nep-sea New Economics Papers
on South East Asia
Issue of 2010‒11‒06
23 papers chosen by
Kavita Iyengar
Asian Development Bank

  1. ASEAN Open Skies and the Implications for Airport Development Strategy in Malaysia By Siew Yean Tham
  2. Asia’s Infrastructure Challenges: Issues of Institutional Capacity By Susan Stone
  3. Asia Confronts the Impossible Trinity By Ila Patnaik; Ajay Shah
  4. The Benefits of Regional Infrastructure Investment in Asia: A Quantitative Exploration By Fan Zhai
  5. Asian Trade and Global Linkages By Douglas H. Brooks; Changchun Hua
  6. Taiwan's Asia Pacific Economic Strategies Post-ECFA By Shiro Armstrong
  7. Green Services and Emergence and Recovery from the Global Economic Slowdown in Developing Asian Economies By Mark Stoughton; Anbumozhi Venkatachalam
  8. International Production Networks in Machinery Industries: Structure and Its Evolution By Fukunari KIMURA; Ayako OBASHI
  9. Applying the Lessons of Asia: The IMF’s Crisis Management Strategy in 2008 By Shinji Takagi
  10. Global Production Networks in Electronics and Intra-Asian Trade By Byron Ganges; Ari Van Assche
  11. The Chiang Mai Initiative Multilateralization: Origin, Development and Outlook By Chalongphob Sussangkarn
  12. Machinery Trade in East Asia, and the Global Financial Crisis By Mitsuyo ANDO
  13. Methods for Ex Post Economic Evaluation of Free Trade Agreements By Cheong, David
  14. How Would an Appreciation of the Yuan Affect the People’s Republic of China’s Surplus in Processing Trade? By Willem Thorbecke
  15. Regional Cooperation, Infrastructure, and Trade Costs in Asia By Douglas H. Brooks
  16. Patterns of Inclusive Growth in Developing Asia: Insights from an Enhanced Growth-Poverty Elasticity Analysis By Cielito F. Habito
  17. Outward FDI and home country economic growth: a Malaysian case By Koi Nyen Wong
  18. The Challenges Posed by Globalization for Economic Liberalization inTwo Asian Transitional Countries: Laos and Vietnam By Nick. J Freeman
  19. The Impact of Free Trade Agreements on Business Activity: A Survey of Firms in the People's Republic of China By Yunling Zhang
  20. Does Exporter Turnover Contribute to Aggregate Productivity Growth? Evidence from Malaysian Manufacturing. By Ergun Dogan; Koi Nyen Wong; Michael Meow-Chung Yap
  21. Linking Asia’s Trade, Logistics, and Infrastructure By Douglas H. Brooks
  22. Do Foreign-Owned Firms Provide Better Working Conditions Than Their Domestic Counterparts? A Comparative Analysis By Hijzen, Alexander; Martins, Pedro S.; Schank, Thorsten; Upward, Richard
  23. Do tropical typhoons smash community ties? Theory and evidence from Vietnam By Yanos Zylberberg

  1. By: Siew Yean Tham
    Abstract: “Open Skies,†in general, refers to the liberalization of aviation markets that can be pursued on a bilateral, regional, or multilateral basis. At the Association of Southeast Asian Nations (ASEAN) level, liberalization of airfreight and passenger services is targeted by December 2008. This paper seeks to examine the implication of open skies in ASEAN on the airport development strategy in Malaysia. [ADBI Working Paper 119]
    Keywords: Open Skies, Association of Southeast Asian Nations (ASEAN), development, strategy, Malaysia
    Date: 2010
  2. By: Susan Stone
    Abstract: The Asian region has experienced substantial growth over the past several decades. Indeed, a quarter of all world exports now come from East Asia. Strong infrastructure underpinnings have often been cited as a major factor contributing to this success, and an important competitive advantage over other developing regions (Kuroda et al. 2006). However, a decline in spending over the past 10 years has raised concerns that this infrastructure derived competitive advantage is eroding. Overall quantity and quality of infrastructure services remain uneven both across, and within, countries in the Asian region. Strong investment in infrastructure is needed to support continuing efforts to achieve overall growth as well as poverty reduction. [ADBI Working Paper 126]
    Keywords: Asian, East Asia, competitive advantage, investment, poverty reduction
    Date: 2010
  3. By: Ila Patnaik; Ajay Shah (Asian Development Bank Institute)
    Abstract: In this paper, we examine capital account openness and exchange rate flexibility in 11 Asian economies. Asia has made slow progress in de jure capital account openness, but has made much more progress in de facto capital account openness. While there has been a gradual increase in exchange rate flexibility, most Asian economies continue to have largely inflexible exchange rates. This combination of advancing de facto capital account integration without greater exchange rate flexibility has led to procyclical monetary policy, when capital flows are procyclical. This paper emphasises the need for a consistent monetary policy framework.
