nep-sea New Economics Papers
on South East Asia
Issue of 2013‒06‒09
eighteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. The Middle-Income Trap : Issues for Members of the Association of Southeast Asian Nations By Tran Van Tho
  2. Creating an Association of Southeast Asian Nations Payment System : Policy and Regulatory Issues By Tanai Khiaonarong
  3. Assessing the Progress of Services Liberalization in the ASEAN-China Free Trade Area (ACFTA) By Yoshifumi Fukunaga; Hikari ISHIDO
  4. How Far Will Hong Kong's Accession to ACFTA Impact its Trade in Goods? By Kohei SHIINO
  5. A CGE Study of Economic Impact of Accession of Hong Kong to ASEAN-China Free Trade Agreement By Ken Itakura; Yoshifumi Fukunaga; Ikumo Isono
  6. Remittances, Growth and Poverty: New Evidence from Asian Countries By Katsushi Imai; Raghav Gaiha; Abdilahi Ali; Nidhi Kaicker
  7. The Impact of AFTA on Intra-AFTA Trade By Shujiro URATA; Misa OKABE
  8. Development Trajectories, Emission Profile, and Policy Actions : Singapore By Tilak K. Doshi; Neil Sebastian D’Souza
  9. Reserve Requirement Analysis using a Dynamical System of a Bank based on Monti-Klein model of Bank's Profit Function By Novriana Sumarti; Iman Gunadi
  10. How Low-Carbon Green Growth Can Reduce Inequalities By Venkatachalam Anbumozhi; Armin Bauer
  11. Willingness to Pay for Managerial Training: A Case from the Knitwear Industry in Northern Vietnam By Aya Suzuki; Vu Huang Nam; Tetsushi Sonobe
  12. Is Asia decoupling from the United States (again)? By Sylvain Leduc; Mark M. Spiegel
  13. International Mobile Roaming Agreements By OECD
  14. Rich Man’s War, Poor Man’s Fight? Socio-economic Representativeness in the Modern Military By Asoni, Andrea; Sanandaji, Tino
  15. Global Value Chains and Developing Country Employment: A Literature Review By Ben Shepherd
  16. Fiscal transfers and gerrymandering under decentralization in the Philippines By Joseph J. Capuno
  17. Out-migration, Wealth Constraints, and the Quality of Local Amenities By Christian Dustmann; Anna Okatenko
  18. Income and Population Growth By Brückner, Markus; Schwandt, Hannes

  1. By: Tran Van Tho (Asian Development Bank Institute (ADBI))
    Abstract: The problem faced by many of the economies making up the Association of Southeast Asian Nations (ASEAN) is whether they can avoid the middle-income trap and advance to the high-income level. What is needed for them to avoid the middle-income trap? This paper attempts to answer this question by building an analytical framework based on the factors that determine each development stage of an economy, and by comparing the current situation of four ASEAN middle-income countries with the experience of the Republic of Korea, a country that managed to overcome the middle-income trap and reach the high-income level in the late 1990s. The paper concludes that for ASEAN middle-income countries (Indonesia, Malaysia, the Philippines, and Thailand) to avoid the trap, they should strengthen research and development capability, emphasize the quality and appropriateness of human resources, and improve the institutional system for nourishing a dynamic private sector. These efforts can be expected to result in dynamic changes in the structure of comparative advantage toward higher skill and more innovation-intensive contents of products. For a low middle-income country such as Viet Nam, reforms and policies to increase the productivity of capital, land, and other resources are essential to avoid the early appearance of the trap.
