nep-sea New Economics Papers
on South East Asia
Issue of 2009‒06‒17
nineteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. International Trade and Real Transmission Channels of Financial Shocks in Globalized Production Networks By Escaith, Hubert; Gonguet, Fabien
  2. Innovation and Social Capital in the Small-Medium Enterprises: a case of bamboo handicraft in Indonesia By Brata, Aloysius Gunadi
  3. United States Economic Policy Toward Asia By Noland, Marcus
  4. International Parities among China and Her Major Trading Partners in Asia Pacific By Chan, Tze-Haw
  5. The ASEAN Free Trade Agreement: Impact on Trade Flows and External Trade Barriers By Hector Calvo-Pardo; Caroline Freund; Emanuel Ornelas
  6. Long-Term Health Effects on the Next Generation of Ramadan Fasting During Pregnancy By Reyn van Ewijk
  7. "The Return of the State: The New Investment Paradigm" By Marshall Auerback
  8. Was the stock exchange crisis of 2007 predictable? By POPESCU, Ion; STOICA, Victor; MERUTA, Alexandrina
  9. Linear and nonlinear monetary approaches to the exchange rate of the Philippines peso-Japanese yen By Liew, Venus Khim-Sen
  10. Dynamic Treatment Effect Analysis of TV Effects on Child Cognitive Development By Fali Huang; Myoung-jae Lee
  11. Employee Screening: Theory and Evidence By Fali Huang; Peter Cappelli
  12. Building Social Trust: A Human Capital Approach By Fali Huang
  13. The WTO Trade Effect By Pao-Li Chang; Myoung-Jae Lee
  14. Instrumental Variable Quantile Estimation of Spatial Autoregressive Models By Zhenlin Yang; Liangjun Su
  15. Subsidies for FDI: Implications from a Model with Heterogeneous Firms By Davin Chor
  16. A Hybrid Approach to Case Teaching By Swee Liang Tan; Roy Ng
  17. Nonparametric Structural Estimation via Continuous Location Shifts in an Endogenous Regressor By Peter C.B. Phillips; Liangjun Su
  18. Geographic Decomposition of Inequality in Health and Wealth: Evidence from Cambodia By Tomoki Fujii
  19. To Trust or to Monitor: A Dynamic Analysis By Fali Huang

  1. By: Escaith, Hubert; Gonguet, Fabien
    Abstract: The article analyses the role of international supply chains as transmission channels of a financial shock. Because individual firms are interdependent and rely on each other, either as supplier of intermediate goods or client for their own production, an exogenous financial shock affecting a single firm, such as the termination of a line of credit, reverberates through the productive chain. The transmission of the initial financial shock through real channels is tracked by modelling input-output interactions. The paper indicates that when banks operate at the limit of their institutional capacity, defined by the capital adequacy ratio, and if assets are priced to market, then a resonance effect amplifies the back and forth transmission between real and monetary circuits. The paper illustrates the proposed methodology by computing a supply-driven indicator (IRSIC) and indirect demand-driven impacts on five interconnected economies of different characteristics: China, Japan, Malaysia, Thailand and the United States.
    Keywords: international supply chains; monetary circuit; real linkages; transmission channels of financial shock; Asian International Input-Output Tables
    JEL: G1 L16 F23 C67 F36
    Date: 2009–05
  2. By: Brata, Aloysius Gunadi
    Abstract: This paper aims to seek what type of innovation and to estimate the impact of social capital on the innovation in the small-medium enterprises (SMEs) in Indonesia. The data used in this paper was collected from May to June 2008 in several clusters of bamboo handicraft producers in the district of Sleman, Yogyakarta Special Province. The research found that more than half of respondents are innovative producers. Innovation of product and organizational are the important types of innovation in the bamboo handicraft. Social capital, measured by an index of trust significantly influences the innovation index. Other important variables that influence the index of innovation are location, sex, and education. However, in the logistic regression, only education that significantlly explain the probability of innovation.
    Keywords: innovation; social capital; trust; bamboo handicraft; Indonesia
    JEL: D13 L6 Z13 O31
    Date: 2009
  3. By: Noland, Marcus
    Abstract: The relationship between the US and Asia will be the single biggest determinant in the evolution of the global economic system. In the absence of adequate reform at the global level, the alternative could be further fragmentation into competing regional blocs. Asia holds the key, combining both dissatisfaction with existing global arrangements with the resources to reconstitute, at least at the regional level, an alternative set of institutions and practices. How Asia responds will partly depend on the policies of the dominant global power, the United States. The Obama Administration faces two specific challenges in organizing American economic diplomacy toward Asia. The global financial crisis is probably the worst since the Great Depression and the domestic political environment which makes it increasingly difficult to formulate a constructive trade policy. Addressing the financial crisis is the top priority. In the trade arena, three issues require prompt attention: the re-establishment of fast-track negotiating authority for the President, the resolution of the Doha Round impasse, and the passage of the KORUS FTA. Finally, in the area of least immediate domestic political sensitivity, the Administration will have to formulate a coherent strategy for responding to the emerging regional and sub-regional policy initiatives within Asia in both the financial and trade spheres.
