nep-sea New Economics Papers
on South East Asia
Issue of 2008‒07‒20
eleven papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Too Much for Self-Insurance? Asian Foreign Reserves By Yuko Hashimoto
  2. Trends and Drivers of Bilateral FDI Flows in Developing Asia By Rabin Hattari; Ramkishen S. Rajan
  3. Population Pressures and Land Use Changes in Southeast Asian Countries: Recent Evidences By Dhas, Albert Christopher
  4. Hoarding of International Reserves: A Comparison of the Asian and Latin American Experiences By Yin-wong Cheung; Hiro Ito
  5. Environmental Factors Affecting Hong Kong Banking: A Post-Asian Financial Crisis Efficiency Analysis By Maximilian J. B. Hall; Karligash A. Kenjegalieva; Richard Simper
  6. Input Substitution, Export Pricing, and Exchange Rate Policy By Kang Shi; Juanyi Xu
  7. The EU and Asia: World Trade Liberalisation and the Evolution of Agricultural Product Flows By M. Bruna Zolin
  8. The External Wealth of China: An Investigation from the International Balance Sheet Perspective By Andrew Sheng; Allen Ng
  9. Moral Behavior in Stock Markets: Islamic finance and socially responsible investment By Pitluck, Aaron Z.
  10. Dense Communication and R&D in Knowledge-based Industrial Clusters: Comparative Study of Small & Medium-sized Firms in Korea and China By Nobuaki Hamaguchi; Yoshihiro Kameyama

  1. By: Yuko Hashimoto (Toyo University, International Monetary Fund, Hong Kong Institute for Monetary Research)
    Abstract: This paper attempts to identify whether the recent foreign reserve accumulation in Asian economies has been too extraordinary to recover the moderate level of reserves which depleted at the time of the currency crisis in 1997-1998. First of all, the level of reserves numerated by various economic fundamentals such as broad money, imports and short-term external debt in Asian economies was examined in order to judge whether the level was high enough to weather speculative pressures at the onset of the crisis in 1997. The analysis is based on a Brownian motion model with an absorbing barrier. Although most Asian economies appeared to have larger reserves (reserve indicators) than the estimated threshold at the time of the crisis of 1997, reserves in terms of short-term external debt were apparently not sufficient to avoid speculative attacks. Then, based on the estimated threshold of reserve indicators, the likelihood of a 25% devaluation within three months ahead is calculated. Probabilities of currency devaluation vary from time to time, among countries, and among reserve indicators. The devaluation likelihood was modest in the mid 1990s, but then it showed a big jump in 1997 in Indonesia, Thailand, Korea, and Philippines.
    Keywords: foreign reserves, accumulation, Asia, threshold, currency crisis
    Date: 2008–06
  2. By: Rabin Hattari (George Mason University); Ramkishen S. Rajan (George Mason University, Hong Kong Institute for Monetary Research)
    Abstract: Developing countries are rapidly emerging as new and important sources of foreign direct investment (FDI) to other developing countries. While Asian companies have become significant foreign direct investors abroad, a large share of outward investments from Asia appears to have been recycled intraregionally. However, unlike trade flows, there has been little to no detailed examination of FDI flows between Asian economies at a bilateral level. This paper uses bilateral FDI flows data to investigate trends and patterns of intra-Asian FDI flows over the period 1990 to 2005. It also employs an augmented gravity model framework to examine the main determinants of intra-Asian FDI flows. A range of drivers of FDI flows, including transactional and informational distance (proxied by distance), real sector variables, financial variables and institutional quality are examined.
    Keywords: Developing Asia, Distance, Foreign direct investment (FDI), Institutions, Intra-regional, Gravity model
    JEL: F21 F23 F36
    Date: 2008–11
  3. By: Dhas, Albert Christopher
    Abstract: This paper is concerned with the consequences of population growth and its increasing density on land use pattern and its changes. For this purpose, the empirical evidences are drawn from FAO statistics with reference to Southeast Asian Countries. The paper attempted to provide both a regional and comparative perspective in understanding the relationship between population growth and land use changes. The study observed a steady growth in the human population during the last three decades, though the growth rate has declined during the nineties. The unequal distribution of population in terms of its size and growth was observed among the Southeast Asian Countries. The analysis indicated changes in land use pattern towards ‘arable and permanent cropland’ and ‘land not available for cultivation’. However, such a trend varied across Southeast Asian Countries significantly. The effect of population pressure on land use changes are examined both in a broad and narrow sense, which indicated growing population pressure on land, particularly on agricultural land resulting extensification. It is observed that extensification is made possible by shifting land from forest and pastureland, and also by shifting from ‘land not available for cultivation. The variations in the effect of population pressure on land use changes are observed across Southeast Asian countries.
