nep-sea New Economics Papers
on South East Asia
Issue of 2009‒01‒17
fourteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Manufacturing Growth, Trade and Labour Market Outcomes in East Asia; Why Did the NIEs Forge so far Ahead? By Chris Manning; Alberto Posso
  2. What is the Long Run Growth Rate of the East Asian Tigers? By Rao, B. Bhaskara; Tamazian, Artur; Singh, Rup
  3. Has emerging Asia decoupled? An analysis of production and trade linkages using the Asian international input-output table By Gabor Pula; Tuomas A. Peltonen
  4. Regional Integration in Asia and Its Effects on the EU and North America By Hiro Lee; Robert F. Owen; Dominique van der Mensbrugghe
  5. Growth and Inequality: The Case of Indonesia, 1960-1997 By van der Eng, Pierre
  6. Social Impact of Coffee Crisis on the Pasemah coffee farmers in South Sumatera By Aloysius Gunadi, Brata
  7. Exporting and Firm Performance: Chinese Exporters and the Asian Financial Crisis By Albert Park; Dean Yang; Xinzheng Shi; Yuan Jiang
  8. Spatial Concentration of the Informal Small and Cottage Industry in Indonesia By Aloysius Gunadi, Brata
  9. Agricultural Trade Reform and Poverty in the Asia-Pacific: A Survey and Some New Results By John Gilbert
  10. Effect of mergerson efficiency and productivity: Some evidence for banks in Malaysia By Radam, Alias; Baharom, A.H.; Dayang-Afizzah, A.M.; Ismail, Farhana
  11. BIMSTEC-Japan Trade Cooperation and Poverty in Asia By John Gilbert
  12. The Islamic Inter bank Money Market and a Dual Banking System ; The Malaysian Experience. By Bacha, Obiyathulla/I
  13. An Exploration of Incentive-Compatible ELIE By Laurent Simula; Alain Trannoy
  14. When Kolm Meets Mirrless: ELIE By Alain Trannoy; Laurent Simula; Laurent Simula

  1. By: Chris Manning; Alberto Posso
    Abstract: This paper seeks to explain different real wage outcomes in two groups of East Asian economies: two New Industrialising Economies (NIEs: Korea and Taiwan), and three Southeast Asian economies (ASEAN-3: Malaysia, Thailand and Indonesia), all of which grew rapidly for several decades prior to the Asian economic crisis. Drawing on international and national data sets, the paper examines dynamic interactions between manufacturing growth and labour market outcomes. It adopts the dualistic Lewis model, which highlights the role of ‘unlimited’ supplies of labour in economic development and the transition towards the turning point, as a heuristic device to inform the empirical analysis. A simple regression model is employed to examine the determinants of real wages over the first two decades of accelerated growth in the two groups of economies. This finds that while both demand and supply factors contributed to real wage growth, the supply variable which proxied surplus labour conditions was especially significant in the NIEs compared with the ASEAN-3. The model did not find any evidence for institutional factors having a significant impact on the different wage outcomes between the NIEs and the ASEAN-3.
    Keywords: China, global production sharing, U.S.-China trade imbalance
    JEL: F16 J20 O14
    Date: 2008
  2. By: Rao, B. Bhaskara; Tamazian, Artur; Singh, Rup
    Abstract: New panel data estimates for the four East Asian Tigers show that the contribution of total factor productivity (TFP) to growth is much higher than past estimates. An extended production function with learning by doing implies that TFP is about 3.5% and these countries will grow at this rate in the long run.
