nep-sea New Economics Papers
on South East Asia
Issue of 2009‒07‒11
eleven papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Sources of FDI Flows to Developing Asia: The Roles of Distance and Time Zones By Rabin Hattari
  2. The Indonesian Response to the Financial and Economic Crisis: Is the Developmental State Back? By Degol Hailu
  3. Measuring the Impact of Microfinance on Child Health Outcomes in Indonesia By Steve DeLoach; Erika Lamanna
  4. United States Economic Policy Toward Asia By Marcus Noland; ;
  5. Revisiting the Shocking Aspects of Asian Monetary Unification By Hans Genberg; Pierre L. Siklos
  6. Labor Skills and Foreign Direct Investment in a Dynamic Economy: Estimating the Knowledge-Capital Model for Singapore By Gnanaraj Chellaraj; Keith E. Maskus; Aaditya Mattoo
  7. Managing East Asia's macroeconomic volatility By Olaberria, Eduardo; Rigolini, Jamele
  8. Can the Knowledge-Capital Model Explain Sectoral Foreign Invesment? Evidence From Singapore By Gnanaraj Chellaraj; Aaditya Mattoo;
  9. The economics of teacher supply in Indonesia By Chen, Dandan
  10. The Political Economy of North Korea: Implications for Denuclearization and Proliferation By Stephan Haggard; Marcus Noland;
  11. Renminbi as an International Currency: Potential and Policy Considerations By Hongyi Chen; Wensheng Peng; Chang Shu

  1. By: Rabin Hattari
    Abstract: This paper investigates sources and determinants of foreign direct investment (FDI) flows to developing Asia using bilateral FDI flows for the period 1990-2005. With regard to the determinants of FDI flows, the paper uses an augmented gravity model framework. The paper shows the differences in the determinants of FDI flows to developing Asian economies from Asian and Pacific region, compared to those from non-regional OECD economies, emphasizing the roles of distance and time zone differences. The paper shows that the elasticity of distance is greater for FDI from the non-Asia pacific OECD economies than intraregional Asian flows. However, this difference disappears when one accounts for difference in the time zones. Thus, differences in the time zones appear to act as a hindrance to FDI. [ADBI WP no.117]
    Keywords: FDI; Asia; developing Asia; distance; time zones; bilateral data analysis; augmented gravity model framework; intraregional FDI flows; extraregional FDI flows; OECD economies.
    Date: 2009
  2. By: Degol Hailu (UNDP SURF)
    Abstract: The current economic slowdown is jeopardising efforts to achieve the Millennium Development Goals. Poverty is worsening and jobs have been lost. The Asian Development Bank estimates that by 2010, about 100 million people in Asia will fall into poverty. (...)
    Keywords: The Indonesian Response to the Financial and Economic Crisis: Is the Developmental State Back?
    Date: 2009–06
  3. By: Steve DeLoach (Department of Economics, Elon University); Erika Lamanna (Department of Economics, Elon University)
    Abstract: Access to credit has become a staple of modern development policy as a means to facilitate anything from gender equality to growth. In economic terms, it provides an important tool for smoothing household consumption in the wake of unexpected economic shocks, including drought and financial crises. Using data from the Indonesian Family Life Survey (1993-2000), this paper investigates whether access to microfinance institutions affects child health outcomes. Specifically, we estimate a difference-in-differences model to test whether a change in the availability of microfinance institutions at the community level affects the average weight gain of young children.
    Keywords: Microfinance, child health, nutrition, Indonesia
    JEL: G21 I1 J13
    Date: 2009–06–19
  4. By: Marcus Noland (East-West Center & Peterson Institute of International Economics); ;
    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.
