nep-sea New Economics Papers
on South East Asia
Issue of 2010‒04‒24
seven papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Assessing Co-ordinated Asian Exchange Rate Regimes By Raj Aggarwal; Cal B. Muckley
  2. Stock and Bond Relationships in Asia By Johansson, Anders C.
  3. Education Impact Study: The Global Recession and the Capacity of Colleges and Universities to Serve Vulnerable Populations in Asia By Gerard Postiglione
  4. Prospects for Global Current Account Rebalancing By Kimberly Beaton; Carlos de Resende; René Lalonde; Stephen Snudden
  5. Economic sanctions and trade diversions in Sudan By Siddig, Khalid
  6. The Dynamics of Women's Labour Supply in Developing Countries By Bhalotra, Sonia R.; Umana-Aponte, Marcela
  7. Does the macroeconomic policy of the global economy’s leader cause the worldwide asymmetry in current accounts? By Quaas, Georg

  1. By: Raj Aggarwal (College of Business Administration, University of Akron); Cal B. Muckley (Smurfit Business School, University College Dublin)
    Abstract: This study assesses alternative Asian exchange rate regimes and finds short- and long-run currency dynamics more conducive to the possibility of introducing a common peg based on a basket of the European euro, the United States dollar and the Japanese yen than the alternative of re-introducing a United States dollar peg exchange rate regime. Exchange rate systems of 3- 4- and 5- Asian currencies are examined and the dynamics in a set of 4 European currencies prior to the introduction of the Euro provides benchmark evidence. The evidence for an Asian basket peg regime is strengthened when, unlike in prior studies, the long-run parameters are estimated while accounting for generalised autoregressive conditional heteroscedasticity effects.
    Keywords: Exchange Rate Regimes, Asia, Currency Pegs, Basket Exchange Rates
    JEL: F33 F31 F42 F02
    Date: 2010–04–13
  2. By: Johansson, Anders C. (China Economic Research Center)
    Abstract: This paper analyzes the relationship between stocks and bonds in nine Asian countries. Using a bivariate stochastic volatility model, we show that there are significant volatility spillover effects between stock and bond markets in several of the countries. Furthermore, dynamic correlation patterns show that the relationship between stock and bond markets changes considerably over time in all countries. Stock-bond correlation increases during periods of turmoil in several countries, indicating that there is a cross-asset contagion effect. Therefore, if there is a flight to quality effect in Asian markets, it seems to occur across countries or regions rather than across domestic assets. The results have direct and important implications for regional policy makers as well as domestic and international investors that invest in multiple asset classes.
    Keywords: Asia; stock markets; bond markets; stochastic volatility; Markov Chain Monte Carlo; spillover effects; dynamic correlation
    JEL: C32 F30 G12 G15
    Date: 2010–04–01
  3. By: Gerard Postiglione
    Abstract: This paper reviews the capacity of colleges and universities to serve poor and vulnerable populations during past and present economic shocks. The main argument is that the environment of the global recession—an Asia far more economically integrated than during past economic shocks, with more unified aspirations to be globally competitive and socially responsible—need not delay reforms in higher education. [ADBI WP 208].
    Keywords: colleges, universities, poor, vulnerable, population, environemnt, global, recession, Asia, education, economic, socially responsible,
    Date: 2010
  4. By: Kimberly Beaton; Carlos de Resende; René Lalonde; Stephen Snudden
    Abstract: The authors use the Bank of Canada's version of the Global Economy Model, a multi-country, multi-sector dynamic stochastic general-equilibrium model with an active banking system (the BoC-GEM-FIN), to study the evolution of global current account balances following the recent global financial crisis. More specifically, they use several shocks from the model to generate a simulated baseline scenario that mimics: (i) the initial, pre-crisis state of disequilibrium in global current account balances, and (ii) the effects of the crisis, including those of the policy responses undertaken worldwide. The authors find that a sufficient set of conditions and policies for a sustainable resolution of the global current account imbalances relies on three key elements: (i) a continuous upward adjustment of U.S. private savings, (ii) fiscal consolidation in advanced countries, and (iii) an orderly adjustment of exchange rates. These three criteria facilitate a gradual decline in the U.S. current account deficit going forward. A fourth key element, the implementation of policies aimed at stimulating domestic demand in emerging Asia, is needed to ensure that the counterpart of the decrease in the U.S. current account deficit is mainly a reduction in the surpluses of emerging Asia. Sensitivity analysis based on deviations from these conditions illustrates the factors behind the main results and the costs associated with the alternative scenarios considered.
