nep-sea New Economics Papers
on South East Asia
Issue of 2009‒01‒24
four papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Stock Market Integration and Volatility Spillover:India and its Major Asian Counterparts By Mukherjee, Dr. Kedar nath; Mishra, Dr. R. K.
  2. Things are different when you open up: Economic openness, domestic economy, and income By Beja, Edsel
  3. How vertically specialized is Chinese trade? By Dean, Judith; Fung , K.C.; Wang, Zhi
  4. Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy? By Sungbae An; Yongsung Chang; Sun-Bin Kim

  1. By: Mukherjee, Dr. Kedar nath; Mishra, Dr. R. K.
    Abstract: Return and volatility spillover among Indian stock market with that of 12 other developed and emerging Asian countries over a period from November 1997 to April 2008 is studied. Daily opening and closing prices of all major equity indices from the sample countries are examined by applying the GARCH model [Engle (1982) and Bollerslev (1986)] to explore the possibility of stock market integration and volatility spillover among India and its major Asian counterparties. Apart from different degrees of correlations, both in terms of return and squared return series, among Indian stock market with that of other Asian countries, the contemporaneous intraday return spillover among India and almost all the sample countries are found to be positively significant and bi-directional. More specifically, Hong Kong, Korea, Singapore and Thailand are found to be the four Asian markets from where there is a significant flow of information in India. Similarly, among others, stock markets in Pakistan and Sri Lanka are found to be strongly influenced by movements in Indian market. Though most of the information gets transmitted among the markets without much delay, some amount of information still remains and can successfully transmit as soon as the market opens in the next day.
    Keywords: Asian stock markets; Integration; Information spillover; GARCH model
    JEL: G14 G15 G10
    Date: 2008–12–26
  2. By: Beja, Edsel
    Abstract: “Does economic openness increase income?” is retested using quantity measures of trade, finance, and domestic economic size, and the short answer is: “It de-pends”. The results show that Africa and the Americas lose from both trade and financial openness, while Asia gains from trade openness but loses from financial openness. The industrialized region benefits from both trade and financial open-ness. In all regions, the domestic base compensates for any adverse effects of economic openness. The overall experience of economies with openness can be enhanced with healthier external and domestic engagements. The case study on the Philippines finds that the country gains from trade and financial openness but not from the domestic base. In this case, economic progress is difficult because the gains from external engagement are wiped out by the losses from domestic economy disengagement.
    Keywords: Economic openness; trade; finance; domestic economy; income
    JEL: F40 F00 F20 F10 O10 B50
    Date: 2009–01–15
  3. By: Dean, Judith (BOFIT); Fung , K.C. (BOFIT); Wang, Zhi (BOFIT)
    Abstract: Two recent phenomena have transformed the nature of world trade: the explosive growth of Chinese trade, and the growth of vertically specialized trade due to international production fragmentation. While vertical specialization may explain much of the growth and unique features of Chinese trade, few papers have quantitatively assessed these two phenomena together. In part, this is because it is difficult to measure just how vertically specialized Chinese trade is. The unique features of China's extensive processing trade cause both the identification of imported intermediate goods, and their allocation across sectors, to depend upon the Chinese trade regime. In this paper, we estimate the vertical specialization of Chinese exports, addressing these two challenges. Using two Chinese benchmark input-output tables, and a detailed Chinese trade dataset which distinguishes processing trade from other forms of trade, we develop a new method of identifying intermediate goods imported into China. Vertical specialization is then estimated using two methods. The first method uses the Hummels, Ishii and Yi (2001) measure, the official benchmark IO tables, and incorporates our identification correction. The second method follows the first, but also incorporates the Koopman, Wang and Wei (2008) method of splitting the benchmark IO tables into separate tables for processing and normal exports, in order to address the allocation problem. Results show strong evidence of an Asian network of intermediate suppliers to China, and the two methods provide a range of estimates for the foreign content of Chinese exports. In 2002 aggregate exports ranges between 25% and 46%, with some individual sectors are as high as 52%-95%. Across destinations, under both methods, the vertical specialization of Chinese exports declines with the level of development of the trading partner.
    Keywords: China; fragmentation; vertical specialization; trade growth
    JEL: F10 F14
    Date: 2009–01–13
  4. By: Sungbae An (Singapore Management University); Yongsung Chang (University of Rochester); Sun-Bin Kim (Korea University)
    Abstract: Accounting for observed fluctuations in aggregate employment, consumption, and real wage using the optimality conditions of a representative household often requires preferences that are incompatible with economic priors (e.g., Mankiw, Rotemberg, and Summers 1985). This discrepancy between the equilibrium model and the aggregate data is often viewed as evidence of the failure of labor-market clearing. We argue that such a conclusion is premature. We construct a model economy where all prices are flexible and all markets clear at all times but household decisions are not readily aggregated because of incomplete capital markets and the indivisible nature of the labor supply. We demonstrate that if we were to explain the model-generated aggregate time series using decisions of a fictitious" stand-in household, such a household is likely to have a non-concave or unstable utility. Our analysis suggests that the representative-agent model often fails to represent an equilibrium outcome of a heterogeneous-agent economy.
    Keywords: Representative-agent model, Aggregation, Heterogeneity, Incomplete Markets, Indivisible Labor, GMM Estimation
    JEL: E24 E32 J21 J22
    Date: 2008–09

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