nep-sea New Economics Papers
on South East Asia
Issue of 2007‒03‒10
nineteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. East Asian Real Exchange Rates and PPP: New Evidence from panel-data tests By Baharumshah, Ahmad Zubaidi; Aggarwal, Raj; Chan, Tze-Haw
  2. Real Financial Integration among the East Asian Economies: A SURADF Panel Approach By Chan, Tze-Haw; Baharumshah, Ahmad Zubaidi; Lau, Evan
  3. Trade integration in East Asia : the Role of China and production networks By Haddad, Mona
  4. On Volatility Spillovers and Dominant Effects in East Asian: Before and After the 911 By Chan, Tze-Haw; Hooy, Chee Wooi
  5. An endogenous growth model for selected Asian countries and estimates of the steady state growth rates By Rao, B. Bhaskara; Singh, Rup
  6. Hard or Soft? Institutional Reforms and Infrastructure Spending as Determinants of Foreign Direct Investment in China By K. C. Fung; Alicia García-Herrero; Hitomi Iizaka; Alan Siu
  7. Re-examining Purchasing Power Parity for East-Asian Currencies: 1976-2002 By Barumshah, Ahmad Zubaidi; Chan, Tze-Haw; Fountas, Stilianos
  8. "China's Energy Security: National Security, Ecological Balance and Regional Co-operation" By Haider A. Khan; Mariko Frame
  9. The Regional Focus of Asian Multinational Enterprises By Simon Collinson; Alan M. Rugman
  10. Making Trade Policy in a New Democracy after a Deep Crisis: Indonesia By Kelly Bird; Sandy Cuthbertson; Hal Hill
  11. Productivity Growth in Thailand and Indonesia: How Agriculture Contributes to Economic Growth By Peter Warr
  12. On the re-assessment of inequality in Indonesia: household survey or national account? By Arief Anshory Yusuf
  13. Testing the Natural Resource Curse Hypothesis in Indonesia: Evidence at the Regional Level By Ahmad Komarulzaman; Armida Alisjahbana
  14. INDOTERM, a multiregional model of Indonesia By Mark Horridge; Glyn Wittwer
  15. Financing Constraint and Firm Investment Following a Financial Crisis in Indonesia By Agustinus Prasetyantoko
  16. Debt Composition and Balance Sheet Effect of Currency Crisis in Indonesia By Agustinus Prasetyantoko
  17. Constructing Indonesian Social Accounting Matrix for Distributional Analysis in the CGE Modelling Framework By Arief Anshory Yusuf
  18. The Welfare State and the Forces of Globalization By Hans-Werner Sinn
  19. Faculty Rewards and Education Portfolios: A Report on Faculty Perceptions By Yee-Yee, Hla; Gnanajothy, Ponnudurai; Chan, Tze-Haw

  1. By: Baharumshah, Ahmad Zubaidi; Aggarwal, Raj; Chan, Tze-Haw
    Abstract: Abstract: This paper empirically tests purchasing power parity (PPP) using panel unit root designed for heterogeneous panels. Monthly data of six East Asian countries (South Korea, Thailand, Indonesia, Malaysia, Singapore and the Philippines) were used to test the long-run PPP relationship. This study documents the fact that unlike the pre-crises period, mean reversion in real Asian exchange rates is a feature of the post-crises period in all six countries considered in this study. It turns out that our finding based on an array of panel unit root tests appears to be invariant to the choice of the numeraire currency, namely the US and Japanese yen.
    Keywords: Purchasing power parity; Panel unit root tests; Asian financial crisis
    JEL: F41 F31 C23 C12
    Date: 2005
  2. By: Chan, Tze-Haw; Baharumshah, Ahmad Zubaidi; Lau, Evan
    Abstract: To testify RIP, this study scrutinizes the mean-reversion behavior of bilateral real interest differentials (RIDs) in eight East Asian economies. We incorporate the ASEAN-5, South Korea and China (mainland) with the US and Japan taken as base countries. Four sub-samples within 1976-2004 are being considered to accentuate the effects of institutional changes and financial crises. To rectify the deficiency in extant univariate and panel tests, the newly proposed SURADF statistics by Breuer et al. (2002) is utilized. Overall, the findings are in favor of RIP such that RIDs are found mean-reverting (except China) and with faster adjustment, especially during the post-crisis era. Such outcome is in accord with the enhanced financial integration among the ASEAN-5 and South Korea with their major trading partners, suggesting that further economic cooperation and currency arrangements in the region are bright to preserve potential financial shocks. Conversely, the real financial integration among China-US and China-Japan are not yet empirically recognized notwithstanding the recent surge of capital flows into the mainland.
