nep-sea New Economics Papers
on South East Asia
Issue of 2010‒03‒28
fourteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Regional Trade Policy Cooperation and Architecture in East Asia By Siow Yue Chia
  2. The Global Economic Crisis: An Opportunity for Strengthening Asia’s Social Protection Systems? By Mukul G. Asher
  3. Regional Monitoring of Capital Flows and Coordination of Financial Regulation: Stakes and Options for Asia By Michael G. Plummer
  4. How Do FTAs Affect Exporting Firms in Thailand? By Sumet Ongkittikul
  5. Accelerating Regional Integration: Issues at the Border By Susan F. Stone
  6. The Financial Crisis: A Wake-Up Call for Strengthening Regional Monitoring of Financial Markets and Regional Coordination of Financial Sector Policies? By Adalbert Winkler
  7. The Role of State Intervention in the Financial Sector: Crisis Prevention, Containment, and Resolution By Yoon Je Cho
  8. Investigating the Effect of Exchange Rate Changes on the People’s Republic of China’s Processed Exports By Willem Thorbecke
  9. Monetary Policy Strategies in the Asia and Pacific Region: What Way Forward? By Hans Genberg
  10. The Costs of Achieving the Millennium Development Goals through Adopting Organic Agriculture By Adam Stefan
  11. Natural Gas Export Revenue, Fiscal Balance and Inflation in Myanmar By Kubo, Koji
  12. Founder Succession and Accounting Properties By Fan, Joseph P.H.; Wong, T.J.; Zhang, Tianyu
  13. Trade trends from 2000 to 2008 for agriculture, forestry and fisheries of the Western Cape By Jacobs, Elne; Punt, Cecilia
  14. Macroeconomic Impacts of Foreign Exchange Reserve Accumulation: Theory and International Evidence By Yoshifumi Kon

  1. By: Siow Yue Chia (Asian Development Bank Institute)
    Abstract: The global financial and economic crisis has affected East Asia mainly through the trade channel. The region remains heavily dependent on export markets in Europe and North America through both direct exports to these destinations and indirect exports via the export of parts and components to other East Asian countries, particularly the People’s Republic of China, which are then assembled and exported as final goods to Europe and North America. The need to rebalance growth in East Asia in the post-crisis era requires measures to strengthen domestic demand and emphasize intra-regional demand. Production networks have been integrating East Asia and this integration process is being hastened by the rapid growth of regional and bilateral trade and economic agreements since the late 1990s. The trigger point for regionalism in East Asia appears to be the 1997–1998 Asian financial crisis, and regionalism is being accelerated by the dismal outlook for the Doha Development Round, the economic rise of the People’s Republic of China and India, and the ongoing global financial crisis. Proposals on regional trade architecture include Association of Southeast Asian Nations (ASEAN)+3 and ASEAN+6 for East Asia, the Free Trade Area of the Asia Pacific, and an extension of the Trans-Pacific Strategic Economic Partnership. The case for a new regional trade architecture includes improved competitiveness and economic dynamism from a large integrated market; increased intra-regional flows of trade, investment, and human resources; expansion and deepening of production networks; a rebalancing of growth towards regional demand; and a stronger and cohesive voice in international fora and organizations. Challenges include the pressures of protectionism in an economic recession, the question of whether there is a common political vision, the existence of multiple and overlapping free trade agreements with the accompanying problem of the noodle bowl, and the wide development gap among the region’s economies.
    Keywords: global financial crisis, trade, East Asia, production networks, regional trade architecture
    JEL: F13 F15
    Date: 2010
  2. By: Mukul G. Asher (Asian Development Bank Institute)
    Abstract: The current global economic crisis has led to greater prominence for the issue of strengthening social protection systems in Asia. This paper analyzes the key factors determining and the possible avenues for strengthening social protection systems in Asia. The choice of an appropriate combination of avenues depends on the initial starting point, public policy objectives, institutional, fiscal, and other capabilities. Following introductory remarks, Section 2 discusses demographic and labor market trends in Asia. It stresses that rapid ageing and large, informal labor markets pose challenges for Asian social protection systems, while making the role of the state even more essential. This is followed in Section 3 by an overview of social security systems in Asia. The key point is that while there are fairly elaborate social security programs in Asia, primarily for formal sector employees, this does not necessarily imply that the schemes are well designed, have wide coverage, or are financially sustainable. Section 4 discusses four general avenues to strengthening social protection systems. These emphasize greater professionalism, parametric and systemic reforms, social assistance, and social pensions, as well as others such as microfinance institution-initiated pensions. The final section provides concluding observations. The global economic crisis provides a potential opportunity for strengthening social protection systems. However, the construction of multitiered social protection systems will require much greater professionalism, experimentation, political and organizational leadership, and vision.
