nep-sea New Economics Papers
on South East Asia
Issue of 2007‒01‒28
sixteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Progress toward a Common Currency Basket System in East Asia By OGAWA Eiji; SHIMIZU Junko
  2. The Impact of Production Fragmentation on Industry Skill Upgrading: New Evidence from Japanese Manufacturing By Nobuaki Yamashita
  3. Exchange rate sensitivity of China’s bilateral trade flows By Wang , Jiao; Ji, Andy G.
  4. Can Production Subsidies Foster Export Activity? Evidence from Chinese Firm Level Data By Girma, Sourafel; Gong, Yundan; Görg, Holger; Yu, Zhihong
  5. Currency Futures Volatility during the 1997 East Asian Crisis: An Application of Fourier Analysis By Vanessa Mattiussi; Giulia Iori
  6. Reforming China’s Exchange Rate Policy By John Ryan
  7. Exchange Rate Pass-Through in ASEAN: Implications for the Prospects of Monetary Integration in the Region By Carlos Cortinhas
  8. Regional Development Dynamics and Decentralization in the Philippines: Ten Lessons from a 'Fast Starter' By Arsenio M. Balisacan; Hal Hill; Sharon Faye A Piza
  9. Volatility Transmission in Financial Markets:A New Approach By Giampiero M. Gallo; Edoardo Otranto
  10. Competition and Inter-Firm Credit: Theory and Evidence from Firm-level Data in Indonesia By Hyndman, Kyle; Serio, Giovanni
  11. Choice of Aircraft Size - Explanations and Implications By Moshe Givoni; Piet Rietveld
  12. Method of the exponential adjustement using directly the terms of the empiric series in the analysis of the dynamics of the textile confections production By Racoceanu, Constantin
  13. Efficiency Performance of Hospitals and Medical Centers in Vietnam By Nguyen, Khac Minh; Giang, Thanh Long
  14. Growing richer and taller: Explaining Change in the Distribution of Child Nutritional Status during Vietnam’s Economic Boom By Owen O'Donnell; Ángel López Nicolás; Eddy van Doorslaer
  15. Hybrid instruments for bank capitalization By Delfiner, Miguel; Pailhé, Cristina
  16. Efficiency of Construction Firms in Vietnam By Nguyen, Khac Minh; Giang, Thanh Long

  1. By: OGAWA Eiji; SHIMIZU Junko
    Abstract: Ogawa and Shimizu (2005, 2006a) have proposed a possible way to create an Asian Monetary Unit (AMU) as a weighted average of the thirteen East Asian currencies (ASEAN + China, Japan, and Korea) and developed AMU Deviation Indicators for a surveillance process under the Chiang Mai Initiative. Both the AMU and the AMU Deviation Indicators are important in helping the countries in the region to recognize the necessity of moving toward a common currency basket system. However, there remains an open question about how to implement this system in East Asian countries. The purpose of this paper is to compile the latest issues of currency basket itself and to develop concrete steps toward a common currency basket system in East Asia. Particularly, we simulate possible individual currency basket weights based on trade shares of each East Asian country and convert them to G3 currency (the US dollar, the euro, and the Japanese yen) basket weights. We also investigate the discrepancies between the converted G3 currency basket weight of the AMU and the weights of the common G3 currency basket, which is to illustrate the reality of implementing a common currency basket system. We propose a possible way to shift from an individual G3 currency basket system to the AMU currency basket system. In this process, we expect that the Japanese yen would play a varying role at each stage toward monetary coordination in East Asia.
  2. By: Nobuaki Yamashita
    Abstract: This paper examines the hypothesis that industries engaged in international fragmentation of production experience greater skill upgrading using a panel dataset of Japanese manufacturing over the period 1980-2000. The novelty of the study comes from the use of an index newly constructed using data on trade in parts and components to measure inter-industry variations in the degree of international vertical specialization (fragmentation intensity of trade). It also employs a methodology designed to embody peculiarities of Japan's fragmentation trade pattern. While the findings of existing studies are inconclusive, we find that the expansion of fragmentation trade with developing East Asian countries has had a significant impact on the skills composition of Japanese manufacturing employment. By contrast, trade with high income countries seems to have had a skill downgrading effect.
