nep-sea New Economics Papers
on South East Asia
Issue of 2008‒09‒20
twelve papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Regionalism as an Engine of Multilateralism: A Case for a Single East Asian FTA By Kawai, Masahiro; Wignaraja, Ganeshan
  2. Real and Financial Integration in East Asia By Kim, Soyoung; Lee, Jong-Wha
  3. Patterns and Determinants of Cross-border Financial Asset Holdings in East Asia By Lee, Jong-Wha
  4. Global Financial Turmoil: Impact and Challenges for Asia's Financial Systems By Lee, Jong-Wha; Park, Cyn-Young
  5. Securitization in East Asia By Lejot , Paul; Arner, Douglas; Schou-Zibell, Lotte
  6. Emerging East Asian Banking Systems Ten Years after the 1997/98 Crisis By Adams, Charles
  7. Vertical Integration and Costly Network Industries By Nigel Driffield; Sarmistha Pal
  8. An Analysis of Employment and Growth in Java after the Economic Crisis 1997/1998: Examining the Role of Farm Activities in West Java By Hirawan, Fajar Bambang
  9. The Impact of Capital Inflows on Emerging East Asian Economies: Is Too Much Money Chasing Too Little Good? By Kim, Soyoung; Yang, Doo Yong
  10. How Does FDI in East Asia Affect Performance at Home?: Evidence from Electrical Machinery Manufacturing Firms By MATSUURA Toshiyuki; MOTOHASHI Kazuyuki; HAYAKAWA Kazunobu
  11. Making the Most of Aid: Challenges for Africa’s Agribusiness By Jeff Dayton-Johnson; Kiichiro Fukasaku
  12. India's Outward Foreign Direct Investments in Steel Industry in a Chinese Comparative Perspective By Kumar, Nagesh; Chadha, Alka

  1. By: Kawai, Masahiro (Asian Development Bank Institute); Wignaraja, Ganeshan (Asian Development Bank)
    Abstract: As East Asia becomes increasingly integrated through market-driven trade and FDI activities, free trade agreements (FTAs) are proliferating. Consolidation of multiple and overlapping FTAs into a single East Asian FTA can help mitigate the harmful noodle bowl effects of different or competing tariffs, standards, and rules. A region-wide FTA will also encourage participation of low-income countries and reduce trade-related business costs, particularly for small and medium enterprises. A computable general equilibrium (CGE) model examines the economic impact of various types of FTAs in East Asia (among ASEAN+1's, ASEAN+3, and ASEAN+6) finding that consolidation at the ASEAN+6 level would yield the largest gains to East Asia among plausible regional trade arrangements.
    Keywords: Free Trade Agreement; ASEAN; multilateralism
    JEL: F10 F13 F40
    Date: 2008–02–01
  2. By: Kim, Soyoung (Korea University); Lee, Jong-Wha (Asian Development Bank)
    Abstract: We examine the real and financial integration of East Asian economies, comparing the degree of real versus financial integration, the degree of global versus regional integration, and the extent of integration before versus after the 1997/98 financial crisis in East Asian economies. We analyze price and quantity measures of integration such as the size of intra- and inter-regional trade, cross-border financial assets, correlation of stock returns, and interest rate differentials. In addition, we adopt a panel VAR approach of investigating cross-country output inter-dependence and consumption relation in order to infer the macroeconomic consequences of real and financial integration on East Asian economies. The empirical investigations suggest that (i) using the quantity measure there is a significant increase in real integration within East Asia; (ii) real-side integration based on output linkage increased substantially after the Asian crisis, both regionally and globally; (iii) although quantity and price measures showed some degree of increased financial integration after the crisis, the cross-country consumption relation did not change much; (iv) the degree of regional financial integration within Asia is far smaller than the degree of global financial integration, based on the consumption-based measure; and (v) financial integration lags real integration, especially for regional integration within Asia.
    Keywords: Trade and financial integration; global and regional integration; risk sharing; East Asia
    JEL: F15 F36 F41
    Date: 2008–06–01
  3. By: Lee, Jong-Wha (Asian Development Bank)
    Abstract: This paper analyzes the patterns and determinants of financial integration in East Asia by using the data set of cross-border holdings of financial assets such as equity portfolio, long-term and short-term debt securities, and bank claims. Empirical analysis based on the gravity model of bilateral international asset holdings shows that financial integration among East Asian economies, particularly in equity and debt securities, is relatively lower than in Europe. A large part of regional financial integration in East Asia is due to heavy intra-regional trade in goods-after controlling for bilateral trade volume, East Asia's relatively lower regional integration becomes apparent. The relative lack of financial integration is due largely to underdeveloped financial infrastructure, a low level of capital account liberalization, and higher exchange volatility.
