nep-sea New Economics Papers
on South East Asia
Issue of 2012‒02‒20
nineteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Progress and prospects of regional financial arrangements and cooperation in East Asia: a critical survey By Jeon, Bang Nam
  2. Non-linearities in the dynamics of oil prices By Kisswani, Khalid /M.; Nusair, Salah /A.
  3. Foundations of Collective Action in Asia: Theory and Practice of Regional Cooperation By Acharya, Amitav
  4. How Should We Bank With Foreigners? An Empirical Assessment of Lending Behaviour of International Banks to Six East Asian Countries By Victor Pontines; Reza Siregar
  5. From the 1997-98 Asian financial crisis to the 2008-09 global economic crisis: lessons from Korea’s experience By Jeon, Bang Nam
  6. French firms at the conquest of Asian markets: The role of export spillovers By Florian MAYNERIS; Sandra PONCET
  7. Women Count: Gender (in-)equalities in the human capital development in Asia, 1900-60 By Friesen, Julia; Baten, Jörg; Prayon, Valeria
  8. A global perspective on the changing perceptions of the role of the external auditor and the significance of audit developments By Ojo, Marianne
  9. An optimal production plan under risk in Muang Pam Village, Pang Ma Pha district, Mae Hong Son province. By Panthasu I.; C. Potchanasin.
  10. Theory of rational expectations hypothesis: banks and other financial institutions in Malaysia By Chong, Lucy Lee-Yun; Puah, Chin-Hong; Md Isa, Abu Hassan
  11. Testing the Rational Expectations Hypothesis on the Retail Trade Sector Using Survey Data from Malaysia By Puah, Chin-Hong; Chong, Lucy Lee-Yun; Jais, Mohamad
  12. Forecasting malaysian business cycle movement: empirical evidence from composite leading indicator By Wong, Shirly Siew-Ling; Abu Mansor, Shazali; Puah, Chin-Hong; Liew, Venus Khim-Sen
  13. Intellectual property related development aid: is supply aligned with demand? By Ghafele, Roya; Engel, Jakob
  14. Survey Evidence on the Rationality of Business Expectations: Implications from the Malaysian Agricultural Sector By Wong, Shirly Siew-Ling; Puah, Chin-Hong; Shazali, Abu Mansor
  15. Currency Crises During the Great Recession: Is This Time Different? By Arduini, Tiziano; De Arcangelis, Giuseppe; Del Bello, Carlo Leone
  16. Bernanke Was Right: Currency Manipulation Policy in Emerging Foreign Exchange Markets By Chen, Shiu-Sheng
  17. On Assessment of the Supreme Court Decisions in Tackling Substance Misuse in Indonesia By Saputra, Sony; Pradiptyo, Rimawan
  18. Global survey of development banks By de Luna-Martinez, Jose; Vicente, Carlos Leonardo
  19. Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default By Brishti Guha; Prabal Roy Chowdhury

  1. By: Jeon, Bang Nam
    Abstract: The main purpose of this paper is to provide a brief survey for the progress and prospects of regional financial arrangements/cooperation among the East Asian nations and present the summary of various conflicting points of discussion about the strategies on the establishment of an effective regional financial arrangement in the region. This critical survey derives a list of viable and practical strategies for establishing an effective RFA/RFC scheme in the East Asian region in order to prevent the reoccurrence of a financial/economic crisis and large-scale contagion in the region in the future.
    Keywords: Regional Financial Cooperations; Asian Financial Crisis; East Asia
    JEL: O53 F02 F36
    Date: 2012–02–01
  2. By: Kisswani, Khalid /M.; Nusair, Salah /A.
    Abstract: We utilize non-linear models to examine the stationarity of oil prices (Brent, Dubai, WIT and World) over the period 1973:2-2011:2. Real oil prices are calculated and expressed in the domestic currencies of seven Asian countries (Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore and Thailand) and in the U.S dollar. Applying linear unit root tests with and without structural breaks shows very limited evidence of stationarity. However, applying non-linear models shows evidence of non-linearity in all the cases. In most cases, we find significant evidence of exponential smooth transition autoregression (ESTAR) type non-linearity. Notably, the results for Japan suggest logistic (LSTAR) type non-linearity for the four oil prices. Applying unit root tests, which account for two types of non-linearities (smooth transition and nonlinear deterministic trends), reveals evidence of stationarity in all the cases.
