nep-sea New Economics Papers
on South East Asia
Issue of 2012‒09‒30
fourteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Anatomy of South–South FTAs in Asia: Comparisons with Africa, Latin America, and the Pacific Islands By Hamanaka, Shintaro
  2. Dynamics in the dry bulk market: Economic activity, trade flows, and safety in shipping By Heij, C.; Knapp, S.
  3. Does Corruption Pay in Indonesia? If So, Who are Benefited the Most? By Pradiptyo, Rimawan
  4. Non-Price Competitiveness of Exports from Emerging Countries By Konstantins Benkovskis; Julia Wörz
  5. Palaako tuotanto Aasiasta Suomeen? Case Polkupyörä By Matias Kalm; Timo Seppälä
  6. Asian Financial Crisis and Korean Trade Dynamics By Artatrana Ratha; Eungmin Kang
  7. New Measures of the Trilemma Hypothesis: Implications for Asia By Ito, Hiro; Kawai, Masahiro
  8. Efficiency of World Ports in Container and Bulk Cargo (oil, coal, ores and grain) By Olaf Merk; Thai Thanh Dang
  9. What is behind the decline in poverty since 2000 ? evidence from Bangladesh, Peru and Thailand By Inchauste, Gabriela; Olivieri, Sergio; Saavedra, Jaime; Winkler, Hernan
  10. Risk-Taking Behavior in the Wake of Natural Disasters By Cameron, Lisa A.; Shah, Manisha
  11. Negotiating free trade agreements with Latin America and Asia is an increasingly important priority for the EU. By Garcia, Maria
  12. Industrial Clustering Policy and Economic Restructuring in Vietnam By Pham, Thi Thanh Hong; Nguyen, Binh Giang
  13. Trust and Trustworthiness under the Prospect Theory: A field experiment in Vietnam By Quang Nguyen; Marie-Claire Villeval; Hui Xu
  14. Planning under Correlated and Truncated Price and Demand Uncertainties By Wenkai Li; I. A. Karimi; Rajagopalan Srinivasan

  1. By: Hamanaka, Shintaro (Asian Development Bank)
    Abstract: In understanding the proliferation of free trade agreements (FTAs) in Asia since 2000, it is important to distinguish between two types of FTAs in terms of a legal basis on either General Agreement on Tariffs and Trade (GATT) Article XXIV or the Enabling Clause. The latter provision can be used when an FTA involves only developing countries. While there are a total of 34 Enabling Clause-based FTAs in effect around the globe, more than half of them are located in Asia. Moreover, the way the Enabling Clause is used by developing countries in Asia is very different from other regions. Outside of Asia, the Enabling Clause is usually used to form a plurilateral FTA that has an accession clause, which envisages gradual evolution into a subregion-wide cooperative agreement. In contrast, in Asia, developing counties started to use the Enabling Clause to sign bilateral FTAs in 2000. Such an innovative way of using the Enabling Clause is one of the main contributors to the recent proliferation of FTAs in Asia. This paper also considers the implications of this proliferation in Asia on the openness of Asian regionalism.
    Keywords: Free Trade Agreements (FTAs); Enabling Clause; GATT Article XXIV; open regionalism; bilateralism
    JEL: F13 F15
    Date: 2012–09–01
  2. By: Heij, C.; Knapp, S.
    Abstract: Recent dynamics in iron ore markets are driven by rapid changes in economic activities that affect commodity markets, trade flows, and shipping activities. Time series models for the relation between these variables in Southeast Asia and the Australasian region are supplemented with models for safety and pollution risk. Steel production in China, Japan, and South Korea is related to iron ore exports and vessel activity in Australia, with an estimated time lag of about two months. The Purchasing Manager Index, which is popular among traders as indicator of economic activity, is found to have predictive power both for steel production and for iron ore exports. The growth in economic activity and vessel movements is associated with significantly higher risks for ship accidents and pollution.
