nep-sea New Economics Papers
on South East Asia
Issue of 2008‒06‒21
twelve papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Linking South Asia with East Asia: Trends, Potential, and Policies By Pradumna B. Rana
  2. The Effect of Exchange Rate Volatility on International Trade: The Implication for Production Networks in East Asia By Hayakawa, Kazunobu; Kimura, Fukunari
  3. Unobservable Shocks as Carriers of Contagion: A Dynamic Analysis Using Identified Structural GARCH By Mardi Dungey; George Milunovich; Susan Thorp
  4. Political Economy Origins of Financial Markets in Europe and Asia By Svetlana Andrianova; Panicaos Demetriades; Chenggang Xu
  5. The evolution of trading activity in Asian foreign exchange markets By Yosuke Tsuyuguchi; Philip D Wooldridge
  6. Aid Effectiveness Revisited: Comparative Studies of Modalities of Aid to Asia and Africa By Hiroyuki Hino; Atsushi Iimi
  7. Development of Border Economic Zones in Thailand: Expansion of Border Trade and Formation of Border Economic Zones By Tsuneishi, Takao
  8. Monetary Systems in Developing Countries: An Unorthodox View By Cordeiro, Jose Luis
  9. Financing Small and Medium Enterprises in Myanmar By Aung Kyaw
  10. Portrait of an Odd-Eyed Cat: Cultural Crossing as a Trademark for a Dutch-Thai Strategic Alliance By Kwanjai, Nantawan Noi; Hertog, J. Friso den
  11. Heterogeneous Agents, Human Capital Formation and International Income Inequality By Haris Munandar
  12. Regulating Money Laundering and Tax Havens: The Role of Blacklisting By Brigitte Unger; Joras Ferweda

  1. By: Pradumna B. Rana (Division of Economics, Nanyang Technological University, Singapore)
    Abstract: Recently, there has been growing interest in the evolving economic relationships between South Asia and East Asia. What could be the implications of the re-emergence of the two giant economies or hegemons – India and China - on the region and globally? Could these relationships be the second phase of Pan-Asian integration? Will Asia be as well-integrated as it was during the pre-colonial period? This paper finds that the level of economic integration between South Asia and East Asia, although increasing since 1990, started to surge after 2000, albeit from a low base, mainly because of growing interdependence between India and China. The level of integration is, however, low in relative terms. By calculating the usual indices, the paper finds that, although there are overlaps, there are also significant amounts of complementarities between the two regions on goods and service trade. The level of economic integration between the two regions is, therefore, bound to increase. The paper concludes by identifying a set of measures to enhance policy-led integration between the two regions including those seeking to reduce transportation costs.
    Date: 2008–04
  2. By: Hayakawa, Kazunobu; Kimura, Fukunari
    Abstract: This paper is an empirical investigation of the relationship between exchange rate volatility and international trade, focusing on East Asia. It finds that intra-East Asian trade is discouraged by exchange rate volatility more seriously than trade in other regions because intermediate goods trade in production networks, which is quite sensitive to exchange rate volatility compared with other types of trade, occupies a significant fraction of trade. In addition, this negative effect of volatility is mainly induced by the unanticipated volatility and has an even greater impact than that of tariffs.
    Keywords: Exchange rate volatility, Trade, East Asia, International trade, Foreign exchange
    JEL: F10 F31 N75
    Date: 2008–05
  3. By: Mardi Dungey (Univeristy of Cambridge); George Milunovich (Macquarie University); Susan Thorp (University of Technology, Sydney)
    Abstract: Markets in financial crisis may experience heightened sensitivity to news from abroad and they may also spread turbulence into foreign markets, creating contagion. We use a structural GARCH model to separate and measure these two parts of crisis transmission. Unobservable structural shocks are named and linked to source markets using variance decompositions, allowing clearer interpretation of impulse response functions. Applying this method to data from the Asian crisis, we find signifcant contagion from Hong Kong to nearby markets but little heightened sensitivity. Impulse response functions for an equally-weighted equity portfolio show the increasing dominance of Korean and Hong Kong shocks during the crisis, whereas Indonesia\'s infuence shrinks.
    Keywords: Contagion, Structural GARCH
    JEL: F37 C51
    Date: 2008–02–25
  4. By: Svetlana Andrianova (University of Leicester); Panicaos Demetriades (University of Leicester); Chenggang Xu (London School of Economics)
    Abstract: This paper contributes to the finance-growth literature by examining the political economy origins of some of the most successful financial markets in Europe and Asia. It provides historical evidence from London, Amsterdam and Hong Kong that highlights the essential role played by the government sector in kick-starting financial development. We show that the emergence of financial systems did not occur through laissez-faire approaches and that secure property rights alone were not sufficient for financial development. In the cases of London and Amsterdam, governments created large trade monopolies which were responsible for all the major financial innovations of the time. In the case of Hong Kong, where the financial developmentmodel was bank-based, large banking monopolies with close links to the state were created. We argue that the three examples are not special cases and the role of government in the early stages of financial development has been widespread world-wide.
