nep-sea New Economics Papers
on South East Asia
Issue of 2007‒09‒02
twelve papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Volatility dependence across Asia-Pacific on-shore and off-shore U.S. dollar futures markets By Colavecchio , Roberta; Funke, Michael
  2. A Neoclassical Analysis of the Asian Crisis: Business Cycle Accounting of a Small Open Economy By Keisuke Otsu
  3. Reconsidering the Backward Vertical Linkages of Foreign Affiliates: Evidence from Japanese Multinationals By Kozo Kiyota; Toshiyuki Matsuura; Shujiro Urata; Yuhong Wei
  4. Financial Globalization and Emerging Market Portfolios By Michael B Devereux
  5. Overlapping Free Trade Agreements of Singapore-USA-Japan: A Computational Analysis By Chong Soo Yuen; Jung Hur
  6. Integration and Growth in East Asia By Sanghoon Ahn; nd Jong-Wha Lee
  7. Financial Integration in East Asia By Hiroshi Fujiki; nd Akiko Terada-Hagiwara
  8. Excess Sensitivity in Consumption without Liquidity Constraint: Evidence from Monthly Household Panel Data By Shawn Ni
  9. Socially Responsible Investments: Methodology, Risk and Performance By Renneboog, L.D.R.; Horst, J.R. ter; Zhang, C.
  10. Fiddling while carbon burns: why climate policy needs pervasive emission pricing as well as technology promotion By Jack Pezzey; Frank Jotzo; John Quiggin
  11. The Price of Ethics: Evidence from Socially Responsible Mutual Funds By Renneboog, L.D.R.; Horst, J.R. ter; Zhang, C.
  12. Productivity Levels in Transport, Storage and Communication: A New ICOP 1997 Data Set By Ypma, Gerard

  1. By: Colavecchio , Roberta (BOFIT); Funke, Michael (BOFIT)
    Abstract: This paper estimates switching autoregressive conditional heteroscedasticity (SWARCH) time series models for weekly returns of nine Asian forward exchange rates. We find two regimes with different volatility levels, whereby each regime displays considerable persistence. Our analysis provides evidence that the knock-on effects from China´s U.S. dollar future rates upon other Asian countries have been modest, in that little evidence exists for co-dependence of volatility regimes.
    Keywords: China; renminbi; Asia; forward exchange rates; non-deliverable forward market; SWARCH models
    JEL: C22 F31 F36
    Date: 2007–08–29
  2. By: Keisuke Otsu (Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper applies the business cycle accounting method a la Chari, Kehoe and McGrattan (2007) to a standard neoclassical small open economy model and assesses the recent crises in Hong Kong, Korea, Singapore and Thailand. The key common features of these crises are the sudden output collapses and consumption drops as large as the output drops. Quantitative results show that the sudden drops in total factor productivity are important in explaining the output drops. Distortions in the foreign debt market are important in Korea and Thailand whereas distortions in the domestic capital market are important in Hong Kong and Singapore in explaining the large consumption drops.
    Keywords: Business Cycle Accounting, Small Open Economy, Asian Crisis
    JEL: E13 E32
    Date: 2007–08
  3. By: Kozo Kiyota (Yokohama National University and Gerald R. Ford School of Public Policy, University of Michigan); Toshiyuki Matsuura (Research Institute of Economy, Trade and Industry); Shujiro Urata (Graduate School of Asia-Pacific Studies, Waseda University); Yuhong Wei (Graduate School of Economics, Hitotsubashi University)
    Abstract: This paper examines the determinants of the backward vertical linkages of Japanese foreign affiliates in manufacturing for the period 1994-2000, focusing on the local backward linkages, or local procurements in the host country. Our major findings are twofold. First, the unobserved affiliate-specific characteristics explain the large part of the variation of the backward linkages among foreign affiliates. Second, the experience of the affiliate has positive and sometimes non-linear impacts on local procurements for the affiliates, especially in Southeast Asia and China.
    Keywords: Vertical Backward Linkages, Foreign Direct Investment, Local Procurements, Southeast Asia, China
    JEL: F10 F23 D21
    Date: 2007
  4. By: Michael B Devereux (Centre for Economic Policy Research, University of British Columbia, and International Monetary Fund (E-mail: devm@
    Abstract: Although emerging market Asian economies have experienced high growth without crises for close to a decade, many commentators find the large buildup of foreign exchange reserves among these economies both puzzling and evidence of incipient global imbalances. This paper reviews some of the experience of Asian countries over the last decade. We focus on the degree to which Asian economies have experienced financial globalization, meaning that their gross external asset and liability positions have grown significantly. In particular, while Asian economies have become significant gross creditors in bonds and other fixed income assets, their liability position in equity and FDI assets has also grown significantly. We show that a simple dynamic general equilibrium model of portfolio choice in an emerging market economy can account for this trend remarkably well.
