nep-sea New Economics Papers
on South East Asia
Issue of 2014‒02‒21
sixteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Regional Financial Regulation in Asia By Kawai, Masahiro; Morgan, Peter J.
  2. Promoting institutional connectivity in the Asia Pacific region : a study of supply chain and trade in services By Ishido, Hikari
  3. Can Low Interest Rates be Harmful: An Assessment of the Bank Risk-Taking Channel in Asia By Ramayandi, Arief; Rawat, Umang; Tang, Hsiao Chink
  4. Terms of Trade, Foreign Direct Investment, and Development: A Case of Intra-Asian “Kicking Away the Ladder”? By Wacker, Konstantin M.; Großkurth, Philipp; Lakemann, Tabea
  5. The Impact of Internal Migration on Local Labour Markets in Thailand By Eliane El Badaoui; Eric Strobl; Frank Walsh
  6. Lessons for Asia from Europe’s History with Banking Integration By Elliott, Douglas J.
  7. Islamic finance: a review of the literature By Jean-Yves MOISSERON; Bruno-Laurent MOSCHETTO; Frédéric TEULON
  8. Exchange Rate Pass-Through Effect on Prices and Inflation Targeting: A Comparison of Emerging Market Economies By Alpaslan, Baris; Demirel, Baki
  9. Schooling Outcomes in the Philippines, 1988-2008: Impacts of Changes in Household Income and the Implementation of the Free Public Secondary Education Act (RA 6655) By Revilla, Ma. Laarni D.
  10. Equity Market Integration and Currency Risk: Empirical Evidence for Indonesia By Khaled Guesmi; Frederic Teulon
  11. Monopsony, Minimum Wages and Migration By Eric Strobl; Frank Walsh
  12. Practicing catching-up: A comparison of development models of East Asian and Central-Eastern European countries By Terk, Eric
  13. Millennium Development Goals Scenarios to 2015 and Beyond: An Integrated Micro-Macro Modelling Approach By Briones, Roehlano M.
  14. Motivations of Public to Private transactions: An international empirical investigation By Aurélie Sannajust; Mohamed Arouri; Frédéric Teulon
  15. How Far Can Renminbi Internationalization Go? By Yongding, Yu
  16. On the Challenge to Competitive Authoritarianism and Political Patronage in Malaysia By Johansson, Anders C.

  1. By: Kawai, Masahiro (Asian Development Bank Institute); Morgan, Peter J. (Asian Development Bank Institute)
    Abstract: The Asian financial crisis (1997–1998) and the global financial crisis (2007–2009) highlighted the potential value of financial regionalism, i.e., regional-level cooperation in financial policy. This paper argues that there is a mediating role for regional-level institutions of financial regulation between national regulators in Asia and global-level institutions such as the International Monetary Fund and the Financial Stability Board. This potential role includes: (i) monitoring financial markets and capital flows to identify regional systemic risks such as capital flows; (ii) coordinating financial sector surveillance and regulation to promote regional financial stability; and (iii) cooperating with global-level institutions in rule formulation, surveillance and crisis management. This is particularly important in an environment of increasing financial integration and harmonization in the region. The paper considers experiences of the European Union (EU) and Asia in regional financial cooperation and regulation and draws lessons for Asia. The EU represents the most advanced stage of regional financial integration and regulation in the world today, and can provide valuable lessons for Asia. Asia’s greater diversity of financial development and openness requires a more nuanced approach to integration. Despite its shortcomings and slow pace, the Association of Southeast Asian Nations (ASEAN) Economic Community process probably provides the most feasible and relevant model for regulatory cooperation on a voluntary basis. It would be desirable to extend this framework further in Asia, say to the ASEAN+3 countries for a start. Asian economies can also strengthen existing surveillance processes; enhance and diversify the resources, functions and membership of the Chiang Mai Initiative Multilateralization and the Macroeconomic Research Office for surveillance and provision of a financial safety net; and create an Asian financial stability dialogue to monitor regional financial markets, facilitate policy dialogue and cooperation, and secure regional financial stability.
    Keywords: financial regulation; financial surveillance; regional cooperation; financial safety net; international financial markets; international monetary arrangements and institutions
    JEL: F33 F36 G15 G18 G28
    Date: 2014–02–12
  2. By: Ishido, Hikari
    Abstract: This paper analyzes "institutional connectivity", or the degree of seamless trade in services centering on the distribution sector. Foreign equity participation in mode 3 (commercial presence) of trade in services and business firms’ investment performance has been studied closely. Net economic benefits of transparent institutional connectivity in the wholesale sector have also been revealed statistically in the case of Japan’s bilateral FTAs with other APEC members. Given these results, APEC could work on establishing its own harmonized "service trade commitment table" with only the foreign capital participation as its simple policy restriction. This would surely enhance an APEC-wide, institutional supply chain connectivity.