    Keywords: International Fragmentation of Production, Skill Upgrading, Japanese Manufacturing
    JEL: F14 F16 J31
    Date: 2007–01
  3. By: Wang , Jiao (BOFIT); Ji, Andy G. (BOFIT)
    Abstract: Traditional assessments of the impact of exchange rate depreciation or appreciation on trade have involved estimating the elasticity of trade volume to relative prices. Such studies relied heavily on aggregated trade data. More recent studies employ bilateral trade data and methodologies such as ECM and gravity models. This study uses a generalized gravity model with data panel analysis in assessing the impact of currency depreciation or appreciation on bilateral trade flows between China and its top trading partners. The empirical evidence suggests exchange rates (both real and nominal) do not exert a significant influence on the overall exports from China. Thus, a devaluation or revaluation of the yuan should be expected to have only limited impact on China’s trade balance. Moreover, previous studies provide limited evidence of a negative relation between exchange rate volatility and trade flows. Given the current revaluation expectations, we find China’s anticipated shift toward a more flexible exchange rate regime fails to address China’s trade surplus issues, and thus will merely lead to a revaluation of the nominal exchange rate and increased exchange rate volatility. It appears a major overhaul of the country’s heavily subsidized export regime must first occur for the exchange rate to assume a larger role in China’s international trade.
    Keywords: exchange rate; trade; China; competition; gravity model; panel
    JEL: C22 C22 F14 F31
    Date: 2007–01–18
  4. By: Girma, Sourafel; Gong, Yundan; Görg, Holger; Yu, Zhihong
    Abstract: Using a unique firm level data set from the Chinese manufacturing sector, this paper analyses the impact of production subsidies on firms’ export performance. It documents robust evidence that production subsidies stimulate export activity, although this effect is conditional on firm characteristics. In particular, the beneficial impact of subsidies is found to be more pronounced amongst profit-making firms, firms in capital intensive industries and those with previous exporting experience. Compared to firm characteristics, the extent of heterogeneity across ownership structure (SOEs, collectives and privately-owned firms) proves to be relatively less important.
    Keywords: China; endogenous tobit; exporting; subsidies
    JEL: F1 O2 P3
    Date: 2007–01
  5. By: Vanessa Mattiussi (Department of Economics, City University, London); Giulia Iori (Department of Economics, City University, London)
    Abstract: We analyze a recently proposed method to estimate volatility and correlation when prices are observed at a high frequency rate. The method is based on Fourier analysis and does not require any data manipulation, leading to more robust estimates than the traditional methodologies proposed so far. In the first part of the paper, we evaluate the performance of the Fourier algorithm to reconstruct the time volatility of simulated univariate and bivariate models. In the second part, the Fourier method is used to investigate the volatility and correlation dynamics of futures markets over the Asian crisis period, with the purpose of detecting possible interdependencies and volatility transmissions across countries amid a period of financial turmoil.
    Keywords: high frequency data, Fourier analysis, Asian crisis, volatility spillover
    Date: 2006–09
  6. By: John Ryan (European Business School, Regent’s College)
    Abstract: This paper is aimed at analysing the decision of the Chinese central bank to reform the exchange rate of the national currency and to gauge the effects of this change in regime on the Chinese economy and the world currency markets. Although many nations have been largely disappointed by the relatively small revaluation of 2%, it will be argued that moving away from the dollar-peg is a step in the right direction in moving to a floating exchange rate, and the reform should be expected to occur in two-stages over a longer time frame The paper focuses on those studies attempting to estimate the under-valuation of the Renminbi and the effects of the change in policy. To enable the reader to understand the degree of misalignment of the. Renminbi this paper will examine various factors that determine whether the currency is undervalued. This will then allow the review of the policy options available to the central bank for facilitating an appreciation and the potential effects of a regime change will be reported. The expected outcomes on the currencies, US treasuries and trade deficit will also be analysed and the study will find that, post-revaluation, the dollar depreciates, the Yen moves in line with the Renminbi and the Euro strengthens, as was expected. The implications for the U.S. treasury market, after a move to a currency basket, is that China will reduce their dollar holdings by selling treasuries, however the region will still remain a net-buyer.
    Keywords: Renminbi, China, United States, Dollar, Euro and Yen
    JEL: D53 E41 E42 E44 F31
    Date: 2006
  7. By: Carlos Cortinhas (Universidade do Minho - NIPE)
    Abstract: This paper investigates, for the first time, the degree of exchange rate pass-through to domestic prices in all five founding members of ASEAN. For this purpose, a three variable recursive VAR model was applied which uses the Choleski decomposition method along the distribution chain of pricing, using data for the period 1968 to 2001. The results show that a strong case for entering a currency union can only be made for the cases of Singapore and Malaysia as in these countries there appears to be a case of exchange rate disconnect. A case for a common currency can also be made for Indonesia but for entirely different reasons. For this country, an independent monetary policy is a clear source of shocks to the economy and therefore a currency union would tend to eliminate then. A weaker case for a common currency can be made for the Philippines as evidence of some exchange rate pass-through to inflation was found but not to import prices. Finally, Thailand exhibits a clear case of exchange rate pass-through to import prices (but not to inflation) and thus evidence that a flexible exchange rate might be preferable as it provides the means to improve the country’s price competitiveness.