    Keywords: Economic Crisis, Social Protection, Asia
    JEL: H55 H87 J11 J18 J21 J26
    Date: 2010
  3. By: Michael G. Plummer (Asian Development Bank Institute)
    Abstract: The ongoing global economic crisis has punished Asian economies severely, despite the fact that its origins derive from outside the region. The global economic crisis was transmitted through real and financial channels, underscoring how vulnerable the region is to external shocks. This paper explores the microeconomic origins of the financial crisis and endeavors to ascertain how crises might be mitigated in the future through better regulation, supervision, and institution-building. Moreover, it makes the case for closer economic cooperation in order to internalize key externalities associated with modern global finance. This cooperation, in turn, should take place at the appropriate level, with incentives for cooperation at the global, regional, and subregional levels. It explores the potential for the creation of an Asian Financial Stability Board and deepening other initiatives in Association of Southeast Asian Nations (ASEAN)+3 and ASEAN forums. However, it stresses that the most important financial reforms in Asia will need to take place at the national level.
    Keywords: global financial crisis, Asia, microeconomics, financial regulation, financial externalities, ASEAN
    JEL: G28 F36 F33
    Date: 2010
  4. By: Sumet Ongkittikul (Asian Development Bank Institute)
    Abstract: Thailand—an outward-oriented regional production hub—is one of East Asia's most active users of free trade agreements (FTAs) as an instrument of commercial policy. By December 2009, Thailand had 11 concluded FTAs, and more were either under negotiation or proposed. Thai trade negotiators have striven to secure market access via FTAs, but little is known on how FTAs actually affect exporting firms. A survey of 221 exporters in leading sectors forms the basis for the first systematic study of the business impact of FTAs in Thailand. Key findings are as follows: (i) 24.9% of respondents used Thai FTAs as of 2007–2008, and this figure seems set to rise; (ii) 45.9% of respondents said that FTAs had influenced their business plans; (iii) 26.2% of firms felt that dealing with multiple rules of origin adds to business costs, and this is estimated to be less than 1% of export sales; (iv) more than half the sample firms have consulted with government and business associations on FTAs; and (v) a significant demand existed for business development services to adjust to FTAs, particularly for small and medium enterprises (SMEs). The findings suggest that Thailand should refine its FTA strategy to take better advantage of regional trade agreements. The study concludes with specific recommendations to improve business awareness of FTAs, encourage greater utilization of FTA preferences, increase competitiveness of local firms, and mitigate the potential effect of multiple rules of origin.
    Keywords: Thailand, free trade agreement, trade
    JEL: F1 F15 O24
    Date: 2010
  5. By: Susan F. Stone (Asian Development Bank Institute)
    Abstract: The sharp decline in trade volume and value during the current economic crisis has contributed to lower transportation costs and reduced waiting times at border crossings, reducing the urgency of progress on trade facilitation. Meanwhile, greater trade is expected to play a key role in recovery, and in sustaining growth afterwards. The crisis offers an excellent opportunity to make progress on facilitating intra-Asian trade and boosting the region's contribution to global economic recovery. This paper examines the status of, and challenges to, trade facilitation among the Asian Asia-Pacific Economic Cooperation members, and the roles of hard and soft infrastructure (including logistics) in improving that performance. Analysis with a computable general equilibrium framework indicates that even a relatively modest reduction in trade costs can yield significant gains. Gross domestic product in the region expands and countries move into a more diversified trading pattern. Of particular relevance for policy considerations is that the results vary considerably across bilateral trade routes and commodity categories.
    Keywords: trade, economic crisis, intra-Asian trade, APEC
    JEL: F13 F15 F17 O24
    Date: 2010
  6. By: Adalbert Winkler (Asian Development Bank Institute)
    Abstract: How much can regional monitoring of financial markets and coordination of financial sector policies contribute to preventing and mitigating financial crises? This paper reviews and compares the experiences of Europe and Asia, which have taken different routes and have achieved different levels of regional financial integration. The analysis suggests that the harmonization and coordination of regulation and supervision, with a strong focus on maturity and currency mismatch problems, would constitute an important step toward mitigating the risk of crisis. However, regional monitoring and coordination will remain difficult as long as lender-of-last-resort activities and fiscal support packages are organized on a national level. Against this background, the crisis is a wake-up call for further progress on monetary integration in Asia along the lines of the reformed Chiang Mai Initiative. In Europe, the crisis reveals the need to establish a sustainable regulatory and supervisory structure that properly defines and reflects the responsibilities of regional and national authorities in crisis management, including its fiscal dimension.
