nep-sea New Economics Papers
on South East Asia
Issue of 2013‒09‒26
sixteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Infrastructure and Income Distribution in ASEAN-5: What are the Links? By Dulani Seneviratne; Yan Sun
  2. Impacts of common rules of origin on FTA utilization By Hayakawa, Kazunobu; Laksanapanyakul, Nuttawut
  3. Limits of Monetary Policy Autonomy and Exchange Rate Flexibility by East Asian Central Banks By Axel Löffler; Gunther Schnabl; Franziska Schobert
  4. Analyzing Financial Integration in East Asia through Fractional Cointegration in Volatilities By Gilles de Truchis; Benjamin Keddad
  5. APEC 2020: Connectivity and Trade Performance: Concept and Its Evidence from APEC Economies By Maddaremmeng A. Panennungi
  6. The Growth and Stabilization Properties of Fiscal Policy in Malaysia By Sohrab Rafiq
  7. Japan: Selected Issues By International Monetary Fund. Asia and Pacific Dept
  8. Brunei Darussalam: Statistical Appendix By International Monetary Fund. Asia and Pacific Dept
  9. Deep Financial Crises, Reforming the IMF and Building Regional Autonomy:Towards a New Hybrid Global Financial Architecture By Khan, Haider
  10. Growth Slowdowns and the Middle-Income Trap By Shekhar Aiyar; Romain A Duval; Damien Puy; Yiqun Wu; Longmei Zhang
  11. On lower and upper bounds for Asian-type options: a unified approach By Alexander Novikov; Nino Kordzakhia
  12. Testing for Multiple Bubbles: Historical Episodes of Exuberance and Collapse in the S&P 500 By Peter C.B. Phillips; Shu-Ping Shi; Jun Yu
  13. Living with the Trilemma Constraint: Relative Trilemma Policy Divergence, Crises, and Output Losses for Developing Countries By Joshua Aizenman; Hiro Ito
  14. Indonesian Innovations on Information Technology 2013: Between Syntactic and Semantic Textual Network By Situngkir, Hokky
  15. Can geography lock a society in stagnation? By DAO, Nguyen-Thang; DAVILA, Julio
  16. Oil price volatility, economic growth and the hedging role of renewable energy By Rentschler, Jun E.

  1. By: Dulani Seneviratne; Yan Sun
    Abstract: Adequate infrastructure has long been viewed as an important factor in economic development. Based on regressions covering 76 advanced and emerging market economies, this paper estimates the impact of infrastructure and investment on income distribution. It finds that better infrastructure, both quality and quantity, promotes income equality, while the link between investment and income distribution is weak.
    Keywords: Infrastructure;Indonesia;Malaysia;Philippines;Thailand;Vietnam;Association of Southeast Asian Nations;Investment;Income distribution;Cross country analysis;Infrastructure, Income Distribution, Investment, ASEAN-5, GINI, Inclusive Growth
    Date: 2013–02–11
  2. By: Hayakawa, Kazunobu; Laksanapanyakul, Nuttawut
    Abstract: This paper examines empirically the impacts of sharing rules of origin (RoOs) with other ASEAN+1 free trade agreements (FTAs) on ASEAN-Korea FTA/ASEAN-China FTA utilization in Thai exports in 2011. Our careful empirical analysis suggests that the harmonization of RoOs across FTAs play some role in reducing the costs yielded through the spaghetti bowl phenomenon. In particular, the harmonization to "change-in-tariff classification (CTC) or real value-added content (RVC)" will play a relatively positive role in not seriously discouraging firms’ use of multiple FTA schemes. On the other hand, the harmonization to CTC or CTC&RVC hinders firms from using those schemes.
