nep-sea New Economics Papers
on South East Asia
Issue of 2009‒04‒25
fifteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Volatility Dependence across Asia-Pacific Onshore and Offshore Currency Forwards Markets By Roberta Colavecchio; Michael Funke
  2. Evidence on the External Finance Premium from the US and Emerging Asian Corporate Bond Markets By Paul Mizen; Serafeim Tsoukas
  3. The Impact of the US Subprime Mortgage Crisis on the World and East Asia By Shirai, Sayuri
  4. A Factor Analysis of Trade Integration: The Case of Asian and Oceanic Economies By Yin-Wong Cheung; Matthew S. Yiu; Kenneth K. Chow
  5. When Wetland Conservation Works - an Assessment from Lao PDR By Phoupet Kyophilapong
  6. It Is Fair To Act Now! The Distributional Impact Of A Carbon Tax Policy In Indonesia By Arief Anshory Yusuf
  7. What Future for the Hong Kong Dollar Corporate Bond Market? By Tony Latter
  8. Evaluating the Present State of Japan as An International Financial Center By Shirai, Sayuri
  9. The Optimal Currency Basket with Input Currency and Output Currency By Kang Shi; Juanyi Xu
  10. Comparing national systems of innovation in Asia and Europe: theory and comparative framework By Edquist, Charles; Hommen, Leif
  11. A Cost-Benefit Analysis of Alternative Pig Waste Disposal Methods Used in Thailand By Siriporn Kiratikarnkul
  12. The Impact of Irrigation on Aquatic Wetland Resources - A Case Study of That Luang Marsh, Lao PDR By Phoupet Kyophilapong
  13. The Evolution of the Hong Kong Currency Board During Global Exchange Rate Instability: Evidence from the Exchange Fund Advisory Committee 1967-1973 By Catherine R. Schenk
  15. The single global currency - common cents for the world (2008 Edition) By Bonpasse, Morrison

  1. By: Roberta Colavecchio (Hamburg University); Michael Funke (Hamburg University)
    Abstract: This paper estimates switching autoregressive conditional heteroskedasticity (SWARCH) time series models for weekly returns of nine Asian forward exchange rates. We find two regimes with different volatility levels, whereby each regime displays considerable persistence. Our analysis provides evidence that the knock-on effects from China¡¦s currency forwards markets upon other Asian countries have been modest, in that little evidence exists for co-dependence of volatility regimes.
    Keywords: China, Renminbi, Asia, Forward Exchange Rates, Non-Deliverable Forward Market, SWARCH Models
    JEL: C22 F31 F36
    Date: 2009–02
  2. By: Paul Mizen (University of Nottingham); Serafeim Tsoukas (University of Nottingham)
    Abstract: Empirical investigation of the external finance premium has been conducted on the margin between internal finance and bank borrowing or equities but little attention has been given to corporate bonds especially for the emerging Asian market. In this paper we hypothesize that balance sheet indicators of creditworthiness could affect the external finance premium for bonds as they do for premia in other markets. Using bond-specific and firm-specific data for the United States, Hong Kong, China, Korea and Thailand during 1995-2005 we find that firms with better financial health face lower external finance premia in all countries. When we introduce firm-level heterogeneity we show that financial variables appear to be both statistically and quantitatively more important in the Asian market than in the US. Finally, the premium is more sensitive to firm-level variables during credit crunches, recessions and sudden stops than other periods, with stronger effects for the Asian bond market.
