nep-sea New Economics Papers
on South East Asia
Issue of 2014‒01‒17
twenty-one papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Impact Assessment of Poverty Reduction Programs of Ho Chi Minh City in Vietnam By Do, Thu Trang; Le, Hai Chau; Nguyen, Viet Cuong; Nguyen, Hong Thuy; Phung, Thanh Thu; Phung, Duc Tung
  2. The Possible Effects of Trans-Pacific Partnership on Turkish Economy By Oduncu, Arif; Mavuş, Merve; Güneş, Didem
  3. Land governance of suburban areas of Vietnam By de Wit, J.
  4. Should Parents Work Away from or Close to Home? The Effect of Temporary Parental Absence on Child Poverty and Children’s Time Use in Vietnam By Nguyen, Cuong Viet; Vu, Linh Hoang
  5. Tracing the Welfare and Livelihood Choices of Farm Households following Displacement through Land Recovery in Vietnam By de Wit, J.
  6. Business cycle synchronization and vertical trade integration: A case study of the Eurozone and East Asia By Ayako Saiki; Sunghyun Henry Kim
  7. Financing Infrastructure in the Philippines: Fiscal Landscape and Resources Mobilization By Llanto, Gilberto M.; Navarro, Adoracion M.
  8. Have economic growth and institutional quality contributed to poverty and inequality reduction in Asia? By Perera, Liyanage Devangi H.; Lee, Grace H.Y.
  9. Ship incident risk in the areas of Tubbataha and Banc d’Arguin: A case for designation as Particular Sensitive Sea Area? By Knapp, S.; Heij, C.; Henderson, R.; Kleverlaan, E.
  10. Indonesia: Staff Report for the 2013 Article IV Consultation By International Monetary Fund. Asia and Pacific Dept
  11. Growth and Redistribution: Is there 'Trickle Down' Effect in the Philippines? By Parel, Danileen Kristel C.
  12. Market Shares in the Wake of the Global Crisis: the Quarterly Export Competitiveness Database. By Gaulier, G.; Santoni, G.; Taglioni, D.; Zignago, S.
  13. Marriage Crisis and Housing Costs: Empirical Evidence from Provinces of Iran By Mohammad Reza Farzanegan; Hassan Gholipour Fereidouni
  14. Bloody Foreigners! Overseas Equity on the London Stock Exchange, 1869-1928 By Richard S.Grossman
  15. Estimating Income/Expenditure Differences across Populations: New Fun with Old Engel's Law-Working Paper 339 By Lant Pritchett, Marla Spivack
  16. Modeling Forest Trade in Logs and Lumber: Qualitative and Quantitative Analysis By G. Cornelis van Kooten
  17. Some Conceptual and Methodological Issues on Happiness: Lessons from Evolutionary Biology By Yew-Kwang NG
  18. Spatial Patterns and Size Distributions of Cities By Wen-Tai Hsu; Tomoya Mori; Tony E. Smith
  19. Propagation of Financial Crises: A Heterogenous Agents Approach By Weihong HUANG; Zhenxi CHEN
  20. On the limiting and empirical distributions of IV estimators when some of the instruments are actually endogenous By Jan F. KIVIET; Jerzy NIEMCZYK
  21. International Environmental Agreements with Endogenous or Exogenous Risk By Fuhai HONG; Larry KARP

  1. By: Do, Thu Trang; Le, Hai Chau; Nguyen, Viet Cuong; Nguyen, Hong Thuy; Phung, Thanh Thu; Phung, Duc Tung
    Abstract: The main purpose of this report is to measure the impact of poverty reduction programs and policies of Ho Chi Minh City – the biggest city in Vietnam - in the period 2009-2013 using both quantitative and quality methods. In general, poverty reduction programs have positive impacts on living conditions of poor households. Having access to these programs enables poor/near-poor households to increase income and have better access to decent jobs. In addition, tuition-fee reduction and exemption and health insurance programs help households reduce education and medical expenses. However, there are a number of problems such as limited support fund and poor awareness of the poor/near-poor about the vocational training, unreasonable support mechanism and inconsistency in line departments’ coordination.
