nep-sea New Economics Papers
on South East Asia
Issue of 2007‒02‒24
ten papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Foreign direct investment and China's bilateral intra-industry trade with Japan and the US By Xing, Yuqing
  2. Reform-creating regional trade agreements and foreign direct investment: applications for East Asia By Park, Innwon; Park, Soonchan
  3. Technology Development and Job Creation in China By Lundin, Nannan; Sjöholm, Fredrik; Ping, He; Qian, Jinchang
  4. "The Balance Sheet Approach to Financial Crises in Emerging Markets" By Jan Toporowski; Giovanni Cozzi
  5. EE.UU.-China: Los ecos de la cumbre Bush-Hu By Xulio Rios
  6. Determinants of Business Success: An Examination of Asian-Owned Businesses in the United States By Alicia Robb; Robert Fairlie
  7. The efficiency in Thai financial sector after the financial crisis By Chansarn, Supachet
  8. Total Factor Productivity and Labor Reallocation: The Case of the 1997 Korea Crisis By Benjamin, David M.; Meza, Felipe
  9. Did Vasco da Gama Matter for European Markets? Testing Frederick Lane's Hypotheses Fifty Years Later By Kevin H. O'Rourke; Jeffrey G. Williamson
  10. Solving Endogeneity in Assessing the Efficacy of Foreign Exchange Market Interventions By Seok Gil Park

  1. By: Xing, Yuqing (BOFIT)
    Abstract: This paper analyzes dynamic changes of China's intra-industry trade with its major trading partners, Japan and the US, from 1980 to 2004. It also investigates to what extent foreign direct investment promoted intra-industry trade. The empirical results show that, while shares of China's intra-industry trade with both Japan and U.S rose substantially, its intra-industry trade with Japan has reached 35 per cent of the overall trade, considerably larger than 10 per cent with the US. Sino-Japan intra-industry trade concentrated in the electrical and machinery sectors accounted for 52 per cent and 46 per cent of overall trade respectively. On the other hand, it is in the chemical and food sectors where intra-industry trade represented a relatively large proportion of Sino-US trade, 50 per cent and 30 per cent accordingly in each sector. In addition, the analysis indicates that Japanese direct investment in China performed a significant role in enhancing intra-industry trade between Japan and China. However, it found no evidence that the US direct investment in China contributed to the growth of the bilateral intra-industry trade between the two countries.
    Keywords: intra-industry trade; FDI; China
    JEL: F14 F23
    Date: 2007–01–16
  2. By: Park, Innwon; Park, Soonchan
    Abstract: The spread of regional trade agreements (RTAs) is strongly motivated by the desire for more foreign direct investment (FDI) flows. The net benefits from freer capital flows are expected to trigger a domino effect of new regionalism. However, this is still an empirical question to be tested, especially for the case of East Asia. This paper quantitatively estimates the investment creation and diversion effects of RTAs by using an extended gravity equation focusing on domestic reform as a commitment device for RTA membership. As a case study, we investigate whether reform-minded less developed countries (LDCs) can trigger this domino effect by actively participating in RTAs. Moreover, in order to search for the most preferable member pair among the proposed East Asian RTAs, we estimate the likely impact of the East Asian RTAs on inward FDI stock. From our empirical analyses, we find that (i) reform-creating RTA membership, larger market size, better skilled labor, and lower trade costs all contribute positively and significantly to inward FDI stock; (ii) reformatory LDCs attract more FDI in addition to the investment creation effect of their RTA membership; and (iii) most of proposed East Asian RTAs promote intra-bloc FDI. In particular, both South-North and North-North RTA such as an ASEAN-Japan and a Japan-Korea RTA prove to be more preferable membership combinations to South-South RTAs in East Asia.