    Keywords: United States; Asia; regionalism; financial crisis; trade policy
    JEL: F13 F5 F33
    Date: 2009–06
  4. By: Chan, Tze-Haw
    Abstract: As China’s role in world economy has steadily grown, her importance to the international trading and finance has also increased apace. A joint investigation of the international parity conditions for China and her thirteen major trading partners in Asia Pacific is thus conducted. Monthly observations and sub-samples within 1986-2007 are being considered to accentuate the effects of institutional changes and financial crisis. Advanced econometric procedures including the heterogeneous panel and endogenous break tests for unit root and correction factor model for half-life estimation are utilized in the analyses. Our findings reveal that first, endogenous and exponential breaks are confirmed for the real exchange and real interest differential series, which mostly occur in 1988, 1993/94 and 1997/98. Second, RIP holds better than PPP, suggesting the greater financial integration than trade integration among APEC-China. The undervalued exchange rate regime may exert some drawbacks against the PPP theorem. Third, both parities tend to hold better in the post-liberalization and post-crisis era, attributed not only to the financial liberalization process among APEC economies, but also to the Chinese trade policy and the regional commitment for the ASEAN+3+2+1 cooperation. Fourth, APEC members have has improved their ability to absorb external shocks as indicated by the shortened half-life reported overtime, especially when the post-crisis era is included.
    Keywords: PPP; RIP; Non-linear Endogenous Breaks; Panel Unit Root Tests; Economic Integration
    JEL: F15 C23 F36
    Date: 2008–04–06
  5. By: Hector Calvo-Pardo; Caroline Freund; Emanuel Ornelas
    Abstract: Using detailed data on trade and tariffs from 1992-2007, we examine how the ASEAN Free TradeAgreement has affected trade with non-members and external tariffs facing non-members. First, weexamine the effect of preferential and external tariff reduction on import growth from ASEANinsiders and outsiders across HS 6-digit industries. We find no evidence that preferential liberalizationhas led to lower import growth from non-members. Second, we examine the relationship betweenpreferential tariff reduction and MFN tariff reduction. We find that preferential liberalization tends toprecede external tariff liberalization. To examine whether this tariff complementarity is a result ofsimultaneous decision making, we use the scheduled future preferential tariff reductions (agreed to in1992) as instruments for actual preferential tariff changes after the Asia crisis. The results remainunchanged, suggesting that there is a causal relationship between preferential and MFN tariffreduction. We also find that external liberalization was relatively sharper in the products wherepreferences are likely to be most damaging, proving further support for a causal effect. Overall, ourresults imply that the ASEAN agreement has been a force for broader liberalization.
    Keywords: regionalism, external tariffs, trade liberalization, preferential trade agreements, Asia
    JEL: F13 F15
    Date: 2009–05
  6. By: Reyn van Ewijk
    Abstract: Each year, many pregnant women fast from dawn to sunset during the Islamic holy month ofRamadan. Medical theory suggests that this may have negative long-term health effects on theiroffspring. Building upon the work of Almond and Mazumder (2008), and using Indonesian crosssectionaldata, I show that people who were exposed to Ramadan fasting during their mother'spregnancy have a poorer general health and are sick more often than people who were not exposed.This effect is especially pronounced among older people, who, when exposed, also report healthproblems more often that are indicative of coronary heart problems and type 2 diabetes. The exposedare a bit smaller in body size and weigh less. Among Muslims born during, and in the months after,Ramadan, the share of males is lower, which is most likely to be caused by death before birth. I showthat these effects are unlikely to be an artifact of common health shocks, correlated to the occurrenceof Ramadan, or o f fasting mainly occurring among women who, irrespective of fasting or not, wouldhave had unhealthier children anyway.
