nep-sea New Economics Papers
on South East Asia
Issue of 2011‒11‒21
thirteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Exchange Rate Regimes and Monetary Independence in East Asia By Chang-Jin Kim; Jong-Wha Lee
  3. The Labor Supply and Retirement Behavior of China's Older Workers and Elderly in Comparative Perspective By Giles, John T.; Wang, Dewen; Cai, Wei
  4. The Determinants and Long-term Projections of Saving Rates in Developing Asia By Charles Yuji Horioka; Akiko Terada-Hagiwara
  5. Production Networks in East Asia: What We Know So Far By Kimura, Fukunari; Obashi, Ayako
  6. Impact Analysis of Changes in The Price of Water Resources in China and Beijing By Masaru Ichihashi; Shinji Kaneko
  7. How Do Foreign and Domestic Demand Affect Exports Performance? An Econometric Investigation of Indonesia's Exports By Rudy Rahmaddi; Masaru Ichihashi
  8. Average and marginal returns to upper secondary schooling in Indonesia By Carneiro, Pedro; Lokshin, Michael; Ridao-Cano, Cristobal; Umapathi, Nithin
  9. The Impact of the International Financial Crisis on Asia and the Pacific: Highlighting Monetary Policy Challenges from a Negative Asset Price Bubble Perspective By Andrew Filardo
  10. Innovation in logistics services – halal logistics By Jaafar, Harlina Suzana; Endut, Intan Rohani; Faisol, Nasruddin; Omar, Emi Normalina
  11. The development of long term relationships between consultants and project managers in construction supply chain in Malaysia By Faisol, Nasruddin; Jaafar, Harlina Suzana
  12. Impact of food inflation on poverty in the Philippines By Tomoki Fujii
  13. Arrow-Fisher-Hanemann-Henry and Dixit-Pindyck option values under strategic interactions By Tomoki Fujii; Ryuichiro Ishikawa

  1. By: Chang-Jin Kim (KIEP - Korea Institute for International Economic Policy); Jong-Wha Lee
    Abstract: This paper examines whether changes in exchange rate arrangements have affected monetary independence in East Asian countries after the 1997 Asian crisis. We find that the sensitivity of local to U.S. interest rates has declined for many Asian countries since they adopted floating exchange rate regimes after the crisis. This empirical finding suggests that the choice of exchange rate regime is an important factor for the independence of monetary policy. Floating regimes appear to offer East Asian countries at least some degree of monetary independence after the East Asian crisis.
    Keywords: exchange rate regime, monetary independence, East-Asia
    JEL: F31 O24 O23
    Date: 2011–12
  2. By: Masahiro Inoguchi
    Abstract: This paper examines the impact of price fluctuations in foreign stock markets on the stock prices of domestic banks’ stocks to explore if and how external shocks have affected the banking system in Korea, Malaysia, Singapore, and Thailand during the 2000s. Some researchers insist that domestic banks in East Asia were less affected by the 2007–2009 global financial crisis. However, few previous articles have investigated how the banking sector in East Asia has been affected by external shocks. Employing a multinomial logit model, this study estimates how changes in the US and Japanese stock market indices affected the banking sectors in Korea, Malaysia, Singapore, and Thailand before the 1997 crisis and before and during the 2007–2009 crises. This study’s regression employs the number of banks in a given country that experienced a large shock on the same day (“coexceedances”) as shocks to the domestic banking sector. The regression result suggests that fluctuations in foreign stock market indices had a larger impact on prices of East Asian banking stocks during the 2000s than during the 1990s before the Asian financial crisis. Although the shock brought by the deteriorating foreign stock markets was significant before the 2007–2009 global financial crisis, both increases and declines in the foreign stock prices affected the banking sector during the crisis. Increasing foreign capital flows and foreign assets and liabilities may have greatly influenced the domestic banking system of East Asia in the 2000s.
    JEL: F36 G15 O16
    Date: 2011
  3. By: Giles, John T. (World Bank); Wang, Dewen (World Bank); Cai, Wei (World Bank)
    Abstract: This paper highlights the employment patterns of China’s over-45 population and, for perspective, places them in the context of work and retirement patterns in Indonesia, Korea, the United States, and the United Kingdom. As is common in many developing countries, China can be characterized as having two retirement systems: a formal system, under which urban employees receive generous pensions and face mandatory retirement by age 60, and an informal system, under which rural residents and individuals in the informal sector rely on family support in old age and have much longer working lives. Gender differences in age of exit from work are shown to be much greater in urban China than in rural areas, and also greater than observed in Korea and Indonesia. Descriptive evidence is presented suggesting that pension eligible workers are far more likely to cease productive activity at a relatively young age. A strong relationship between health status and labor supply in rural areas is observed, indicating the potential role that improvements in access to health care may play in extending working lives and also providing some basis for a common perception that older rural residents tend to work as long as they are physically capable. The paper concludes with a discussion of measures that may facilitate longer working lives as China’s population ages.