    JEL: F
    Date: 2009–06
  5. By: Hans Genberg (Hong Kong Institute for Monetary Research, Hong Kong Monetary Authority); Pierre L. Siklos (Wilfrid Laurier University, Viessmann European Research Centre, Hong Kong Institute for Monetary Research)
    Abstract: This paper revisits the question whether economies in Asia are likely to be good candidates for pursuing similar exchange rate policies and ultimately joining together in a monetary union. A number of authors have investigated this question before typically using some variant of the methodology originally used by Bayoumi and Eichengreen (BE) to study the same question for countries that were potential candidates to form common currency area in Europe. It is the contention of this paper that this methodology is flawed because it fails to identify properly the aggregate demand and aggregate supply shocks in each economy and hence cannot adequately address one of the central issues in determining the suitability of two or more countries joining a monetary union. To remedy this deficiency in the existing literature we propose an alternative methodology to identify structural shocks. We will therefore be able to revisit the debate about monetary integration in Asia based on more solid empirical foundations. The results show that these modifications do matter for the cross-country correlation of these shocks. In particular, aggregate demand shocks among the relatively smaller economies of Asia appear to be more highly correlated with the larger or more advanced economies in the regions such as Korea, Hong Kong, Singapore, and Japan, than they are amongst themselves when we rely on the standard BE methodology. When an alternative approach is used we conclude, for example, that aggregate supply shocks remain most highly correlated between China, Hong Kong and the remainder of the economies in our sample while Japan and Singapore, most notably, seem more ¡¥disconnected¡¦ with the rest of the region. Taking explicit account of foreign shocks not only prevents them from erroneously being confounded with domestic shocks as in the conventional methodology, it also makes it possible to evaluate the desirability of a common monetary policy response to common external shocks. Our results show that this can have an important bearing on assessing the desirability of forming a monetary union among the economies in the region. With respect to the implications for monetary unification in Asia our results do not clearly identify a group of countries for which shocks are unambiguously highly correlated and which therefore would be able to perform well with a common monetary policy.
    Date: 2009–05
  6. By: Gnanaraj Chellaraj; Keith E. Maskus (University of Colorado at Boulder); Aaditya Mattoo (The World Bank)
    Abstract: In this paper we analyze changes in the inbound and outbound investment between Singapore and a sample of industrialized and developing countries. The nature of Singapore's two-way investment with the industrialized nations has shifted into skill-seeking activities over the period, while Singapore's investments in developing countries have increased sharply and become concentrated in labor-seeking activities. Over the 1984-2003 period, as host Singapore became skill abundant relative to parent industrialized countries, average inbound investment stocks from these countries increased by US$ 24.8 billion annually, while the corresponding figure for outbound stocks to host developing countries was US$ 9.5 billion.
    JEL: F
    Date: 2009–02
  7. By: Olaberria, Eduardo; Rigolini, Jamele
    Abstract: East Asia has experienced a dramatic decrease in output growth volatility over the past 20 years. This is good news, as output growth volatility affects poor households because of coping strategies that have long-term, harmful consequences, and the overall economy through its negative impact on economic growth. This paper investigates the factors behind this long decline in volatility, and derives lessons about ways to mitigate renewed upward pressure in face of the financial crisis. The authors show that if, on the one hand, high trade openness has sustained economic growth in the past several decades, on the other hand, it has made countries more vulnerable to external fluctuations. Although less frequent terms of trade shocks and more stable growth rates of trading partners have helped to reduce volatility in the past, the same external factors are now putting renewed pressure on volatility. The way forward seems therefore to be to counterbalance the external upward pressure on volatility by improving domestic factors. Elements under domestic control that can help countries deal with high volatility include more accountable institutions, better regulated financial markets, and more stable fiscal and monetary policies.
    Keywords: Economic Conditions and Volatility,Emerging Markets,Achieving Shared Growth,Fiscal&Monetary Policy,Currencies and Exchange Rates
    Date: 2009–07–01
  8. By: Gnanaraj Chellaraj; Aaditya Mattoo (The World Bank);
    Abstract: Using the knowledge-capital model, we compare factors affecting the inbound and outbound manufacturing and services investment between Singapore and a sample of industrialized and developing countries. The nature of Singapore's two-way investment with the industrialized nations is essentially skill seeking, while with the developing countries it is low wage seeking with the exception of inbound services investment, which is skill seeking. During 1994-2003 time period, Singapore's skill abundance relative to all parent countries, increased annual average inbound investment in manufacturing and services by US$ 8.15 billion and US$ 15.19 billion respectively.
