nep-sea New Economics Papers
on South East Asia
Issue of 2013‒04‒13
nineteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Indonesia as a Growth Market: Challenges and Opportunities By Voboril, Dennis
  2. Deepening Association of Southeast Asian Nations’ Financial Markets By Lee, Choong Lyol; Takagi, Shinji
  3. Stock Market Linkages in Emerging Asia-Pacific Markets By P., Srinivasan; M., Kalaivani
  4. Understanding Innovation in Production Networks in East Asia By Ganeshan Wignaraja
  5. Geography and the Determinants of Firm Exports in Indonesia By Farole, Thomas; Rodríguez-Pose, Andrés; Tselios, Vassilis; Winkler, Deborah
  6. Political Business Cycles in Local Indonesia By Bambang Suharnoko Sjahrir; Krisztina Kis-Katos; Guenther G. Schulze
  7. Emerging Geopolitical Trends and Security in the Association of Southeast Asian Nations, the People’s Republic of China, and India (ACI) Region By C. Raja Mohan
  8. How Useful Is an Asian Currency Unit (ACU) Index for Surveillance in East Asia? By Pontines, Victor
  9. How Does the Regional Monetary Unit Work as a Surveillance Tool in East Asia? By KAWASAKI Kentaro
  10. The Commodity Export, Growth, and Distribution Connection in Southeast Asia 1500-1940 By Williamson, Jeffrey G
  11. Location factors of export-platform foreign direct investment: Evidence from Vietnam By Huu Thanh Tam Nguyen; Med Kechidi; Alexandre Minda
  12. Repayment Burdens of Student Loans for Vietnamese Higher Education By Bruce Chapman; Amy Y. C. Liu
  13. How are farmers adapting to climate change in Vietnam?: Endogeneity and sample selection in a rice yield model By Yu, Bingxin; Zhu, Tingju; Breisinger, Clemens; Manh Hai, Nguyen
  14. Public Health Insurance in Vietnam towards Universal Coverage: Identifying the challenges, issues, and problems in its design and organizational practices By Midori Matsushima; Hiroyuki Yamada
  15. The Clothing Export Performance and Prospects for Advanced and Emerging Economies: Evidence from a Panel Data Analysis By Donatella Baiardi; Carluccio Bianchi; Eleonora Lorenzini
  16. Demand creation and competition effect of Export-platform FDI on backward linkages - Evidence from panel data analysis of Vietnamese supporting industries By Huu Thanh Tam Nguyen; Nguyen Khac
  17. How does FDI affect corporate tax revenue of the host country? By Huu Thanh Tam Nguyen; Manh Hung Nguyen; Aditya Goenka
  18. Demographic Dividends Revisited By Williamson, Jeffrey G
  19. Emerging economy business cycles: Financial integration and terms of trade shocks. By Bhattacharya, Rudrani; Patnaik, Ila; Pundit, Madhavi

  1. By: Voboril, Dennis
    Keywords: International Development,
    Date: 2013–02
  2. By: Lee, Choong Lyol (Asian Development Bank Institute); Takagi, Shinji (Asian Development Bank Institute)
    Abstract: The paper discusses the financial landscape of the Association of Southeast Asian Nations (ASEAN), a region engaged in building an economic community (a “single market and production base”) by 2015. In particular, it reviews where ASEAN’s financial markets and institutions now stand and suggests possible ways in which they might be developed further to meet the aspirations of the region.