    Keywords: ASEAN, middle-income trap, Comparative Advantage, productivity
    JEL: O10 O11 O40 O43 O53
    Date: 2013–05
  2. By: Tanai Khiaonarong (Asian Development Bank Institute (ADBI))
    Abstract: The Association of Southeast Asian Nations (ASEAN) is expected to benefit from the significant growth in the Asia-Pacific payments market. Growth in economic activity would increase the size, scale, and scope of payment transactions. Enabling the scale and scope of payments would in turn increase economic activity. This would also require national payment systems to be regionalized and operate with cross-border and multi-currency capabilities. As existing regional payment arrangements have illustrated how they can be successfully established, ASEAN can itself leverage on its current cooperative forums in creating a more regionalized payment system. In doing so, it faces the following challenges. First, promoting the use of cashless payments would require increased private sector involvement in improving accessibility to basic payment infrastructure, increasing their interoperability, and creating a competitive cross-border retail payment scheme. Second, creating cross-border and multi-currency payment systems could possibly proceed with the interlinking of existing real-time gross settlement systems within the region, and later enlarged, but this would need to be supportive of the broader goals of sequencing financial services liberalization. Third, legal harmonization would need to keep pace with rapid technological and regulatory changes where the introduction of settlement finality legislation is seen as an important precondition to support cross-border payments. Fourth, managing foreign exchange settlement risk would need to be addressed with the growth in global foreign exchange market activities and this would involve the development of risk-reduction features in payment systems. And fifth, enhancing cooperation would involve the creation of regional oversight frameworks and cross-border collateral arrangements as systems become increasingly interconnected and interdependent in the long run.
    Keywords: ASEAN, the Asia-Pacific payments market, ASEAN payment system, financial services liberalization, legal harmonization, foreign exchange settlement, cross-border
    JEL: E42 E58 G28
    Date: 2013–05
  3. By: Yoshifumi Fukunaga (Economic Research Institute for ASEAN and East Asia); Hikari ISHIDO (Chiba University)
    Abstract: The aim of this paper is to evaluate the success of progressive services liberalization under the ASEAN China FTA (ACFTA). First, we calculate the level of commitments by applying the Hoekman Index. Second, we compare the ACFTA 2nd Package with the ACFTA 1st Package and examine the additional liberalization, and the frequency of backtrack. Third, we compare the ACFTA 2nd Package with the GATS commitments by the respective member states. Last, we discuss the policy implications of this analysis to the other ASEAN+1 FTA and RCEP negotiations, as well as the need to address GATS-minus commitments found in FTAs
    Keywords: FTA, services liberalization, ASEAN, China, RCEP
    JEL: F13 F15 F53
    Date: 2013–04
  4. By: Kohei SHIINO (JETRO Singapore, Japan External Trade Organization, Singapore)
    Abstract: Hong Kong proposed its possible accession to the ASEAN-China Free Trade Area (ACFTA) in November 2011. This report examines how much Hong Kong's accession to ACFTA will impact on the trade in goods between ASEAN and China. It is likely that the direct impact of Hong Kong's accession will be minimal on the trade in goods since re-exports account for 96.3% of Hong Kong's total exports, indicating that the value of Hong Kong-origin products is marginal. However stock operations using movement certificates (MCs) in Hong Kong, which cannot be carried out in non-members of ACFTA, will facilitate the trade in goods between China and ASEAN. As such stock operations are generally carried out in places located near to final destinations, Hong Kong's accession will facilitate further ASEAN exports to China.
    Keywords: Free trade area (FTA); ASEAN; China; Trade facilitation; Intermediary trade
    JEL: F15
    Date: 2013–05
  5. By: Ken Itakura (Faculty of Economics, Nagoya City University, Japan); Yoshifumi Fukunaga (Economic Research Institute for ASEAN and East Asia); Ikumo Isono (Economic Research Institute for ASEAN and East Asia)
    Abstract: We conduct a set of global computable general equilibrium (CGE) simulations to evaluate economic effects of Hong Kong’s accession to the ASEAN-China FTA (HK-ACFTA) by implementing tariff elimination, logistics, enhancement, and reduction in service trade barriers. All the participating countries can benefit from the accession, resulted in higher real GDP and economic welfare.The welfare gain becomes the largest when HK-ACFTA improves the existing agreement and trade facilitation programs between ASEAN and China. The simulation results indicate that such trade facilitation could generate considerable export volume increases for both ASEAN and China
    Keywords: FTA;computable general equilibrium (CGE) model;tariff elimination;services liberalization;trade facilitation
    JEL: F15 F17
    Date: 2013–05
  6. By: Katsushi Imai (Economics, School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan)); Raghav Gaiha (Faculty of Management Studies, University of Delhi, India); Abdilahi Ali (School of Social Sciences, University of Manchester, UK); Nidhi Kaicker (Faculty of Management Studies, University of Delhi, India)
    Abstract: The present study re-examines the effects of remittances on growth of GDP per capita using annual panel data for 24 Asia and Pacific countries. The results generally confirm that remittance flows have been beneficial to economic growth. However, our analysis also shows that the volatility of capital inflows such as remittances and FDI is harmful to economic growth. This means that, while remittances contribute to better economic performance, they are also a source of output shocks. Finally, remittances contribute to poverty reduction – especially through their direct effects. Migration and remittances are thus potentially a valuable complement to broad-based development efforts.