    Keywords: time series analysis;Southeast Asia;maritime safety;dry bulk;iron ore;pollution risk;steel production
    Date: 2012–09–13
  3. By: Pradiptyo, Rimawan
    Abstract: This paper aims to assess the discrepancies in sentencing corruptors by judges in Indonesia’s judicial system. The data are based on the Supreme Court’s decisions during the period of 2001-2009 which available in public domain in The data comprise of 549 cases, which involved 831 defendants. The defendants have been classified into five groups depending on their alleged scales of corruptions (i.e. petty, small, medium, large and grand scale of corruptions). The explicit cost of corruption during the period of 2001-2009 was Rp73.1 trillion (about US $7.86 billion). In this paper, total financial punishment was estimated as the summation of the value of fines, seizure of assets (monetary only), and the compensation order sentenced by judges. The total financial punishment sentenced by the supreme judges during the period of 2001-2009 was Rp5.33 trillion (about US$573.12 million), therefore Rp67.77 trillion (US$7.28 billion) gap between the explicit cost of corruption and total financial punishment sentenced shall be borne by the tax payers. Logistic and Tobin’s logistic (TOBIT) regressions have been used to analyse both the likelihood and the intensity of sentencing offenders, respectively, with particular punishments (i.e. imprisonment, fines, compensation order, etc.). The results show that the probability and the intensity of sentencing across various types of punishment do not correspond to the scale of corruptions. Offenders who committed petty and small scales corruption tend to be punished more severely than their medium, large and grand corruptors.
    Keywords: Corruption; Court Decisions; Probability of Sentencing; Intensity of Sentencing; Logistic Regression; Tobin’s Logistic (TOBIT) Regression
    JEL: D02 K42 K14
    Date: 2012–09–17
  4. By: Konstantins Benkovskis; Julia Wörz
    Abstract: We analyse EMEs global competitiveness whereby we explicitly take account of non-price aspects of competitiveness building on the methodology developed in Feenstra (1994) and Broda and Weinstein (2006) and the extension provided in Benkovskis and Wörz (2012). We construct an export price index which adjusts for changes in the set of competitors (variety) and changes in non-price factors (quality in a broad sense) for a set of nine large emerging economies (Argentina, Brazil, Chile, China, India, Indonesia, Mexico, Russia and Turkey). We use a highly disaggregated data set at the detailed 6-digit HS level over the period 1999-2010. In contrast to the conclusions based on the CPI-based real effective exchange rate we find that there are rather pronounced differences between individual markets. As a first and important result, China shows a huge gain in international competitiveness due to non-price factors thus suggesting that the role of Renminbi undervaluation for China’s competitive position may be overstressed. The strong improvements in Russia's non-price competitiveness are exclusively due to developments in the oil sector as are the competitive losses observed for Argentina and Indonesia. Further, Brazil, Chile, India, and Turkey show discernible improvements in their competitive position when accounting for non-price factors while Mexico's competitiveness has deteriorated regardless of the index chosen.
    Keywords: non-price competitiveness, quality, relative export price, emerging countries
    JEL: C43 F12 F14 L15
    Date: 2012–08
  5. By: Matias Kalm; Timo Seppälä
    Abstract: In this paper, we study the value chain of a Finnish designed bicycle and how the value added of the product is spread through the value chain in three distinct cases. In the first case the bicycle is manufactured in Finland by the researched company. In the two other cases the manufacturing of the bicycle is outsourced to the Baltic countries or to Indonesia. In addition, we analyze the geography of value added in each case. We also study how the exchange rate fluctuations affect the distribution of the value added. Our results show that the researched company creates 36% of the total value added, when the bicycle is made in its plant. The manufacturing creates 16% of the total value added. The researched company creates 27–28% of the total value added, when the production is outsourced. The value added share of Finland is 67%, when the bicycle is produced in Finland, and 58–59%, if the production is outsourced. In conclusion, the results show that outsourcing offshore is financially beneficial for the researched company and that the Finnish economy suffers from the production transfer. Furthermore, the results suggest that transferring the production away from Asia is financially and otherwise justifiable – however, the production is transferred to the Baltic countries instead of Finland. Our findings support the view that, while the low value added activities and processes are outsourced, the high value added activities are still positioned to Finland, since the outsourcing partners create only 2% of the total value added.
