nep-sea New Economics Papers
on South East Asia
Issue of 2014‒06‒14
eighteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. International Commodity Prices and Inequality in Indonesia By Arief Anshory Yusuf
  2. Poverty, food prices and supply shocks of agricultural products in Indonesia By Arief Anshory Yusuf
  3. Disasters and Risk Perception: Evidence from Thailand Floods By NAKATA Hiroyuki; SAWADA Yasuyuki; SEKIGUCHI Kunio
  4. Short-term precaution, insurance and saving mechanisms in rural Vietnam By Ha van Dung
  5. Natural Disasters, Land Price, and Location of Firms: Evidence from Thailand By NAKATA Hiroyuki; SAWADA Yasuyuki; SEKIGUCHI Kunio
  6. Household Savings and Productive Capital Formation in Rural Vietnam: Insurance vs. Social Network By Thomas Gries; Ha van Dung
  7. How promising is South-South trade as a contributor to economic development in Asia and South America? Insights from estimating income elasticities of import demand By Bernhardt, Thomas
  8. Institutional environment, human capital, and firm growth: Evidence from Vietnam By Thomas Gries; Ha van Dung
  9. Impacts of Savings and Credit Union Programs on Household Welfare in Laos: Case Study of the Vientiane Vicinity during the mid-2000s By Sengsourivong, Kongpasa; Mieno, Fumiharu
  10. Effects of climate shocks to Philippine international trade By Mark Crisostomo Pascasio; Shingo Takahashi; Koji Kotani
  11. Why was the Dutch legacy so poor? Educational development in the Netherlands Indies, 1871-1942 By Ewout Frankema
  12. Determinants of Foreign Direct Investment in Fast-Growing Economies: A Study of BRICS and MINT By Akpan Uduak; Isihak Salisu; Asongu Simplice
  13. Basel Accords and Islamic banking: A critical evaluation By Hasan, Zubair
  14. Does oil price uncertainty transmit to the Thai stock market? By Jiranyakul, Komain
  15. Directing remittances to education with soft and hard commitments : evidence from a lab-in-the-field experiment and new product take-up among Filipino migrants in Rome By De Arcangelis, Giuseppe; Joxhe, Majlinda; McKenzie, David; Tiongson, Erwin; Yang, Dean
  16. Paths to a Reserve Currency : Internationalization of the Renminbi and Its Implications By Yiping Huang; Daili Wang; Gang Fan
  17. Very long-run discount rates By Giglio, Stefano; Maggiori, Matteo; Stroebel, Johannes
  18. Immigrant versus natives ? displacement and job creation By Ozden, Caglar; Wagner, Mathis

  1. By: Arief Anshory Yusuf (Department of Economics, Padjadjaran University)
    Abstract: There has been an increasing attention to the recent increase in Indonesian inequality. From 2009 to 2011, Gini coefficient increased from 0.37 to 0.41, the highest ever recorded in Indonesian history. During the same period, the world prices of many Indonesian export commodities doubled. As those sectors, particularly mining, is highly capital intensive and skilled-labor intensive, this may increase the returns to factors more intensively used in those sectors, and thus has a tendency to increase inequality. Using the INDONESIA-E3 model, a Computable General Equilibrium model of an Indonesian economy, this paper investigates to what extent the increase in the world prices of Indonesian main commodity export (estate crops and mining) contributes to the increase in inequality in Indonesia. The impact of increases in the prices of 8 main Indonesian export commodities was simulated during the period of 2009-2011. The result suggests that they indeed increase inequality, yet with a magnitude of only a quarter of the increase in Gini coefficient observed during the period of 2009 to 2011. The dominant factors behind the increase in Gini coefficient can be traced to the increase in the world price of mining commodities rather than estate crops. The effect of increases in the world prices of rubber, palm oil, coffee, and tea is negligible and poverty-reducing in rural areas. On the other hand, the effect of the increase in the world price of coal, oil, gas, and metals generates a significant increase in inequality. These findings suggest that, from the perspective of equality, restricting export of estate crops commodities in the midst of the commodity booms will not be favorable to the poverty reduction agenda, particularly in rural areas.
