nep-sea New Economics Papers
on South East Asia
Issue of 2007‒10‒13
fifteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Institutional Development of Capital Markets in Nine Asian Economies By Nakagawa, Rika
  2. The role of China in Asia: engine, conduit, or steamroller? By Jane T. Haltmaier; Shaghil Ahmed; Brahima Coulibaly; Ross Knippenberg; Sylvain Leduc; Mario Marazzi; Beth Anne Wilson
  4. Phases of Imitation and Innovation in a North-South Endogenous Growth Model By Artatrana Ratha; Eungmin Kang
  5. Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets - An Overinvestment View By Schnabl, Gunther; Hoffmann, Andreas
  6. SPair-Wise Output Convergence in East Asia and the Pacific: An Application of Stochastic Unit Root Test By Chowdhury, Khorshed; Mallik, Girijasankar
  7. Agricultural technology choices for poor farmers in less-favored areas of South and East Asia: By Pender, John
  8. Why is son preference declining in South Korea ? the role of development and public policy, and the implications for China and India By Das Gupta, Monica; Chung, Woojin
  9. Foreign Direct Investment and Economic Growth: Empirical Evidence from Sectoral Data in Indonesia By Ilan Noy
  10. The effects of a greater central bank credibility on interest rates level and volatility response to news in the U.K. By Tuysuz, Sukriye
  11. Is food insecurity more severe in South Asia or Sub-Saharan Africa?: a comparative analysis using household expenditure survey data By Smith, Lisa C.; Wiesmann, Doris
  12. Financial Integration in Emerging Market Economies By Pasricha, Gurnain
  13. Welfare Gains from Financial Liberalization By Robert M. Townsend; Kenichi Ueda
  14. Spectrum Allocation for 3G in Philippines: Implications for Policy Makers and Regulators By Jain Rekha
  15. Sector Switching: An Unexplored Dimension of Firm Dynamics in Developing Countries By Carol Newman; John Rand; Finn Tarp

  1. By: Nakagawa, Rika
    Abstract: This paper is conducting a comparative analysis of the development of securities markets in nine Asian economies: Korea, Taiwan, Hong Kong, Singapore, Malaysia, Thailand, Indonesia, the Philippines, and China. This study focuses on two aspects: the history and institutional development of securities market, such as legal systems, payment systems, etc. From the analyses, this paper reveals several common features of the development of securities markets in nine Asian economies. First, most economies had an informal capital market in the early period of their history. Second, the background of the foundation of their official markets was influenced by experiences of colonization. Third, most governments recognized the importance of the capital market for economic development and had a positive attitude in promoting the market. Fourth, statistics clearly showed that most economies experienced several booms in their capital market from the late 1980s.
    Keywords: Capital market, Securities market, East Asia, Southeast Asia
    JEL: G18 N20 N65
    Date: 2007–07
  2. By: Jane T. Haltmaier; Shaghil Ahmed; Brahima Coulibaly; Ross Knippenberg; Sylvain Leduc; Mario Marazzi; Beth Anne Wilson
    Abstract: This paper assesses China's role in Asia as an independent engine of growth, as a conduit of demand from the industrial countries, and as a competitor for export markets. We provide both macroeconomic and microeconomic evidence. The macroeconomic analysis focuses on the impact of U.S. and Chinese demand on the output of the Asian economies by estimating growth comovements and VARs. The results suggest an increasing role of China as an independent source of growth. The microeconomic analysis decomposes trade into basic products, parts and components, and finished goods. We find a large role for parts and components trade consistent with China playing an important and increasing role as a conduit. We also estimate some regressions that show that China's increasing presence in export markets has had a negative effect on exports of some products for some other Asian economies, but not for other products, including those of the important electronic high-technology industry.
    Date: 2007
  3. By: Puah, Chin-Hong; Kueh, Jerome Swee-Hui; Lau, Evan
    Abstract: The relationship between Foreign Direct Investment (FDI) and Gross Domestic Products (GDP) had become the centre piece of recent researches in identifying the short run and long run implications between the two variables. Using the hypotheses of FDI led GDP and GDP led FDI as theoretical framework, this study intends to analyze the implications of the rise of China towards the ASEAN-5 countries, namely Indonesia, Malaysia, the Philippines, Singapore and Thailand from the perspective of FDI and GDP. The cointegration and vector error correlation estimate test results showed that there is a significant positive long run relationship between FDI of China and GDP of ASEAN-5. However, we failed to detect any short run causal relationship among the variables under study.