    Keywords: Population; population pressure; Land use Changes; Southeast Asian Countries
    JEL: O57 J0 J11
    Date: 2008–07–12
  4. By: Yin-wong Cheung (University of California, Santa Cruz, USA, Hong Kong Institute for Monetary Research); Hiro Ito (Portland State University, Portland, USA)
    Abstract: We examine the empirical determinants of the demand for international reserves and compare the experiences of some Asian and Latin American economies. Our empirical results indicate that different vintages of the model of international reserves give different inferences about the appropriate level of international reserves. The developed and developing economies have equations of the demand for international reserves that are quite different from each other. Further, the Asian economies and the Latin American economies have different empirical determinants of the demand for international reserves. Our results highlight the complexity of evaluating whether an economy is holding an excessive or deficient level of international reserves ¨C the inference can be heavily dependent on the choice of a benchmark model. A direct comparison affirms the perception that the Asian economies tend to hold more international reserves than the Latin American economies.
    Keywords: Foreign Exchange Reserves, Macro Determinants, Financial Factors, Institutional Variables, Excessive Hoarding of International Reserves
    JEL: F31 F33 F34 F36
    Date: 2008–07
  5. By: Maximilian J. B. Hall (Loughborough University, Hong Kong Institute for Monetary Research); Karligash A. Kenjegalieva (Loughborough University); Richard Simper (Loughborough University, Hong Kong Institute for Monetary Research)
    Abstract: Within the banking efficiency analysis literature there is a dearth of studies which have considered how banks have 'survived' the Asian financial crisis of the late 1990s. Considering the profound changes that have occurred in the region's financial systems since then, such an analysis is both timely and warranted. This paper examines the evolution of Hong Kong's banking industry's efficiency and its macroeconomic determinants through the prism of two alternative approaches to banking production based on the intermediation and services-producing goals of bank management over the post-crisis period. Within this research strategy we employ Tone's (2001) Slacks-Based Model (SBM) combining it with recent bootstrapping techniques, namely the non-parametric truncated regression analysis suggested by Simar and Wilson (2007) and Simar and Zelenyuk's (2007) group-wise heterogeneous sub-sampling approach. We find that there was a significant negative effect on Hong Kong bank efficiency in 2001, which we ascribe to the fallout from the terrorist attacks in America in 9/11 and to the completion of deposit rate deregulation that year. However, post 2001 most banks have reported a steady increase in efficiency leading to a better 'intermediation' and 'production' of activities than in the base year of 2000, with the SARS epidemic having surprisingly little effect in 2003. It was also interesting to find that the smaller banks were more efficient than the larger banks, but the latter were also able to enjoy economies of scale. This size factor was linked to the exportability of financial services. Other environmental factors found to be significantly impacting on bank efficiency were private consumption and housing rent.
    Keywords: Finance and Banking, Productivity, Efficiency
    JEL: C23 C52 G21
    Date: 2008–12
  6. By: Kang Shi (The Chinese University of Hong Kong, Hong Kong Institute for Monetary Research); Juanyi Xu (Hong Kong University of Science and Technology, Simon Fraser University, Hong Kong Institute for Monetary Research)
    Abstract: This paper develops a small open economy model with sticky prices to show why a flexible exchange rate policy is not desirable in East Asian emerging market economies. We argue that weak input substitution between local labor and import intermediates in traded goods production and extensive use of foreign currency in export pricing in these economies can help to explain this puzzle. In the presence of these two trade features, the adjustment role of the exchange rate is inhibited, so even a flexible exchange rate cannot stabilize the real economy in face of external shocks. Instead, due to the high exchange rate pass-through, exchange rate changes will lead to instability in both inflation and production cost. As a result, a fixed exchange rate may dominate a monetary policy rule with high exchange rate flexibility in terms of welfare. In a sense, our finding provides a rationale for the "fear of floating" phenomenon in these economies. That is, "fear of floating" may be central banks' rational reaction when these economies are constrained by the trade features mentioned above.
    Keywords: Input Substitution, Export Pricing, Exchange Rate Flexibility, Welfare
    JEL: F3 F4
    Date: 2008–10
  7. By: M. Bruna Zolin (Department of Economics, University Of Venice Cà Foscari)
    Abstract: In the trade policy debate, the complete liberalisation of world trade for agricultural products is one of the most relevant issues. European Union is a free trade area where agricultural products are protected and supported from the world market forces, more than any other good or service. The elimination of trade barriers among the EU member states has achieved European self-sufficiency in food and a strong integration in the European market. To resolve international disputes, Mc Sharry, Agenda 2000 and Mid Term Reforms of the CAP were introduced in the last decade, having in mind the reduction of domestic support, tariff barriers and export subsides. In this context, this paper studies the evolution of these trade flows among EU and some selected Asiatic countries. The aim is, on the one hand, to consider the impact of the progressive liberalisation of world agricultural trade in these areas, on the other hand, to measure the integration degree of these groups of countries. In order to be able to study these topics, this paper analyses the evolution of agricultural trade and of the role played by the different product groups. The paper is divided into three sections, followed by some concluding remarks. The first section studies the main agrarian policies adopted in the EU and some selected Asiatic countries. The second section presents the relationships among them. The third describes the agricultural import and export flows, considering the trade from a general perspective, from the point of view of the political decisions adopted and that of the agreements signed.