    Keywords: capital account openness, exchange rate flexibility, Asia, capital account integration, monetary policy
    JEL: E40 E60 F41
    Date: 2010
  4. By: Fan Zhai (Asian Development Bank Institute)
    Abstract: Capitalizing on recent estimates of infrastructure financing requirements in Asia, this paper frames a scenario for infrastructure development in the region and estimates the external effects of infrastructure investment. It also assesses quantitatively the economy-wide welfare effects of developing regional infrastructure in Asia, using a global computable general equilibrium model. The results show that developing Asian economies would gain significantly from the expansion of regional infrastructure in transport and communication. With annual investment of around US$800 billion in transport, communication, and energy infrastructure during 2010–2020, developing Asia is likely to reap welfare gains of US$1,616.3 billion (in 2008 prices) in 2020, or 10% of projected aggregate gross domestic product.
    Keywords: infrastructure financing, infrastructure investment, Asia, welfare, computable general equilibrium model
    JEL: C68 F15
    Date: 2010
  5. By: Douglas H. Brooks; Changchun Hua
    Abstract: In the run-up to the 2008 global financial crisis, there was frequent discussion of Asia having decoupled from economic shock transmission originating in Europe or North America. Much of the basis for these arguments was related to the rapid expansion of intraregional trade in Asia. This paper examines the trade linkages among Asian countries and between Asia and other regions, paying particular attention to the role of production sharing processes diversified across geographically diffuse networks. [ADBI Working Paper 122]
    Keywords: global, Asia, economic, America,
    Date: 2010
  6. By: Shiro Armstrong (EABER)
    Abstract: Up to this point, Taiwan has had discriminatory trade and investment policies towards China, severely limiting economic engagement across the Straits. Not having free and open trade with China, one of the largest and most important parts of the East Asian economy, has resulted in Taiwan underperforming in attracting FDI, effectively cut Taiwan off from participating fully in the East Asian production networks and prevented the deepening of its specialisation in the regional and international economy. The Economic Cooperation Framework Agreement is a watershed in cross-Straits relations and gives Taiwan the opportunity to integrate more fully into the East Asian economy. There will be pressure now for Taiwan to pursue preferential trade deals with other countries. This would not seem a sensible way forward; rather Taiwan should pursue a multilateral trade strategy and focus on domestic reforms that will bring larger economic gains, economic diversification and avoid the political risks to the cross-Straits relationship associated with preferential deals.
    Keywords: trade policy, investment policy, FDI, Taiwan, Economic Cooperation Framework Agreement, East Asia
    JEL: F13 F50
    Date: 2010
  7. By: Mark Stoughton; Anbumozhi Venkatachalam (Asian Development Bank Institute)
    Abstract: The global economic slowdown has again highlighted the vulnerability of export-led development models and economies to downturns in export markets. Economic deepening or “rebalancing” with an emphasis on service-sector development should be—and is becoming—one long-term response to the crisis by Asia’s emerging economies. In the long run, sustainable economic development will depend in part on achieving a “green” trajectory of service sector development, in which services help green the “product economy.” In the short run, however, can services help address short- and medium-term challenges of emergence and recovery from the crisis—particularly those of at least resuming historic rates of poverty alleviation and inclusive growth? Meeting these challenges will require that export sectors deal successfully with challenging market conditions. There is a class of closely related business-to-business services which act to green the product economy, and which would improve the competitiveness of export sectors and husband scarce public resources by optimizing the efficiency of infrastructure utilization. These are functional procurement/efficiency services, which transform procurement of environmentally problematic goods and services—such as waste disposal, energy, chemicals, and transport—into performance-based services in which service providers profit by increasing the customer’s eco-efficiency. Energy Service Companies (ESCOs) are the best-known of these service models. These services appear to have strong potential among the larger, more sophisticated institutions and commercial and industrial enterprises in developing Asian states, particularly in Asia’s more advanced developing economies.
