nep-sea New Economics Papers
on South East Asia
Issue of 2008‒10‒07
fourteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Investment Incentives and Effective Tax Rates in the Philippines:A Comparison With Neighboring Countries By Alexander Klemm; Dennis P. J. Botman; Reza Baqir
  2. Global Volatility and Forex Returns in East Asia By Sanja Kalra
  3. Effectiveness of monetary policy communication in Indonesia and Thailand By Sahminan Sahminan
  4. Forecasting Financial Crises and Contagion in Asia using Dynamic Factor Analysis By Andrea Cipollini; George Kapetanios
  5. Governance, corruption, and trade in the Asia Pacific region By Abe, Kazutomo; Wilson, John S.
  6. The Asian financial crisis, uphill flow of capital, and global imbalances: evidence from a micro study By Brahima Coulibaly; Jonathan Millar
  7. Volatility Transmission between Renminbi and Asia-Pacific on-shore and off-shore U.S. dollar futures By Roberta Colavecchio; Michael Funke
  8. Indonesia: Growth Performance and Policy Challenges By Luiz de Mello
  9. Improving the Business and Investment Climate in Indonesia By Diego Moccero
  10. Poverty Reduction Through Long-term Growth: The Thai Experience By Peter Warr
  11. Trading with Asia's Giants By Barry Bosworth; Susan M. Collins; Aaron Flaaen
  12. Equilibrium Non-Oil Current Account Assessments for Oil Producing Countries By Jun Il Kim; Aqib Aslam; Alun H. Thomas
  13. Efficiency Costs of Myanmar’s Multiple Exchange Rate Regime By Masahiro Hori; Yu Ching Wong
  14. Taxes Versus Quantities for a Stock Pollutant with Endogenous Abatement Costs and Asymmetric Information By Larry Karp; Jiangfeng Zhang

  1. By: Alexander Klemm; Dennis P. J. Botman; Reza Baqir
    Abstract: We compare the general tax provisions and investment incentives in the Philippines to six other east-Asian economies-Malaysia, Indonesia, Lao, Vietnam, Cambodia, and Thailand. We calculate effective tax rates and find that general effective tax rates are relatively high in the Philippines, while investment incentives are comparable to those in neighboring countries. Tax holidays are most attractive for very profitable firms, creating redundancy, and for investment in short-lived assets. We also consider recently-proposed tax reforms that would replace tax holidays by a reduced corporate income tax rate or a low tax on gross receipts. The results suggest that this would result in stronger incentives to invest, while government revenue increases. Alternatively, replacing holidays with a general reduction in the corporate tax rate and offering accelerated depreciation will either not provide the same incentives or be very costly.
    Keywords: Philippines , Investment incentives , Tax rates , Corporate taxes , Tax reforms , Revenue sources , Southeast Asia , Working Paper ,
    Date: 2008–09–05
  2. By: Sanja Kalra
    Abstract: During 2001-07, increases in mature market volatility were associated with declines in forex returns for East Asian countries, consistent with an overall "flight to safety" effect. Estimates from GARCH models suggest that a 5 percentage point increase in mature market equity volatility generated an exchange rate depreciation of up to ½ percent. This sensitivity rose during the latter period in the sample, suggesting greater integration of Asian financial markets with global markets. Unconditional standard deviations estimated from these models also provide operational measures of "long-term" and "excess" volatility in forex markets. Long-run forex volatility declined as Asian economies settled down with generally stronger fundamentals in the post-crisis period to more flexible regimes along with a generally lower level of mature market volatility.
    Keywords: Foreign exchange , East Asia , Exchange rates , Financial stability , Economic integration , Economic models , Financial crisis , Working Paper ,
    Date: 2008–09–05
  3. By: Sahminan Sahminan
    Abstract: In this paper we investigate the effectiveness of Bank Indonesia's and Bank of Thailand's monetary policy communication. We focus on two channels of communication: monetary policy statements, and inter-meeting statements. Although the structure of Bank Indonesia's and Bank of Thailand's monetary policy statements have some differences, most of the statements contain policy inclination. In addition, during inter-meeting periods, members of their board of governors often convey statements that contain policy inclination. Our empirical results show that to some extent Bank Indonesia's and Bank of Thailand's monetary policy statements and inter-meeting statements move short-term interest rates effectively. We find that there is asymmetry in the effects of the statements, that is, the statements with loose policy inclination tend to be more effective relative to the statements with tight policy inclination.