    Keywords: Commodity prices, inequality, Indonesia, General Equilibrium, CGE
    JEL: I32 D58
    Date: 2014–06
  2. By: Arief Anshory Yusuf (Department of Economics, Padjadjaran University)
    Abstract: Agricultural products constitute a significant component of food consumption in Indonesia particularly among the poor. The prices of these products are relatively volatile and susceptible to occasional disruption in their supply originating from both domestic and overseas. Without good understanding of the effect of agriculture product price volatility on poverty incidence, it will be more difficult for the government to devise appropriate policy measures. Using a general equilibrium model of the Indonesian economy, this paper simulates the effect of the increase in the prices of various important agriculture product caused by supply shocks originating from both domestic and oversea supplies. The result suggests that Indonesian poor, both in urban and rural areas are most vulnerable to the volatility of the price of rice, Indonesians’ main staple food. However, the poverty impact of an increase in the price of other product such as soybean is also non-trivial suggesting the relative importance of these products for the poor. Results also revealed that increases in the price of agriculture food product tend to increase inequality and the increase in poverty incidence is larger in rural areas than in urban areas. The model also accommodates the channel through which increase in the price of agriculture product may affect household income through the factor market. However, the result suggests that those effects are much smaller compared to the effect through increases in the cost of living. Policy implications are discussed.
    Keywords: Poverty, food prices, agriculture, Indonesia
    JEL: I32
    Date: 2014–06
  3. By: NAKATA Hiroyuki; SAWADA Yasuyuki; SEKIGUCHI Kunio
    Abstract: This paper examines if and how past experience affects people's perception towards disasters. In particular, we study if past experience enables people to form a probabilistic belief as opposed to ambiguity or unawareness, i.e., Knightian uncertainty. To answer the question, we use a unique micro data set of firms operating in Thailand, which includes firms that incurred losses during the 2011 Thailand floods as well as those that did not. The empirical evidence indicates that firms with direct loss experience are more likely to form a probabilistic belief compared to those without one. In contrast, subjective probabilities across firms are very diverse regardless of loss experience. This suggests that the level or scale of the prevention measures firms or people would deploy on a voluntary basis would be diverse and that arranging a widely subscribed formal catastrophe insurance scheme targeting a specific catastrophe peril would be very difficult.
    Date: 2014–06
  4. By: Ha van Dung (University of Paderborn)
    Abstract: This study investigates the impacts of short-term precautionary selection and insurance on household decisions regarding the participation in different kinds of saving mechanisms in rural Vietnam. The two-part model is employed for the analysis and unlike other studies I investigate household decisions regarding both, participation and contribution to formal and informal saving intermediaries. Furthermore we control for the endogeneity of the short-term precautionary motive and of insurance in the model of household contribution. The finding suggests that the short-term precautionary motive reduces the household probability to engage into formal and informal saving intermediaries. In addition, insurance is found to be a substitute for short-term precautionary savings. Concerning the contribution aspect, the short-term precautionary motive is found to reduce the participant’s deposits in formal saving intermediaries while there is no evidence for insurance in influencing household contribution to saving intermediaries.
    Keywords: Short-term precautionary motive, insurance, saving intermediaries, cash hoarding, deposits
    JEL: O12 O16 O17
    Date: 2014–06
  5. By: NAKATA Hiroyuki; SAWADA Yasuyuki; SEKIGUCHI Kunio
    Abstract: This paper reviews the impacts of natural disasters on firm location choice and real estate prices. More specifically, we first study if awareness of possible natural disasters affects location choice. Then, we investigate the impacts of natural disasters on land prices. We collect a unique micro dataset from firms operating in central Thailand, where firms located in the Chao Phraya flood plains incurred direct losses during the 2011 floods. The empirical evidence suggests that more firms located in the Chao Phraya flood plains were unaware of the flooding risk before the 2011 floods than those located elsewhere. The 2011 floods have substantially affected awareness among firms—in particular, firms incurred direct losses, and the changes in land prices suggest that an increasing number of firms have been choosing locations outside the flood plains in the aftermath of the 2011 floods.
    Date: 2014–06
  6. By: Thomas Gries (University of Paderborn); Ha van Dung (University of Paderborn)
    Abstract: In this paper, we investigate the role of the social network nexus and the insurance nexus in determining household savings and productive capital formation in rural Vietnam. We analyze the issue in two dimensions, stocks and flows, and consider the exposure to negative shocks. The instrumental variable method is employed and unlike previous studies, we account for the endogeneity of all concerned variables. The results indicate that the social network nexus has more impacts in “ex ante” rather than in “ex post” households. In both households groups, the effects of the insurance nexus dominate over those of the social network nexus. In the case of the stocks, we also find that the precautionary view is held in liquid assets but not in productive assets.