    Keywords: regional trade agreements; reform; foreign direct investment; gravity; East Asia
    JEL: F15 F21 O53
    Date: 2006–11–18
  3. By: Lundin, Nannan (Örebro University); Sjöholm, Fredrik (Research Institute of Industrial Economics); Ping, He (National Bureau of Statistics of China); Qian, Jinchang (National Bureau of Statistics of China)
    Abstract: This paper examines how Science and Technology (S&T) contribute to job creation in the Chinese manufacturing sector. The ambition of transforming China into an innovation-oriented nation and the emphasis on indigenous innovation capacity building have placed Science and Technology (S&T) high on the Chinese policy agenda. At the same time, the need for job creation is pressing, both to absorb the huge supply of underemployed people, and to enable the annual 20 million new labor market entrants to find employment. We examine the relationship between S&T and job growth in the Chinese industrial sector. S&T can be expected to have both positive and negative effects on employment. For instance, new technology might increase competitiveness and enable Chinese firms to expand their labor force. On the other hand, new technology might be labor-saving, thereby enabling Chinese firms to produce more output with fewer employees. Based on a large sample of manufacturing firms in China between 1998 and 2004, we analyze how S&T affect employment growth. Our results suggest that S&T activities have no effect on job creation.
    Keywords: China; Science and Technology; Job-Creation
    JEL: J21 O14 O33
    Date: 2007–02–07
  4. By: Jan Toporowski; Giovanni Cozzi
    Abstract: This paper contrasts the conventional balance sheet approach to the analysis of economic disturbances in emerging markets with the alternative balance sheet approach that applies and extends Minsky's Financial Instability Hypothesis to (open) emerging market economies. Earlier balance sheet studies are found to be flawed because of a failure to disaggregate firms' balance sheets. Examination of such balance sheets in Thailand, Malaysia, Indonesia, Singapore, and Hong Kong suggests that firms in the three crisis countries did share common causes of financial fragility, but that the level of financial development and the particular domestic economic and political situation also affected their situation.
    Date: 2006–12
  5. By: Xulio Rios
    Abstract: China se muestra cada vez más segura de sí misma en su actuar internacional. No se trata solo de poder económico. A diferencia de EE.UU., cuyos valores han perdido credibilidad en razón de un proselitismo militarizado y de acentuado doble rasero, su influencia va creciendo y ello provoca rivalidades estratégicas de profundo calado cuando aumentan por doquier las tensiones originadas por la búsqueda de la seguridad económica. A raíz de la cumbre, en Beijing se habla de un nuevo “consenso de Washington”. Pero en el Renmin Ribao (Diario del Pueblo) del 24 de abril también se advierte: “En adelante, es posible que haya reveses en la política de EEUU hacia China y se debe apreciar con lucidez esta situación”. La cosa no parece tener fácil arreglo. De entrada, China insiste en seguir su propio camino y ese ejercicio será leído en Washington en clave de postular una rivalidad.
    Keywords: China, Economy, bilateral relations, U.S.A., Diplomacy
  6. By: Alicia Robb; Robert Fairlie
    Abstract: Using confidential and restricted-access microdata from the U.S. Census Bureau, we find that Asian-owned businesses are 16.9 percent less likely to close, 20.6 percent more likely to have profits of at least $10,000, and 27.2 percent more likely to hire employees than whiteowned businesses in the United States. Asian firms also have mean annual sales that are roughly 60 percent higher than the mean sales of white firms. Using regression estimates and a special non-linear decomposition technique, we explore the role that class resources, such as financial capital and human capital, play in contributing to the relative success of Asian businesses. We find that Asian-owned businesses are more successful than white-owned businesses for two main reasons . Asian owners have high levels of human capital and their businesses have substantial startup capital. Startup capital and education alone explain from 65 percent to the entire gap in business outcomes between Asians and whites. Using the detailed information on both the owner and the firm available in the CBO, we estimate the explanatory power of several additional factors.