    Keywords: Thailand, China, South Korea, International trade, FTA, Tariff, International agreements, Exports, Free trade agreement, Rules of origin, Spaghetti bowl phenomenon
    JEL: F10 F13 F15
    Date: 2013–09
  3. By: Axel Löffler; Gunther Schnabl (Institute for Economic Policy, University of Leipzig); Franziska Schobert
    Abstract: Given low interest rates in the large industrial countries and buoyant capital inflows into the emerging markets East Asian central banks have accumulated large stocks of foreign reserves. As the resulting easing of monetary conditions has become a threat to domestic price and financial stability, the East Asian central banks have embarked on substantial sterilization operations to absorb what we call 'surplus liquidity' from the domestic banking systems. This has brought the East Asian central banks into debtor positions versus the domestic banking systems. We show based on a central bank loss function that given buoyant capital inflows and exchange rate stabilization the absorption of surplus liquidity leads either to financial repression, or rising inflation or both. Assuming that a debtor central bank moved towards a freely floating exchange rate to gain monetary policy independence, we show that monetary policy independence is undermined by sterilization costs and revaluation losses on foreign reserves.
    Keywords: Debtor Central Banks, Monetary Policy Autonomy, Sterilization, Exchange Rate Regime, East Asia
    JEL: E52 E58 F31
    Date: 2013–08–22
  4. By: Gilles de Truchis (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS); Benjamin Keddad (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: Two integrated financial markets are generally subjected to common shocks revealing that commonalities in fundamentals drive the underlying return processes. In such a case, volatilities should share a long-run component although their transitory components might temporary diverge. Accordingly, we investigate financial integration in East Asian by analyzing the co-persistent nature of their integrated volatilities. Using recent fractional cointegration techniques, we find that volatilities of several markets converge in long-run to a common stochastic equilibrium. Our results reveal that a global integration process drives the most developed markets of the region, while no evidence of co-persistence appears between emerging markets.
    Keywords: integrated volatility, co-persistence, Fractional cointegration, East Asian stock markets, financial integration.
    Date: 2013–09
  5. By: Maddaremmeng A. Panennungi (APEC Study Centre University of Indonesia (ASC UI))
    Abstract: Connectivity is one of the specific agenda in APEC summit 2013 in Indonesia. Physical connectivity is one of the pillars among three pillar of connectivity. Infrastructures are very important to facilitate connectivity, namely logistics. This paper is aimed at (i) exploring the relation between logistics (both domestic and international logistics) and trade performance by using gravity model; (ii) developing the logistics cost index (Domestic Logistics Cost Index and International Logistics Cost Index) which is based on economic logic of gravity model; (iii) showing the empirical evidence of the relation between the export performance and the new logistics cost index in APEC economies; (iv) Understanding the selected case of cross border and inside the border connectivity development including its challenges. Some interesting findings are shown in the following: First, the extension of gravity model shows that logistics that consist of domestic and international logistics have positive relation with the improvement trade performance. Second, both of the new logistics index has a positive relation with the export performance in APEC economies; Third, by using the new logistic indices, it could be shown that the improvement of logistics condition of one country/economy in APEC tend to increase the export performance of the economy/country and in the same time it will increase the export of the other APEC economies to that country. Fourth, there are progress and challenges in the development of the infrastructures that support logistics in Indonesia.
    Keywords: Domestic Logistics Cost, International Logistic Cost, Export Performance, APEC Economies, Indonesia
    JEL: F1 F4
    Date: 2013–09
  6. By: Sohrab Rafiq
    Abstract: This paper examines the size of the fiscal multiplier values generated in Malaysia. The results show that a government spending shock leads to broad positive economic effects. Although, the effectiveness of fiscal policy alters across macroeconomic states. The estimates show that since the Asian financial crisis the medium- and long-run effect of fiscal policy spending has declined. Some of this is down to greater credit availability and less investment spending.
