nep-sea New Economics Papers
on South East Asia
Issue of 2007‒06‒02
twelve papers chosen by
Kavita Iyengar
Asian Development Bank

  1. China: Strengthening Monetary Policy Implementation By Rodolfo Maino; Bernard Laurens
  2. SAFTA: Living in a World of Regional Trade Agreements By Jose Daniel Rodríguez-Delgado
  3. Regional Development in China: Interregional Transportation Infrastructure and Regional Comparative Advantage By Lining He; Faye Duchin
  4. The Chinese Economy from 1997:2015: Developing a Baseline for the MC-HUGE Model By Yin Hua Mai
  5. Role of Debt Maturity Structure on Firm Fixed Assets During Sudden Stop Episodes: Evidence from Thailand By Hanan Morsy; Akiko Terada-Hagiwara; Maria Pia Iannariello
  6. Stiglitz Versus the IMF on the Asian Debt Crisis: An Intertemporal Model with Real Exchange Rate Overshooting By Kirsanova, Tatiana; Menzies, Gordon; Vines, David
  7. Interdependence and Contagion: an Analysis of Information Transmission in Latin America's Stock Markets By Angelo Marsiglia Fasolo
  8. Identifying Volatility Risk Premium from Fixed Income Asian Options By Caio Ibsen R. Almeida; José Valentim M. Vicente
  9. SEA LEVEL RISE AND EQUITY WEIGHTING By David Anthoff; Robert J. Nicholls; Richard S.J. Tol
  10. Specialisation across Varieties within Products and North-South Competition By Lionel Fontagne; Guillaume Gaulier; Soledad Zignago
  11. Traditional and Innovative Approaches to Legal Reform: 'The New Company Law' By Joseph A. McCAHERY; Erik P.M. VERMEULEN; HISATAKE Masato; SAITO Jun
  12. Poverty targeting in public programs-- A comparison of some nonparametric tests and their application to Indian microfinance. By Isha Dewan; Rohini Somanathan

  1. By: Rodolfo Maino; Bernard Laurens
    Abstract: The People's Bank of China (PBC) has made great strides in modernizing its monetary policy frameworks but their effectiveness will diminish as the sophistication of the economy increases. Empirical evidence supports maintaining a reference to money in China's monetary strategy and enhancing the role of interest rates in its conduct. We advocate adoption of an eclectic strategy involving the monitoring of several indicators, and of a short-term interest rate as the operational target. The PBC should be granted discretion to change its policy rate, and there are no technical obstacles for such a move to occur in the near future.
    Keywords: Monetary policy , China , Monetary policy instruments , Demand for money , Economic indicators , Interest rates ,
    Date: 2007–01–25
  2. By: Jose Daniel Rodríguez-Delgado
    Abstract: The paper evaluates the South Asia Free Trade Agreement (SAFTA) within the global structure of overlapping regional trade agreements (RTAs) using a modified gravity equation. First, it examines the effects of the Trade Liberalization Program which started in 2006. SAFTA would have a minor effect on regional trade flows and the impact on custom duties would be a manageable fiscal shock for most members. Second, the paper ranks the trade effects of other potential RTAs for individual South Asian countries and SAFTA: RTAs with North American Free Trade Agreement (NAFTA) and the European Union (EU) dominate one with the Association of South East Asian Nations (ASEAN).
    Keywords: International trade agreements , Asia , Trade liberalization , Economic models ,
    Date: 2007–02–05
  3. By: Lining He (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA); Faye Duchin (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)
    Abstract: Significant economic disparities among China's Eastern, Central, and Western regions pose unequivocal challenges to social equality and political stability in the country. A major impediment to economic development, especially in the poor, remote Western region, is the shortage of transportation infrastructure. The Chinese government has committed to substantial investment for improving the accessibility of this vast, land-locked region as a mechanism for promoting its development. The paper examines the impacts of the intended transportation infrastructure buildup on the Western region's comparative advantage and its interregional trade. The World Trade Model is extended to represent this investment and applied to determine interregional trade in China based on region-specific technologies, factor endowments and prices, and consumption patterns as well as the capacities and costs of carrying goods among regions using the interregional transportation infrastructure in place in the base year of 1997 and that planned for 2010 and 2020. The model is implemented for 3 regions, 27 sectors, and 7 factors. The results indicate that the planned infrastructure buildup will be cost-effective, will increase benefits especially for the Western region, and that it can conserve energy overall at given levels of demand but substitute oil for coal. Based on these and other model results, some recommendations are offered about strategies for regional development in China.