    Date: 2006–12
  7. By: Chansarn, Supachet
    Abstract: This study aims to investigate the efficiency in Thai financial sector after the financial crisis (1998 – 2004) by looking at the total factor productivity (TFP) growth. Furthermore, the study also investigate the efficiency in commercial bank sector, finance and securities company sector and insurance company sector, and the efficiency in domestic and foreign financial companies. Based on the sample of 12 commercial banks, 13 finance and securities companies and 20 insurance companies listed on the Stock Exchange of Thailand (SET) over the period of 1998 – 2204, our finding reveals that the efficiency in Thai financial sector, commercial bank sector and finance and securities company sector was diminishing over the period of 1998 – 2004, while the efficiency in insurance company sector remained unchanged over the same period. However, the sharp decrease in efficiency in these three sectors occurred only over the period of 1998 – 1999, while the efficiency was decreasing very slightly over the period of 1999 – 2004. The study also suggests that, in overall, domestic financial companies are more efficient than foreign ones. Domestic finance and securities companies are also more efficient than foreign ones, whereas domestic and foreign commercial banks are not different in efficiency. Moreover, domestic and foreign insurance companies are not different in efficiency as well.
    Keywords: efficiency; productivity; financial sector; total factor productivity
    JEL: E0
    Date: 2005–12
  8. By: Benjamin, David M.; Meza, Felipe
    Abstract: Detrended Total Factor Productivity (TFP), net of changes in capital utilization, fell by 3.3% after the Korean 1997 financial crisis. Detrended real GDP per working age person fell by 11.9%. We construct a two-sector small open economy model that can account for 30.0% of the fall in TFP in response to a sudden stop of capital inflows and an increase in international interest rates. Empirically, the fall in TFP follows a reallocation of labor from the more productive manufacturing sector to the less productive agriculture and public sectors. The model has a consumption sector and an investment sector. The reallocation of labor in the data corresponds to a movement from the investment sector to the consumption sector in the model. In the model, a sudden stop raises the costs of imports, which are used more heavily as an input in the investment sector. Also investment falls sharply in response to the increase in international interest rates. We show further that a fall in export demand and working capital requirements can both amplify the effects of the sudden stop. The model accounts for 41.0% of the fall in GDP. Keywords; Small open Economy; Total factor productivity; Korean 1997 crisis; Sudden stop
  9. By: Kevin H. O'Rourke (Department of Economics, Trinity College); Jeffrey G. Williamson (Department of Economics, Harvard University)
    Abstract: In his seminal publications between the 1930s and 1960s, Frederick Lane offered three hypotheses regarding the impact of the Voyages of Discovery that have guided debate ever since. First, pepper and other spice prices did not rise in European markets in the century before the 1490s, and thus could not have ‘pulled in’ the oceanic explorations by their rising scarcity. Second, Portuguese circumnavigation of A frica did not lower European spice prices across the 16th century, implying that the discovery of the Cape route had no permanent effect on Euro-Asian market integration. Third, 15th century Venetian spice markets were already well integrated with those in Iberia and northern Europe, implying that Portugal could not have had an intra-European market integrating influence in the 16th century. Lane developed these influential hypotheses by relying heavily on nominal spice prices from Venice and the Levant. This paper revisits Lane’s hypotheses by using instead relative spice prices, that is, accounting for inflation. It also draws on evidence from Iberia and northern Europe. In addition, it explores European market integration before and after 1503, the year when da Gama returned from his financially successful second voyage. Lane’s three hypotheses are rejected: the impact of the Portuguese was profound on all fronts. We conclude by using a simple model of monopoly and oligopoly to decompose the sources of the Cape route’s impact on European markets.
    JEL: F14 N7
    Date: 2006–02
  10. By: Seok Gil Park (Indiana University)
    Abstract: Sterilized foreign exchange market interventions have been suspected of being inefficient by many empirical studies, but they are plagued by endogeneity problems. To solve the problems, this paper identifies a system that depicts interactions between the interventions and the foreign exchange rate. The model shows that the interventions are effective when the interventions alter the market participants' conditional expectations of the rate without decreasing the conditional variances. This paper estimates Markov-switching type policy reaction functions by conditional MLE, and market demand/supply curves by IV estimation with generated regressors. The empirical results verify that the interventions of the Bank of Korea from 2001 to 2002 were indeed effective.
    Keywords: Sterilized intervention, Endogeneity, Markov-switching policy function
    JEL: F31 E58 G15
    Date: 2007–02

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