    Keywords: asean; economic community; single market; financial markets; regional cooperation
    JEL: G10 G18 G20 G28 O16 O53
    Date: 2013–04–02
  3. By: P., Srinivasan; M., Kalaivani
    Abstract: This study examines the stock market integration among major stock markets of emerging Asia-Pacific economies, viz. India, Malaysia, Hong Kong, Singapore, South Korea, Taiwan, Japan, China and Indonesia. Johansen and Juselius (1990) multivariate cointegration test, Granger causality/Block exogeneity Wald test based on VECM approach and Variance Decomposition Analysis was employed to investigate the dynamic linkages between markets. Cointegration test confirmed a well defined long-run equilibrium relationship among the major stock markets, implying that there exists a common force, such as arbitrage activity, which brings these stock markets together in the long run. The results of Granger causality/Block exogeneity Wald test based on VECM and Variance Decomposition Analysis revealed the stock market interdependencies and dynamic interactions among the selected emerging Asia-Pacific economies. This result implies that investors can gain feasible benefits from international portfolio diversification in the short-run. On the whole, the study results suggest that although long-term diversification benefits from exposure to these markets might be limited, short-run benefits might exist due to substantial transitory fluctuations.
    Keywords: Stock Market Integration, Cointegration, Vector Error Correction Model, Variance Decomposition Analysis
    JEL: C32 F36 G11 G15
    Date: 2013–04–05
  4. By: Ganeshan Wignaraja (Asian Development Bank Institute (ADBI))
    Abstract: This paper explores the “black box†of innovation in the electronics production network in East Asia through a mapping exercise of technological capabilities and an econometric analysis of exporting in the People’s Republic of China (PRC), Thailand, and the Philippines. Technology-based approaches to trade offer a plausible explanation for firm-level exporting behavior and complement the literature on production networks. The econometric results confirm the importance of foreign ownership and innovation in increasing the probability of exporting in electronics. Higher levels of skills, managers’ education, and capital also matter in the PRC as well as accumulated experience in Thailand. Furthermore, a technology index composed of technical functions performed by firms (to represent technological capabilities) emerges as a more robust indicator of innovation than the research and development (R&D) to sales ratio. Accordingly, technological effort in electronics in these countries mostly focuses on assimilating and using imported technologies rather than formal R&D by specialized engineers.
    Keywords: innovation, Production Networks, East Asia, technology index, Technological Capability, Foreign Ownership, Thailand, PRC, Philippines
    JEL: F23 O31 O32 L63 O57
    Date: 2013–03
  5. By: Farole, Thomas; Rodríguez-Pose, Andrés; Tselios, Vassilis; Winkler, Deborah
    Abstract: This paper uses data from the Indonesian manufacturing census in order to uncover the determinants of firm exports over the period 1990-2005. We examine to what extent differences in firm export propensity and intensity are a consequence of firm-level (microeconomic), of place-based (macroeconomic) first- and second-nature geography characteristics, or of a combination of the two. The results indicate that both internal and external factors matter. Second-nature, rather than first-nature, geography makes an important difference. The conditions of a firm’s province and those of neighboring provinces shape firm exports. Agglomeration effects, education and transport infrastructure endowment play a particularly relevant role in Indonesian firms’ export propensity, while export spillovers increase export intensity.
    Keywords: Asia; Export intensity; Export propensity; Geography; Indonesia; Macro-factors; Micro-factors
    JEL: F1 F2 R1
    Date: 2013–02
  6. By: Bambang Suharnoko Sjahrir; Krisztina Kis-Katos; Guenther G. Schulze (Department of International Economic Policy, University of Freiburg)
    Abstract: We study political business cycles (PBC) in newly democratized and decentralized Indonesia at the local level. As the timing of indirect and later on direct elections of district heads differs exogenously across jurisdictions, the political business cycle effect is clearly identified. Our data allow distinguishing PBCs for indirect and direct elections. We find significant budget cycles for discretionary budget categories at the disposal of the district head (not for the overall budget) only for direct elections, not for indirect elections. These cycles are much larger if the incumbent runs for reelection. Our results underline the conditional nature of PBC.