    Keywords: Monopoly, politics, institutions, finance
    JEL: G18 N20 O16
    Date: 2008–01
  5. By: Yosuke Tsuyuguchi; Philip D Wooldridge
    Abstract: The development of Asian foreign exchange markets has progressed appreciably in recent years. Data from the BIS Triennial Central Bank Survey indicate that the turnover of Asian currencies rose sharply between 2004 and 2007, financial institutions became more important customers, and the participation of non-residents increased. Notwithstanding this progress, the liquidity of Asian foreign exchange markets continues to be undermined by foreign exchange controls. For Asian currencies other than HKD and SGD, non-residents account for a relatively small share of activity and FX swap markets are still in their infancy. Offshore non-deliverable markets have developed in response to controls, causing trading activity to fragment. Furthermore, Herstatt risk remains high in Asian foreign exchange markets. Almost all transactions between Asian currencies are executed via the US dollar so, for those trades not cleared through CLS Bank, each leg is settled at significantly different times.
    Keywords: foreign exchange, trading volume, currency controls
    Date: 2008–05
  6. By: Hiroyuki Hino (Research Institute for Economics & Business Administration, Kobe University); Atsushi Iimi (The World Bank)
    Abstract: This paper provides a variety of evidence that shows that in Asia, aid leveraged private investment in the long run, while in Africa the correlation between aid and domestic investment was at best ambiguous. Aid in Africa was diametrically opposite to that of Asia in terms of the amounts the countries received, the sector compositions, the size of individual projects, and the intensity of donor involvement. The sharp contrast in aid effectiveness between Asia and Africa could be attributed at least in part to those differences in the modality of aid delivery. Based on the above analysis, the paper concludes with a few suggestions that could link aid more closely to private investment, and avoid pitfalls that Africa experienced.
    Keywords: official development assistance, aid effectiveness, foreign direct investment, East Asia, Sub-Saharan Africa
    JEL: O19 O20
    Date: 2008–03
  7. By: Tsuneishi, Takao
    Abstract: In the wake of economic globalization and development in Thailand, movement of people and commodities at the Thai borders is also becoming pronounced. Economic interdependence between Thailand and neighboring countries is growing through border customhouses. As a policy, Thailand is trying to stimulate trade and investment with neighboring countries following the ACMECS (Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy) scheme. In this report, first, movement of people and goods at the borders will be examined. Second, clarification of where and how development is proceeding will be presented. Last, this study will attempt to review the perspectives of policies on neighboring countries after Thaksin.
    Keywords: Migrant worker, Border trade, Border economic zone, ACMECS (Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy), Contract farming, CBTA (Cross Border Transport Agreement), Economic corridor, Thailand, International economic relations, International trade, Migrant labor
    JEL: O53 R11
    Date: 2008–05
  8. By: Cordeiro, Jose Luis
    Abstract: This paper analyzes some recent theoretical and practical evidence in terms of economic results of different exchange rate systems. It begins with a historical review and a summary of fixed versus flexible exchange rate systems. Then it compares the experiences of recent currency unions, mostly unilateral, and their relative economic performance during the past currency crises in Latin America, East Asia and Eastern Europe. A set of issues is discussed in order to weigh the overall costs and benefits for several economies. These issues include exchange rates, GDP performance, inflation rates and foreign reserves. The case of Argentina is also considered separately, comparing mostly seigniorage costs and interest-rate savings. The benefits and costs of the producers (central banks/governments) and the consumers (citizens) of money are discussed separately. Free banking is also considered in a fast-changing world where there will probably be fewer but better currencies. Not just the euro is a reality now, but maybe the "amero" and the "worldo" or the "mondo" very soon.
