nep-sea New Economics Papers
on South East Asia
Issue of 2011‒11‒14
fourteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Employment trends in Indonesia over 1996-2009: Casualization of the labour market during an era of crises, reforms and recovery By Makiko Matsumoto; Sher Verick
  2. Do crises catalyze creative destruction ? firm-level evidence from Indonesia By Hallward-Driemeier, Mary; Rijkers, Bob
  3. Trilemma and Financial Stability Configurations in Asia By Aizenman, Joshua
  4. Culture-led Urban Regeneration- An Example from Zong-Ye Historical District in Tainan By Chengche Chen; Hsienhsin Cheng
  5. The Impossible Trinity and Capital Flows in East Asia By Grenville, Stephen
  6. China's dominance hypothesis and the emergence of a tri-polar global currency system By Marcel Fratzscher; Arnaud Mehl
  7. Group Violence, Ethnic Diversity, and Citizen Participation: Evidence from Indonesia By Christophe Muller; Marc Vothknecht
  8. Global Financial Crises and Time-varying Volatility Comovement in World Equity Markets By Andrew Stuart Duncan; Alain Kabundi
  9. Productivity-wage-growth nexus: an empirical study of Singapore By Freddy, Liew
  10. An evaluation of overseas oil investment projects under uncertainty using a real options based simulation model By Lei Zhu; ZhongXiang Zhang; Ying Fan
  11. Education as a precautionary asset By Cipollone, Angela
  12. Financial liberalization and macroeconomic performance, empirical evidence from selected Asian countries By Raza, Muhammad Wajid; Mohsin, Hasan M
  13. Climate Change and Poverty Reduction—Where Does Official Development Assistance Money Go? By Kalirajan, Kaliappa; Singh, Kanhaiya; Thangavelu, Shandre; Venkatachalam, Anbumozhi; Perera, Kumidini
  14. The Ambiguous Outcome of NGOs’ Activism in Developing Countries By Michela Limardi

  1. By: Makiko Matsumoto (International Labour Office, Country Employment Policy Unit); Sher Verick (International Labour Office, Employment Analysis and Research Unit)
    Abstract: The East Asian financial crisis of 1997-1998 hit Indonesia hard, resulting in a winding back of the substantial economic and social gains made during the previous two decades. However, that crisis did not result in a large fall in employment and a commensurate rise in unemployment; rather, the economic contraction of over 13 per cent was accompanied by considerable transitions within employment,namely, from formal sector to informal and agricultural employment, particularly among women. The years following were characterized by slow growth and weak formal job creation, which has often been attributed to such factors as rigid labour regulations, especially the enactment of the Manpower Law in 2003. The economic and labour market situation in Indonesia only began to consistently improve over the last five years, notably during the boom years leading up to the global financial crisis. During this period, unemployment fell from its 2005 peak and employment increased. When the global financial crisis spread in late 2008 to emerging economies like Indonesia, it was expected that these countries would be severely affected. However, in contrast to the East Asian financial crisis, Indonesia proved to be rather resilient despite the fact that exports collapsed by almost 18 per cent from 2008 to 2009. This paper presents estimates that confirm the milder labour market impact of the most recent crisis. At the same time, the move towards more flexible and less protected forms of employment, as reflected by the increase in casualization, notably among the less-skilled, appear to be part of longer term trends. In this respect, labour market regulations, notably the Manpower Law of 2003, may have contributed to this trend, but the Law alone is not the main problem for employers in Indonesia. Overall, despite the apparent resilience to the global financial crisis, Indonesia continues to face a number of substantial challenges at both the macroeconomic and labour market level.
    Keywords: employment / unemployment / labour force participation / employment status / economic recession / economic recovery / trend / Indonesia
    Date: 2011
  2. By: Hallward-Driemeier, Mary; Rijkers, Bob
    Abstract: Using Indonesian manufacturing census data (1991-2001), this paper rejects the hypothesis that the East Asian crisis unequivocally improved the reallocative process. The correlation between productivity and employment growth did not strengthen and the crisis induced the exit of relatively productive firms. The attenuation of the relationship between productivity and survival was stronger in provinces with comparatively lower reductions in minimum wages, but not due to reduced entry, changing loan conditions, or firms connected to the Suharto regime suffering disproportionately. On the bright side, firms that entered during the crisis were relatively more productive, which helped mitigate the reduction in aggregate productivity.
