nep-sea New Economics Papers
on South East Asia
Issue of 2013‒12‒29
eighteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. A Factor-augmented VAR Analysis of Business Cycle Synchronization in East Asia and Implications for a Regional Currency Union By Hyeon-seung Huh; David Kim; Won Joong Kim; Cyn-Young Park
  2. Examining the determinants of food prices in developing Asia Hypothesis? By Hyeon-seung Huh; Cyn-Young Park
  3. Bank Opacity, Intermediation Cost and Globalization: Evidence from a Sample of Publicly Traded Banks in Asia By Wahyoe Soedarmono; Amine Tarazi
  4. Transmitting global liquidity to East Asia: policy rates, bond yields, currencies and dollar credit By Dong He; Robert N McCauley
  5. Asia’s decoupling: fact, forecast or fiction? By Lillie Lam; James Yetman
  6. Finding the Best Indicators to Identify the Poor By Adama Bah
  7. Estimating Vulnerability to Poverty using Panel data: Evidence from Indonesia By Adama Bah
  8. Who Suffers the Penalty? A Panel Data Analysis of Earnings Gaps in Vietnam By Roubaud, François; Nordman, Christophe Jalil; Nguyen, Huu Chi
  9. Sharp Bounds on Heterogeneous Individual Treatment Responses By Lee, Jinhyun
  10. Asian Disease-type of Framing of Outcomes as an Historical Curiosity By Dorian Jullien
  11. Intrinsic motivation, effort and the call to public service By Banuri, Sheheryar; Keefer, Philip
  12. Integração Produtiva, Fragmentação da Produção e Evolução do Comércio Internacional: Como Evoluíram os Países da Ásia e América Latina? By Marcelo José Braga Nonnenberg
  13. Risk and Return in Village Economies By Krislert Samphantharak; Robert Townsend
  14. Estimation of rates of return on social protection: Making the case for non-contributory social transfers in Cambodia By Mideros Mora, Andres; Gassmann, Franziska; Mohnen, Pierre
  15. Exchange Rate Misalignment and Economic Growth: Recent Evidence in Malaysia By n.a.m, Naseem; m.s, Hamizah
  16. Macroeconomic Policy in New Zealand: From the Great Inflation to the Global Financial Crisis By Bruce White
  17. Windows and doors: world market outlook By Sara Colautti; Stefania Pelizzari; Michela Amico
  18. Truthful Equilibria in Dynamic Bayesian Games By Johannes Horner; Satoru Takahashi; Nicolas Vieille

  1. By: Hyeon-seung Huh (Yonsei University, Republic of Korea); David Kim (University of Sydney, Australia); Won Joong Kim (Konkuk University, Republic of Korea); Cyn-Young Park (Asian Development Bank, Philippines)
    Abstract: Debate continues over whether a monetary or currency union will be a viable alternative to the current exchange arrangements in East Asia. The present paper adds to the literature by assessing the level of business cycle synchronization among 10 major East Asian countries, which is considered a key precondition for a regional currency union. Unlike previous studies, this paper employs a factor-augmented VAR model that characterizes a large set of 62 foreign and domestic variables simultaneously. Five common shocks are identified, and we examine how and to what extent these shocks affect each economy in the region. Empirical results indicate that the majority of East Asian countries exhibit similar responses to world and regional shocks. Of particular importance is the finding that individual GDPs are well synchronized in response to the two major determinants of world and regional GDP shocks. Overall, the evidence presents positively for consideration of a regional currency union in East Asia. Some suggestions are offered concerning steps to build a foundation towards the establishment of an East Asian currency union.
