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on South East Asia |
| By: | Grace H.Y. Lee |
| Abstract: | Every economy experiences peaks and troughs in its business cycle. It has always been the researchers’ interests to identify the underlying causes of shocks. In the business cycle literature, there exists a new strand of methodology that allows the analysis at a disaggregated level using the dynamic factor model. This model allows the decomposition of aggregate shocks into country-specific, regional and world common business cycles for eight East Asian economies of China, Japan, Korea, Indonesia, Malaysia, the Philippines, Singapore and Thailand. It therefore allows the identification of causes for major events experienced by these countries. Empirical evidences show that country factors are the most important causes of major events for all these countries examined here, implying the needs to rely more heavily on its own independent counter-cyclical policies. The region factor is largest for the most developed economies in the region such as Japan, Korean and Singapore, indicating that a regional coordinated policy is more effective for these economies to respond to the disturbances. The world factor explains only 8% of the output variation in East Asia for the median country. In addition, the examination of the contribution of world, region and country-specific factors to the major economic fluctuations of each East Asian country in the past decades shows that the role of world factor is insignificant (with the exception of the first oil shock in 1974). This might explain why the world economy was stabilised through periods of US slowdown by the East Asian economies. |
| Keywords: | Business Cycle; East Asia; Aggregate Shocks Decomposition; Dynamic Factor Model; Bayesian |
| JEL: | E3 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2009-17&r=sea |
| By: | Grace H.Y. Lee; M. Azali |
| Keywords: | Optimum Currency Area; Monetary Union; Vector autoregression; Exchange rate; East Asia Abstract: This paper assesses the empirical desirability of the East Asian economies to an alternative exchange rate arrangement (a monetary union) that can potentially enhance the exchange rate stability and credibility in the region. Specifically, the symmetry in macroeconomic disturbances of the East Asian economies is examined as satisfying one of the preconditions for forming an Optimum Currency Area (OCA). The Structural Vector Autoregression (VAR) method is employed to assess the nature of macroeconomic disturbances among the East Asian countries, as a preliminary guide in identifying potential candidates for forming an OCA. The preliminary findings of this study suggest that there exists scope among some small sub-regions for potential monetary integration. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2009-19&r=sea |
| By: | Yongil Jeon; Sang-Young Rhyu; Michael P. Shields |
| Abstract: | We examine patterns in fertility during the demographic transition using a panel data set across 25 Asian countries for 1975-2003. The adult female literacy rate is used as an instrumental variable for the endogenous female labor force participation rate, which has been unsolved in the population literature. The preliminary panel data analysis suggests that relative cohort size is significant in explaining the decline in fertility before controlling for simultaneity bias. This result, however, may be spurious. After considering the instrumental variables estimation in the panel data structure, the age structure variable no longer plays a dominant role in explaining declining fertility rates in many Asian countries. Systematic differences were found between East and South Asia. A policy implication in South Asia is that development may reduce fertility directly through increasing income rather than indirectly through a change in female labor force participation or urbanization. In East Asia, the indirect effects dominate. |
| Keywords: | Fertility, Easterlin hypothesis, Transition Economies, Relative Cohort Size, Age Structure |
| JEL: | J13 P20 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2007-28&r=sea |
| By: | Grace H.Y. Lee; M. Azali |
| Abstract: | This paper assesses the empirical desirability of the East Asian economies to an alternative exchange rate arrangement (a monetary union) that can potentially enhance the exchange rate stability and credibility in the region. Specifically, the symmetry in macroeconomic disturbances of the East Asian economies is examined as satisfying one of the preconditions for forming an Optimum Currency Area (OCA). We extend the existing literature by improving the methodology of assessing the symmetry shocks in evaluating the suitability of a common currency area in the East Asian economies employing the Bayesian State-Space Based approach. We consider a model of an economy in which the output is influenced by global, regional and country-specific shocks. The importance of a common regional shock would provide a case for a regional common currency. This model allows us to examine regional and country-specific cycles simultaneously with the world business cycle. The importance of the shocks decomposition is that studying a subset of countries can lead one to believe that observed co-movement is particular to that subset of countries when it in fact is common to a much larger group of countries. In addition, the understanding of the sources of international economic fluctuations is important for making policy decisions. Our findings also indicate that regional factors play a minor role in explaining output variation in both East Asian and the European economies. This implies that while East Asia does not satisfy the OCA criteria (based on the insignificant share of regional common factor), neither does Europe. |
| Keywords: | Optimum Currency Area; Business Cycle Synchronisation, Monetary Integration; East Asia |