    Keywords: remittances, economic growth, volatility, poverty, Asia
    JEL: C23 F24 I32 O15 O47 O53
    Date: 2013–05
  7. By: Shujiro URATA (Economic Research Institute for ASEAN and East Asia); Misa OKABE (Wakayama University, Japan)
    Abstract: ASEAN countries have liberalized intra-ASEAN trade over the last 20 years by establishing the ASEAN Free Trade Area (AFTA). This paper aims to examine the impact of trade liberalization under AFTA on intra-ASEAN trade. By applying a gravity model, we find positive and significant trade creation effects from the tariff elimination for a wide range of products. We also find that the elasticity of tariff reduction on imports tends to be much larger than that on exports. Trade creation effects for the new ASEAN members are relatively small compared to those for the old members. Our results show that AFTA has been successful in promoting intra-AFTA trade, but we argue that further expansion may be achieved by increasing the use of AFTA and by reducing/removing non-tariff measures (NTMs) through such ways as improving customs procedures and harmonizing/mutually recognizing product standards.
    Keywords: ASEAN Free Trade Area; Intra-regional trade; Gravity model, Trade creation effect.
    JEL: F13 F15 O19
    Date: 2013–05
  8. By: Tilak K. Doshi (Asian Development Bank Institute (ADBI)); Neil Sebastian D’Souza
    Abstract: Singapore is the most industrialized and urbanized country in Southeast Asia and is totally dependent on oil and natural gas imports to satisfy its energy needs. Its national energy policy framework seeks to find a balance between maintaining Singapore’s competitiveness, improving energy security, and enhancing environmental sustainability. In this paper, we discuss where Singapore stands with regard to its energy consumption and CO2 emissions, its energy policies to date, and those that will be implemented in the near future. We use a Singapore Energy- Economy model based on the Long Range Energy Alternatives Planning (LEAP) framework to assess the impact of energy efficiency and conservation policies on Singapore’s energy intensity and CO2 emissions through to 2050. We also discuss the challenges that Singapore will face on account of climate change policies affecting key sectors of its economy. We find that Singapore has achieved much progress over the past four decades. Prudent energy policies and a changing economic structure have led to more efficient use of energy as evidenced by Singapore’s declining energy intensity. There is considerable uncertainty as to the evolution of a global agreement on CO2 emissions reductions and the exact nature of the commitments that countries will be held to. Given Singapore’s status as a preeminent shipping center and global oil refining center, CO2 emissions policies that will affect these industries will impact Singapore’s economy if issues of “carbon leakage†are not adequately addressed.
    Keywords: Singapore, national energy policy, energy demand, Energy Consumption, vironment, emission, climate change policy
    JEL: O53 Q38 Q48
    Date: 2013–05
  9. By: Novriana Sumarti; Iman Gunadi
    Abstract: Commercial banks and other depository institutions in some countries are required to hold in reserve against deposits made by their customers at their Central Bank or Federal Reserve. Although some countries have been eliminated it, this requirement is useful as one of many Central Bank's regulation made to control rate of inflation and conditions of excess liquidity in banks which could affect the monetary stability. The amount of this reserve is affected by the volumes of the commercial bank's loan and deposit, and also by the bank's Loan to Deposit Ratio (LDR) value. In this research, a dynamical system of the volume of deposits (dD/dt) and loans (dL/dt) of a bank is constructed from the bank profit equation by Monti-Klein. The model is implemented using the regulation of Bank of Indonesia, and analysed in terms of the behaviour of the solution. Based on some simplifying assumptions in this model, the results show that eventhough the LDR values at the initial points of two solutions are the same, the behavior of solutions will be significantly different due to different magnitude of L and D volumes.