    Keywords: Asia, Financial Globalization, FDI, Foreign Exchange Rate Reserves
    JEL: E52 E58 F41
    Date: 2007–08
  5. By: Chong Soo Yuen (Singapore Centre for Applied and Policy Economics, Department of Economics, National University of Singapore); Jung Hur (Department of Economics, National University of Singapore)
    Abstract: The proliferation of overlapping free trade agreements (FTA) in the recent years has led to hub-and-spokes (HAS) throughout the world. Being avid subscribers to FTAs, many countries in the Asia-Pacific region including the USA, Japan, Singapore, South Korea, Thailand and Australia have become trade hubs to their partners who are in turn relegated to spoke status. In this paper, we question whether being a hub is welfare optimal for a small and open economy like Singapore compared to membership in a single bilateral FTA or a multi- member free trade zone. Within this context, we use a computable general equilibrium model to examine the welfare implications of the triangular trade relationship of the USA, Singapore and Japan. This is facilitated by the Japan- Singapore Economic Partnership Agreement, the USA-Singapore Free Trade Agreement, and a hypothetical USA-Japan Economic Partnership Agreement. The analysis is extended to incorporate “super-hub” effects; that is, the spoke countries can be trade hubs in other HAS systems. The experiment reveals that hub status generates positive welfare gain and is the highest Singapore can get from the trade configurations considered. Meanwhile, Japan loses more than the USA when both are relegated to spoke status. These findings prove robust under different market structures and production technologies, deeper economic integration, “super-hub” effects, as well as, uncertainty in the key model parameters and the extent of trade liberalisation shocks.
    Keywords: hub and spokes; overlapping agreements; free trade; preference dilution; computable general equilibrium; GTAP; systems; trade configurations
    JEL: C68 D58 F15
  6. By: Sanghoon Ahn (Korea Development Institute); nd Jong-Wha Lee (Corresponding author: Office of Regional Economic Integration, Asian Development Bank, 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines. Tel.: 632-632-4900, fax: 632-636- 2183, E-mail:
    Abstract: This paper empirically analyzes the experience of East Asiafs economic growth with data both at aggregate-economy and micro-firm levels, focusing on the role of international integration through trade and direct investment. The analysis within a framework of cross-country panel regression shows that trade openness and foreign direct investment (FDI) inflows have a positive effect on gross domestic product (GDP) growth? particularly in the 1970 and 1980s?while FDI outflows appear to have a negative effect on GDP growth. Micro-level evidence based on manufacturing data in the Republic of Korea (Korea) confirms the positive effect of trade and investment integration on plant-level productivity growth. It also suggests the relationship between FDI outflows and productivity growth depends on the characteristics of a recipient economy. We find that FDI to the Peoplefs Republic of China tends to reduce productivity growth of firms in Korea while FDI to the United States or Japan works in favor of productivity growth.
    Keywords: integration, growth, trade, foreign direct investment, East Asia
    JEL: F15 F43 O47 O53
    Date: 2007–08
  7. By: Hiroshi Fujiki (Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; nd Akiko Terada-Hagiwara (Institute for Monetary and Economic Studies, Bank of Japan)
    Abstract: This paper examines the degree of integration into world financial markets and the impacts on several key macroeconomic variables of selected East Asian economies, and draws policy implications. According to our analysis, the degrees of integration into world financial markets in those economies are increasing. Regarding the impacts of increasing integration into world financial markets on several macroeconomic variables, we find three results. First, casual two-way plots among macroeconomic variables do not support the theoretical prediction of reduction in relative consumption volatility. Second, the saving-investment correlation is higher than those of the euro area economies. Third, the degrees of smoothing of idiosyncratic shock by cross-holding of financial assets are lower than the euro area economies. These results suggest two policy implications. First, there is some room for improvement in welfare gains in those economies by means of further risk sharing. Second, holding all other conditions equal, the increasing integration into world financial markets alone is unlikely to provide a sound ground for a currency union in East Asia at this stage.
    Keywords: Exchange rate regime, financial integration, risk sharing
    JEL: F33 F36
    Date: 2007–08
  8. By: Shawn Ni (Department of Economics, University of Missouri-Columbia)
    Abstract: The monthly salaries and allowances of Korean government employees are known in advance but vary greatly throughout the year. Using a large Korean monthly panel data set from 1994 to 2003, we examine how nondurable consumption expenditure in households headed by government employees responds to predictable income changes. We find excess sensitivity in consumption during the pre-Asian financial crisis era in households headed by young government employees with low liquid assets or low income. These household features are commonly associated with liquidity constraints. Further analysis shows that despite the apparent association, liquidity constraint is not the most convincing explanation for the excess sensitivity. Instead, the empirical finding is consistent with the theory that certain households deviate from consumption smoothing when the effort involved exceeds the welfare gained.