    Keywords: Political business cycles, Indonesia, local elections, direct and indirect elections
    Date: 2013–04
  7. By: C. Raja Mohan (Asian Development Bank Institute (ADBI))
    Abstract: The rapid economic growth in the region consisting of the Association of Southeast Asian Nations (ASEAN), the People’s Republic of China (PRC), and India has begun to change the strategic landscape of the world. The accretion of military power that inevitably followed the region’s economic growth is altering the balance of power within the region and between Asia and the West. This background paper outlines the geopolitical trends in a region that has become the center stage of international politics in the 21st century. It begins with a review of the idea of Asia in the 20th century and identifies the inherited political legacy of Asia in the middle of the 20th century. The paper then provides an assessment of the region’s unfolding geopolitical transformation in recent years and asks if the regional structures in Asia can cope with it. The paper also explores the problems of integrating the two rising Asian powers, the PRC and India, into the structures of global governance. It concludes with a brief discussion on the strategic policy imperatives facing the ACI region.
    Keywords: ASEAN, China, India, geopolitical trends, international politics, geopolitical transformation
    JEL: F59
    Date: 2013–03
  8. By: Pontines, Victor (Asian Development Bank Institute)
    Abstract: An Asian Currency Unit (ACU) index is constructed using an alternative procedure which minimizes a basket or portfolio of assets expressed in terms of national currencies. Using this estimated ACU Index and an ACU Deviation Indicator, the main finding of this study based on the current trajectory of East Asian currencies relative to this regional ACU average or benchmark, is that there is a formation of two contrasting groups of countries in the region—one a group of strong currencies and the other a group of weak currencies. We suggest several ways in which the region can capitalize on using this ACU index in the immediate term for surveillance purposes, particularly, for purposes of assessing “over- and undervaluation” of the individual currencies from the regional ACU average and for flagging emerging vulnerabilities in individual economies in the region.
    Keywords: asian currency unit; acu index; amro; acu deviation indicator; beggar-thy-neighbor
    JEL: F15 F31 F41
    Date: 2013–03–29
  9. By: KAWASAKI Kentaro
    Abstract: To utilize the Chiang Mai Initiative Multilateralization (CMIM) for crisis management, macroeconomic surveillance of the member economies should be ex-ante conditionality. Hence, the Association of Southeast Asian Nations (ASEAN) plus Three Macroeconomic Research Office (AMRO) was established to detect possibilities of economic crises and to prompt the restructuring or reforming of a rigid structure or system. Although monitoring the exchange rates of the currencies of these countries vis-à-vis the U.S. dollar is essential for surveillance, the AMRO should have an original tool to consider region-specific factors and more efficient tools than the International Monetary Fund (IMF) surveillance.<br />Therefore, this paper proposes utilizing a regional monetary unit (RMU) in monitoring exchange rates. Empirical analysis has confirmed that deviation indicators of RMUs such as the Asian Monetary Unit Deviation Indicators (AMU DI) are expected to be useful for macroeconomic surveillance. This paper also tries to define the country's equilibrium exchange rate vis-à-vis a RMU to provide useful statistical information about exchange rate misalignments among East Asian currencies by employing the permanent-transitory decomposition proposed by Gonzalo and Granger (1995).
    Date: 2013–04
  10. By: Williamson, Jeffrey G
    Abstract: This paper explores Southeast Asia's trade performance over the four and a half centuries from 1500 to 1940. It identifies the determinants of the commodity export performance – falling trade costs, income growth of its trading partners, and improved supply conditions at home. It also explores its impact on Southeast Asia's growth performance: trade specialization generated more macro volatility, de-industrialization, rising colonial power, and greater inequality up to World War 1, but these forces turned around in the region thereafter, including some modest industrial Catch-up. Finally, the paper elaborates on the distributional impact and colonial profitability of commodity export booms and busts throughout the last century.
    Keywords: commodities; development; distribution; southeast Asia; trade
    JEL: F14 N15 O53
    Date: 2013–02
  11. By: Huu Thanh Tam Nguyen (EPEE, Université d’Evry Val d’Essonne); Med Kechidi (LEREPS, Université Toulouse 1 Capitole); Alexandre Minda (LEREPS, Université Toulouse 1 Capitole)
    Abstract: The purpose of this paper is to examine the export-platform foreign direct investment as a strategic behavior of multinational firms. First, we use a three-country model to identify the main location factors of this investment. These factors are relative labor cost between the host country and the home country and/or the third country, technological transfer cost of host country, intra-regional transport cost and the market size of third country. Particularly, this kind of investment is preferred rather than other entry modes, if and only if, the third market size is high enough. Second, the model is tested for export oriented industries in Vietnam. The integration of the Vietnamese economy into regional or international markets has a positive impact on the choice of export-platform foreign direct investment strategy. In particular, in this country, the first motivation is to access to large markets (ASEAN, U.S., European Union). Other motivations concern low cost of technological transfer and real exchange rate.