| JEL: | E3 F1 F4 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2009-18&r=sea |
| By: | Grace H.Y. Lee; M. Azali |
| Abstract: | The Asian financial crisis in mid-1997 has increased interest in policies to achieve greater regional exchange rate stability in East Asia. It has renewed calls for greater monetary and exchange rate cooperation. A country’s suitability to join a monetary union depends, inter alia, on the trade intensity and the business cycle synchronization with other potential members of the monetary union. However, these two Optimum Currency Area criteria are endogenous. Theoretically, the effect of increased trade integration (after the elimination of exchange fluctuations among the countries in the region) on the business cycle synchronization is ambiguous. Reduction in trade barriers can potentially increase industrial specialization by country and therefore resulting in more asymmetry business cycles from industry-specific shocks. On the other hand, increased trade integration may result in more highly correlated business cycles due to common demand shocks or intra-industry trade. If the second hypothesis is empirically verified, policy makers have little to worry about the region being unsynchronized in their business cycles as the business cycles will become more synchronized after the monetary union is formed. This paper assesses the dynamic relationships between trade, finance, specialization and business cycle synchronization for East Asian economies using a Generalized Method of Moments (GMM) approach. The dynamic panel approach improves on previous efforts to examine the business cycle correlation –trade link using panel procedures, which control for the potential endogeneity of all explanatory variables. Based on the findings on how trade, finance and sectoral specialization have effects on the size of common shocks among countries, potential policies that can help East Asian countries move close toward a regional currency arrangement can be suggested. The empirical results of this study suggest that there exists scope for East Asia to form a monetary union. |
| Keywords: | Optimum Currency Area; Monetary Union; Trade Integration; Business Cycle Synchronisation |
| JEL: | E3 F1 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2009-15&r=sea |
| By: | Koi Nyen Wong; Tuck Cheong; Dietrich K. Fausten |
| Abstract: | Services trade is an important source of growth in Malaysia and Singapore. Both economies are export-oriented and actively court foreign direct investment (FDI) to advance their economic objectives of industrialisation and economic development. This paper examines the causal linkages between inward FDI and the country’s engagement in services trade in bi-variate and tri-variate VAR frameworks. The empirical findings for Singapore show evidence of bidirectional causality between inward FDI and the total trade volume in services (i.e. the absolute sum of payments and receipts) as well as between FDI and services imports (in the tri-variate specification). This may reflect her relative open foreign investment policy and free trade regime in services. For Malaysia, the evidence of causality is weaker and unidirectional, from inward FDI to services imports. These findings are consistent with the different stages of economic development and openness attained by the two sample countries, and they provide useful background for trade and foreign investment policies and development strategies. |
| Keywords: | Causality; services trade; foreign direct investment |
| JEL: | C22 F21 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2007-30&r=sea |
| By: | Machikita, Tomohiro; Ueki, Yasushi |
| Abstract: | This paper proposes a new mechanism linking innovation and network in developing economies to detect explicit production and information linkages and investigates the testable implications of these linkages using survey data gathered from manufacturing firms in East Asia. We found that firms with more information linkages tend to innovate more, have a higher probability of introducing new goods, introducing new goods to new markets using new technologies, and finding new partners located in remote areas. We also found that firms that dispatched engineers to customers achieved more innovations than firms that did not. These findings support the hypothesis that production linkages and faceâ€toâ€face communication encourage product and process innovation. |
| Keywords: | Southeast Asia, East Asia, Technological innovations, Network, Communication, Business enterprises, Engineer Mobility, Innovation, Linkages |
| JEL: | D83 L25 O31 O32 O33 R12 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper188&r=sea |
| By: | ANDO Mitsuyo |
| Abstract: | In light of the recent movement toward regional integration through bilateral/plurilateral FTAs in East Asia, this paper attempts to estimate the impacts of several FTA scenarios in East Asia, using a CGE model. Although most previous simulation studies on the impacts of FTAs focus only on the liberalization of trade in goods, our paper attempts to consider other possible aspects of FTAs such as various trade and investment facilitation and technical assistance to developing countries in the region. Our results suggest that the economic effects of FTAs with a larger number of members are likely to be greater. Moreover, for the establishment of FTAs among countries such as ASEAN+3, ASEAN+6, and APEC, a high quality of trade liberalization including the agricultural sector is essential. Furthermore, it is vital for an agreement to be comprehensive, covering not only intraregional trade liberalization but also other elements such as facilitation measures and technical assistance. The larger the coverage, in terms of membership and contents, the greater the benefits accrued to the members. |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:09037&r=sea |
| By: | Koi Nyen Wong; Tuck Cheong Tang |
