nep-sea New Economics Papers
on South East Asia
Issue of 2008‒01‒05
fifteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Foreign Direct Investment, Intra-Regional Trade and Production Sharing in East Asia By Nathalie AMINIAN; K. C. FUNG; IIZAKA Hitomi
  2. Financing Policies and Firm Vulnerability in Indonesia By Prasetyantoko, Agustinus
  3. Financial integration in East Asia By Hiroshi Fujiki; Akiko Terada-Hagiwara
  4. Contribution of Trade Openness to Growth in East Asia: A Panel Data Approach By Rao, B. Bhaskara; Singh, Rup
  5. Detecting Shift and Pure Contagion in East Asian Equity Markets: A Unified Approach By Thomas J. Flavin and Ekaterini Panopoulou
  6. Foreign Ownership and Firm Financing Constraint in Indonesia By Agustinus, Prasetyantoko
  7. The behavior of stock returns in the Asia-Pacific mining industry following the Iraq war By Viviana Fernández
  8. Debt Composition and Balance Sheet Effect of Currency Crisis in Indonesia By Agustinus, Prasetyantoko
  9. CURRY CUISINE: PERCEPTIONS OF INDIAN RESTAURANTS IN MALAYSIA By Bharath , Josiam; Sadiq , Sohail; Prema , Monteiro
  10. Corporate Responses to Currency Depreciations: Evidence from Indonesia By Agustinus, Prasetyantoko
  11. Aging and Death under a Dollar a Day By Abhijit V. Banerjee; Esther Duflo
  12. The Business of Social Responsibility: Evidence from the Garment Industry in Northeast Thailand By Steven Lim; Michael P. Cameron
  13. The Single Global Currency - Common Cents for the World (2007 Edition) By Bonpasse, Morrison
  14. Disentangling from Sterling: Malaysia and the end of the Bretton Woods system 1965-72 By Catherine R Schenk
  15. Capital controls: myth and reality, a portfolio balance approach to capital controls By Nicolas E. Magud; Carmen Reinhart; Kenneth Rogoff

  1. By: Nathalie AMINIAN; K. C. FUNG; IIZAKA Hitomi
    Abstract: The aim of this paper is twofold. First, it examines the trend and nature of East Asian trade. The United Nations BEC classification is utilized to categorize total trade into trade in semi-finished goods, trade in components and parts, trade in capital goods as well as trade in final consumption goods. It shows that the increasing importance of East Asia as a trading region is due at least partially to the rising trade in components and parts. Next, it tries to find out if foreign direct investment plays a role in the import and export behavior of East Asian intra-regional trade. Using a gravity model, it evidences that in general FDI is important in explaining imports and exports of intra-East Asian trade. In particular, FDI is especially important in explaining trade in components and parts, followed by trade in capital goods. This helps confirm that FDI and trade associated with production fragmentation in East Asia are complementary.
    Date: 2007–12
  2. By: Prasetyantoko, Agustinus
    Abstract: This paper argues that financing policies of the firms are central in propagating financial crisis. Studies on the linkage between macro-fragility and micro-vulnerability around financial debacle are common, especially after East-Asian and Mexican crisis in the 1990s. By focusing on the case of Indonesia, this paper investigates the relationship between the financing choice of the firms and their vulnerability in the mid of macro economic fluctuation. First step is to examine the impacts of macro variables on capital structure. Second is to investigate the impact of capital structure and firm performance. Accordingly, this paper takes into account the impact of macroeconomic fluctuation on firm healthiness where capital structure choices play pivotal role in the mechanism.
    Keywords: capital structure; financial crisis; firm vulnerability; firm performance
    JEL: D21 G32 F31
    Date: 2008
  3. By: Hiroshi Fujiki; Akiko Terada-Hagiwara
    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 in Euro area economies. Third, the degrees of smoothing of idiosyncratic shock by cross-holding of financial assets are lower than Euro area economies. Those results suggest two policy implications. First, there's some room for improvement in welfare gains in those economies by further risk sharing. Second, holding all other conditions given, 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.