    Keywords: Poverty reduction programs, impact evaluation, household surveys, Vietnam
    JEL: I3 O1 O2
    Date: 2013–06–23
  2. By: Oduncu, Arif; Mavuş, Merve; Güneş, Didem
    Abstract: Due to the World Trade Organization’s (WTO) deadlocked multilateral trade negotiations, many countries have started to establish Free Trade Agreements (FTA). In this context, twelve countries including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States (US) and Vietnam have decided to establish Trans-Pacific Partnership (TPP). This study focuses on the impacts of this partnership on Turkish economy. By using Global Trade Analysis Project (GTAP) database and a general equilibrium model, the effects of various scenarios on GDP and exports are studied. Obtained results show that Turkey could be in a loss up to 1% of GDP if present 12 countries establish the TPP. Otherwise, potential countries’ inclusions in TPP could cause higher losses – up to 2.4% of GDP- for Turkey.
    Keywords: Free Trade Agreements, Trans-Pacific Partnership, Turkey.
    JEL: F13 F14 F15
    Date: 2014–01
  3. By: de Wit, J.
    Abstract: After the Doi Moi (‘renovation’) reforms in Vietnam from 1986, land ownership rules were adjusted, effectively terminating former land collectivisation efforts. While land ownership remained fully under the control of the state, a 1993 land law conferred 20-year leaseholds to most farmers. They could now utilize farm land individually, and sell, swap and mortgage the land in a situation similar to private ownership. These leaseholds are now expiring and a new 2013 land law is in the making. This paper was initially written for UNDP Vietnam which supports Vietnam to help formulate a strong new land law, and brings out the complexities of land governance in the suburban areas of fast expanding Vietnamese cities. It first considers the present and changing land use of suburban areas and the key stakeholders involved here – powerful State Owned Enterprises, farmers, bureaucrats and communist party leaders. Planning practices are then assessed – and seen to be both rigid and complex, with different departments at various levels working at cross purposes under conditions of conflicting rules, laws and weak capacities. This is one reason for the dominance of informal arrangements and widespread corruption, where powerful actors benefit hugely and illegally from conditions of opacity and informal networks. Overall outcomes are that cities expand in a haphazard (‘leapfrog’) and inefficient manner, with insufficient attention for timely and adequate infrastructure, the environment and for people’s welfare as in social amenities and parks. As a result of lopsided incentive systems, it is the state which foregoes huge incomes and faces more costly investments, while many suburban farmers are affected through (arbitrary) land acquisition and inadequate compensation.
    Keywords: Vietnam, environment, land governance, planning, suburban land, urban housing
    Date: 2013–06–28
  4. By: Nguyen, Cuong Viet; Vu, Linh Hoang
    Abstract: Working away from home might bring higher earnings than working near home. However, the absence of parents due to work can have unexpected effects on children. This paper examines the effects of the temporary absence of parents on the well-being of children aged 5–8 years old in Vietnam, using indicators of household poverty, per capita consumption expenditure, and child time allocation. The paper relies on OLS and fixed-effects regression and panel data from the Young Lives surveys in 2007 and 2009. It finds a positive correlation between parental absence and per capita expenditure. Parental absence tends to increase per capita food expenditure instead of per capita non-food expenditure. Regarding the way children spend their time, there are no statistically significant effects of parental absence.
    Keywords: Parental migration, child poverty, remittances, impact evaluation, Vietnam.