    Keywords: health, Ramadan, pregnancy, nutrition, Indonesia
    JEL: I2 I12 J1 J14
    Date: 2009–04
  7. By: Marshall Auerback
    Abstract: To save America--indeed, the global economy as a whole--the private/public sector balance has to shift, and the neoliberal economic model on which the country has been based for the past 25 years has to be modified. In this new working paper, Marshall Auerback details why the role of the state needs to be reemphasized. The abandonment of a mixed economy and corresponding diminution of the role of government was hailed as the "rebirth of individualism," yet it caused rising inequality and the decline of median wages, and led to the widespread neglect of public goods vital to its citizens' welfare. Meanwhile, the country ran through the public investment it had made from the 1930s to the 1970s, with few serious challenges from policymakers or mainstream economists. The neoliberal model was also aggressively exported: the "optimal" growth strategy for all emerging economies was supposedly one that emphasized limited government, corporate governance, rule of law, and higher levels of state-owned and -influenced enterprise—in spite of significant historical evidence to the contrary. Not even the economic wreckage in Mexico, Argentina, Thailand, Indonesia, and Russia seemed sufficient to challenge, let alone overturn, the prevailing paradigm. That is, until now: in reaction to the financial crisis, many governments—led by the United States—are enacting massive economic stimulus packages and taking a central role in promoting economic growth strategies. This reemergence of state-driven capitalism constitutes a "back to the future" investment paradigm, one that is consistent with a long and successful pattern of economic development. But once we get beyond the pothole patching and school repairing, what industries can be pushed forward using public seed capital or through Sematech-like consortiums? What must be brought to the fore is the need for a new growth path for the United States, one in which the state has a significant role. There are already indications that the private sector is beginning to adapt to this new, collaborative paradigm.
    Date: 2009–05
  8. By: POPESCU, Ion (Universitatea Spiru Haret, Facultatea de Finante si Banci); STOICA, Victor (Universitatea Spiru Haret, Facultatea de Finante si Banci); MERUTA, Alexandrina (Universitatea Spiru Haret, Facultatea de Finante si Banci)
    Abstract: The aim is to try to solve the dilemma if could be predictable exchange crisis from 2007 in the conditions of market globalization, including stock exchange, under the risk of system. In such circumstances, the value judgments based on those three major developments (The Big Three) recorded in three representative locations: New York Stock Exchange (NYSE), London Stock Exchange (LSE) and Tokyo Stock Exchange (TSE). The analysis led to a technique conslusion, namely the level of support is a time of stability in the case of the fall, but this may be reduced through investor-buyers intervention, who estimated that the level of the lowest possible has been achieved: creating a sliding side of the course, forming the support level; ceiling being exceeded arose danger that the phenomenon of decline to continue. How the three stock exchanges: NYSE, LSE and TSE hold together more than 50% of total mondial capitalization was natural that the downfall stock exchange triggered in the United States to spread almost instantaneously throughout the world. An example is even the german index the Frankfurt DAX. Bucharest Stock Exchange has made no exceptional leadership leading the Romanian Banking Association (ARB) and National Bank of Romania (NBR) to discuss the technical level of a system with fluidity of internal markets, respectively those monetary and foreign exchange in times of turbulence.
    Keywords: trend; history of maximum (minimum); point of resistance; upward tunnel (downward); peak; DJIA; FTSE; Nikkei 225
    JEL: G15
    Date: 2009–06–01
  9. By: Liew, Venus Khim-Sen
    Abstract: This study provides evidence of nonlinear long-run relationship between peso-yen exchange rate and its monetary determinants implied by the reduced-form flexible-price monetary model for the Philippines, using Breitung’s (2001) nonlinear cointegration testing procedures. The existence of such relationship is probably resulted from the strong and consistent bilateral trade relationship between the Philippines and Japan. Results from various monetary restrictions tests suggest that other forms of the related monetary model are not suitable in the determination of the peso-yen exchange rate.
    Keywords: Exchange Rate; Monetary Model; Nonlinear; Cointegration; the Philippines
    JEL: C32 F31
    Date: 2009
  10. By: Fali Huang (School of Economics, Singapore Management University); Myoung-jae Lee (Department of Economics, Korea University)
    Abstract: We investigate whether TV watching at ages 6-7 and 8-9 affects cognitive development measured by math and reading scores at ages 8-9 using a rich childhood longitudinal sample from SY79. Dynamic panel data models are estimated to handle the unobserved child-specific factor, endogeneity of TV watching, and dynamic nature of the causal relation. A special emphasis is put on the last aspect where TV watching affects cognitive development which in turn affects the future TV watching. When this feedback occurs, it is not straightforward to identify and estimate the TV effect. We adopt estimation methods available in the biostatistics literature which can deal with the feedback feature; we also apply the “standard” econometric panel data IV approaches. Overall, for math score at ages 8-9, we find that watching TV for more than two hours per day during ages 6-9 has a negative total effect mostly due to a large negative effect of TV watching at the younger ages 6-7. For reading score, there are evidences t at TV watching between 2-4 hours per day has a positive effect whereas the effect is negative outside this range. In both cases, however, the effect magnitudes are economically small.
