nep-sea New Economics Papers
on South East Asia
Issue of 2013‒02‒03
seventeen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Financing Japan's World War II Occupation of Southeast Asia By Gregg Huff
  2. Navigating a Changing World Economy: ASEAN, the People’s Republic of China, and India By Petri, Peter A.; Zhai, Fan
  3. Financial Restructuring after the 1997 Crisis and Impact of the Lehman Shock: Path Dependence of Financial Systems in Korea and Thailand By Okabe, Yasunobu
  4. Multi-sector partnerships for sustainable business development in Indonesia: the role of higher education By Huub Mudde; Dikky Indrawan; Idqan Fahmi
  5. South East Asian Monetary Integration: New Evidences from Fractional Cointegration of Real Exchange Rates By Gilles de Truchis; Benjamin Keddad
  6. The Battle for Rubber in Benin By James Fenske
  7. From a Centralized to a Decentralized Global Economic Architecture: An Overview By Rana, Pradumna B.
  8. International Financial Reforms: Capital Standards, Resolution Regimes and Supervisory Colleges, and their Effect on Emerging Markets By Alford, Duncan
  9. Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default By Brishti Guha; Prabal Roy Chowdhury
  10. Enhancing the Effectiveness of CMIM and AMRO: Selected Immediate Challenges and Tasks By Siregar, Reza; Chabchitrchaidol, Akkharaphol
  11. Dispute between bank and customer in Bai Bithaman Ajil (BBA). Case in Malaysia By Nurrachmi, Rininta; Mohamed, Hamida; Nazah, Nawalin
  12. Recent Developments in Financial Economics and Econometrics:An Overview By Chia-Lin Chang; David E Allen; Michael McAleer
  13. Feeding five billion Asians : a socioeconomic perspective By Cuesta, Jose
  14. Chinese trade reforms, market access and foreign competition: the patterns of French exporters By Bas, Maria; Bombarda, Pamela
  15. Regional Financial Markets With Common Currency By Weihong HUANG; Zhenxi CHEN
  16. Heterogeneous Agents in Multi-markets: A Coupled Map Lattices Approach By Weihong HUANG; Zhenxi CHEN
  17. Exchange rate pass-through and inflation: a nonlinear time series analysis By Mototsugu Shintani; Akiko Terada-hagiwara; Tomoyoshi Yabu

  1. By: Gregg Huff
    Abstract: This paper analyzes how Japan financed its World War II occupation of Southeast Asia, the transfer of resources to Japan, and the monetary and inflation consequences of Japanese policies. In Malaya, Burma, Indonesia and the Philippines, the issue of military scrip to pay for resources and occupying armies greatly increased money supply. Despite high inflation, hyperinflation hardly occurred because of a sustained transactions demand for money, because of Japan’s strong enforcement of monetary monopoly, and because of declining Japanese military capability to ship resources home. In Thailand and Indochina, occupation costs and bilateral clearing arrangements created near open-ended Japanese purchasing power and allowed the transfer to Japan of as much as a third of Indochina’s annual GDP. Although the Thai and Indochinese governments financed Japanese demands mainly by printing large quantities of money, inflation rose only in line with monetary expansion due to money’s continued use as a store of value in rice-surplus areas. 
    Keywords: War, Financial and macroeconomic crises, Resource transfer, Occupation costs, Bilateral clearing arrangements, Seigniorage, Hyperinflation, Greater East Asia Co-Prosperity
    Date: 2012–10–09
  2. By: Petri, Peter A. (Asian Development Bank Institute); Zhai, Fan (Asian Development Bank Institute)
    Abstract: Most projections envision continued rapid growth in the members of the Association of Southeast Asian Nations (ASEAN), the People’s Republic of China (PRC), and India (collectively, ACI) over the next two decades. By 2030, they could quadruple their output, virtually eliminate extreme poverty, and dramatically transform the lives of their more than 3 billion citizens. The impact will be felt across the world. This study—a background paper to an Asian Development Bank report—used a Computable General Equilibrium model to examine the likely effects of the region's growth on trade, resources and the environment, as well as the implications of the many risks the region's growth path faces from its internal and external environment.
