nep-sea New Economics Papers
on South East Asia
Issue of 2012‒03‒21
seventeen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Production Networks in Asia : A Case Study from the Hard Disk Drive Industry By Daisuke Hiratsuka
  2. Taking Stock of the ROOs in the ASEAN+1 FTAs: Toward Deepening East Asian Integration By Medalla, Erlinda M.
  3. The Status of East Asian Free Trade Agreements By Yunling Zhang; Minghui Shen
  4. The Global Financial Crisis : Countercyclical Fiscal Policy Issues and Challenges in Malaysia, Indonesia, the Philippines, and Singapore By Anita Doraisami
  5. Understanding Foreign Direct Investment in East Asia By Willem Thorbecke; Nimesh Salike
  6. The Global Financial Crisis : Decoupling of East Asia—Myth or Reality? By Yung Chul Park
  7. Towards an Expanded Role for Asian Currencies : Issues and Prospects By Hwee Kwan Chow
  8. Is It Desirable for Asian Economies to Hold More Asian Assets in Their Foreign Exchange Reserves?—The People’s Republic of China’s Answer By Bin Zhang
  9. The economic impact of climate change on food security in Malaysia By Chuen Khee, Pek; Yet Mee, Lim; Chee Keong, Choong
  10. What Drives Credit Growth in Emerging Asia? By Selim Elekdag; Fei Han
  11. Trans-Pacific Rebalancing : Thailand Case Study By Chalongphob Sussangkarn; Deunden Nikomborirak
  12. Policy on Irregular Migrants in Malaysia: An Analysis of its Implementation and Effectiveness By Kassim, Azizah; Zin, Ragayah Haji Mat
  13. Information Disclosure Strategies for Green Industries By Venkatachalam Anbumozhi; Qwanruedee; Chotichanathawewong; Thirumalainambi Murugesh
  14. Industrial Upgrading and Global Recession : Evidence of Hard Disk Drive and Automotive Industries in Thailand By Archanun Kohpaiboon; Nipon Poapongsakorn
  15. Appraising the Thailand village fund By Boonperm, Jirawan; Haughton, Jonathan; Khandker, Shahidur R.; Rukumnuaykit, Pungpond
  16. Fiscal multipliers over the growth cycle : evidence from Malaysia By Rafiq, Sohrab; Zeufack, Albert
  17. Exploring Access and Equity in Malaysia’s Private Higher Education By Siew Yean Tham

  1. By: Daisuke Hiratsuka (Asian Development Bank Institute (ADBI))
    Abstract: Production networks have been extensively developed in East Asia. Previous studies on production networks used international trade data or input–output tables, but such aggregate data cannot explain how the networks actually operate. With the aim of understanding the features and characteristics of East Asian production networks, this paper examines the procurement system of a HDD assembler operating in Thailand. This micro-level case study found that this particular production network consists mostly of arm’s-length suppliers, who are independent and on an equal footing with the assembler. These arm’s-length suppliers are mostly located in the assembling country, but some are located in neighboring countries. This proximity is necessary to establish good relationships between customer and suppliers and allows problems to be solved as soon as they occur. The arm’s-length suppliers engaged in each country’s leading industries, such as the electronics industry in Malaysia and Singapore and the automobile industry in Thailand, have extended their business to supply the HDD industry. These suppliers have formed an industrial cluster in each country within a two- or three-hour drive area. Each cluster that spans different countries is linked by a well-developed logistic network that employs the just-in-time production method that prevails in East Asia. On a regional level, these separate clusters tend to form international production networks that connect to each other across neighboring countries within a distance that provides a quick response time for problem solving. This study also found that American HDD assemblers outsourced indigenous suppliers in Malaysia and Singapore because American suppliers did not follow the assemblers’ move to the region. However, since Japanese suppliers did follow the Japanese HDD assemblers to the Philippines and Thailand, indigenous suppliers were not outsourced.