    Keywords: Labor Policies,Labor Markets,Banks&Banking Reform,Economic Theory&Research,Microfinance
    Date: 2011–11–01
  3. By: Aizenman, Joshua (Asian Development Bank Institute)
    Abstract: This paper takes stock of recent research dealing with the degree to which the trilemma choices of Asian countries facilitated a smoother adjustment during the global crisis of 2008–2009, and the way the region has been coping with the adjustment to the postcrisis challenges. We point out that emerging Asia has converged to a middle ground of the trilemma configuration: limited financial integration, a degree of monetary independence, and controlled exchange rate buffered by sizable international reserves.
    Keywords: trilemma choices; financial stability; global crisis 2008–2009
    JEL: F31 F32 F33 F36
    Date: 2011–11–02
  4. By: Chengche Chen; Hsienhsin Cheng
    Abstract: The impacts of globalization force Asian countries face the problems of transformation, this paper aim to discuss how to keep the local identification and cultural characteristic under the wave of globalization. Taiwan has established the concept of “regional culture heritage†tries to immerge knowledge of planning and conservation. The Council of Cultural Affaires, as the highest supervised administrative unit in Taiwan, try to improve the historical district by community empowerment. However, the development process face the issues of regional recognition, construction of the relationship between people and environment, and planning strategies. This qualitative research took four years to do textural study. By establishing the basic knowledge from experts, open interviews and study the relationship between human and environment of local residents. Then turn these data into a mental map (Identifying landmarks and anonymous urban fabric). This research tries to compare and review the issue of cultural led regeneration. Our study finds out, first, the concept of regional cultural heritages has more identifications than single historical architecture. Second, local grand old mans, the head of the neighborhood, the priests have different perceptions toward cultural heritage, and these perceptions has influenced planning development. Third, we raise several key issues of regeneration in historical district. Keywords: Regional Cultural Heritage, Environmental Perception, Zong-Ye Historic District, Regional Regeneration
    Date: 2011–09
  5. By: Grenville, Stephen (Asian Development Bank Institute)
    Abstract: While the initial certainty and stark simplicity of the Impossible Trinity have fuzzed and softened over time, this idea still holds a powerful sway over analysis of exchange rates and in the policy debate on capital flows. Yet the practical evidence suggests that the constraints on policy implicit in this doctrine are greatly exaggerated. This disconnect between the analysis and the practical world seems a major limitation on developing suitable policies for addressing the very real problems which large volatile capital flows are causing emerging countries. The Impossible Trinity argument has been an unhelpful element in developing an effective policy framework to address these foreign capital inflows.
    Keywords: impossible trinity; exchange rates; capital flows; emerging economies
    JEL: F21 F31 F32
    Date: 2011–11–06
  6. By: Marcel Fratzscher (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany.); Arnaud Mehl (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany.)
    Abstract: This paper assesses whether the international monetary system is already tripolar and centred around the US dollar, the euro and the Chinese renminbi (RMB). It focuses on what we call China’s “dominance hypothesis”, i.e. whether the renminbi is already the dominant currency in Asia, exerting a large influence on exchange rate and monetary policies in the region, a direct reference to the old “German dominance hypothesis” which ascribed to the German mark a dominant role in Europe in the 1980s-1990s. Using a global factor model of exchange rates and a complementary event study, we find evidence that the RMB has become a key driver of currency movements in emerging Asia since the mid-2000s, and even more so since the global financial crisis. These results are consistent with China’s dominance hypothesis and with the view that the international monetary system is already tri-polar. However, we also find that China’s currency movements are to some extent affected by those in the rest of Asia. JEL Classification: F30, F31, F33, N20.
    Keywords: International monetary system, exchange rates, tri-polarity, China, renminbi, US dollar, euro, German dominance hypothesis.