    JEL: L98 O53 C61 C67 O18
    Date: 2007–05
  4. By: Yin Hua Mai
    Abstract: MC-HUGE is a dynamic Computable General Equilibrium model of the Chinese economy. The core CGE part of the MC-HUGE model is based on that of the ORANI model. The dynamic mechanism of MC-HUGE is based on that of the MONASH model. This paper documents how the MC-HUGE model is calibrated to China's economic growth data from 1997 to 2005. It also reports how the model is used to forecast a growth path for the Chinese economy from 2005 to 2015. The historical and the forecast simulation produce a baseline or a business-as-usual scenario with which to compare the effects of any changes in economic policies or environment.
    Keywords: China, CGE modelling, economic growth, oil
    JEL: C68 F14 O10
    Date: 2006–09
  5. By: Hanan Morsy; Akiko Terada-Hagiwara; Maria Pia Iannariello
    Abstract: This paper studies the detrimental effect of sudden stops on the growth of Thai firms' fixed assets. We focus on the fixed assets adjustment that firms undertake at times of financial constraints. We derive our results from balance sheet data for 284 nonfinancial Thai listed firms. Our data demonstrate that Thai firms faced severe declines in the growth of their fixed assets starting in 1996. Regression results demonstrate, after controlling for firms' characteristics and lagged dependent variables, that holding longer-term debt maturity structure is the factor that works in the firms' favor during sudden stop episodes, while it is their profitability that matters during tranquil periods.
    Keywords: Financial crisis , Thailand , Private sector , Capital , Debt burden , Debt management , Asia ,
    Date: 2007–01–23
  6. By: Kirsanova, Tatiana; Menzies, Gordon; Vines, David
    Abstract: This paper develops a real model of financial crisis, and uses it to elucidate the controversy between Joe Stiglitz and the IMF concerning the Asian financial crisis. Borrowers of foreign capital are bound by lending contracts to pay the world rate of return on their borrowing, following an adverse shock; by assumption, they do not default. This is onerous, since the shock makes the marginal product of capital fall to less than the world rate of return, and creates a debt overhang on which interest must be paid. The country faces a choice. It could choose to pay these extra interest obligations on its debt overhang -- a transfer -- in every period, raise taxes in order to meet these obligations, and thereby gradually reduce capital to its new lower level, at which point there would no longer be a debt overhang. We describe this as the `IMF strategy'. Alternatively the country could choose the `Stiglitz strategy': it could immediately borrow internationally the sum of all the future interest obligations on its debt overhang, perhaps with the assistance of the IMF. It would need to raise taxes in order to meet the interest costs on that extra borrowing. But the fiscal cost of doing this would be finite and the fiscal costs would be equally spread across time. The short run tax burden would thus be smaller. We show that balance sheet effects mean that the real exchange rate can greatly overshoot in the IMF strategy, whereas it need not overshoot in the Stiglitz strategy. That will lessen the `crisis' aspects of the short run responses to the shock.
    Keywords: debt overhang; financial crisis; fiscal adjustment
    JEL: F31
    Date: 2007–05
  7. By: Angelo Marsiglia Fasolo
    Abstract: This paper brings evidences about the hypotheses of financial crisis contagion over Latin American stock markets in the 90's using a multivariate GARCH model. Beside the traditional volatility structure, we added a leverage term like GJR framework in order to avoid problems due to the use of conditional correlation as a measure of relationship between stock markets. The results show the existence of contagion only during the Asian (1997) and the Russian (1998) crises. The consequences of the Brazilian crisis (1999) can be identified as a result of interdependence among Latin American markets, while the crises of Mexico (1994) and Argentina (2001) show a specific mechanism of propagation. This result raises questions about the "contagion" and "interdependence" concepts' adequacy for the analysis of information transmission among stock markets.
    Date: 2006–07
  8. By: Caio Ibsen R. Almeida; José Valentim M. Vicente
    Abstract: We provide approximation formulas for at-the-money asian option prices to extract volatility risk premium from a joint dataset of bonds and option prices. The dynamic model generates stochastic volatility and a time-varying volatility risk premium, which explicitly depends on the average cross section of bond yields and on the time series behavior of option prices. When estimated using a joint dataset of Brazilian local bonds and asian options, the model generates bond risk premium strongly correlated (89%) with a widely accepted emerging markets benchmark index, and a negative volatility risk premium implying that investors might be using options as insurance in this market. Volatility premium explains a significant portion (32.5%) of bond premium, confirming that options are indeed important to identify risk premium in dynamic term structure models.