    Keywords: Asia, Japan, Trade policy, International economic integration, Service industries, TPP (Trans-Pacific Partnership), AFAS (ASEAN Framework Agreement on Services), Trade in services, Supply chain
    JEL: F13 F15
    Date: 2014–01
  3. By: Ramayandi, Arief (Asian Development Bank); Rawat, Umang (Faculty of Economics, University of Cambridge); Tang, Hsiao Chink (Asian Development Bank)
    Abstract: Events surrounding the global financial crisis have brought to light the potential role of monetary policy in precipitating the crisis. Numerous studies on advanced economies have documented a significant negative relationship between interest rates and bank risk-taking. This paper also finds the presence of the risk-taking channel based on a panel of publicly listed bank data in Asia. Using both annual and quarterly data, "too low" interest rates are found to lead to an increase in bank risk-taking.
    Keywords: Bank risk-taking; interest rates; panel data; monetary policy; Asian banks
    JEL: E43 E52 G21
    Date: 2014–01–01
  4. By: Wacker, Konstantin M. (Vienna University of Economics and Business); Großkurth, Philipp (Rheinisch-Westfälisches Institut für Wirtschaftsforschung); Lakemann, Tabea (University of Göttingen, Department of Economics)
    Abstract: In this paper, we address in more detail the question raised in Wacker (2011b): why does foreign direct investment (FDI) generally have a positive impact on developing countries’ terms of trade except in the case of South Asia? After arguing that such a negative relationship is generally detrimental for a country’s growth strategy in a globalized context, we present some stylized facts about the Asian development experiences and the theoretical and empirical background for our question concerning the relationship of FDI and terms of trade in the development context. From here, we argue that South and East Asia have largely pursued different world market integration strategies that have been fostered by different types of FDI: While horizontally motivated FDI has helped East Asia achieve some market power in certain higher-value product niches, late-coming South Asian economies have successfully operated in global industries via price competitiveness, fueled by vertically motivated FDI. Different endowments in human capital provided a breeding ground for these differing development experiences. Our evidence suggests that latecomers in international markets cannot simply follow the same pathway to development as more advanced countries, but rather they must employ adapted alternatives. In addition, globalization might perpetuate traditional North–South patterns in increasing South–South interactions.
    Keywords: Foreign direct investment (FDI); terms of trade; development; Prebisch–Singer hypothesis
    JEL: F23 O11 O57
    Date: 2014–01–01
  5. By: Eliane El Badaoui; Eric Strobl; Frank Walsh
    Abstract: We estimate the impact of internal migration on local labour markets in Thailand. Using an instrumental variable approach based on weather and distance we estimate an exogenous measure of the net migration inflow into each region. Our results show that instrumenting for the possible endogeneity of net inward migration is crucial to the analysis. The results suggest that wages of low skill male workers are highly flexible with substantial adjustments in hours worked and weekly wages in response to short term changes in labour supply. We find no effect on high skilled workers.
    Keywords: Internal migration, Labour markets, Thailand
    JEL: O15 J10
    Date: 2014–01–06
  6. By: Elliott, Douglas J. (Asian Development Bank Institute)
    Abstract: As Asia considers greater harmonization and integration of its financial systems, it would be well-advised to consider the experience of Europe, particularly the eurozone. There are many lessons to be drawn from Europe about how to implement such integration, mostly negative. It is particularly evident that moving to a currency union had major unanticipated consequences for the ability to manage integration of financial systems within the eurozone. Monetary union sharply reduced the ability of the member states of the eurozone to manage their macroeconomic and macroprudential policies to preserve financial stability. Even setting aside these additional problems created by monetary union, Europe suffered substantial harm from integrating its financial systems so closely in many ways, while simultaneously establishing only very weak coordinating mechanisms among their national financial supervisors. It was also a mistake to forbid the European Central Bank from operating formally as a lender of last resort in a financial crisis. Europe’s experiences should not dissuade Asia from seeking appropriate further harmonization and integration. However, they do argue strongly for Asia to take the kind of careful, step-by-step, long-term approach for which many of the countries within Asia are well known. In particular, Asia should only move forward to the extent that it is willing to take the necessary steps toward common supervisory approaches, information sharing, and cooperation in crises. Trying to have the benefits of integration without the responsibilities would be a recipe for future disaster.