    Keywords: oil prices; nonlinear unit root tests; nonlinear deterministic trends; smooth transition autoregression
    JEL: O53 C20 Q40
    Date: 2012–02–08
  3. By: Acharya, Amitav (Asian Development Bank Institute)
    Abstract: This paper argues that the collective action in Asia by its regional organizations has historically suffered from a “capability–legitimacy gap”: a disjuncture between the capability (in terms of material resources) of major Asian powers to lead regional cooperation on the one hand and their political legitimacy and will as regional leaders on the other. Successful collective action requires leadership with both capability (as suggested by rationalist theories) and legitimacy (as suggested by constructivist approaches). A central point of the paper is that the putative or aspiring leaders of Asian regionalism throughout the post-war period never had both.
    Keywords: asian regionalism; regional cooperation; asian regional cooperation
    JEL: F50 F51 F53 F54 F55 F59
    Date: 2012–02–14
  4. By: Victor Pontines; Reza Siregar
    Abstract: The possible crucial role of international bank lending in the transmission of adverse economic disturbance from advanced economies to emerging economies in the recent global financial crisis has once again placed this type of capital flows into sharper scrutiny both in academic and policy discussions. We construct macro-and micro-panel data on international bank lending to six Asian economies, viz., Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand, to analyze a number of objectives. We first examine the influence of a number of critical determinants not only to overall international bank lending but also to cross-border bank lending, and obtained one critical finding in this part of the study that cross-border lending by international banks tend to pull-out from host economies during difficult times in source economies, whereas such retrenchment are not evident on an aggregated basis. This may suggest that encouraging brick-and-mortar affiliates of international banks to ‘set up shop’ in recipient economies may be the judicious choice for these economies. We next critically examine the difference between subsidiaries and branches of international banks in terms of their ability to shield themselves from the financial difficulties of their global parent banks and thus their ability to continue lending in destination markets. According to our results, foreign bank subsidiaries are more capable in this regard. This finding carries with it the obvious attraction of favouring an organizational banking structure that is biased towards subsidiaries. However, national banking regulators should remember that apart from encouraging a host of other domestic and cross-border initiatives, encouraging the entry of brick-and mortar subsidiaries of international banks should not viewed as a panacea to the financial stability concerns not only in Asia but also across emerging markets in general.
    JEL: C23 F34 F36 G15 N25
    Date: 2012–02
  5. By: Jeon, Bang Nam
    Abstract: East Asian countries were hit hard by the financial crisis in 1997 and have shown significant and remarkable recovery with far-reaching economic and regulatory reforms since then. A decade later, the Asian countries are suffering again from the on-going global economic crises beginning in the summer of 2007. If this current crisis is not managed effectively, the Asian economic situation could escalate into a more serious crisis mode than that of 1997-8. Due to the increased globalization of financial markets, crises tend to become more severe and contagious even if the effected countries have strong macroeconomic fundamentals. This paper focuses on the Korean economy, which experienced the hardest crisis hit as well as most successful recovery from the 1997 crisis, and discusses interrelated and general policy lessons from the 1997 and 2008 crises to help prevent from the reoccurrence of similar financial crises and economic downturns in the future. Specific lessons, among many, to be analyzed in this paper are drawn on 1) monitoring international capital flows and conducting better international debt management, 2) maintaining a competitive, efficient and well-regulated financial system to be protected from international contagion, 3) establishing an effective nonperforming asset management mechanism, such as the Korea Asset Management Corporation (KAMCO) of Korea, and 4) enhancing regional financial cooperation among the East Asian countries, like a renewed Chiang Mai Initiative, to provide a short-term liquidity support, defend Asian currencies from speculative attack, and assist long-term economic growth in the East Asian region. In deriving the main policy lessons, both the commonalities and uniqueness of the two crises-old in 1997 and new in 2008-are examined from the perspective of the Korean economy.
