nep-sea New Economics Papers
on South East Asia
Issue of 2013‒07‒05
ten papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Cross-Border Price Differentials and Goods Market Integration in East Asia By Moon, Woosik
  2. Economic Rise and Decline in Indonesia – As Seen from Space By Olivia, Susan; Gibson, John
  3. Supporting the Growth and Spread of International Production Networks in Asia: How Can Trade Policy Help? By Menon, Jayant
  4. Ordeal Mechanisms In Targeting: Theory And Evidence From A Field Experiment In Indonesia By Vivi Alatas; Abhijit Banerjee; Rema Hanna; Benjamin A. Olken; Ririn Purnamasari; Matthew Wai-Poi
  5. On the Use of FTAs: A Review of Research Methodologies By Hamanaka, Shintaro
  6. Global dynamic timelines for IPRS harmonization against software piracy By Antonio R. Andrés; Simplice A. Asongu
  7. Enduring impacts of aid quality on job choices : the case of the 2004 tsunami in Aceh By Nose, Manabu
  8. The implementation of research and development policy in European and Asian countries By Reiljan, Janno; Paltser, Ingra
  9. Emerging market economies and the financial crisis: Is there institutional convergence between Europe and Asia? By Hoen, Herman W.
  10. The Wage Premium and Market Structure: The Case of South Korea and Taiwan By Yen, Meng-Feng

  1. By: Moon, Woosik (Asian Development Bank Institute)
    Abstract: As cross-border movements of goods, capital, and labor are intensifying, it is likely that goods markets in East Asia will become increasingly integrated. This study investigates the current state of goods market integration in East Asia by measuring the extent of cross-border price differentials. Specifically, this study shows that compared with the European Union, East Asian markets are neither sufficiently integrated nor are they showing any price convergence over time.
    Keywords: market integration; east asia; cross-border price differentials; price convergence; regionalization; exchange rate fluctuation; income gap
    JEL: F15 F36
    Date: 2013–06–27
  2. By: Olivia, Susan; Gibson, John
    Abstract: Satellite-detected luminosity is sometimes used to proxy for economic activity although only recently within the mainstream economics literature (Henderson et al., 2012). If this method works it holds great promise for developing countries with weak statistical systems that face difficulties in consistently measuring long-term economic change. Regardless of how chaotic are statistical efforts on the ground, viewed from space it may be possible to detect economic change, with high frequency and for small areas. But doubts remain about how much trust can be put in night lights data as a proxy for economic growth since previous validation attempts just compare with other error-ridden measures (Henderson et al., 2012; Chen and Nordhaus, 2011; Kulkarni et al., 2011). This paper uses gold standard data on electrification and economic growth for 5000 sub-districts in Indonesia from 1992 to 2008 to evaluate the reliability of night-light based measures of local economic change. Our results also contribute to debate in the literature about the severity of the shock to Indonesia from the Asian Financial Crisis of 1997 and the subsequent rate of rebound in economic activity.
    Keywords: Economic Growth, Luminosity, Measurement Error, Indonesia, Agricultural and Food Policy, Financial Economics, International Relations/Trade, Production Economics, Research Methods/ Statistical Methods, O47, C52, E31,
    Date: 2013
  3. By: Menon, Jayant (Asian Development Bank)
    Abstract: Free trade agreements (FTAs) have been proliferating in Asia for more than a decade. International fragmentation of production and the resultant cross-border production networks have been growing for a much longer period. Although FTAs are not necessary for the formation of production networks, can they support their further growth or spread? Empirical studies of this issue have produced mixed results, presumably because the causality can run either way. Therefore, this paper employs a qualitative approach that carefully examines the characteristics of both product fragmentation trade and FTAs in Asia to ascertain possible linkages. We find the relationship to be tenuous for a number of reasons. First, most product fragmentation trade already takes place at zero or low tariffs because of the International Technology Agreement, various duty-drawback schemes, and the location of most multinationals in duty-exempt export processing zones. Second, much of fragmentation trade is unlikely to benefit from FTA tariff concessions given the inability to satisfy rules of origin (ROOs) because of limited value-addition and/or classification problems relating to tariff-line shifting. Third, almost all FTAs involving Asian countries are relatively shallow, limiting their ability to promote production networks. Even if they were to deepen over time, it is difficult or costly to remove the non-tariff barriers that affect this trade in a preferential manner. For these reasons, it would be more useful if FTA preferences were multilateralized, and other accords were offered to all on most-favored nation basis. This, combined with national liberalization actions that deal with incumbency issues irrespective of nationality, would be the best way to support the growth of production networks involving current participants and the spread to new ones.