    Date: 2011–10
  7. By: Christophe Muller (DEFI, Université de la Méditerranée); Marc Vothknecht (German Institute for Economic Research (DIW Berlin) and Humboldt University Berlin)
    Abstract: This paper addresses the impact of violent conflict on social capital, as measured by citizen anticipation in community groups defined for four activity types: governance, social service, infrastructure development and risk-sharing. Combining household panel data from Indonesia with conflict event information, we find an overall decrease in citizen contributions in districts affected by group violence in the early post-Suharto transition period. However, participation in communities with a high degree of ethnic polarization is less strongly affected and even stimulated for local governance and risk-sharing activities. Moreover, individual engagement appears to be dependent on the involvement of other members from the own ethnic group, which points to emphases on bonding social networks in the presence of violence. Finally, in conflict regions, the wealthier households are more likely to engage into cooperative and infrastructure improvement activities, while they are dropping from security groups. On the contrary, the poorest households get more involved in social service activities and less in infrastructure groups. Our results illustrate the danger of generalizations when dealing with violence impact on community activities. We found a large variety of responses depending on the considered activity and its expected economic or social function. We also found large observed and unobserved individual heterogeneities of the effect of violent conflict on activity participation. Once an appropriate nomenclature of activities is used and intensive controls for observed and unobserved heterogeneity are performed, we found that some activities can actually be stimulated by conflict situations. In this respect, the ethnic configuration of society seems to be central in understanding this type of social capital building.
    Keywords: Violent Conflict, Citizen Participation, Local Public Goods
    JEL: D74 H42 O11
    Date: 2011–05
  8. By: Andrew Stuart Duncan; Alain Kabundi
    Abstract: This paper studies volatility comovement in world equity markets between 1994 and 2008. Global volatility factors are extracted from a panel of monthly volatility proxies relating to 25 developed and 20 emerging stock markets. A dynamic factor model (FM) is estimated using two-year rolling window regressions. The FMÂ’s time-varying variance shares of global factors map variations in volatility comovement over time and across countries. The results indicate that global volatility linkages are particularly strong during Â…nancial crises in Asia (1997-8), Russia (1998), and the United States (2007-8). Emerging markets are less syncrhonised with world volatility than are developed markets. In particular, we observe decoupling between emerging and world volatilities between 2001 and 2007. Recoupling occurs during 2008, thus identifying emerging market investments as a temporary hedge against volatility spillovers from the US subprime crisis.
    Keywords: Asset Market Linkages, Dynamic Factor Model, Financial Crisis, International DiversiÂ…cation, Volatility Comovement
    JEL: F36 G11 G15
    Date: 2011
  9. By: Freddy, Liew
    Abstract: This paper investigates the empirical relationship between labor productivity, real wages and real GDP in Singapore from 1997 to 2011. The paper begins with a review of productivity, wage and growth situations in Singapore in the past decade and further attempts to uncover the underlying relationship in this nexus using theoretical framework from labor and growth literature. Using the Vector-Autoregressive or Vector-Error Correction Mechanism when cointegration is present, this paper uncovers various causality relations in different industries which conform to economic theory and empirics. An impulse response analysis is also undertaken to understand how specific policy decisions could be framed to provide for higher wages across industries. The empirical results suggest that in the Singapore economy, there exist a bi-directional causality relation between labor productivity and real GDP but that wages seem to be caused by other underlying factors. However, real wages respond positively to positive shocks in the real GDP or labor productivity using cholesky or generalized decomposition. This paper concludes by discussing policies that could be undertaken to promote inclusive growth in the environment of sustained economic growth.
    Keywords: Causality; Productivity; Wage; Economic Growth; Singapore
    JEL: C22 O40 J30
    Date: 2011–11–01
  10. By: Lei Zhu (Center for Energy and Environmental Policy Research, Institute of Policy and Management, Chinese Academy of Sciences); ZhongXiang Zhang (East-West Center); Ying Fan (Center for Energy and Environmental Policy Research, Institute of Policy and Management, Chinese Academy of Sciences)
    Abstract: This paper applies real options theory to establish an overseas oil investment evaluation model that is based on Monte Carlo simulation and is solved by the Least Squares Monte-Carlo method. To better reflect the reality of overseas oil investment, our model has incorporated not only the uncertainties of oil price and investment cost but also the uncertainties of exchange rate and investment environment. These unique features have enabled our model to be best equipped to evaluate the value of oil overseas investment projects of three oil field sizes (large, medium, small) and under different resource tax systems (royalty tax and production sharing contracts). In our empirical setting, we have selected China as an investor country and Indonesia as an investee country as a case study. Our results show that the investment risks and project values of small sized oil fields are more sensitive to changes in the uncertainty factors than the large and medium sized oil fields. Furthermore, among the uncertainty factors considered in the model, the investment risk of overseas oil investment may be underestimated if no consideration is given of the impacts of exchange rate and investment environment. Finally, as there is an important tradeoff between oil resource investee country and overseas oil investor, in medium and small sized oil investment negotiation the oil company should try to increase the cost oil limit in production sharing contract and avoid the term of a windfall profits tax to reduce the investment risk of overseas oil fields.