    Keywords: Asian financial crisis; Global economic crisis; Korea
    JEL: F4 F5
    Date: 2012–02–01
  6. By: Florian MAYNERIS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Center for Operations Research and Econometrics (CORE)); Sandra PONCET (Université Paris 1, Paris School of Economics and CEPII)
    Abstract: In this study, we explore the role of export spillovers on the capacity of French firms to conquer Asian markets. We confirm, in the context of France, previous results emphasizing the positive impact of surrounding exporters on the probability that a firm starts exporting a given product to a given country. We find that export spillovers are more important for export starts to Asia than for export starts to other countries. Moreover, for the specific Asian destinations, we find evidence of a heterogeneous effect of export spillovers. The presence of surrounding exporting firms appears especially beneficial to small and less productive firms, ad more intense for export starts to Asian countries characterized by low GDP per capita and tough administrative procedures on imports. Hence, export spillovers may help small firms to enter on the most difficult Asian markets.
    Date: 2011–11–29
  7. By: Friesen, Julia; Baten, Jörg; Prayon, Valeria
    Abstract: This paper traces the human capital development of 14 Asian countries for the period of 1900-60, using the age-heaping method. We place special emphasis on the gender gap in numeracy and its determinants. In particular, we test the validity of a U-hypothesis of gender equality, implying that gender equality in numeracy declines at initial stages of development and increases again with higher numeracy levels. The U-shaped pattern is strongly confirmed by our data. --
    Keywords: human capital,age-heaping,education,gender inequality,numeracy,development,asia
    JEL: I21 N35 O15
    Date: 2012
  8. By: Ojo, Marianne
    Abstract: Through a consideration of factors which have resulted in a more reduced role for the external auditor in certain jurisdictions – when compared to others, this paper will consider, as well as highlight why an enhanced awareness of the role of the external auditor in such jurisdictions will be vital in an increasingly globalised financial system. It will do so through a consideration of the current, past and future perceptions of external auditors’ roles – with particular reference to selected jurisdictions from Africa, Asia and Latin America.
    Keywords: external auditor; audits; regulation; financial; bank; fraud; error; financial statements; Brazil; Malaysia; Nigeria
    JEL: E02 K2 G2 D02 D8
    Date: 2012–02–06
  9. By: Panthasu I.; C. Potchanasin. (Department of Agricultural and Resource Economics,Faculty of Economics,Kasetsart University,Thailand)
    Abstract: This study analyzes the optimal production plan under price risk condition of Karen ethnic groups in Muang Pam village, Pang Ma Pha district, Mae Hong Son province. Two groups of household samples regarding land holding types are: 1) paddy and upland arable land, and 2) upland arable land only. The time series data of crop prices in crop year 2003/04-2008/09 were used. The data of crop production obtained from the research project entitled Village and Regional Model for Sustainability of Highland Agricultural Systems in Northern Thailand in Year 2005 were also used in the analysis. The optimal production plans considering price risk were analyzed through the risk programming model called MOTAD (Minimization of the Total Absolute Deviation). The results suggest various optimal production plans with respect to the individual farmers’ expected income levels. High expected income level indicates high risk-taking behavior, and vice versa. In the case of high expected income level, the optimum plan suggests farmer grow a high return crop such as garlic or peanut. In opposite, in the case of low expected income level, a crop with relatively low price variation such as maize or rice is suggested.