    Keywords: Export-platform foreign direct investment, location factors, three-country model, multinational firm, Vietnam
    JEL: F15 F16 F23
    Date: 2013–03
  12. By: Bruce Chapman; Amy Y. C. Liu
    Abstract: The time is approaching when Vietnamese higher education students will be required to contribute more to the direct costs of the process. As well, continued expansion of the system will become increasingly difficult without the institution of an effective student loans policy designed to assist with both tuition and living costs. Of major policy interest in this future scenario, and the topic of this paper, are the potential financial difficulties that borrowers are likely to face with 'repayment burdens' (RB), the proportion of incomes needed to repay their loans. We show how significant this issue is likely to be by constructing a hypothetical student loans system and calculating RBs for male and female graduates residing in four different parts of Vietnam. We find that there are likely to be significant problems, potentially leading to high default rates, for many graduates if the financing of higher education expansion uses typical forms of student loans.
    Keywords: student loans, repayment burden, government aid, Vietnam
    JEL: I00 I20 I22 I28
    Date: 2013–02–07
  13. By: Yu, Bingxin; Zhu, Tingju; Breisinger, Clemens; Manh Hai, Nguyen
    Abstract: This paper examines how a changing climate may affect rice production and how Vietnamese farmers are likely to adapt to various climatic conditions using an innovative yield function approach, taking into account sample selection bias and endogeneity of inputs. Model results suggest that although climate change can potentially reduce rice production, farmers will respond mainly by adjusting the production portfolio and levels of input use. However, investments in rural infrastructure and human capital will have to support farmers in the adaptation process if production levels and farm incomes are to be sustained in the future.
    Keywords: Climate change; rice; control function; endogeneity; Sampling; Agriculture; rice; crop yield;,
    Date: 2013
  14. By: Midori Matsushima (Assistant Professor, Osaka University of Commerce); Hiroyuki Yamada (Assistant Professor, Osaka School of International Public Policy (OSIPP))
    Abstract: Vietnam is attempting to achieve universal health insurance coverage by 2014. Despite great progress, the country faces some challenges, issues and problems. This paper reviewed official documents, existing reports, and related literature to address: (1) grand design for achieving universal health coverage, (2) current insurance coverage, (3) health insurance premium and subsidies by the government, (4) benefit package and payment rule, and (5) organizational practices. From the review, it became apparent that the insurance system is broadly speaking complex and there are huge ambiguities, which seems hindering universal coverage of health insurance. Also, hidden distorted incentives and lack of financial stability are the main challenges in the current public health insurance system in the country.
    Keywords: Health Insurance, universal coverage, Vietnam
    Date: 2013–03
  15. By: Donatella Baiardi (Department of Economics and Management, University of Pavia); Carluccio Bianchi (Department of Economics and Management, University of Pavia); Eleonora Lorenzini (Department of Economics and Management, University of Pavia)
    Abstract: This paper studies the clothing export performance of twelve top exporting countries (China, Honk Kong, France, Germany, India, Indonesia, Italy, Netherlands, Spain, Turkey, UK and USA) in the period between 1992 and 2011. Price and income elasticities are estimated for each country, after controlling for nonstationarity, cointegration and Granger causality. Price elasticities estimates are used, together with market shares and unit values dynamics, to assess the export performance and prospects of the various countries. A multifarious picture emerges from the analysis, whereby China plays the role of uncontested leader, but not all the advanced European countries, which are supposed to be more severely hit by the competition of the low-labour costs countries, definitely lose competitiveness, since different outcomes are possible according to the specific price and quality strategies adopted.