    Keywords: Asian Tigers; Systems Dynamic GMM; Growth Accounting; Factor Accumulation as Residual
    JEL: O11 N15
    Date: 2009–01
  3. By: Gabor Pula (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Tuomas A. Peltonen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Due to the emergence of global production networks, trade statistics have became less accurate in describing the dependence of emerging Asia on external demand. This paper analyses, using an update of the Asian International Input-Output (AIO) table, the interdependence of emerging Asian countries, the United States, the EU15, and Japan via trade and production linkages. According to the results, we do not find evidence of the decoupling of emerging Asia from the rest of the world. On the contrary, we find evidence on increasing trade integration, both globally and regionally. Nonetheless, our analysis indicates that emerging Asia’s dependence on exports is only about one-third of its GDP, i.e. well below the 50% exposure suggested by trade data. This finding can be explained by the high import content of exports in these economies, which is a result of the increasing segmentation of production across the region. JEL Classification: F14, C67, E23.
    Keywords: Emerging Asia, Asian International Input-Output table, real linkages, decoupling, resilience.
    Date: 2009–01
  4. By: Hiro Lee (Osaka School of International Public Policy (OSIPP),Osaka University); Robert F. Owen (Institute of Economics and Management of Nantes, University of Nantes); Dominique van der Mensbrugghe (Senior Economist, The World Bank)
    Abstract: Consequences of free trade agreements (FTAs) among the ASEAN+3 countries and ASEAN+6 countries are explored using a dynamic computable general equilibrium (CGE) model. Quantitative assessments of intra and extra-regional effects on welfare, trade and output are offered. When both trade facilitation and endogenously determined productivity are included in the FTA scenarios, Singapore, other ASEAN countries and China would be able to realize relatively large welfare gains, while the welfare effects on the EU and North America are negligible. The trade and output effects on the latter two regions are also relatively small, with the notable exception of crops, other than rice, in North America.
    Keywords: Regional integration, FTA, East Asia, welfare effects, CGE model
    JEL: C68 F15 F17
    Date: 2008–12
  5. By: van der Eng, Pierre
    Abstract: This paper investigates whether the ‘Kuznets hypothesis’, that economic growth from low levels of GDP per capita is initially associated with an increase in income inequality and later followed by a decline in inequality, is supported by evidence for a less-developed country, Indonesia. The paper outlines the relevant features of the process of rapid growth and structural change, in particular industrialisation since the 1960s. It notes the possible consequences of this process for changes in income distribution, and draws on disparate sets of statistical data to trace trends in income inequality in Indonesia. The paper concludes that the evidence for Indonesia suggests an increase in inequality during the 1970s and a subsequent decrease of inequality until 1997. A comparison of the evidence with historical data for the UK and Japan suggests that income inequality in Indonesia was relatively low.
    Keywords: income inequality; Kuznets hypothesis; Indonesia; economic development
    JEL: D31 N35 O15 R12
    Date: 2009–01–14
  6. By: Aloysius Gunadi, Brata
    Abstract: In the last two decades, the world price of coffee has fallen significantly. The crisis has suffered millions of small coffee farmers in developing countries. However, in contrast to Latin America and Africa, studies on the impact of recent coffee crisis on the farmers tend to neglect Indonesia, one of the important coffee producing countries in Asia. The purpose of this paper is to assess the impact of recent coffee crisis on the Pasemah coffee farmers. The Pasemah highland, in Lahat District, located at the Coffee Triangle or Southern Coffee Belt, which stretches across the three provinces in Sumatera, namely South Sumatera, Lampung, and Bengkulu. This highland is one of the important coffee producing areas in Indonesia and has a long history of the coffee cultivation. This study indicates that the recent coffee crisis also have a serious impact on the coffee farmers’ daily life in the Pasemah highland. The crisis depressed farmers’ level of living. The farmers used various strategies to survive their life. They changed their consumption pattern, such as substituting Dji Sam Soe—an expensive cigarette—with Gandum—a very cheap one. The story of prosperous coffee farmers has ended since the end of 1980s. Rather than ‘tunggu dusun’ (waiting the village), some of the Pasemah coffee farmers chose to stop operating their coffee farms and looked for other informal jobs, or went to Jabotabek to be urban informal workers. Other farmers preferred to make crop diversification on their farms. However, producing coffee is still an important agricultural activity for most farmers in Pasemah.