    Keywords: Cross-border portfolio investment; financial integration; East Asia; gravity model
    JEL: F21 F36 F41 G15
    Date: 2008–02–01
  4. By: Lee, Jong-Wha (Asian Development Bank); Park, Cyn-Young (Asian Development Bank)
    Abstract: This paper examines the unfolding of the US subprime-generated turmoil and its potential spillover on emerging Asia's financial systems. The subprime mortgage mess has revealed key structural weaknesses in the evolution of modern credit markets. While emerging Asian financial markets have thus far suffered only limited impact, they remain open to further contagion given underlying weaknesses in the region's financial systems. Rapid financial globalization also poses new challenges as the region's largely unsophisticated banking and financial systems strive to keep up with the evolving financial environment and innovation. Policy priorities to foster regional financial stability include enhancing transparency and governance, improving risk management, strengthening regulation and supervision, and deepening and broadening financial systems, especially by developing local currency bond markets.
    Keywords: Trade and financial integration; global and regional integration; risk sharing; East Asia
    JEL: G15 G21 G28
    Date: 2008–06–01
  5. By: Lejot , Paul (Asian Institute of International Financial Law); Arner, Douglas (Asian Institute of International Financial Law); Schou-Zibell, Lotte (Asian Development Bank)
    Abstract: Securitization offers a range of benefits for Asiaâs financial systems and economies as a mechanism to assist funding and investment. As a form of structured finance, reliable and efficient securitization can assist development by enabling financial systems to deepen and strengthenâthus contributing to overall economic growth and stability. It must be recognized, however, that there are both overt and more subtle risks in certain uses of securitization. The credit and liquidity crisis that began in the United States and spread to other developed financial systems in mid-2007 exposed the danger associated with securitization: excessive risk-taking or regulatory capital arbitrage rather than a tool to assist more conventional or conservative approaches to funding, risk management, or investment. Securitization has also been criticized for rendering financial markets opaque, while contributing to a growing emphasis in the global economy of credit intermediation conducted in capital markets rather than through banks. This study examines the institutional basis of these concerns by investigating the use of securitization in East Asia, questioning both the growth in regional activity since the 1997/98 Asian financial crisis, and the reasons for it remaining constrained. The paper concludes with a discussion of proposals to support proper development of securitization in the region, including institutional mechanisms that could better allow securitization to enhance development and financial stability. If East Asia begins to make fuller use of securitization, its motive will be to meet funding or investment needs in the real economy rather than balance sheet arbitrage of the kind that peaked elsewhere in 2007.
    Keywords: Securitization; East Asia; debt markets; risk transfer
    JEL: F30 G20 K20
    Date: 2008–01–01
  6. By: Adams, Charles (National University of Singapore)
    Abstract: This paper looks at the development of the banking sector in emerging East Asia in the 10 years since the financial crisis of 1997/98. It suggests that the health of banking sectors in the region has improved substantially, with key changes including increased foreign ownership, movement into new business lines, greater transparency, and shifts toward household and real estate lending. In addition, supervisory and regulatory systems have been upgraded and have become more forward looking and risk based. However, it notes that major credit rating agencies continue to maintain relatively low ratings for many banks in the region, bank share prices have generally underperformed the market, and significant differences persist in the health of the region's banking systems. In addition, bank lending to private business has been weak across much of the region. Restructuring and reform are ongoing processes and will need to continue not only where further rehabilitation from the effects of the 1997/98 crisis is still required, but in other economies as well.
    Keywords: Financial crisis; restructuring and reform; credit rating; Basel core principles.
    JEL: G21 G24 G28 G32
    Date: 2008–05–01
  7. By: Nigel Driffield; Sarmistha Pal
    Abstract: The present paper examines the capital structure adjustment dynamics of listed non-financial corporations in seven East Asian countries during 1994-2002. Compared to firms in the least affected countries, average leverages were much higher among firms in the worst affected countries while the average speeds of adjustment were lower. This general ranking is robust to various alternative specifications and sample selections. We argue that this pattern is closely linked to weaknesses in regulatory environment and lack of access to alternative sources of finance in the worst affected countries.