    Keywords: Fiscal policy;Malaysia;Government expenditures;External shocks;Economic models;Fiscal Policy, Economic Growth, Stabilization, Multipliers, Time-variation
    Date: 2013–06–19
  7. By: International Monetary Fund. Asia and Pacific Dept
    Keywords: Interest rates;Health care;Labor markets;Fiscal reforms;Banking sector;Financial institutions;Selected issues;Japan;
    Date: 2013–08–05
  8. By: International Monetary Fund. Asia and Pacific Dept
    Keywords: Balance of payments;Commercial banks;Employment;Energy sector;Exports;Financial soundness indicators;Government expenditures;Gross domestic product;Imports;Revenues;Statistical annexes;Brunei Darussalam;
    Date: 2013–06–26
  9. By: Khan, Haider
    Abstract: This paper analyzes the problems of creating and expanding national macroeconomic policy space and economic governance. It develops a critical constructivist evolutionary theory of international financial institutions and arrangements within a framework of dynamic complex adaptive economic systems(DCAES). More specifically, the paper analyzes the following aspects: • The IMF’s response to recent and emerging global economic and challenges, and the evolving nature of its role. • The most appropriate role of regional arrangements in financial stabilization, based on experiences with such arrangements in this and prior episodes of crisis. The role of IMF under the present globalization arrangements and repeated financial crises is studied by following such a critical constructivist evolutionary theory of international financial institutions within a rigorous DCAES framework. It is shown that IMF must and can change in a direction which allows for greater national policy autonomy. It is also shown that the IMF needs complementary regional institutions of cooperation in order to create a stabilizing hybrid global financial architecture that will be more democratic and pro-development in terms of its governance structure and behavior. Thus regional financial architectures will need to be integral parts of any new global financial architecture (GFA).The tentative steps taken towards regional cooperation in Asia since Asian financial crisis are discussed to illustrate the opportunities and challenges posed by the need to evolve towards a hybrid GFA. The opportunities and challenges arising from the current global crisis are also analyzed in this context.
    Keywords: dynamic complex adaptive economic systems; financial crises; global financial architecture; regional financial architectures; a hybrid GFA; regional cooperation; the IMF
    JEL: F3
    Date: 2013–08
  10. By: Shekhar Aiyar; Romain A Duval; Damien Puy; Yiqun Wu; Longmei Zhang
    Abstract: The “middle-income trap†is the phenomenon of hitherto rapidly growing economies stagnating at middle-income levels and failing to graduate into the ranks of high-income countries. In this study we examine the middle-income trap as a special case of growth slowdowns, which are identified as large sudden and sustained deviations from the growth path predicted by a basic conditional convergence framework. We then examine their determinants by means of probit regressions, looking into the role of institutions, demography, infrastructure, the macroeconomic environment, output structure and trade structure. Two variants of Bayesian Model Averaging are used as robustness checks. The results—including some that indeed speak to the special status of middle-income countries—are then used to derive policy implications, with a particular focus on Asian economies.
    Keywords: Economic growth;East Asia;Latin America;Developing countries;Cross country analysis;Economic models;growth, slowdown, middle income trap, Bayesian Model Averaging
    Date: 2013–03–20
  11. By: Alexander Novikov; Nino Kordzakhia
    Abstract: In the context of dealing with financial risk management problems it is desirable to have accurate bounds for option prices in situations when pricing formulae do not exist in the closed form. A unified approach for obtaining upper and lower bounds for Asian-type options, including options on VWAP, is proposed in this paper. The bounds obtained are applicable to the continuous and discrete-time frameworks for the case of time-dependent interest rates. Numerical examples are provided to illustrate the accuracy of the bounds.
    Date: 2013–09
  12. By: Peter C.B. Phillips (Cowles Foundation, Yale University); Shu-Ping Shi (Australian National University); Jun Yu (Singapore Management University)
    Abstract: Recent work on econometric detection mechanisms has shown the effectiveness of recursive procedures in identifying and dating financial bubbles. These procedures are useful as warning alerts in surveillance strategies conducted by central banks and fiscal regulators with real time data. Use of these methods over long historical periods presents a more serious econometric challenge due to the complexity of the nonlinear structure and break mechanisms that are inherent in multiple bubble phenomena within the same sample period. To meet this challenge the present paper develops a new recursive flexible window method that is better suited for practical implementation with long historical time series. The method is a generalized version of the sup ADF test of Phillips, Wu and Yu (2011, PWY) and delivers a consistent date-stamping strategy for the origination and termination of multiple bubbles. Simulations show that the test significantly improves discriminatory power and leads to distinct power gains when multiple bubbles occur. An empirical application of the methodology is conducted on S&P 500 stock market data over a long historical period from January 1871 to December 2010. The new approach successfully identifies the well-known historical episodes of exuberance and collapse over this period, whereas the strategy of PWY and a related CUSUM dating procedure locate far fewer episodes in the same sample range.
