nep-sea New Economics Papers
on South East Asia
Issue of 2007‒11‒10
fifteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. East Asia FTA and Kansai-Areafs Trade By Sumie Sato; Mototsugu Fukushige
  2. The Influence of Intra-Industry Trade on Export Sensitivity to Exchange Rates By Yoko Oguro
  3. The Impacts of Renminbi Appreciation on Trades Flows and Reserve Accumulation in a Monetary Trade Model By Li Wang; John Whalley
  4. Does Financial Openness Promote Economic Integration? By Fabrizio Carmignani; Abdur Chowdhury
  5. International Status Seeking, Trade, and Growth Leadership By Simone Valente
  6. The Dynamics of Growth, Poverty, and Inequality: A Panel Analysis of Regional Data from the Philippines and Thailand By Kyosuke Kurita; Takashi Kurosaki
  7. What is Learned from a Currency Crisis, Fear of Floating or Hollow Middle? Identifying Exchange Rate Policy in Recent Crisis Countries By Soyoung Kim
  8. International Financial Volatility and Commodity Exports: Evidence from the Thai Agricultural Sector By Justin B. May
  9. Exchange rate volatility and export performance: A cointegrated VAR approach By Pål Boug and Andreas Fagereng
  11. Models for Non-Exclusive Multinomial Choice, with Application to Indonesian Rural Households By Christopher L. Gilbert; Francesca Modena
  12. Can a Representative Agent Model Represent a Heterogeneous Agent Economy? By Sungbae An; Yongsung Chang; Sun-Bin Kim
  14. Catching-up and Falling-behind in Economic Development: A Human Capital Approach By Jinyoung Kim
  15. Non-mainstream Economics: Research Abroad and in Korea By MAN-SEOP PARK

  1. By: Sumie Sato (Graduate School of Economics, Kobe University); Mototsugu Fukushige (Graduate School of Economics, Osaka university)
    Abstract: This paper attempts to forecast the changes in the Kansai-Areafs import and export when the East Asia Free Trade Agreements (FTA) is concluded among several countries in East and South-East Asia. We simulate the changes in the Kansai-Areafs trade in the following manner. First, we survey the simulation studies that forecast the changed in Japanfs national level trades by industries under the FTA. Second, we estimate a link model between the Japanfs national level and Kansai-Areafs import and export by commodities. Finally, we forecast the changes in the Kansai-Areafs import and export by extrapolating the estimated link models with the changes in the national level import and export. The result implies that the FTA promotes the Kansai-Areafs trade totally and expands the regional trade surplus.
    Keywords: Free Trade Agreements, regional trade, Kansai-Area
    JEL: F13 F17 R11
    Date: 2007–10
  2. By: Yoko Oguro
    Abstract: The role of exchange rates is central to the literature on the determinants of trade, and is currently receiving much attention in the framework of global imbalances. This paper adds to the literature that suggests that exports will be less sensitive to exchange rate movements under certain circumstances. This is the first study, to my knowledge, which empirically investigates the sensitivity of export quantities to exchange rates in the context of Intraindustry trade (IIT). I assume that higher IIT implies the smaller elasticity of substitution among differentiated products and vice versa. The model presented in this paper suggests that the difference in production costs has an influence on IIT as well. I investigate six cross-country industry-panels for the bilateral trade of eight East Asian countries, Japan, and the United States with EU, East Asia, Japan, and North America. The empirical results confirm that export sensitivity to exchange rates declines as the extent of IIT increases. An obvious policy implication of the findings is that the effectiveness of exchange rates as a policy tool for addressing trade imbalances will diminish when substantial IIT exists.
    Keywords: Trade, Exchange rates, Intra-industry trade
    JEL: F00 F10 F14 F19
    Date: 2007–10
  3. By: Li Wang; John Whalley
    Abstract: Given the rapidly growing reserves in Asia (China, Japan, Korea, Taiwan) and the pressures from trading partners to revalue, there is a need to examine commercial policy in more than a pure barter model. Here we evaluate the joint impacts of exchange rate appreciation on trade flows and country surpluses using a general equilibrium trade model with a simple monetary structure in which the trade surplus is endogenously determined in the exchange rate setting country and the exchange rate is exogenous. We illustrate its application to the Chinese case using calibration to 2005 data. Our results, while elasticity dependent, suggest that the impacts of Renminbi (RMB) revaluation on the surplus are proportionally larger than on trade flows, and that changes in trade flows can be substantial. Different treatments of China's processing trade have small impact on changes in China's trade flow under RMB appreciation, but significant impacts on the change in the surplus. Results are elasticity dependent; larger substitution elasticities in preferences yield larger effects on trade flows and the surplus.