    Keywords: global economic slowdown, export-led development models, sustainable economic development, Energy Service Companies, Asia
    JEL: L80 L88 O14 O19 O25
    Date: 2010
  8. By: Fukunari KIMURA (Faculty of Economics, Keio University, Japan , Economic Research Institute for ASEAN and East Asia (ERIA), Indonesia); Ayako OBASHI (Faculty of Economics, Keio University, Japan)
    Abstract: This paper intensively employs annual international trade statistics obtained from the UN Comtrade and examines to what degree East Asian countries have participated in global production networks in comparison with countries in other regions and whether East Asia’s intra-regional trade in machinery is different from extra-regional trade and transactions by other regions. It provides strong evidence of the formation of East Asian production networks, particularly in the form of expansion of exports and imports of parts & components, often ICT-related. It also traces the development of intra-regional markets of both parts & components and finished products since 2000.
    Date: 2010–09–01
  9. By: Shinji Takagi (Asian Development Bank Institute)
    Abstract: The paper examines the recent European crisis management programs of the International Monetary Fund (IMF) to see how the lessons of Asia were applied. Compared to the Asian programs of 1997, the European programs of 2008 were better funded and their structural conditionality more focused. Other than these, the overall thrust of the programs was similar: fiscal and monetary tightening, coupled with banking reforms. The real difference, however, was not so much about content but about philosophy. Relative to the Asian programs, the European programs were characterized by more emphasis on ownership, greater collaboration among stakeholders, more realistic assumptions and greater transparency about the risks and the logic of policy actions, and more built-in flexibility of targets and policy options. This approach to crisis management, foreshadowing the major reform of conditionality in March 2009, incorporated the changes that had been made since the Asian crisis in the IMF’s policies and procedures to manage capital account crises more effectively. Despite these recent changes in the way the IMF does its business, Asia appears to remain unengaged. The lesson Asia should draw from Europe is that it should build a strong regional institution to complement, and catalyze the involvement of, the IMF. Only then can the lessons learned in Asia over 10 years ago be applied back in Asia to benefit its own people.
    Keywords: IMF, European crisis management programs, Asia
    JEL: E65 F33 F53
    Date: 2010
  10. By: Byron Ganges (University of Hawaii at Manoa); Ari Van Assche (HEC MontreÌal and LICOS, Department of International Business)
    Abstract: The growth of East Asia’s intra-regional trade is driven largely by increased component trade within global electronics production networks. Data on both electronics trade and production elucidate a pattern of specialization in which upper- and middle-income countries produce sophisticated components and lower-income countries assemble lower- value-added final goods. There is evidence of increasing sophistication within the electronics sector by the Newly Industrialized Economies and to a lesser extent by ASEAN countries. Despite the marked increase in intra-regional trade, developing East Asian countries remain heavily dependent on developed-country markets. When Western export demand rapidly contracted during the 2008-2009 economic crisis, these specialization patterns led the rapid diffusion of the business cycle shock throughout the East Asian region.
    Keywords: Global production networks; electronics; Asian trade; business cycle transmission; global economic crisis
    JEL: F14 F23 F40 L63
    Date: 2010–03
  11. By: Chalongphob Sussangkarn (Asian Development Bank Institute)
    Abstract: This paper discusses the Chiang Mai Initiative Multilateralization (CMIM); its origin, development and future outlook. It puts forward a number of proposals to make the liquidity support role of the CMIM more effective. It is further argued that the CMIM can bring about major changes to the policy institutional infrastructure of the East Asia region, particularly through the establishment of an Independent Surveillance Unit (ISU). The ISU can provide technical and secretariat support to financial cooperation processes in the region, which have thus far been driven by officials on a part-time basis. Consolidation of the main financial forums in the region is also proposed, specifically the Finance Minister Process and the Central Bank Process. Membership of these two processes should be expanded and unified, with the ISU providing technical and secretariat support. It is argued that regular policy meetings can be institutionalized and that this could enhance the role of East Asia in the global financial arena, whilst facilitating policy cooperation, with important regional and global implications.