    JEL: F
    Date: 2009–03
  9. By: Chen, Dandan
    Abstract: This paper examines the phenomenon of the over-supply of teachers but shortage of qualified teachers in Indonesia. Using a theoretical framework of government-dominated market with government-set wage rate and demand for teachers, the analysis explores how teacher supply, particularly the composition of the teaching force with low or high qualification, would be determined by current and future public policies. Using 2001 to 2008 Indonesian Labor Force Survey data, the paper further estimates the potential effect of the most recent teacher law, which could give college educated teachers a significant pay increase, on the composition of the Indonesian teaching force with differentiated education backgrounds. Using a sample of workers with college education, the author finds that the relative wage rate of teachers and that of alternative occupations significantly influence the decision of college educated workers to become teachers. It is also found that the wage rate set by the most recent teacher law would increase the share of teachers approximately from 16 to 30 percent of the college-educated labor force. This increase that is due to the new government-set wage rate, would result in a pupil-teacher ratio of 24 to 25 pupils per teacher with college education, but will require a more than 31 percent increase in the wage bill for teacher salaries. The empirical approach of this paper is derived from a structural model that takes into account the endogeneity of the wage rate and corrects for sample-selection bias due to occupational choice.
    Keywords: Tertiary Education,Primary Education,Education For All,Teaching and Learning,Secondary Education
    Date: 2009–06–01
  10. By: Stephan Haggard (University of California, San Diego); Marcus Noland (East-West Center & Peterson Institute of International Economics);
    Abstract: Despite North Korea's turn away from economic reform and the constraints of the second nuclear crisis, the country has in fact become more economically open. But it has emphasized closer economic relations with China and other trading partners that show little interest in political quid-pro-quos, let alone sanctions. Yet the U.S. can still exercise economic leverage by going aggressively after third-party financial intermediaries. This particular form of sanction does not require multilateral coordination, since foreign banking institutions that conduct significant business in the United States have a strong interest in avoiding institutions that the United States Treasury has identified as money laundering or proliferation concerns. There is some evidence that North Korea moderated its missile proliferation activities during periods when rapprochement with the United States, and to a lesser extent Japan, was a priority, but in the absence of such interest and as legitimate trade, investment, and aid dry up, the incentives to intensify proliferation activities increase. The internal organization of the North Korean economy has important implications for any policy seeking transformation via engagement. The economy is structured in such a way that outside economic ties are still largely monopolized by stateowned enterprises and other gatekeepers, such as the military. Under such circumstances, the precise design of engagement policies requires very close scrutiny. Even nominally commercial relations can be exploited if the North Korean counterparties believe that they are ultimately political in nature, subsidized and thus vulnerable to blackmail. If economic ties are truly commercial in nature, those choosing to trade and invest with North Korea do so at their own risk. Under these circumstances, private actors will make economic decisions fully factoring in political risk, and North Korea will bear the costs if it chooses to renege on commitments or fails to provide a supportive policy environment. Paper prepared for the conference on "North Korean Nuclear Politics: Constructing a New Northeast Asian Order in the 21st Century," University of Washington, June 4-5, 2009. We would like to thank the Smith Richardson, MacArthur, and Korea Foundations for financial support and Jennifer Lee for research assistance.
    JEL: F
    Date: 2009–06
  11. By: Hongyi Chen (Hong Kong Institute for Monetary Research); Wensheng Peng (Barclays Capital); Chang Shu (Hong Kong Monetary Authority)
    Abstract: The potential of the renminbi as an international currency is underpinned by the large and fast growing Chinese economy. We present empirical evidence indicating that the renminbi has already become a significant force impacting the exchange rates of the Asian currencies. We also estimate a reserve currency model and counterfactual simulations, and suggest that the renminbi's potential as a reserve currency would be comparable to that of the Japanese yen and the British pound if the Chinese currency were to become a fully convertible currency today. The evolution of the international role of the remninbi will depend importantly on the pace of the liberalisation of the restrictions on currency convertibility, which is likely to be governed by the authorities' consideration of the associated benefits and costs. In particular, we see a two-way reinforcement of currency internationalisation and financial market developments and opening in China.
    Date: 2009–06

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