    Keywords: optimal production plan under risk, MOTAD risk model, linear programming model
    JEL: C61 D81 D24
    Date: 2012–02
  10. By: Chong, Lucy Lee-Yun; Puah, Chin-Hong; Md Isa, Abu Hassan
    Abstract: The Rational Expectations Hypothesis (REH) states that the actual outcome will be identical to the optimal forecast when all obtainable information had been utilized in forming the expectations. This study intends to empirically examine the existence of rational behavior in the banks and other financial institutions in Malaysia from the perspective of how the decision-makers formed their gross revenue (GR) and capital expenditure (CE) forecasts. Survey data provided by the Business Expectations Survey of Limited Companies was utilized to conduct a series of rationality tests including unbiasedness, non-serially correlated and efficiency tests. Empirical evidence shows that GR is unbiased, serially uncorrelated and efficient, nevertheless, CE fails to pass any of the tests. Therefore, GR is deemed as a rational predictor to the actual value but not in the case of CE.
    Keywords: Rational Expectations; Financial Sector; Gross Revenue; Capital Expenditure
    JEL: D84 C12 C22 G20
    Date: 2012–02
  11. By: Puah, Chin-Hong; Chong, Lucy Lee-Yun; Jais, Mohamad
    Abstract: The rational expectations hypothesis states that when people are expecting things to happen, using the available information, the predicted outcomes usually occur. This study utilized survey data provided by the Business Expectations Survey of Limited Companies to test whether forecasts of the Malaysian retail sector, based on gross revenue and capital expenditures, are rational. The empirical evidence illustrates that the decision-makers expectations in the retail sector are biased and too optimistic in forecasting gross revenue and capital expenditures.
    Keywords: REH; Unbiasedness; Non-serial Correlation; Weak-form Efficiency
    JEL: D84 L81 C12 C22
    Date: 2011–10
  12. By: Wong, Shirly Siew-Ling; Abu Mansor, Shazali; Puah, Chin-Hong; Liew, Venus Khim-Sen
    Abstract: Early detection of a turning point in a business cycle is crucial, as information about the changing phases in business cycles enables policy makers, the business community, and investors to cope better with unexpected events brought about by economic and business situations. The Malaysian economy is fortunate to own a publicly accessible composite of leading indicator (CLI) that is presumed capable of tracing the business cycle movement and thus contributes to the creation of an early signaling tool for short-term economic forecasting. Certainly, the usefulness of this CLI in monitoring the contemporary economic and business condition in Malaysia will be empirically appealing to the nation. Even though the present study can display the ability of the Malaysian CLI to trace the business cycle and offers advanced detection of business cycle turning points, the evidence of diminishing lead times foreseen by the CLI significantly weaken the fundamental function of a leading index as an early tool to signal economic vulnerability.
    Keywords: Business Cycle; Composite Leading Indicator; Early Signaling Tool
    JEL: E32 E17
    Date: 2012–02
  13. By: Ghafele, Roya; Engel, Jakob
    Abstract: We assessed to what extent developed country development aid programmes are likely to have interacted with, and potentially contributed to the promotion of country-appropriate sustainable changes in IP strategies and technological capacities over the period 2005-10. This was done primarily on the basis of an imputed impact assessments of four emerging and transition economies; namely Brazil, India, Poland and Thailand. Through an analysis of various measures of the domestic economic, technological and Intellectual Property context, we studied to what extent the supply of IP-related development aid provided between 2005 and 2010 responded to the likely needs of recipient countries. While the data shows that technical and financial assistance in this area could be of great use, and there is clearly a need for well-targeted IP TA and much scope for useful IP TA interventions, there seemed to only be a partial alignment between country needs and the direction of IP TA. On the whole, most IP-related development aid and technical assistance ended to focus on similar areas in each country, regardless of the development context. In Brazil and India’s case, training on IP administration may have influenced increased efficiency (from a low base) at the INPI and IP India, while the substantial EU support to raise SME IP awareness in Poland is likely to have had some significant impacts. In India, sustained development aid in this area likely influenced legislation on plant variety protection, as did WIPO TA on legislative reforms in Thailand. In all cases, the substantial US (and to a more limited extent EC) focus on development aid directed towards enforcement coincided with improvements in this area, though the political and economic pressures by both providers, and especially the US Section 301 System probably dwarfed the impact of this type of aid. Further, the typology and direction of IP related development aid reflects the comparative advantage of IP TA providers, as well as political and diplomatic interests, trade priorities and colonial ties, among many other things. As such, it is important to understand that IP TA is also highly political – a fact often concealed in the emphasis on its “technical” nature.
