nep-sea New Economics Papers
on South East Asia
Issue of 2012‒04‒17
eighteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Applying approximate entropy (ApEn) to speculative bubble in the stock market By Saumitra, Bhaduri
  2. Regional Cooperation towards Green Asia: Trade and Investment By Kalirajan, Kaliappa
  3. Transportation and Communication Infrastructure in Latin America: Lessons from Asia By Barbara Kotschwar
  4. Welfare Changes and Sectoral Adjustments of Asia-Pacific Countries under Alternative Sequencings of Free Trade Agreements By Ken Itakura; Hiro Lee
  5. Loan loss provisioning practices of Asian banks By Frank Packer; Haibin Zhu
  6. Specification Sensitivity in Right-Tailed Unit Root Testing for Explosive Behavior By Peter C. B. Phillips; Shu-Ping Shi; Jun Yu
  7. What is the Role of Social Pensions in Asia? By Barrientos, Armando
  8. Testing for Multiple Bubbles By Peter C. B. Phillips; Shu-Ping Shi; Jun Yu
  9. Political Economy of The Budgetary Process in Malaysia By Gulam Hassan, Mohamed Aslam; Tan, Yee Shin
  10. Are Southeast Asian Real Exchange Rates Mean Reverting? By Frédérique Bec; Songlin Zeng
  11. Why Do Large Firms Go For Islamic Loans? By Laurent Weill; Christophe Godlewski
  12. Employment Effects of FTA Agreements: The Perspectives from Bangladesh By Raihan, Selim
  13. The role of population on economic growth and development: evidence from developing countries By Atanda, Akinwande A.; Aminu, Salaudeen B.; Alimi, Olorunfemi Y.
  14. The tropical timber industry in Gabon: a forward linkages approach to industrialisation By Terheggen, Anne
  15. Optimal Jackknife for Discrete Time and Continuous Time Unit Root Models By Ye Chen; Jun Yu
  16. Double Asymptotics for Explosive Continuous Time Models By Xiaohu Wang; Jun Yu
  17. Con flict with Quitting Rights: A Mechanism Design Approach By Madhav S. Aney
  18. Divorce Laws, Sex Ratios and the Marriage Market By Brishti Guha

  1. By: Saumitra, Bhaduri
    Abstract: In contrast to the traditional duration dependence test, the paper introduces an order statistic known as Approximate Entropy to investigate the presence of speculative bubbles for a cross country sample. Using Approximate Entropy, the article examines four major crash in the US, Japan, Hong Kong and India. In addition, the paper also investigate the 1997 Asian crisis using weekly data for seven major Asian indices which includes Hong Kong, Malaysia, Singapore, Korea, Taiwan, Indonesia and Japan. The results confirm that there are strong “tale-tell” signs characterized by low Approximate Entropy (ApEn) level during many of these crash events. All the evidences using yearly as well as time series data (both discrete and rolling window analysis) point to a substantially lower level of ApEn during the crash.
    Keywords: Approximate Entropy, Bubble, India, stock Market
    JEL: G0 G01
    Date: 2012–04–10
  2. By: Kalirajan, Kaliappa (Asian Development Bank Institute)
    Abstract: Growth led by low-carbon goods and services (LCGS) is an imperative for the countries of Asia and the Pacific, and particularly for emerging Asian economies, which are heavily dependent on imported energy and resources. The objectives of this study are to (i) measure the potential of major emerging Asian economies for exports in LCGS under the "grand coalition," partial coalition, and stand-alone scenarios; (ii) measure the impact of existing "behind the border" constraints on potential exports in emerging Asian economies; (iii) identify the potential, options, and challenges with respect to a grand coalition scenario; and (iv) find ways to improve the contribution of public–private partnerships to LCGS.
    Keywords: low carbon goods services; emerging asian economies; energy; public private partnerships; trade environment; green growth
    JEL: Q56 Q58 R11
    Date: 2012–04–11
  3. By: Barbara Kotschwar (Peterson Institute for International Economics)
    Abstract: In Latin America, inadequate transportation infrastructure has been identified as an increasingly important impediment to the region's further integration in global trade and a significant factor preventing countries from properly taking advantage of the multitude of regional, plurilateral, and bilateral trade agreements signed in the past decade and a half. This paper examines transport and communications infrastructure initiatives in Latin American and Asian regional trade arrangements and finds several lessons Asia can teach Latin America.