    Keywords: rural households, liquid assets, productive assets, social networks, organizations, insurance, disasters
    JEL: O12 O16
    Date: 2014–06
  7. By: Bernhardt, Thomas
    Abstract: The recent global economic crisis which originated in the global North but quickly spread to the global South has raised questions about the desirability and viability of export regimes primarily orientated towards the markets of high-income countries. The experience of crisis and contagion made developing countries intensify their efforts to diversify sources of economic growth and their search for alternative models of economic development. Expanding South-South trade relationships increasingly became viewed as one such alternative. Yet how promising a strategy is this? In an attempt to provide an answer to this question, this paper first documents the dynamic evolution of South-South trade in past decades and puts forward some theoretical considerations. It then undertakes an econometric analysis to estimate income elasticities of import demand for bilateral trade relationships among a sample of developing Asian and South American countries and two key Northern markets, the Eurozone and the US. Applying an ARDL approach to estimation, our econometric analysis yields mixed results with regard to the question whether South-South trade is generally characterized by higher income elasticities of import demand than South-North trade. While this is largely true for trade involving developing Asian economies, the same does not hold for South American countries. Moreover, income elasticities for imports from the global South are comparatively high in the US (and actually higher than for South-South trade flows in many cases) but this does not equally apply for the Eurozone. Still, our findings show that South-South trade can be a promising alternative source of economic growth, especially if South-North income growth and import growth differentials in favor of the former continue to persist. These findings, thus, provide a rationale for policies aimed at facilitating trade among developing countries.
    Keywords: South-South trade, Asia, South America, income elasticity of import demand, ARDL
    JEL: F14 F15 O11 O19
    Date: 2014–03
  8. By: Thomas Gries (University of Paderborn); Ha van Dung (University of Paderborn)
    Abstract: In this paper, we investigate the impacts of the institutional environment and the entrepreneur’s education on firm growth in Vietnam. Using a firm-level dataset, we obtain a balanced panel data from 2006 to 2009 for 37,788 registered enterprises from a unique data set. We analyze the effects of the institutional factors on the growth of firms using the system GMM analysis. We find that in accordance to recent theoretical literature, higher level of institutional factors such as business support service, land access, time costs, and informal charges will promote firm growth in both employment and capital. Furthermore the impacts of institutional factors are more significant in capital growth of firms. In addition to the insight, we look at the impacts of entrepreneur’s education on firm growth. We use the fixed effects estimation method and obtain the results supporting the hypothesis that higher level of entrepreneur’s education will associate with a higher growth of firms.
    Keywords: firm growth, institutional factors, human capital, entrepreneurship, capital structure.
    JEL: O12 O16
    Date: 2014–06
  9. By: Sengsourivong, Kongpasa; Mieno, Fumiharu
    Abstract: Based on original household survey on the six villages in Vientiane vicinity in 2005, the paper investigates the impact of Savings and Credit Union (SCU) programs on household income, expenditure and asset, applying the methodology of Coleman's (1999) study on Thailand to address placement bias and endogeneity problem. The results revealed that SCU programs brought certain changes; SCUs boosted educational expenditures implying activation of human capital formation, increased the house asset suggesting villagers' investment reflected by possible business activation, and brought a possible shift in income sources from traditional agriculture to livestock raising. The paper interprets these results different from Coleman's (1999) in two possible ways; First the Laotian case is to an extent, free from a bias associated with seed capital allocation, therefore is more suitable to capture the effect than Thailand, and second it is since the stage of financial accessibility in Laos is far less developed than in Thailand.
    Date: 2014–03
  10. By: Mark Crisostomo Pascasio (Economics Statistics Office, Philippine National Statistical Coordination Board); Shingo Takahashi (International University of University); Koji Kotani (International University of University)
    Abstract: As climate change is established to occur on scientific bases, it is imperative to identify the effect of climate shocks on economy. According to international organizations, agriculture, forestry and fisheries are the most vulnerable sectors to climate change predominantly for developing and tropical countries, and thus it is hypothesized to have significant impacts on world-wide international trade. Although Jones and Olken (2010) demonstrate the effect of climate shocks on exports with U.S. and world data, the evidence is still highly scarce for developing countries. Given these conditions, we examine how climate shocks affect international trade by focusing on the case of the Philippines as a representative of developing and tropical countries. To this end, we apply a fixed effects model with the data of Philippine international trade and world climate from 1991 to 2009. In particular, the novelty lies in examining both exports and imports within a single empirical framework and in clarifying climate shocks on both flows of international trade. The results show that both Philippine exports and imports are negatively affected by an increase in temperature of the trade partners. We have also identified some specific sectors are highly vulnerable such as agriculture and manufacturing. Overall, these results imply that Philippine international trade shrinks as the world temperature rises, and the same qualitative results may apply to other developing and tropical countries whose features are somewhat similar to those of the Philippines. The findings could be considered an important guidance on collective policy decisions on climate change in an international community especially as developing and tropical countries would have difficulties in mitigating the effect only by themselves.