    JEL: Q41 Q43 Q48 G31 O13 O22 C63
    Date: 2011–11
  11. By: Cipollone, Angela
    Abstract: By using data from the latest wave of the Indonesia Life Family Survey, the present work investigates whether and to which extent child time allocation depends on the joint impact of liquidity constraints and risk attitudes. We employ a double selection model of school hours, by adding time preferences, risk attitudes and proxies of risks and shocks among the relevant regressors, and controlling for sample selection and endogeneity of liquidity constraints and school enrolment. To this aim, we exploit measures of time preferences and risk attitudes elicited from individuals’ responses to hypothetical gambles and consider the past occurrence of shocks to proxy the risk profiles of the households under the assumption that households use past income volatility to predict future volatility. It will be shown that, under liquidity constraints, risk averse parents raise a precautionary demand for education as an ex-ante risk coping strategy, so to insure future consumption through higher returns from their children’s work.
    Keywords: schooling; risk aversion; liquidity constraints; risks; shocks
    JEL: J13 J22 D91
    Date: 2011–11–08
  12. By: Raza, Muhammad Wajid; Mohsin, Hasan M
    Abstract: Financially repressed economy cannot grow with an increasing growth rate. That’s why most of the developing countries move toward liberalized financial system. The basic objective of this paper is to provide a comparative analysis of Pakistan, China, and India financial sector liberalization and its impact on macroeconomic performance. This study uses Johansen co integration to provide cross country evidence of long run relationship between macroeconomic variables and financial openness. Results show that there is long run relation among financial openness and macro economic performance in all three countries. Financial liberalization has positive and significant effect on Pakistan macroeconomic performance while negative and significant effect on china economy. The relationship in India is positive but not significant
    Keywords: Financial liberalization; financial depth. Economic growth
    JEL: E0 N20 F43
    Date: 2011–05–15
  13. By: Kalirajan, Kaliappa (Asian Development Bank Institute); Singh, Kanhaiya (Asian Development Bank Institute); Thangavelu, Shandre (Asian Development Bank Institute); Venkatachalam, Anbumozhi (Asian Development Bank Institute); Perera, Kumidini (Asian Development Bank Institute)
    Abstract: There is an urgent need to mainstream the key challenges of climate change into sector and development planning and decision making processes to create sustainable long-term development. Empirical results in this study emphasize that more caution is needed in directing overseas development aid (ODA) towards climate change mitigation and adaptation due to the links between various macroeconomic variables related to growth and poverty reduction.
    Keywords: climate change; overseas development assistance; millennium development goals; technology transfer
    JEL: F35 O19 P33 Q56
    Date: 2011–11–06
  14. By: Michela Limardi
    Abstract: Many Developing Countries ratified ILO Fundamental Conventions and authorized local labour unions. Multinational companies producing in these countries pay more when NGOs campaigns take place and reputation counts. However, whether this external pressure from NGOs benefit local workers outside MNEs affiliates in host countries remains an open issue. Segmented and weak local labour unions often rely on external funding from the North and technical assistance by labour NGOs. They need to increase their visibility in the labour intensive sectors targeted by Northern donations and activism. To address these issues we develop a bargaining model adapted to peculiarities of labour market institutions in developing countries, i.e. external funding and the complementarity with labour NGOs. This model is estimated on data on Indonesian manufacturing firms, before and after the authorisation of labour unions, in sensitive and non sensitive sectors. We find that, in sector with visibility for labour unions, the net outcome on wages of the presence of NGOs is negative. The external fundings imply a distortion in the objective of labour unions, confronted with the constraint of increasing the employment in the formal sector.
    Date: 2011–09

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