    Keywords: Real Interest Differentials; SURADF Panel Unit Root Test; Half-life; Confidence Intervals; Financial Integration
    JEL: G15 C13 F36
    Date: 2005
  3. By: Haddad, Mona
    Abstract: Production networks have been at the heart of the recent growth in trade among East Asian countries. Fragmen tation trade, reflected mainly in the trade in parts and components, is expanding more rapidly than the conventional trade in final goods. This is mainly due to the relatively more favorable policy setting for international production, agglomeration benefits arising from the early entry into this new form of specialization, considerable intercountry wage differentials in the region, lower trade and transport costs, and specialization in products exhibiting increasing returns to scale. The economic integration of China has deepened production fragmentation in East Asia, countering fears of crowding out other countries for international specialization. International production fragmentation in East Asia has intensified intraregional trade but has depended heavily on extraregional trade in final goods. While production networks centered on China have contributed significantly to growth in East Asia, they also breed vulnerabilities. They have not automatically led to technology spillovers and have led to an extreme interdependence across East Asian countries.
    Keywords: Economic Theory & Research,Free Trade,Trade Policy,Trade Law,Technology Industry
    Date: 2007–03–01
  4. By: Chan, Tze-Haw; Hooy, Chee Wooi
    Abstract: The present paper examines the dynamic effects of volatility spillovers and dominant role (the second-moment) of the US, Japan and Hong Kong in the East Asian equity markets. To evaluate the recent September 11 (911) impact, two sub periods – before and after the tragedy, are being considered based on daily market returns. The upshots of our findings are five-fold. First, for all markets the constant risk components, as well as the ARCH and GARCH effects are significantly detected, implying the persistency of volatility in East Asian equity markets. Nevertheless, not all indexes show asymmetrical news effects. Though all indexes show leverage effects, they are significant only for certain countries including the US and Japan, which is consistent with empirical literature. Second, the volatilities of these equity markets are bounded in common stochastic trends, at least in the long run. Third, the Hong Kong long run coefficients are more significant than that of US or Japan before the 911 calamity. Nonetheless, there is sufficient evidence showing that the US spillovers were transmitted via Hong Kong. After the 911, the Hong Kong’s spillovers trim down while Japanese influence enhance as in Malaysia, Philippines, Thailand and Singapore. Taken as a whole (1998-2002), Japanese spillovers are relatively small and nonsignificant in some East Asian equity markets. Fourth, the ECT coefficients are significant but small (except for Hong Kong). The East Asian equity markets are thereby endogenously determined and the volatility adjustments to the long run equilibrium are slow, once being shocked. The ECT coefficients slightly improved after 911. Fifth, volatilities in the East Asian equity markets are attributed mainly to the shocks of local and regional factors rather than the world factor. In a nutshell, the volatility spillovers and the Hong Kong- and US-dominant effects have been confirmed. Hitherto, the 911 impact is relatively small and somewhat inconclusive.
    Keywords: East Asian; Spillover Effect; Dominant Effect; EGARCH-M; ARDL Bounds Testing Approach
    JEL: G15 C13 F36
    Date: 2003
  5. By: Rao, B. Bhaskara; Singh, Rup
    Abstract: This paper develops an endogenous growth model with externalities of the ``manna from heaven'' type due to learning by doing and trade openness to show that they are significant for 6 Asian countries. The estimated parameters of the augmented production functions are used to compute the steady state growth rates for Singapore, Malaysia, Thailand, Hong Kong, Korea and the Philippines. A few broad policies to improve these steady state growth rate are suggested.
    Keywords: Endogenous Growth; Learning by Doing Trade Openness; Steady State Growth Rate; Newly Developing Asian Countries.