    Keywords: Production Networks, Asia, Hard disk drive industry.
    JEL: F14 F15 F23
    Date: 2011–07
  2. By: Medalla, Erlinda M.
    Abstract: This paper compiles a database on the rules of origin (ROOs) of the ASEAN plus 1 FTAs--namely ASEAN Trade in Goods Agreement, ASEAN-Korea FTA, ASEAN-China FTA, ASEAN-Japan Comprehensive Economic Partnership, ASEAN-Australia-New Zealand FTA. For further insights, database compilation is also done for the bilateral FTAs forged by Japan with individual ASEAN countries and India. Multiple FTAs could create a complex web of rules. Using the database, this paper assesses the various ROO regimes of these FTAs, particularly with respect to their degree of commonality and relative restrictiveness. A methodology for measurement is formulated and restrictiveness indices are computed. The paper then suggests recommendations for ROO reforms within the context of trade facilitation and deepening East Asian regional integration. The paper also suggests further methodologies for analysis, especially where the database from the ERIA FTA mapping project could be useful.
    Keywords: Philippines, rules of origin, free trade agreements (FTAs), ASEAN+1, East Asia integration
    Date: 2011
  3. By: Yunling Zhang (Asian Development Bank Institute (ADBI)); Minghui Shen
    Abstract: Free trade agreements (FTAs) have become a prominent feature of the multilateral trading system and an important instrument of trade policy for members of the World Trade Organization (WTO). The proliferation of FTAs is the result of a number of factors, from the economic to the political. East Asia is with no exception involved in the process and witnessing the establishment of multilayered FTAs. Pioneered by the Association of Southeast Asian Nations (ASEAN) in 1992 when it initiated the ASEAN FTA (AFTA), and encouraged by ASEAN+1 (ASEAN plus one country) FTAs, more and more economies in east Asia are involved in FTAs, although the characteristics of these FTAs differ according to their background and circumstances. When the proliferation of FTAs in east Asia benefits the regional trade and economic growth, questions have been raised about “Asian noodle bowl†effect, pointing out multi-layered FTAs in east Asia have created new trade barriers and raised the cost of business in the region. To this end, east Asia needs to progress from the proliferation of multilayered FTAs to a region-wide FTA with wider participation and broader coverage.
    Keywords: free trade agreements, FTA, East Asia, Asian noodle bowl, Regional Integration
    JEL: F10 F13 F15
    Date: 2011–05
  4. By: Anita Doraisami (Asian Development Bank Institute (ADBI))
    Abstract: Several countries have employed countercyclical fiscal policy to ameliorate the impact of the global financial crisis. This study identifies some of the issues and policy implications associated with this policy response in developing countries. Included are case studies of four developing countries in the Asian region—Malaysia, Indonesia, the Philippines, and Singapore. The findings point to a rich diversity in both the size and composition of fiscal stimulus and the challenges which are confronted. This study suggests several steps that countries might take to improve the impact of expansionary fiscal policy in response to future downturns. These include (i) embedding automatic stabilizing impulses through the provision of social safety nets; (ii) increasing tax revenues collected from personal and corporate taxes, by reducing labor market informality through improvements in the business environment; (iii) safeguarding fiscal sustainability; (iv) rebalancing growth by strengthening other sectors of the economy; (v) reducing expenditures on subsidies; and (vi) ensuring smooth and efficient budget execution.
    Keywords: global financial crisis, Countercyclical Fiscal Policy, Malaysia, the the Philippines, and Singapore
    JEL: E60 E61 E62 E63
    Date: 2011–06
  5. By: Willem Thorbecke (Asian Development Bank Institute (ADBI)); Nimesh Salike
    Abstract: We recount East Asia’s experience with foreign direct investment (FDI). We document that, contrary to the Rybczynski theorem, capital flows in the region cause the host country’s labor-intensive industry to expand and its capital-intensive industry to decline. We also present narrative evidence that sheds light on how FDI is affected by the host’s country’s locational advantages, whether Asian FDI is footloose, and how the PRC has become the center of Factory Asia. Finally, we show that the evolution of production networks in the region can be explained partly by changes in the service cost of linking geographically separated production blocks relative to the cost saving arising from slicing up the value chain.