| Abstract: | This paper examines the effects of exchange rate variability on export demand for semiconductors, which is the largest sub-sector of electronics industry in Malaysia as reported by MIDA (Malaysian Industrial Development Authority, 2004). The empirical results, which are estimated based on the Johansen’s multivariate co-integration tests and error correction model, suggest that there is a unique long-run relationship among quantities of export, relative price, real foreign income, and real exchange rate variability. The major finding of this paper is that the variability of real exchange rate has some effect on semiconductor exports in both the long-run and the short-run. In the light of rapid advances in technology in the global markets for electronics products, the findings are useful to policy makers for the design and target of appropriate exchange rate and industrial policies to enhance the export competitiveness of semiconductor industry. |
| Keywords: | Exchange rate volatility; semiconductor exports; Malaysia; |
| JEL: | C32 F14 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2007-13&r=sea |
| By: | Mark Mink; Jochen Mierau |
| Abstract: | We present a new method to examine financial contagion, defined as a sudden strengthening of shock transmission between financial markets. In particular, we develop a correlation-like measure of synchronicity between markets that is straightforward to implement while being insensitive to heteroskedasticity of market returns. In fact, synchronicity would perfectly coincide with the dynamic conditional correlation (DCC) coefficient if the latter could be calculated using the `true' models for the variance and covariance of the market returns. When analysing the 1997 East Asian crisis and the current sub-prime mortgage crisis, we find no evidence that stock market returns are more contagious during periods of turmoil than during tranquil times. |
| Keywords: | Contagion; Heteroskedasticity; Dynamic Conditional Correlation; Sub-prime Crisis; East Asian Crisis. |
| JEL: | C14 F36 G15 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:217&r=sea |
| By: | Krisztina Kis-Katos; Robert Sparrow (Department of International Economic Policy, University of Freiburg) |
| Abstract: | We examine the effects of trade liberalization on child work and schooling in Indonesia. Our estimation strategy identifies geographical differences in the effects of trade policy through district and province level exposure to reduction in import tariff barriers. We use seven rounds (1993 to 2002) of the Indonesian annual national household survey (Susenas), and relate workforce participation and school enrolment of children aged 10-15 to geographic variation in relative tariff exposure. Our main findings show that increased exposure to trade liberalization is associated with a decrease in child work and an increase in enrolment among 10 to 15 year olds. The effects of tariff reductions are strongest for children from low skill backgrounds and in rural areas. However, a dynamic analysis suggests that these effects reflect the long term benefits of trade liberalization, through economic growth and subsequent income effects, while frictions and negative adjustment effects may occur in the short term. |
| Keywords: | child labor, trade |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:fre:wpaper:8&r=sea |
| By: | Koi Nyen Wong; Tuck Cheong Tang |
| Abstract: | By extending Wong and Tang’s (2007) study, this study aims to further explore the causal relations between FDI (foreign direct investment), exports and imports. There is a unique long-run causal relationship running from exports as well as imports to FDI. A bidirectional causal relationship exists between exports and imports. These findings provide useful policy implications for sustaining FDI inflows on one hand and promoting links between multinational corporations (MNCs) and local firms on the other. |
| Keywords: | Causality; exports; imports; foreign direct investment |
| JEL: | C22 F21 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2007-11&r=sea |
| By: | James B. Ang |
| Abstract: | This paper provides an empirical assessment of the effects of financial sector policies on development of the financial system in Malaysia over the period 1959-2005. The technique of principal component analysis is used to construct a summary measure of interest rate policies in order to account for the joint influence of various interest rate controls imposed on the Malaysian financial system. The results show that economic development, interest rate controls and capital liquidity requirements positively affect the level of financial development. However, higher statutory reserve requirements and the presence of directed credit programs appear to be harmful for development of the Malaysian financial system. The results provide some support to the argument that some form of financial restraints may help promote financial development. |
| Keywords: | Financial development; financial liberalization; Malaysia. |
| JEL: | E44 E58 O16 O53 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2007-02&r=sea |
| By: | Evan Lau; Tuck Cheong Tang |
| Abstract: | This study examines the inter-linkages between Government budget balance, and external balance for a transition economy in South East Asia – Cambodia. The empirical results of the quarterly data between 1996 and 2006, support twin deficits hypothesis that is the budget deficits do cause external deficits, in the short run. These two macroeconomics variables are moving together in the long run. For implication, these findings provide an insight for the Cambodia’s policy design and formulation. |
| Keywords: | Budget Deficits; Cambodia; Current Account Deficit; Unit Root Tests |
| JEL: | F32 H62 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2009-11&r=sea |
| By: | Beja Jr, Edsel |