    Keywords: Business Cycle Synchronization, Asian Currency Union, Factor-augmented VAR
    JEL: E32 F33 F44
    Date: 2013–12
  2. By: Hyeon-seung Huh (Yonsei University); Cyn-Young Park (Asian Development Bank)
    Abstract: How the price of food is determined has become a critical issue, given the drastic surges in prices in recent years and the prevailing expectation of further increases. Along this line, this paper examines the sources of food price fluctuations in 11 developing Asian countries. The working model is a block Vector AutoRegression (VAR), and 10 variables for each country are classified into three blocks?world, region, and country?depending on their origin and nature. Empirical evidence shows that the regional shock plays a pivotal role in explaining the variations of domestic food prices, particularly at medium- to long-term horizons. Contrary to conventional belief, the world food price shock contributes little to the dynamics of domestic food prices in developing Asia. The findings suggest Asian food markets are more integrated regionally than with the world market. The short-run movements of domestic food prices are accounted for largely by the country¡¯s own shock. Taken together, our findings suggest that promoting food price stability would require efforts at the regional level as well as at the domestic level, reflecting the influence of region-specific factors. Extensions to the developing countries in other regions produce similar findings on the determination of food prices.
    Keywords: Food price; Developing Asia; Shocks; Block VAR business cycles
    JEL: C32 F15 Q11
    Date: 2013–12
  3. By: Wahyoe Soedarmono (Universitas Siswa Bangsa Internasional, Faculty of Business / Sampoerna School of Business - un); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - Université de Limoges : EA1088 - Institut Sciences de l'Homme et de la Société)
    Abstract: This paper examines the relationship between opacity and the cost of intermediation in Asian banks. Using a sample of publicly traded commercial banks from 2002 to 2008, our empirical results show that higher opacity is associated with a lower intermediation cost in banking. Hence, bank managers in their efforts to overcome asymmetric information issues and to improve transparency tend to offset the higher cost of acquiring and disclosing information by increasing the cost of intermediation for entrepreneurs. Moreover, a deeper look at the country level indicates that the negative link between opacity and the cost of intermediation is reversed as globalization increases. Greater globalization therefore outweighs managerial entrenchment behavior to preserve bank opacity. Our findings highlight that bank opacity issues are even more costly in countries with higher globalization.
    Date: 2013
  4. By: Dong He; Robert N McCauley
    Abstract: We review extant work on the transmission of monetary policy, both conventional and unconventional, of the major advanced economies to East Asia through monetary policy reactions, integrated bond markets and induced currency appreciation. We present new results on the growth of foreign currency credit, especially US dollar credit, as a transmission mechanism. Restrained growth of dollar credit in Korea contrasts with very rapid growth on the Chinese mainland and in Hong Kong SAR.
    Keywords: global liquidity, Taylor rule, monetary policy, bond markets, exchange rates, foreign currency debt, dollarisation, macroprudential policy, capital controls
    Date: 2013–10
  5. By: Lillie Lam; James Yetman
    Abstract: Standard measures of real economic co-movement between Asia-Pacific economies and those elsewhere had been observed to follow a downward trend, leading some commentators to suggest that the region was decoupling. However, this process reversed in response to the International Financial Crisis, and co-movement increased to historically high levels for some economies. We examine co-movement patterns and show that these are very sensitive to changes in macroeconomic volatility over time. Controlling for this, however, co-movement is closely linked to underlying trade and financial integration. If international links continue to strengthen in future, co-movement will strengthen in tandem. Decoupling is more a fiction than a fact or a forecast.
    Keywords: business cycle co-movement, decoupling
    Date: 2013–12
  6. By: Adama Bah
    Abstract: Proxy-means testing (PMT) is a method used to assess household or individual welfare level based on a set of observable indicators. The accuracy, and therefore usefulness of PMT relies on the selection of indicators that produce accurate predictions of household welfare. In this paper I propose a method to identify indicators that are robustly and strongly correlated with household welfare, measured by per capita consumption. From an initial set of 340 candidate variables drawn from the Indonesian Family Life Survey, I identify the variables that contribute most significantly to model predictive performance and that are therefore desirable to be included in a PMT formula. These variables span the categories of household private asset holdings, access to basic domestic energy, education level, sanitation and housing. A comparison of the predictive performance of PMT formulas including 10, 20 and 30 of the best predictors of welfare shows that leads to recommending formulas with 20 predictors. Such parsimonious models have similar predictive performance as the PMT formulas currently used in Indonesia, although these latter are based on models of 32 variables on average.