    Keywords: asean; prc; india; world economy; aci; great transformation; growth engines
    JEL: F02 F13 F33 F53
    Date: 2013–01–23
  3. By: Okabe, Yasunobu
    Abstract: After the 1997 Asian financial crisis, South Korea (Korea) and Thailand implemented financial restructuring in a similarly successful manner and regained the healthiness of their banking sectors. However, when the Lehman shock hit their financial markets in 2008, its impact on the two countries was quite different. Korea, which had performed better in the financial restructuring than Thailand, was driven to the brink of a second financial crisis in 2008 while Thailand weathered the shock easily. This paper addresses this paradoxical contrast from the path dependence perspective, focusing on different historical paths of formation and change of the respective financial systems. It concludes that the successful state-led financial restructuring in Korea fostered banksf propensity of active lending while the private sector-led reform in Thailand only reinforced banksf conservative lending behavior. Furthermore, betraying the critical juncture theory, the severe economic crises helped reinforce the institutional legacies in the two countries, resulting in aggressive foreign borrowing by Korean banks and timid borrowing by Thai banks. These differences explain their contrasting vulnerability to the Lehman shock.
    Keywords: financial crisis , path dependence , institutional legacy , financial system , Korea , Thailand
    Date: 2013–01–09
  4. By: Huub Mudde (Senior Project Consultant and Lecturer of Maastricht School of Management); Dikky Indrawan (Lecturer of Department Management Faculty of Economics and Management of Bogor Agricultural University/Institut Pertanian Bogor (IPB)); Idqan Fahmi (Secretary of the Academic Director of the Management Business School Graduate Program of IPB.)
    Abstract: Over a period of three years, Bogor Agricultural University/Institut Pertanian Bogor (IPB) and Maastricht School of Management (MsM) have been executing the multi-annual project Round Table Indonesia, This project aimed at contributing to the improvement of a sustainable business and investment climate in the Indonesian agricultural sector by strengthening the knowledge capacity, formulating concrete investment opportunities, and facilitating partnerships. As a result, IPB and MsM have developed courses on sustainable business development and facilitated business projects in poultry, mangosteen, palm oil, shrimps, and tourism. All projects are based on value chain analyses and roundtable meetings with key stakeholders of government, private sector, academia, and civil society. The article outlines lessons learned in the area of partnership management and the role of academic institutes. It is argued that linking education and applied research with business development will lead to a stronger and more sustainable Indonesian agricultural sector, being of crucial importance for the Indonesian development as a whole. And in which process higher education plays a crucial role.
    Date: 2012–11
  5. By: Gilles de Truchis; Benjamin Keddad
    Abstract: We study the long-run relationship of real exchanges rates (RERs) among the ASEAN-5 countries by testing the theory of Generalized Purchasing Power Parity (G-PPP) from the new perspective of fractional cointegration. The long-run co-movements of the RERs are examined by applying a recent estimator of fractional cointegration that consists of a frequency Whittle approximation of the cointegrating system’s likelihood function. The contribution of the fractional cointegration study is justified by identifying several weak fractional cointegration relationships that signal that deviations of RERs from their long-run equilibrium are highly persistent. These findings contrast with all previous studies that restrict their investigation to the traditional I(1)/I(0) cointegration. Our results support further monetary integration among different sub-groups of the ASEAN-5 countries as they share long-run comovements with each others. However, a full-fledged monetary union embracing all ASEAN-5 members is still limited from the perspective of the G-PPP theory.