    Keywords: Financing Constraints, External Finance Premium, Emerging Asian Markets
    JEL: F32 F34 G32
    Date: 2008–07
  3. By: Shirai, Sayuri
    Abstract: The world economy currently suffers from a global financial and economic crisis that has become severe since the second half of 2008. This global financial situation was triggered by the advent of the subprime mortgage crisis in the United States that became apparent from the mid-2007s. Europe was the next affected, thereafter its contagion spread to the rest of the world. East Asia did not escape. The nature of the current global financial crisis is unprecedented in terms of (1) the scale of the problems in the financial sector (particularly in the United States and Europe), (2) the depth and speed of contagion worldwide (through financial sector and trade linkages), and (3) the severity of the recession (particularly in emerging market economics, small countries, and East Asia). This paper analyzes, mainly, cross-border capital movements by looking at the pre-crisis features of the United States as the crisis hypocenter and its relationships with other countries. Detailed observations are conducted with respect to cross-border investment in stocks and debt securities, as well as banking activities. The paper then sheds light on the impact of the subprime mortgage crisis on cross-border capital movements in the United States, the United Kingdom, and East Asia. Other performance indicators such as exchange rates, economic growth and international trade are also discussed in the case of East Asia. The paper examines several challenges the recent crisis poses for East Asia.
    Keywords: Subprime Mortgage; Global Economic Crisis; East Asia; Cross-border capital flows
    JEL: F3 G15
    Date: 2009–04–02
  4. By: Yin-Wong Cheung (University of California, Santa Cruz); Matthew S. Yiu (Hong Kong Monetary Authority); Kenneth K. Chow (Hong Kong Institute for Monetary Research)
    Abstract: We study trade integration among 15 selected Asian and Oceanic economies using factor models. The principal component approach is employed to extract the common factor that drives trade integration from bilateral trade integration series. It is found that the estimated common trade integration factor has strong seasonal and deterministic components. In accordance with theory, the common trade integration factor is significantly associated with the economic growth and the trade barriers of the 15 economies. However, we find no evidence that the common trade integration factor is affected by foreign direct investment. The basic model is extended to incorporate an ASEAN factor that affects trade integration among the ASEAN economies in our sample.
    Keywords: Factor Model, Principal Component, Growth, Trade Barriers, ASEAN
    JEL: F15 F36 F42
    Date: 2009–03
  5. By: Phoupet Kyophilapong (Faculty of Economics and Business Management, National University of Laos)
    Abstract: Wetlands are among the most important habitats for wildlife in the world. However, across Southeast Asia many wetland areas are under threat from water extraction and a range of other development pressures. This study finds that conserving wetlands can provide significant economic benefits.
    Keywords: wetland, conservation, Lao PDR
    JEL: Q51 Q56 Q57
    Date: 2009–03
  6. By: Arief Anshory Yusuf (Department of Economics, Padjadjaran University)
    Abstract: It is widely acknowledged that the three dimensions of sustainable development economic, social, and environmental-are crucial, inseparable and inter- related. In many cases, however, their goals come into conflict with one another. This conflict often arises in the case of environment-related policies, the issue of climate change mitigation being no exception. Climate change mitigation policies to reduce carbon emissions from the energy sector by way of measures such as introducing a carbon tax have been widely known to be regressive i.e., the burden is borne more by lower income rather than higher income households, thereby making income distribution less equitable or fair. An expectation of such an adverse distributive effect may even prevent the policy from being implemented in the first place.
    Keywords: Carbon tax, Climate change, Indonesia
    JEL: Q58 Q54
    Date: 2008–10
  7. By: Tony Latter (Institute of Economics and Business Strategy, University of Hong Kong)
    Abstract: There have been persistent calls for development of bond markets in Asia. This study focuses, in particular, on prospects for the corporate bond market in Hong Kong. The distinctive approach has been to elicit the views of the actual or prospective end-users of the market, or those representing their interests, since, without the corporate issuers and the ultimate investors, the market could not be expected to mature further. The market lacks sufficient mass to generate the liquidity, fine pricing and narrow spreads observable in, say, the US market; but it is in all other respects efficient. There is little evidence of unsatisfied demand to issue or to invest. This reflects the limited population of companies which could, given size, credit standing, costs, etc, realistically aspire to issue; the limited investor appetite for such paper; and the competing attractions of the US dollar market for both sides. A comparison of the characteristics of bank finance and the bond market suggests that the purported advantages of the latter in providing a ¡¥spare tyre¡¦ for times of crisis may be exaggerated. In particular, many of those who have argued, notably since the 1997 Asian financial crisis, for action to develop the corporate bond market, have seemingly failed to appreciate that only a minority of firms can realistically expect to access the market, and that the market itself, especially at sub-investment grade, can, if existing at all, be extremely capricious. Regardless of how the Hong Kong dollar market fares, Hong Kong institutions should continue to contribute value added to the economy through the arrangement, distribution, etc of bond issues more generally, and should be well placed for involvement in renminbi bond business, once that is permitted to develop further.