    Keywords: Proxy-Means Testing, Variable/Model Selection, Targeting, Poverty, social protection
    JEL: I38 C52
    Date: 2013
  7. By: Adama Bah
    Abstract: Traditional poverty measures fail to indicate the degree of risk of becoming or remaining poor that households are confronted to. They can therefore be misleading in the context of implementing poverty reduction policies. In this paper I propose a method to estimate an index of ex ante vulnerability to poverty, defined as the probability of being poor in the (near) future given current observable characteristics, using panel data. This method relies on the estimation of the expected mean and variance of future consumption conditional on current consumption and observable characteristics. It generates a vulnerability index, or predicted probability of future poverty, which performs well in predicting future poverty, including out of sample. About 80% of households with a 2000 vulnerability index of 100% are actually poor in 2007. This approach provides information on the population groups that have a high probability of becoming or remaining poor in the future, whether currently poor or not. It is therefore useful to complement traditional poverty measures such as the poverty headcount, in particular for the design and planning of poverty reduction policies.
    Keywords: Poverty, vulnerability, Household consumption
    JEL: C53 I32
    Date: 2013
  8. By: Roubaud, François; Nordman, Christophe Jalil; Nguyen, Huu Chi
    Abstract: In spite of its predominant economic weight in developing countries, little is known about the informal sector earnings structure compared to that of the formal sector. Taking advantage of the rich VHLSS dataset in Vietnam, in particular its three wave panel data (2002, 2004, 2006), we assess the magnitude of various formal–informal earnings gaps while addressing heterogeneity at three different levels: the worker, the job (wage employment vs. self-employment) and the earnings distribution. We estimate fixed effects and quantile regressions to control for unobserved individual characteristics. Our results suggest that the informal sector earnings gap highly depends on the workers’ job status and on their relative position in the earnings distribution. Penalties may in some cases turn into premiums. By comparing our results with studies in other developing countries, we draw conclusions highlighting Vietnam’s labour market specificity
    Keywords: Informal employment; earnings gap; transition matrix; panel data; Vietnam;
    JEL: J21 J23 J24 J31 O17
    Date: 2013–12
  9. By: Lee, Jinhyun
    Abstract: This paper discusses how to identify individual-specific causal effects of an ordered discrete endogenous variable. The counterfactual heterogeneous causal information is recovered by identifying the partial differences of a structural relation. The proposed refutable nonparametric local restrictions exploit the fact that the pattern of endogeneity may vary across the level of the unobserved variable. The restrictions adopted in this paper impose a sense of order to an unordered binary endogeneous variable. This allows for a uni.ed structural approach to studying various treatment effects when self-selection on unobservables is present. The usefulness of the identi.cation results is illustrated using the data on the Vietnam-era veterans. The empirical findings reveal that when other observable characteristics are identical, military service had positive impacts for individuals with low (unobservable) earnings potential, while it had negative impacts for those with high earnings potential. This heterogeneity would not be detected by average effects which would underestimate the actual effects because different signs would be cancelled out. This partial identification result can be used to test homogeneity in response. When homogeneity is rejected, many parameters based on averages may deliver misleading information.
    Date: 2013
  10. By: Dorian Jullien (University of Nice Sophia Antipolis; GREDEG CNRS)
    Abstract: This paper discusses the ways by which a certain type of behavioral deviation from expected utility theory has been handled by psychologists and economists. With respect to the historical background of decision theory in economics, it is argued that there are good reasons for more theoretical developments from this behavioral deviation.
    Keywords: behavioral economics, psychology, decision theory, microeconomics, rationality
    JEL: D00 D01 D03 B21 B41
    Date: 2013–12
  11. By: Banuri, Sheheryar; Keefer, Philip
    Abstract: Pay schemes in the public sector aim to attract motivated, high-ability applicants. A nascent literature has found positive effects of higher pay on ability and no or slightly positive effects on motivation. This paper revisits this issue with a novel subject pool, students destined for the private and public sectors in Indonesia. The analysis uses dictator games and real effort tasks to examine wage effects on a measure of motivation that exactly matches the mission of the public sector task. The model and experimental design allow for precisely measuring (1) the distribution of ability over the effort task; (2) the distribution of motivational preferences for public sector missions; and (3) outside options when choosing to work for public sector missions. Three novel conclusions emerge. First, more pro-social workers do, in fact, exert higher effort in a pro-social task. Second, in contrast to previous research, motivated individuals are more likely to join the public sector when public sector pay is low than when it is high. Third, real public sector workers exhibit greater pro-sociality than private sector workers, even for entrants into the Indonesian Ministry of Finance.
