nep-sea New Economics Papers
on South East Asia
Issue of 2008‒12‒21
ten papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Defense spending and economic growth in Asian economies: A panel error-correction approach By Habibullah, M.S.; Law, Siong-Hook; Dayang-Afizzah, A.M.
  2. Finance and other services sectors in Peninsular Malaysia, Sabah and Sarawak: Testing for stochastic convergence By Hirnissa, M.T; Habibullah, M.S.
  3. Bordering neighbours: Testing for border effect on Malaysia's northern states and Southern Thailand By Habibullah, M.S.; Dayang-Afizzah, A.M.
  4. Efficiency in Indonesian Banking: Recent Evidence By Maximilian J. B. Hall; Mulinman D. Hadad; Wimboh Santoso; Ricky Satria; Karligash Kenjegalieva; Richard Simper
  5. Has Kelantan grown faster than other states in Malaysia? A panel data analysis By Habibullah, M.S.; Smith, Peter; Dayang-Afizzah, A.M.
  6. Property crime and macroeconomic variables in Malaysia: Some empirical evidence from a vector error-correction model By Habibullah, M.S.; Law, Siong-Hook
  7. Testing nonlinear convergence in Malaysia,1965-2003 By Habibullah, M.S.; Dayang-Afizzah, A.M.; Liew, Venus Khim-Sen; Lim, Kian-Ping
  8. How to Understand High Food Prices By Christopher L. Gilbert
  9. Borders and economic growth: The case of Sabah and her neighbours By Habibullah, M.S.; Dayang-Afizzah, A.M.
  10. Dynamic Stock Market Interactions between the Canadian, Mexican, and the United States Markets: The NAFTA Experience By Giorgio Canarella; Stephen M. Miller; Stephen K. Pollard

  1. By: Habibullah, M.S.; Law, Siong-Hook; Dayang-Afizzah, A.M.
    Abstract: Hoping to contribute to the existing pool of literature, this paper examines the relationship between military expenditure and economic growth in selected Asian countries for the period 1989 to 2004. Our panel unit root test suggests that real GDP per capita and military expenditures are )1(I processes, while the Larsson et al. (2001) panel cointegration test indicates that economic growth and military expendirues are cointegrated. Finally, applying the panel error-correction technique proposed by Pesaran et al. (1999), our empirical results show that defense spending and economic growth in the Asian countries under the period of study are not related.
    Keywords: Military expenditure; Economic growth; Panel unit root; Panel cointegration; Panel error-correction; Asian economies
    JEL: O10 H56 O40
    Date: 2008–01–05
  2. By: Hirnissa, M.T; Habibullah, M.S.
    Abstract: In the last four decades the financial services sector has becoming more important for the Malaysian economy. Despite gaining importance for enhancing economic growth, the contribution of the finance sector to the total services real GDP has been ranked second in Peninsular Malaysia, third in Sabah and fourth in Sarawak. The purpose of the present paper is to determine whether the contribution of the financial services sector in the three regions in Malaysia, namely Peninsular Malaysia, Sabah and Sarawak show any distinct pattern. In the jargon of economic development literature, we seek to determine whether there is “convergence” or similarity in the patterns of the performance of the financial services sector among the three regions. Generally, our results suggest divergence of the finance sector and other sub-sector of the services among the three regions.
    Keywords: stochastic convergence; peninsular malaysia; sabah; sarawak
    JEL: O1 O18
    Date: 2008–02–13
  3. By: Habibullah, M.S.; Dayang-Afizzah, A.M.
    Abstract: Economists agree that countries that are close together may experience common shocks that affect growth; that a country’s growth rate depends not only on domestic investment but also on the investment of its neighbouring countries. On the negative point, common shock such as wars and political instability can also have an adverse effect on growth of neighbouring countries. First, regional instability disrupts trade flows. Second, regional instability forces increases in military outlays, and will have a negative effect on economic performance. The purpose of the present study is to determine whether the growth rate of the neighbouring provinces of Southern Thailand has an effect on the economic growth of the Northern states of Malaysia. Using annual data from 1983 to 2003, our results using the long-run Granger causality in the vector error correction model setting suggest that Songkhla and Yala Granger cause Kedah; Songkhla Granger cause Perlis; and Narathiwat Granger cause Kelantan. On the other hand, while Perak and Yala indicate Granger cause in both direction, Perlis and Satun are independent of each other.