    JEL: E5 F3 F43
    Date: 2007–11
  4. By: Fabrizio Carmignani (United Nations Economic Commission for Africa); Abdur Chowdhury (United Nations Economic Commission for Europe)
    Abstract: The effect of financial openness on economic integration for two clusters of countries is estimated: the formerly planned economies of Eastern Europe and central Asia (emerging market economies) and some western advanced economies. We focus on two dimensions of economic integration: convergence of per-capita incomes across countries and trade integration. We employ both single equation estimation and system estimation to account for endogenous links between trade integration and income convergence. Results show that in the cluster of emerging market economies, financial openness is a powerful instrument of economic integration. In the group of advanced economies, financial openness effectively facilitates income convergence, but its impact on trade integration is ambiguous.
    Keywords: financial openness, economic integration, transition economies, east Europe
    JEL: F36 P33
    Date: 2007–06
  5. By: Simone Valente (ETH Zurich, Department of Management, Technology, and Economics)
    Abstract: This paper formalizes international status seeking in a two-country model of endogenous growth: utility of agents in developing countries is affected by consumption gaps with advanced economies. By distorting intertemporal choices, envy tends to revert growth differentials in favor of the developing country when traded goods are substitutes. Notably, asymmetric pref- erences with endogenous status desire generate (i) convergence in growth rates in the presence of structural gaps, and (ii) convergence in income levels, if productivity differences are absorbed by technology diffusion. This process is driven by declining terms of trade and faster capital accumulation of the status seeker. A calibration exercise shows that the model predictions are consistent with the stylized facts that characterized the growth performance of East Asian economies.
    Keywords: Endogenous Growth, International Trade, Consumption Externalities, Productivity Differences, Status Seeking, Technology Diffusion
    JEL: O33 F12 D91
    Date: 2007–10
  6. By: Kyosuke Kurita; Takashi Kurosaki
    Abstract: We propose a new methodological framework to empirically analyze the dynamics of growth, poverty, and inequalitythat incorporates the fact that the entire distribution of a welfare indicator, say, real percapita consumption, changes over time, and that empirical variables for growth, poverty, and inequality are often compiled from the distribution of the welfare indicator. Empirical models derived from this framework are applied to a unique panel dataset of provinces in the Philippines (1985-2003) and Thailand (1988-2004), compiled from microdata on household expenditures. The system GMM estimation results suggest that inequality reduced the subsequent growth rate of percapita consumption in both countries and differences in inequality explain a substantial portion of the Philippine-Thai difference in growth and poverty reduction during the late 1980s and the 1990s.
    Keywords: poverty, inequality, pro-poor growth, convergence, Thailand, the Philippines
    JEL: I32 O15
    Date: 2007–10
  7. By: Soyoung Kim (Department of Economics, Korea University)
    Abstract: This paper develops a new methodology to infer the de facto exchange rate regime, based on a structural VAR model with sign restrictions. The methodology is applied to data from eleven emerging markets that recently experienced a currency crisis. The main findings are: (1) to be consistent with the “Hollow Middle?hypothesis, many countries moved toward hard pegs, such as dollarization and a currency board, or more flexible exchange rate arrangements that are close to the free float in the post-crisis period; and (2) the cases where a country over-states its exchange rate flexibility (including the case of “Fear of Floating? are found in all samples, but such cases tend to be less frequently found in the post-crisis period than in the pre-crisis period.