    Keywords: communication, effectiveness, monetary policy, Bank Indonesia, Bank of Thailand
    Date: 2008–09
  4. By: Andrea Cipollini; George Kapetanios
    Abstract: In this paper we use principal components analysis to obtain vulnerability indicators able to predict financial turmoil. Probit modelling through principal components and also stochastic simulation of a Dynamic Factor model are used to produce the corresponding probability forecasts regarding the currency crisis events a®ecting a number of East Asian countries during the 1997-1998 period. The principal components model improves upon a number of competing models, in terms of out-of-sample forecasting performance.
    Keywords: Financial Contagion, Dynamic Factor Model
    JEL: C32 C51 F34
    Date: 2008–03
  5. By: Abe, Kazutomo; Wilson, John S.
    Abstract: This paper examines the impact of reducing corruption and improving transparency to lower trade costs in the Asia Pacific Economic Cooperation region. The authors find, based on a computable general equilibrium model, significant potential trade and welfare gains for Asia Pacific Economic Cooperation members, with increased transparency and lower levels of corruption. Results suggest that trade in the region would increase by 11 percent and global welfare would expand by $406 billion by raising transparency to the average in the region. Most of the increase in welfare would take place in member economies undertaking reform. Among the reformers, the gross domestic product of Vietnam, Thailand, Russia, and the Philippines would increase approximately 20 percent. The benefits to Malaysia and China would also be substantial with increased transparency and lower levels of corruption.
    Keywords: Economic Theory&Research,Free Trade,Trade Policy,Emerging Markets,Currencies and Exchange Rates
    Date: 2008–09–01
  6. By: Brahima Coulibaly; Jonathan Millar
    Abstract: This study assesses the role of the Asian financial crisis of the late 1990s in the emergence and persistence of the large current account surpluses across non-China emerging Asia, which have been a significant counterpart to the U.S. current account deficit. Using panel data encompassing nearly 3,750 firms, we trace the current account surpluses to a marked and broad-based decline in corporate expenditures on fixed investment in the aftermath of the crisis that cuts across a wide spectrum of countries, industries, and firms. The lower corporate spending in turn depressed aggregate investment rates, widened the saving-investment gap, and allowed the region to turn into a net exporter of capital. We then consider the factors behind this reduction in postcrisis corporate investment. While weaker firm-level fundamentals in the postcrisis period seem to explain part of the drop in investment rates, ongoing re-structuring owing to large debts accumulated and excess investment undertaken in the run-up to the crisis has been the main source of restraint postcrisis corporate investment. The results suggest that even after a decade, the effect of the financial crisis is still affecting corporate investment decisions in emerging Asia, and that as the restructuring completes its course, investment rates will likely rise to contribute to a gradual reduction in the region's current account surpluses.
    Keywords: Financial crises - Asia
    Date: 2008
  7. By: Roberta Colavecchio; Michael Funke
    Abstract: This paper uses multivariate GARCH techniques to study volatility spillovers between the Chinese non-deliverable forward market and seven of its Asia-Pacific counterparts over the period January 1998 to March 2005. To account for the time-variability of conditional correlation, a dynamic correlation structure is included in the volatility model specification. The empirical results demonstrate that the renminbi non-deliverable forward (NDF) has been a driver of various Asian currency markets but that such co-movements exhibit a substantial degree of heterogeneity. As to the determinants of the magnitude of these co-movements, we test the relevance of potential factors and find that it is the degree of real and financial integration, in particular, that exerts the largest influence on volatility transmission.