    Keywords: Granger causality; Malaysia; Thailand; economic growth
    JEL: F00 F20
    Date: 2008–02–13
  4. By: Maximilian J. B. Hall (Dept of Economics, Loughborough University); Mulinman D. Hadad (Bank Indonesia, Jakarta, Indonesia); Wimboh Santoso (Bank Indonesia, Jakarta, Indonesia); Ricky Satria (Bank Indonesia, Jakarta, Indonesia); Karligash Kenjegalieva (Dept of Economics, Loughborough University); Richard Simper (Dept of Economics, Loughborough University)
    Abstract: In one of the first stand-alone studies covering the whole of the Indonesian banking industry, and utilising a unique dataset provided by the Indonesian central bank, this paper analyses the levels of intermediation-based efficiency obtained during 2007. Using Tone’s (2001) input-oriented, non-parametric slacks-based DEA model, and modifying it where necessary to deal with negative inputs and outputs (Sharp et al. 2006), we firstly estimate the relative average efficiencies of Indonesian banks, both overall, and by group, as determined by ‘bank total asset size’ and ‘bank status’. In the second part of the analysis, we adopt Simar and Wilson’s (2007) bootstrapping methodology to eliminate the ‘bias’ in the efficiency estimates and to formally test the impact of ‘bank total asset size’ and ‘bank status’ on Indonesian banks efficiencies. The results from the initial analysis show that: (i) average bank efficiency within the industry during 2007 lay between 62% – 67%; (ii) the most efficient group of banks was the ‘state-owned’ group with an average efficiency score over 90%, with the least efficient group being the ‘regional government-owned’ banks with average efficiency scores between 45% and 58%; (iii) ‘listed banks’ perform better, on average than ‘non-listed banks’; and (iv) ‘Islamic banks’, despite their different operational structure when compared with conventional banks, enjoyed average efficiency scores between 54% and 74%. In the second stage of the analysis, the bias corrected efficiency scores demonstrates that ‘regional government-owned’, ‘foreign exchange’, ‘non-foreign exchange’, and ‘joint-venture and foreign groupings’ were significantly less efficient than ‘state-owned’ banks, with the first-mentioned being the most inefficient and the other groupings ranked in ascending order of efficiency as listed. Moreover, ‘large total asset sized’ banks were shown to be more efficient than their ‘smaller total asset sized’ counterparts.
    Keywords: Indonesian Finance and Banking; Efficiency.
    JEL: C23 C52 G21
    Date: 2008–11
  5. By: Habibullah, M.S.; Smith, Peter; Dayang-Afizzah, A.M.
    Abstract: Kelantan has been the poorest state in Malaysia for the past five decades. Despite the various Malaysian Development Plans for the past several decades, regional disparity between states remains in Malaysia. Thus, the objective of the present paper is to address the question whether Kelantan has been narrowing their income gap with other states in Malaysia. Using annual data for the period 1961 to 2003, our panel unit root test result suggest that (i) Kelantan converges towards Kedah, Negeri Sembilan, Perak, Pahang, Perlis and Selangor.; (ii) Kelantan is catching-up to Johor, Melaka, Penang, Sabah, Terengganu and Wilayah Persekutuan; and (iii) Kelantan show divergence with Sarawak. In this respect, the government has an important role to play in enhancing growth by continuously providing stable economic environment for investment and other productive economic activities. This will ensure full convergence can take place in the future.
    Keywords: regional disparity; malaysia; panel data analysis
    JEL: O1 O18
    Date: 2008–01–18
  6. By: Habibullah, M.S.; Law, Siong-Hook
    Abstract: In this study we investigated the long-run relationship between property crime and three macro-financial economic variables in Malaysia for the period 1973 to 2003. In order to avoid what the econometrician term as ‘spurious regression problem’ we estimate the model using the vector-error correction (VECM) framework. The results tend to suggest that there are long-run relationship between property crime and the three macroeconomic variables in Malaysia. Our VECM results, however, suggest that there is no long-run and short-run causal effect of the three macro-variables on the property crime. Nevertheless, our variance decomposition results indicate that property crime in Malaysia is affect by economic growth measure by real income per capita. But, given the short sample nature of this study, our results should be viewed with cautious.
