nep-sea New Economics Papers
on South East Asia
Issue of 2013‒08‒23
nine papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Multilateralizing Asian Regionalism By Baldwin, Richard; Kawai, Masahiro
  2. Fragile Balance of Payment in Indonesia in the Midst of Recent Global Economic Uncertainties By Siregar, Reza; Wihardja, Monica
  3. Default Risk Calculation based on Predictor Selection for the Southeast Asian Industry By Wolfgang Karl Härdle; Dedy Dwi Prastyo; ; Dieter
  4. Impact of eurozone Financial Shocks on Southeast Asian Economies By Menon, Jayant; Ng, Thiam Hee
  5. What is Economic Corridor Development and What Can It Achieve in Asia’s Subregions? By Brunner, Hans-Peter
  6. The Role of International Trade in Employment Growth in Micro- and Small Enterprises: Evidence from Developing Asia By Krüger, Jens
  7. Impact of product-related environmental regulations / voluntary requirements on Thai firms By Ramungul, Nudjarin; Michida, Etsuyo; Nabeshima, Kaoru
  8. Does J-Curve Phenomenon Exist in Case of Laos? An ARDL Approach By Kyophilavong, Phouphet; Shahbaz, Muhammad; Salah Uddin, Gazi
  9. Determinants of banking system fragility: a regional perspective By Degryse, Hans; Elahi, Muhammad Ather; Penas, María Fabiana

  1. By: Baldwin, Richard (Asian Development Bank Institute); Kawai, Masahiro (Asian Development Bank Institute)
    Abstract: Motivated by the proliferation of free trade agreements (FTAs) in Asia over the last decade, this paper studies the challenges faced by the Asian “noodle bowl”—overlapping, multiple trade rules, regulations, and standards in Asia—in the process of regional and global trade integration. The paper first highlights the importance of trade and investment linkages among Asian economies that have formed Asian supply chains, called Factory Asia. It then considers ways and means of multilateralizing Asian trade regionalism by discussing the pros and cons of various approaches—such as the Association of Southeast Asian Nations (ASEAN)-centered regional trade agreements, including the Regional Comprehensive Economic Partnership agreement, and cross-regional FTAs, including the Trans-Pacific Partnership agreement and a future Asia–European Union FTA. The paper emphasizes the promising role of inclusive Asian regionalism and the need to move to global integration.
    Keywords: free trade agreements; asia; asian noodle bowl; global trade integration; asean; trans-pacific partnership; inclusive asian regionalism
    JEL: F13 L23 O19
    Date: 2013–08–15
  2. By: Siregar, Reza; Wihardja, Monica
    Abstract: Amid global financial turbulent, the economy of Indonesia posted an annual average growth of above 6 per cent between 2008 and 2012, except in 2009. This was arguably among the most stable growth performance among the regional economies of East and Southeast Asia. The strength of domestic demand has indeed been a primary driver of the remarkably stable growth performance. However, the uncertainties with the advanced economies, particular in the US and the European Union, had negatively affected the local economy and exposed a number of apparent weaknesses with the Indonesian economy. A couple of these vulnerabilities are worth highlighted as they are arguably structural in nature. First is the country banking sector’s exposure to global cross-border bank lending activities. Second factor has to do with the persistent current account deficit and its link to long-standing fiscal policy of fuel subsidy and global commodity market.
    Keywords: Current Account, Capital Account, Global Financial Crisis, Energy Subsidy and Commodities
    JEL: E50 E60 F41
    Date: 2013–08–15
  3. By: Wolfgang Karl Härdle; Dedy Dwi Prastyo; ; Dieter
    Abstract: Probability of default prediction is one of the important tasks of rating agencies as well as of banks and other financial companies to measure the default risk of their counterparties. Knowing predictors that significantly contribute to default prediction provides a better insight into fundamentals of credit risk analysis. Default prediction and default predictor selection are two related issues, but many existing approaches address them separately. We employed a unified procedure, a regularization approach with logit as an underlying model, which simultaneously selects the default predictors and optimizes all the parameters within the model. We employ Lasso and elastic-net penalty functions as regularization approach. The methods are applied to predict default of companies from industry sector in Southeast Asian countries. The empirical result exhibits that the proposed method has a very high accuracy prediction particularly for companies operating Indonesia, Singapore, and Thailand. The relevant default predictors over the countries reveal that credit risk analysis is sample specific. A few number of predictors result in counter intuitive sign estimates.
    Keywords: Default risk, Predictor selection, logit, Lasso, Elastic-net
    JEL: C13 C61 G33
    Date: 2013–08
  4. By: Menon, Jayant (Asian Development Bank); Ng, Thiam Hee (Asian Development Bank)
    Abstract: Five years after the Global Financial Crisis, the economies of the United States (US) and the eurozone continue to struggle. How will Southeast Asian economies be affected should there be a further deterioration in conditions in the eurozone? In this paper, we present estimates using a Global Vector Autoregression model of the direct impacts in Southeast Asia of a further shock to the eurozone. We find that although the direct impacts are likely to be muted, it could trigger a much larger adjustment should it lead to a reassessment of risks and asset valuations. This is a real possibility given that vulnerability in the region has increased following massive inflows of capital and the build-up of debt related to successive bouts of quantitative easing, initially in the US and now in Japan. In light of a possible reassessment of risks and asset valuations, and with the International Monetary Fund’s resources already stretched, there is a pressing need to improve regional financial safety nets, which are currently unworkable, to deal with the fallout.