    Date: 2007–05
  9. By: David Anthoff; Robert J. Nicholls; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: Using the FUND model, an impact assessment is conducted over the 21st century for rises in sea level of up to 2-m/century and a range of national socio-economic scenarios. This model balances the costs of retreat with the costs of protection, including the effects of coastal squeeze. While the costs of sea-level rise increase due to greater damage and protection costs, the model suggests that an optimum response in a benefit-cost sense remains widespread protection of developed coastal areas, as identified in earlier analyses. The socio-economic scenarios are also important in terms of influencing these costs. In terms of the four components of costs considered in FUND, protection seems to dominate, with substantial costs from wetland loss under some scenarios. The regional distribution of costs shows that a few regions experience most of the costs, especially East Asia, North America, Europe and South Asia. Importantly, this analysis suggests that protection is much more likely and rational than is widely assumed, even with a large rise in sea level. However, there are some important limitations to the analysis, which collectively suggest that protection may not be as widespread as suggested in the FUND analysis. Equity weighting allows the damages to be modified to reflect the wealth of those impacted by sea-level rise. Taking these distributional issues into account increases damage estimates by a factor of three, reflecting that the coasts fall disproportionately on poorer developing countries.
    Keywords: climate change, sea level rise, equity weighting
    JEL: Q54
    Date: 2007–05
  10. By: Lionel Fontagne; Guillaume Gaulier; Soledad Zignago
    Abstract: Recent developments in trade theory and related empirical studies have drawn a revised picture of trade patterns that is refreshing our understanding of North-South competition: international specialisation has been proved to take place within products, across varieties, rather than across products or across industries. On average, Japanese unit values (values/quantities) for instance are 1.4 times higher than for Brazil, 1.9 times higher than for India, and 2.9 times higher than for China, for the same products, shipped to the same markets, within the same year (2004). Systematising this repeated empirical evidence, we ask here what are the precise patterns regarding the specialisation of countries within products and across varieties and what are the determinants of such specialisation. Better understanding such trade patterns helps to clarify the challenges for policy posed by the emergence of competitors in the South, covering the whole range of traded products.
    Keywords: Product trade; export unit values; vertical differentiation
    JEL: F1 F4
    Date: 2007–05
  11. By: Joseph A. McCAHERY; Erik P.M. VERMEULEN; HISATAKE Masato; SAITO Jun
    Abstract: In this paper, we have distinguished three different positions along the reform strategy spectrum of company law. The first position is located on the left side of the spectrum and closest to stasis - where virtually no effective legal changes can occur and where only the idea of reform clashes with legal tradition and standardization pressures. An example of a jurisdiction that takes this position is Germany. Along or near the mid-point of the spectrum, company law changes are less impeded by tradition and standardization factors, but more influenced by interest group pressures. We see England occupying this position. Japan can be seen as a more adaptable jurisdiction located toward the right end of the spectrum and therefore better able to create and introduce more functional legal rules and institutions that turn the traditional view of company law around. It is submitted that Singapore is located on the right side of the spectrum as its legislature is aware of the need to adapt the legal system to international business practices in order to develop a distinct jurisprudence, acclaimed for its efficiency and integrity, which is set apart from the English legal system.
    Date: 2007–05
  12. By: Isha Dewan (Indian Statistical Institute); Rohini Somanathan (Delhi School of Economics)
    Abstract: Many popular social programs have limited coverage among households at the very bottom of the income and wealth distribution. If a program reaches the poor, but neglects the destitute, the (pre-program) income distribution of participants and non-participants will cross. We are interested in the statis-tical methods that can be used to test for this particular pattern of program participation. Our numerical simulations suggest that recently developed tests for distribution crossing are powerful even when the two distributions under study are fairly similar and they can be usefully combined with more stan-dard quantile tests to characterize program participation among the very poor. We apply this approach to data on household expenditures and membership of micro-credit groups in India and find that participation among the poorest households in the study area was lower than that of slightly richer households.
    Date: 2007–05

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