    Keywords: Clothing, Price elasticity, Income elasticity, Export Performance, Product Quality, Panel Granger causality
    JEL: F10 F14 O10
    Date: 2013–03
  16. By: Huu Thanh Tam Nguyen (Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne); Nguyen Khac
    Abstract: The paper deals with the impacts of Export-platform FDI on backward linkages. First, in a three-country model, these impacts can be explained through competition effect and demand creation one. Whenever the former is stronger than the latter, the investment has a negative impact on backward linkages and conversely. Otherwise, if foreign and domestic producers are heterogeneous, then there is an optimal threshold for input intensity of technology used by foreign producers allowing a highest level of backward linkages. Secondly, in the case of the Vietnamese supporting industries between 2000 and 2007, we observe that Export-platform FDI generates a 100% crowding-out effect. Moreover, the correlation between production of these industries and input intensity of technology used by foreign producers is positive. This indicates that the greater this intensity is, the bigger benefit these supporting industries could get from Export-platform FDI.
    Keywords: Export-platform FDI, multinational enterprises, backward linkages, competition effect, demand creation, supporting industries, Vietnam
    JEL: F15 F23
    Date: 2013–02
  17. By: Huu Thanh Tam Nguyen (Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne); Manh Hung Nguyen (Toulouse School of Economics (LERNA-INRA), Hanoi WRU); Aditya Goenka (Department of Economics, National University of Singapore)
    Abstract: This paper investigates the effect of foreign direct investment (FDI) on the welfare of the host country through the process of corporate tax rate determination. Based on a theoretical model that allows for the entry of heterogenous multinational firms, we show that the impact of FDI on government revenue will depend on the competition effect and the technological spillovers. We argue that the competition effect reduces production of domestic firms and thereby lowers the level of corporate tax revenue while the technological spillovers can have positive or negative welfare effects depending on the absorptive capacity of local firms. The degree to which FDI contribute to government revenue in the host country depends also on the demand creation effect and technological transfer cost.
    Keywords: FDI, corporate tax revenue
    JEL: F15 F23
    Date: 2013
  18. By: Williamson, Jeffrey G
    Abstract: This paper revisits demographic dividend issues after almost two decades of debate. In 1998, David Bloom and Jeffrey Williamson used a convergence model to estimate the impact of demographic-transition-driven age structure effects and calculated what the literature has come to call the demographic dividend. How do estimates based on these naïve convergence models compare with subsequent and competing OLG models? How much of the (first) demographic dividend is simply a labor participation rate effect, and how much a true growth effect? If there are growth effects, how much of this is based on accelerating human capital accumulation induced by demand side quality-quantity Becker trade-offs versus a co-movement between demographic transitions and exogenous schooling supply side revolutions? Emigration has passed through life cycles much like the demographic transition, and with similar (but lagged) timing. Has emigration actually been driven in part by demography? Has emigration wasted some of the demographic dividend by brain drain? Have within-country rural-urban migrations been driven in part by demographic transitions with different spatial timing? Finally, what has been the lifetime – not just annual -- income inequality impact of demographic transitions?
    Keywords: Asia.; demographic dividends; Demographic transitions; growth; inequality
    JEL: J10 O11 O15 O40 O53
    Date: 2013–03
  19. By: Bhattacharya, Rudrani (National Institute of Public Finance and Policy); Patnaik, Ila (National Institute of Public Finance and Policy); Pundit, Madhavi (Economics Research Department, Asian Development Bank)
    Abstract: This paper analyses the extent to which financial integration impacts the manner in which terms of trade affct business cycles in emerging economies. Using a small open economy model, we show that as capital account openness increases in an economy that faces trade shocks, business cycle volatility reduces. For an economy with limited financial openness, and a relatively open trade account, a model with exogenous terms of trade shocks is able to replicate the features of the business cycle.
    Keywords: Macroeconomics ; Real business cycles ; Emerging market DSGE models ; Volatility ; Terms of trade
    JEL: F4 E32
    Date: 2013–03

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