    Keywords: world trade, agricultural products, Asia and Europe integration
    JEL: Q17 Q18 P52
    Date: 2008
  8. By: Andrew Sheng (Tsinghua University); Allen Ng (Bank Negara Malaysia)
    Abstract: International financial integration has accelerated at an unprecedented pace in recent years. External holdings of financial assets and liabilities for both industrial and emerging countries have grown rapidly since the mid-1990s, many times exceeding their respective national income, and traditional surveillance methods using flow data are increasingly incapable of satisfactorily explaining the recent major global economic developments. Using Lane and Milesi-Ferretti's (2006) rich data-set of external positions for 145 countries from 1970 to 2004, this paper selects several issues to highlight the usefulness of balance sheet analysis as a tool for historical understanding and to examine how it can help in an analysis of possible future vulnerabilities. Starting from a global overview, the study looks at China from a comparative angle vis-¨¤-vis the world and the rest of Asia, and finally focuses on the evolution of the external position of China. Although the investigations are preliminary in nature, this paper demonstrates how China has emerged as an important net creditor in an increasingly integrated world and suggests that as China becomes more important globally as a net creditor, the balance sheet analysis of trends and a clearer focus on real total rates of return on external assets, and their risk management, have become increasingly more important over time. It is hoped that this paper will stimulate more academic and policy analysis in this growing area of policy importance.
    Date: 2008–01
  9. By: Pitluck, Aaron Z.
    Abstract: This paper addresses the puzzle of why the inclusion of non-financial social justice or religious criteria by professional fund managers has been so popular in Malaysia and yet has had to date relatively little influence in the United States stock market. Drawing from over 125 ethnographic interviews with financial workers in Malaysia, this paper argues that moral investment behavior in stock markets is shaped primarily by ‘market structure’ rather than by ‘mandates.’ In both countries mandates are a weak form of social control of fund manager’s behavior. This is because mandates are not principal-agent contracts but are primarily marketing exercises and cultural tools. Social investing in the United States is weak because it relies solely on mandates to communicate clients’ ethical desires to their fund managers. Islamic and Ethical finance in Malaysia is strong because Islamic social movements have reformed the Malaysian stock market’s structure. Specifically, a uniform interpretation of Islamic investing was institutionalized with the creation of a nearly-unique quasi-governmental body. As a consequence, Islamic principles systematically influence the behavior of corporations listed in Malaysia, at present narrowly, but with the potential for wider influence in future. The paper closes with implications for social investment in the United States.
    Keywords: Investor Behavior; Ethics; Malaysia; United States; Islamic Finance; Socially Responsible Investment
    JEL: G11 O53 Z10 G20 A13 A14 P52
    Date: 2008–03–15
  10. By: Nobuaki Hamaguchi (Research Institute for Economics and Business Administration, Kobe University); Yoshihiro Kameyama (The International Centre for the Study of East Asian Development (ICSEAD))
    Abstract: This paper presents an analysis of the effects of dense communication of industry-university-government cooperation on enhancing in-house (a company's own) R&D activities in Korean and Chinese knowledge-based industrial clusters: the Seoul Digital Industrial Complex, Daedeok Valley, and the Zhongguancun Science Park. Our unique survey data enable us to examine firms' communication behaviors, i.e., communication frequency, participants, and purposes, related to the choice of communication mode. Results of this study demonstrate that agglomeration might impart least two influences on an individual firm: agglomeration stimulates more in-house R&D through exchange of ideas; and it reduces in-house R&D by promoting its outsourcing.
    Keywords: agglomeration, communication externalities, industrial cluster, Seoul Digital Industrial Complex, Daedeok Valley, Zhongguancun Science Park
    JEL: O32 R11 O40
    Date: 2007–10
  11. By: Michael Geiger
    Abstract: China’s monetary policy applies to two sets of monetary policy instruments: (i) instruments of the Central Bank (CB), the People’s Bank of China (PBC); and (ii) non-Central Bank (NCB) policy instruments. Additionally, the PBC’s instruments include: (i) price-based indirect; and (ii) quantity-based direct instruments. The simultaneous usage of these instruments leads to various distortions that ultimately prevent the interest rate channel of monetary transmission from functioning. Moreover, the strong influence of quantity-based direct instruments and non-central bank policy instruments bring into question the approach of indirect monetary policy in general.
    Date: 2008

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