    Keywords: financial crisis,regional monitoring, regional financial integration, Europe, Asia, financial regulation
    JEL: F15 F33 F36 G38
    Date: 2010
  7. By: Yoon Je Cho (Asian Development Bank Institute)
    Abstract: This paper discusses the role of state intervention for prevention, containment, and resolution of financial crises based mainly on the Korean experience during the 1997 Asian financial crisis. Crises in emerging market and developing economies tend to be more complicated than those faced by advanced economies because they are twin crises: financial and currency crises. Such crises require the development of a comprehensive strategy covering the stabilization of the domestic financial market and the foreign exchange market, closely coordinated responses by different government bodies, an extraordinary effort for financial restructuring, and the introduction of a new regulatory framework. This effort should be based on an effective crisis management team of experts given a clear mandate with well defined power; strong political support; effective communication with the market players, both domestic and foreign; and sufficient mobilization of public funds. In this regard, this paper emphasizes the importance of building a reliable information base, prompt actions, orchestrating political consensus, and a balanced approach to restructuring and regulation among different types of financial institutions. The paper also highlights the need for a new international financial architecture matching the rapid integration into the global market of the financial markets of emerging and developing economies while their currency remains non-convertible.
    Keywords: financial crisis, Korea, state intervention, crisis management, financial regulation
    JEL: E58 G18 G21 G28 F34 F36 N20 O16
    Date: 2010
  8. By: Willem Thorbecke (Asian Development Bank Institute)
    Abstract: Many argue that the yuan needs to appreciate to rebalance the People’s Republic of China’s trade. However, empirical evidence on the effects of a CNY appreciation on the People’s Republic of China’s exports has been mixed for the largest category of exports, processed exports. Since much of the value-added of these goods comes from parts and components produced in Japan, the Republic of Korea, and other East Asian supply chain countries, it is important to control for exchange rate changes in these countries. Employing dynamic ordinary least squares, or DOLS, techniques and quarterly data, this paper finds that exchange rate appreciations across supply chain countries would cause a much larger drop in processed exports than a unilateral appreciation of the yuan.
    Keywords: China, exchange rate policy, exchange rate appreciations, trade
    JEL: F32 F41
    Date: 2010
  9. By: Hans Genberg (Asian Development Bank Institute)
    Abstract: Monetary policy frameworks in the Asia and Pacific region have performed well in the past decade as judged by inflation outcomes. We argue that this is due to three principal factors: (i) central banks have focused on price stability as the primary objective of monetary policy, (ii) institutional setups have been put in place that are supportive of the central banks’ abilities to carry out their objectives, and (iii) economic policies in general have been supportive of the pursuit of price stability, in particular the adoption of prudent fiscal policies that have reduced concerns of fiscal dominance. The financial systems in the region have also held up well in the face of the current crisis, notwithstanding more adverse liquidity conditions in several markets and pressures on certain exchange rates that spilled over from the West. It may nevertheless be useful to ask whether changes in monetary policy frameworks should be contemplated. This paper concludes that: (i) for economies with well developed financial markets, there may be little value in using unconventional monetary policies in the absence of financial crises, because in normal times such policies are not likely to be effective and may further reduce the efficiency of the financial market; (ii) a good case can be made for elevating the role of the misalignment of asset prices (including exchange rates) and financial imbalances in the conduct of monetary policy; and (iii) financial stability should take on greater importance as an objective for public policy. Whether and how much of the financial stability objective should be assigned to the central bank is still an open question.
    Keywords: monetary policy, price stability, financial institutions, fiscal policy, financial crisis
    JEL: E52 E58
    Date: 2010
  10. By: Adam Stefan (Asian Development Bank Institute)
    Abstract: This paper provides estimates of the costs of organic agriculture (OA) programs, and sets them in the context of the costs of attaining the United Nations’ Millennium Development Goals (MDGs). It analyzes the costs of OA programs in four case studies: Wanzai, PRC; Wuyuan, PRC; Kandy, Sri Lanka; and Ubon Ratchathani, Thailand. The results show considerable variation across the case studies, suggesting that there is no clear structure to the costs of adopting OA. Costs do depend on the efficiency with which the OA adoption programs are run. The lowest cost programs were more than ten times less expensive than the highest cost ones. A further analysis of the gains resulting from OA adoption reveals that the costs per person taken out of poverty was much lower than the World Bank’s estimates, based on income growth in general or based on the detailed costs of meeting some of the more quantifiable MDGs (e.g., education, health, and environment).