    Keywords: Balance of payments and components; Business fluctuations and cycles; International topics; Recent economic and financial developments
    JEL: E21 F01 F32
    Date: 2010
  5. By: Siddig, Khalid
    Abstract: The latest episode of the armed conflict between Northern and Southern Sudan erupted in 1983 and ended with the signing of the "Comprehensive Peace Agreement (CPA)" in 2005. The CPA allows for a referendum on independence for South Sudan in 2011. A similar scenario is possible for Darfur, where an armed conflict broke out in 2003 over demands for greater decentralization and development in the region. The peace agreement between the central government and the Eastern Sudan region continues to be fragile and the risk of escalation of across the border spillovers of conflicts with Uganda and Chad persists. The U.S., EU, among other global players, is putting pressure on the Khartoum government to change its policies. Economic sanctions are among the tools used by the U.S. government while encouraging others follow suit. This paper investigates the response of the Sudanese economy to eliminating trade flows with the EU in the first phase and with East-Asian countries in the second. It discusses the changes in the macro-indicators, trade variables, and welfare measures that would result. Moreover, it assesses the potential trade diversion and resource reallocation due to sanctions in each phase. To simulate these scenarios, detailed economic databases for Sudan, EU, East-Asian region, MENA, COMESA, and the rest of the world are needed. For this purpose, GTAP Africa database and the standard GTAP model are employed. The 57 sectors of Africa database are aggregated to ten sectors including: grains and crops, livestock and meat products, mining and extraction, processed food, textiles and clothing, light manufacturing, heavy manufacturing, utilities and construction, transport and communication, and other services. Moreover, the database regions are aggregated to six including Sudan, the EU, East Asia, MENA, COMESA, and the Rest of the world. Results show that Sudanese trade reallocates to Asia in the first phase and to COMESA and MENA regions in the second. Sanctions exact a devastating toll on the Sudanese economy: GDP declines, trade shrinks, and welfare deteriorates. The deterioration in the country’s trade is mainly in the imports side, which justifies an improvement of the country’s balance of trade, while welfare losses are derived by a deteriorated terms of trade and allocative efficiency.
    Keywords: Sudan; sanctions; GTAP Africa database; EU; East Asia
    JEL: F16 C68 C02 D58 F51
    Date: 2010–04–11
  6. By: Bhalotra, Sonia R. (University of Bristol); Umana-Aponte, Marcela (University of Bristol)
    Abstract: This paper investigates cyclicality in women's labour supply motivated by the hypothesis that it contributes to smoothing household consumption in environments characterized by income volatility. We use comparable individual data on about 1.1 million women in 63 developing and transition countries merged with country-level panel data on GDP during 1986-2006. The scope of these data is unprecedented in the small but growing literature on labour markets in developing countries. We find that the within-country relationship of women's employment and income is, on average, negative in Asia and Latin America but positive in Africa. We suggest that amongst reasons why African women behave differently are that the conventional family structure with income pooling is less the norm, there are fewer opportunities for paid employment, and aggregate income shocks are more closely tied to rainfall variation. The findings are robust to controls for country-specific trends and potentially correlated shocks. In Asia and Latin America, characteristics that strengthen counter-cyclical responses include low education, being married, being married to men with low education, low wealth, no landownings, rural residence and fertility. These findings suggest that insurance motives underpin the dynamics of women's work participation. Examination of cyclicality in the distribution of employment across types suggests that recessions in every region are associated with a rise in self-employment amongst women. In Asia and Latin America, there is a parallel rise in paid employment and a sharp drop in non-employment. In Africa, there is a decline in paid employment which overwhelms the rise in self-employment and this is how total employment comes to decline. The results have potentially important implications for understanding labour markets, fertility timing and child outcomes.
    Keywords: insurance, women's labour supply, added worker effect, business cycles, dynamics, Africa, Asia, Latin America
    JEL: J22 J13
    Date: 2010–04
  7. By: Quaas, Georg
    Abstract: Schnabl and Freitag (2009) sketch the causal chain that produced the current account surplus in China and the current account deficit of the U.S. (as a part of global imbalances) as follows: declining interest rates in the U.S. cause a redirection of capital flows into the periphery, rising capital inflows into China and other Asian countries trigger currency purchases by periphery central banks, and increasing stocks of foreign reserves on the asset side in the central bank balance sheet are matched by a proportional increase of reserve money on the liability side. To keep the exchange rate stable, foreign reserves are accumulated and reserve money expands. The Peoples Bank of China is trying to fight the inflation pressure with several measures, among them higher interest rates. This attracts even more foreign capital to China. Moreover, it cannot solve a problem that originates in the macroeconomic policy of the global economy’s leader. - A crucial point in this argument is the redirection thesis. The empirical evidence does not support this thesis in several respects—there is no evidence for a redirected capital flow away from the U.S. toward China, and there is no evidence that interest rates controlled by the Federal Reserve are the cause of the capital flow to China.
    Keywords: global imbalances; current account surplus; current account deficit
    JEL: F32
    Date: 2010–04–15

This nep-sea issue is ©2010 by Kavita Iyengar. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.