    Keywords: Public Sector Economics,Public Sector Management and Reform,Educational Sciences,Intergovernmental Fiscal Relations and Local Finance Management,Economic Stabilization
    Date: 2013–12–01
  12. By: Marcelo José Braga Nonnenberg
    Abstract: Com o aumento da importância das cadeias globais de valor (CGVs), a análise do conteúdo doméstico agregado das exportações de um país é um tema que tem chamado a atenção dos pesquisadores nos últimos anos. Na medida em que a produção industrial é crescentemente fragmentada entre diversos países e empresas, é cada vez mais frequente que um país seja o montador final do produto e apareça como origem das exportações, ao mesmo tempo que a sua contribuição ao valor agregado ao produto final seja bastante modesta. O objetivo do trabalho é, por meio da construção de uma medida de conteúdo doméstico das exportações, analisar a evolução dos principais países da América Latina e Ásia entre o início da década de 1990 e o final da década de 2000 e medir seu grau de integração produtiva às cadeias de valor. The analysis of the domestic content of exports has called the attention of a number of authors in the last years, with the growing importance of global value chains. As long as manufacturing production is increasingly fragmented between several countries and firms, the country responsible for final goods exports may have a small share in its added value. The purpose of this paper is to analyze the evolution of domestic content of exports of the main economies of Latin America and Asia between the early 1990’s and late 2000’s, by mean of a especially designed measure and assess their degree of productive integration in the value chains.
    Date: 2013–12
  13. By: Krislert Samphantharak; Robert Townsend
    Abstract: We present a framework for the study of risk and return of household enterprise in developing economies. We make predictions from two polar benchmarks: (1) an economy with Pareto optimal allocations under full risk sharing, and (2) an economy in which each autarky household absorbs risk in isolation. The full risk-sharing benchmark delivers the prediction that only aggregate covariate risk contributes to the risk premium of asset returns while idiosyncratic risk is fully diversified, consistent with analogous results derived from the Capital Asset Pricing Model (CAPM) in the finance literature. The economy with autarky households predicts that overall fluctuation at the household level is the only concern. Our framework allows us to empirically decompose the total risk in production technologies operated by households into aggregate and idiosyncratic components and provides us with a practical procedure to compute risk premium for each component separately. We apply the framework to monthly panel data from a household survey in rural Thailand where there are active risk-sharing and kinship networks. We find that there is nontrivial aggregate risk and there is a positive relationship between the expected returns on assets and the comovement of asset returns with the aggregate returns, as predicted by the full risk-sharing economy. There is residual idiosyncratic risk and it also contributes to the total risk premium, as predicted by the autarky benchmark. However, although idiosyncratic risk is the dominant factor in total risk, our study shows that it accounts for a much smaller share of total risk premium. Exposure to aggregate and idiosyncratic risk is heterogeneous across households as are the corresponding risk-adjusted returns, with important implications for vulnerability and productivity.
    JEL: D12 D13 G11 L23 L26 O12 O16 O17
    Date: 2013–12
  14. By: Mideros Mora, Andres (UNU-MERIT / MGSoG); Gassmann, Franziska (UNU-MERIT / MGSoG); Mohnen, Pierre (UNU-MERIT / MGSoG)
    Abstract: This study estimates the rates of return (RoR) of non-contributory social transfer programmes in Cambodia using household data and going beyond standard cost efficiency analyses by developing a dynamic micro simulation. It shows that social protection promotes equitable economic growth by enhancing human development and fostering economic performance at the micro level. A positive RoR is achieved after 12 periods and can reach between 12 per cent and 15 per cent after 20 periods. This study shows that micro simulation models can be extended in order to analyse the economic returns on social protection.