    Keywords: property crime; Malaysia; vectot error-correction model
    JEL: E24 K00
    Date: 2008–02–03
  7. By: Habibullah, M.S.; Dayang-Afizzah, A.M.; Liew, Venus Khim-Sen; Lim, Kian-Ping
    Abstract: The purpose of the present paper is to examine income convergence in Malaysia by using the nonlinear unit root test due to Kapetanios et al. (KSS, 2003) and extended by Chong et al. (CHLL, 2008) to permit the test of long-run convergence and catching-up hypotheses. We apply the KSS-CHLL nonlinear unit root for the test of nonlinear convergence between thirteen states with respect to Wilayah Persekutuan (the riches state) of Malaysia for the period 1965 to 2003. Generally, our results suggest that out of the thirteen states, only Kedah, Negeri Sembilan, Perak, Perlis and Selangor support the long-run convergence hypothesis while Johor, Kelantan, Melaka, Pahang and Penang suggest catching-up. Lastly, Sabah, Sarawak and Terengganu indicate income divergence from Wilayah Persekutuan.
    Keywords: nonlinear convergence; income; Malaysia
    JEL: O1 O18
    Date: 2008–06–14
  8. By: Christopher L. Gilbert
    Abstract: Commodity price booms are best explained by macroeconomic rather than market-specific factors. I argue that the rise in food prices over 2007 and the first half of 2008 should be seen as part of the wider commodity boom which is largely the result of rapid economic growth in China and throughout Asia in a context of loose money and in which, because of previous low investment, supply was inelastic. The demand for grains and oilseeds as biofuel feedstocks was the main cause of the price rise but macroeconomic and financial factors explain its extent. The futures market may be an important monetary transmission mechanism, but it is commodity investors, not speculators, who, by investing in commodities as an asset class, may have generalized prices rises across markets.
    Keywords: Food prices, commodity prices, money, futures markets
    JEL: Q11
    Date: 2008
  9. By: Habibullah, M.S.; Dayang-Afizzah, A.M.
    Abstract: Disparity in income across states and regions in Malaysia continues to be a matter of concern. The purpose of the present study is to investigate empirically the question of whether the economic development of the state of Sabah has an impact on her neighbouring countries or vice versa, the growth of her neighbouring countries have causal effect on the growth of the state of Sabah. Using annual data for the period 1983 to 2003, our results from employing the ARDL bounds testing approach indicate that the growth of the state of Sabah is affected by the growth of Brunei Darussalam, Sarawak, and Kalimantan Timur. Further, the growth of the state of Sabah has an impact on her neighbouring states, country and provinces during the period under study.
    Keywords: economic growth; Sabah; granger causality
    JEL: O1 O18
    Date: 2008–01–13
  10. By: Giorgio Canarella (California State University, Los Angeles, and University of Nevada, Las Vegas); Stephen M. Miller (University of Nevada, Las Vegas, and University of Connecticut); Stephen K. Pollard (California State University, Los Angeles)
    Abstract: This paper explores the dynamic linkages that portray different facets of the joint probability distribution of stock market returns in NAFTA (i.e., Canada, Mexico, and the US). Our examination of interactions of the NAFTA stock markets considers three issues. First, we examine the long-run relationship between the three markets, using cointegration techniques. Second, we evaluate the dynamic relationships between the three markets, using impulse-response analysis. Finally, we explore the volatility transmission process between the three markets, using a variety of multivariate GARCH models. Our results also exhibit significant volatility transmission between the second moments of the NAFTA stock markets, albeit not homogenous. The magnitude and trend of the conditional correlations indicate that in the last few years, the Mexican stock market exhibited a tendency toward increased integration with the US market. Finally, we do note that evidence exists that the Peso and Asian financial crises as well as the stock-market crash in the US affect the return and volatility time-series relationships.
    Keywords: NAFTA stock markets, cointegration, impulse response, volatility transmission
    JEL: G10 C30 C50
    Date: 2008–12

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