    JEL: I3 O15 R23
    Date: 2014–01–10
  5. By: de Wit, J.
    Abstract: Over the last two decades, an estimated 4 million people in Vietnam have been affected or had their lives disrupted by the loss of or the forced eviction from their land or though land conversion where the state decided that it was to be used for other purposes. Most of them are farming households, many of whom suffered negative consequences in terms of lower incomes, unemployment and a lower social status. Some may have managed to enhance their welfare, but on the whole there is little systematic evidence on the overall impacts they had to deal with. But it is certain that the majority of farming households who were displaced – losing house and land - faced a deterioration of their wellbeing and livelihood opportunities in the long run, and after the often limited compensation money had been spent. The problems Vietnamese farmers face here are expected to only increase in the future as large quantities of land will be recovered to expand infrastructure, industrial parks, residential areas, and urban-related facilities. This is increasingly controversial and contested, as seen in numerous incidents where farmers protest fiercely or even with arms against forced evictions, against what they see as insufficient compensation for land, the arbitrary purposes for requisition, and a flawed application of rules and procedures. Efforts are under way to adopt a new Land Law in 2013, which proves very complicated in view of the huge interests involved. This paper addresses these issues with a view to better understand the impacts of land recovery on farmer households followed by displacement in Vietnam in terms of their welfare, well-being and livelihood choices, while providing policy recommendations.
    Keywords: land governance, farmer livelihoods, land recovery and compensation policy, Vietnam
    Date: 2013–12–10
  6. By: Ayako Saiki; Sunghyun Henry Kim
    Abstract: Business cycle synchronization is an important condition for a currency union to be successful. Frankel and Rose (1998) showed empirically that increased trade would have a positive impact on business cycle correlation while acknowledging the theoretical ambiguity on the relationship. Based on their finding, they claimed that the Eurozone’s optimal currency criteria (OCA) can be satisfied ex-post. In this paper, we first investigate whether the Eurozone exhibits more synchronized business cycles since the adoption of the euro. Then, we attempt to link the business cycle synchronization with trade integration. Our new contribution is that we examine the role intra-industry trade (IIT), and vertical IIT (V-IIT), in business cycle synchronization using the data of two sets of countries, Eurozone and East Asia that have been going through distinctively different kinds of economic integration. Our main findings are as follows. First, our empirical results suggest that the business cycle correlation increased over time, in both the Eurozone and East Asia, but synchronization has been progressing much faster in East Asia. Also, with respect to trade, intra-regional trade intensity in various measures has risen in East Asia but fallen in the Eurozone in recent years, perhaps due to the rise of China as an important trade partner for Europe. Second, unlike Frankel and Rose (1998), we find that the impact of increased trade intensity on business cycle correlation is ambiguous. This could be due to the fact that trade among countries with different factor endowment – e.g. countries within East Asia, among the Eurozone’s old and new member states – may dampen the business cycle correlation via increased specialization in different industries that receive different shocks. Instead, IIT, in particular V-IIT, unambiguously increased business cycle correlation in both regions. Vertical IIT increased substantially over the last few decades in East Asia but not in the Eurozone, which is consistent with the rapid increase in business cycle correlation in East Asia.
    Keywords: Business cycle synchronization; global integration; intra-industry trade; currency union
    JEL: F15 F41 F42 F44
    Date: 2014–01
  7. By: Llanto, Gilberto M.; Navarro, Adoracion M.
    Abstract: This study assesses the sources and levels of infrastructure financing in the Philippines for the last five years (2008-2012). The mapping of fiscal resources showed that there had been underinvestment in infrastructure. To illustrate, in 2008-2012, public infrastructure spending as a share of GDP ranged between a low of 1.40 percent to a high of 2.09 percent--a far cry from the target 5 percent of GDP over the medium term. The result of many years of infrastructure underinvestment is woefully manifested in the Philippines` place in quality-of-infrastructure ranking among ASEAN member-states; it is currently second to the bottom. Recently, there had been significant improvements in the government`s fiscal position that augur well for more substantial infrastructure spending in the future. New regional sources of financing, the liquid domestic capital market, and a low interest-rate environment also present opportunities for investing in infrastructure by both the government and the private sector. However, it is not only the constrained availability of financial resources that could restrain infrastructure investments but also institutional weaknesses and, therefore, the government must firmly commit to reform policies and strengthen institutions.