    JEL: F14 F23 L22 L23 L24
    Date: 2012–09–19
  6. By: Artatrana Ratha; Eungmin Kang (Department of Economics, St. Cloud State University)
    Abstract: Since the Asian financial crisis in 1997, Korean international trade has gone up substantially in both volume and trade balances. The improvement is largely due to an expansion of international markets through various bilateral trade agreements and the structural changes in Korean exchange rates. This paper investigates the exchange rate – trade balance dynamics, popularly known as the J-curve phenomenon. Employing the Bounds-Testing approach to cointegration and error-correction modeling on Korean bilateral trade for the pre- and post- Asian crisis periods, the study finds that support for the strict version of the J-curves has been fading after the crisis. The weaker version of J-curve is generally supported in both pre- and post-crisis sample periods. There exists a long-run relationship among the Korean exchange rates, domestic income, foreign income, and Korean trading balances.
    Keywords: Asian Financial Crisis, Asian Currency Crisis, J-Curve, exchange rate, trade balance, current account adjustment
    JEL: F14 F32 F41
    Date: 2012
  7. By: Ito, Hiro (Asian Development Bank Institute); Kawai, Masahiro (Asian Development Bank Institute)
    Abstract: The authors develop a new set of indexes of exchange rate stability, monetary policy independence, and financial market openness as the metrics for the trilemma hypothesis. In their exploration, they take a different and more nuanced approach than the previous indexes developed by Aizenman, Chinn, and Ito (2008). They show that the new indexes add up to the value two, supporting the trilemma hypothesis. They locate their sample economies’ policy mixes in the famous trilemma triangle—a useful and intuitive way to illustrate the state and evolution of policy mixes. They also examine if the persistent deviation of the sum of the three indexes from the value two indicates an unsustainable policy mix and therefore needs to be corrected by economic disruptions such as economic and financial crises.
    Keywords: trilemma hypothesis; trilemma triangle; exchange rate stability; monetary policy independence; financial market openness; asia
    JEL: F15 F21 F31 F36 F41 O24
    Date: 2012–09–21
  8. By: Olaf Merk; Thai Thanh Dang
    Abstract: Port efficiency is an important indicator of port performance; more efficient ports lower transportation costs and facilitate imports and exports of a country. Despite the importance of the subject, the exisiting port efficiency studies have almost exclusively focused on container ports. This Working Paper aims to fill that gap by calculating efficiency scores of world ports per cargo type (containers, oil, coal, iron ore and grain). These calculcations have been made using a database constructed for this purpose. Several findings can be derived from these calculations. Significant improvements can be made when the technical efficiency of ports is increased. Among the sample, gaps between terminal efficiency mostly reflected gaps in pure technical efficiency. When comparing the level of efficiency achieved by ports across commodities, technical gaps were more marked for container and oil terminals. Promoting policies to raise throughput levels in order to minimise production scale inefficiencies is another important area for improvement. Production scale inefficiencies arise when throughput levels are below or above optimal levels given the current capacity of terminal infrastructure. Such inefficiencies were mostly found in a substantial number of ports handling crude oil and iron ore, suggesting that efficiency is more sensitive and driven by exogenous factors related to traffic flows. The analysis also shows that the size of ports matters for port efficiency. The crude oil, iron-ore and grain ports have higher efficiency scores at larger total port size, suggesting that this size is more efficient because they can drive technological development. Finally, there are regional patterns emerging across commodities. Terminals in China are among the most efficient in handling coal bulk and containers with terminals in Southeast Asia. By contrast, the most efficient grain and iron-ore terminals are located in Latin America, and the most efficient crude-oil transhipment terminals are mostly found in the Gulf region. Further, Australia is also found to perform well in handling coal bulk and grains.
    Keywords: transportation, ports, port efficiency
    JEL: L91 R11 R41
    Date: 2012–09–13
  9. By: Inchauste, Gabriela; Olivieri, Sergio; Saavedra, Jaime; Winkler, Hernan
    Abstract: This paper quantifies the contributions of different factors to poverty reduction observed in Bangladesh, Peru and Thailand over the last decade. In contrast to methods that focus on aggregate summary statistics, the method adopted here generates entire counterfactual distributions to account for the contributions of demographics and income from labor and non-labor sources in explaining poverty reduction. The authors find that the most important contributor was the growth in labor income, mostly in the form of farm income in Bangladesh and Thailand and non-farm income in the case of Peru. This growth in labor incomes was driven by higher returns to individual and household endowments, pointing to increases in productivity and real wages as the driving force behind poverty declines. Lower dependency ratios also helped to reduce poverty, particularly in Bangladesh. Non-labor income contributed as well, albeit to a smaller extent, in the form of international remittances in the case of Bangladesh and through public and private transfers in Peru and Thailand. Transfers are more important in explaining the reduction in extreme compared with moderate poverty.
