nep-sea New Economics Papers
on South East Asia
Issue of 2010‒11‒13
twenty-two papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Deploying Renewables in Southeast Asia: Trends and potentials By Samantha Ölz; Milou Beerepoot
  2. Age Structural Transition and Economic Growth: Evidence from South and Southeast Asia By K. Navaneetham
  3. Financing Asia’s Infrastructure: Modes of Development and Integration of Asian Financial Markets By Biswa Nath Bhattacharyay
  4. The Global Crisis and the Impact on Remittances to Developing Asia.. By Jha , Shikha; Sugiyarto, Guntur; Vargas-Silva, Carlos
  5. Responding to the Global Financial and Economic Crisis: Meeting the Challenges in Asia By Arner, Douglas; Schou-Zibell, Lotte
  6. Impacts of Current Global Economic Crisis on Asia’s Labor Market By Phu Huynh; Gyorgy Sziraczki; Kee Beom Kim
  7. Korea’s Unemployment Insurance in the 1998 Asian Financial Crisis and Adjustments in the 2008 Global Financial Crisis By Sung Teak Kim
  8. Prospects for Regional Cooperation between Latin America and the Caribbean Region and the Asia and Pacific Region: Perspective from East Asia By Erlinda M. Medalla; Jenny D. Balboa
  9. Tackling the Infrastructure Challenge in Indonesia By Mauro Pisu
  10. Financial Turmoil in the Banking Sector and the Asian Lamfalussy Process: The Case of Four Economies By Chen-Min Hsu; Chih-Feng Liao
  11. Child Costs and the Causal Effect of Fertility on Female Labor Supply: An investigation for Indonesia 1993-2008 By Jan Priebe
  12. Government of Singapore investment corporation (GIC): Insurer of last resort and bulwark of nation-state legitimacy.. By Clark, Gordon L.; Monk, Ashby H. B.
  13. Enhancing the Effectiveness of Social Policies in Indonesia By Margherita Comola; Luiz de Mello
  14. The Role of China in Regional South-South Trade in Asia-Pacific: Prospects for industrialization of the low-income countries By Shafaeddin, Mehdi
  15. Monetary Policy Strategies in the Asia and Pacific Region: What Way Forward? By Andrew Filardo; Hans Genberg
  16. Some Inquiries to Spontaneous Opinions: A case with Twitter in Indonesia By Maulana, Ardian; Situngkir, Hokky
  17. Norms, Culture and Local Infrastructure: Evidence from a Decentralised Economy By Pal, Sarmistha
  18. Rebalancing Growth in the Republic of Korea By Joonkyung Ha; Jong-Wha Lee; Lea Sumulong
  19. The Internationalization of Small and Medium Enterprises in Regional and Global Value Chains By Hank Lim; Fukunari Kimura
  20. Fiscal Decentralization and Development: How Crucial is Local Politics? By Pal, Sarmistha; Roy, Jaideep
  21. The Structural Change in the Supply Chain of Oil Palm â A Case of North Sumatra Province, Indonesia By Nakajima, T.; Matsuda, H.; Rifin, A.
  22. Forecasting Malaysian Exchange Rate: Do Artificial Neural Networks Work? By Chan, Tze-Haw; Lye, Chun Teck; Hooy, Chee-Wooi

  1. By: Samantha Ölz; Milou Beerepoot
    Abstract: This paper is part of the IEA ongoing analysis of global renewable energy markets and policies. It focuses on six Southeast Asian countries: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. The report investigates the potentials and barriers for scaling up market penetration of renewable energy technologies in the electricity, heating and transport sectors in the six countries. In addition to analysing the implications of effective policies on renewable energy market growth, it examines how to overcome economic and non-economic barriers that slow investment in renewable energy, and offers policy recommendations to encourage effective and efficient exploitation of renewable energy in Southeast Asia.