    JEL: O39 O1 O53 O47 O2
    Date: 2007–03–07
  6. By: K. C. Fung (University of California at Santa Cruz); Alicia García-Herrero (Banco de España); Hitomi Iizaka (University of California at Santa Cruz); Alan Siu (University of Hong Kong - School of Economics and Finance)
    Abstract: In this paper, we examine empirically whether hard infrastructure, in the form of more highways and railroads, or soft infrastructure, in the form of more market oriented institutions through deeper reform, lead to more foreign direct investment (FDI) in China. We use data of outward FDI from the United States, Japan, Hong Kong, Taiwan and Korea to various regions of China from 1990 to 2002. We control for the standard determinants of FDI, namely regional market size, wage rates, human capital and tax policies. We add indices of hard and soft infrastructure and find that soft infrastructure, in the form of more market oriented institutions through deeper structural reform, consistently outperforms hard infrastructure as a determinant of FDI.
    Keywords: china, fdi determinants
    JEL: F21 F23
    Date: 2006–06
  7. By: Barumshah, Ahmad Zubaidi; Chan, Tze-Haw; Fountas, Stilianos
    Abstract: We investigate the behavior of real exchange rates of six East-Asia countries in relation to their two major trading partners – the US and Japan. These countries, Singapore excepted, were affected by the financial crisis of the fall 1997. Using monthly frequency data from 1976 to 2002 and the ARDL cointegration procedure we test for the long-run PPP hypothesis. We find no evidence for the weak form of PPP in the pre-crisis period but strong evidence in the post-crisis period. For the post-crisis period, we also find very small persistence of PPP deviations as indicated by very small half-lives (less than 7 months) and narrow confidence intervals with an upper bound of 1 year or less in most countries. Our findings reveal that the East Asian countries are returning to some form of PPP-oriented rule as a basis for their exchange rate policies.
    Keywords: Purchasing power parity; Asian financial crisis; bounds test; half-lives; confidence intervals
    JEL: F40 F31 C23 C12
    Date: 2004
  8. By: Haider A. Khan (GSIS, University of Denver); Mariko Frame (GSIS, University of Denver)
    Abstract: This paper analyzes both global and regional approaches to solving problems of energy security and ecological imbalance by addressing specifically the problems of China's energy security. PRC's growing energy dependence has become a major concern for both economic and national security policymakers in that country. The ambitious goal of modernization of the economy along the lines of the other newly industrialized economies(NIEs) of Asia has succeeded only too well, and it is difficult to reorient economic priorities. If examined rigorously, such an economic strategic assumption can be seen to entail the goal of creating further technological capabilities. In particular, China seems to be firmly committed to the creation of a largely self-sustaining innovation system as part of a knowledge-based economy of the future . Such innovation systems, called positive feedback loop innovation systems or POLIS have been created by advanced countries, and NIEs such as South Korea and Taiwan are proceeding to create these as well. But this will add to its energy burden and further dependence on the US as the power which controls the key sea lanes. Only a strategic reorientation to building a self-sustaining POLIS and appropriate regional cooperation institutions can lead to the way out of the current dilemma for China.
    Date: 2007–03
  9. By: Simon Collinson (Warwick Business School, University of Warwick); Alan M. Rugman (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: In recent issues of this journal a debate has raged concerning the appropriate nature of academic research in the Asia Pacific region. In keeping with the expressed desire for both rigor and regional relevance in this research, we wish to demonstrate a strong commonality between the performance of large Asian firms and others from Europe and North America. The large Asian firms mostly operate on an intra-regional basis. It has been assumed that the path to success for Asian firms is globalization, yet we show that the literature supporting this is confined to a handful of unrepresentative case studies.
    Keywords: Asian multinationals, regional strategy, internationalization, bibliometric analysis, firm-specific advantages
    Date: 2007
  10. By: Kelly Bird; Sandy Cuthbertson; Hal Hill
    Abstract: This paper examines the recent political economy of trade policy in Indonesia against the backdrop of two key events: the deep economic crisis of 1997-98, and the transition from three decades of rapid growth under an authoritarian regime to a weaker but democratic state. We investigate both international and domestic trade policy. The international trade policy regime has remained largely open, perhaps surprisingly in view of the unpopularity of liberal economic policies in the wake of the crisis and the forces advocating more protectionist policies. However, this openness is precarious, and lacks both institutional and community opinion support. In contrast, while remaining largely open at the international border, domestic barriers to trade have increased. This conjunction of economic crisis and weak, democratic states is a common phenomenon in the developing world, and the lessons for trade policy from the Indonesian experience over this decade are therefore relevant to many other countries.