    Keywords: TV watching, treatment effect, panel data, dynamic model, Granger causality
    JEL: C33 I20 J13 E60
    Date: 2007–09
  11. By: Fali Huang (School of Economics, Singapore Management University); Peter Cappelli (The Wharton School, University of Pennsylvania)
    Abstract: Arguably the fundamental problem faced by employers is how to elicit effort from employees. Most models suggest that employers meet this challenge by monitoring employees carefully to prevent shirking. But there is another option that relies on heterogeneity across employees, and that is to screen job candidates to find workers with a stronger work ethic who require less monitoring. This should be especially useful in work systems where monitoring by supervisors is more difficult, such as teamwork systems. We analyze the relationship between screening and monitoring in the context of a principal-agent model and test the theoretical results using a national sample of U.S. establishments, which includes information on employee selection. We find that employers screen applicants more intensively for work ethic where they make greater use of systems such as teamwork where monitoring is more difficult. This screening is also associated with higher wages, as predicted by the theory: The synergies between reduced monitoring costs and high performance work systems enable the firm to pay higher wages to attract and retain such workers. Screening for other attributes, such as work experiences and academic performance, does not produce these results.
    Keywords: Employee Screening, Monitoring, Work Ethic, High Performance Work Practices, Principal-Agent Model.
    JEL: M51 M54 J30
    Date: 2007–09
  12. By: Fali Huang (School of Economics, Singapore Management University)
    Abstract: Much evidence suggests individuals differ in their predisposition to cooperate, which is essentially a component of human capital. This paper examines the role of individual cooperative tendencies and their interactions with institutions in generating social trust; it also endogenizes cooperative tendencies using a human capital investment model. Multiple equilibria and ineffciencies exist due to positive externalities. An innovative fi?nding is that, when institutions are more e¤ective in punishing defecting behaviors, more people invest in cooperative tendencies and hence the endogenous social trust is higher, though the equilibrium cooperative tendencies are lower. This paper provides a plausible explanation for many empirical and experimental results
    JEL: Z13 J24
    Date: 2007–09
  13. By: Pao-Li Chang (School of Economics, Singapore Management University); Myoung-Jae Lee (Department of Economics, Korea University)
    Abstract: Rose (2004) showed that the WTO or its predecessor, the GATT, did not promote trade, based on conventional econometric analysis of gravity-type equations of trade. We argue that conclusions regarding the GATT/WTO trade effect based on gravity-type equations are arbitrary and subject to parametric misspecifications. We propose using nonparametric matching methods to estimate the `treatment effect' of GATT/WTO membership, and permutation-based inferential procedures for assessing statistical significance of the estimated effects. A sensitivity analysis following Rosenbaum (2002) is then used to evaluate the sensitivity of our estimation results to potential selection biases. Contrary to Rose (2004), we find the effect of GATT/WTO membership economically and statistically significant, and far greater than that of the Generalized System of Preferences (GSP).
    Keywords: GATT/WTO; GSP; treatment effect; matching; permutation test; signed-rank test; sensitivity analysis
    JEL: F13 F14 C14 C21 C23
    Date: 2007–09
  14. By: Zhenlin Yang (School of Economics, Singapore Management University); Liangjun Su (School of Economics, Singapore Management University)
    Abstract: We propose an instrumental variable quantile regression (IVQR) estimator for spatial autoregressive (SAR) models. Like the GMM estimators of Lin and Lee (2006) and Kelejian and Prucha (2006), the IVQR estimator is robust against heteroscedasticity. Unlike the GMM estimators, the IVQR estimator is also robust against outliers and requires weaker moment conditions. More importantly, it allows us to characterize the heterogeneous impact of variables on different points (quantiles) of a response distribution. We derive the limiting distribution of the new estimator. Simulation results show that the new estimator performs well in finite samples at various quantile points. In the special case of median restriction, it outperforms the conventional QML estimator without taking into account of heteroscedasticity in the errors; it also outperforms the GMM estimators with or without considering the heteroscedasticity.
    Keywords: Spatial Autoregressive Model; Quantile Regression; Instrumental Variable; Quasi Maximum Likelihood; GMM; Robustness.