    Keywords: foreign direct investment, FDI, East Asia, Asian FDI, global production networks
    JEL: F21 F23 O53
    Date: 2011–06
  6. By: Yung Chul Park (Asian Development Bank Institute (ADBI))
    Abstract: The “decoupling†of East Asia from its economic interactions—both in trade and finance—with the rest of the world refers to the phenomenon of a weakening of the impact of demand and supply shocks emanating from the advanced countries on the region’s economic performance since the early 1990s. Available empirical evidence, including the faster recovery of East Asia from the 2008 global economic crisis, does not appear to lend credence to the decoupling thesis. However, with increases in income throughout the region and the three free trade agreements (FTAs) of the People’s Republic of China (PRC), Japan, and Korea with the Association of Southeast Asian Nations (ASEAN) (which have entered into force), East Asia will witness a continuing expansion in intra-regional trade, much of which will consist of horizontal intra-industry trade. At the same time, if East Asia succeeds in instituting an efficient capital control regime and in strengthening the Chiang Mai Initiative Multilateralization (CMIM), it will be able to cope better with the volatility of capital flows to the region. Together these developments will then help speed up economic integration among ASEAN+3 member states to build a region that is more self-contained than it has been. JEL Classifica
    Keywords: global financial crisis, Decoupling of East Asia, capital control regime
    JEL: E32 F15 R11
    Date: 2011–06
  7. By: Hwee Kwan Chow (Asian Development Bank Institute (ADBI))
    Abstract: Notwithstanding incumbency advantages and network effects enjoyed by the United States (US) dollar, considerations about the stability of its value have led Asian countries to fear they are holding their foreign exchange reserves in a depreciating currency. At the same time, it pays for the regional countries to adjust their reserve currency composition to match the point of reference of their exchange rate policy. This paper examines empirically which regional currency or currencies seem to matter for exchange rate determination in Asia beyond the very short term. To this end, we employ country-specific Vector Autoregressive (VAR) models to compare the relative impact which fluctuations in the Asian Currency Unit (ACU), yuan, and yen separately have on movements of Asian currencies. Contrary to recent evidence based on daily data, we found monthly exchange rates variations in the region are more heavily influenced by the cumulative effect of key Asian currencies than by the yuan or the yen individually within the sample period we used. To the extent that exchange rates in the region shift over time from benchmarking the US dollar towards a broad range of Asian currencies, Asian central banks will find it more attractive to cross-hold Asian bonds. This calls for the development of deep private markets in such assets, as well as institutional prerequisites for internationalizing key regional currencies.
    Keywords: foreign exchange reserves, exchange rate determination, Asia, Yuan, Yen, monthly exchange rates variation, benchmarking
    JEL: F31 F33
    Date: 2011–05
  8. By: Bin Zhang (Asian Development Bank Institute (ADBI))
    Abstract: We calculate the return on the major Asian currency denominated long-term government bonds in terms of a basket of the People’s Republic of China’s (PRC) imports of goods and services, namely the real return on those assets from the PRC’s perspective. In the sample period of January 2002 to December 2009, the real return on United States (US) treasury bills is lower than that of Japan, India, the Republic of Korea, Singapore, or Thailand’s government bonds, and a little higher than that of Malaysia’s government bonds. This result shows that it is desirable for the PRC to substitute Asian currency denominated government bonds for US Treasury bills to maintain the purchasing power of its foreign exchange reserves. To some extent, this research supports the proposal by Fan, Wang, and Huang (2010) on the cross holding of regional currencies in foreign exchange reserves.