    Keywords: Exchange Rate Pass-Through; Monetary Integration; Asean
    JEL: F31 F33 E42
    Date: 2007
  8. By: Arsenio M. Balisacan; Hal Hill; Sharon Faye A Piza
    Abstract: Spatial disparities, regional dynamics and centre-region relations are the focus of much attention in the developing world, owing to growing analytical and policy interest, concern over deeply entrenched spatial inequality, transitions from economic crises or command economies, and the uneven effects of rapid global integration. Many countries are embarking on major decentralization programs. This paper examines regional dynamics and decentralization with reference to the Philippines, a country well suited to such a study and from which other developing countries can learn lessons. The Philippines initiated a major decentralization program relatively early (1991), and it is one of the most spatially diverse countries in the world. The reforms occurred in the wake of a deep economic crisis, and were accompanied by a major liberalization program.
    Keywords: Asia, The Philippines, decentralization, policy reform, regional development.
    Date: 2006
  9. By: Giampiero M. Gallo (Università degli Studi di Firenze, Dipartimento di Statistica "G. Parenti"); Edoardo Otranto (Università di Sassari, Dipartimento di Economia, Impresa e Regolamentazione)
    Abstract: In this paper we suggest ways to characterize the transmission mechanisms of volatility between markets by making use of a new Markov Switching bivariate model where the state of one variable feeds into the transition probability of the state of the other. The comparison between this model and other Markov Switching models allows us to derive statistical tests stressing the role of one market relative to another (contagion, interdependence, comovement, independence, Granger causality). We estimate the model on the weekly high–low range of several Asian markets, with a specific interest in the role of Hong Kong.
  10. By: Hyndman, Kyle (SMU); Serio, Giovanni (Goldman Sachs)
    Abstract: Using firm-level data we investigate the relationship between trade credit and suppliers’ market structure and find an inverted U-shaped relationship between competition and trade credit, with a discontinuous increase in credit provision between monopoly and duopoly. This “big jump” arises because monopolists are more likely to not offer any trade credit than firms in competitive environments. Our model exploits the fundamentally different nature between cash and trade credit sales, arguing that firms are unable to commit ex ante to a trade credit price. We show that monopolists will often sell only on cash, while credit is always provided in competitive environments.
    Keywords: Trade Credit, Competition, Development, Industrial Organization.
    JEL: L1 O16
    Date: 2007–01
  11. By: Moshe Givoni (Vrije Universiteit Amsterdam); Piet Rietveld (Vrije Universiteit Amsterdam)
    Abstract: To keep load factors high while offering high frequency service, airlines tend to reduce the size of the aircraft they use. At many of the world’s largest airports there are fewer than 100 passengers per air transport movement, although congestion and delays are growing. Furthermore, demand for air transport is predicted to continue growing but aircraft size is not. This paper aims to investigate and explain this phenomenon, the choice of relatively small aircraft. It seems that this choice is associated mainly with the benefits of high frequency service, the competitive environment in which airlines operate and the way airport capacity is allocated and priced. Regression analysis of over 500 routes in the US, Europe and Asia provides empirical evidence that the choice of aircraft size is mainly influenced by route characteristics (e.g. distance, level of demand and level of competition) and almost not at all by airport characteristics (e.g. number of runways and whether the airport is a hub or slot coordinated). We discuss the implications of this choice of aircraft size and suggest that some market imperfections exist in the airline industry leading airlines to offer excessive frequency on some routes and too low frequency on others.
    Keywords: aircraft size; frequency; aviation; hub congestion
    JEL: L93
    Date: 2006–02–01
  12. By: Racoceanu, Constantin
    Abstract: In a simple form, the basic relationship that can be used while exponential neat, is given by the expression: (for t ≥ 2) Where: St = the adjusted values of the dynamic series; yt = the levels of the empiric series; St-1 = the adjusted value of the term t – 1; w = a constant of adjustment with values between 0 ≤ w ≤ 1. The target of this analysis is to show the tendencies in the development of the textile confections production all over the country, having a particular importance in PIB, the volume of the industrial production, the export of Romania, the number of the workers in the industry. We can rely on this industry and it realizes competitive products for the internal and external market, has a linear and well-trained force of working, has a long tradition, values at a superior level the main materials in the country, has good machines, needs relatively low costs comparing to other industrial fields in order to make little and middle commercial societies. Many economic agents have had access ant non-pay back financial sources, offered by the UE member countries and international agencies. The development of this industry attracts also the development of the zootecnical and agriculture production that assures the fibers of flax, hemp and wool within UE. The industry of the textile confections made better the production structure realized in lohn, at present we see more and more exterior clothing articles with great tax added on value, the articles for women have been made more creatively. Starting with 1999, Romania occupies the first place among the Central and Eastern European countries that export textile confections in the UE, far from Poland that, in the past years, used to occupy the first place. The countries that will assure within the following 10 years the necessary of clothing for the UE remain China, Turkey, Poland, the Czech Republic and Hungary. Taking into account the lack of economic stability of Turkey, we presume that in the following years Romania will become one of the greatest exporters of clothing in the UE.