| Abstract: | “What is the contribution of economic openness and the domestic economy to income?” is tested using quantity measures of trade, finance, and domestic economic base. The short answer is: “It depends”. Africa and the Americas lose from both trade and financial openness. Asia gains from trade openness but not from financial openness. The industrialized region benefits from both trade and financial openness. In all regions, the domestic economic base compensates for any adverse effects of economic openness. The overall experience with openness could still be enhanced with healthier external and domestic engagements, especially with the latter increasing its relative role in economies. The case study on the Philippines finds that its economy gains from trade and financial openness but not from its domestic economic 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 openness; financial openness; domestic economy; income |
| JEL: | F40 F00 B50 O50 E10 |
| Date: | 2009–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16552&r=sea |
| By: | Robert Rice |
| Abstract: | There is a very real danger that the transition from the Construction Boom in 2009 to a rapidly growing sustainable normal economy in Aceh will not happen unless both preventive and effective constructive measures are implemented during the coming two years. Instead what could easily happen is a collapse into a deep recession caused by the economy of Aceh being uncompetitive relative to the rest of Indonesia because of its high costs and because in anticipation of this high cost economy situation insufficient investments were made by the private sector in 2006 and the coming two years. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2007-07&r=sea |
| By: | Koi Nyen Wong; Tuck Cheong Tang |
| Abstract: | This paper finds that exchange rate variability does affect the causation between FDI and electronics exports using Malaysia’s top five electronics exports by SITC (Standard International Trade Classification) product groups. The Granger causation runs from FDI to exports of automatic data processing equipment; and from the radio-broadcast receivers with sound recorders or reproducers exports to FDI. |
| Keywords: | Causality; electronics exports; foreign direct investment |
| JEL: | C22 F21 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2007-12&r=sea |
| By: | Lopez, Ramon E. |
| Abstract: | This paper examines how certain new structural factors have contributed to the latest great financial crisis and world recession of 2008-09. We focus on three of these structural factors: (i) the incorporation of highly populated countries into the growth process; (ii) The increasing scarcity of the environment and certain natural resources; (iii) the unprecedented concentration of wealth and income in the advanced economies over the last three decades. These structural changes have significantly tightened the links between world growth and commodity prices, have made the world commodity supply to become increasingly inelastic, and have made growth to become more dependent on lax monetary policies, respectively. All this may make the recovery from the current crisis much more difficult, implying a deeper and more protracted crisis than most previous crises. With this framework in mind we focus on the likely affect of the financial crisis upon the natural resources in the developing world, by drawing implications from the 1995 Mexico-originated Peso crisis and the 1998-99 Asia crises. We find that the impact of the current crisis is likely to degrade further the environmental resources and the tightening of environmental policies in response to such degradation may make the commodity supply curve of commodities even steeper in the future. |
| Keywords: | Demand and Price Analysis, Environmental Economics and Policy, International Development, Resource /Energy Economics and Policy, |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ags:umdrwp:51987&r=sea |
| By: | Michael Meow-Chung Yap |
| Abstract: | An empirical assessment shows that Malaysia’s business cycle indicators can be improved. Turning point detection is not impressive, especially for troughs. Lead times are also variable. However, the relationship between the leading and coincident indicators over the entire cycle shows quite strong correlations from the late 1980s onwards, although lead times have shortened. Empirical evidence is very strong that the leading index Granger-causes the coincident index. Business and consumer confidence surveys also show much promise in improving prediction of the reference cycle. However, implications of the changing economic structure on the performance of the leading index needs to be fully taken into account, especially the emergence of new services sector activities. |
| Keywords: | Business/growth cycle, Malaysian economy, growth cycle chronology, turning point analysis, Granger causality |
| JEL: | E32 E37 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2009-04&r=sea |
| By: | George Shih-Ku Chen |
| Abstract: | We investigate the effect of agglomeration economies on Taiwanese Greenfield investors' location choice in China from 1996 to 2005. Using a nested logit model, we find that Taiwanese investors first select a region in China where he or she wants to invest, before selecting the best province within that region. Furthermore, we find evidence that, since 2000, market access, industrial linkages and monitoring costs have become important agglomeration forces driving Taiwanese investors' location choice in China. Finally, we discover that the nature of agglomeration economies varies extensively for Taiwanese investors across different industries. Taken together, these findings suggest that the Chinese government must formulate region-wide development strategies and industry-specific policies if it wants to attract more Taiwanese investment in the near future. |
| Keywords: | Agglomeration economies; China; Nested logit model; Taiwanese investment |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2009-02&r=sea |