    Keywords: Trade Reform, Political Economy, Domestic Trade, Indonesia
    Date: 2007
  11. By: Peter Warr (Australian National University)
    Abstract: Total factor productivity growth in the agricultural, industry and services sectors is studied in this paper for two countries: Thailand and Indonesia, over the period 1981 to 2002. A feature of the analysis is the decomposition of aggregate total factor productivity growth into two components: productivity growth in individual sectors; and the reallocation of resources from low productivity to high productivity sectors. The results show that in both countries virtually all factor productivity growth at the sectoral level derives from agriculture, but the reallocation of resources away from agriculture was a much larger source of aggregate productivity growth.
    Keywords: total factor productivity growth, Thailand, Indonesia
    JEL: O47 Q10 O30
    Date: 2006–02
  12. By: Arief Anshory Yusuf (Department of Economics, Padjadjaran University)
    Abstract: This paper is motivated by the inconsistency between food and non-food expenditure estimated from household survey data (SUSENAS) and from nationalaccount (I-O table) and its connection on the issue of inequality in Indonesia.Since non-food expenditure tend to be under-estimated when compared withnational account data, it imply the under-representation of the rich in the cal-culation of inequality in Indonesia. This paper, then applies an approach toreconciling household survey and national accounts data, by re-estimating thesampling weight through minimization of entropy distance of information takinghousehold survey weight as prior, while satisfying some aggregation constraints.The estimated weight then is used to calculate standard indicator of inequalityin Indonesia. The results suggests that while inequality in rural Indonesia doesnot change much, due to possible under- representation of the rich in the survey, inequality in urban Indonesia is highly under-estimated. The "Jakarta factor"seems to account mostly to this discrepancy.
    Keywords: inequality, Indonesia, entropy
    JEL: C80 D63
    Date: 2006–08
  13. By: Ahmad Komarulzaman (Department of Economics, Padjadjaran University); Armida Alisjahbana (Department of Economics, Padjadjaran University)
    Abstract: Resource curse literatures explain that countries abundant with natural resources tend to grow slower. This hypothesis is relevant for Indonesia as it is a country rich in natural resources. This paper tries to investigate empirically the relationship between resources abundance and its impact on economic development at the regional level using cross section regression approach. The regional financial data from ministry of finance are combined with regional specific data from BPS to seek the pattern. The paper will shed light on whether resources rich regions in Indonesia are trapped in this curse.
    Keywords: Natural resource rent, resource curse hypothesis, Indonesia
    JEL: Q01 Q56 R11
    Date: 2006–08
  14. By: Mark Horridge (Monash University); Glyn Wittwer (Monash University)
    Abstract: INDOTERM , a member of the TERM family (TERM = The Enormous Regional Model), is a "bottom-up" CGE model of Indonesia which treats West Java and the rest of Indonesia as separate economies. The TERM approach was created specifically to deal with highly disaggregated regional data while providing a quick solution to simulations. This paper describes the technical detail of this model.
    Keywords: Computable General Equilibrium, Regional CGE, Indonesia
    JEL: D58
    Date: 2006–08
  15. By: Agustinus Prasetyantoko (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: This paper deals with the sensitivity relation between firm-level investment and its internal liquidity by splitting samples into two different groups of firms, which are tradable (T) and non-tradable (N) sector. The study includes 226 listed companies in Jakarta Stock Exchange (JSX) by at least five consecutive years in the period of 1994 – 2004. This paper finds that during boom period, N-sector is less financially constrained, but in burst period, N-sector has greater financial constraints. It leads us to the explanation that during boom period N-sector grows faster than T-sector, but when crisis hits T-sector recovers more easily. By employing panel data analysis, our findings support an argument that asymmetric financing opportunities among N and T-sector are common in developing countries. Accordingly, this paper provides important explanations on firm-level investment behavior around financial crisis, which could be pivotal considerations in monetary and other relevant policies
    Keywords: asymmetric financing opportunities ; financing constraint ; firm investment ; financial crisis
    Date: 2007–02–28
  16. By: Agustinus Prasetyantoko (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: The fashionable analysis of financial crisis accentuates on the role of corporate debt composition bearing<br />the maturity and currency mismatch. Using 226 listed companies in Jakarta Stock Exchange, this paper<br />investigates the role of currency and maturity mismatches in propagating the negative effects of currency depreciation. By nature, depreciation could enhance export performance by its “competitiveness effect”, since price of goods should be cheaper. Nevertheless, due to the effects of maturity and currency mismatch, depreciation decreases net worth of the firms through “balance sheet effect”. This paper<br />focuses on the impact of currency depreciation on firm-level investment. By panel data analysis, we find<br />that firms with more dollar debt invest less in both long and short-term investment. Unfortunately, this<br />paper fails to provide empirical evidence on the impact of currency depreciation on firm-level investment<br />and other firm performance. However, it seems that the extreme currency depreciation followed by financial and economic crisis destroys structurally investment condition in Indonesia. Therefore, even though currency depreciation is not related significantly to firm-level investment, it is likely not true that the depreciation does not matter on firm as well as economic performance.