    Keywords: infrastructure, Philippines, public-private partnerships, ASEAN connectivity, fiscal landscape
    Date: 2014
  8. By: Perera, Liyanage Devangi H.; Lee, Grace H.Y.
    Abstract: While economic growth has been cited as one of the main factors behind the reduction in absolute poverty, the persisting problem of poverty in developing countries has raised doubts about the efficacy of economic growth in its reduction. Recent evidence revealed that growth in Asia has been accompanied by an increase in relative poverty, or income inequality. High income inequality can slow the rate of poverty reduction, and create social unrest and anxiety. The quality of institutions may also influence the extent to which economic growth reduces poverty. This study examines the effects of economic growth and institutional quality on poverty and income inequality in nine developing countries of Asia for the period 1985-2009. The System Generalized Method of Moments (GMM) estimation method is employed to estimate the equations. While economic growth does not appear to have an effect on income inequality, the results confirm that such growth leads to poverty reduction. Although improvements in government stability and law and order are found to reduce poverty, improvements in the level of corruption, democratic accountability, and bureaucratic quality appear to increase poverty levels. Similarly, the results also show that improvements in corruption, democratic accountability, and bureaucratic quality are associated with a worsening of the income distribution. This study recommends that measures taken to improve the level of institutional quality in developing countries of East and South Asia should address the problems of poverty and income distribution, while adopting policies to support informal sector workers who may be affected by institutional reform.
    Keywords: income inequality, poverty, growth, institution quality
    JEL: D3 I3 O1
    Date: 2013–06–04
  9. By: Knapp, S.; Heij, C.; Henderson, R.; Kleverlaan, E.
    Abstract: Since the early 1990's, the International Maritime Organization (IMO) has designated fourteen sea areas as Particular Sensitive Sea Areas (PSSA) that enjoy special protection because of their various important attributes and vulnerability to potential harm by increasing shipping activities. The United Nations Educational, Scientific and Cultural Organization (UNESCO) has identified two possible sites for possible designation as PSSA under IMO: the Banc d'Arguin National Park (Mauritania) and the Tubbataha Reef National Park (Philippines). This article presents an integrated framework for the estimation of total risk exposure due to shipping activities and various risk measures for ships trading in the areas of interest. Using a unique and comprehensive combination of data, we test whether ship specific risk increased over time. The results confirm an increase in the considered risk measures of ships trading through or nearby West Africa (Banc d’Arguin) and South-East Asia (Tubbataha) in general and also close to both regions and therefore support the recommendation for an increased level of protection.
    Keywords: binary logistic regression, change of risk over time, incident probabili, observation frequency, total risk exposure
    Date: 2013–06–01
  10. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: KEY ISSUES Context: A slowdown in growth in major emerging market economies (EMEs) and decline in commodity prices, and more recently, a reversal in push factors tied to a prospective exit from extraordinarily easy global monetary conditions, has put pressure on Indonesia’s balance of payments and heightened its vulnerability to shocks. Domestic policy accommodation and rising energy subsidies have also given rise to increased external and fiscal imbalances. Recent policy tightening, fuel price hikes, and exchange rate flexibility have been firmly aimed at reducing these pressures. Against this backdrop, discussions centered on actions needed to further buttress policy buffers in the face of heightened market volatility and to reduce structural impediments in support of broad-based growth. Outlook and risks: Growth is projected to slow to 5-5½ percent in 2013 and 2014. Inflation will likely peak at just below 10 percent at end2013, due mainly to the one-off effect of June fuel price increases and recent rupiah depreciation. The current account deficit is expected to exceed 3 percent of GDP in 2013 and 2014 on weak commodity exports. Reserves have also come under pressure, partly due to Bank Indonesia’s heavy intervention in the foreign exchange market in mid-2013 in order to stem the rupiah’s depreciation. In the near term, downside risks relate externally to a further adverse shift in funding conditions in EMEs and/or weaker-than-anticipated growth in these economies, notably spillovers from China and India, and domestically to a further weakening in investor sentiment, prompted by adverse external conditions and/or policy uncertainty. Key policy recommendations: Recent market volatility and reserve losses highlight the need to deal decisively with macroeconomic imbalances and contain financial stability risks. The current delay in tapering of unconventional monetary policies provides an opportunity to strengthen policy and financial buffers and improve market perceptions. Monetary policy should remain focused on anchoring inflation expectations and reducing balance of payments pressures; fiscal policy should support monetary policy in this effort, led by tax and subsidy reforms; and the exchange rate and bond yields should continue to reflect market conditions in order to facilitate an orderly adjustment to a shifting global environment. Careful monitoring of banks as financial conditions tighten and a firm closing of the gaps in the crisis management framework are needed to keep financial stability risks in check. Structural reforms should focus on a more predictable business climate and greater labor market flexibility.