    Keywords: Cointegration; Granger causality; FDI; ASEAN-5
    JEL: C32 O53 F21
    Date: 2007–10–09
  4. By: Artatrana Ratha; Eungmin Kang (Department of Economics, st Cloud State University)
    Abstract: Using an error correction version of an autoregressive distributed lag model, we investigate the dynamics of the Korean J-Curve against her eight trading partners. The strict version of the J-Curve is observed with a few major Korean trading partners, such as the U.S. and Indonesia. The estimation results from the Trade Balance Model and the Error Correction Model confirm that, after a depreciation of the Korean won, there has been a long-run adjustment toward the improvement of Korean trade balance against most trading partners. The findings are consistent over different sample periods, including before and after the financial crisis in 1997, and with different trading partners. After the Asian financial crisis, we find that the J-Curve relationship with Korean trading partners has become much more apparent than it was before the crisis.
    Keywords: Bilateral Trade, J-Curve, Currency Crisis
    JEL: F1 F3 F4
    Date: 2007–07
  5. By: Schnabl, Gunther; Hoffmann, Andreas
    Abstract: Credit booms have globally fuelled hikes in stock, raw material and real estate markets which have culminated in the recent US subprime market crisis. We explain the global asset market booms since the mid 1980s based on the overinvestment theories of Hayek, Wicksell and Schumpeter. We argue that ample liquidity supply originating in the large industrialized countries has contributed to overinvestment cycles in Japan, East Asia, new markets in the industrial countries and many emerging market economies. Expansionary monetary policies in response to the burst of bubbles are argued to have contributed to vagabonding bubbles around the globe.
    Keywords: Bubbles; Boom-Bust Cycles; Hayek; Wicksell; Schumpeter; Emerging Markets; Capital Flows; Overinvestment Theories.
    JEL: E44 E32 B53 E58
    Date: 2007–09–10
  6. By: Chowdhury, Khorshed (University of Wollongong); Mallik, Girijasankar (University of Wollongong)
    Abstract: The objective of this paper is to examine time series cross-country output convergence in eleven counties of East Asia and the Pacific. Specifically, we modelled the cross-country output differences as a Stochastic Unit Root (STUR) processes a la Granger and Swanson (1997). Since, STUR commonly occur in economic theory as well as in everyday macroeconomic applications, therefore, modelling cross-country output differences as STUR is considered pertinent and superior in terms of performance and forecasting. Leybourne et al. (1997) test has been applied that has a null hypothesis of exact unit roots against an alternative of STUR. The presence of a constant unit root in output differences implies divergence while the presence of a stochastic unit root implies convergence. Using the output-differences between Japan and the 10 other countries, we find output convergence only for the Japan-New Zealand and Japan-Taiwan country-pairs. Alternatively, using the output-differences between Australia (reference country) and the other 10 sampled countries; we fail to find any evidence of convergence.
    Keywords: Per Capita GDP, Convergence, Deterministic unit root; STUR
    JEL: C21 O18
    Date: 2007
  7. By: Pender, John
    Abstract: "During the past several decades dramatic improvement has occurred in agricultural productivity and livelihoods in South and East Asia, stimulated by the Green Revolution and supported by several other factors. Nevertheless, hundreds of millions of rural people in less-favored environments of this region still live in poverty and received limited benefit from the Green Revolution. To address these problems, alternative technological approaches to the conventional Green Revolution technologies are being advocated to address the problems of poor farmers in less-favored areas of Asia, including low external input and sustainable agricultural approaches, organic agriculture and biotechnology. This paper reviews the literature on agricultural technology options in South and East Asia, drawing conclusions concerning technology strategies to reduce poverty among poor farmers in less-favored areas of this region. Among the main conclusions of the review are the following: 1. There is no technology approach that will work in all of the diverse circumstances of South and East Asia. 2. It is difficult, but not impossible, to identify and promote technologies that will substantially improve the livelihoods of poor people in less-favored areas. 3. Key requirements for technologies to be taken up by farmers and to have a substantial impact on reducing poverty are that the technology is profitable in a relatively short period of time; does not substantially increase risks; and is consistent with farmers' endowments of knowledge, management skill, land, labor, and other assets. 4. New technologies, by themselves, are not sufficient to bring about sustainable rural development and elimination of rural poverty, although they can have a major impact. Effective institutions and a stable and supportive policy environment are also critical. 5. Effective farmers' organizations accountable to poor farmers are a critical need for the success of all technologies in reaching the poor. Such organizations are needed to reduce the costs and improve the effectiveness of technical assistance efforts for all technologies, and are particularly important for technologies that require effective collective action and for increasing smallholders' access to markets for organic and other high value products. 6. Improved methods of technology dissemination are needed to reach poor farmers in less-favored areas. Top down technology transfer approaches that worked well with simple technology packages do not work as well with complex technologies that have to be adapted to local circumstances based on agro-ecological principles and local conditions. These lessons should give pause to advocates one particular technological approach as the solution for poor farmers in less favored environments of Asia and elsewhere. What farmers need are not technology dogmas but options that can work in their context, combining what is useful from different approaches. This requires a pragmatic approach to learning what works well where and why. In pursuit of such pragmatic options for farmers, research and development programs should not ignore the potentials of traditional farming practices or intensive Green Revolution type technologies, which are well suited to farmers' needs in many contexts." - from authors' abstract.