    Keywords: empiric; adjusted; exponential neat
    JEL: C53
    Date: 2006–10–20
  13. By: Nguyen, Khac Minh; Giang, Thanh Long
    Abstract: The purpose of this paper is to analyze the efficiency performance of the hospitals and medical centers in Vietnam by using a non-parametric approach, namely the data envelopment analysis (DEA) model. The data from the Economic Census for Enterprises by the General Statistics Office of Vietnam (GSO) consists of 44 observations, which include 17 hospitals and 27 medical centers in different provinces and cities in 2002. The results indicate that the average scale efficiency of the hospitals was 77.4 percent, while that of the medical centers was 58.7 percent. Further, hospitals were clearly more efficient than medical centers due to some possible factors. Locations in Hanoi and Ho Chi Minh city had no influence on either overall technical efficiency or scale efficiency. Despite differences in the results of testing the impact of net capital-labor ratio on efficiency for hospitals and medical centers, these organizations appear to operate in labor-intensive ways.
    Keywords: data envelopment analysis (DEA); hospital efficiency; Tobit regression; Vietnam
    JEL: C14 I19
    Date: 2004–11
  14. By: Owen O'Donnell (University of Macedonia, Greece); Ángel López Nicolás (Universidad Politecnica de Cartagena, Universitat Pompeu Fabra, Spain); Eddy van Doorslaer (Erasmus Universiteit Rotterdam)
    Abstract: Over a five-year period in the 1990s Vietnam experienced annual economic growth of more than 8% and a decrease of 15 points in the proportion of children chronically malnourished (stunted). We estimate the extent to which changes in the distribution of child nutritional status can be explained by changes in the level and distribution of income, and of other covariates. This is done using data from the 1993 and 1998 Vietnam Living Standards Surveys and a flexible decomposition technique that explains change throughout the complete distribution of child height. One-half of the decrease in the proportion of children stunted is explained by changes in the distributions of covariates and 35% is explained by change in the distribution of income. Covariates, including income, explain less of the decrease in very severe malnutrition, which is largely attributable to change in the conditional distribution of child height.
    Keywords: Malnutrition; child height; decomposition; quantile regression; Vietnam
    JEL: I12 I31 O53
    Date: 2007–01–16
  15. By: Delfiner, Miguel; Pailhé, Cristina
    Abstract: This paper reviews the markets and regulatory framework for hybrid financial instruments, with special focus on the recent regulatory changes allowing banks in Argentina to hold these instruments as regulatory capital. These assets refer to a wide family of instruments which have the structure of bonds, but incorporate equity-like features such as interest deferral, profound subordination, and long dated tenor. In 1998 the Basel Committee on Banking Supervision established minimum requirements and limits for these instruments to be included in Tier 1 capital. As a consequence markets for hybrids expanded considerably, and they were admitted in Canada, the United States and various Asian and European countries. In the Latin-American region they were admitted in Brazil and Mexico, and as from 2006 also in Argentina. In addition, these securities are described from the viewpoint of investors, focusing on risk and related costs, which contributes to the understanding of the regulation that applies to them.
    Keywords: Hybrid instruments; regulatory capital; Basel Capital Accord
    JEL: G28
    Date: 2006–12
  16. By: Nguyen, Khac Minh; Giang, Thanh Long
    Abstract: This paper uses both parametric and non-parametric approaches to estimate technical efficiency for 2,298 construction firms in Vietnam in the database of the 2002 Economic Census for Enterprises by the General Statistics Office of Vietnam (GSO). It is found that results from both approaches are consistent, and they could help explain the performance efficiency of these firms. Estimates from the non-parametric approach (data envelopment analysis [DEA] model) and the parametric approach (stochastic frontier production function [SFPF] model) indicate that the average pure technical efficiency of these firms was about 60 percent (58.6% and 57.8% for DEA and SFPF, respectively). Models to test the factors influencing efficiency scores in both approaches show relatively similar results that state firms were more efficient than non-state ones, and location in Hanoi and Ho Chi Minh city did have impacts on efficiency scores. However, exploration of the net capital-labor ratio variable show that it did not influence efficiency scores in the DEA model, while it had clear influence in the SFPF model.
    Keywords: construction firms; data envelopment analysis (DEA); stochastic frontier production function (SFPF); Tobit regression; Vietnam
    JEL: C14 L74
    Date: 2005–01

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