    Keywords: Production networks; product fragmentation; free trade areas; trade facilitation; Asia
    JEL: F14 F15 F23
    Date: 2013–05–01
  4. By: Vivi Alatas; Abhijit Banerjee; Rema Hanna; Benjamin A. Olken; Ririn Purnamasari; Matthew Wai-Poi
    Abstract: Economic theory suggests that, when designing aid programs, ordeal mechanisms that impose differential costs for rich and poor can induce self-selection and hence improve targeting (“self-targeting”). We first re-examine this theory and show that ordeal mechanisms may actually have theoretically ambiguous effects on targeting: for example, time spent applying imposes a higher monetary cost on the rich, but may impose a higher utility cost on the poor. We then examine these issues empirically by conducting a 400-village field experiment within Indonesia's Conditional Cash Transfer program. Targeting in the program is usually conducted by automatically enrolling candidates who pass an asset test. We compare whether instituting an ordeal mechanism, where villagers come to a central application site to apply and take the asset test, improves targeting over the existing automatic enrollment system. Within self-targeting villages, we find that the poor are more likely to apply, even conditional on whether they would pass the asset test. On net, self-targeting villages have a much poorer group of beneficiaries than status quo villages. However, marginally increasing the ordeal does not necessarily improve targeting: while experimentally increasing the distance to the application site reduces the number of applicants, it screens out both rich and poor in roughly equal proportions. Estimating the model structurally, we show that only one would need to increase the ordeal dramatically (e.g. tripling wait times to 9 hours or more) to induce detectable additional selection. In short, ordeal mechanisms can induce self-selection, but marginally increasing the ordeal can impose additional costs on applicants without necessarily improving targeting.
    JEL: I38 O12
    Date: 2013–06
  5. By: Hamanaka, Shintaro (Asian Development Bank)
    Abstract: There has been much confusion, rather than debate, on the use of free trade agreements (FTAs). Unfortunately, a large part of the confusion is caused by the absence of consensus on the meaning of key terms such as the "utilization rate" and "usage rate" of FTAs, and the lack of knowledge on upward or downward biases from various information sources regarding the use of FTAs. Rather than making an original empirical contribution, this article reviews existing studies on the issue and attempts to identify the relevant methodologies for assessing the use of FTAs.
    Keywords: Free trade agreements (FTAs); utilization of FTAs; impacts of FTAs; margin of preference (MoP)
    JEL: F13 F15
    Date: 2013–05–01
  6. By: Antonio R. Andrés (Al Akhawayn University, School of Business Administration); Simplice A. Asongu (African Governance and Development Institute)
    Abstract: This paper employs a recent methodological innovation on intellectual property rights (IPRs) harmonization to project global timelines for common policies against business software piracy. The findings on 99 countries are premised on 15 fundamental characteristics of software piracy based on income-levels (high-income, lower-middle-income, upper-middle-income and low-income), legal-origins (English common-law, French civil-law, German civil-law and, Scandinavian civil-law) and, regional proximity (South Asia, Europe & Central Asia, East Asia & the Pacific, Middle East & North Africa, Latin America & the Caribbean and, Sub-Saharan Africa). The results broadly show that a feasible horizon for the harmonization of blanket policies ranges from 4 to 10 years.
    Keywords: Software piracy, Intellectual property rights, Panel data, Convergence
    JEL: F42 K42 O34 O38 O57
    Date: 2013–03
  7. By: Nose, Manabu
    Abstract: After the tsunami in Aceh, Indonesia, the recovery of fishing was limited while non-fishing sectors temporarily expanded. This paper shows that fishermen's ex-post labor supply responses continued to be constrained by the provision of low quality production assets. The average fishing productivity also declined for the negative selection in response to the aggregate shock. In a natural experiment set-up, it shows widening income inequality after the tsunami for income losses to the recipients of poor quality aid. It suggests the importance of quality monitoring and private market access to sustainably promote rural development after the tsunami.
    Keywords: Fisheries and Aquaculture,Coastal and Marine Environment,Labor Policies,Labor Markets,Coastal and Marine Resources
    Date: 2013–06–01
  8. By: Reiljan, Janno; Paltser, Ingra
    Abstract: Research and development (R&D) policy has to fulfil a central role in innovation policy since it consists of government sector measures that support R&D in order to initialise and promote innovation. The authors of this article discuss first the theoretical reasoning for government sector intervention in R&D processes. The empirical study examines the level and structure of government sector resources and expenditures for R&D policy in EU member states (including Estonia), countries closely associated with the EU, China, Japan and South Korea. The aim of the article is to compare the position of these countries on the basis of R&D policy implementation from the aspect of resource and expenditure supply. In order to achieve the aim, the following research tasks are tackled: on the basis of research literature, the necessity, essence, measures and anticipated outcomes of R&D policy are explained to create the theoretical base for the empirical study; on the basis of the empirical analysis, an assessment on the international position of R&D policy implementation in several new EU member states and Asian countries is conducted. The data used in the empirical analysis is gathered from Eurostat and OECD databases. --