    Date: 2013–06
  10. By: Venkatachalam Anbumozhi (Asian Development Bank Institute (ADBI)); Armin Bauer
    Abstract: Half of the world’s population—3 billion people—lives below the poverty line, and Asia has the largest share. In pursuit of sustainable economic development and poverty alleviation, there is great potential among low-income households for green consumption, production, innovation, and entrepreneurial activity. This paper shows how an inclusive green growth model can uplift the poor through entrepreneurship and fiscal policy reforms. To make the case, this paper cites examples of institutions and policies in Asia that have successfully generated and tapped into the potentials of low-income households. Low-income households are recognized as resilient, value-conscious consumers and creative entrepreneurs in the inclusive and green growth paradigm. Low-income households can be the engine of a new development strategy; they can be a source of innovation for providing basic services in a green way. Evidence suggests that, without effective financial systems, not all market actors can sustain their businesses. Therefore, policy interventions are necessary to encourage and financially support enterprises to adopt best available technologies and incorporate innovative practices that are environmentally beneficial. The paper recommends fflexible redistributive and transformative public expenditure schemes and finance sector development to surmount the bottlenecks towards achieving inclusive and green growth.
    Keywords: Green growth, low-carbon, Inequality, Asia, low-income households, redistributive and transformative public expenditure schemes, inclusive growth
    JEL: E62 H61 Q2 Q3 Q4
    Date: 2013–05
  11. By: Aya Suzuki (The University of Tokyo); Vu Huang Nam (Foreign University, Vietnam); Tetsushi Sonobe (National Graduate Institute for Policy Studies)
    Abstract: Managerial capital has received attention in recent years as one of the major determinants for enterprise productivity, growth, and longevity. While recent empirical studies make it clear that training intervention can improve the management level, it remains unclear why the managers had not made efforts to obtain these basic knowledge. To test the hypothesis that the reason lies in low valuation for obtaining knowledge, we conduct experimental training programs for the managers of SMEs in a knitwear cluster in rural town in Vietnam. We find that the demand for these trainings was indeed low prior to trainings, but increased greatly with own learning experience, and that those with a higher prior demand tended to benefit more from the training. We also examine the spill-over effects from their peers and find their heterogeneous impacts across the types of trainings conducted.
    Date: 2013–05
  12. By: Sylvain Leduc; Mark M. Spiegel
    Abstract: The recovery from the recent global financial crisis exhibited a decline in the synchronization of Asian output with the rest of the world. However, a simple model based on output gaps demonstrates that the decline in business cycle synchronization during the recovery from the global financial crisis was exceptionally steep by historical standards. We posit two potential reasons for this exceptionally steep decline: First, financial markets during this recovery improved from particularly distressed conditions relative to previous downturns. Second, monetary policy during the recovery from the crisis was constrained in western economies by the zero bound, but less so in Asia. To test these potential explanations, we examine the implications of an increase in corporate bond spreads similar to that which took place during the recent European financial crisis in a 3-region open-economy DSGE model. Our results confirm that global business cycle synchronization is reduced when zero-bound constraints across the world differ. However, we find that the impact of reduced financial contagion actually goes modestly against our predictions.
    Date: 2013
  13. By: OECD
    Abstract: This report explores principles that could form the basis for good practices in the establishment of international mobile roaming (IMR) agreements between two or more countries. Given the cross country nature of IMR services and, especially, the fact that wholesale prices are determined by foreign operators outside the jurisdiction of domestic regulators, international co-operation is vital to address the challenges in roaming markets. There is a growing number of IMR agreements, usually reflecting the most travelled international routes, such as in the European Union, the Gulf Cooperation Council in the Persian Gulf Region, Russia with Poland and with Finland, and the countries of the Association of South East Asian Nations (ASEAN). In addition, there are ongoing discussions between Australia and New Zealand and in the South African and South American regions.
    Date: 2013–06–03
  14. By: Asoni, Andrea (Charles River Associates); Sanandaji, Tino (Research Institute of Industrial Economics (IFN))
    Abstract: Having a military that is representative of the population is a stated social goal by policy makers. Since the armed forces do not gather data on the family income of recruits, studies on the socioeconomic background have relied on potentially biased geographic data, reaching conflicting conclusions. We use the National Longitudinal Survey of Youth 1997 to study population representativeness in the years 1997–2011 based on individual level data. In contrast to previous periods, and contrary to popular perception, those who joined the military had higher than median family income and wealth. The lowest and highest parental income categories are both underrepresented in the military. Those who joined were more likely to pursue higher education and had higher self-reported life satisfaction. Recruits had 0.2 standard deviation higher cognitive tests scores than the civilian population. Higher cognitive test scores strongly increases the probability of joining for those from lower and middle income families while interestingly lowering the probability of joining for those from high-income homes. The over-representation of minorities in the military has declined in recent decades. In sharp contrast to the Vietnam War, Non-Hispanic Whites are significantly overrepresented as casualties in Iraq and Afghanistan.