    Keywords: Article IV consultation reports;Fiscal policy;Labor markets;Debt sustainability;Fiscal reforms;Banking sector;Monetary policy;Economic indicators;Staff Reports;Press releases;Indonesia;
    Date: 2013–12–15
  11. By: Parel, Danileen Kristel C.
    Abstract: This paper aims to explore the determinants of household income and expenditure growth, and assess whether the poor are benefiting from economic development. Using regression analysis, five factors were examined: (1) location of the household, (2) access to infrastructure, (3) changes in rice prices, (4) peace situation, and (5) initial household endowments. The most important finding is that impacts of the five factors vary significantly across households belonging to different income groups--the rich benefit more than the poor. This calls for an effective policy intervention in targeting the poor.
    Keywords: poverty, education, inequality, Philippines, growth, redistribution
    Date: 2014
  12. By: Gaulier, G.; Santoni, G.; Taglioni, D.; Zignago, S.
    Abstract: Over the past two decades, international trade has become a privileged engine of growth for much of the developing world. In the wake of the global crisis, countries must pay close attention to their positioning on the global map of trade and production and become aware of how they fare relative to competitors and to their past export performance. To which extent changes in their market shares are driven by exporter own supply-side capacity as opposed to external or compositional factors, dues to their product and geographical specialization? This paper uses quarterly data, covering all exchanges flows at the product level since 2005, to compute indicators of export performance stripped of compositional effects. The resulting Export Competitiveness Database (ECD) reveals that emerging and developing regions, particularly the Asia and Pacific one, had strongest capacity to gain market shares in the most recent period, with changes reflecting growth in export volumes rather than price developments (once controlled for the composition effects). In contrast, ECD indicators also trace the legacy of the double-dip recession in the euro area, which have turned into negative the geographical effects of the traditional intra-zone specialization, despite the generally positive effects of sectoral structure. These measures of competitiveness correlate to nominal and real effective exchange rates, factors that are commonly perceived as important determinants of a country’s export competitiveness.
    Keywords: export competitiveness, trade performance, shift-share decomposition.
    JEL: F10 F14 F40 C43
    Date: 2013
  13. By: Mohammad Reza Farzanegan (University of Marburg); Hassan Gholipour Fereidouni (Universiti Teknologi Malaysia)
    Abstract: The term “marriage crisis” is becoming more visible in Iranian public and private debates and constitutes a major issue in political discussions at the time of elections. The increasing working age and young population in Iran have difficult times to establish family. This has increased the political concerns of addressing the basic needs of young Iranians. This study examines the link between housing costs and marriage rate in Iran controlling for other relevant economic determinants of marriage. Using a panel of provinces of Iran over a period of nine years (2003-2011) and applying generalized method of moments (GMM) estimator, our results reveal that there is a negative relationship between housing costs and marriage rate. We also find that government special loan for marriage, and lower level of unemployment rate increase marriage rate. Finally, increasing spending on higher education has a dampening effect on marriage rate.
    Keywords: marriage, housing, real estate, Iran, GMM
    Date: 2014
  14. By: Richard S.Grossman (Department of Economics, Wesleyan University)
    Abstract: This paper presents data on quantity, capital gains, dividend, and total returns for domestic and overseas equities listed on the London Stock Exchange during 1869-1928. Indices are presented for Africa, Asia, Europe, Latin America, North America, Australia/New Zealand and for the finance, transportation, raw materials, and utilities sectors in each region. Returns and volatility were typically highest in emerging regions and the raw materials sector. Dividend yields were similar across regions and differences in total returns were due largely to disparities in capital gains. Returns of firms in more industrial markets were relatively highly correlated with each other and with developing regions with which they had substantial colonial or trade connections. Contingent liability was most extensively employed where leverage was high and the physical assets were either meager or inaccessible to creditors.