    Keywords: social protection, non-contributory social transfers, microsimulation, rate of return
    JEL: C15 H00 I38 O15
    Date: 2013–11–20
  15. By: n.a.m, Naseem; m.s, Hamizah
    Abstract: The present study aims at investigating the growth effects of real exchange rate misalignments in Malaysia over the period 1991:1-2009:4. The RER misalignment is built through the estimation of the NATREX equilibrium model. Using the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration framework, the results indicate the presence of positive and significant relationship between the RER misalignment and economic growth. This finding obtained is consistent with the notion that the RER misalignment through the distortion in relative price has systematic influence on the pattern of economic development.
    Keywords: Real Exchange Rate, Misalignment, NATREX Model, Output Growth, ARDL
    JEL: C13 C32 F43 O41
    Date: 2013
  16. By: Bruce White (The Treasury)
    Abstract: This paper surveys the evolution of macroeconomic policy, in the New Zealand context, from the beginning of the end of the Great Inflation of the 1970s/1980s, through to the current recovery from the Great Recession brought on by the Global Financial Crisis. The 30 or so years since the late 1970s is divided into four periods: the run-up to the mid-1984 currency crisis; the period of reform from that point until the early 1990s; the subsequent extended period of non-inflationary growth in the 1990s and into the 2000s (punctuated by the Asian Financial Crisis in 1997/98); and the GFC and the years since. The paper reviews macroeconomic policy and developments across each of these periods in relation to fiscal policy, monetary policy, exchange rate policy and prudential supervision, all of which at various times have been used with macroeconomic objectives in mind. The paper concludes with some observations on where macro policy appears to be headed, suggesting that is towards achieving some re-integration of its individual components.
    Keywords: Macroeconomy; fiscal policy; monetary policy; exchange rate policy; macro-prudential policy; prudential supervision
    JEL: E52 E62 E63
    Date: 2013–12
  17. By: Sara Colautti (CSIL Centre for Industrial Studies); Stefania Pelizzari (CSIL Centre for Industrial Studies); Michela Amico (CSIL Centre for Industrial Studies)
    Abstract: The CSIL Market Research Windows and Doors: world market outlook, contains current and historical data (production, consumption, imports, exports) and analysis of Window and Door industry for a total of 70 countries. It focuses on the 30 most important Windows and Doors markets: Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Czech Republic, Denmark, Finland, France, Germany, Italy, Japan, Mexico, Netherlands, Norway, Poland, Portugal, Romania, Russia, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, Turkey, United Kingdom and the United States. Data on international trade of windows and doors cover (in addition to the 30 countries listed above), 40 other countries, for a total of 70 countries. Part I deals with production, consumption and international trade of Windows and Doors and includes a section on world Windows and Doors statistics and an appendix with methodology notes; Part II consists of 30 country analysis tables, which include: Windows and Doors industry trends of production, apparent consumption, exports, imports for the years 2003-2012 and forecasts of yearly changes in Windows and Doors consumption in 2013 and 2014 - Major trading partners (countries of origin of imports and destination of exports of Windows and Doors)- nformation on breakdown of production by material (wood, metal, plastics) for a selection of countries; Part III includes Short profiles of major Windows and Doors manufacturers associations worldwide and a list of major sector fairs; Part IV contains addresses of top Windows and Doors manufacturers worldwide.
    JEL: L11 L22 L68
    Date: 2013–10
  18. By: Johannes Horner (Cowles Foundation, Yale University); Satoru Takahashi (National University of Singapore); Nicolas Vieille (HEC Paris)
    Abstract: This paper characterizes an equilibrium payoff subset for Markovian games with private information as discounting vanishes. Monitoring is imperfect, transitions may depend on actions, types be correlated and values interdependent. The focus is on equilibria in which players report truthfully. The characterization generalizes that for repeated games, reducing the analysis to static Bayesian games with transfers. With correlated types, results from mechanism design apply, yielding a folk theorem. With independent private values, the restriction to truthful equilibria is without loss, except for the punishment level; if players withhold their information during punishment-like phases, a "folk" theorem obtains also.
    Keywords: Bayesian games, Repeated games, Folk theorem
    JEL: C72 C73
    Date: 2013–12

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