    Keywords: Foreign exhangce reserves, nominal and real returns, PRC, Currency denominated assets
    JEL: F31 F21 G11
    Date: 2011–08
  9. By: Chuen Khee, Pek; Yet Mee, Lim; Chee Keong, Choong
    Abstract: This study estimates the economic impact of climate change on food security in Malaysia. The contingent valuation technique is employed on 456 randomly selected households in the vicinities of Selangor Darul Ehsan. The study finds that climate change mitigation programmes to ensure food security are important. The public is willing to pay extra rice price in substitution of a rice subsidy reduction impact for the mitigation programmes. More specifically, the study ascertains that households on average are willing to pay 25% more for rice in replace of the subsidy reduction impact. This value conveys a total economic value of MYR557 million per annum, based on the total annual rice consumption of Malaysians who are willing to pay for the rice subsidy reduction impact. This substantial value may help give directions to the policy makers to draft more responsible food security and climate change mitigation bills in the future.
    Keywords: willingness-to-pay; climate change; food security; contingent valuation
    JEL: N5
    Date: 2011–12–01
  10. By: Selim Elekdag; Fei Han
    Abstract: This paper seeks to uncover the main drivers of credit growth in emerging Asia using a multi-country structural vector autoregressive (SVAR) model. Taking a novel approach, we developed a two-block SVAR whereby shocks within blocks are identified using sign restrictions, whereas shocks across the blocks are identified using a recursive (block-) Cholesky structure. We find that domestic factors are more dominant than external factors in driving rapid credit growth in emerging Asia. This is particularly true for domestic monetary policy, which can play a pivotal role in terms of managing rapid credit growth in emerging Asia.
    Keywords: Asia , Credit expansion , Cross country analysis , Economic models , Emerging markets , Flexible exchange rates , Monetary policy ,
    Date: 2012–02–07
  11. By: Chalongphob Sussangkarn (Asian Development Bank Institute (ADBI)); Deunden Nikomborirak
    Abstract: Since the Asian financial crisis in 1997, Thailand has become highly dependent on export as the engine of economic recovery and growth. In 2008, the ratio of export to gross domestic product (GDP) was 76.5%. The global economic crisis triggered by the sub-prime loans debacle in the United States has prompted Thailand to rethink her export-led growth strategy. Year-on-year export growth plunged from a positive 22.7% in the third quarter of 2008 to a negative 7.75% in the fourth quarter and remained negative for another four quarters, leading to a negative growth of GDP for five consecutive quarters. This paper examines the options for external and internal economic rebalancing strategies for Thailand. External rebalancing will require Thailand to rely less on the US market for her exports. The paper thus examines the possibility of promoting greater regional trade by means of trade agreements and exchange rate coordination. As for internal rebalancing, the paper emphasizes the need to boost domestic public and private investment in terms of both quantity and quality in order to narrow the current savings–investment gap, bearing in mind the need to ensure fiscal sustainability. Finally, the paper examines broader rebalancing strategies that will help Thailand to become less dependent on exports. These include the need to (1) improve productivity by means of technological acquisition, innovation, and skills development; (2) increase economic efficiency by exposing the non-traded sectors, in particular the service sector, to greater competitive pressures; (3) deepen the production structure and create new dynamic industries; and (4) generate new growth poles.
    Keywords: Trans-Pacific Rebalancing, Thailand, savings–investment gap, Fiscal Sustainability
    JEL: E21 E22 E65 E66 F31 F40 H54 H60
    Date: 2011–03
  12. By: Kassim, Azizah; Zin, Ragayah Haji Mat
    Abstract: In the early 1970s, Malaysia began to be inundated by foreign workers, all of whom were irregular migrants. A decade later their uncontrolled entry left several negative consequences especially to the internal and border security of the country. To overcome the problems, Malaysia introduced the foreign worker policy which became fully implemented in 1992. The policy has two objectives, firstly to regulate the inflow of foreign workers; and secondly, to stem the inflow of irregular migrant workers into the country. The implementation of the policy has led to a spectacular increase in the number of legally recruited migrant workers. However, it has not been able to curb the expansion of irregular migrants; instead their number has risen in parallel with that of legally recruited ones. This report is an attempt to examine why this is so. It is based on a research carried out in 2011 among 404 irregular migrants as respondents, comprising 340 who were apprehended and housed at seven of the 17 holding depots run by the government and 64 others who are still at large.