    Date: 2008–10
  8. By: Shirai, Sayuri
    Abstract: Japan has various advantages over many other countries in terms of the capacity to further develop the capital, financial, and foreign exchange markets as a more internationally-competitive financial center. The advantages include the 2nd largest economic size (large market size), ample financial assets (large investor base), presence of many internationally-competitive knowledge-intensive manufacturing firms (large issuer base), good infrastructure, the 2nd largest stock market (large market access), role of the Japanese yen as one of key international currencies, etc. Despite these advantages and a series of reforms implemented since 1997 under the slogan of Japanese version of “Financial Big Bang”, Japan has not been able to foster an internationally-competitive international financial center until today. The gaps with the United States and United Kingdom have expanded further over the past decade. This paper gives a detailed analysis over the present state of Japan’s capital, financial, and foreign exchange markets to highlight where Japanese advantages and challenges lie, as compared with the United Kingdom and the United States. It also provides a clear picture of Japan’s position in Asia (Korea, Singapore, Hong Kong, and mainland China). It also reviews recent Government’s vision and actions.
    Keywords: Japan; International Financial Center; Financial Big Bang
    JEL: G1 F36
    Date: 2009–03–01
  9. By: Kang Shi (The Chinese University of Hong Kong); Juanyi Xu (Hong Kong University of Science and Technology)
    Abstract: This paper explores the determination of the optimal currency basket in a small open economy general equilibrium model with sticky prices. In contrast to traditional literature, we focus on an economy with vertical trade, where one currency is used as the invoicing currency of imported intermediate goods and is called the "input currency", while the other currency is used for the invoicing of exported finished goods and is called the "output currency". We find that in the optimal currency basket the weight between the input currency and the output currency depends critically on the structure of vertical trade. Moreover, we show that if a country decides to choose a single-currency peg, then the choice of pegging currency depends mainly on how other economies respond to external exchange rate fluctuations. In a sense, our paper provides a case for the Chinese RMB peg in some East Asian economies, given the importance of the RMB as an input currency.
    Keywords: Input Currency, Output Currency, Currency Basket Peg, Welfare
    JEL: F3 F4
    Date: 2008–09
  10. By: Edquist, Charles; Hommen, Leif
    Abstract: This chapter is structured as follows. In the introductory section, the objectives of the “Small Country Innovation Systems” book project are outlined and the methodological and theoretical foundations of the book are addressed. This is followed by an extended conceptual and theoretical discussion. Using the traditional systems of innovation approaches as the point of departure, we specify the most important concepts used in the book. Subsequently, we outline an activities-based framework for studying and comparing NSIs. Then we discuss the characteristics of the ten countries selected for study (Norway, Sweden, Finland, Denmark, the Netherlands, Ireland, Singapore, Hong Kong, Taiwan and South Korea). Finally we outline the common structure of each of the country studies, including the presentation of a model table of contents. The chapter ends with abstracts of the ten case studies.
