nep-sea New Economics Papers
on South East Asia
Issue of 2013‒02‒08
fourteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. What promotes greater use of the corporate bond market? A study of the issuance behaviour of firms in Asia By Paul Mizen; Serafeim Tsoukas
  2. Why do firms issue abroad? Lessons from onshore and offshore corporate bond finance in Asian emerging markets By Paul Mizen; Frank Packer; Eli Remolona; Serafeim Tsoukas
  3. "Putting All Eggs in One Basket" Thailand's Under-Investment Abroad: Impact and Explanations By Dr. Pornpen Sodsrichai; Dr. Sakkapop Panyanukul; Nantaporn Pongpatthananon
  4. AEC 2015: Ambitions, Expectations and Challenges ASEAN's Path towards Greater Economic and Financial Integration By Pariwat Kanithasen; Dr. Vacharakoon Jivakanont; Charnon Boonnuch
  5. Dealing with Structural Change: A Diagnosis of the Thai Economy By Dr. Kiatipong Ariyapruchya; Sukonpat Chantapant; Tosapol Apaitan
  7. China's Growth in Transition: Implications for the Thai Economy By Dr. Nasha Ananchotikul; Dr. Pornpinun Chantapacdepong; Chotima Sitthichaiviset
  8. Monetary Policy conduct in Review: The Appropriate Choice of Instruments By Runchana Pongsaparn; Panda Ketruangroch; Dhanaporn Hirunwong
  9. Financial Systemic Stability: Challenging Aspects of Central Banks By Wanvimol Sawangngoenyuang; Sukrita Sa-nguanpan; Worawut Sabborriboon
  10. How to create a financial crisis by trying to avoid one: the Brazilian 1999-financial collapse as "Macho-Monetarism" can't handle "Bubble Thy Neighbour" levels of inflows By Palma, J.G.
  11. Do Aid Donors Coordinate Within Recipient Countries? By Öhler, Hannes
  12. The World innovation landscape: Asia rising? By Reinhilde Veugelers
  13. Economic Rationales for Central Banking: Historical Evolution, Policy Space, Institutional Integrity, and Paradigm Challenges By Poomjai Nacaskul; Kritchaya Janjaroen; Suparit Suwanik
  14. Central Bank Balance Sheet and Policy Implications By Pornpinun Chantapacdepong; Nuttathum Chutasripanich; Bovonvich Jindarak

  1. By: Paul Mizen; Serafeim Tsoukas
    Abstract: This paper investigates bond market development in Asia by exploring the determinants of firms’ decisions to issue public debt in a range of Asian economies. Using a novel database covering the period 1995 to 2007, we use comparable micro level panel of nine countries - China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand - to explore factors that promote bond issuance by firms. We control for firm characteristics and market features such as bond market depth and liquidity; we also consider supra-national policy initiatives to improve bond market function. Our paper demonstrates that regional initiatives have been an important step towards greater bond issuance by firms in Asia, mostly by fostering market deepening and improving liquidity.
    Keywords: bond financing, bond market policy initiatives, emerging Asia
    JEL: C23 E44 F32 F34 G32 O16
    Date: 2012–12
  2. By: Paul Mizen; Frank Packer; Eli Remolona; Serafeim Tsoukas
    Abstract: Corporate bond issuers in emerging economies in Asia have often had a choice between an onshore market and an offshore one. Since 1998, however, many of these issuers have increasingly turned to the onshore market. This paper investigates systematically what factors have influenced this choice between markets for issuers in eight emerging economies – China, Hong Kong SAR, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand. For variables measuring market depth and liquidity, the availability of hedging instruments, and the size of the investor base, we rely on BIS statistics that have not been used in this literature before. We combine these market-level data with firm-level data in an unbalanced panel for the eight countries covering the period 1995 to 2007. We control for variables representing agency, static trade-off and risk management theories of the capital structure. Our results show that the choice between domestic and foreign markets has changed over time in large part because of the increased depth of the onshore market. The firms that benefit from such market development tend to be the unseasoned issuers rather than the seasoned ones.