    Date: 2012–09–01
  10. By: Cameron, Lisa A. (Monash University); Shah, Manisha (University of California, Irvine)
    Abstract: We study whether natural disasters affect risk-taking behavior exploiting geographic variation in exposure to natural disasters. We conduct standard risk games (using real money) with randomly selected individuals in Indonesia and find that individuals who recently suffered a flood or earthquake exhibit more risk aversion than individuals living in otherwise like villages. The impact persists for several years, particularly if the disaster was severe. Some, but not all, of this effect is due to income losses. While we cannot rule out fundamental changes in risk preferences, data on subjective beliefs of the probability of a disaster occurring and the expected severity of such a disaster suggest that changes in perceptions of background risk are driving the more risk-averse behavior we observe. We show that access to insurance can partly offset this effect. Finally, we relate the observed experimental behavior to the propensity of respondents to take risks in their daily lives and show that an increase in risk-aversion has important implications for economic development.
    Keywords: natural disasters, risk aversion, development
    JEL: Q54 O12 D81
    Date: 2012–07
  11. By: Garcia, Maria
    Abstract: The EU has recently completed trade agreements with a number of different countries in Latin America, and is seeking further agreements in Asia. Maria Garcia looks at the EU’s recent history of trade negotiations, arguing that free trade agreements offer an important opportunity to ‘level the playing field’ for EU businesses facing competition from the United States, China, and beyond.
    Date: 2012–07–24
  12. By: Pham, Thi Thanh Hong; Nguyen, Binh Giang
    Abstract: This paper reviews the industrial agglomeration and evaluates the industrial clustering policy in Vietnam. Base on the Kuchiki flowchart on the building of industrial clustering policy for developing countries, the authors suggest a policy framework for Vietnam.
    Keywords: Industrial agglomeration; industrial cluster; industrial upgrading; economic restructure; Vietnam economy
    JEL: R12 R11
    Date: 2012–09–14
  13. By: Quang Nguyen (Nanyang Technological University, 14 Nanyang Drive, Singapore 637332, Singapore); Marie-Claire Villeval (University of Lyon, F-69007, France; GATE, CNRS, 93, Chemin de Mouilles, F-69130, Ecully, France; IZA, Bonn, Germany); Hui Xu (University of Lyon, F-69007, France; GATE, CNRS, 93, Chemin de Mouilles, F-69130, Ecully, France)
    Abstract: We study the influence of risk and time preferences on trust and trustworthiness by conducting a field experiment in Vietnamese villages and by estimating the parameters of the Cumulative Prospect Theory and of quasi-hyperbolic time preferences. We find that while probability sensitivity or risk aversion do not affect trust, loss aversion influences trust indirectly by lowering the expectations of return. Also, more risk averse and less present biased participants are found to be trustworthier. The experience of receiving remittances influences behavior and a longer exposure to a collectivist economy tend to reduce trust and trustworthiness.
    Keywords: Trust, trustworthiness, risk preferences, time preferences, Cumulative Prospect Theory, Vietnam, field experiment
    JEL: C91 C93 D81 D90
    Date: 2012
  14. By: Wenkai Li (International University of Japan); I. A. Karimi (National University of Singapore); Rajagopalan Srinivasan (National University of Singapore)
    Abstract: This paper presents a novel approach to handle refinery planning under correlated and truncated random demand and price uncertainties. To compute the expectation of plant revenue, which is the main difficulty for a planning problem under uncertainty, a bivariate normal distribution is used to describe demand and price. Formulae for revenue calculation under correlated and truncated price and demand are derived. It is found that the correlation and truncation of price and demand have major influences on plant net profit. A plan that ignores these factors can be far from optimal. The Type 2 service level or fill rate undercorrelated and truncated random price and demand is derived and efficiently calculated in this paper. Maximum plant net profit that satisfies certain fill rate target can thus be obtained. The proposed approach can be generally applied for modeling other chemical plants under uncertainty.
    Keywords: refinery, planning, uncertainty, correlation, truncation
    Date: 2012–09

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