    Keywords: National System of Innovation, comparative framework
    JEL: O31 O32 O33 O34 O38 N5 O47 R58
    Date: 2008
  11. By: Siriporn Kiratikarnkul (Faculty of Economics, Maejo University)
    Abstract: This study looks at the costs and benefits of the main pig waste disposal options used by intensive pig farmers in Thailand. It aims to see which alternatives give the most benefits to farmers and to society as a whole. It also aims to understand why farmers are reluctant to adopt biogas conversion technology, as this approach is being heavily promoted by the government. The study finds that, as it is currently implemented, biogas conversion actually provides fewer benefits than many of the other waste management solutions that are being used. However the report also finds that, if the necessary technical and financial support are extended to help farmers use biogas to produce electricity and sell this to the national grid, then biogas conversion would become a good option. The study recommends that the Thai government should provide technical and financial support to encourage pig farmers to install biogas systems and help them generate electricity and sell it. It highlights the fact that there is a pressing need to support and promote this renewable energy source, which would benefit pig farmers, the environment and the economy in general.
    Keywords: cost-benefit analysis, waste, Thailand
    JEL: Q53
    Date: 2008–12
  12. By: Phoupet Kyophilapong (Faculty of Economics and Business Management, National University of Laos)
    Abstract: This study assesses the impact of irrigation on That Luang Marsh (TLM) in Vientiane, the capital city of the People’s Democratic Republic (PDR) of Laos. The study finds that the economic benefits provided by the marsh (particularly in terms of the fish it supplies to local people) far outweigh the benefits provided by the extraction of water for irrigation. As extraction of water for irrigation is threatening the ecology of the marsh and its ability to maintain a viable stock of fish, it is clear that the amount of water extracted for irrigation should be reduced. The report recommends that a minimum level for the water in TLM should be set to ensure the conservation of its precious wetland ecosystem. The report finds that, on balance, this would have a positive impact on the livelihoods of local people. This means that the conservation of the marsh makes good economic sense. To help the farmers who would be negatively affected by these measures, the report shows how they could be trained to use irrigation water more effectively, grow alternative crops that require less water than rice, catch fish and collect vegetables.
    Keywords: wetland, conservation, Lao PDR
    JEL: Q50 Q51 Q56 Q57
    Date: 2009–03
  13. By: Catherine R. Schenk (University of Glasgow)
    Abstract: Hong Kong is one of a few economies that operate a variation of a currency board as the basis of their monetary system. This system has persisted despite dramatic changes in the way that the international monetary system operates and despite changes in Hong Kong's political status. The currency board now faces new challenges with the greater flexibility in the RMB exchange rate and the recent depreciation of the USD that has been dramatically reversed as part of the global financial crisis of 2008. This paper examines how the operations of the Exchange Fund were adapted to react to an earlier period of international monetary disorder when the pegged exchange rate system of the 1950s and 1960s collapsed. Based on archival evidence from the HSBC Group Archive, the HSBC Asia Pacific Archive, the Bank of England, UK Treasury and UK Foreign Office, this paper examines how the core rule of issuing currency only against foreign exchange assets was abandoned in 1972. It presents new data on the accounts of the Exchange Fund for this period and describes minutes of the meetings of the Exchange Fund Advisory Committee. The evidence explores the 1972 decision in its longer term policy context and argues that it was the culmination of a series of alterations to the operation of the Exchange Fund during the collapse of the pegged exchange rate system from 1967 onward. The main argument is that the Hong Kong government's response to the crumbling of the international monetary system was to make the Exchange Fund operate as much more than a currency board well before 1972. In particular, it was used to provide forward cover for commercial banks but this proved especially costly in the volatile environment of the end of the global pegged exchange rate system, so that in 1974 the assets of the Exchange Fund fell to 77% of the note issue.