    Date: 2010–06
  2. By: K. Navaneetham
    Abstract: Age structural transition is a process and a consequence of shifting age structure from a young aged population to old aged population. It is well known that economic growth in the East Asian countries was significantly contributed by demographic gift, that is decline in young aged population and increase in working aged population. However, little is known about the role of age structure changes on economic growth in the context of South and Southeast Asia. In this paper an attempt has been made to study the nature and process of age structural transition in the countries of South (Bangladesh, India and Sri Lanka) and Southeast Asia (Indonesia, Malaysia, Philippines, Singapore and Thailand). Further, this paper also attempts to study the influence of age structure changes on the economic growth in these countries. [Working Paper No. 337]
    Keywords: Age structure, window of opportunity, economic growth, open economy, South Asia, Southeast Asia
    Date: 2010
  3. By: Biswa Nath Bhattacharyay
    Abstract: Asia faces very large infrastructure funding demands, estimated at around US$750 billion per year for energy, transport, telecommunications, water, and sanitation during 2010–2020 (ADB/ADBI 2009). Asia has large savings, significant international reserves, and rapid accumulations of funds that could be utilized for meeting these infrastructure investment needs, but Asian markets have failed to use available resources to channel funding into highly needed infrastructure projects. This paper explores issues and challenges in financing infrastructure for seamless Asian infrastructure connectivity and for other high priority development financing needs, and seeks methods and instruments to help direct Asian and international resources to cost-effectively and efficiently support infrastructure and other development needs. [ADBI Working Paper 229]
    Keywords: Asia, funding, energy, transport, telecommunications, water, international
    Date: 2010
  4. By: Jha , Shikha; Sugiyarto, Guntur; Vargas-Silva, Carlos
    Abstract: Remittances to Asia plunged during the 1997 Asian financial crisis, but the drop was temporary as the flows were increasing once again after just one year. The current crisis, however, is fundamentally different in that even the main remittance-sending countries have been adversely affected. The global nature of this crisis raises several questions such as whether the remittances slowdown will also last for a short time or developing Asia should prepare for a long period of remittance stagnation. This study examines remittances data of several Asian countries to shed light on such questions. The results suggest that while remittance flows to key recipients in the region have slowed down, there has not been a sharp drop. Furthermore, there is no indication that the remittance flows will slow down further, suggesting that the flows should be back on a higher growth path in a few years. It is unlikely, however, to see the same growth rates of the past, given that an important share of that growth during the last two decades was due to better recording of remittances and an increased use of wire transfers on the part of migrants. The study also provides policy options to deal with the future outlook of remittances.
    Date: 2010–03
  5. By: Arner, Douglas (University of Hong Kong); Schou-Zibell, Lotte (Asian Development Bank)
    Abstract: Based on a review of international and regional responses to the global financial and economic crisis and its implications for finance in Asia, Douglas Arner and Lotte Schou-Zibell draw lessons for Asian financial systems with regard to the scope of regulation; financial standards; supervision, regulation, and infrastructure; financial crises resolution; financial sector development; and strengthened regional financial architecture. They conclude with a discussion of challenges and policy options.