    Keywords: bond financing, offshore markets, derivatives, capital structure, emerging markets, market depth, Asian bond markets
    JEL: C23 E44 F32 F34 G32 O16
    Date: 2012–12
  3. By: Dr. Pornpen Sodsrichai (Bank of Thailand); Dr. Sakkapop Panyanukul (Bank of Thailand); Nantaporn Pongpatthananon (Bank of Thailand)
    Abstract: This paper presents the degree of under-investment in foreign assets, known as a home–bias phenomenon, in 30 developed and developing countries across the world including Thailand. We find that Thailand’s home-bias is high compared to other countries’ home-bias and it decreases at a slower pace over time. The study also shows that a country with higher levels of home-bias experiences lower international risk sharing and has more volatile consumption patterns during the sample period of 1970 to 2010. To strengthen Thailand’s resiliency to unexpected economic shocks and maintain country’s economic welfare through better consumption smoothing, the policy challenges identified in this paper include capital outflow measures, tax policy, coherent institutional supports and guidelines to improve investors’ internationalized skills.
    Keywords: Thailand's Under-Investment Abroad
    Date: 2012–10–21
  4. By: Pariwat Kanithasen (Bank of Thailand); Dr. Vacharakoon Jivakanont (Bank of Thailand); Charnon Boonnuch (Bank of Thailand)
    Abstract: The formation of the AEAN Economic Community (AEC) in 2015 is an important milestone in the process of ASEAN integration. The challenge for members is to tap on the gains of integration while staying prepared for changes. As financial integration is part of this process, it is important to reap benefits by creating a mutually reinforcing “virtuous circle” of financial integration: having more willingness in financial liberalization would—through increased competition and technology transfer—support the development of the financial sector, which, in turn, will support further liberalization. We aim to quantify the extent of liberalization under the AEC Blueprint and the current state of implementation, and come to the conclusion that it does not aim towards full liberalization in all areas, with implementation currently lagging behind in some areas. Importantly, Thailand’s present willingness to liberalize the financial sector trails other ASEAN peers. However, relevant indicators of financial development and institutional environment reveal that Thailand’s readiness is relatively on par with its peers. We therefore come to the policy recommendation that Thailand has room to accelerate its liberalization process under the Blueprint, particularly in the area of financial liberalization. Key to this is the adoption of an “integration mindset” by incorporating regional integration issues into domestic laws, regulations and master plans, which will ultimately give thrust to the aforementioned “virtuous circle”.
    Keywords: AEC 2015: Ambitions, Expectations and Challenges ASEAN
    JEL: F15 F53 F36
    Date: 2012–10–21
  5. By: Dr. Kiatipong Ariyapruchya (Bank of Thailand); Sukonpat Chantapant (Bank of Thailand); Tosapol Apaitan (Bank of Thailand)
    Abstract: The entry of China into the global economy and regional economic integration is ushering in a new global production structure. Thailand will have to find her place in this new global order by embracing internal structural change. The paper finds that Thailand will have to confront sizeable structural change due to global developments. And depending on how global and domestic developments play out, there are wide-ranging possibilities on how Thailand may transform structurally. Nevertheless, no matter what possibility materializes, the Thai economy’s smooth transformation rests on its adaptability and resiliency. We focus on adaptability in terms of physical mobility and resiliency in terms of firm resiliency to shocks. Thailand’s physical capital mobility is adequate by international standards, but rigidities exist in sectors that lack competition or financial access. At the firm level, the overall picture is that of resiliency to shocks, but there are firms in non-competitive sectors that appear particularly vulnerable. On overall, the Thai economy is adaptable and resilient but will be challenged by imminent and substantial structural change; the Thai economy must build adaptability and resiliency from within. For example, policymakers can facilitate resource allocation by fostering competition and sustaining financial sector liberalization. Firms should enhance productivity, seek out opportunities in new markets, prepare for regional competition and manage financial risk more carefully.
    Keywords: Dealing with Structural Change
    Date: 2012–10–21
  6. By: Monica Martinez-Bravo (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: New democracies experience greater electoral fraud and more clientelistic spending than established democracies. This paper shows that the body of appointed local officials that a new democracy inherits from the previous regime is a key determinant of the extent of these practices. With a unique dataset from the first post-Soeharto election in Indonesia, I show that the alignment of electoral results between village and district levels is considerably stronger for villages with appointed village heads than for those with elected village heads. I present a model that provides an intuitive interpretation of these results: Appointed officials have stronger incentives to influence voters because of their political career concerns.