    Keywords: maturity mismatch ; firm investment ; balance sheet effect ; financial crisis
    Date: 2007–03–01
  17. By: Arief Anshory Yusuf (Department of Economics, Padjadjaran University)
    Abstract: The distributional impact of policies analyzed in the CGE modelling framework have been constrained in part by the absence of a Social Accounting Matrix (SAM) with disaggregated households. Since Indonesian official SAM does not distinguish households by income or expenditure size, it has prevented accurate assesment for the distributional impact, such as calculation of inequality or poverty incidence. This paper describes how the Indonesian SAM for the year 2003, with 181 industries, 181 commodities, and 200 households (100 urban and 100 rural households grouped by expenditure per capita centiles) was constructed. The SAM (with the size of 768x768 accounts) constitutes the the most disaggregated SAM for Indonesia at both the sectoral and household level. SAM Construction is an essential part of CGE modeling, and this documentation provides greater transparency as well as replicability for further improvement.
    Keywords: Social Accounting Matrix, Computable General Equilibrium, Indonesia
    JEL: D30 D58
    Date: 2006–11
  18. By: Hans-Werner Sinn
    Abstract: The emergence of the Asian tiger countries and the participation of the ex-communist countries in world trade has reduced the equilibrium price of labor in western Europe and elsewhere. However, the actual price of labor hardly reacts, because the welfare state's minimum replacement incomes are fixed. The rigidity of wages causes pathological overreactions of the European economy in terms of excessive capital exports, excessive immigration and excessive structural change towards the capital intensive export sectors. The overreactions cause unemployment, sluggish growth, a current account surplus and a high export volume, but may prevent gains from trade. Moving from a system of wage replacement incomes to one that pays wage subsidies would enable a more efficient economic reaction that would not jeopardize social goals but bring about more employment, growth and gains from trade.
    JEL: F11 F21 F22 H53 J64
    Date: 2007–03
  19. By: Yee-Yee, Hla; Gnanajothy, Ponnudurai; Chan, Tze-Haw
    Abstract: Many schools in the developed world have adopted portfolios in an attempt to address the scholarship of teaching. This is because of the atmosphere of “publish or perish” which pervades academia. Buying off teaching obligations with research dollars is an increasingly pervasive practice in many institutions and Faculty caught up in this system have generally gone along with it, focusing on the scholarship of discovery at the expense of the scholarship of integration, application, and teaching - little of which carries the financial consequence or peer recognition of sponsored research.1 Add to this the fact that many medical schools world wide have adopted teacher- intensive, integrated hybrid PBL curricula and the result is frustrated teachers who undergo occupational burnout. An ideal faculty reward system should support the priorities and mission of the institution e.g. if improving the quality of teaching and learning is a high priority, then the tenure, promotion, and merit pay system must support quality efforts to redesign the curriculum, improve courses, and increase the effectiveness of teaching.2 Education Portfolios are not widely used in this part of the world, and few Faculty have even heard of the term “Education Scholarship”. This study is a preliminary report on perception of the faculty rewards in place in their institution and their familiarity with the concept of education scholarship. A questionnaire was posted to Faculty of medical schools in Malaysia and also distributed to staff of the National University of Singapore, during an international conference. A total of 54 responses were collected from six institutions (14 were unidentified); representing a response rate of about twenty per cent. Thirty two were teaching in a hybrid curriculum; and 26 were clinical teachers. Thirty three had been in their respective institutions for more than three years.
    Keywords: Faculty Rewards; Education Portfolios; medical schools
    JEL: I00 I23
    Date: 2006

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