    Keywords: China, renminbi, Asia, forward exchange rates, non-deliverable forward market, multivariate GARCH models
    JEL: C22 F31 F36
    Date: 2008–03
  8. By: Luiz de Mello
    Abstract: Indonesia’s growth performance is improving, following a slow recovery from the 1997-98 financial crisis. Investment is picking up, despite considerable business-climate obstacles to entrepreneurship. Unemployment remains high, and labour informality is pervasive. Fiscal policy has been conducted responsibly and in an increasingly decentralised manner. Monetary policy is now carried out within a fully-fledged inflation-targeting framework. This paper argues that the main barriers to raising the economy’s growth potential are to be found on the supply side of the economy. Indonesia will need to improve the business environment and to make better use of labour inputs to put the economy on a higher growth trajectory. The country’s income gap relative to the OECD is sizeable, and several years of sustained growth will be needed to eliminate it. This Working Paper relates to the 2008 OECD Economic Assessment of Indonesia ( <P>Indonésie : Performances économiques et enjeux de l’action publique <BR>Les résultats de l’Indonésie sur le front de la croissance s’améliorent, amélioration qui s’inscrit dans le prolongement d’une phase de lente reprise après la crise financière de 1997-98. L’investissement suit une pente ascendante, malgré un climat des affaires très peu porteur. Le chômage demeure élevé et l’emploi dans le secteur informel très largement répandu. La politique budgétaire est conduite de façon responsable et aussi plus décentralisée. La politique monétaire s’articule désormais autour d’un dispositif de ciblage de l’inflation. D’après ce document, les principaux obstacles au relèvement du potentiel de croissance de l’économie indonésienne se situent du côté de l’offre. L’Indonésie va devoir s’efforcer d’offrir aux entrepreneurs des conditions d’ensemble plus propices au développement de leurs activités et de mieux utiliser le facteur travail pour mettre son économie sur une trajectoire de croissance plus prometteuse. L’écart de revenu par rapport aux pays de l’OCDE n’est pas négligeable et plusieurs années de croissance soutenue seront nécessaires pour le combler. Ce Document de travail se rapporte à l’Évaluation économique de l’OCDE de l’Indonésie, 2008 (
    Keywords: growth, croissance, réforme structurelle, macroeconomic policies, politique macro-économique, structural reforms, Indonesia, Indonésie
    JEL: E50 E60 O10
    Date: 2008–09–22
  9. By: Diego Moccero
    Abstract: Indonesia’s business environment is discouraging entrepreneurship and holding back private-sector growth and development. Weaknesses in the regulatory framework, infrastructure bottlenecks and poor governance continue to weigh down on investment. Policies have been put in place to address these problems, but much remains to be done. An important recent initiative is the enactment of the Investment Law in 2007, which strengthened the foreign investment regime. This paper argues that options for reform could focus on making regulations more pro-business, including by removing red tape and onerous provisions at the local level of government, improving governance and relaxing remaining restrictions on foreign investment. Further financial deepening would facilitate access by enterprises to more abundant, cheaper sources of finance. This Working Paper relates to the 2008 OECD Economic Assessment of Indonesia ( <P>Améliorer le cadre des affaires et des investissements en Indonésie <BR>En Indonésie, le cadre des affaires décourage la création d’entreprises et freine la croissance du secteur privé. Les faiblesses de la réglementation, les goulets d’étranglement dans les infrastructures et la médiocrité de la gouvernance continuent à entraver les investissements. Des mesures ont été prises pour remédier à ces problèmes, mais beaucoup reste à faire. L’une des importantes initiatives prises récemment a été l’adoption, en 2007, d’une loi sur les investissements qui a amélioré le régime des investissements étrangers. On soutient dans ce papier que la réforme pourrait viser surtout à rendre la réglementation plus favorable à l’activité privée, notamment en supprimant les tracasseries et les lourdeurs administratives aux échelons locaux des pouvoirs publics, en améliorant la gouvernance et en assouplissant les restrictions qui subsistent à l’égard des investissements étrangers. En outre, la poursuite de l’approfondissement des marchés financiers permettrait aux entreprises de se procurer davantage de fonds à moindre coût. Ce Document de travail se rapporte à l’Évaluation économique de l’OCDE de l’Indonesie, 2008 (
    Keywords: financial sector, secteur financier, foreign direct investment, investissement direct étranger, infrastructure, infrastructure, Indonesia, investment climate, Indonésie, climat des affaires
    JEL: E22 F21 G20
    Date: 2008–09–23
  10. By: Peter Warr
    Abstract: Thailand’s impressive long-term rate of economic growth has resulted mainly from accumulation of physical capital. Significant total factor productivity growth can be identified at an aggregate level, explaining as much as one third of the aggregate growth of output. But this TFP growth was due entirely to resource reallocation from low productivity sectors to higher productivity sectors. TFP at the sectoral level has been important only in agriculture. Poverty has declined remarkably over time despite a long-term increase in income inequality. The short-term rate of decline in poverty incidence has been directly related to the rate of economic growth.