    Date: 2008–03
  8. By: Hirawan, Fajar Bambang
    Abstract: In this paper, we examine the relationship between employment and economic growth in the most populated island in Indonesia, Java, specifically in West Java. When Indonesia suffered a dreadful economic crisis during 1997/1998, none of the regions or sectors survived its impact, especially farm and non-farm activities. The economy started to improve in the year 2000, but non-economic fundamental factors significantly impacted the economy at that time. The results of this paper indicate that employment has a relationship to economic growth. In West Java farm activities, which are agriculture, livestock, forestry, and fisheries (ALFF), have a negative correlation with economic growth. On the other hand, non-farm activities have a positive correlation with economic growth. The value of the coefficient of variation (CV) surprisingly signifies that employment and GDP relating to farm activities in West Java are more stable than non-farm activities after the economic crisis of 1997/1998.
    Keywords: Employment; Economic Growth; West Java; Farm Activities; Non-Farm Activities
    JEL: O11 O47 J21 C40 C22
    Date: 2008–07–09
  9. By: Kim, Soyoung (Korea University); Yang, Doo Yong (Korea Institute for International Economic Policy)
    Abstract: In recent years, emerging East Asian economies have experienced large capital inflows-especially a surge in portfolio inflows-and an appreciation of asset prices such as equities, land, and both nominal and real exchange rates. The paper reviews why a surge in capital inflows can increase asset prices, and then empirically investigates the effects by employing a panel vector autoregression (VAR) model. The empirical results suggest that capital inflows have indeed contributed to the asset price appreciation in this region, although capital inflow shocks explain a relatively small part of asset price fluctuations. How to manage these capital inflows is also discussed.
    Keywords: Capital inflows; portfolio inflows; asset prices
    JEL: F10 F31 F32 G15 G18
    Date: 2008–05–01
  10. By: MATSUURA Toshiyuki; MOTOHASHI Kazuyuki; HAYAKAWA Kazunobu
    Abstract: This paper pinpoints the impact of Japanese electronic machinery FDIs on productivity at home. Our analysis is based on the activity level of firms and not on their ready-made level. For example, if a firm has more than two kinds of activities such as upstream activity and downstream activity, we treat these activities as different. Our empirical results are consistent with their theoretical predictions: the horizontal FDI of an activity does not necessarily have the same significant positive impact on the productivity of domestic activities as the invested activity. On the other hand, the vertical FDI of an activity significantly enhances both the level and growth of productivity in domestic activities that have an input-output relationship with the invested activity.
    Date: 2008–09
  11. By: Jeff Dayton-Johnson; Kiichiro Fukasaku
    Abstract: Aid and trade policies – in OECD countries and in developing countries – might reinforce each other to promote development, or they might be substitutes: the sign of the correlation between trade and aid flows depends on the context. East Asia’s rapid growth demonstrates the important development impact of the trade-aid link. While aid has played a strong complementary role for trade development in Viet Nam, for example, the current impasse of African cotton producers is emblematic of trade and aid policies working at cross purposes. The experience of six African countries reviewed in this brief highlights the case for development assistance that aims to eliminate bottlenecks preventing a greater and deeper African participation in the global trading system. The scaling-up of aid, macroeconomic stability and trade expansion are compatible and the ongoing international “aid for trade” initiative will remain critically relevant for African development in the coming decades.
    Date: 2008–08–01
  12. By: Kumar, Nagesh (Research and Information Systems); Chadha, Alka (Department of South Asian Studies, National University of Singapore)
    Abstract: Indian and Chinese enterprises have emerged as important outward investors in recent times with their involvement in a number of prominent Greenfield investments and acquisitions. The theory of international business posits that the ownership of some unique advantages having a revenue generating potential abroad combined with the presence of internalization and locational advantages leads to outward FDI. Conventional MNEs based in the industrialized countries have grown on the strength of ownership advantages derived from innovatory activity that is largely concentrated in these countries. It examines the case of steel industry that has become an important sector of overseas activity for Chinese and Indian companies with a string of major acquisitions of foreign MNEs for acquiring footprints and natural resources in order to identify the sources of ownership advantages and strategies of outward investments from emerging countries.
    Keywords: FDI outflows, steel, India
    JEL: O1 L61
    Date: 2008

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