    Keywords: Monetary Union, Fractional Cointegration, Generalized purchasing power parity, ASEAN
    JEL: F31 F33
    Date: 2012–10–01
  6. By: James Fenske
    Abstract: At the start of the Second World War, British policies restricted rubber planting in Nigeria’s Benin region. After Japan occupied Southeast Asia, Britain encouraged maximum production of rubber in Benin. Late in the war, officials struggled with the planting boom that had occurred. The war was a period of both continuity and change. Producers gained experience and capital. Forestry policies restricting planting survived, and output quality continued to occupy officials after the war. The colonial state was hindered by a lack of knowledge and resources, and by its pursuit of conflicting objectives in giving incentives to both producers and traders. 
    Date: 2012–10–05
  7. By: Rana, Pradumna B. (Asian Development Bank Institute)
    Abstract: This paper argues that calls for a New Bretton Woods system in the aftermath of the global economic crisis—similar to the remarkable 1944 Bretton Woods conference that led to the establishment of various international economic institutions—are unlikely to be answered. The likely scenario is that the centralized architecture from before the global economic crisis will evolve toward a more decentralized and multilayered global architecture where regional institutions are linked together to a “senior” global organization in a complementary manner by rules and regulations. The paper also highlights the new regional institutions that Asia needs to establish to contribute to this evolving global economic architecture.
    Keywords: bretton woods; global economic crisis; international economic institutions; asia; regional institutions
    JEL: F02 F13 F33 F53
    Date: 2013–01–15
  8. By: Alford, Duncan (Asian Development Bank Institute)
    Abstract: This paper focuses on the relevance to emerging economies of three major financial reforms following the global financial crisis of 2007–2009: (1) the improved capital requirements intended to reduce the risk of bank failure (“Basel III”), (2) the improved recovery and resolution regimes for global banks, and (3) the development of supervisory colleges of cross-border financial institutions to improve supervisory cooperation and convergence. The paper also addresses the implications of these regulatory reforms for Asian emerging markets.
    Keywords: international financial reforms; capital standards; resolution regimes; supervisory colleges; emerging markets
    JEL: G20 G28 O16
    Date: 2013–01–17
  9. 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 socially motivated MFIs, so that the objective functions of the MFIs put some weight on their own clients' utility. We nd that the equilibrium involves double-dipping, i.e. borrowers taking multiple loans from different MFIs, whenever the MFIs are relatively profit-oriented. Further, double-dipping necessarily leads to default and inefficiency, and moreover, borrowers who double-dip face relatively higher transactions costs and are actually worse off compared to those who do not. Interestingly, an increase in MFI competition can increase the extent of doubledipping and default. Further, the interest rates may go either way, with the interest rate likely to increase if the MFIs are very socially motivated.
    Keywords: Micro-finance competition, motivated MFIs, double-dipping, default, subsidized credit, interest cap.
    JEL: C72 D40 D82 G21
    Date: 2013–01
  10. By: Siregar, Reza (Asian Development Bank Institute); Chabchitrchaidol, Akkharaphol (Asian Development Bank Institute)
    Abstract: The Chiang Mai Initiative Multilateralisation (CMIM) and the ASEAN+3 Macroeconomic Research Office (AMRO), established in March 2010 and May 2011, respectively, have made substantial headway. But despite the rapid progress, a series of fundamental questions have been raised, particularly about the size of the CMIM facility. Although CMIM funding was doubled to $240 billion, effective since May 2012, the swap amount has frequently been criticized as insufficient. Another fundamental issue that still needs to be agreed upon is the CMIM’s role and how it fits in among existing regional and global financing facilities. AMRO’s surveillance work is seen as vital to the overall success of the CMIM in regional financial cooperation. The primary task of this paper is to suggest possible areas in which the effectiveness of the CMIM and AMRO may be increased, despite constraints and limitations.