    Keywords: Global financial crisis; Group of 20; systemic risk; financial sector development
    JEL: G15 G18 G24 G28 G32 G33 G34 G35 G38
    Date: 2010–10–01
  6. By: Phu Huynh; Gyorgy Sziraczki; Kee Beom Kim
    Abstract: The paper investigates the labor market and social impacts of the global financial and economic crisis in Asia and the Pacific as well as national policy responses to the crisis. It draws on recent macroeconomic, trade, production, investment, and remittances data to assess the employment and social consequences of the crisis, including falling demand for labor, rising vulnerable and informal employment, and falling incomes and their related pressures on the working poor. The paper provides some projections of the impact on unemployment, vulnerable employment, working poverty, and labor productivity in the region in 2009. It demonstrates that labor market recovery is likely to lag behind output growth, based on the experience of Asian labor markets following the 1997 Asian financial crisis. The paper underscores some policy options that are likely to have positive outcomes toward generating employment and boosting aggregate demand, improving social protection and welfare on the basis of decent work principles, and promoting a sound and sustainable economic and labor market recovery. [ADBI Working Paper 243]
    Keywords: labor, market, global, economic, Asia
    Date: 2010
  7. By: Sung Teak Kim
    Abstract: This paper analyzes the impacts of the 1998 and 2008 financial crises on the Korean labor market. They study the historical background of the Korean Employment Insurance System and the change of labor policies from the 1998 Asian financial crisis to the current 2008 global financial crisis. While it is arguable to say that the expansion of the social welfare system in the Republic of Korea is main source of difference between the two crises, it is certain that the social welfare system is one of the influential factors that helped overcome the problems of the global financial crisis. [ADBI Working Paper 214]
    Keywords: Korean, labor, market, Asian, financial, global
    Date: 2010
  8. By: Erlinda M. Medalla; Jenny D. Balboa
    Abstract: The Asia and Pacific region and Latin America and Caribbean region are two regions divided not only by vast geographic distance, but also by disparities in economics, politics, culture, and history. Most recently, a number of forums explored the possibility of closing such gaps and linking the two regions through various trade and investment initiatives. The opportunities for cooperation abound and could touch on areas that will improve the regional value chain and enhance the innovation and competitiveness of both regions. Interregional cooperation could also help the two regions seek ways to deal with the current global economic crisis through a range of opportunities to stimulate the economy. This paper explores the potential for regional cooperation between the Asia and Pacific region and Latin America and the Caribbean. It also provides some recommendations to enhance the economic partnership of the two regions. [ADBI Working Paper 217]
    Keywords: Asia, Pacific, Latin America, Caribbean, economics, politics, culture, history
    Date: 2010
  9. By: Mauro Pisu
    Abstract: Indonesia.s infrastructure is in poor shape, having suffered from protracted under-investment since the Asian financial crisis of the late 1990s, and constraints growth potential. This paper focuses on the current state of the regulatory framework and discusses different options for improvement in order to attract needed private investment. It recognises the ambitious reforms undertaken by the government thus far, but suggests that further efforts are needed. The authorities should establish a simple regulatory environment based on effective regulatory agencies resulting in lower regulatory uncertainty and realign prices to cost-recovery levels. This Working Paper relates to the 2010 OECD Economic Review of Indonesia (<P>Relever le défi de l’infrastructure en Indonésie<BR>L.infrastructure indonesienne est en mauvais etat, ce qui tient au sous-investissement persistant dont elle a souffert depuis la crise financiere asiatique de la fin des annees 90, et bride le potentiel de croissance. Le present chapitre analyse l.etat actuel du cadre reglementaire et examine les differents moyens de l.ameliorer de maniere a attirer les investissements prives necessaires. Il tient compte des reformes ambitieuses auxquelles les autorites ont procede jusqu.a present, mais tend a demontrer que de nouveaux efforts s.imposent. Les autorites devraient etablir un cadre reglementaire simple s.appuyant sur des organismes de reglementation efficaces, ce qui attenuerait l.incertitude en la matiere et alignerait les prix sur le niveau de recuperation des couts. Ce Document de travail se rapporte a l.Etude economique de l¡¯OCDE de l¡¯Indonesie 2010 (
    Keywords: infrastructure, Indonesia, PPPs, regulatory framework, infrastructure, Indonésie, PPPs, cadre réglementaire
    JEL: H43 H54 H81 K23
    Date: 2010–10–26
  10. By: Chen-Min Hsu; Chih-Feng Liao
    Abstract: This paper investigates the prevailing financial regulatory structures and impact of the current financial turmoil on banking performance in four Asian economies: the People's Republic of China (PRC); Hong Kong, China; Singapore; and Taipei,China. Both the PRC and Hong Kong, China operate under a fragmented financial regulatory structure, while Singapore and Taipei,China have integrated structures. We examine the role of an integrated financial regulatory structure in helping financial institutions mitigate the impact of the financial crisis, using financial indicators of banks’ capital structure and operating performance in these four economies between 2003 and 2008. [ADBI Working Paper 221]
    Keywords: financial, People's Republic of China, Hong Kong, China, Singapore
    Date: 2010
  11. By: Jan Priebe (Georg-August-University Göttingen)
    Abstract: Over the last two decades Indonesia has experienced a signifcant decline in fertility rates and substantial increases in the level of education of women. Despite this development female labor force participation rates have remained roughly constant throughout this period. This paper explores the causes for the seeming unresponsiveness of female labor supply to changes in fertility. The empirical analysis is performed using annual data from the national household survey Susenas for the period 1993-2008. The final sample comprises about 850,000 woman aged 21 to 35 with at least two children. Identifcation of causal effects builds upon the empirical strategy as outlined in Angrist and Evans (1998). The results suggest that a considerable share of women in Indonesia works in the labor market in order to finance basic expenditures on their children. Therefore, reductions in fertility rates seem to have led to two opposing effects that contributed to aggregate levels of female labor supply being constant. While some women were more likely to participate in the labor market due to a lower number of children, others might now lack the need to engage in the labor market due to a relaxation in their budget constraint.