    Keywords: Exchange rates, Monetary policy, Monetary union, Dollarization, Euroization, Developing countries, Foreign exchange, Finance, International finance, Money
    JEL: E42 E52 F02 F30
    Date: 2008–05
  9. By: Aung Kyaw
    Abstract: Small and medium enterprises (SMEs) share the biggest part in Myanmar economy in terms of number, contribution to employment, output, and investment. Myanmar economic growth is thus totally dependent on the development of SMEs in the private sector. Today, the role of SMEs has become more vital in strengthening national competitive advantage and the speedy economic integration into the ASEAN region. However, studies show that SMEs have to deal with a number of constraints that hinder their development potential, such as the shortage in power supply, unavailability of long-term credit from external sources and many others. Among them, the financing problem of SMEs is one of the biggest constraints. Such is deeply rooted in demand and supply issues, macroeconomic fundamentals, and lending infrastructure of the country. The government’s policy towards SMEs could also lead to insufficient support for the SMEs. Thus, focusing on SMEs and private sector development as a viable strategy for industrialization and economic development of the country is a fundamental requirement for SME development. This paper recommends policies for stabilizing macro economic fundamentals, improving lending infrastructures of the country and improving demand- and supply-side conditions from the SMEs financing perspective in order to provide a more accessible financing for SMEs and to contribute in the overall development of SMEs in Myanmar thereby to sharpen national competitive advantage in the age of speedy economic integration.
    Keywords: Small and medium enterprise (SME), Small and medium-scale enterprises, Financing, Competitiveness, Myanmar, Japan, ASEAN, Southeast Asia, Finance
    JEL: G23 G28
    Date: 2008–04
  10. By: Kwanjai, Nantawan Noi (UNU-MERIT); Hertog, J. Friso den (UNU-MERIT, University of Maastricht)
    Abstract: This chapter attempts a step forward in seeking a richer understanding of the dynamics of strategic alliances, specifically when viewed from a cross-cultural perspective. We report selected materials from a study designed to build a theory of culture and learning in organizations based on observations of and open-ended interviews with Dutch and Thai employees working for four selected Dutch firms in Thailand. Here we present one of those cases, a Dutch-Thai joint venture that thrived by weaving together the many intricate cultural webs to achieve a unique pattern of partnership which, metaphorically speaking, became its indispensible trademark. The case illustrates how the three levels of culture – national, organizational, and professional cultures – could all interlace in a real world setting and serve as an instrumental force of success amidst tension in one particular cross-border strategic alliance. First, we adopt a thick descriptive style of case narration to present the case of a Dutch- Thai joint venture, Chuchawal-De Weger Internationaal (CDW), painting a portrait of its origin, evolution and characteristics. Next, we turn to elaborate on the particular issue of cultural crossing, its exact theorized properties, dimensions and implications. Finally, we relate the case of CDW to the proposed theory and conclude with a reflection on how this case and our interpretation of it illuminate the complex role culture can play in the dynamics of strategic alliances.
    Keywords: cross-cultural management, culture, qualitative case study, strategic alliance, thick-description
    JEL: F23 L24 Z13
    Date: 2008
  11. By: Haris Munandar (Bureau of Economic Research, Bank of Indonesia, Jakarta)
    Abstract: The paper examines the effect of heterogeneity in individual human capital formation on cross-country income inequality. It considers a two-country model of overlapping generation heterogeneous economies with the following features: (1) individuals are heterogeneous with respect to inborn ability and parental human capital; (2) intergenerational transfers take place via public investment in education financed by tax, and parental education; (3) due to variation in individual human capital, we have endogenous heterogeneity both in labor supply and in parents’ participation in self-educating their offspring. Besides exploring cross-country variation in public education, how its low level can lead to a poverty trap and how its high level can result in an increasing society’s effective human capital, we study the effects of capital markets integration, in equilibrium, on the intra-generational income inequality in both the investing and receiving countries.
    Keywords: Heterogenous Agents; Human Capital; Poverty Efrap; Income Inequality
    JEL: D91 E25 H52
    Date: 2008–02–01
  12. By: Brigitte Unger; Joras Ferweda
    Abstract: Since ten years, and more so, since September 11, 2001, international organizations such as the IMF, OECD and EU try to combat harmful tax competition, money laundering and terrorist financing. Blacklisting, the naming and shaming of uncooperative countries, was one of the strategies used from the very beginning of this new policy area. An analysis of the black listed countries over time shows, that the black lists got shorter and shorter over time. In 2006, Myanmar was the only country listed for money laundering, until it was finally also removed from the list. The paper wants to explore a) the reasons for removing large countries and especially EU countries from the list b) the wanted and unwanted effects blacklisting had for the named and shamed countries and discusses c) whether this necessarily means the end of blacklisting. We want to show d) a new way of greylisting which might be more compatible with the international diplomatic requirements. We developed a new indicator for rating countries with regard to cooperative behavior for tackling money laundering, which might also allow for benchmarking, a concept probably more accepted within the EU than blacklisting.
    Keywords: Money Laundering, Tax Havens, Blacklisting, Naming and Shaming
    Date: 2008–05

This nep-sea issue is ©2008 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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