    Keywords: trade, infrastructure, regional trade agreements (RTAs), transport costs, transport infrastructure, cooperation, East Asia, Latin America
    JEL: F10 F15 R11 R42 R58
    Date: 2012–04
  4. By: Ken Itakura (Graduate School of Economics, Nagoya City University); Hiro Lee (Osaka School of International Public Policy, Osaka University)
    Abstract: In this paper we compare welfare effects and the extent of sectoral adjustments of the member countries under alternative free trade agreement (FTA) sequencings in the Asia-Pacific region using a dynamic computable general equilibrium (CGE) model. If a Trans-Pacific Partnership (TPP) agreement under one sequencing and an East Asian FTA (EAFTA) under another sequencing will enter into force at the same time, followed by more enlarged FTAs, then a larger number of countries are expected to realize greater welfare gains under the Asia-track sequencing. However, given the uncertainty about the establishment of an Asia-wide FTA in the near future, the TPP-track sequencing appears to be an attractive option for most countries in the Asia-Pacific region. With respect to sectoral adjustments, there seem to be no significant differences among the alternative sequencings.
    Keywords: Sequencing, FTA, Asia-Pacific, CGE model
    JEL: F15 F17
    Date: 2012–03
  5. By: Frank Packer; Haibin Zhu
    Abstract: In the wake of the Asian financial crisis, many regimes in Asia adopted stricter provisioning requirements, as well as discretionary measures, with the objective of increasing provisioning in good times in response to rising levels of risk. Based on a final sample of 240 banks in 12 Asian economies, the evidence is that countercyclical loan loss provisioning has dominated throughout emerging Asia, most strikingly so in the case of India. Thus, loan loss provisioning did not simply become more conservative at all points in time subsequent to the Asian financial crisis, but actively leaned in a fashion that ameliorated swings in earnings and the macroeconomy.
    Keywords: Loan loss provisioning, financial system procyclicality, international accounting standards, earnings smoothing, macroprudential policy
    Date: 2012–04
  6. By: Peter C. B. Phillips (Yale University, University of Auckland, University of Southampton & Singapore Management University); Shu-Ping Shi (Research School of Economics, The Australian National University); Jun Yu (Sim Kee Boon Institute for Financial Economics, School of Economics and Lee Kong Chian School of Business)
    Abstract: Right-tailed unit root tests have proved promising for detecting exuberance in economic and financial activities. Like left-tailed tests, the limit theory and test performance are sensitive to the null hypothesis and the model specification used in parameter estimation. This paper aims to provide some empirical guidelines for the practical implementation of right-tailed unit root tests, focussing on the sup ADF test of Phillips, Wu and Yu (2011), which implements a right-tailed ADF test repeatedly on a sequence of forward sample recursions. We analyze and compare the limit theory of the sup ADF test under different hypotheses and model specifications. The size and power properties of the test under various scenarios are examined in simulations and some recommendations for empirical practice are given. Empirical applications to the Nasdaq and to Australian and New Zealand housing data illustrate these specification issues and reveal their practical importance in testing.
    Keywords: Unit root test; Mildly explosive process; Recursive regression; Size and power.
    JEL: C15 C22
    Date: 2012–01
  7. By: Barrientos, Armando (Asian Development Bank Institute)
    Abstract: Rapid population ageing and economic transformation in Asia raise the policy challenge of ensuring income security in old age. The main objective of this paper is to explore the potential role of social pensions and other noncontributory schemes in Asia, informed by insights from theory and international experience. The paper identifies alternative forms of providing income security in old age, including social pensions. It also examines the welfare effects of adopting alternative social pension designs, especially around two key policy nodes: the comparative advantages of social assistance and social pensions, and the integration of noncontributory transfers within advanced contributory pension schemes.