    Keywords: De Facto Exchange Rate Regime, structural VAR, Fear of Floating, Hollow Middle, Currency Crisis
    JEL: F33 E52 F31 C32
    Date: 2007
  8. By: Justin B. May (Department of Economics, College of William and Mary)
    Abstract: While the demise of many tightly-managed exchange rate regimes has meant that exchange rate volatility has risen for most developing countries in the past few decades, there exists little consensus on the ramifications of that volatility for real sectoral performance. Using production and export data from the Bank of Thailand, this paper measures the effect of real exchange rate volatility on Thai production and export of five key agricultural commodities. I measure volatility as the moving average standard deviation of the daily real value of the baht, the residual of an ARMA(5,4) process of the monthly real value of the baht, the residual of an ARIMA(2,1,3) process of the daily real value of the baht, and as the conditional time variance of the GARCH(2,1) process of the monthly real value of the baht. I then estimate the effects of real currency fluctuations across the agricultural sectors, controlling for both the level of the real exchange rate and foreign incomes. Point estimates of the effect of real exchange rate volatility on the volume of exports are consistently negative and often statistically significant lending support to a range of theoretical models that predict such an effect. Further, I find no significant relationship between production and lagged values of real exchange rate volatility and the control variables, suggesting that volatility is not an important determinant of agricultural supply. These results are robust to the choice of any of the measures of volatility considered here.
    Keywords: Agriculture, Exchange Rate Volatility, Exports, Thailand, Trade
    JEL: F14 O13 O24
    Date: 2007–10–31
  9. By: Pål Boug and Andreas Fagereng (Statistics Norway)
    Abstract: During the last decades Norwegian exporters have ƒ{ despite various forms of exchange rate targeting ƒ{ faced a rather volatile exchange rate which may have influenced their behaviour. Recently, the shift to inflation targeting and a freely floating exchange rate has brought about an even more volatile exchange rate. We examine the causal link between export performance and exchange rate volatility across different monetary policy regimes within the cointegrated VAR framework using the implied conditional variance from a GARCH model as a measure of volatility. Although treating the volatility measure as either a stationary or a non-stationary variable in the VAR, we are not able to find any evidence suggesting that export performance has been significantly affected by exchange rate uncertainty. We find, however, that volatility changes proxied by blip dummies related to the monetary policy change from a fixed to a managed floating exchange rate and the Asian financial crises during the 1990s enter significantly in a dynamic model for export growth ƒ{ in which the level of relative prices and world market demand together with the level of exports constitute a significant cointegration relationship. A forecasting exercise on the dynamic model rejects the hypothesis that increased exchange rate volatility in the wake of inflation targeting in the monetary policy has had a significant impact on export performance.
    Keywords: Exports; exchange rate volatility; GARCH; CVAR; forecasting
    JEL: C51 C52 F14 F17
    Date: 2007–11
  10. By: Myoung-jae Lee (Department of Economics, Korea University); Sang-jun Lee
    Abstract: The main difficulty in treatment effect analysis with matching is accounting for unobserved differences (i.e., selection problem) between the treatment and control groups, because matching assumes no such differences. The traditional way to tackle the difficulty has been ¡®control function¡¯ approaches with selection correction terms. This paper examines relatively new approaches: sensitivity analyses?sensitivity to unobservables?in Rosenbaum (1987), Gastwirth et al. (1998), and Lee (2004). These sensitivity analyses are applied to the data used in Lee and Lee (2005) to see how the assumption of no unobserved difference in matching affects the findings in Lee and Lee, to compare how the different sensitivity analyses perform, and to relate the ¡®sensitivity parameters¡¯ in the different sensitivity analyses to one another. We find (i) the conclusions in Lee and Lee are weakened in the sense that only the ¡®strong¡¯ ones survive, (ii) the sensitivity analysis in Rosenbaum (1987) is too conservative (and inferior to Gastwirth et al.¡¯s), and (iii) Gastwirth et al.¡¯s (1998) and Lee¡¯s (2004) approaches agree on some findings to be insensitive, but the two approaches also disagree on some other findings. We also look for ¡®comparable values¡¯ for the sensitivity parameters such that the resulting sensitivity findings are comparable across the different sensitivity analyses.