    Keywords: Military service; Occupational choice; Human capital
    JEL: H41 J18 J24
    Date: 2013–05–27
  15. By: Ben Shepherd
    Abstract: This paper provides a review of the available literature on global value chains (GVCs) and employment markets in developing countries. Due to the difficulty of observing intra-GVC transactions, there is very little direct empirical work on GVCs and labour markets. However, it is possible to extrapolate from the extensive empirical work already undertaken on firm internationalisation and labour markets to draw inferences as to the likely impacts of GVCs. The review therefore focuses on the labour market impacts of three processes that lie at the core of GVC development: importing, exporting, and foreign direct investment (FDI). It examines their impact on labour demand and wages, and disaggregates the effects whenever possible by skill level. The available empirical evidence strongly suggests that the type of activities undertaken by GVC participants influence labour market outcomes. For instance, many GVC firms are vectors of technological upgrading that in turn increases the relative demand for skilled labour. In these cases, GVC participation is linked to higher relative wages for skilled workers, but also greater wage inequality between skilled and unskilled workers. The evidence on outcomes is more mixed as regards pure processing trade (assembly), however: the limited data available on firms engaged purely in these activities suggests that they do not systematically pay higher wages than domestic firms, which is the reverse of the finding for foreign-owned firms, exporters, and importers in general. The labour market effects of GVCs in developing countries are therefore likely to be broadly positive, but highly case specific. The review therefore concludes with two case studies—electronics in Asia and services in Chile—that demonstrate the complexity of the issues involved, and the role of complementary policies in areas such as human capital development.
    Keywords: trade, labour markets, foreign direct investment, developing countries, global value chains
    JEL: F16 F21 F23 O24
    Date: 2013–05–14
  16. By: Joseph J. Capuno (School of Economics, University of the Philippines Diliman)
    Abstract: While gerrymandering in developing countries is often pushed by local authorities to secure political advantages, fiscal grants systems under decentralization may also have result in the same. We investigate this issue to identify the correlates of the growth in the number of cities in the Philippines in 2001-2010. Using a panel of municipal-level data, incremental fiscal transfers are found to drive cityhood. Also, political payoffs -- like the incumbent mayor's re-election or having another member of the same political clan elected to the same position -- motivate the creation of new cities. Reforms in the country's fiscal transfer program are suggested.
    Keywords: Gerrymandering, fiscal grants, decentralization
    JEL: H11 H73 H77
    Date: 2013–06
  17. By: Christian Dustmann (Department of Economics, and Centre for Research and Analysis of Migration (CReAM), University College London.); Anna Okatenko (CReAM, University College London.)
    Abstract: Using a simple theoretical model, we show that the level of migration costs relative to wealth determines the form of the relation between income and migration intentions, which can be monotonically decreasing, increasing, or inverse U-shaped. Using unique individual level data, covering three geographic regions—sub-Saharan Africa, Asia, and Latin America—we show that migration intentions do indeed respond to individual wealth, and that the patterns differ across the country groups studied in a manner compatible with the predictions of our model. Further, contentment with various dimensions of local amenities plays an important role for migration decisions.
    Keywords: Migration and Wealth Constraints, Migration Intentions, Local Amenities
    JEL: O15 R23 J61
    Date: 2013–05
  18. By: Brückner, Markus (National University of Singapore); Schwandt, Hannes (Princeton University)
    Abstract: Do populations grow as countries become richer? In this paper we estimate the effects on population growth of shocks to national income that are plausibly exogenous and unlikely to be driven by technological change. For a panel of over 139 countries spanning the period 1960-2007 we interact changes in international oil prices with countries' average net oil export shares in GDP. Controlling for country and time fixed effects, we find that this measure of oil price induced income growth is positively associated with population growth. The IV estimates indicate that a one percentage point increase in GDP per capita growth over a ten year period increases countries' population growth by around 0.1 percentage points. Further, we find that this population effect results from both a positive effect on fertility and a negative effect on infant and child mortality.
    Keywords: economic development, population growth
    JEL: O1 Q56
    Date: 2013–05

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