    Date: 2007
  4. By: Rao, B. Bhaskara; Singh, Rup
    Abstract: Panel data time series methods are used to estimate the contribution of trade openness to total factor productivity (TFP) of East Asia. Panel cointegration tests showed that there is a long run relation between output, trade ratio and capital. Growth accounting exercise showed that openness of trade contributed significantly to TFP.
    Keywords: Pedroni unit root and cointegration tests; Trade Openness; East Asia and Growth Accounting;
    JEL: O5 O4 O3
    Date: 2007–12
  5. By: Thomas J. Flavin and Ekaterini Panopoulou
    Abstract: We test for contagion between pairs of East Asian equity markets over the period 1990-2007. We develop an econometric methodology that allows us to test for both ‘shift’ and ‘pure’ contagion within a unified framework. Using both Hong Kong and Thailand as potential shock sources, we find strong evidence of both types of contagion. Therefore during episodes of high-volatility, equity returns are influenced by changes in the transmission of common shocks and additionally by the diffusion of idiosyncratic shocks through linkages which do not exist during normal times.
    Date: 2007–12–10
  6. By: Agustinus, Prasetyantoko
    Abstract: This paper reveals why foreign ownership participation matters in the sensitivity relationship between investment and the internal liquidity of listed companies in Indonesia. This paper finds that foreign-owned enterprises are less financially constrained than domestic-owned ones, especially in terms of short-term investment following a financial crisis. Empirical evidence is provided by dividing 157 firms listed on the Jakarta Stock Exchange for at least five consecutive years between 1994 and 2004 into foreign-owned enterprises, and comparing their financing constraints and performance before and after the financial crisis during that period. The results also demonstrated that post-crisis foreign-owned enterprises performed better with higher sales, greater market opportunity and less leverage, leading to lower financing constraint. Subsequently, foreign-owned enterprises have a better capacity to invest more than local-owned ones.
    Keywords: ownership structure; financing constraint; firm investment; crisis
    JEL: L25 F23 G32
    Date: 2007
  7. By: Viviana Fernández
    Abstract: In this article, we pursue to determine which mining firms have seen their stock returns become more sensitive to fluctuations in energy prices, over a time period predominated by the political turmoil caused by 9/11 and the subsequent invasion of Iraq. By resorting to wavelets and spatial statistics, we characterize the behavior of volatility and the degree of co-movement of the stock returns of ten leading mining firms operating in the Asia-Pacific region: Alcan Inc., Antofagasta, Barrick Gold Corp., BHP Billiton, International Nickel Ind., Peabody Energy, Phelps Dodge Corp, Rio Tinto plc., Teca Cominco Ltd., and Yanzhou Coal Mining Co.
    Date: 2007
  8. By: Agustinus, Prasetyantoko
    Abstract: This paper is concerned with the role of debt composition on the firm-level investment by raising a main question: whether firms with high foreign currency or short maturity debts have less investment following a financial crisis. This paper finds that firms with more dollar debt have significantly less investment due to exchange rate depreciations. Accordingly, the balance sheet effects of exchange rate devaluations undermine the competitiveness of listed firms in Indonesia, so that the effects of crisis have been exacerbated and prolonged through corporate balance sheet channel. Firms with higher foreign asset would have less dollar debt, which may be due to their export activities. Another important finding is that firms with majority foreign ownership have less dollar debt. This paper uses 179 listed companies in Jakarta Stock Exchange, with at least 5 consecutive years during 1994 – 2004 as samples of study, and a dynamic panel data or GMM analysis is employed.