    Keywords: coffee crisis; smallholder; Pasemah; South Sumatera; Indonesia.
    JEL: Z1 Q17 O13
    Date: 2007
  7. By: Albert Park; Dean Yang; Xinzheng Shi; Yuan Jiang
    Abstract: We ask how export demand shocks associated with the Asian financial crisis affected Chinese exporters. We construct firm-specific exchange rate shocks based on the pre-crisis destinations of firms' exports. Because the shocks were unanticipated and large, they are a plausible instrument for identifying the impact of exporting on firm productivity and other outcomes. We find that firms whose export destinations experience greater currency depreciation have slower export growth, and that export growth leads to increases firm productivity and other firm performance measures. Consistent with "earning-by-exporting", the productivity impact of export growth is greater when firms export to more developed countries.
    JEL: D24 F10 F31 L60
    Date: 2009–01
  8. By: Aloysius Gunadi, Brata
    Abstract: This paper discusses the spatial concentration of the small and cottage industry without legal entity in Indonesia. The study period is 1998-2004 or a period after economic crisis which commonly known as the ‘era reformasi’ (reformation era). By employing the Herfindahl index, this study found an increase in the spatial concentration of the informal small and cottage industry during this period. It argues that reformation tend to increase the spatial concentration of the informal small and cottage industry. Beside the economic crisis that have suffered urban and Java areas, other possible explanation on the connection between trend of the concentration and the reformation is what commonly known as the cost of formality.
    Keywords: spatial concentration; small and cottage industry; reformation; Indonesia
    JEL: O18 O17 R11
    Date: 2007
  9. By: John Gilbert (Department of Economics and Finance, Utah State University)
    Abstract: We review the literature on the relationship between agricultural trade policy reform and poverty, and the results of recent detailed simulation studies applied to economies in the Asia- Pacific region. We then use the GTAP model to evaluate the possible impacts of the most recently proposed modalities for agricultural trade reform under Doha on the economies of the Asia-Pacific region, which we compare to a benchmark of comprehensive agricultural trade reform. The current proposal does not result in significant cuts to applied tariffs, and has very modest overall effects on welfare. Poverty in the region would decrease overall, but the distribution across countries is uneven. By contrast, comprehensive agricultural trade reform, with developing economies fully engaged, tends to benefit most economies in the region in the aggregate, and to consistently lower poverty.
    Keywords: Agricultural trade, Doha, Asia-Pacific, Poverty
    JEL: F13 F17 C68 O53
    Date: 2008–12–19
  10. By: Radam, Alias; Baharom, A.H.; Dayang-Afizzah, A.M.; Ismail, Farhana
    Abstract: This study is undertaken to investigate the extent to which mergers lead to efficiency by which services are provided to the public and the productivity of Malaysia’s banking institutions sector. The data cover the period 1993 to 2004, which includes the pre-merger years and the post-merger years. This study attempts to evaluate technical efficiency, efficiency change, technical change and productivity of commercial banks, finance companies and merchant banks using a non-parametric Data Envelopment Analysis (DEA) and Malmquist Index approach as the framework for the analyses. It is found that: (1) that on average, productivity across banking institutions increased at annual rate of 5.8% over the study period 1993 to 2004; (2) the results also indicated that almost all of the productivity growth comes from technical change (or innovations in banking technology) rather than improvement in efficiency change, which contributes for 6.1% of productivity growth, while the latter accounted for 0.2% decline; (3) the merger process led to productivity improvements whereby, it is observed that the productivity of Malaysia’s banking sector has been improved (in terms of efficiency) after the implementation of merger program for domestic banking institutions in 1999. This might be due to the utilization of their scale economies to improve their efficiencies. However, the productivity of banking institutions has been affected by certain economic conditions in year 2001 and 2004 (such as the September 11 tragedy and the process of capital rationalization that merged entities have undergone).