    Keywords: social pensions; population ageing; asia; social assistance; noncontributory transfers; contributory pension schemes
    JEL: H55 I38 J14 J32 O17
    Date: 2012–04–12
  8. By: Peter C. B. Phillips (Yale University, University of Auckland, University of Southampton & Singapore Management University); Shu-Ping Shi (Research School of Economics, The Australian National University); Jun Yu (Sim Kee Boon Institute for Financial Economics, School of Economics and Lee Kong Chian School of Business)
    Abstract: Identifying and dating explosive bubbles when there is periodically collapsing behavior over time has been a major concern in the economics literature and is of great importance for practitioners. The complexity of the nonlinear structure inherent in multiple bubble phenomena within the same sample period makes econometric analysis particularly difficult. The present paper develops new recursive procedures for practical implementation and surveillance strategies that may be employed by central banks and fiscal regulators. We show how the testing procedure and dating algorithm of Phillips, Wu and Yu (2011, PWY) are affected by multiple bubbles and may fail to be consistent. The present paper proposes a generalized version of the sup ADF test of PWY to address this difficulty, derives its asymptotic distribution, introduces a new date-stamping strategy for the origination and termination of multiple bubbles, and proves consistency of this dating procedure. Simulations show that the test significantly improves discriminatory power and leads to distinct power gains when multiple bubbles occur. Empirical applications are conducted to S&P 500 stock market data over a long historical period from January 1871 to December 2010. The new approach identifies many key historical episodes of exuberance and collapse over this period, whereas the strategy of PWY and the CUSUM procedure locate far fewer episodes in the same sample range.
    Keywords: Date-stamping strategy; Generalized sup ADF test; Multiple bubbles, Rational bubble; Periodically collapsing bubbles; Sup ADF test
    JEL: C15 C22
    Date: 2012–01
  9. By: Gulam Hassan, Mohamed Aslam; Tan, Yee Shin
    Abstract: The ruling political party or the ruling government has rights in drafting and implementing economic policies including the budget policy. In the case of Malaysia, as observed, the budget policy is associated with the long or medium term economic development plans that are drafted, current thinking or thought of economic policies and additional measures that would be introduced probably related to major economic events such as the impact of financial or global economic crises. Also the budget includes economic policies according to the ruling party’s manifesto and promises made during the election. Eventhough the budget is the ruling government’s privilege but the government’s financial plan, i.e the allocation and the manner of spending, taxation and borrowing are subject to law, acts, rules and procedures. The ruling government cannot simply utilize economic resources for its political means or interests. This paper argues that there is a solid link between the ruling political party with the preparation of the budget policy. To examine the matter this paper uses the survey method. This paper has found that in the case of Malaysia the Member of Parliaments do influence the outlining of the annual budget.
    Keywords: Political Institutions; Elections; Development Plans; Budget Policy; Malaysia
    JEL: O23 E62 O20 P48 P16
    Date: 2012–04–05
  10. By: Frédérique Bec (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise); Songlin Zeng (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)
    Abstract: Since the late nineties, both theoretical and empirical analysis devoted to the real exchange rate suggest that their dynamics might be well approximated by nonlinear models. This paper examines this possibility for post-1970 monthly ASEAN-5 data, extending the existing research in two directions. First, we use recently developed unit root tests which allow for more flexible nonlinear stationary models under the alternative than the commonly used Self-Exciting Threshold or Exponantial Smooth Transition AutoRegressions. Second, while different nonlinear models survive the mis-specification tests, a Monte Carlo experiment from generalized impulse response functions is used to compare their relative relevance. Our results i) support the nonlinear mean-reverting hypothesis, and hence the Purchasing Power Parity, in most of the ASEAN-5 countries and ii) point to the Multiple Regime-Logistic Smooth Transition and the Exponantial Smooth Transition AutoRegression models as the most likely data generating processes of these real exchange rates.