    JEL: C13 C21 C51
    Date: 2007–08
  15. By: Davin Chor (School of Economics, Singapore Management University)
    Abstract: This paper analyzes the welfare e®ects of subsidies to attract multinational corporations, in a setting where ¯rms are heterogeneous in their productivity levels. I show that the use of a small subsidy raises welfare in the FDI host country, with the consumption gains from attracting more multinationals exceeding the direct costs of funding the subsidy program through a tax on labor income. This welfare gain stems from a selection e®ect, whereby the subsidy induces only the most productive exporters to switch to servicing the host's market via FDI. I further show that the welfare gain from a subsidy to variable costs is larger than from a subsidy to the ¯xed cost of conducting FDI, since a variable cost subsidy also raises the ine±ciently low output levels stemming from each ¯rm's mark-up pricing power.
    Keywords: FDI subsidies; heterogeneous firms; fixed versus variable cost subsidies; import subsidies.
    JEL: F12 F13 F23 L23
    Date: 2007–08
  16. By: Swee Liang Tan (School of Economics, Singapore Management University); Roy Ng (School of Economics, Singapore Management University)
    Abstract: We structure case based teaching using a combination of computer-support echnology and in-class activities. We create and design an on-line learning tool, Case Study On-line (CSOL) that enables instructor to structure the delivery of teaching resources and set up assignment tasks in the system. The tool enables tasks to be set in a way that they can be completed sequentially, and learning resources can be accessed only when required by students. Upon submission of their assignments, students can promptly receive instructor’s explanations to the tasks. Follow up activities take place in class, with the objective to promote active learning. The tool was adopted over two semesters in an undergraduate economics course and surveys were conducted among the students to evaluate the effectiveness of the tool. The results of the survey were very positive, providing support to our belief that a system of well-designed case teaching delivery tool, together with classroom activities, is able to increase the level of students’ engagement and interest. The paper helps to address some concerns about teaching methods in undergraduate economics courses.
    Keywords: Technologies-based Instruction, In-class Activities, Scaffolding, Active-based Learning
    Date: 2007–09
  17. By: Peter C.B. Phillips (Cowles Foundation, Yale University); Liangjun Su (School of Economics, Singapore Management University)
    Abstract: Recent work by Wang and Phillips (2009b, c) has shown that ill posed inverse problems do not arise in nonstationary nonparametric regression and there is no need for nonparametric instrumental variable estimation. Instead, simple Nadaraya Watson nonparametric estimation of a (possibly nonlinear) cointegrating regression equation is consistent with a limiting (mixed) normal distribution irrespective of the endogeneity in the regressor, near integration as well as integration in the regressor, and serial dependence in the regression equation. The present paper shows that some closely related results apply in the case of structural nonparametric regression with independent data when there are continuous location shifts in the regressor. In such cases, location shifts serve as an instrumental variable in tracing out the regression line similar to the random wandering nature of the regressor in a cointegrating regression. Asymptotic theory is given for local level and local linear nonparametric estimators, links with nonstationary cointegrating regression theory and nonparametric IV regression are explored, and extensions to the stationary strong mixing case are given. In contrast to standard nonparametric limit theory, local level and local linear estimators have identical limit distributions, so the local linear approach has no apparent advantage in the present context. Some interesting cases are discovered, which appear to be new in the literature, where nonparametric estimation is consistent whereas parametric regression is inconsistent even when the true (parametric) regression function is known. The methods are further applied to establish a limit theory for nonparametric estimation of structural panel data models with endogenous regressors and individual effects. Some simulation evidence is reported.
    Keywords: Fixed effects, Kernel regression, Location shift, Mixing, Nonparametric IV, Nonstationarity, Panel model, Structural estimation
    JEL: C13 C14
    Date: 2009–06
  18. By: Tomoki Fujii (School of Economics, Singapore Management University)
    Date: 2007–12
  19. By: Fali Huang (School of Economics, Singapore Management University)
    Abstract: In a principal?agent framework, principals can mitigate moral hazard problems not only through extrinsic incentives such as monitoring, but also through agents intrinsic trustworthiness. Their relative usage, however, changes over time and varies across societies. This paper attempts to explain this phenomenon by endogenizing agent trustworthiness as a response to potential returns. When monitoring becomes relatively cheaper over time, agents acquire lower trustworthiness, which may actually drive up the overall governance cost in society. Across societies, those giving employees lower weights in choosing governance methods tend to have higher monitoring intensities and lower trust. These results are consistent with the empirical evidence.
    Keywords: Monitoring , Trustworthiness , Trust , Screening , Economic Governance
    JEL: D2 J5 L2 M5 Z13
    Date: 2007–09

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