    Keywords: Agricultural technology, Low-external input agriculture, Organic farming, biotechnology, Sustainable agriculture, Less favored areas, Rural poverty, Land resources, Poverty reduction,
    Date: 2007
  8. By: Das Gupta, Monica; Chung, Woojin
    Abstract: For years, South Korea presented the puzzling phenomenon of steeply rising sex ratios at birth despite rapid development, including in women ' s education and formal employment. This paper shows that son preference decreased in response to development, but its manifestation continued until the mid-1990s due to improved sex-selection technology. The paper analyzes unusually rich survey data, and finds that the impact of development worked largely through triggering normative changes across the whole society - rather than just through changes in individuals as their socio-economic circumstances changed. The findings show that nearly three-quarters of the decline in son preference between 1991 and 2003 is attributable to normative change, and the rest to increases in the p roportions of urban and educated people. South Korea is now the first Asian country to reverse the trend in rising sex ratios at birth. The paper discusses the cultural underpinnings of son preference in pre-industrial Korea, and how these were unraveled by industrialization and urbanization, while being buttressed by public policies upholding the patriarchal family system. Finally, the authors hypothesize that child sex ratios in China and India will decline well before they reach South Korean levels of development, since they have vigorous programs to accelerate normative change to reduce son preference.
    Keywords: Population Policies,Gender and Law,Gender and Development,Access to Finance,Gender and Health
    Date: 2007–10–01
  9. By: Ilan Noy (Department of Economics, University of Hawaii at Manoa)
    Abstract: The paper investigates the impact of foreign direct investment (FDI) on economic growth using detailed sectoral data for FDI inflows to Indonesia over the period 1997-2006. In the aggregate level, FDI is observed to have a positive effect on economic growth. However, when accounting for the different average growth performance across sectors, the beneficial impact of FDI is no longer apparent. When examining different impacts across sectors, estimation results show that the composition of FDI matters for its effect on economic growth with very few sectors showing positive impact of FDI and one sector even showing a robust negative impact of FDI inflows (mining and quarrying). The sectors examined are: farm food crops, livestock product, forestry, fishery, mining and quarrying, non-oil and gas industry, electricity, gas and water, construction, retail and wholesale trade, hotels and restaurant, transport and communications, and other private and services sectors.
    Keywords: Foreign direct investment, economic growth, Indonesia
    JEL: F21 F23
    Date: 2007–10–01
  10. By: Tuysuz, Sukriye
    Abstract: This paper investigates the impact of British macroeconomic and monetary news on English interest rates level and volatility. These news correspond to Bank of England (BoE) target variables news and to unexpected monetary policy rate changes. It analyzes whether the market rate response to these news has changed since the Bank of England (BoE) was granted operational independence in May 1997. It also checks if this credibility measure has increased the predictability of BoE decisions by the market. The results reveal that after May 1997, financial markets appears better able to anticipe BoE policy decisions than before May 1997. However, Bank of England target variable news announcements and policy rate changes diffusion influence more English interest rate volatility after May 1997. This results suggests that the credibility and/or transparency of BoE might have decreased after 1997. However, the closer evolution of the realized inflation around the target fixed by the BoE and the evolution of the transparency and credibility index suggest that the BoE transparency and credibility degree increase since 1997 compare to the period prior to 1997. One possible explanation of this last results rests on uncertainty created by the several financial crises (the Asian crisis (July 1997), the Russian crisis (August 1998), the bursting of the technology and internet bubble in 2002 in USA).