    Keywords: Chiang Mai Initiative Multilateralization, Independent Surveillance Unit, financial cooperation, policy cooperation
    JEL: E44 F33 F36 F42 G15
    Date: 2010
  12. By: Mitsuyo ANDO (Faculty of Business and Commerce, Keio University, Japan)
    Abstract: The global financial crisis since Q3 2008 has influenced the world economy, including that of East Asia. This paper focuses on international production/distribution networks, mainly observed in the machinery sectors in East Asia, and attempts to examine patterns of machinery trade movements during the crisis to explore how and to what extent it has affected trade. More specifically, the paper analyzes these trade patterns, with distinctions between machinery intermediate goods and machinery final products, among trading partners (regions), between intra-regional trade and inter-regional trade, and among machinery sectors, so as to investigate whether there were any differences in reactions to the crisis. Moreover, in order to consider possible seasonality in trade, the paper also attempts to apply the X-12 model and discusses features of trade patterns based not only on actual trade values but also on estimated trade values with seasonal adjustment. Our results demonstrate that effects of the global financial crisis on international production/distribution networks in East Asia do indeed exist but, at the same time, that East Asia’s trade has rapidly recovered through the regional production/distribution networks. In particular, East Asia itself is the major contributor to such a rapid recovery, not only for machinery parts and components trade but also for the machinery final goods trade. This suggests that the existence of dense production/distribution networks in East Asia helps industries to avoid becoming destabilized. It also suggests that East Asia is increasingly gaining importance not only as the production site but also as the consumption site for final products that are produced in the production/distribution networks in the region, implying that [further] activation and expansion of intra-regional demand are essential.
    Date: 2010–10–01
  13. By: Cheong, David (Johns Hopkins University‘s School of Advanced International Studies (SAIS) Bologna Center)
    Abstract: Evaluating the economic impact of an FTA is an important part of the monitoring and surveying process that should follow the establishment of an FTA. This paper presents methods for evaluating the trade and welfare effects of an FTA. These methods show how to (i) compute indicators for the utilization and value of preferences, (ii) qualitatively assess trade creation and diversion, (iii) quantitatively analyze the FTA‘s trade effects with trade indicators and the gravity model, and (iv) make inferences about economic welfare. This paper specifies the formulas, computational techniques, and data used for each evaluation method, and describes how to interpret the output from each method with examples taken from countries such as Viet Nam, Indonesia, and Cambodia. The strengths and limitations of each method are also discussed.
    Keywords: regionalization; evaluation methods; preferential tariffs; trade indicators; gravity model; free trade agreements; Asia
    JEL: F13 F15
    Date: 2010–10–01
  14. By: Willem Thorbecke (Asian Development Bank Institute)
    Abstract: Enormous trade surpluses are problematic for the People’s Republic of China (PRC) and the rest of the world. They primarily stem from processing trade. This paper investigates how exchange rate changes would affect the PRC’s imports for processing and processed exports. The results indicate that an appreciation throughout East Asian supply chain countries would reduce the PRC’s surplus in processing trade, while an appreciation of the yuan alone might not. Even for an appreciation throughout East Asia, however, the sum of the exchange rate elasticities is not large. Thus, to rebalance the PRC’s trade, exchange rate appreciations must be accompanied by other changes such as factor market liberalization and greater enforcement of environmental regulations.
    Keywords: trade surpluses, China, exchange rates, yuan appreciation, factor market liberalisation
    JEL: F32 F41
    Date: 2010
  15. By: Douglas H. Brooks
    Abstract: International trade has played an essential role in Asia’s remarkable growth, development, and integration in recent decades. Infrastructure, both hard and soft, has played an integral part in facilitating that trade, primarily through reducing the associated transaction costs. Regional coordination and cooperation can help to reduce negative externalities from trade and to capitalize more fully on positive spillover effects. This study explores the nexus between Asia’s trade flows and patterns, trade costs and how they are influenced by infrastructure development, and the role of regional cooperation in facilitating trade’s contribution to economic integration. A virtuous circle between growth, infrastructure investment, trade expansion, and regional integration is elucidated.