    Keywords: maturity mismatch; firm investment; balance sheet effect; financial crisis
    JEL: E32 G32 D92
    Date: 2007
  9. By: Bharath , Josiam; Sadiq , Sohail; Prema , Monteiro
    Abstract: Malaysia is an Asian country with a multi-ethnic population that includes native Malays, and people of Chinese and Indian ethnicity. Malaysia has identified tourism as a priority sector and is aggressively promoting the country. Consequently, restaurants in Malaysia operate with an increasingly more ethnically diverse customer base. Ethnic restaurants and differential perceptions of customers of varying ethnic backgrounds have not been studied in detail. This study examines the perceptions of South Asians, Caucasians, East Asians, and those of other ethnic origins in their perceptions of Indian restaurants in Malaysia. The findings suggest that there are universal likes/dislikes as well as differential perceptions between ethnic groups. Implications for restaurant operators and researchers are suggested.
    Keywords: ethnic marketing, Indian restaurants, spicy food, customer perceptions, Malaysia
    JEL: M0 M3 M1 L83
    Date: 2007–11
  10. By: Agustinus, Prasetyantoko
    Abstract: This paper examines the impact of macro fluctuation on firm’s balance sheet to understand firm’s net worth as well as the corporate distress probability. We argue that debt policies could be pro-cyclical, since it enhances corporate distress risk when currency depreciation comes.
    Keywords: currency depreciation; firm performance; debt ratio
    JEL: D21 F34 G32
    Date: 2007
  11. By: Abhijit V. Banerjee; Esther Duflo
    Abstract: This paper uses household survey data form several developing countries to investigate whether the poor (defined as those living under $1 or $2 dollars a day at PPP) and the non poor have different mortality rates in old age. We construct a proxy measure of longevity, which is the probability that an adult's mother and father are alive. The non-poor's mothers are more likely to be alive than the poor's mothers. Using panel data set for Indonesia and Vietnam, we also find that older adults are significantly more likely to have died five years later if they are poor. The direction of causality is unclear: the poor may be poor because they are sick (and thus more likely to die), or they could die because they are poor.
    JEL: I12 I32 O12 O15
    Date: 2007–12
  12. By: Steven Lim (University of Waikato); Michael P. Cameron (University of Waikato)
    Abstract: Many business managers demonstrate a reluctance to engage fully with corporate social responsibility (CSR). They often perceive CSR as a cost and their CSR activities tend to be piecemeal and defensive. Such suboptimal outcomes can stem from a failure to appreciate a firm’s social assets. We suggest that firms have the potential to engage much more fully with CSR, in a manner that is consistent with a profit-maximizing approach to business. But managers need help in both gaining an awareness of the social contributions that they can make and in navigating their way through CSR issues. To this end, we outline a program of four-Ds, namely dialogue, data, design and delivery, to assist managers integrate CSR issues into their overall business strategies. Our case study of the garment industry in Thailand illustrates how CSR issues can be leveraged to increase worker productivity and deliver positive social and community health outcomes, despite operating in an area that is often subject to criticism.
    Keywords: corporate social responsibility; social contracts; rural development; Thailand
    JEL: I18 I38 L31 M14
    Date: 2007–12–21
  13. By: Bonpasse, Morrison
    Abstract: This is the 2007 Edition of the only book in print in the world about the Single Global Currency, and is the only book in the world priced in 143 currencies (down from 147 in the 2006 edition.).This number is significant, as it's the number of currencies required among the 192 U.N. members to conduct local business, including the payment of taxes. The book describes the origins of the current worldwide foreign exchange system, and tells how to change it; and save the world - trillions. The multicurrency foreign exchange trading system was developed about 2,500 years ago to enable people of different currency areas to trade. That system has become far more sophisticated in the meantime and handles $3.2 trillion per day; but it is very expensive and risky. It is now time to replace that system with a single global currency. In a 3-G world with a Single Global Currency managed by a Global Central Bank within a Global Monetary Union: - Annual transaction costs of $400 billion will be eliminated. - Worldwide asset values will increase by about $36 trillion. - Worldwide GDP will increase by about $9 trillion. - Global currency imbalances will be eliminated. - All Balance of Payments problems will be eliminated. - Currency crises will be prevented. - Currency speculation will be eliminated. - The need for foreign exchange reserves, with a current annual opportunity cost of approximately $470 billion, will be eliminated. - Worldwide interest rates will be lower than the current average due to the elimination of currency risk. Such gains are realistic and attainable if the world decides to pursue them. The monetary unions of Europe, the Caribbean, Africa and Brunei/Singapore have shown the way. What the people of the world want is sound, stable money and the end to the obsolete multicurrency foreign exchange system. A Single Global Currency is no longer a utopian dream, but a realistic projection of what has been learned from current monetary unions, especially the euro. Each successive annual edition of this book will be priced in the remaining number of currencies until we reach, in the words of Nobel Prize winner, Robert Mundell, that odd number, preferably less than three: one The world needs to set the goal of a Single Global Currency, to be managed by a Global Central Bank, within a Global Monetary Union, and begin planning - now.