    Keywords: retirement, population aging, labor supply, pensions, China, Indonesia, Korea
    JEL: J26 J14 O15 O17 O57
    Date: 2011–10
  4. By: Charles Yuji Horioka; Akiko Terada-Hagiwara
    Abstract: In this paper, we present data on trends over time in domestic saving rates in twelve economies in developing Asia during the 1966-2007 period and analyze the determinants of these trends. We find that domestic saving rates in developing Asia have, in general, been high and rising but that there have been substantial differences from economy to economy and that the main determinants of these trends appear to have been the age structure of the population (especially the aged dependency ratio), income levels, and the level of financial sector development. We then project future trends in domestic saving rates in developing Asia for the 2011-2030 period based on our estimation results and find that the domestic saving rate in developing Asia as a whole will remain roughly constant during the next two decades despite rapid population aging in some economies in developing Asia because population aging will occur much later in other economies and because the negative impact of population aging on the domestic saving rate will be largely offset by the positive impact of higher income levels.
    JEL: D91 E21 G10 J11
    Date: 2011–11
  5. By: Kimura, Fukunari (Asian Development Bank Institute); Obashi, Ayako (Asian Development Bank Institute)
    Abstract: Production networks in East Asia, particularly in the manufacturing and machinery industries, are well recognized as the most advanced in the world, in terms of their magnitude, extensiveness, and sophistication. This paper tries to link various economic studies on related topics, to see how much we understand about production networks in East Asia. After providing a brief overview of international trade statistics, the paper reviews a number of academic papers concerning (i) the structure and mechanics of production networks, (ii) the conditions for production networks, and (iii) the properties and implications thereof.
    Keywords: fragmentation; agglomeration; vertical specialization; multinational enterprises; foreign direct investment
    JEL: F14 F15 F23
    Date: 2011–11–11
  6. By: Masaru Ichihashi; Shinji Kaneko (Graduate School for International Development and Cooperation, Hiroshima University)
    Abstract: This paper aims to analyze the impact of changes in resource prices on intra-region goods supply and on extra-region changes in prices, as well as possible impacts on the demand side, using China and Beijing as examples for analysis. Results of the analysis with Input-Output model and CGE model demonstrate that changes in the price of water supply do not have as significant an impact as is the case with energy goods such as electrical power or oil and mining. Also, another result with International IO model shows that an increase in the price of water resources in China would first induce changes in the prices of some domestic goods (education and research, chemical fertilizers, etc.); the effect on other countries would be relatively large in countries including Malaysia, Thailand, Singapore, and South Korea, and in the industries of flour milling, heavy electrical equipment, knitting, non-ferrous metals, and apparel. However, all of these impacts would be minimal.
    Keywords: water resources; energy price rising effect; International Input-Output; CGE model.
    JEL: F18 O13 Q56
    Date: 2011–11
  7. By: Rudy Rahmaddi; Masaru Ichihashi (Graduate School for International Development and Cooperation, Hiroshima University)
    Abstract: This paper explores the impacts of foreign and domestic demand on Indonesia's exports within demand and supply frameworks using aggregate data of 1971 - 2007. To capture effects of secular and cyclical movements on exports, we dissect income variables into trend and business cycle as proxies of productive capacity and capacity utilization rate, respectively. Our result suggests that both demand- and supply-price elasticity are elastic, and secular and cyclical movements may have contrast effects on exports. The findings draw policy implications namely the importance of price-based policy, provision of adequate and sound infrastructures, and further development of human capital-based industrialization.
    Keywords: Exports; demand and supply for exports; domestic demand pressure; Indonesia; simultaneous equations.
    JEL: F11 O19
    Date: 2011–09
  8. By: Carneiro, Pedro; Lokshin, Michael; Ridao-Cano, Cristobal; Umapathi, Nithin
    Abstract: This paper estimates average and marginal returns to schooling in Indonesia using a non-parametric selection model estimated by local instrumental variables, and data from the Indonesia Family Life Survey. The analysis finds that the return to upper secondary schooling varies widely across individual: it can be as high as 50 percent per year of schooling for those very likely to enroll in upper secondary schooling, or as low as -10 percent for those very unlikely to do so. Returns to the marginal student (14 percent) are well below those for the average student attending upper secondary schooling (27 percent).