    Keywords: International trade, development, Regional coordination, cooperation, Asia, infrastructure investment, trade expansion,
    Date: 2010
  16. By: Cielito F. Habito
    Abstract: The primary objective of this research is to identify key factors that explain the observed wide variation in patterns of inclusiveness of economic growth—defined here as gross domestic product (GDP) growth that leads to significant poverty reduction—in Asia. In exploring this relationship, this study goes beyond defining poverty by the income or expenditure yardstick alone, but examines a more holistic measure of poverty that considers its multidimensional nature. [ADBI Working Paper 145]
    Keywords: primary objective, research, economic growth, gross domestic product (GDP),
    Date: 2010
  17. By: Koi Nyen Wong
    Abstract: This paper attempts to explore the causality relationship between outward foreign direct investment (OFDI) and home country economic growth using Malaysia as a case. The main findings do not advocate the OFDI-led growth hypothesis. In order to promote OFDI-led growth, the home government should prepare the private sector for increasing competition in the era of globalization so that linkages can be forged with Malaysian multinationals, and to facilitate home sourcing for OFDI activities. However, the study reveals the evidence of growth-led OFDI, which conforms to the investment development path theory that can potentially internationalize business activities of Malaysian firms abroad.
    JEL: F21
    Date: 2010–05
  18. By: Nick. J Freeman
    Abstract: This paper examines the impact of globalization on two transitional economies in Asia. Both countries have undergone a radical economic reform process over the past decade, assisted by increases in external trade flows, foreign investment activity, and external assistance. However, the pace of economic reform has decelerated since the perceived perils of globalization—as evidenced by the Asian Crisis—have become more apparent to the leaderships of these two avowedly socialist states. Although neighbouring and fraternal countries, adopting broadly parallel economic liberalisation programmes, the forces of globalization have manifested themselves in different ways in Laos and Vietnam. The paper discerns these differences, and assesses whether the two countries are likely to overcome the current hiatus in their economic reform programmes. [Discussion PaperNo.2001/40]
    Keywords: globalizationbacklash,foreigndirectinvestment,EastAsia
    Date: 2010
  19. By: Yunling Zhang (Asian Development Bank Institute)
    Abstract: The People’s Republic of China (PRC) has emerged as a major player in the global economy and considers free trade agreements (FTAs) an important part of its global trading strategy. The PRC’s export industries are embedded in existing regional and global production networks and are reliant on foreign direct investment flows and external supplies of material and intermediate goods. Immediately after its accession to the World Trade Organization in December 2001, the PRC adopted a regional approach to trade and began negotiating and implementing FTAs. This paper analyzes the results of a survey undertaken across 232 Chinese firms with regard to FTA-related issues such as utilization, perceived costs and benefits, perceptions of multiple rules of origin, and policy and institutional support mechanisms. It was found that, of the firms surveyed, 45% were using FTAs to some extent. While this utilization rate appears relatively high, and reflects the assertive stance of Chinese firms when it comes to exploring market opportunities, the actual coverage of export value by FTAs is variable. In general, Chinese firms view FTAs as a way to increase their access to partner markets. Nevertheless, there remains an orientation toward the United States and other traditional markets. However, over time, as rebalancing of growth takes place, there may be a shift in market orientation toward the Association of Southeast Asian Nations (ASEAN) and regional markets and the use of FTAs may intensify. This study offers several proposals to increase FTA use, including the expansion of support services for firms, the promotion of larger regional FTAs, and the creation of more opportunities for collaboration between the government and the private sector.