    Keywords: Institutions, local elections, clientelism, new democracies.
    JEL: D72 P16 O12 O17
    Date: 2013–01
  7. By: Dr. Nasha Ananchotikul (Bank of Thailand); Dr. Pornpinun Chantapacdepong (Bank of Thailand); Chotima Sitthichaiviset (Bank of Thailand)
    Abstract: China has rapidly emerged as a global economic superpower and is expected to remain the main growth driver in the next phase of the global economy. Questions often raised are: How long can China’s extraordinary growth be sustained? What direction the Chinese economy is heading towards and what does it imply about opportunities and risks for other countries, including Thailand from our point of interest? From a review of China’s growth pattern and an in-depth analysis of sources of growth, we put forward that, in the short to medium term, China’s potential output growth will remain strong driven mainly by continued capital deepening. In the longer term, however, factor market distortions, misallocation of resources, and the demographic shift in China will increasingly become the key bottlenecks to China’s sustainable growth. Realizing these growth limitations, the Chinese leaders have recently shifted the growth paradigm by resorting to technology leapfrogging in lifting productivity and moving up the value chain. This will significantly change the future pattern of production and exports in China. The Thai economy has greatly benefited from the rising of the Chinese economy through various trade channels. But in order for Thailand to continue to reap these benefits, a sole reliance on the same export pattern will not be enough. Thailand should learn from China’s success in productivity and industrial upgrading and technological advancement, as serious efforts in this direction are much needed for Thailand to escape the middle income trap.
    Keywords: consumption,China's Growth in Transition
    JEL: O14 O16 O25 O38 O43
    Date: 2012–10–21
  8. By: Runchana Pongsaparn (Bank of Thailand); Panda Ketruangroch (Bank of Thailand); Dhanaporn Hirunwong (Bank of Thailand)
    Abstract: TIn achieving price stability, a common mandate of monetary policy, central banks can choose different ways to conduct monetary policy. The difference in the conduct of monetary policy lies in the instrument they use not in the monetary policy regime per se. The paper finds that the higher the level of financial development, the higher degree of monopoly power (uniqueness) in exports and the stronger the institution, the more likely a country will use interest rate as the main monetary policy instrument. Furthermore, based on three criteria: (1) controllability of policy instrument and monetary conditions (2) the degree of counter-cyclicality and (3) the effectiveness of instrument in influencing inflation and output, interest rate appears to be an appropriate monetary policy instrument for Thailand. So far, performance of the current monetary policy framework in Thailand has been fine, with transparency through communication with the general public being one of the key factors contributing to the performance and policy effectiveness.
    Keywords: Economic Rationales for Central Banking
    Date: 2012–10–21
  9. By: Wanvimol Sawangngoenyuang (Bank of Thailand); Sukrita Sa-nguanpan (Bank of Thailand); Worawut Sabborriboon (Bank of Thailand)
    Abstract: Since 2007 global financial crisis, many central banks have tended to focus on financial stability much more than ever. Lessons learned from recent crises witness that in a period of sustained economic growth with low and stable inflation, financial imbalances could adversely affect financial system and real economy, which eventually leads to financial crises. In addition, the cost of crises becomes increasingly expensive over time because crises themselves have been more systemic. Risk from one financial institution can easily transfer to others and then to the whole financial market. Thus, current crises highlight the importance of financial stability role of central banks in two main aspects, crisis prevention and crisis management. The paper indicates that in recent financial crises, many central banks have stepped beyond their traditional roles in order to ensure financial system stability. Some instruments and measures that central banks have implemented can be considered as unconventional ones. Looking forward, these practices then lead to new challenges for central banks in three main aspects: risk identification, risk mitigation, and policy issuance process. Eventually, this paper also provides policy implications to Bank of Thailand, based on international experiences and lessons learned from recent crises.