    Keywords: eurozone crisis; asset bubbles; contagion; regional financial safety nets; Chiang Mai Initiative; ASEAN; ASEAN+3
    JEL: E37 E58 F32 F34
    Date: 2013–08–01
  5. By: Brunner, Hans-Peter (Asian Development Bank)
    Abstract: Economic corridors connect economic agents along a defined geography. They provide important connections between economic nodes or hubs that are usually centered in urban landscapes. They do not stand alone, as their role in regional economic development can be comprehended only in terms of the network effects that they induce. As the case studies in this paper show, there is no standard picture of what economic corridor development is and what it can achieve. What economic corridors can achieve for regional economic integration depends first on what characteristics the specific existing economic networks in which the economic corridors are embedded personify, and second on which characteristics corridor development are intended to introduce or strengthen. Corridor characteristics interact dynamically to create patterns of regional economic development. Models that make this interaction explicit have combined elements of the New Economic Geography (nonlinear and General Equilibrium elements). The Asian Development Bank (ADB) has a significant stake in the successful application of corridor development approaches with an annual investment of $2 billion or more in regional cooperation and integration.
    Keywords: Economic corridors; development; regional economic integration; agents; nonlinear dynamics
    JEL: F15 O18 R12 R58
    Date: 2013–07–01
  6. By: Krüger, Jens (Asian Development Bank)
    Abstract: This paper examines the role of international trade in employment growth in micro- and small enterprises using a representative sample of manufacturing firms in six Southeast Asian countries. After controlling for firm and individual characteristics as well as country and sector dummies, participation in international trade plays a significant role in explaining this growth, boosting firm-level growth by 3% per year on average. The fact that firms start exporting quickly after their foundation suggests that reverse causality is not an issue for our estimates. However, biases arising from unobserved heterogeneity cannot be ruled out. Therefore, we exploit the fact that firms were exposed to unexpected variation in real exchange rates between 2005 and 2008 to investigate the causal relationship between trade and employment growth. The results are not conclusive, but they do not suggest that the relationship is driven by unobserved heterogeneity.
    Keywords: MSE graduation; trade; employment growth
    JEL: D22 O12
    Date: 2013–08–01
  7. By: Ramungul, Nudjarin; Michida, Etsuyo; Nabeshima, Kaoru
    Abstract: The rules governing the trade of goods in global markets have shifted toward non-tariff measures related to environmental and chemical safety. Unlike traditional environmental/safety requirements, the scope of modern regulations covers products’ environmental performance and chemical safety. To comply with these modern regulations, production practices along the entire supply chain must be realigned to manage certain chemical substances incorporated into the final product. This paper examines the implications of product-related environmental and chemical safety regulations on different firms operating in Thailand.
    Keywords: Thailand, Environmental law, Environmental protection, Exports, Industrial policy, Environment, Regulation
    JEL: F18 O25 Q56
    Date: 2013–02
  8. By: Kyophilavong, Phouphet; Shahbaz, Muhammad; Salah Uddin, Gazi
    Abstract: This study aims to test the existence of J-curve phenomenon in Laos’s economy using quarterly data over the period of 1993-2010. The ARDL bounds testing approach to cointegration is used to examine short run as well as long run impact of real depreciation of Lao kip on Lao trade balance. The empirical results suggest that there is J-curve effect in case of Laos. The impact of real depreciation of the Lao kip on Lao trade balance is insignificant in long run. In short-run, real depreciation has inverse impact on Lao’s trade balance. The long-run trade balance is determined by domestic income.
    Keywords: J-curve, ARDL approach, Laos
    JEL: C00
    Date: 2013–08–07
  9. By: Degryse, Hans; Elahi, Muhammad Ather; Penas, María Fabiana
    Abstract: We study the role of regional banking system characteristics for regional banking system fragility in Asia, Europe, Latin America and the US. We find that regional banking system fragility reduces when banks in the region jointly hold more liquid assets, are better capitalized, and when regional banking systems are more competitive. For Asia and Latin-America, a greater presence of foreign banks and more wholesale funded banks also reduces regional banking fragility. In contrast, regional banking fragility increases in foreign bank presence and wholesale funding in the US. We further investigate the possibility of contagion across regions. We find that the contagion effects of Europe and the US on Asia and Latin America are significantly higher compared to the effect of Asia and Latin America among themselves. Finally, the impact of cross-regional contagion is attenuated when the host region has a more liquid and more capitalized banking sector. JEL Classification: G15, G20, G29
    Keywords: Banking system stability, cross-regional contagion, financial integration
    Date: 2013–07

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