    Keywords: organic agriculture programs, MDGs, case studies
    JEL: Q01 Q18 Q56
    Date: 2010
  11. By: Kubo, Koji
    Keywords: Myanmar, Disinflation, Natural Resource Exports, Dual Exchange Rates, Natural Gas, Exports, Inflation
    JEL: E31 F31 O53 Q33
    Date: 2010–03
  12. By: Fan, Joseph P.H.; Wong, T.J.; Zhang, Tianyu
    Abstract: Using a sample of 231 entrepreneurial firm successions in Hong Kong, Singapore, and Taiwan, we find that firms' unsigned discretionary accruals decrease while timely loss recognition increases subsequent to successions, suggesting a shift in accounting toward a less insider-based system. We argue that the change in accounting properties is due to the loss of specialized assets in the succession process, such as the entrepreneur's reputation and political/social networks, inducing the firm to adapt to market-based rather than relationship-based contracting. Moreover, we find that the extent of the shift in accounting is larger in founder successions than in subsequent (non-founder) successions, as the dissipation of specialized assets is greatest in founder successions.
    Keywords: Succession, founder, corporate governance, accounting properties
    JEL: G32 L14 M41
    Date: 2009–11
  13. By: Jacobs, Elne; Punt, Cecilia
    Abstract: This paper aims to identify trade trends for primary products from the Western Cape agricultural, forestry and fisheries sector for the period 2000 until 2008. Annual trade data was received from the South African Revenue Service (SARS). The postal code information were used to identify from which province exports were sent or for which province the imports were destined. The postal code provided is that of the exporter or importer, and thus does not reflect the final destination in South Africa of imports or the origin (province) of our exports. Traded goods are classified using the Harmonised System (HS) that is used internationally. Results indicate that in South Africa and the Western Cape, the value of total imports are more than total exports, but in the agricultural sector of both South Africa and the Western Cape exports still dominate, i.e. South Africa and the Western Cape are still net exporters of agricultural products. For the Western Cape horticultural products, especially fruits, are at the top of the list of agricultural exports. The two main export countries for horticultural products are the Netherlands and the United Kingdom. Agricultural imports to the Western Cape are mostly field crops such as wheat, rice and tobacco, mainly from Argentina, Thailand and the United States of America. The values of exports and imports of fisheries and forestry from 2000 to 2008 indicate that the value of fish trade varies over time and the main trading partners also changes notable every year. The value of forestry trade is more stable than fish trade and since 2004, the main export country was Vietnam, but the United States dominates for imports. Nominal values are reported.
    Keywords: General Trade, Country and Industry Studies of Trade, International Relations/Trade, F10, F14,
    Date: 2009–11
  14. By: Yoshifumi Kon (Asian Development Bank Institute)
    Abstract: Recently, a dramatic accumulation in foreign exchange reserves has been widely observed in developing countries. This paper explores the possible long-run impacts of this trend on macroeconomic variables in developing countries. We analyze a simple open economy model where increased foreign exchange reserves reduce the costs of liquidity risk. Given the amount of foreign exchange reserves, utility-maximizing representative agents decide consumption, capital stock, and labor input, as well as the amounts of liquid and illiquid external debt. The equilibrium values of these variables depend on the amount of foreign exchange reserves. A rise in foreign exchange reserves increases both liquid and total debt, while shortening debt maturity. To the extent that interest rates of foreign exchange reserves are low, an increase in foreign reserves also leads to a permanent decline in consumption. However, when the tradable sector is capital intensive, the increase may enhance investment and economic growth. We provide empirical support for our theoretical analysis using panel data from the Penn World Table. The cross-country evidence shows that an increase in foreign exchange reserves raises external debt outstanding and shortens debt maturity. The results also imply that increased foreign exchange reserves may lead to a decline in consumption, but can also enhance investment and economic growth. The positive impact on economic growth, however, disappears when we control the impact through investment.
    Keywords: foreign exhange reserves, developing countries, consumption, investment, economic growth
    JEL: F21 F32 F34
    Date: 2010

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