    Date: 2014–01
  15. By: Lant Pritchett, Marla Spivack
    Abstract: How much larger are the consumption possibilities of an urban US household with per capita expenditures of 1,000 US dollars per month than a rural Indonesian household with per capita expenditures of 1,000,000 Indonesian Rupiah per month? Consumers in different markets face widely different consumption possibilities and prices and hence the conversion of incomes or expenditures to truly comparable units of purchasing power is extremely difficult. We propose a simple supplement to existing purchasing power adjusted currency conversions. The Pritchett-Spivack Ratio (PSR) estimates the differences in household per capita expenditure using a simple inversion of the Engel’s law relationship between the share of food in consumption and total income/expenditures. Intuitively, we ask: “How much higher (as a ratio) would the expenditures of a household at 1,000,000 Indonesian Rupiah need to be along a given Engel relationship before they were predicted to have the same food share as a US household with consumption of 1,000 US dollars?” The striking empirical stability of Working-Lesser Engel coefficient estimates across time and space and widely available estimates of consumptions expenditures and hence food shares allow us to make two robust points using the PSR. First, the consumption of the typical (median) household in a developing country would have to rise 5 to10 fold to reach that of a household at the poverty line in an OECD country. Second, even the “rich of the poor”—the 90th or 95th percentile in developing countries—have food shares substantially higher than the “poor of the rich.”
    Keywords: Engel curve, material standard of living, international development, poverty assessment income inequality
    JEL: O10 I32 D12 D31
    Date: 2013–08
  16. By: G. Cornelis van Kooten
    Abstract: This paper deals with forest trade modelling from a theoretical, analytic and empirical perspective. An integrated dynamic log-lumber trade model is developed and then used to examine two trade issues, namely, a reduction of Russian taxes on log exports and removal of the taxes on Canadian lumber destined for the United States. To demonstrate the dynamic aspect of the model, both sets of taxes are lowered over a period of time. The trade model consists of five Canadian regions, three U.S. regions, New Zealand, Australia, Chile, Rest of Latin America, Russia, Sweden, Finland, Rest of Europe, Japan, China, Rest of Asia, and Rest of the World – a total of 20 regions. It concerns only coniferous logs and softwood lumber, ignoring hardwoods. The model is also calibrated on 2010 observed bi-lateral flows of logs and lumber using positive mathematical programming. The forest trade model is written using an Excel-GAMS interface, with input data retrieved by GAMS from Excel and GAMS output written to Excel, where final calculations are made.
    Keywords: log-lumber trade, spatial price equilibrium model, mathematical programming
    JEL: Q23 Q27 Q28 F17 Q21
    Date: 2013–05
  17. By: Yew-Kwang NG (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.)
    Abstract: Despite recent intense interest, happiness studies have been impeded by some conceptual and methodological problems, including viewing happiness (well-being/welfare) as different over different persons, as relative, multi-dimensional, non-cardinally measurable, interpersonally noncomparable and using non-cardinal and interpersonally non-comparable methods of happiness measurement. Using the evolutionary biology of happiness, this paper argues that happiness is absolute, universal, and unidimensional and is also cardinally measurable and interpersonally comparable. This is needed to make choices motivated by reward (pleasure) and punishment (pain) consistent with fitness maximization. However, happiness indices obtained by virtually all existing methods of happiness measurement are largely non-cardinal and non-comparable, making the use of averaging in group happiness indices of dubious philosophical validity. A method of measuring happiness to give cardinal and interpersonally comparable indices is discussed. These may contribute towards the more scientific study of happiness that is based on sounder methodological grounds as well as yielding more useful results.
    Keywords: Evolutionary biology; happiness; interpersonal comparison; measurability; wellbeing; welfare.