    Keywords: harmonization; integration; eurozone; asia; european union
    JEL: E44 F15 F36
    Date: 2014–02–16
  7. By: Jean-Yves MOISSERON; Bruno-Laurent MOSCHETTO; Frédéric TEULON
    Abstract: In recent years, a number of Islamic banks have been created to cater to the growing demand, driven by globalization and the vast wealth of some Muslim states in the Middle East and Southeast Asia, and Islamic finance has moved from a niche position to become a mainstream component of the global banking system. Islamic banking refers to a financial system which is consistent with principles of Islamic law (or 'sharia') and guided by Islamic ethics. A large amount of research has been undertaken into this subject. This paper presents islamic finance’s role in the new world order.
    Date: 2014–02–12
  8. By: Alpaslan, Baris; Demirel, Baki
    Abstract: Most emerging market economies in the 1990s witnessed a wide variety of crises. Following those crises, emerging market economies have given up monetary policies using exchange rates as a nominal anchor and inflation targeting has become a new policy of such countries. The overshooting effect of exchange rates in these markets and therefore arising problems are an important cause of this political change. The aim of this paper is to evaluate exchange rate pass-through effects on prices in Asian Pacific, Latin American and Turkish economies which implemented inflation targeting, but have different dollarization and inflation episodes. Panel VAR approach was used in the analysis. Our findings show that exchange rate pass-through effect in Asian Pacific countries is lower than that of Latin America and Turkey.
    Keywords: Pass-through Effect, Inflation Targeting, Emerging Market Economies.
    JEL: E42 E52 E58
    Date: 2014–02–16
  9. By: Revilla, Ma. Laarni D.
    Abstract: In the Philippines, no assessment has been done yet on the impacts of changes in household income and the free public secondary education act (Republic Act 6655) on the outcomes of education. Thus, this paper inquires on the impacts of these two factors on schooling outcomes, namely, net participation rates, cohort survival rates, proportion of population at each educational attainment level, average years of schooling, and education inequality. Using descriptive statistics and regression analyses, this study found that RA 6655 has exerted positive impacts on schooling outcomes by relaxing household resource constraints in schooling investments. This finding suggests that there is a need to strengthen education reforms and create jobs that can be source of income to households.
    Keywords: income, education, Philippines, schooling outcomes, education inequality, Republic Act 6655
    Date: 2014
  10. By: Khaled Guesmi; Frederic Teulon
    Abstract: This paper tests the time-varying degree of Indonesian market integration using conditional version of the International Capital Asset Pricing Model (ICAPM) with applying a GDC-GARCH. The use of the GDC-GARCH technique allows us to first, describe the time-varying stochastic conditional covariance matrix and second, take into account the dynamic changes in the degree of market integration and risk premium. Our empirical results show clear evidence of market integration varying degree, explained by the U.S term premium and the level of market openness. Even though it reaches high values during turmoil periods, and exhibits an upward trend towards the end of the estimation period, Indonesian stock market still remain substantially segmented from the regional market. These results thus suggest that diversification into emerging market assets continues to produce substantial profits, and that the asset pricing rules should reflect a state of partial integration. Our investigation addresses the evolution and formation of total risk premiums and confirms this empirically. In fact, the total risk premium decomposition shows that the variance risk related to the local market index (the local risk factor), explains more than 50% of the total risk premium on average.
    Keywords: Time-varying integration, risk premium, ICAPM, GCC-GARCH
    JEL: C32 F36 G11
    Date: 2014–02–12
  11. By: Eric Strobl; Frank Walsh
    Abstract: We show in a monopsony model that in response to a small increase in migration employment will increase in both low productivity non-compliant firms who pay less than and in high productivity firms who pay more than the minimum wage, but will increase by proportionately more in minimum wage firms who are constrained by the labour supply curve. Using data from Thailand we provide evidence that increases in inward net migration are indeed associated with a proportionately greater increase in employment at than below the minimum wage.
    Date: 2014–01–06
  12. By: Terk, Eric
    Abstract: This article makes an attempt to compare the development patterns of the economies of the East Asian and Central and Eastern European (CEE) regions, which have been the fastest in catching up on the global arena. It observes both the internal fea-tures of the economies and economic policies and the parameters characterising their relation with the international background (openness, integration).The statistical materials used have been taken mostly from the World Economic Forum competi-tiveness reports and from the WB and IMF sources, while the descriptions of eco-nomic policy and its dynamic are based on materials concerning the regions under discussion and their individual countries. The goal of the article is not to reach con-clusions characterising the behaviour of the economies of the entire East Asian or CEE regions, but the economic development models, specific features, development and performing of countries, which have displayed top performance in either region and have reached the level of developed economies. --