    Keywords: migrant workers, immigration, emigration, foreign workers, irregular migrants, illegal immigrants, legalization, amnesty, deportation, asylum seekers, refugees
    Date: 2011
  13. By: Venkatachalam Anbumozhi (Asian Development Bank Institute (ADBI)); Qwanruedee; Chotichanathawewong; Thirumalainambi Murugesh
    Abstract: Environmental information disclosure strategies, which involve corporate attempts to increase the availability of information on pollution and emissions, can become a basis for a new wave of environmental protection policy that follows and has the potential to complement traditional command and control and market-based approaches. Although a growing body of literature and operational programs suggest that publicly disclosing the information can motivate improved corporate environmental performance, this phenomenon remains poorly understood. This paper reviews the economic and legitimacy theory behind information disclosure and analyzes the current practice and programs adopted in industrialized and industrializing countries. Admittedly few in number, the cases studied reveal the advantages of such voluntary approaches, when the countries of developing Asia must deal with weak institutions, growing markets, and strong communities. Factors that contributed to widespread success of selected programs in the People’s Republic of China, India, Indonesia, the Philippines, and the United States are information quality, the dissemination mechanisms, provision of incentives for good performers, and public and private pressure.
    Keywords: Environmental information disclosure strategies, green industries, corporate environmental performance
    JEL: Q52 Q53 Q57 Q58
    Date: 2011–08
  14. By: Archanun Kohpaiboon (Asian Development Bank Institute (ADBI)); Nipon Poapongsakorn
    Abstract: This paper illustrates the upgrading experiences of the automotive and hard disk drive (HDD) industries in Thailand, chosen because of their outstanding export performance in the developing world. An understanding of their upgrading experiences can shed some light on the ongoing debate regarding the relative importance of international production networks (IPNs) and industrial clusters (ICs) and their implications for prudential industrial policy. The impact of the recent global recession is also discussed in this paper. There is evidence of industrial upgrading in both the automotive and HDD industries. Yet one primary policy challenge still remains, that is, the limited role of indigenous suppliers in the multinational enterprise (MNE) production networks. This limited role is, to a certain extent, related to the overall incentive structure. Where these two industries differ is in their mode of networking, that is, whether they are part of an IPN or an IC. In the case of the automotive industry, industrial clustering has been observed and has reached a level where the local content of a locally manufactured vehicle is approaching 100%. In the case of the HDD industry, industrial clustering has naturally occurred and reached a certain level. Even though the current global economic crisis has severely affected each industry’s production and exports, the “hollow out†scenario is unlikely to apply to either. In other words, Thailand should remain a base of production and exports for MNEs, a situation which points to the need for continual industrial upgrading. Three policy-related conclusions are drawn in this paper. Firstly, the limited linkages between MNE affiliates and indigenous suppliers point to the need for a comprehensive study probing the potentially distorting effect of the cascading tariff structure—a key theme of tariff policy for the past three decades. Despite consecutive governments’ efforts since the mid-1990s to neutralize the tariff structure, it is clear that much remains to be done. Secondly, the choice between an IPN and an IC is a purely private sector decision, driven by the nature of the particular industry. There is also the possibility of coexistence between IPNs and ICs. Industrial clustering can be a developmental outcome rather than a pre-condition of technological upgrading. Finally, to promote industrial upgrading process, the government should emphasize policies that strengthen the supply-side capabilities of local firms and create an investment climate that encourages further upgrading activities.