    Date: 2013–08
  18. By: Wen-Tai Hsu (School of Economics, Singapore Management University); Tomoya Mori (Institute of Economic Research, Kyoto University); Tony E. Smith (Department of Electrical and Systems Engineering, University of Pennsylvania)
    Abstract: City size distributions are known to be well approximated by power laws across many countries. One popular explanation for such power-law regularities is in terms of random growth processes, where power laws arise asymptotically from the assumption of iid growth rates among all cities within a given country. But this assumption has additional consequences. Since all subsets of cities have the same statistical properties, each subset must exhibit essentially the same power law. Moreover, this common power law (CPL) property must hold regardless of the spatial relations among cities. Using data from the US, this paper shows first that spatial partitions of cities based on geographical proximity are significantly more consistent with the CPL property than are random partitions. It is then shown that this significance becomes even stronger when proximity among cities is measured in terms of trade linkages rather than simple geographical distance. These results provide compelling evidence that spatial relations between cities do indeed matter for city-size distributions. Further analysis shows that these results hinge on the natural “spacing out” property of city patterns in which larger cities tend to be widely spaced apart with smaller cities organized around them.
    Keywords: power law, Zipf’s law, random growth, space, geography, Voronoi partition, economic region
    JEL: C49 L60 R12 R14
    Date: 2014–01
  19. By: Weihong HUANG (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.); Zhenxi CHEN (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.)
    Abstract: We propose a two-market heterogeneous agents model with coupling mechanism to study Financial crisis with contagion effect. It manages to calibrate sudden crash behavior of US and UK stock markets during "Black Monday" of 1987 besides smooth crisis and disturbing crisis categorized in literature. It is implied that financial crisis and its contagion could be endogenous and supports scenario of over-valuation causing financial crisis. In addition, the model shows that financial system could be fragile in which small shock(s) hitting individual market's fundamental could cause financial crisis which spreads to other market. It also supports scenario of external shock triggering financial crisis. Lastly, the model manages to match typical stylized facts, especially cross-correlation which is exclusive to multi-market case.
    Keywords: Evolutionary biology; happiness; interpersonal comparison; measurability; wellbeing; welfare
    JEL: C61 D84 G15
    Date: 2013–09
  20. By: Jan F. KIVIET (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.); Jerzy NIEMCZYK (European Central Bank, Frankfurt, Germany)
    Abstract: IV estimation is examined when some instruments may be invalid. This is relevant because the initial just-identifying orthogonality conditions are untestable, whereas their validity is required when testing the orthogonality of additional instruments by so-called over-identi?cation restriction tests. Moreover, these tests have limited power when samples are small, especially when instruments are weak. Distinguishing between conditional and unconditional settings, we analyze the limiting distribution of inconsistent IV and examine normal ?rst-order asymptotic approximations to its density in ?nite samples. For simple classes of models we compare these approxi- mations with their simulated empirical counterparts over almost the full parameter space. The latter is expressed in measures for: model ?t, simultaneity, instrument invalidity and instrument weakness. Our major ?ndings are that for the accuracy of large sample asymptotic approximations instrument weakness is much more detri- mental than instrument invalidity. Also, IV estimators obtained from strong but possibly invalid instruments are usually much closer to the true parameter values than those obtained from valid but weak instruments.
    Keywords: empirical density, inconsistent estimators, invalid instruments, (un)conditional asymptotic distribution, weak instruments
    JEL: C13 C15 C30
    Date: 2013–11
  21. By: Fuhai HONG (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.); Larry KARP (Department of Agricultural and Resource Economics, University of California, Berkeley, and the Ragnar Frisch Center for Economic Research.)
    Abstract: We examine the effect of endogenous and exogenous risk on the equilibrium (expected) membership of an International Environmental Agreement when countries are risk averse. Endogenous risk arises when countries use mixed rather than pure strategies at the participation game, and exogenous risk arises from the inherent uncertainty about the costs and benefits of increased abate- ment. Under endogenous risk, an increase in risk aversion increases expected participation. Under exogenous risk and pure strategies, increased risk aver- sion weakly decreases equilibrium participation if and only if the variance of income decreases with abatement.
    Keywords: International Environmental Agreement, climate agreement, endogenous risk, exogenous risk, risk aversion, mixed strategy.
    JEL: D8 H4 Q54
    Date: 2013–10

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