    Keywords: household consumption, excess sensitivity
    JEL: D12 E21
    Date: 2007–08–22
  9. By: Renneboog, L.D.R.; Horst, J.R. ter; Zhang, C. (Tilburg University, Center for Economic Research)
    Abstract: This paper surveys the literature on socially responsible investments (SRI). Over the past decade, SRI has experienced an explosive growth around the world. Particular to the SRI funds is that both financial goals and social objectives are pursued. While corporate social responsibility (CSR) - defined as good corporate governance, sound environmental standards, and good management towards stakeholder relations - may create value for shareholders, participating in other social and ethical issues is likely to destroy shareholder value. Furthermore, the risk-adjusted returns of SRI funds in the US and UK are not significantly different from those of conventional funds, whereas SRI funds in Continental Europe and Asia-Pacific strongly underperform benchmark portfolios. Finally, the volatility of money-flows is lower in SRI funds than of conventional funds, and SRI investors? decisions to invest in an SRI fund are less affected by management fees than the decisions by conventional fund investors.
    Keywords: socially responsible investments;ethical investing;corporate social responsibility;mutual funds;performance evaluation;money-flows;investment screens;mutual funds.
    JEL: A13 G11 G12
    Date: 2007
  10. By: Jack Pezzey (Centre for Resource and Environmental Studies, Australian National University,); Frank Jotzo (Research School of Pacific and Asian Studies, Australian National University); John Quiggin (Risk & Sustainable Management Group, School of Economics, University of Queensland)
    Abstract: Effective climate policy requires global emissions of greenhouse gases to be cut drastically, which in energy sectors can be achieved by lower emissions supply technologies, greater energy use efficiency, and substitution in demand. For policy to be efficient requires fairly uniform, pervasive emission pricing from taxes, permit trading, or hybrid combinations of the two, as well as significant government support for low-emission technologies. We compare the kind of technology-focused climate policies currently adopted by Australia and the USA, the ÔAsia- Pacific Partnership on Clean Development and ClimateÕ (AP6), against this ideal policy yardstick. We find that they omit the need for emission pricing to achieve abatement effectively and efficiently; that they over-prescribe which abatement actions should be used most; that they make unrealistic assumptions about how much progress can be achieved by voluntarism and cooperation, in the absence of either adequate funding or mandatory policies; and that they unjustifiably contrast technology-focused policy and the Kyoto Protocol approach as the only two policies worth considering, and thus ignore other important options.
    Keywords: greenhouse gas emissions, abatement, emission taxes, emissions trading, technology policy, innovation, Asia-Pacific Partnership, AP6
    JEL: Q42 Q54
  11. By: Renneboog, L.D.R.; Horst, J.R. ter; Zhang, C. (Tilburg University, Center for Economic Research)
    Abstract: This paper estimates the price of ethics by studying the risk-return relation in socially responsible investment (SRI) funds. Consistent with investors paying a price for ethics, SRI funds in many European and Asia-Pacific countries strongly underperform domestic benchmark portfolios by about 5% per annum, although UK and US SRI funds do not significantly underperform their benchmarks. The underperformance of SRI funds does not seem to be driven by the loadings on an ethical risk factor. SRI funds do not suffer a cost of reduced selectivity nor do SRI funds managers time the market. There is mixed evidence of a smart money effect: SRI investors are unable to identify the funds that will outperform in the future, whereas they show some fund-selection ability in identifying ethical funds that will perform poorly. The screening activities of SRI funds have a significant impact on funds? riskadjusted returns and loadings on risk factors: corporate governance and social screens generate better risk-adjusted returns whereas other screens (e.g. environmental ones) yield significantly lower returns.
    Keywords: ethics;mutual funds;socially responsible investing;investment screens;smart money;risk loadings
    JEL: G12 A13 Z13
    Date: 2007
  12. By: Ypma, Gerard (Groningen University)
    Abstract: This working paper provides industry-specific purchasing power parities for gross output in the transportation and communication sector. The calculation of these output PPPs builds on earlier work by the International Comparisons of Output and Productivity (ICOP) project in this field. The paper reviews the existing methods and develops a new system which takes full advantage of the improved data situation. The study captures the transportation and communication sectors of 32 countries (EU-25, Australia, Canada, Japan, Korea, New Zealand, Taiwan and United States). The second part of the paper applies the PPPs to productivity measures obtained from the EU KLEMS database and the 60-industry Database of the Groningen Growth and development Centre. This results in a consistent and comparable set of productivity levels at detailed industry level. We find that differences in productivity between the United States and other industrialized countries are only partly due to differences in industry structure. The United States especially outperform the EU-15 and Asia on productivity levels in land transport. Eastern European countries are still showing much lower productivity levels, except for land transport where they can become a though competitor for the former EU-15.
    Date: 2007

This nep-sea issue is ©2007 by Kavita Iyengar. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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