    Keywords: Intellectual Property and development; aid and technical assistance technological capacities in Brazil; India; Poland; Thailand; taxonomy of development; funding flows Intellectual Property and development; aid and technical assistance technological capacities in Brazil; India; Poland; Thailand; taxonomy of development; funding flows Intellectual Property and development; aid and technical assistance; technological capacities in Brazil; India; Poland; Thailand; taxonomy of development; funding flows Intellectual Property and development; aid and technical assistance technological capacities in Brazil; India; Poland; Thailand; taxonomy of development; funding flows
    JEL: O1 O34 F59
    Date: 2011–04–28
  14. By: Wong, Shirly Siew-Ling; Puah, Chin-Hong; Shazali, Abu Mansor
    Abstract: The rational expectations hypothesis (REH) serves as an appealing mechanism in forming expectations compared to that of extrapolative or adaptive frameworks because of its consistency with the basic principles of maximizing behavior. This argument is particularly true as the basic idea of REH maintains that expectations in an uncertain world are formed under assumptions where no systematic errors and information are fully utilized. However, empirical findings from the present study showed diverse evidence of rationality in business operational forecasts formed by Malaysian agriculture firms, as capital expenditure expectations were found to be irrational but gross revenue expectations were supportive of the REH proposition. This implies that the survey of business forecasts may not work well in reflecting the true business outlook, specifically in value-related operational forecasts, which in turn would directly influence investment decisions as well as the capital budgeting process.
    Keywords: Rational Expectations Hypothesis; Unbiasedness Test; Non-serial Correlation Test; Weak-form Efficiency Test
    JEL: D84 C12 C22 C83 Q10
    Date: 2011–12
  15. By: Arduini, Tiziano; De Arcangelis, Giuseppe; Del Bello, Carlo Leone
    Abstract: During the 2007-2009 financial crisis the foreign exchange market was characterized by large volatility and wide currency swings. In this paper we evaluate whether during the period of the Great Recession there has been a structural break in the relationship between fundamentals and exchange rates within an early-warning framework. This is done by extending the original data set by Kaminsky and Reinhart (1999) and including not only the most recent period, but also 17 new countries. Our analysis considers two variations of the original early-warning system. First, we propose two new methods to obtain the probability distribution of the early-warning indicator (conditional on the occurrence of a crisis) – one fully parametric and one based on a novel distribution-free semi-parametric approach. Second, we compare the original early-warning indicator with a core indicator that includes only “pseudo-financial variables” (domestic credit/GDP, the real exchange rate, international reserves and the real interest-rate differential) and we evaluate their performance not only for currency crises during the Great Recession, but also for the Asian Crisis. All tests make us conclude that “this time is different”, i.e. early-warning systems based on traditional macroeconomic variables have not only failed to forecast currency crises during the Great Recession, but have also significantly worsened with respect to the period of the Asian crisis.
    Keywords: Early Warning Systems; Exchange Rates; Semi-parametric Meth- ods
    JEL: F30 C14 F47 F31
    Date: 2011
  16. By: Chen, Shiu-Sheng
    Abstract: This paper examines the currency manipulation policy in the foreign exchange markets of thirteen emerging countries using a structural vector autoregressive (SVAR) framework to link the dynamics of real exchange rates and foreign reserves. It is found that for Korea, Singapore, and Taiwan, exchange rate shocks are the main source of fluctuations in foreign reserves over all time horizons. Empirical evidence suggests that these countries intervene substantially in the foreign exchange markets in order to promote export competitiveness.