    Keywords: Causality; Child Costs; Indonesia; Labor Supply; LATE
    JEL: C21 D01 J13 J20
    Date: 2010–10–29
  12. By: Clark, Gordon L.; Monk, Ashby H. B.
    Abstract: The global financial crisis has shattered many illusions, one of which being that sovereign wealth funds (SWFs) are properly treated as arms-length investment institutions subject only to global standards of good governance. In fact, in a number of East Asian countries SWFs have acted as 'insurers of last resort' for their nation-states underwriting financial stability and social welfare. In this paper, we explain how and why this came to pass, arguing that this role serves to sustain the legitimacy of the nation-state as well as justify the separation of SWF assets from the public interest in current consumption and spending. Focusing upon the Government of Singapore Investment Corporation (GIC), we suggest that the prospect of recurrent financial crises was an important prompt for its establishment in 1981, reinforced by the experience of many East Asian countries in the 1997 Asian financial crisis. The formal constitution of the GIC, the mechanisms by which its reserves are returned to the government in crisis, and the role of different sections of the political elite in managing those assets are explained. Referencing the principles of best-practice fund governance and the Santiago Principles underwriting the legitimacy of SWFs, we also consider the governance of the GIC, especially as regards its investment processes. Implications are drawn for the experience of Western countries, particularly the UK and the USA, wherein the failure of their banking systems has put untold pressures on current and future living standards.
    JEL: F33 F59 G23
    Date: 2010
  13. By: Margherita Comola; Luiz de Mello
    Abstract: Indonesia has made considerable progress over the years in improving the social conditions of its population, especially among disadvantaged groups, not least by raising government spending and strengthening social protection programmes. Nevertheless, in some respects social outcomes remain sub-par in relation to regional peers.<P>Renforcer l’efficacité des politiques sociales en Indonésie<BR>Au fil des années, l’Indonésie a réalisé des progrès considérables dans l’amélioration des conditions sociales de sa population, notamment des groupes défavorisés, surtout en augmentant les dépenses publiques et en renforçant les programmes de protection sociale. Néanmoins, les résultats restent à certains égards en deçà de ceux enregistrés par d’autres pays de niveau comparable dans la région.
    Keywords: education, health care, Indonesia, social protection, soins de santé, éducation, protection sociale, Indonésie
    JEL: I10 I20 I30
    Date: 2010–10–26
  14. By: Shafaeddin, Mehdi
    Abstract: The author provides an alternative for the rationale for South-South trade as a vehicle for industrialization and development of developing countries in Asia-Pacific region as the literature on this issue is not satisfactory. Further, refuting the “de-coupling” thesis—that is, the East Asian countries are decoupled from the business cycle in developed countries—he analyses the merits and shortcomings of China’s regional trade with its partners in the region. Moreover, considering the growing weight of China in the global production network and international trade he proposes policies for the future of industrialization and development of the partner countries for strengthening the role of China as a growth “pole”. He suggest, inter alia, the need for industrial collaboration among the low-income countries, which benefit less than others from the dynamics of the Chinese economy as a “hub” complemented by adjustment assistance by China and NIEs. He also proposes technological cooperation among other main partner countries which are involved in production sharing in a limited number of electric and electronic products for exportation to the third markets in developed countries. The aim is to upgrade their industrial structure, and reduce their vulnerability to changes in the economic strategy of China and the business cycles in developed countries.
