nep-sea New Economics Papers
on South East Asia
Issue of 2007‒10‒06
ten papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Regional Integration, Sectoral Adjustments and Natural Groupings in East Asia By Hiro Lee; Dominique van der Mensbrugghe
  2. Monetary Policy in East Asia: Common Concerns By Marvin Goodfriend
  3. Exchange rate pass-through to export prices: assessing some cross-country evidence By Robert J. Vigfusson; Nathan Sheets; Joseph Gagnon
  4. Financing Constraint and Firm-Level Investment Following a Financial Crisis in Indonesia By Agustinus Prasetyantoko
  5. Reserve accumulation: objective or by-product? By Johannes Onno de Beaufort Wijnholds; Lars Søndergaard
  6. Facts and Fallacies about U.S. FDI in China By Lee Branstetter; C. Fritz Foley
  7. Electronics Production Upgrading: Is China Exceptional? By Ari Van Assche; Byron Gangnes
  8. Reconciling Trade Statistics from China, Hong Kong and Their Major Trading Partners--A Mathematical Programming Approach By Wang, Zhi; Gehlhar, Mark; Yao, Shunli
  9. The "Bali Convention" : Flexibility of Targets and Instruments Inevitable By Claudia Kemfert
  10. Trade, demand spillovers, and industrialization : the emerging global middle class in perspective. By Alain Desdoigts; Fernando Jaramillo

  1. By: Hiro Lee (Osaka School of International Public Policy,Osaka University); Dominique van der Mensbrugghe (The World Bank)
    Abstract: Although East Asian countries were relatively inactive in signing free trade agreements (FTAs) until the end of 1990s, a number of FTAs involving East Asian countries have been signed since the turn of the century. Because sectoral interests can exert significant influence on policy negotiations, the sectoral results would be particularly important for political economy considerations. The objective of this study is to compare welfare gains and sectoral adjustments resulting from various FTA scenarios in East Asia using a dynamic global computable general equilibrium (CGE) model. The RCA rankings of commodities with various FTA scenarios and those with the global trade liberalization are correlated to examine how gnaturalh each grouping would be. The results suggest that the ASEAN+3 FTA, with relatively large welfare gains and small structural adjustments, could be a facilitating intermediate step towards global free trade. Some of the smaller FTAs, such as the ASEAN-China and ASEAN-Korea FTAs, would result in large structural adjustments for ASEAN countries.
    Keywords: Regional integration; FTA; RCA; East Asia; CGE model
    JEL: F13 F15
    Date: 2007–09
  2. By: Marvin Goodfriend (Professor, Carnegie Mellon University (E-mail:
    Abstract: The paper identifies and evaluates consequences for monetary policy of five features of East Asian development: export orientation, integrated regional trade, bank-dependent finance, the potential for persistent trade surpluses, and the aggressive accumulation of international reserves. The case for a flexible exchange rate is made in terms of the New Neoclassical Synthesis (NNS). NNS logic indicates why fluctuations in "export optimism" create problems for the sustainability of a fixed exchange rate. Cooperative credit policy in East Asia is discussed by analogy to a credit union. The paper outlines problems for monetary policy created by bank-dependent finance in East Asia. A two- country NNS model indicates that a revaluation of the RMB against the dollar is likely to exert little effect on the US trade deficit, although it should help control inflation in China. The paper argues that China can adopt a flexible exchange rate in a few years with modest reforms of its banking system. Finally, the paper considers various reasons for the accumulation of international reserves in East Asia.
    Keywords: East Asia, Monetary Policy, Banking Policy, Exchange Rates, Trade Balance, International Reserves
    JEL: F3 F4
    Date: 2007–09
  3. By: Robert J. Vigfusson; Nathan Sheets; Joseph Gagnon
    Abstract: A growing body of empirical work has found evidence of a decline in exchange rate pass-through to import prices in a number of industrial countries. Our paper complements this work by examining pass-through from the other side of the transaction; that is, we assess the exchange rate sensitivity of export prices (denominated in the exporter's currency). We first sketch out a streamlined analytical model that highlights some key factors that determine pass-through. Using this model as reference, we find that the prices charged on exports to the United States are more responsive to the exchange rate than is the case for export prices to other destinations, which is consistent with results in the literature suggesting that import price pass-through in the U.S. market is relatively low. We also find that moves in the exchange rate sensitivity of export prices over time have been significantly affected by country and region-specific factors, including the Asian financial crisis (for emerging Asia), deepening integration with the United States (for Canada), and the effects of the 1992 ERM crisis (for the United Kingdom).
    Date: 2007
  4. 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 investment and internal liquidity by splitting samples into two different groups of firm, namely the tradable (T) and non-tradable (N) sectors. This paper finds that during boom periods, there is no significant financial constraint on the T and N sectors. In post-crisis periods, it seems that both sectors also have no significant important problem in their internal finance. Both sectors basically move comparably. The main finding is relatively different with several theoretical predictions, especially Tornell and Westermann (2002a, 2004), in which the T-sector would be predicted as experiencing less financial constraint in burst period. However, we find that debt is important variable for sustaining investment in Indonesia. By employing panel data analysis, the findings of this study can shed light on the financing behavior of listed companies in Indonesia, as well as on their investment behavior in the midst of financing constraints and credit market imperfections. The study’s sample contains 147 companies listed on the Jakarta Stock exchange for at least 5 five consecutive years between 1994 – 2004.