    Keywords: Official Intervention; Foreign Reserves
    JEL: E58 F31
    Date: 2012–01–25
  17. By: Saputra, Sony; Pradiptyo, Rimawan
    Abstract: This study aims to analyse the Indonesian Supreme Court (Mahkamah Agung) decisions to the defendants of substance misuse. The data were based on the Supreme Court decisions for substance misuse cases from 2001-2009, uploaded in The database consists of 191 cases involving 218 defendants. Logistic regression and Tobin’s logistic regression (Tobit) were used in this study to estimate the probability and the intensity of various disposals. This is inline with Becker (1968) argument that the optimal deterrence effect of a disposal arose from the probability of conviction and the intensity of punishment. The types of punishment sentenced to defendants of substance misuse cases are vary, ranging from imprisonment, fines, community service, probation and even a capital punishment. The results from logistic regression analyses showed the social costs of substance misuse was used by the Supreme Court judges to consider the value of fines sentenced to offenders. the social cost that is inflicted by the defendant was only weighed in giving fines to the defendant. On the other hand, the results from Tobit regressions showed that the Supreme Court judges did not taken into consideration the social cost of substance misuse in determining the intensity of punishment sentenced to defendants. The explicit social cost caused by the defendants of the narcotics/psychotropics case was Rp 23.7 billion (about US$ 2.37 million), however the fines charged by the Supreme Court was only Rp 5.5 billion (about US$ 550,000). Further investigation showed that the defendants who were sentenced to pay fines by the District Courts has 51.7% more probability to be sentenced with imprisonment by the Supreme Court. On the other hand, results from Tobit regressions showed that the longer the imprisonment sentenced by the District Court, the more fines were sentenced to the defendants by the Supreme Court.
    Keywords: Narcotics; Psychotropic; Social Cost of Crime; Financial Punishment; Deterrence Effect
    JEL: D63 K42
    Date: 2012–01–09
  18. By: de Luna-Martinez, Jose; Vicente, Carlos Leonardo
    Abstract: Historically, development banks have been an important instrument of governments to promote economic growth by providing credit and a wide range of advisory and capacity building programs to households, small and medium enterprises, and even large private corporations, whose financial needs are not sufficiently served by private commercial banks or local capital markets. During the current financial crisis, most development banks in Latin America, followed by Asia, Africa, and Europe, have assumed a countercyclical role by scaling up their lending operations exactly when private banks experienced temporary difficulties in granting credit to the private sector. Despite the importance of development banks during crisis and non-crisis periods, little is known about them. This survey examines how development banks operate, what their policy mandates are, what financial services they offer, which type of clients they target, how they are regulated and supervised, what business models they have adopted, what governance framework they have, and what challenges they face. It also examines the countercyclical role played by development banks during the recent financial crisis. This survey is based on new data that have been collected from 90 national development banks in 61 countries.
    Keywords: Banks&Banking Reform,Access to Finance,Debt Markets,Bankruptcy and Resolution of Financial Distress,Emerging Markets
    Date: 2012–02–01
  19. By: Brishti Guha (Department of Economics, Singapore Management University, 90 Stamford Road, Singapore 178903); Prabal Roy Chowdhury
    Abstract: We develop a tractable model of competition among motivated MFIs. We find that equilibria may or may not involve double-dipping (and consequently default), with there being double-dipping whenever the MFIs are very profit-oriented. Moreover, in an equilibrium with double-dipping, borrowers who double-dip are actually worse off compared to those who do not. Further, for intermediate levels of motivation, there can be multiple equilibria, with a double-dipping equilibrium co-existing with a no default equilibrium. Interestingly, an increase in MFI competition can lower efficiency, as well as increase the extent of double-dipping and default. Further, the interest rates may go either way, with the interest rate likely to increase if the MFIs are very motivated.
    Keywords: Micro-finance competition, motivated MFIs, double-dipping, default
    JEL: C72 D40 D82 G21
    Date: 2012–01

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