    Keywords: Date-stamping strategy, Flexible window, Generalized sup ADF test, Multiple bubbles, Rational bubble, Periodically collapsing bubbles, Sup ADF test
    JEL: C15 C22
    Date: 2013–09
  13. By: Joshua Aizenman; Hiro Ito
    Abstract: This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the relative policy divergence among the three trilemma policy choices, namely monetary independence, exchange rate stability, and financial openness, we find that emerging market countries have adopted trilemma policy combinations with the least degree of relative policy divergence in the last fifteen years. We also find that a developing or emerging market country with a higher degree of relative policy divergence is more likely to experience a currency or debt crisis. However, a developing or emerging market country with a higher degree of relative policy divergence tends to experience smaller output losses when it experiences a currency or banking crisis. Latin American crisis countries tended to reduce their financial integration in the aftermath of a crisis, while this is not the case for the Asian crisis countries. The Asian crisis countries tended to reduce the degree of relative policy divergence in the aftermath of the crisis, probably aiming at macroeconomic policies that are less prone to crises. The degree of relative policy divergence is affected by past crisis experiences – countries that experienced currency crisis or a currency-banking twin crisis tend to adopt a policy combination with a smaller degree of policy divergence.
    JEL: F31 F36 F41 O24
    Date: 2013–09
  14. By: Situngkir, Hokky
    Abstract: Network and graph model is a good alternative to analyze huge collective textual data for the ability to reduce the dimensionality of the data. Texts can be seen as syntactic and semantic network among words and phrases seen as concepts. The model is implemented to observe the proposals of Indonesian innovators for implementation of information technology. From the analysis some interesting insights are outlined.
    Keywords: innovation, semantic map, corpus, complex network, computational linguistics.
    JEL: C8 H8 I2 L0 L00 O3 O31 O53 Y10
    Date: 2013–09–17
  15. By: DAO, Nguyen-Thang (Université catholique de Louvain, CORE, Belgium; Vietnam Centre for Economic and Policy Research (VEPR), Hanoi, Vietnam); DAVILA, Julio (Université catholique de Louvain, CORE, Belgium)
    Abstract: Yes. By using real-time structure break monitoring techniques we find evidence against monotonic response pattern, specifically three response structures of US stock market to the federal monetary policy actions based on a sample from 1989-2010. We re-estimate the market response in each of the three structures and find results stronger than previously documented especially in 2001-2008. We propose a “FedGap” variable which measures the deviation of Fed policy from the “Taylor Rule” in explanation and find it to be significant with economic meaning. We conclude that market responses proportionally to the size of the FedGap and it thus serves as a new “macro-state” factor which can explain the dynamic response patterns of financial markets. We also examine the issue from the bond market, and find similar results.
    Keywords: real-time structure breaks, dynamic market response, monetary policy, Taylor Rule, FedGap
    JEL: E44 G12 G14 G28
    Date: 2013–07–04
  16. By: Rentschler, Jun E.
    Abstract: This paper investigates the adverse effects of oil price volatility on economic activity and the extent to which countries can hedge against such effects by using renewable energy. By considering the Realized Volatility of oil prices, rather than following the standard approach of considering oil price shocks in levels, the effects of factor price uncertainty on economic activity are analyzed. Sample countries represent developed and developing, oil importing and exporting and service/industry-based economies (United States, Japan, Germany, South Korea, India, and Malaysia) and thus complement the standard literature's analysis of Western OECD countries. In a vector auto-regressive setting, Granger causality tests, impulse response functions, and variance decompositions show that oil price volatility has more-adverse effects in all sample countries than oil price shocks alone can explain. The paper finds that the sensitivity to oil price volatility varies widely across countries and discusses various factors which may determine the level of sensitivity (such as sectoral composition and the energy mix). This implies that the standard approach of solely considering net oil importer-exporter status is not sufficient. Simulations of volatility shocks in hypothetical energy mixes (with increased renewable shares) illustrate the potential economic benefits resulting from efforts to disconnect the macroeconomy from volatile commodity markets. It is concluded that expanding renewable energy can in principle reduce an economy's vulnerability to oil price volatility, but a country-specific analysis would be necessary to identify concrete policy measures. Overall, the paper provides an additional rationale for reducing exposure and vulnerability to oil price volatility for the sake of economic growth.
    Keywords: Energy Production and Transportation,Climate Change Economics,Markets and Market Access,Energy Demand,Emerging Markets
    Date: 2013–09–01

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