    Keywords: Purchasing Power Parity; Nonlinear ThresholdModels; Southeast Asian Real Exchange Rates
    Date: 2012–02–07
  11. By: Laurent Weill (LaRGE Research Center, Université de Strasbourg); Christophe Godlewski (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper examines the motivations for large firms to choose an Islamic loan over a conventional loan and the recent expansion of Islamic finance activities. We employ a dataset of Islamic and conventional syndicated loans from countries in the Middle East and Southeast Asia for the period 2001-2009, testing determinants for the choice of an Islamic loan at the facility, firm, and country level. From the lenders standpoint, loan characteristics apparently do not influence the decision to offer Islamic loans, nor are they rationed to borrowers in terms of maturity or amount. Moreover, firms taking Islamic loans do not appear to differ in terms of default risk from firms taking conventional loans. We identify three country-level determinants as potential driving forces expanding the preference for Islamic loans. The strongest determinant is religiosity, i.e. the share of Muslim population in a country, but the quality of institutions and level of financial development also play substantial roles.
    Keywords: Islamic banks, loans.
    JEL: G21 G32 O16
    Date: 2012
  12. By: Raihan, Selim
    Abstract: Bangladesh has entered into several regional FTA agreements and is in the process of signing bilateral FTA agreements with a number of countries. The study uses several models such as WITS/SMART global partial equilibrium model, SAM multiplier model, CGE model and an employment satellite matrix to explore the employment effects in Bangladesh out of three different FTA scenarios. In the WITS/SMART model, three FTA scenarios are run which assume full elimination of bilateral tariff between Bangladesh and India (under Bangladesh-India bilateral FTA), full elimination of bilateral tariff between Bangladesh and Malaysia (under Bangladesh-Malaysia bilateral FTA) and full elimination of tariff on trade among the BIMSTEC member countries (under BIMSTEC). The analysis of the macro impacts of the FTA scenarios suggest that such bilateral and regional FTAs would be beneficial for Bangladesh in terms of impact on consumer prices, exports, real wages and employment. At the sectoral level, a number of export oriented sectors would gain from such FTAs. However, the sectoral level impacts also suggest that a large number of sectors would experience fall in production because of large inflow of imports, which will result in loss in employment in these sectors. Therefore, these FTAs have important sectoral implications in terms of production, exports, import and employment. It however appears that at the aggregate level employment would rise which would mean that the loss in employment in some sectors will be more than compensated by rise in employment in other sectors. Therefore, the net effect on employment is likely to be positive.
    Keywords: FTA; CGE Model; Partial Equilibrium Model; Employment; Bangladesh
    JEL: F15 C68 F17 F14
    Date: 2011–12
  13. By: Atanda, Akinwande A.; Aminu, Salaudeen B.; Alimi, Olorunfemi Y.
    Abstract: The precise relationship between population growth and per capita income has been inconclusive in the literature and the nexus has been found not clearly explain the determinants of rapid population growth in developing countries that lacks fertility control and management framework. This forms the rationale for this study to access the trend of factors that influence rapid population growth in developing countries between 1980 and 2010. This paper examined the comparative trend review of population growth determinants between developing countries (Bangladesh, Ethiopia, Indonesia, Mexico and Nigeria) and developed nations (Germany and United States). The trend analysis revealed that fertility rate, crude death rate, birth rate, mortality rate, and life expectancy are the major determinants of rapid population growth rate, while youth dependency ratio of young people below age 15 has also been attributed as one of the leading causes of population growth and growth threat in developing countries. However, the analysis further indicated that excluding Mexico from the Upper Middle Income group, developed economies (United State and Germany) with large population size have a higher real economic well-being as measured by the Real GNI per capita, compared with selected developing economies in the world. The study then proffered the need for population control framework and provision of essential infrastructures for the rapid growing population size in developing countries in order to enhance their welfare.
    Keywords: Population Growth; Income Growth; Health Status; Fertility; Mortality; Developing Countries; Developed Nations; Income Group
    JEL: O1 I0 C40 D60 O4
    Date: 2012–03–04
  14. By: Terheggen, Anne
    Abstract: The breadth and depth of forward linkages in the tropical timber industry of Gabon is a result of three inter-acting drivers: the nature of final markets, ownership of production, and sector-specific policy. The Forestry Code set explicit domestic processing targets built on the trajectory of French processors. Still, while this is theoretically in line with European market demands for wood products, the forced beneficiation resulted in Chinese, Malaysian, and Gabonese producers, whose prime activity is the exploitation of logs for processing industries in China, to limit their participation in forward linkages to the sawnwood sub-sector, characterised by low entry barriers and negative producer margins. Gabon's comparative advantage lies in the exploitation of its natural resource tropical timber for export markets. Logging is also a 'superior' technology allowing the appropriation of resource rents. These are largely diluted in processing due to production cost penalties such as high reservation wages, inadequate infrastructure, lack of skills, and the political economy of Gabon. The conflict between the envisaged forward linkages approach to industrialisation (in light of falling oil reserves), industry actors' market focuses, motivations, and capabilities, as well as conclusions drawn about comparative advantages and linkage-blockages, has significant consequences for industrial development.