    Keywords: asymmetric financing opportunities; financial crisis; financing constraint; firm investmen
    Date: 2007–07
  5. By: Johannes Onno de Beaufort Wijnholds (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Lars Søndergaard (World Bank 1818 H St N.W., Washington D.C. USA.)
    Abstract: This paper examines whether the level of reserves in emerging market countries has become excessive. It presents a discussion of “adequacy” versus “excessive” levels of reserves, and presents calculations of reserve adequacy for a large number of emerging market countries. Two categories of countries can be distinguished: i) those whose reserves have grown on account of a need for self-insurance against financial crises, and which tend to be reasonably in line with adequacy measures (mainly Latin American countries and countries in central and eastern Europe), and ii) those whose reserve accumulation is nowadays primarily the result of rapid export-led growth supported by a lack of exchange rate flexibility. This is especially the case for several emerging Asian countries, whose reserve levels have grown far beyond what can reasonably considered adequate. Various opinions on Asian exchange rate and reserves policies are examined, and the costs and benefits of currency undervaluation are assessed. Attention is also paid to the composition of the reserves. The paper concludes by bringing together the various strands of the analysis and enumerating the main implications of largescale reserve accumulation for the international monetary system. JEL Classification: F31, F41.
    Keywords: International reserve accumulation, emerging markets.
    Date: 2007–09
  6. By: Lee Branstetter; C. Fritz Foley
    Abstract: Despite the rapid expansion of U.S.-China trade ties, the increase in U.S. FDI in China, and the expanding amount of economic research exploring these developments, a number of misconceptions distort the popular understanding of U.S. multinationals in China. In this paper, we seek to correct four common misunderstandings by providing a statistical portrait of several aspects of U.S. affiliate activity in the country and placing this activity in its appropriate economic context.
    JEL: F14 F23 O19 O32
    Date: 2007–10
  7. By: Ari Van Assche (HEC Montr´eal and CIRANO); Byron Gangnes (University of Hawaii at Manoa)
    Abstract: In this paper, we make use of a unique world electronics production data set to assess China’s upgrading trajectory in the global electronics industry. Contrary to existing studies, we find no evidence that China’s electronics production activities are more sophisticated than one would expect from its level of development. We also find little evidence that China is rapidly upgrading into more sophisticated production activities.
    Keywords: China, industrial upgrading, electronics
    JEL: O10 O14 L63
    Date: 2007–08–17
  8. By: Wang, Zhi; Gehlhar, Mark; Yao, Shunli
    Abstract: This paper develops a mathematical programming model to simultaneously estimate re-export markups and reconcile bilateral trade statistics between China, Hong Kong, and their trading partners. The model is applied to sector level trade flows to resolve discrepant reporting in an efficient manner. Adjustments in trade flows are based upon statistical reporters' reliability information. The program is implemented in GAMS and retains many desirable theoretical and empirical properties. Estimates are used for generating trade flows and markups for Hong Kong's re-exports used in the forthcoming version 7 GTAP database. The model's flexibility has potential for expanded use in other regions where re-exports and associated markup cause discrepant trade flows.
    Date: 2007
  9. By: Claudia Kemfert
    Abstract: The Kyoto Protocol is one first important step towards a global greenhouse gas emissions reduction strategy. In order to avoid irreversible climate changes and huge economic damage, not just some but all of the responsible nations should agree on a joint proposal to reduce emissions. Sharing the burden fairly would mean that those nations with high emissions per capita should reduce them more than countries with low emissions per capita. However, a fair burden sharing should also take into account early action and economic and social conditions. Most of the countries, especially those with high economic growth, fear large economic losses if emissions reduction targets are very high. Especially fast-growing nations such as China and India suspect negative consequences if climate policy takes a dominant role. The post-Kyoto negotiations can only be successful if flexibility of targets and instruments is considered. The next UN climate conference, at the end of 2007 in Bali, is an important starting point for a so-called "Bali Convention". This convention should take into account different emissions reduction options and flexible emissions reduction targets. Germany's Chancellor Merkel supports a world per capita emissions target; Europe should find soon a fair burden sharing between the EU member states and start negotiations with 30 % emissions reduction in order to make clear how serious EU is to reduce emissions. The APEC nations favour an energy intensity reduction target. The emissions intensity of a nation can be reduced if CO2-free technologies are widely applied. Nations with a large share of CO2 emissions resulting from high fossil-fuel usage or high methane emissions from energy production or agriculture usually favour flexible indexed targets. The "Bali Convention" should define such flexible targets to take into account national conditions and visions. It is most important that countries agree on binding targets, either concrete emissions reduction targets or indexed targets such as emissions intensity or per capita emissions. The key to success is flexibility of targets and instruments.
    Date: 2007
  10. By: Alain Desdoigts (Centre d'Economie de la Sorbonne); Fernando Jaramillo (Universidad del Rosario)
    Abstract: Will the integration of BRIC (Brazil, Russia, India and China) into the global economy provide the biggest boost to the world economy since the industrial revolution ? In this paper, we investigate international demand spillovers brought about by an emerging global middle class and their impact on the international structure of production. We put forth a many-industry and two-country trade model featuring international competition, non-homothetic preferences and country-specific asymmetries in income distribution, productivity and population size. Its key characteristic is the introduction of demand complementarities propagating increasing returns across industries and national boundaries, which eventually translate into a global profit-multiplier.
    Keywords: Horizontal complementarities, hierarchic preferences, world middle class, deindustrialization, trade.
    JEL: F10 O11 O14
    Date: 2006–02

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.