    Keywords: East Asia; regionalism; industrialization; production sharing
    JEL: O1 F15 F1 O3
    Date: 2010–09
  15. By: Andrew Filardo; Hans Genberg
    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. [ADBI Working Paper 195]
    Keywords: Monetary, policy, frameworks, Asia, central banks, institutional
    Date: 2010
  16. By: Maulana, Ardian; Situngkir, Hokky
    Abstract: The paper discusses opportunities to utilize the series of micro-blogs as provided by the Twitter in observation of opinion dynamics. The spontaneity of tweets is more, as the service is attached more to the mobile communications. The extraction of information in the series of tweets is demonstrated as in conceptual map and mention map. From the latter, the social network stylized properties, i.e.: power law distribution is shown. The exemplification of the methodology is on the 82nd commemoration of Indonesian Youth Pledge and the participatory movement of Indonesian capitol city, Jakarta.
    Keywords: Twitter; social network; social media; text analysis; conceptual map; mention map.
    JEL: C90 C19 D85 H70 D71 C78 C65 C02 H83 D72 D78 D83 E61 A14
    Date: 2010–10–30
  17. By: Pal, Sarmistha (Brunel University)
    Abstract: Culture as reflected in social and religious norms may be pivotal to social organization in a decentralised economy where local authorities are responsible for the provision of local public goods. We distinguish between individualist and collectivist cultures to argue that collectivist culture may promote rules to indulge in family, social and religious values at the cost of individual values promoting material objects and may thus result in inefficient choice of pubic goods. We use Indonesia as a case in point to classify communities strictly adhering to traditional adat laws and Islamic religion as promoting collectivist culture. Results using 1997 and 2007 Indonesian Family Life Survey community-level panel data highlight that, even after controlling for other variables, traditional collectivist communities strongly adhering to adat and Islam tend to have significantly greater access to social (rather than physical) infrastructural goods; similar pattern is reflected in the allocation of community spending to these goods.
    Keywords: decentralization, collectivist culture, adat law, Islam, social and physical infrastructure, allocation of spending, community development, Indonesia
    JEL: D02 H41 O43 P51
    Date: 2010–10
  18. By: Joonkyung Ha; Jong-Wha Lee; Lea Sumulong
    Abstract: The current account surplus of the Republic of Korea (henceforth Korea) increased significantly in the immediate recovery period after the 1997–1998 Asian financial crisis. Since then the surplus has gradually diminished, and from 2006 to 2008, the current account was close to being balanced. Econometric analysis reveals that the effect of exchange rate changes on Korea's trade is not robust during non-crisis periods. Exchange rates only significantly affect trade when observations during crisis periods are included. This suggests that exchange rate adjustments alone will not solve the imbalance issue. Korea's external imbalances are not only caused by external factors; they also reflect internal and policy factors such as: (i) saving-investment imbalances; (ii) export-oriented policies; and (iii) the unbalanced structure of manufacturing and services. These internal imbalances result from domestic distortions and structural imbalances arising from market inefficiencies and public policies. These must be addressed to ensure balanced and sustained economic growth. [ADBI Working Paper 224]
    Keywords: Republic of Korea, Asian, policy, domestic, economic
    Date: 2010
  19. By: Hank Lim; Fukunari Kimura
    Abstract: Production networks and the regional division of labor have been established in East Asia resulting in massive vertical intra-industry trade in parts and components within the region. This phenomenon is known as cross-border production sharing or the fragmentation of production processes into many stages across different countries. New development strategies claim that participation in international production and distribution networks is the key to accelerating economic development in the era of globalization. This process suggests that vertical input-output linkages between local firms and multinational corporations are the most powerful channels to accelerate technology transfers and spillovers. [ADBI Working Paper 231]
    Keywords: Production, regional, East Asia, development, economic, vertical, spillovers
    Date: 2010
  20. By: Pal, Sarmistha (Brunel University); Roy, Jaideep (University of Birmingham)
    Abstract: Does fiscal decentralization in a politically decentralized less developed country help strengthen democratic institutions at the grass root level? And is the impact of such decentralization on local politics important in determining local development? Our study on Indonesia suggests that fiscal decentralization enhanced free and fair local elections, though the incidence of elite capture, and the consequent breakdown of local democracy, was also present in significant proportions. Fiscal decentralization promoted development mostly in communities which transited out from elite capture to embrace free and fair elections. This was followed by communities that experienced the emergence of elite capture. Communities that continued to remain under either elite capture or free and fair elections did the worst. These findings suggest that while the emergence of elite capture exists, it may not necessarily be the most harmful. Instead, and surprisingly so, stability of local polity hurts development the most.
