nep-sea New Economics Papers
on South East Asia
Issue of 2012‒09‒09
seven papers chosen by
Kavita Iyengar
Asian Development Bank

  1. The auto industry in Thailand: value transfer, technological dependence and relations between local and foreign capital By Chiara Pollio
  2. Managing Capital Flows in an Economic Community: The Case of ASEAN Capital account Liberalization By Park, Yung Chul; Takagi, Shinji
  3. A Simple Model and Its Application in the Valuation of Five Asian Real Exchange Rates By Zhibai, Zhang
  4. Does the use of multiple FTAs force firms to raise local input share? : evidence of the spaghetti bowl phenomenon By Hayakawa, Kazunobu
  5. Central Banking for Financial Stability in Asia By Kawai, Masahiro; Morgan, Peter J.
  6. Public Infrastructures, Production Organizations, and Economic Development By Kohei Daido; Ken Tabata
  7. Japan’s Post-Triple-Disaster Growth Strategy By Kawai, Masahiro; Morgan, Peter J.

  1. By: Chiara Pollio (University of Naples “L’Orientale”)
    Abstract: The paper analyzes the features of Thai auto industry from the late 1980s to the present. It uses an approach consistent with the Global Value Chain analyses, and focuses on three aspects: the relation between local and foreign capital; the role of the local supply base in the process of value creation; value capture and transfer dynamics among countries. The country is a relevant case as it is the largest ASEAN market and a main regional and global export hub. Thailand represents the centre of the regional production networks of all Japanese automakers and, from the Asian crisis (1997-1998), of the biggest western too. It has also a fundamental role for automakers regional market access strategies. The paper places Thai auto industry origins and development in the context of the expansion of Japanese industrialcapital in Southeast Asia. Hence, it assumes that Japanese production organization has bothshaped the local automotive manufacturing sector and determined its structural weaknesses.Data from the United Nations Commodity Trade Statistics Database from 1989 to 2010 are processed in the paper, in order to analyze trade relations between Thailand on one hand and ASEAN selected countries and “Triad” countries on the other and, hence, to assess value transfer dynamics. In sum, the paper underlines two main problems for local auto industry: the first is a substantial technological dependence from foreign assets and the existence of captive linkages between foreign assemblers or first tier suppliers and Thai suppliers; the second is a partial transfer towards the Triad - mainly Japan - of the value created in the country, which happens through technological dependence and trade deficit mechanisms.
    Keywords: auto industry, Thailand, global value chain
    Date: 2012–07
  2. By: Park, Yung Chul (Asian Development Bank Institute); Takagi, Shinji (Asian Development Bank Institute)
    Abstract: The paper uses the emerging Association of Southeast Asian Nations (ASEAN) Economic Community as a motivation to explore the issue of capital flow management in an economic community. Although there is an increasingly shared view that capital flow management measures should be part of the routine policy toolkit of emerging market economies, the logic of an economic community appears incompatible with extensive controls on capital flows. Substantial, if not complete, capital account liberalization must therefore take place across ASEAN.
    Keywords: managing capital flows; economic community: asean; capital account liberalization; emerging market economies
    JEL: F33 F36 O53
    Date: 2012–09–03
  3. By: Zhibai, Zhang
    Abstract: In the current paper, a new and simple currency valuation model called the ratio model is proposed based on the Penn effect (a systematic deviation of the purchasing power parity (PPP)). The ratio model, which reduces the uncertainty of the econometric specification that many other valuation models have, is used to valuate the bilateral real exchange rates (RERs) of five Asian industrial countries and areas, namely, Japan, Korea, Taiwan, Hong Kong, and Singapore, against the United States. In the early 1950s to 2009, the misalignments from the ratio model of four new industrial countries and areas converged, but those from the PPP model did not, implying the competitiveness of the ratio model against the PPP model both in currency valuation and as a RER anchor. In 2010–2011, based on the two models, the yen was overvalued by approximately 30%, whereas the Singapore dollar was undervalued by approximately 20%. However, the conclusions on the other three RERs were not consistent.
    Keywords: Equilibrium exchange rate; Absolute purchasing power parity; Balassa-Samuelson effect; Penn effect
    JEL: F41 F31
    Date: 2012–08–28
  4. By: Hayakawa, Kazunobu
    Abstract: This paper empirically investigates the firm-level relationship between the local input share and the number of used FTAs by employing the data on FTA utilization in Japanese affiliates in ASEAN. As a result, we do not find a robust linear relationship. However, affiliates using a large number of FTAs (seven or eight) have an extremely higher share of local inputs. This result might be interpreted as the first evidence of the “spaghetti bowl phenomenonâ€.
    Keywords: Southeast Asia, International trade, FTA, International economic integration, Spaghetti bowl phenomenon
    JEL: F15 F53 O53
    Date: 2012–08
  5. By: Kawai, Masahiro (Asian Development Bank Institute); Morgan, Peter J. (Asian Development Bank Institute)
    Abstract: A key lesson of the 2007–2009 global financial crisis was the importance of containing systemic financial risk and the need for a “macroprudential” approach to surveillance and regulation that can identify system-wide risks and take appropriate actions to maintain financial stability. By virtue of their overview of the economy and the financial system and their responsibility for payments and settlement systems, there is a broad consensus that central banks should play a key role in monitoring and regulating financial stability. Emerging economies face additional challenges because of their underdeveloped financial systems and vulnerability to volatile international capital flows, especially “sudden stops” or reversals of capital inflows. This paper reviews the recent literature on this topic and identifies relevant lessons for central banks, especially those in Asia’s emerging economies.
    Keywords: central banking; central banks; financial stability; asia; surveillance and regulation; global financial crisis
    JEL: E52 F31 G28
    Date: 2012–08–31
  6. By: Kohei Daido (School of Economics, Kwansei Gakuin University); Ken Tabata (School of Economics, Kwansei Gakuin University)
    Abstract: We develop a political economy model of growth to examine economic development led by the interactions between an economic decision concerning a firm’s production technology (CRS vs IRS technology) and a political decision concerning public infrastructures. We show that multiple equilibrium growth paths occur due to differences in expectations regarding the quality of public infrastructures. These multiple paths illustrate why economies with poor initial conditions can catch up to and, furthermore, overtake economies with better initial conditions. Our result could explain the experiences of some East Asian countries where co-evolutions of public infrastructures and industrial transformations spurred economic development.
    Keywords: Public Infrastructure, Political Economy, Production Organization, Overlapping Generations Model
    JEL: H5 O1 O4
    Date: 2012–08
  7. By: Kawai, Masahiro (Asian Development Bank Institute); Morgan, Peter J. (Asian Development Bank Institute)
    Abstract: The repercussions of the Great East Japan Earthquake on 11 March 2011 spread far beyond the geographical areas directly affected. The disaster also highlighted Japan’s many other structural challenges besides reconstruction needs, including persistently low growth, population aging and low fertility, burgeoning government debt, declining international competitiveness, and uncertain energy supplies. Moreover, the global financial crisis and the ongoing euro area financial crisis suggest that Japan needs to create its own growth momentum without relying excessively on markets in the United States (US) and Europe. This paper discusses the scope of these challenges and sets out a long-term strategy for overcoming them and putting the Japanese economy on a stable growth path.
    Keywords: japanese economy; japan growth strategy; earthquake; triple disaster; global financial crisis
    JEL: F15 F55 F59
    Date: 2012–08–22

This nep-sea issue is ©2012 by Kavita Iyengar. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.