    Keywords: Monetary policy; announcements; news; credibility; transparency; term structure of interest rates; GARCH
    JEL: E44 C5 E43
    Date: 2007–09–01
  11. By: Smith, Lisa C.; Wiesmann, Doris
    Abstract: "This paper uses data from national household expenditure surveys to explore whether food insecurity is more severe in South Asia or Sub-Saharan Africa. It employs two indicators of the diet quantity dimension of food insecurity, or the inability to access sufficient food: the prevalence of food energy deficiency and the prevalence of severe food energy deficiency. It also employs two indicators of the diet quality dimension, indicating lack of access to nutritious food: the prevalence of low diet diversity and the percent of energy from staple foods. It finds the regions' food energy deficiency prevalences to be quite close (51 percent in South Asia, 57 percent in Sub-Saharan Africa). However, the prevalence of severe food energy deficiency, which is more life threatening, is higher in Sub-Saharan Africa (51 percent versus 35 percent in South Asia). From a diet quality standpoint, the regions appear to suffer from a comparable and high reliance on staple foods in the diet to the neglect of foods rich in protein and micronutrients, but that Sub-Saharan Africa may be doing worse, as reflected in less diverse diets. The results confirm that both regions suffer from deep food insecurity problems but point to Sub-Saharan Africa as the region with the more severe problem, particularly when it comes to the diet quantity dimension of food insecurity. In deciding which region should be given greater emphasis in the international allocation of scarce development resources, the fact that the numbers of people affected by food insecurity are higher in South Asia should be taken into consideration." from Authors' Abstract
    Keywords: food security, Food energy deficiency, Diet quality,
    Date: 2007
  12. By: Pasricha, Gurnain
    Abstract: This paper analyzes the de-facto integration in some Emerging Market Economies based on behavior of deviations from Covered Interest Parities in the last 10 years. It tests for modified market efficiency conditions in the presence of real world frictions and arrives at a single measure of de-facto integration for some Emerging Market Economies in the post-globalization era. An Asymmetric Self Exciting Threshold Autoregressive model (SETAR) is used to estimate bands of speculative inaction. Market efficiency requires the thresholds to be no wider than the transaction costs and the deviations to follow a stationary process outside the chosen bands. The analysis reveals a much more efficient financial market than has been allowed for in previous studies. The estimates of thresholds for emerging markets follow the pattern expected, given information on de-jure restrictions. Based on the estimated model, the paper constructs an index of de-facto integration and we find that Phillipines and India are the highest ranked amongst emerging markets in terms of their financial integration, and that Malaysia and Thailand occupy the lowest spot.
    Keywords: Covered Interest Parity; Financial Integration; Integration Index; TAR
    JEL: F36 F30 F3
    Date: 2007–10
  13. By: Robert M. Townsend; Kenichi Ueda
    Abstract: Financial liberalization has been a controversial issue as there is little empirical evidence for its positive effects on economic growth. However, we find sizable welfare gains, 1 to 28 percent of permanent consumption though, consistent with the literature, the gain in the economic growth is ambiguous, -0.2 to 0.7 percent. We apply a canonical growth model with endogenous financial deepening to Thailand, 1976-96. As effective bank transaction costs decline, more people take advantage of financial services. We estimate the gains by comparing model simulations under the historical episode of financial liberalization to those under a hypothetical continuation of financial repression.
    Keywords: Working Paper , Financial sector , Financial systems , Economic growth , Economic models , Thailand ,
    Date: 2007–07–12
  14. By: Jain Rekha
    Abstract: The commercial potential of wireless applications has brought spectrum policies to the forefront of regulatory arena. The visibility of the telecom sector and the prior experience of 3G licensing in Europe and UK have made several Asian regulators and policy makers wary of using auctions. This paper details out the beauty contest approach adopted by NTC to allocate 3G licenses and the issues that arose as a consequence and highlights the influence of global developments (European and UK 3G auctions) on domestic spectrum allocation processes. The adoption of the beauty contest approach and fixed license fee was justified by NTC on the grounds of ensuring lower prices to consumers but it led to criticism that it was a clear violation of law, as NTC was mandated to promote competition. In this context, auctions would have been a better and more economically efficient process. The case study highlights the importance of incorporating economic principles, design of a transparent evaluation criteria and communication of the same to the bidders prior to the event. Policy makers need to recognize that well designed auctions are transparent mechanism to allocate scarce resource to those entities who value it most. While beauty contests may appear to be simple mechanisms to administer, lack of clarity in design could lead to non transparency and subsequent possibility of litigation and delays. The study also brings out that although an open consultative approach in the early stages may appear to delay the process, in the long run, it leads to more transparent and robust solutions.
    Date: 2007–10–01
  15. By: Carol Newman (Trinity College Dublin); John Rand (Department of Economics, University of Copenhagen); Finn Tarp (Department of Economics, University of Copenhagen)
    Abstract: Much of the literature on industry evolution has found firm dynamics to be an important source of sector-level productivity growth. In this paper, we ask whether the delineation of entry and exit firms matters in assessing the impact of firm turnover. Using detailed firm level data from Vietnam, it emerges that efficiency differences between sector switchers and exit/entry firms exist. Distinguishing between switchers and firm entry/exit is crucial for understanding the contribution of firm turnover to overall productivity growth. Moreover, we uncover distinct and illuminating firm and sector-level determinants of firm exit and switching, which need to be carefully considered in the search for effective policy.
    Keywords: firm dynamics; sector switching; efficiency; Vietnam
    JEL: D21 L6 O14
    Date: 2007–09

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