    Keywords: matching, sample selection, sensitivity analysis, job training
    Date: 2007
  11. By: Christopher L. Gilbert; Francesca Modena
    Abstract: Textbook discussions of discrete choice modelling focus on binomial and multinomial choice models in which agents select a single response. We consider the situation of non-exclusive multinomial choice. The widely used Marginal Logit Model imposes independence and has other disadvantages. We propose two models which account for non-exclusive and dependent multiple responses and require at least one response. In the first and simpler specification, the Poisson-multinomial, households first choose the number of responses to a specific shock, and then the specific choices are identified to maximize household utility conditional on the former choice. The second specification, the threshold-multinomial, generalizes the standard multinomial logit model by supposing that agents will choose more than one response if the utility they derive from other choices is “close” to that of the utility-maximizing choice. We apply these two approaches to reported responses of rural Indonesian rural households to demographic and economic shocks.
    Keywords: Discrete choice models, Marginal logit, Shocks, Risk coping strategies
    JEL: C25 C51 O12
    Date: 2007
  12. By: Sungbae An (Singapore Management University); Yongsung Chang (University of Rochester and Seoul National University); Sun-Bin Kim (Department of Economics, Korea University)
    Abstract: Accounting for observed uctuations in aggregate employment, consumption, and real wage using optimality conditions of a representative household often requires preferences that are incompatible with economic priors (e.g., Mankiw, Rotemberg, and Summers, 1985). This discrepancy between the equilibrium model and the aggregate data is often viewed as evidence of the failure of labor-market clearing. We argue that such a conclusion is premature. We construct a model economy where all prices are exible and all markets clear at all times but household decisions are not readily aggregated because of incomplete capital markets and the indivisible nature of labor supply. We demonstrate that if we were to explain the model-generated aggregate time series using decisions of a "fictitious" stand-in household, such a household is likely to have a non-concave or unstable utility. Our analysis suggests that the representative agent model often fails to represent an equilibrium outcome of a heterogeneous agent economy.
    Keywords: Representative agent model, Aggregation, Heterogeneity, Incomplete Markets, Indivisible Labor, GMM Estimation
    JEL: E24 E32 J21 J22
    Date: 2007
  13. By: Isaac Ehrlich (State University of New York at Buffalo and NBER); Jinyoung Kim (Department of Economics, Korea University)
    Abstract: Using an endogenous-growth, overlapping-generations framework where human capital is the engine of growth, we derive propositions concerning the evolution of income and fertility distributions and their interdependencies over three phases of economic development. In our model, heterogeneous families determine fertility and children’s human capital, and generations are linked through intra-family and inter-family interactions. Through simulations and regression analyses we test key implications concerning the dynamic behavior of inequalities in fertility, educational attainments, and three income inequality measures -- family-income inequality, income-group inequality, and the Gini coefficient. In this context, we also reexamine the “Kuznets hypothesis?concerning the relation between income growth and inequality.
    Keywords: income inequality, human capital, fertility, schooling, family, endogenous growth
    JEL: D1 D3 J1 J2
    Date: 2007
  14. By: Jinyoung Kim (Department of Economics, Korea University)
    Abstract: This paper proposes an endogenous growth model where human capital is the engine of growth and can be transferred across countries via costly foreign education. Importing advanced knowledge by students abroad can improve a developing country¡¯s chance of catching up with a developed host country. An excessively wide difference in knowledge level between the two countries, however, can hamper the chance of catching-up because few students can afford foreign education. Taking these two counteracting forces into account, our model predicts that the relationship between income growth in a developing country and income gap will assume the form of an inverted-U schedule. The model also produces an endogenous threshold level of income gap which separates catching-up and falling-behind. We test the model¡¯s propositions and estimate the threshold using international panel data, which lends support to our theory.
    Keywords: Catch-up, Convergence, Divergence, Human capital, Foreign education
    JEL: O40 I20
    Date: 2007
  15. By: MAN-SEOP PARK (Department of Economics, Korea University)
    Abstract: This paper surveys the research trends and activities abroad and in Korea since 1980s in the area of '(Non-Marxian) non-mainstream economics', mainly classified into Sraffian Economics and Post-Keynesian Economics. Research in Sraffian Economics is examined under the topics of long-period effective demand, technical change, monetary distribution and other; and Post-Keynesian Economics under the topics of endogenous money, administered prices, Kaleckian growth and distribution models, stock-flow consistent models, Keyne's philosophy and others.
    Keywords: Non-mainstream economics, Sraffian economics, Post-Keynesian economics
    Date: 2007

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