    Keywords: Banking sector; Mergers; DEA and Malmquist index;Malaysia
    JEL: G14 G34 E44 G21
    Date: 2008–06–04
  11. By: John Gilbert (Department of Economics and Finance, Utah State University)
    Abstract: We review the literature on the relationship between trade policy reform and poverty, and recent approaches in the numerical simulation literature to estimating the impact of alternative trade reform scenarios. The GTAP model is then used to simulate the effect of the trade cooperation among the economies of BIMSTEC and Japan on aggregate welfare and poverty in the BIMSTEC member economies. As a case study, the results of the global model simulations are then used as an input to a more detailed model of simulation model of India, which identifies nine household groups classifed by their source of income and consumption pattern. Detailed estimates of the effect of trade reform at the household level are presented for India.
    Keywords: Trade reform, CGE, regional trading agreements, poverty, India, BIMSTEC
    JEL: F13 F17 C68 O53
    Date: 2008–12–19
  12. By: Bacha, Obiyathulla/I
    Abstract: This paper examines the operation of an Islamic Interbank Money market (IIMM), within a dual banking system. The paper argues that even though an Islamic Money market operates in an interest free environment and trades shariah compliant instruments, many of the risks associated with conventional money markets, including interest rate risk is relevant to an Islamic Money Market operating within a dual banking system. The empirical evidence based on Malaysian data, points to Islamic money market profit rates/yields that are highly correlated and move in sync with conventional money market rates. Given the dynamics of fund flows and cross linkages, an IIMM operating within a dual banking system cannot sterilize itself from interest rate risk. In fact, the paper argues that such an IIMM may actually enhance interest rate risk transmission to the Islamic banking sector, by providing additional channels of transmission. Ironical as it may be, the operations of an IIMM in a dual banking system may serve to bring the Islamic banking sector into closer orbit with the conventional sector.
    Keywords: Islamic Interbank Money Market; Dual Banking; Malaysia
    JEL: D53 D02 E44
    Date: 2008
  13. By: Laurent Simula (National University of Singapore and IDEP); Alain Trannoy (Greqam-Idep, EHESS)
    Abstract: Simula and Trannoy (2007) have shown that ELIE is confronted with implementation issues when the policymaker cannot observe the time worked by every individual. This paper tries to fix this problem. To this aim, it characterizes the second-best allocations which are the closest to ELIE (i) in terms of welfare and (ii) in terms of transfers. In (i), we consider a welfarist setting in which the social weights are those required by ELIE to be generated as a first-best allocation. More precisely, these weights are defined by the tangent hyperplane to the first-best Pareto set at the ELIE allocation. We show that, in the absence of income effect on labour supply, the closest solution to ELIE is the laissez-faire. Moreover, simulations for a Cobb-Douglas economy show that the second-best transfers may then be substantially different from ELIE. This is why, in (ii), we construct second-best allocations which are both incentive-compatible and for which the income tax schedule generates net transfers which coincide with the first-best ELIE transfers. We show that there is a unique solution which is Pareto-efficient.
    Keywords: Redistribution, Incentive Compatibility, Optimal Income Taxation
    JEL: H21 H24 D63
    Date: 2008–12–14
  14. By: Alain Trannoy (Greqam-Idep, EHESS); Laurent Simula (National University of Singapore and IDEP); Laurent Simula (National University of Singapore and IDEP)
    Abstract: This article discusses the properties of Kolm’s ELIE proposal in the context of optimal income taxation `a la Mirrlees. It first shows that ELIE gives rise to non-standard type-dependent budget sets, which has important implications in terms of a minimum labour requirement. Second, it adopts the Mirrleesian framework to characterize ELIE as a first-best tax scheme and casts light on the very specific shape of the distribution of social weights that generate it. Third, it shows that ELIE is incentivecompatible only when both gross income and time worked are verifiable, which seems to be a strong assumption for a non-negligible number of taxpayers.
    Keywords: ELIE, Income Redistribution, Optimal Taxation, Incentive Compatibility.
    JEL: H21 H24 D63
    Date: 2007–11

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