    Date: 2009–01
  14. By: Vadlamannati, Krishna Chaitanya
    Abstract: Both theoretical and empirical literatures have identified several channels through which FDI influence economic growth in developing countries. This study however examines the growth effects of U.S. FDI in 64 developing countries over the period 1980-2006. We also measure the strength of host countries “absorptive capabilities” to adopt and adapt the foreign technology from an advanced country like U.S. The relative differences in factor endowments between the U.S. and individual host countries along with economic and institutional policy reforms are used as absorptive capabilities in this study. Using aggregate production function augmented with U.S. FDI inflows, policy reforms, factor endowment differences and their interactions with U.S. FDI demonstrate that: (a) irrespective of capability level, an increase in the stock of U.S. FDI effects output growth positively. (b) After controlling for omitted variable and endogenity bias using IV method, the upward bias of growth effects of U.S. FDI came down from an excess of 7% to 4%. (c) The results with respect to absorptive capabilities are mixed. While the beneficiary effects of U.S. FDI are stronger in countries reforming economy and institutions, we could not find significant results for dissimilarity in endowments leading to costlier technology transfers from U.S. (d) Furthermore, the growth effects of U.S. FDI are positively significant in post cold war period to pre-cold war era. Similarly, in post cold war period, the growth effects of U.S. FDI are strongly positive and significant in Asia and Latin countries, while the same couldn’t be found for Africa neither in 1980s nor in 1990s.
    Keywords: FDI; economic growth; policy reforms; factor endowments
    JEL: O10 F23
    Date: 2009–04–17
  15. By: Bonpasse, Morrison
    Abstract: Abstract This is the 2008 Edition of one of only two book in print in the world about the Single Global Currency, and is the only book in the world priced in 141 currencies (down from 147 in the 2006 edition.).This number is significant, as it's the number of currencies required among the 192 U.N. members to conduct local business, including the payment of taxes. The book describes the origins of the current worldwide foreign exchange system, and tells how to change it; and save the world - trillions. The multicurrency foreign exchange trading system was developed about 2,500 years ago to enable people of different currency areas to trade. That system has become far more sophisticated in the meantime and handles $3.8 trillion per day; but it is very expensive and risky. It is now time to replace that system with a single global currency. In a 3-G world with a Single Global Currency managed by a Global Central Bank within a Global Monetary Union: - Annual transaction costs of $400 billion will be eliminated. - Worldwide asset values will increase by about $36 trillion. - Worldwide GDP will increase by about $9 trillion. - Global currency imbalances will be eliminated. - All Balance of Payments problems will be eliminated. - Currency crises will be prevented. - Currency speculation will be eliminated. - The need for foreign exchange reserves, with a current annual opportunity cost of approximately $470 billion, will be eliminated. - Worldwide interest rates will be lower than the current average due to the elimination of currency risk. Such gains are realistic and attainable if the world decides to pursue them. The monetary unions of Europe, the Caribbean, Africa and Brunei/Singapore have shown the way. What the people of the world want is sound, stable money and the end to the obsolete multicurrency foreign exchange system. A Single Global Currency is no longer a utopian dream, but a realistic projection of what has been learned from current monetary unions, especially the euro. Each successive annual edition of this book will be priced in the remaining number of currencies until we reach, in the words of Nobel Prize winner, Robert Mundell, that odd number, preferably less than three: one The world needs to set the goal of a Single Global Currency, to be managed by a Global Central Bank, within a Global Monetary Union, and begin planning - now.
    Keywords: single global currency; money; currency; monetary union; currency union; global monetary union; global central bank; global imbalances; current account; balance of payments; transaction charges; transaction costs; foreign exchange derivatives; foreign exchange; foreign exchange reserves; monetary reserves; gold; international monetary fund; SDR; special drawing rights; optimal currency area; OCA; Robert Mundell; John Stuart Mill; dollar; U.S. Dollar; USD; European Monetary Union; euro; European Central Bank; Single Global Currency Association; Bretton Woods; John Maynard Keynes; bancor; DEY; Geo; globo; eartha; dollarization; euroization; exchange rate; exchange rate regime; peg; float; James Tobin; currency crisis; International Monetary Fund; World Bank; Eastern Caribbean Monetary Union; West African Monetary Union; Central African Monetary Union; accession countries; Maastricht criteria; Maastricht Treaty;
    JEL: F02 F3 F31 F33
    Date: 2009–04–19

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