    Keywords: local politics, less developed nation, decentralization
    JEL: D72 H77 O18
    Date: 2010–10
  21. By: Nakajima, T.; Matsuda, H.; Rifin, A.
    Abstract: In this paper, we analyze the structural change in the supply chain of oil palm in North Sumatra, Indonesia, especially after the financial crisis of the late 20th century. We first describe the past and present market structure and conduct of oil palm industries in North Sumatra with an industrial organization approach based on our field study. The analysis reveals that the supply chain of oil palm in North Sumatra has changed such that farmers had more power to determine FFB prices over crushing companies, especially from 2001 through 2004. However, farmers lost bargaining power during 2007-2008 due to a decrease in palm oil demand, plunging of palm oil prices, and a regulation imposed upon crushing companies by the Ministry of Agriculture. To analyze such structural changes empirically, we test the existence of Asymmetric Price Transmission (APT), in which the speed of adjustments of the output price after the input price increases or decreases is different; the existence of APT implies the existence of market power. We apply the (Momentum) Threshold Autoregressive ((M-)TAR) model to estimate APT. According to the estimation results, crushing companies had more power to determine FFB prices over farmers until around March 2002. This situation changed such that farmers had more bargaining power from around April 2002 to around April 2007 before the power became balanced. The structural change test also shows these time points as optimal structural change points. The APT estimation, however, has little rigorous theoretical background, and the concept of APT is not necessarily related to market power. Hence, we next analyze the market power of crushers and farmers both theoretically and empirically. The estimation result of market power indicates that the farmers had no market power before the third quarter of 2002, but they did have market power from the next quarter to the first quarter of 2008, after which time they again lose market power. These empirical results are consistent both with each other and with the descriptions of the structural change. Finally, we conclude and draw some implications for farmers, crushers, and consumers of palm oil.
    Keywords: Indonesian palm oil, market power, Asymmetric Price Transmission (APT), (Momentum) Threshold Autoregressive ((M-)TAR) model., Agribusiness, Agricultural and Food Policy, Community/Rural/Urban Development, Food Consumption/Nutrition/Food Safety, Labor and Human Capital,
    Date: 2010–10–27
  22. By: Chan, Tze-Haw; Lye, Chun Teck; Hooy, Chee-Wooi
    Abstract: Being a small and open economy, the stability and predictability of Malaysian foreign exchange are crucially important. However, despite the general failure of conventional monetary models, foreign exchange misalignments and authority intervention have both caused the forecasting process an uneasy task. The present paper employs the monetary-portfolio balance exchange rate model and its modified version in the analysis. We then compare two Artificial Neural Networks (ANNs) estimation procedures (MLFN and GRNN) with random walk (RW) in the modeling-prediction process of RM/USD during the post-Bretton Wood era (1990M1-2008M8). The out-of-sample forecasting assessment reveals that the ANNs have outperformed the RW, which in particular, the MLFNs outperform GRNNs where as the latter outperform the RW models with consistency in both the exchange rate models by all evaluation criteria. In addition, the findings also show that the modified model has superior forecasting performance than the first model. In brief, economic fundamentals are vital in forecasting and explaining the RM/USD exchange rate. The findings are beneficial in policy making, investment modeling as well as corporate planning.
    Keywords: Artificial Neural Networks; Forecasting; modified monetary-portfolio balance model; RM/USD
    JEL: C53 C45 F31
    Date: 2010–04–06

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.