of plausibly exogenous variation in famine intensity to estimate the causal effect of childhood exposure to famine on adult health, educational attainment and labor supply. The results show that exposure to famine had significant adverse effects on adult health and work capacity. The magnitude of the effect is negatively correlated with age at the onset of the famine. For example, for those who were one year old at the onset of the famine, exposure on average reduced height by 2.08% (3.34cm), weight by 6.03% (3.38kg), weight-for-height by 4% (0.01 kg/cm), upper arm circumference by 3.95% (0.99cm) and labor supply by 6.93% (3.28 hrs/week). The results also suggest that famine exposure decreased educational attainment by 3% (0.19 years); and that selection for survival decreased within-region inequality in famine stricken regions.
    Keywords: children; demographic; famine; institutions
    JEL: J1 J24 O15
    Date: 2006–12
  13. By: Laura Hering; Sandra Poncet
    Abstract: We study the effect of geography and in particular of market access on wages by working with individual data from 56 Chinese cities in 11 different provinces. By applying the theory of the New Economic Geography on individual survey data, we contribute to the explanation of growing disparities within the country, and even within provinces. We examine to what extent proximity to markets can explain inter-individual wage heterogeneity and growing wage disparities within Chinese provinces. Using a New Economic Geography style model, we derive an econometric specification relating wages to market access. The latter is calculated as a transport cost weighted sum of the surrounding locations’ market capacities. Based on data from 1995 on around 10,000 Chinese workers, and after controlling for individual skills and factor endowments, we find that a significant fraction of inter-individual differences in terms of return to labor can be explained by the geography of access to markets. Moreover, our study investigates whether the relationship between market access and wages holds for all types of workers equally and shows that the magnitude of the impact depends on the firm type and the level of qualification.
    Keywords: Economic geography; international trade; regional integration; wage China; inequality
    JEL: F12 F15 R11 R12
    Date: 2006–12
  14. By: Ken Clark (University of Manchester and IZA Bonn); Stephen Drinkwater (University of Surrey and IZA Bonn)
    Abstract: The over-representation of certain ethnic minority and immigrant groups in self-employment is, in common with other developed countries, a notable feature of the UK labour market. Compared to substantial growth in self-employment in the 1980s, the 1990s saw overall selfemployment rates plateau. Despite this, some minority groups experienced continued growth whilst others, particularly Chinese and Indian males and Pakistani, Bangladeshi and Chinese females, saw their self-employment rates decline. In this paper we use microdata samples from the 1991 and 2001 Censuses to investigate the trends in ethnic entrepreneurship. Using decomposition methods we find that, for males from the Asian groups, changes in observable characteristics associated with an increasing proportion of second generation individuals explain much of the decline in self-employment. This, which is also true of Chinese females, reflects in part the age structure and educational experiences of the second generation. The dynamics of Black male and Pakistani/Bangladeshi female entrepreneurship are less easy to explain. We also find that, while there is no evidence of self-employment being an “enclave” phenomenon, local economic conditions do affect rates of entrepreneurship for some groups, notably Pakistanis and Bangladeshis.
    Keywords: self-employment, entrepreneurship, ethnicity, immigrants
    JEL: J23 J7
    Date: 2006–12
  15. By: Guglielmo Maria Caporale; Mario Cerrato
    Abstract: This paper presents further empirical evidence on the relationship between black market and official exchange rates in six emerging economies (Iran, India, Indonesia, Korea, Pakistan, and Thailand). First, it applies both time series techniques and heterogeneous panel methods to test for the existence of a long-run relationship between these two types of exchange rates. Second, it tests formally the validity of the proportionality restriction implying a constant black-market premium. Third, it also analyses the short-run dynamic responses of both markets to shocks. Finally, it tries to shed some light on the determinants of the market premium. Evidence of slow reversion to the long-run equilibrium is found. Further, it appears that capital controls and expected currency devaluation are the two main factors affecting the size of the premium and determining the breakdown in the proportionality relationship.
    Keywords: black market and official exchange rates, panel cointegration, impulse response functions
    JEL: C23 F31
    Date: 2006
  16. By: Yuanzhu Lu (China Economics and Management Academy, Central University of Finance and Economics); Sougata Poddar (Department of Economics, National University of Singapore)
    Abstract: We consider a game of endogenous timing of sequential choice of capacity and quantity with observable delay in a mixed duopoly and a private duopoly under two possible time structures. In mixed duopoly, we find that a simultaneous play at the capacity stage or at the quantity stage can never be supported as subgame perfect Nash equilibrium (SPNE); whereas a simultaneous play at each stage turns out to be the unique SPNE in a private duopoly. In mixed duopoly there is multiplicity of equilibria and all SPNEs require sequentiality at the capacity as well as quantity stage. These equilibrium outcomes are invariant with respect to the endogenous time structures. In this context, we also show that the public firm never chooses over (excess) capacity in mixed duopoly, while the private firm never chooses under capacity in both mixed and private duopoly.
    Keywords: Endogenous timing, public firm, private firm, over capacity, under capacity
    JEL: L13 D43 H42

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