    Keywords: Financial Systemic Stability
    Date: 2012–10–21
  10. By: Palma, J.G.
    Abstract: Brazil, as the rest of Latin America, has experienced three cycles of capital inflows since the collapse of the Bretton Woods system. The first two ended in financial crises, and at the time of writing the third one is still unfolding, although already showing considerable signs of distress. The first started with the aftermath of the oil-price increase that followed the 1973 ‘Yom Kippur’ war; consisted mostly of bank lending; and finished with Mexico’s 1982 default (and the 1980s ‘debt-crisis’). The second took place between the 1989 ‘Brady bonds’ agreement (which also marked the beginning of neo-liberal reforms in most of Latin America) and the Argentinian 2001 crisis. This second cycle saw a sharp increase in portfolio flows and a rise of FDI, and ended up with four major crises (as well as the 1997 one in East Asia) as newly-liberalised middle-income countries struggled to deal with the problems created by the absorption of those sudden surges of inflows — Mexico (1994), Brazil (1999), and two in Argentina (1995 and 2001). Finally, the third inflow-cycle began in 2003 as soon as international financial markets felt reassured by the surprisingly neoliberal orientation of President Lula’s government; this cycle intensified in 2004 with a (mostly speculative) commodity price-boom, and actually strengthened after a brief interlude following the 2008 global financial crash. The main aim of this paper is to analyse the Brazilian 1999-financial crises during the second inflow-cycle from the perspective of Keynesian/ Minskyian/ Kindlebergian financial economics. I will attempt to show that no matter how diversely the above mentioned countries tried to deal with the inflow absorption problem — and they did follow different routes, none more unique than Brazil — they invariably ended up in a major financial crisis. As a result (and despite the insistence of mainstream analysis and different ‘generation’ models of financial crises), these crises took place mostly due to factors that were ‘intrinsic’ (‘endogenous’ or ‘inherent’) to middle-income countries that opened up their capital account indiscriminately to over-liquid and excessively ‘friendly-regulated’ international financial markets. As such, these crises were both fully deserved and fairly predictable. Therefore, I shall argue that the general mechanisms that led to Brazil’s 1999-financial crisis were in essence endogenous to the workings of an economy facing i) full financial liberalisation; ii) several surges of inflows, especially immediately after the Mexican 1994 and the East Asian 1997 crises — and as a spillover of the respective rescue packages —, following a new ‘bubble thy neighbour’ speculative-strategy by international financial markets, as ever more liquid, volatile, politically-reassured, and progressively unregulated financial markets were anxiously seeking (and allowed to create artificially) new high-yield investment opportunities via a new sequential speculative-strategy; and iii) ineffective domestic financial regulation — especially lack of effective capital controls. I shall also argue that within this general framework, the specificity of the Brazilian crisis was given by having been affected by i) several external shocks; ii) by a naïve ideology directing economic reform; iii) by a exuberant (post-‘second generation’ models)-style monetarism, or ‘macho-monetarism’, that although successful in achieving initially price-stabilisation, and in avoiding that Brazil became ‘another Mexico’ (in terms of keeping Brazil away from an inflow-led Kindlebergianmania), it did so at a growing (and mostly unnecessary) cost; iv) the creation of several major financial fragilities in the banking sector (private and public) and in State finances — leading the Federal Government to sleepwalk into a Minskyian ‘Ponzi-finance’; and v) by this ‘Ponzi’ being turbo-charged by both the Government’s indiscriminate absorption of nonperforming debt, and by it paying a huge amount (mostly in the form of subsidies) in order to get the constitutional reform that would allow the President to run for a second term.
    Keywords: ‘Endogenous’ financial crisis, ‘Second generation’ models, Neo-liberal economic reforms, Ideology, Financial liberalisation, Capital controls, Systemic market failures, Latin America, East Asia, Keynes, Minsky and Kindleberger
    JEL: D7 D81 F21 F32 F4 G15 G28 G38 H12 L51 N2 O16
    Date: 2013–01–29
  11. By: Öhler, Hannes
    Abstract: Aid fragmentation and a lack of donor coordination have been widely recognized as principal problems impairing the effectiveness of aid. In particular, the importance of within-country division of labor has been highlighted in recent years. At the same time, rigorous quantitative analyses of within-country aid coordination are largely missing. Taking the whole donor pool(including NGOs) within an aid recipient country into account, we examine the coordination behavior of donors across regions and sectors. Our results indicate a modest degree of donor coordination within Cambodia, even after the 2005 Paris Declaration. In particular, the coordination efforts among bilateral donors seem rather limited, suggesting that their political and economic interests prevent closer coordination. With respect to the behavior of NGOs, we find them to be mainly active in the same regions and sectors as official donors, creating coordination problems between the two groups of donors. In addition, NGOs appear to cluster in the regional-sectoral space although there seems to be some sort of coordination among them.