    Keywords: China, FTA, utilization rate, growth rebalancing
    JEL: F1 F15 O24
    Date: 2010
  20. By: Ergun Dogan; Koi Nyen Wong; Michael Meow-Chung Yap
    Abstract: Malaysia’s economic success is to a significant extent underpinned by its export-oriented manufacturing sector. The sector has a large foreign presence, with MNCs attracted by the open trade and investment regime, and FDI-friendly policies. Using unpublished manufacturing census data for 2000 and 2005, we apply the methodology by Foster et al. (1998) to decompose productivity growth. The analysis shows that exporters were more productive than domestic-oriented establishments, and were distinctly more competitive. The empirical evidence also shows that establishment turnover is important in boosting productivity growth. In particular, we find that turnover of exporters made a larger contribution to aggregate productivity growth compared to domestic-oriented establishments during the period from 2000 to 2005. Surviving establishments (those that operated in both years), on the other hand, made a negative contribution. It is noteworthy that entrants to export markets were more productive than surviving non-exporters and even surviving exporters. Exiters from export markets or “export failuresâ€, on the other hand, were less productive than continuing exporters. Given the importance of turnover to productivity growth, the government should ensure unrestricted entry to the export sectors for both foreign and domestic investors. Continuing with pro-FDI policies is also important, given the keener global competition.
    Keywords: Exporting; plant turnover; productivity; manufacturing; Malaysia
    JEL: F14 L60 O40
    Date: 2010–05
  21. By: Douglas H. Brooks
    Abstract: Infrastructure services, from both hard and soft infrastructure, play a vital role in facilitating Asia’s export-led growth by keeping the prices of delivered goods in export markets competitive. Efficient infrastructure services lower transaction costs, raise value added, and increase potential profitability while also increasing and expanding linkages to global supply chains and distribution networks for producers. Asia’s trade patterns are characterized by a high degree of intraregional trade, particularly in parts and components for geographically fragmented production networks. This is both in response to, and with implications for, further infrastructure development. Logistics services play a key role and the challenges of providing efficient logistical support rise as countries move into progressively more complex and higher-value manufacturing, and as production processes become increasingly fragmented. [ADBI Working Paper 128]
    Keywords: Infrastructure services, Asia, export markets, transaction, global supply chains, higher-value manufacturing,
    Date: 2010
  22. By: Hijzen, Alexander (OECD); Martins, Pedro S. (Queen Mary, University of London); Schank, Thorsten (University of Mainz); Upward, Richard (University of Nottingham)
    Abstract: This paper analyses to what extent working conditions in foreign-owned firms differ from those in their domestic counterparts. It makes three main contributions. First, we replicate the consensus in the empirical literature by applying a standardised methodology to firm-level data for three developed (Germany, Portugal, UK) and two emerging economies (Brazil, Indonesia). We show that, consistent with previous evidence, foreign-owned firms offer substantially higher average wages than domestic firms and that this difference is particularly important in emerging economies. Second, we show that these positive wage effects of foreign takeovers reduce in size when controlling for changes in the composition of the workforce, although they tend to remain positive and statistically significant. However, the wage effects associated with worker movements from domestic to foreign firms are potentially important, particularly in emerging economies. Third, we look not only at wage outcomes but also consider other working conditions such as working hours, job stability and union coverage. We find that foreign takeovers of domestic firms tend to have a small positive effect on wages, but little effect on other aspects of working conditions.
    Keywords: foreign direct investment, foreign wage premia
    JEL: F14 F16 F23
    Date: 2010–10
  23. By: Yanos Zylberberg
    Abstract: Natural disasters trigger large inequalities between affected households and the rest of the community. The extent to which villages compensate for these shocks allegedly depends on the pressure imposed by the group of needy families. I model two major threats to redistribution - (i) the emergence of a coalition of winners willing to shy away from redistributing to their peers and (ii) the initial fractionalization of the community. Matching data on a wave of tropical typhoons with a panel household survey in Vietnam, I find less redistribution in villages where needy families are in the minority. Whereas 17 cents on average are covered through informal transfers for a relative income loss of $1, access to liquidity falls below 10 cents when heavily affected households are isolated in the commune. In line with the existing literature, minorities participate less in the resources reallocation. Despite these barriers to full insurance, risk-sharing through informal transfers is still economically significant. This result is related with the findings that communities having suffered important trauma show greater signs of resilience and cohesiveness.
    Date: 2010

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