    Keywords: Hard Disk Drive industry, automotive industry, industrial upgrading, Thailand, prudential industrial policy, Production Networks, MNEs
    JEL: F23 O33 O53 L62 L63
    Date: 2011–05
  15. By: Boonperm, Jirawan; Haughton, Jonathan; Khandker, Shahidur R.; Rukumnuaykit, Pungpond
    Abstract: The Thailand Village Fund is the second-largest microcredit scheme in the world. Nearly 80,000 elected local Village Fund committees administer loans that reach 30 percent of all households. The value of Village Fund loans has remained steady since 2006, even without new infusions of government funds, and loans go disproportionately to the poor. Based mainly on a custom-built survey of more than 3,000 Village Funds conducted in 2010, this paper evaluates the performance of Village Funds, which it argues are best modeled as altruistic, and do not appear to be subject to elite capture. As expected, profit rates are difficult to model, but the regression analysis shows that loan recovery rates, total lending, credit ratings, and the proportion of loans going to the poor are all higher when a Village Fund borrows additional funds from a formal bank and on-lends to households, as was done by one in five Village Funds. An economic analysis suggests that Village Fund benefits exceed the costs. Most Village Funds are social rather than financial intermediaries; they have little incentive to take risks or to innovate, which explains why Village Fund lending has not kept pace with the growth of the Thai economy.
    Keywords: Debt Markets,Banks&Banking Reform,Bankruptcy and Resolution of Financial Distress,Investment and Investment Climate,Economic Theory&Research
    Date: 2012–03–01
  16. By: Rafiq, Sohrab; Zeufack, Albert
    Abstract: This paper explores the stabilisation properties of fiscal policy in Malaysia using a model incorporating nonlinearities into the dynamic relationship between fiscal policy and real economic activity over the growth cycle. The paper also investigates how output multipliers for government purchases may alter for different components of government spending. The authors find that fiscal policy in Malaysia has become increasingly pro-cyclical over the last 25 years and establish that the size of fiscal multipliers tend to change over the growth cycle. A 1 Malaysian Ringgit rise in government (investment) spending leads to a maximum output multiplier of around 2.7 during growth recessions, and around 2 in normal times. The returns to government spending in Malaysia are greater when the focus is on public investment, as opposed to consumption. Changes in tax policy are less effective in stimulating economic activity than direct government spending. These results provide empirical backing to conjectures in the recent literature implying that procyclicality in fiscal policy reduces the effectiveness of fiscal actions in emerging markets.
    Keywords: Debt Markets,Consumption,Public Sector Expenditure Policy,Economic Theory&Research,Public Sector Economics
    Date: 2012–03–01
  17. By: Siew Yean Tham (Asian Development Bank Institute (ADBI))
    Abstract: Private higher education institutions (PrHEIs) are utilized to complement public provision due to financial constraints faced in public provision. However, increasing private provision has raised interesting questions as to who gets educated in these PrHEIs. Is increasing private supply enlarging the circle of opportunity to reach those who might otherwise have been unable to enter university or college? In other words, has the explosion in private supply translated into greater inclusion or increased exclusion? This paper explores the access and equity issues in Malaysia’s private higher education system. Malaysia is an interesting case study due to the significant presence of PrHEIs in the country and their contribution toward student enrolment. The findings show that the Malaysian government has provided considerable financial support for the development of PrHEIs, through the provision of incentives, subsidized loans, and scholarships. Quality assurance efforts further enhance the development of private provision, as student loans and scholarships are only provided for students on accredited programs. Therefore, PrHEIs have widened access and equity, with the help of government support. Despite this, Malaysia’s model of providing access and equity through private provision may be unsustainable, due to the poor repayment record of student loans and the economic need to reduce the fiscal deficit of the government.
    Keywords: Private Higher Education, Malaysia, private supply of education
    JEL: H44 H52 I23
    Date: 2011–04

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