    Keywords: Education For All,Secondary Education,Teaching and Learning,Primary Education,Population Policies
    Date: 2011–11–01
  9. By: Andrew Filardo
    Abstract: The international financial crisis of the late 2000s has revived interest in asset price bubble research. For some, the event confirmed the enduring relevance of studying asset price bubbles in our economies. For others, it was a realisation that asset price bubbles are of much greater significance than previously thought. The financial and policy preconditions that foster "frothy" asset prices which characterise bubbles have been the focus of considerable attention. While doubtless important, it is not the only aspect that requires greater understanding. We also need to develop a better understanding of the whole life-cycle of asset price bubbles, from their origins, to their expansion and spread, the inevitable collapse, and the aftermath that has to be cleaned up. It is increasingly recognised that researchers must not treat bubbles as one-off, exogenous events. The challenge is to develop a more holistic approach, and then build into our policy models endogenous bubble behavior. Such behavior may indeed be rare but nonetheless has its origins in a number of avoidable factors, not least being some combination of financial fragility, flawed policy frameworks, and poor risk management decisions. This paper contributes to our understanding of asset price bubbles by looking at assets when they are severely underpriced, i.e., when there are negative asset price bubbles. Generally, negative asset price bubbles are an underrepresented protagonist in most crisis stories, and this has certainly been the case in the recent international financial crisis. The particular illustration for this paper comes from an examination of the financial market spillovers from the West to Asia and the Pacific. Where did the spillovers come from and how will the crisis end? While there are many different ways to conceptualise the spillovers, this paper will show how cross-border spillovers led to the severe underpricing of various types of assets in Asia and the Pacific. And, just as the policy response to the bursting of the dot-com bubble in the United States may have contributed to the housing problems in the 2000s, there are concerns that accommodative monetary policy in response to the negative asset price bubble and associated macroeconomic fallout may be laying the foundation for a round of positive asset price bubbles. The paper begins with a brief discussion of a negative asset price bubble and a narrative of the international financial crisis in Asia and the Pacific. Prior to September 2008, the international financial crisis had had a limited impact on Asia-Pacific markets. To be sure there were periods of unusual stress but, by and large, the region was more focused on macroeconomic policy issues throughout much of the year. That all changed in late 2008 as the region, despite its strong economic and financial fundamentals, entered what was to become a sharp V-shaped business cycle. Through the lens of a negative asset price bubble perspective, this paper helps to shed new light on the unusual dynamics as well as the policy trade-offs faced during the crisis and afterward. Asia and the Pacific economies are particularly useful "laboratories" to examine these phenomena because of the diverse economic, financial, and policy frameworks in place. The paper also presents a simple model of endogenous asset price bubbles to clarify some of the policy issues. The model assumes there are two regions of the world that are susceptible to domestic asset price bubbles. This type of model emphasises the highly persistent nature of financial shocks associated with boom-bust dynamics and the potential spillovers across geographic borders. An asset price bubble in one economy can influence the likelihood of an asset price bubble in the other economy. Possibly most important, the actions of the policymaker in one region can affect not only the occurrence of a bubble in its domestic market but also the occurrence of a bubble in the other region. This type of model also elevates the importance of tail risk considerations for policymakers, opening up consideration of more complex monetary policy trade-offs than in conventional macroeconomic models. The paper then explores the implications, combining both the narrative from the crisis and the implications of the theoretical model to understand better the regional policy trade-offs that occurred during the international financial crisis. In addition to emphasising the critical importance of having strong economic and financial fundamentals going into a crisis period, it also highlights the value of monetary policymakers adopting state-dependent policy frameworks. During normal times, monetary policy focused on price stability makes sense. During crisis times, the priorities of a central bank may need to be adjusted by putting more weight on financial stability than on short-term inflation stability. This comes down to placing more weight on tail risks when making policy decisions. Practically, this means that short-term deviations from (implicit and explicit) inflation targets may be appropriate, if not optimal, when coming out of a crisis. The paper proceeds as follows. Section 2 lays out the basic intuition of a negative asset price bubble. Section 3 reviews the Asia-Pacific experience during the recent international financial crisis, highlighting aspects of this new bubble perspective. Section 4 then presents a simple international monetary policy model with negative asset price bubbles to explore the theoretical channels of spillovers and the policy trade-offs. Section 5 describes results. Section 6 draws on historical narrative and theoretical findings to evaluate the policy implications. Section 7 offers some conclusions.
