nep-sea New Economics Papers
on South East Asia
Issue of 2010‒02‒05
three papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Regulatory Reforms for Improving the Business Environment in Selected Asian Economies - How Monitoring and Comparative Benchmarking Can Provide Incentive for Reform By Schou-Zibell, Lotte; Madhur, Srinivasa
  2. The Decline of Investment in East Asia since the Asian Financial Crisis: An Overview and Empirical Examination By Park, Dong-hyun; Shin, Kwanho; Jongwanich, Juthathip
  3. Assessing the systemic risk of a heterogeneous portfolio of banks during the recent financial crisis By Xin Huang; Hao Zhou; Haibin Zhu

  1. By: Schou-Zibell, Lotte (Asian Development Bank); Madhur, Srinivasa (Asian Development Bank)
    Abstract: The determinants of a business friendly environment that underpin rapid and sustained economic growth include the macroeconomic and financial market environments, infrastructure, labor market skills and efficiency, and governance and institutions. Obtaining licenses and credit to start a business, finding and managing labor, ensuring investor protection, enforcing contracts, paying taxes, trading across borders, and identifying the requirements for closing a business are all important factors in assessing the operating climate for doing business. By comparative benchmarking, this paper examines these determinants in six developing Asian economies—the People’s Republic of China, Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam—and compares them with similar indicators for five benchmark economies—the newly industrialized economies (NIEs) of Hong Kong, China; the Republic of Korea; and Singapore; and the developed economies of Japan and the United States. <p> This paper also identifies areas where reform has taken place and where further efforts are needed, such as addressing policy uncertainties, the quality of governance and legal and institutional frameworks, and inadequate regulatory capacity. Attending to these shortcomings will require policymakers to implement structural reforms that improve efficiency and competitiveness by (i) minimizing unnecessary regulatory barriers in business activities, (ii) encouraging private incentives and market discipline, (iii) creating a level playing field across all sectors, and (iv) fostering competition to upgrade institutional capacity. This paper argues that the regular monitoring of relevant indicators and comparative benchmarking can (i) provide important incentive structures that encourage the sharing and implementation of good practices through peer pressure mechanisms and (ii) serve as a starting point for dialogue between government and the private sector on reform priorities that can improve the business environment.
    Keywords: Business environment; investment; Asia; benchmarking
    JEL: D21 D73 F21 K40 O57
    Date: 2010–01–01
  2. By: Park, Dong-hyun (Asian Development Bank); Shin, Kwanho (Korea University); Jongwanich, Juthathip (Asian Development Bank)
    Abstract: A key legacy of the Asian financial crisis of 1997–1998 is a sustained drop-off in the investment rates of East Asian countries that were hardest hit by the crisis. We first review the stylized facts of investment in those countries, and then explore and evaluate the various possible explanations for the decline in investment. In our empirical analysis, which expands upon Park and Shin (2009) by updating the data to include 2005–2008, we investigate the extent to which the investment rates of Asian countries can be explained by the underlying fundamental determinants of investment such as gross domestic product (GDP) growth and demographic variables. We also empirically revisit the various hypotheses put forth to explain the investment drop-off, in particular competitive pressures from the People's Republic of China and heightened risk and uncertainty. Our analysis yields two main findings: (i) some evidence of overinvestment in the precrisis period but (ii) very little evidence of underinvestment in the postcrisis period. The results suggest that investment rates are currently more or less at appropriate levels despite their postcrisis decline. The salient policy implication is that quantitatively boosting investment may be less important for future growth than enhancing the investment climate.
    Keywords: Investment; capital accumulation; growth slowdown; East Asia; Asian crisis
    JEL: E22
    Date: 2009–12
  3. By: Xin Huang; Hao Zhou; Haibin Zhu
    Abstract: This paper extends the approach of measuring and stress-testing the systemic risk of a banking sector in Huang, Zhou, and Zhu (2009) to identifying various sources of financial instability and to allocating systemic risk to individual financial institutions. The systemic risk measure, defined as the insurance cost to protect against distressed losses in a banking system, is a summary indicator of market perceived risk that reflects expected default risk of individual banks, risk premia as well as correlated defaults. An application of our methodology to a portfolio of twenty-two major banks in Asia and the Pacific illustrates the dynamics of the spillover effects of the global financial crisis to the region. The increase in the perceived systemic risk, particularly after the failure of Lehman Brothers, was mainly driven by the heightened risk aversion and the squeezed liquidity. Further analysis, which is based on our proposed approach to quantifying the marginal contribution of individual banks to the systemic risk, suggests that “too-big-to-fail” is a valid concern from a macroprudential perspective of bank regulation.
    Keywords: systemic risk, Macroprudential regulation, Portfolio distress loss, Credit default swap, Dynamic conditional correlation
    Date: 2010–01

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