    Keywords: cmim; amro; swap; surveillance; bilateral; multilateral; conditionalities
    JEL: E61 F15 F33
    Date: 2013–01–20
  11. By: Nurrachmi, Rininta; Mohamed, Hamida; Nazah, Nawalin
    Abstract: This paper discusses the issue and dispute in Bai Bithaman Ajil (BBA) which ended in court cases. It attempts to define the issues and dispute that rise in the practice of BBA and the practical case of BBA in the context of Malaysia and Shariah perspective in regards to BBA practices. Critical analysis from the existence literature is employed to answer the objective of the paper. It shows that the dispute happened due the customer has less understanding regarding the contract in BBA. The court cases that occurred between the bank and the customer were always won by the bank because the bank has more legality and the judge won the bank in order to maintain the good image of Islamic bank in the eye of public.
    Keywords: BBA; Shariah; Bank ; Customer; Financing
    JEL: P48
    Date: 2013–01–28
  12. By: Chia-Lin Chang (Department of Applied Economics Department of Finance National Chung Hsing University, Taiwan); David E Allen (School of Accounting, Finance and Economics, Edith Cowan University); Michael McAleer (Econometric Institute Erasmus School of Economics Erasmus University Rotterdam and Tinbergen Institute, The Netherlands and Institute of Economic Research Kyoto University, Japan and Department of Quantitative Economics Complutense University of Madrid, Spain)
    Abstract: Research papers in empirical finance and financial econometrics are among the most widely cited, downloaded and viewed articles in the discipline of Finance. The special issue presents several papers by leading scholars in the field on “Recent Developments in Financial Economics and Econometrics”. The breadth of coverage is substantial, and includes original research and comprehensive review papers on theoretical, empirical and numerical topics in Financial Economics and Econometrics by leading researchers in finance, financial economics, financial econometrics and financial statistics. The purpose of this special issue on “Recent Developments in Financial Economics and Econometrics” is to highlight several novel and significant developments in financial economics and financial econometrics, specifically dynamic price integration in the global gold market, a conditional single index model with local covariates for detecting and evaluating active management, whether the Basel Accord has improved risk management during the global financial crisis, the role of banking regulation in an economy under credit risk and liquidity shock, separating information maximum likelihood estimation of the integrated volatility and covariance with micro-market noise, stress testing correlation matrices for risk management, whether bank relationship matters for corporate risk taking, with evidence from listed firms in Taiwan, pricing options on stocks denominated in different currencies, with theory and illustrations, EVT and tail-risk modelling, with evidence from market indices and volatility series, the economics of data using simple model free volatility in a high frequency world, arbitrage-free implied volatility surfaces for options on single stock futures, the non-uniform pricing effect of employee stock options using quantile regression, nonlinear dynamics and recurrence plots for detecting financial crisis, how news sentiment impacts asset volatility, with evidence from long memory and regime-switching approaches, quantitative evaluation of contingent capital and its applications, high quantiles estimation with Quasi-PORT and DPOT, with an application to value-at-risk for financial variables, evaluating inflation targeting based on the distribution of inflation and inflation volatility, the size effects of volatility spillovers for firm performance and exchange rates in tourism, forecasting volatility with the realized range in the presence of noise and non-trading, using CARRX models to study factors affecting the volatilities of Asian equity markets, deciphering the Libor and Euribor spreads during the subprime crisis, information transmission between sovereign debt CDS and other financial factors for Latin America, time-varying mixture GARCH models and asymmetric volatility, and diagnostic checking for non-stationary ARMA models with an application to financial data.
    Keywords: Dynamic price integration, local covariates, risk management, global financial crisis, credit risk, liquidity shock, micro-market noise, corporate risk taking, options, volatility, quantiles, news sentiment, contingent capital, value-at-risk, inflation targeting, size effects, exchange rates, realized range, equity markets, sub-prime crisis, sovereign debt CDS, mixture models, asymmetry, diagnostic checking..
    JEL: G11 G12 G13 G15 G18
    Date: 2013–01
  13. By: Cuesta, Jose
    Abstract: This paper reviews the prospects for long-term food security in Asia, where a significant number of malnourished individuals still live after decades of mixed progress. Evidence shows that poverty reduction on its own will not do the job of eradicating hunger, nor will only increased food production. The region's contribution to high and volatile international food prices is well known, but Asia's potential contributions toward future decreased price uncertainty are much less cited. The changing composition of future food demand in the region will depend on the extent to which poverty reduction effectively leads to middle class expansion, which remains unclear.