    Keywords: Financial crisis, monetary policy, asset price bubble, central banking
    Date: 2011–11
  10. By: Jaafar, Harlina Suzana; Endut, Intan Rohani; Faisol, Nasruddin; Omar, Emi Normalina
    Abstract: Purpose: The expansion of liberalization of trade and services has forced companies to consider the global market demand in their competitive strategic planning. Hence, business organisations need to be continuously as innovation could promise potential growth and development so as to gain competitive advantage in being ahead in the market. Specifically, supply chain has always been viewed as the most important areas to be innovated as it would be an effective means to gain efficiencies and eliminate accumulating competitive pressures and thus increasing innovations. Thus, the purpose of this study is to present a case study that demonstrates an innovation created in the logistics services, i.e. halal logistics services, as to fulfil the increasing demand of the customers throughout the world particularly the rising number of Muslim population. Research approach: This study uses case study approach to elaborate the implementation of halal logistics practice. In achieving the objective, related literature concerning the halal concept is reviewed and explained to provide better understandings of the concept and how it is applied to logistics services. The emphasis on the innovativeness of this concept is also included. The data for the case study is gained from in-depth interviews with the corporate and operation managers of two leading logistics service providers in Malaysia, who are the subjects of the case. Findings and Originality: This study found new logistics services that are able to fulfil the growing demand of the customers especially the increasing number of Muslims. This is important as these services have taken into consideration several factors such as comprehensive hygiene practices and thus, is also crucial to other customers. However, understanding the basic concept of halal practice and the rationale of its implementation is very crucial before one can commit to its practice. This study contributes to the advancement of knowledge through the elaboration of a case study, which demonstrates the application of halal concept into logistics service practices. Research impact: This study introduces a new concept of halal logistics, which applies the concept of halal into logistics. The needs to initiate more logistics services that are based on halal concept are crucial in meeting the needs of the increasing demand by the customers. Practical impact: The findings provide insights to the practitioners of the importance in implementating halal logistics services. It also indicates the needs for logistics companies to be innovative in creating more halal logistics services to fulfill these demands.
    Keywords: Halal logistics; innovation; case study
    JEL: L8 L9
    Date: 2011–07
  11. By: Faisol, Nasruddin; Jaafar, Harlina Suzana
    Abstract: Purpose: The purpose of the study is to explore the relationship development process between consultants and a project management firm in Malaysia. Research approach: This qualitative study was based on 6 in-depth semi-structured interviews which were carried out with the owners and senior managers of five consultant firms (an architect, quantity surveyors and structural and civil consultants) and the director of a project management firm. The data were analysed using thematic analysis method. Findings and Originality: Although theoretically, a well developed relationship has to go through five phases of relationship development process (awareness, exploration, expansion, commitment and dissolution), the findings reveal that every consultant’s relationship with the project management firm appeared to exhibit additional developmental stages to those which are established within the literature. The results revealed that the practices that lead to a successful or failed inter-organisational relationship are greatly influenced by interpersonal factors rather than the organisation’s performance-related factors. Research impact: This study has explored various ways in which the cultural values play significant roles in the development of long term relationships among organisations in the construction supply chain. Practical impact: This study brings new dimensions in the context of inter-organisational construction supply chain through the significant use of cultural values, which could be practiced by other supply chains.
    Keywords: relationship development process; personal relationship; cultural values; indebtedness; construction supply chain
    JEL: D23 L2 D2 Z1
    Date: 2011–07
  12. By: Tomoki Fujii (School of Economics, Singapore Management Unversity)
    Abstract: We simulate the impact of actual food price increase between June 2006 and June 2008 on poverty across different areas and whether the household’s main income source is agricultural activities. We explicitly treat heterogeneity in food price changes and the patterns of consumption and production by merging a expenditure survey dataset and a price dataset at the provincial level or lower. While the increase of head count index is larger for non-agricultural households than agricultural households, the opposite is true for the poverty gap and poverty severity measures, because poor agricultural households are particularly vulnerable to food inflation.
    Keywords: non-parametric regression, net consumption ratio, global food crisis, vulnerability
    JEL: E31 I32 O1
    Date: 2011–11
  13. By: Tomoki Fujii (School of Economics, Singapore Management Unversity); Ryuichiro Ishikawa (Faculty of Engineering, Information and Systems,University of Tsukuba)
    Abstract: We extend the Arrow-Fisher-Hanemann-Henry (AFHH) and Dixit-Pindyck (DP) option values to game situations. By reinterpreting the AFHH option value as a change in the surplus from conservation because of the prospect of future information, we deal with the conceptual difficulty associated with the AFHH option value in the presence of strategic interactions. We then introduce the DP option value into a game situation. We show that the equivalence between the expected value of information and the DP option value in the standard model does not hold under strategic interactions.
    Keywords: Irreversibility, Quasi-option values, Biodiversity, Uncertainty, Value of Information
    JEL: C72 H43 Q50
    Date: 2011–11

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