    Keywords: emerging economies; China; Gabon; timber sector; global value chains; trade; industrialization; resource-based growth
    JEL: F00 L73 O25 L78 O13 F14 A10
    Date: 2011–03
  15. By: Ye Chen (School of Economics and Sim Kee Boon Institute for Financial Economics, Singapore Management University); Jun Yu (Sim Kee Boon Institute for Financial Economics, School of Economics and Lee Kong Chian School of Business)
    Abstract: Maximum likelihood estimation of the persistence parameter in the discrete time unit root model is known for suffering from a downward bias. The bias is more pronounced in the continuous time unit root model. Recently Chambers and Kyriacou (2010) introduced a new jackknife method to remove the .rst order bias in the estimator of the persistence parameter in a discrete time unit root model. This paper proposes an improved jackknife estimator of the persistence parameter that works for both the discrete time unit root model and the continuous time unit root model. The proposed jackknife estimator is optimal in the sense that it minimizes the variance. Simulations highlight the performance of the proposed method in both contexts. They show that our optimal jackknife reduces the variance of the jackknife method of Chambers and Kyriacou by at least 10% in both cases.
    Keywords: Bias reduction, Variance reduction, Vasicek model, Long-span Asymptotics, Autoregression
    JEL: C11 C15
    Date: 2012–01
  16. By: Xiaohu Wang (School of Economics and Sim Kee Boon Institute for Financial Economics, Singapore Management University); Jun Yu (Sim Kee Boon Institute for Financial Economics, School of Economics and Lee Kong Chian School of Business)
    Abstract: This paper develops a double asymptotic limit theory for the persistent parameter (k) in explosive continuous time models driven by Lévy processes with a large number of time span (N) and a small number of sampling interval (h). The simultaneous double asymptotic theory is derived using a technique in the same spirit as in Phillips and Magdalinos (2007) for the mildly explosive discrete time model. Both the intercept term and the initial condition appear in the limiting distribution. In the special case of explosive continuous time models driven by the Brownian motion, we develop the limit theory that allows for the joint limits where N ! 1 and h ! 0 simultaneously, the sequential limits where N ! 1 is followed by h ! 0, and the sequential limits where h ! 0 is followed by N ! 1. All three asymptotic distributions are the same.
    Keywords: Explosive, Continuous Time, Lévy Process, Invariance Principle, Double Asymptotics
    JEL: C13 C22 G13
    Date: 2012–01
  17. By: Madhav S. Aney (School of Economics, Singapore Management University)
    Abstract: Why do agents engage in costly dispute resolution such as litigation and arbitration when costless settlement is available? I present a model with one sided asymmetric information where the payoff from litigation for both agents depends on the beliefs of the uninformed agent. Taking these payoffs as their outside options, agents negotiate over the allocation of an indivisible object that is in dispute and transfers. It is shown that it is impossible to implement an allocation that satisfies budget balance that guarantees the agents their payoff from conflict when agents can quit negotiations unilaterally at any stage.
    Date: 2012–04
  18. By: Brishti Guha (School of Economics, Singapore Management University)
    Abstract: I show how an interaction between the imbalance of the sex ratio and the jump in divorce rates after a liberalization in divorce laws can obtain in a model of marriage market matching with non-transferable utility. If sex ratios are more unbalanced, the size of the jump in divorce rates following a transition from mutual consent to unilateral divorce will be larger. This works through two interacting sources of asymmetry, the first in remarriage odds between the sexes, the second in the impact of divorce law regime on the ease of obtaining a divorce.
    Keywords: Divorce, sex ratios, marriage market, imbalance, matching, non-transferable utility.
    JEL: J12 K36 D82
    Date: 2012–01

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