    Keywords: donor coordination; bilateral donors; multilateral donors; international NGOs; national NGOs; Cambodia
    Date: 2013–01–24
  12. By: Reinhilde Veugelers
    Abstract: Highlights â?¢ Research and development spending has risen rapidly in Asia, particularly in China, which is now the worldâ??s second R&D spender behind the United States.The increase in Korean and Chinese patent applications has been even more rapid, but Chinese patenting for exploitation on the main markets for innovation(the European Union, Japan and the US) is still marginal. â?¢ Asia's increased innovation spending is most prominently related to information and communication technologies. Overall, the Chinese and Korean economies are still not specialised in knowledge-intensive goods and services.Furthermore, China in particular is not (so far) capturing much value from its role as a manufacturer and exporter of high-tech goods; China remains mostly an assembler of goods, the value of which is created elsewhere. â?¢ It would be wrong to ignore China's innovation potential on the basis of its current performance. Its clear innovation ambitions are likely to drive its future growth. â?¢ Europe is struggling much more than the US to retain its place at the global innovation table. The EU should use Asiaâ??s capacity building in innovation as an opportunity for value capture. Reinhilde Veugelers ( is a Senior Fellow at Bruegel. Research assistance from Francesca Barbiero is gratefully acknowledged.
    Date: 2013–02
  13. By: Poomjai Nacaskul (Bank of Thailand); Kritchaya Janjaroen (Bank of Thailand); Suparit Suwanik (Bank of Thailand)
    Abstract: The late-2000s global financial crisis saw increased public profiles and balance sheets of both the US and European central banks, their combined series of financial rescue measures in effect pushing the envelope of central banking modus operandi. And in general, somewhat anecdotally amongst non-crisis Asia-Pacific/emerging economies, central banks are under increased pressure to pursue growth agenda, or at least being publicly called to task as to whether strict inflation regime is all that necessary. All the while, orthodox economics appear to be bursting at the seams, as the world witnesses extreme financial-capital market events increasingly becoming the ‘new normal’, globalised banking system portending knife-edged stability dynamics consistent with high degree of epidemic, network-like systemic interconnectivities, and global catastrophe phenomena reflecting energy/ecological/environmental imbalances more and more frequently materialising as economic disequilibria. Taken together, it is only becoming more difficult to reconcile historical evolution of central banks (the institutions) and central banking (the mandate) with ever mounting stabilisation policy demands and global ‘mega-trend’ challenges over the next decades. This essay details our positive and normative analysis and posits our conceptual arguments concerning the very essence of central banks (the institutions) and central banking (the discipline). We begin with Historical Evolution, from the genesis of early ‘proto’ central banks to the emergence of modern consensus on central banking. Stylised facts and conceptual schemas drawn from that exercise then enables us to formulate the notion of Policy Space as a generalization of central bank role and responsibility. We then employ economic rationales to argue for and advocate key elements and principles in terms of Institutional Integrity as an imperative foundation for the pursuit of policy goals. The emerging evolutionary perspective also compels us to postulate a number of Paradigm Challenges facing current and future generations of central bankers.
    Keywords: Economic Rationales for Central Banking
    JEL: B52 E02 E52 E58 E61 N4
    Date: 2012–10–21
  14. By: Pornpinun Chantapacdepong (Bank of Thailand); Nuttathum Chutasripanich (Bank of Thailand); Bovonvich Jindarak (Bank of Thailand)
    Abstract: Recently, weak central bank financial positions, especially of emerging economies, have brought into the public spotlight whether it will constrain or obstruct the policy implementation in the long run or not. The country case studies and statistical performance showed that the central bank capital erosion does not directly relate to the policy effectiveness, but it creates the vulnerabilities to the monetary policy process. The key factor helping achieve the policy objectives, even with the losses or negative capital is “central bank credibility”. The policy choices to reduce such vulnerabilities are also discussed in this paper.
    Keywords: Central Bank Balance Sheet and Policy Implications
    JEL: E58 E52 E47
    Date: 2012–10–21

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