    Keywords: Food&Beverage Industry,Regional Economic Development,Rural Poverty Reduction,Nutrition,Population Policies
    Date: 2013–01–01
  14. By: Bas, Maria; Bombarda, Pamela
    Abstract: A unilateral trade reform generates two opposite effects: market access expansion and strengthening of competitive pressures in the liberalized market. Using detailed trade and firm-level data from France, the authors investigate how French firms'product scope and export sales changed after Chinese liberalization vis-a-vis Asian liberalization. The findings suggest that lower Chinese import tariffs account on average for 7 percent of the new products exported by French firms, and for 18 percent of additional French export sales. These results are robust when accounting for foreign competition faced by French firms in the liberalized market.
    Keywords: Free Trade,Markets and Market Access,Microfinance,Trade Policy,Economic Theory&Research
    Date: 2013–01–01
  15. By: Weihong HUANG (Division of Economics, Nanyang Technological University, Singapore 637332, Singapore); Zhenxi CHEN (Division of Economics, Nanyang Technological University, Singapore 637332, Singapore)
    Abstract: With the development of globalization and regional market integration, regional markets with common currency emerge. We develop a heterogeneous agents model based on the frameworks of Day and Huang (1990) as well as Westerhoff and Dieci (2006). Two markets using same currency are populated by chartists and fundamentalists. Market linkage is established by allowing investors to trade in both markets. One of the consequences of market linkage is market pooling, in which investors from each market interact with each other and determine the price movements of the market system. The market that is more stable initially exerts stabilizing force on the market system while itself might su¤er from destabilizing effect. Market system based on the model demonstrates the capability to generate important stylized facts of financial markets, in particular the significant cross-correlation between two markets.
    Keywords: Financial multi-market interactions, Market integration, Market Pooling, Chaos, Heterogeneous beliefs
    JEL: C61 D84 G15
    Date: 2012–10
  16. By: Weihong HUANG (Division of Economics, Nanyang Technological University, Singapore 637332, Singapore); Zhenxi CHEN (Division of Economics, Nanyang Technological University, Singapore 637332, Singapore)
    Abstract: In this paper we examine assets price deviation in a multi-market system with heterogeneous investors in each market. Coupled map lattices (CML) is introduced to the market maker framework. It results in market cluster sharing the same sign of deviation in the chaotic interval. Distribution plots are applied to understand the deviation persistence enhancement from the coupling e¤ect. Besides that, external disturbance is employed to the system to examine the market pattern stability and the propagation of the disturbance. The goal of the paper is to introduce coupling e¤ect as a bridge for multi-market interactions with heterogeneous agents.
    Keywords: Coupled map lattices; heterogeneous agents; multi-market interaction
    JEL: C61 G12 G15
    Date: 2012–11
  17. By: Mototsugu Shintani (Deaprtment of Economics, Vanderbilt University); Akiko Terada-hagiwara (Economics and Research Department, Asian Development Bank); Tomoyoshi Yabu (Faculty of Business and Commerce, Keio University)
    Abstract: This paper investigates the relationship between the exchange rate pass-through (ERPT) and inflation by estimating a nonlinear time series model. Based on a simple theoretical model of ERPT determination, we show that the dynamics of ERPT can be well approximated by a class of smooth transition autoregressive (STAR) models using the past inflation rate as a transition variable. We employ several U-shaped transition functions in the estimation of the time-varying ERPT to US domestic prices. The estimation result suggests that declines in the ERPT during the 1980s and 1990s are associated with lowered inflation.
    Keywords: import prices, inflation indexation, pricing-to-market, smooth transition autoregressive models, sticky prices.
    JEL: N0
    Date: 2012–12–09

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