    Keywords: Economic growth; poverty incidence; Thailand
    JEL: O40 I32 O53
    Date: 2008
  11. By: Barry Bosworth (Indian Council for Research on International Economic Rela); Susan M. Collins (Indian Council for Research on International Economic Rela); Aaron Flaaen (Indian Council for Research on International Economic Rela)
    Abstract: The United States' large and sustained trade deficit with Asia raises concerns in the United States about its competitiveness in the region. The purpose of this paper is to examine the patterns of U.S. trade relationships with China and India, and the factors that are influencing their evolution. In contrast to the current public policy debate, the discussion largely addresses how these two economies compare as markets for U.S. exporters. This paper begins by noting that U.S. exports to both countries do appear low relative to the performance of Japan and the EU-15. We examine potential explanations for the weak exports from three different perspectives. First, we analyze the composition of U.S. exports to these economies, and consider how this mix of products compares to those which it appears to be competitive in exporting to the rest of the world. Second, we examine the role of multinational corporations in facilitating the trade flows between the U.S and these two economies. Finally, we employ the use of "gravity equations" to examine the bilateral trade patterns while controlling for a variety of countryspecific characteristics, such as distance. In this context, we are also able to analyze the pattern of trade in services as well as the more traditional focus on goods trade.
    Keywords: China, India, United States, trade, and exports
    JEL: F14 F23
  12. By: Jun Il Kim; Aqib Aslam; Alun H. Thomas
    Abstract: This paper introduces a methodology for assessing external balance in countries with large stocks of non-renewable resources based on oil stock data, and applies it to selected oil producing countries. The methodology uses a stock approach (instead of the more traditional flow approach) to estimate the equilibrium non-oil current account consistent with optimal consumption smoothing. One of the benefits of the stock approach is that geological data for oil reserves can be used to estimate oil wealth; however, the methodology makes the estimated non-oil current account norm very sensitive to oil price projections. Based on an oil price about US$70 per barrel prevailing in the summer of 2007, the baseline estimates indicate that the non-oil current accounts for most of the countries in the sample are broadly in equilibrium. By the same token, using oil price projections as of the summer of 2008 implies large disparities between the equilibrium non-oil current account position and the medium term forecast for all countries in the sample except for Malaysia.
    Keywords: Nonoil sector , Oil producing countries , Current account balances , Oil prices , Exchange rate assessments , Economic models , Working Paper ,
    Date: 2008–08–20
  13. By: Masahiro Hori; Yu Ching Wong
    Abstract: Myanmar's multiple exchange rate system creates various economic distortions. This paper describes the exchange rate practices in Myanmar, develops a model of foreign exchange markets, and presents the efficiency costs imposed by quasi-fiscal operation under the current exchange rate regime. The results of our model-based analyses indicate that the equilibrium exchange rate under the unified market could be at around K 400-500 per U.S. dollar, and using the equilibrium exchange rate (instead of the official exchange rate) as the accounting rate increases trade openness to more than 20 percent from less than 1 percent measured by official statistics. The total efficiency loss caused by the current multiple exchange rate regime is estimated at about 14-17 percent of GDP in 2006/07.
    Keywords: Exchange rate regimes , Myanmar , Multiple exchange rates , Exchange markets , Economic models , Trade models , National accounts , Gross domestic product , Exports , Imports , Working Paper ,
    Date: 2008–08–20
  14. By: Larry Karp (University of California, Berkeley and Giannini Foundation); Jiangfeng Zhang (Asian Development Bank)
    Abstract: Non-strategic firms with rational expectations make investment and emissions decisions. The investment rule depends on firms' beliefs about future emissions policies. We compare emissions taxes and quotas when the (strategic) regulator and (nonstrategic) firms have asymmetric information about abatement costs, and all agents use Markov Perfect decision rules. Emissions taxes create a secondary distortion at the investment stage, unless a particular condition holds; emissions quotas do not create a secondary distortion. We solve a linear-quadratic model calibrated to represent the problem of controlling greenhouse gasses. The endogeneity of abatement capital favors taxes, and it increases abatement.
    Keywords: Pollution control; Investment, asymmetric information, rational expectations, choice of instruments,
    Date: 2008–07–21

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