    Keywords: market and system failures,R&D policy,EU,Estonia,South Korea
    Date: 2013
  9. By: Hoen, Herman W.
    Abstract: It is often stated that globalization makes a smaller world by institutional conver-gence. Economic orders become alike across the world. This article addresses institutional change triggered by the global financial crisis of 2008/2009 and challenges this general conviction of worldwide convergence by comparing developments in emerging markets in Europe and Asia. The rise of emerging markets, both in Eastern Europe and in Asia, entailed encompassing institutional reform. In analysing the extent to which there is institutional convergence, the article follows the approach of Varieties of Capitalism. This approach distinguishes two ideal types of capitalism: a liberal market economy and a coordinated market economy. In liberal market economies, firms are primarily driven by competition, whereas in coordinated market economies firms also coordinate with other actors by strategic interaction. The basic premise is that countries with a specific set of institutions develop institutional complementarities. Therefore, considering institutional change, liberal market economies and coordinated market economies are expected to respond in different ways to external shocks, such as the global financial crisis. Being aware of the pitfalls that the approach suffers from by simply pinpointing countries on a broad continuum, the article argues that the emerging market economies in Europe are on the liberal side of the scale. On top of that, it builds the argument of a tentative convergence towards further liberal institutional design. With respect to emerging markets in Asia, another development is observed. There is converging institutional change towards coordinated market economies characterized with strong state influence and an imperative bureaucracy. The expected convergence in the two groups of emerging market economies in Europe and Asia leads to the conviction of divergence between the groups. --
    Keywords: Globalization,Institutional Economics,Varieties of Capitalism,Emerging Markets
    Date: 2013
  10. By: Yen, Meng-Feng
    Abstract: We seek to understand why the difference between wages earned by skilled and unskilled labor, the so-called “wage premium”, varies across developing countries, using South Korea and Taiwan as empirical case studies. South Korea and Taiwan are both small developing countries with export-led economies that enjoy relatively high incomes compared to their Asian counterparts (excluding Japan). Between 1990 and 2000, Taiwan experienced a decrease in the wage premium, while South Korea remained the same wage premium. In particular, during that period, the wage premium fell from 67% to 25% in Taiwan, but remains around 44% in South Korea (Helms et al, 1999; Choi and Jeong, 2005); the trend continued through 2012 according statistics published by South Korean and Taiwanese Ministries of Labor. The existing academic literature offers several theories of how wage premia are determined. One strand of the literature attributes cross-country variation in the wage premium to differences in relative human capital factor endowments; another strand attributes it to differences in rates of skilled biased technical change; and a third strand attributes it to differences in the degrees of competition at the sectoral level (Leamer 1996; Feenstra and Hanson, 1997; and Krugman, 2001). However, none of these theories adequately explain differences in the wage premium observed between South Korea and Taiwan. Both countries have comparable relative human capital endowments (Guo, 2005), have traded heavily with the U.S. (U.S. census data), and have experienced substantial skill-based technical change over the past decade (Chan, 2005; Choi and Jeong 2005). The puzzling question is then: why is the wage premium in South Korea much higher than in Taiwan? In an effort to resolve the puzzle, we theorize that cross-country variation in the wage premium arises from differences in the degree of competition in markets for differentiated goods. Taiwanese firms are small and operate in a monopolistic competitive environment, whereas South Korean firms are larger and enjoy more government support (Feenstra and Hanson, 1993; Rodrik, 1994). In our paper, we explore whether these differences in market structure can account for the observed differences in the wage premium between the two countries. To understand the impact of competition on the wage premium, we build and analyze a general equilibrium model of two trading partners, one a small developing country with a relatively low skilled labor endowment and the other a large developed country with a relatively high skilled labor requirement. The trading partners produce and trade two types of goods, a homogenous good and a differentiated good, both of which are produced using two types of labor, skilled and unskilled. We analyze the model under different assumptions regarding the competitiveness of the differentiated good market and find that the wage premium in the developing country will be higher if the market for the differentiated good is characterized by oligopolistic competition rather than monopolistic competition. We then test the predictions of our theoretical model empirically. Specifically, we test the hypothesis that that wage premium is positively related to concentration measure. Due to the limitation of two different forms of data available to us — individual- and industry-level data — we employ the two stage regression method developed by Goldberg and Pavcnik (2003). In the first stage, we regress the wage premium on individual characteristics, industry dummies, an education variable and an interaction variable of education level and industry dummies; in the second stage, we regress the parameter estimated in the first stage against a measure of product market competition (i.e., the concentration ratio) and other control variables. To our knowledge, a cross-country level comparison on the influence of product market structure on the wage premium has not been undertaken for developing countries. We employ data from several sources. We use a panel of individual-level and industry-level observations over three distinct years drawn from several sources: the Taiwan Manpower Utilization Survey (TMUS), Academia Sinica (Taiwan), the Korean Labor & Income Panel Study (KLIPS), the OECD Structural Analysis database (STAN), and the U.S. Economic Census. Import and export data are taken from United Nations Commodity Trade Statistics Database and the International Economic Data Bank (IDEB). Data obtained from TMUS and KLPS are at the individual level and the data obtained from sources are at the industry level. We restrict our attention to trade between the Taiwan and the U.S. and between South Korea and the U.S. because for both countries, the U.S. is each country’s most important trade partner. Our analysis departs from the well-established factor endowment and skilled-based technical change literatures, providing a novel explanation that wage premium differences across developing countries differ due to market structure and market power under trade. Our study should provide ample fuel for thought for development economists and policy makers in developing countries who are interested in the impact of trade on economic growth and on the distribution of income among those living in developing countries.
    Keywords: Labor and Human Capital,
    Date: 2013

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