    Keywords: catching up,development models,developmental state
    Date: 2014
  13. By: Briones, Roehlano M.
    Abstract: The Philippines has made considerable progress in attaining the Millennium Development Goals (MDGs). However, achieving all the targets remains a daunting challenge, with goals for poverty, education, and maternal mortality unlikely to be attained by 2015. Focus has now shifted to informing the post-2015 development agenda, based on future scenarios for the macroeconomy and the MDGs. In this study, such assessment is done using an integrated macro-micro modelling approach, using the Maquette for MDG Simulation (MAMS), calibrated to Philippine data, over the period 2009-2025. Findings for the scenario analysis are as follows: In the Base or business-as-usual scenario, MDG targets for household water and sanitation, as well as child health, will be met (or approximated) by 2015. However, those for education and maternal health will be attained in 2025 and 2021, respectively. The goal for poverty will not be achieved even by 2025. The national debt follows a downward trajectory over the simulation period. Meanwhile in the alternative scenarios, significantly higher outlays for primary education, health, and infrastructure (equivalent to 2% of GDP) lead to earlier attainment of the education and maternal health goals (2019 and 2016, respectively); likewise significant gains will be realized in terms of per capita income and poverty reduction by 2025. Tax financing of higher outlays maintains the debt reduction path in the Base; however, financing through increased borrowing from abroad leads to persistent escalation of foreign debt. Hence, government should be cautious about proposals for dramatic increases in social spending and infrastructure to more quickly close development gaps, unless it is able to accompany increases in spending with commensurate tax effort.
    Keywords: computable general equilibrium (CGE), fiscal sustainability, poverty reduction, human development, millennium development goals (MDG), inclusive growth
    Date: 2014
  14. By: Aurélie Sannajust; Mohamed Arouri; Frédéric Teulon
    Abstract: This article contributes to the financial literature by investigating the motivations of Public to Private transactions in an international perspective (Europe, USA and Asia). We consider seven main possible motivations: tax savings, incentive realignment, control, free cash-flow, growth of prospects, takeover defense and undervaluation. Our empirical findings suggest that low growth prospects, low liquidity and high free cash-flow are the three main motivations for a Public to Private transactions. However, regions show some particularities such as importance of family block-holders in Europe and importance of the level of taxation in Asia.
    Keywords: Public to private, Motivations, Logistic regression.
    JEL: G32 G34
    Date: 2014–02–12
  15. By: Yongding, Yu (Asian Development Bank Institute)
    Abstract: Since the formal launch of the renminbi trade settlement scheme in 2009, renminbi internationalization has made impressive inroads. The progress in renminbi trade settlement is especially impressive. However, Hong Kong, China’s offshore renminbi deposits failed to make significant progress as expected. The question of how far renminbi internationalization can go has become a common concern in the international financial community. This paper argues that the sheer size of the People’s Republic of China’s (PRC) trade and the convenience of using the renminbi for transaction settlements is one contributing factor, but that exchange rate arbitrage and interest rate arbitrage matter also. As well, a fundamental constraint for renminbi internationalization is the PRC’s capital controls. Before fully opening up its capital account and making the renminbi freely convertible, however, the PRC needs first to put its own house in order, most importantly making the renminbi exchange rate flexible. While the renminbi can and will become a major international currency eventually, the road to internationalization is bound to be long and bumpy.
    Keywords: renminbi; trade settlement; capital account liberalization; capital controls; store of value
    JEL: F31 F33
    Date: 2014–02–14
  16. By: Johansson, Anders C. (Stockholm China Economic Research Institute)
    Abstract: In March 2008, Malaysia’s political landscape was shaken by election results showing that the Barisan Nasional had won less than two thirds of the parliamentary seats and lost five states to the opposition. A two-thirds supermajority had been seen as a sacred threshold for the coalition to ensure its continued legitimacy. We conjecture that the 2008 election represented a challenge to the competitive authoritarian regime and that this had direct effects on firms with ties to the ruling coalition. Our empirical results show that firms with political patronage were adversely affected by the electoral outcome. More specifically, firms with close ties to the Barisan Nasional experienced a significant negative value effect. Firms characterized by political patronage also decreased their leverage levels significantly more than other firms after the 2008 election, suggesting that their access to debt capital had become more restricted. Moreover, this effect was mainly driven by changes in long-term debt. These results suggest a significant negative effect on connected firms as the political status quo was challenged in Malaysia.
    Keywords: Competitive authoritarianism; Political patronage; Political connections; Firm performance; Capital structure; Debt maturity; Malaysia
    JEL: D72 G14 G30 G32 G38
    Date: 2014–02–04

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