    Keywords: single global currency; money; currency; monetary union; currency union; global monetary union; global central bank; global imbalances; current account; balance of payments; transaction charges; transaction costs; foreign exchange derivatives; foreign exchange; foreign exchange reserves; monetary reserves; gold; international monetary fund; SDR; special drawing rights; optimal currency area; OCA; Robert Mundell; John Stuart Mill; dollar; U.S. Dollar; USD; European Monetary Union; euro; European Central Bank; Single Global Currency Association; Bretton Woods; John Maynard Keynes; bancor; DEY; Geo; globo; eartha; dollarization; euroization; exchange rate; exchange rate regime; peg; float; James Tobin; currency crisis; International Monetary Fund; World Bank; Eastern Caribbean Monetary Union; West African Monetary Union; Central African Monetary Union; accession countries; Maastricht criteria; Maastricht Treaty;
    JEL: F0 F33 F32 F5 F2 F3 E5 F53 F31 F36
    Date: 2007–01–01
  14. By: Catherine R Schenk (University of Glasgow)
    Abstract: A decade after independence, the Malaysian government and central bank were faced with a series of challenges that forced them to develop an independent policy, leading to the end of the historic role of sterling in their international monetary regime. Like some economies today that are faced with accumulated reserves largely comprised of a depreciating currency (now the US$), Malaysia had to disentangle itself from sterling at a time when there were no clear alternatives since gold was scarce, the US$ was weak and Germany, Switzerland and Japan resisted the use of their currencies as national reserves. This paper uses new archival evidence to show that external obstacles as well as some misjudgement meant that this was only achieved in June 1972, 15 years after Merdeka. This process also reveals new evidence about the post-colonial relations between Malaysia and Britain and sheds new light on the neo-colonial interpretation of the first decade of independence.
    Date: 2007–12
  15. By: Nicolas E. Magud; Carmen Reinhart; Kenneth Rogoff
    Abstract: The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a "success" and (iv) the empirical studies lack a common methodology--furthermore these are significantly "overweighted" by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings by: being very explicit about what measures are construed as capital controls. Also, given that success is measured so differently across studies, we sought to "standardize" the results of over 30 empirical studies we summarize in this paper. The standardization was done by constructing two indices of capital controls: Capital Controls Effectiveness Index (CCE Index), and Weighted Capital Control Effectiveness Index (WCCE Index). The difference between them lies in that the WCCE controls for the differentiated degree of methodological rigor applied to draw conclusions in each of the considered papers. Inasmuch as possible, we bring to bear the experiences of less well known episodes than those of Chile and Malaysia. Then, using a portfolio balance approach we model the effects of imposing short-term capital controls. We find that there should exist country-specific characteristics for capital controls to be effective. From these simple perspective, this rationalizes why some capital controls were effective and some were not. We also show that the equivalence in effects of price- vs. quantity-capital control are conditional on the level of short-term capital flows.
    Date: 2007

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