    Keywords: Climate change and shock, temperature, Philippine international trade
    Date: 2014–07
  11. By: Ewout Frankema
    Abstract: The educational legacy of Dutch colonial rule in the Netherlands Indies has been widely regarded as disappointing. This paper probes further into the underlying causes of the poor Dutch legacy. It is argued that the spread of popular education was not only hampered by a lack of financial commitment by the colonial state, but also by notable inequalities in the allocation of funds for education and a major reluctance to support initiatives in investment in private education, which may be interpreted as a consequence of the Dutch metropolitan commitment to secular rule in an overwhelmingly Islamic society.
    Keywords: colonial legacy, education, Indonesia
    Date: 2014–05
  12. By: Akpan Uduak (SPIDER Solutions, Nigeria); Isihak Salisu (SPIDER Solutions, Nigeria); Asongu Simplice (Yaoundé/Cameroun)
    Abstract: This study employs panel analysis to examine the determinants of foreign direct investment (FDI) in Brazil, Russia, India, China, and South Africa (BRICS) and Mexico, Indonesia, Nigeria, and Turkey (MINT) using data for eleven years i.e. 2001 – 2011. First, it uses pooled time-series cross sectional analysis to estimate the model on determinants of FDI for three samples: BRICS only, MINT only, and BRICS and MINT combined; then, random effects model is also employed to estimate the model for BRICS and MINT combined. The results show that market size, infrastructure availability, and trade openness play the most significant roles in attracting FDI to BRICS and MINT while the roles of availability of natural resources and institutional quality are insignificant. Given that FDI inflow to a country has the potential of being mutually beneficial to the investing entity and host government, the challenge is on how BRICS and MINT can sustain the level of FDI inflow and ensure it results in economic growth and socio-economic transformation. To sustain the level of FDI inflow, governments of BRICS and MINT need to ensure that their countries remain attractive for investment. BRICS and MINT also need to ensure that their economies absorb substantial skills and technology spillovers from FDI inflow to promote sustainable long-term economic growth by investing more in their human capital. The study is significant because it contributes to literature on determinants of FDI by extending the scope of previous studies which often focus only on BRICS.
    Keywords: FDI, determinants, fast-growing economies, BRICS, MINT
    Date: 2014–01
  13. By: Hasan, Zubair
    Abstract: The worldwide colossal failures of financial institutions in the wake of the 2007–2010 financial turmoil the yesteryear advocates of liberalization and privatization converted almost overnight into vocal supporters of raising the safety walls around the interests of various stakeholders, especially the depositors. Admittedly, it was the heightened lure of leverage gains that led the financial institutions to expand credit beyond what the volume and quality of their capital assets warranted without crossing the limits of safety. The devastation led to a paradigm shift, so to say, at the national and international level in finance focusing on liquidity coverage of obligations that financial institutions must maintain for their own safety as also in the wider social interest. Stringent and regular watch was needed; it was felt, to ensure the compliance. The Basel Committee on Banking Supervision (BCBS), an organ of the Bank for International Settlements (BIS) developed what are known as Accords i.e. agreements defining capital and its adequacy for banks to keep the risk they could take within limits of safety. It is interesting to find that Malaysia was in a sense predictive of events that unfolded to revamp and strengthen its own regulatory framework. Also, the IFSB was alert to announce some new standards. This paper attempts a critical appraisal of these developments with a view to assess how far Islamic banks really need Basel Accords and are likely to absorb them without being cumbersome.
    Keywords: Key words: Islamic finance; Capital Adequacy; Basel Accords; Shari’ah compliance; Bank Negara action.
    JEL: G21 G32 G38
    Date: 2014–06–05
  14. By: Jiranyakul, Komain
    Abstract: This study investigates the impact of oil price volatility (uncertainty) on the Stock Exchange of Thailand. Monthly data from May 1987 to December 2013 are applied to the two-stage procedure. In the first step, a bivariate generalized autoregressive conditional heteroskedastic (GARCH) model is estimated to obtain the volatility series of stock market index and oil price. In the second step, the pairwise Granger causality tests are performed to determine the direction of volatility transmission between oil to stock markets. It this found that movement in real oil price does not adversely affect real stock market return, but stock price volatility does affect real stock return. In addition, there exists a positive one-directional volatility transmission running from oil to stock market. These findings give important implications for risk management and policy measures.
    Keywords: Real stock price, real oil price, volatility transmission, emerging markets
    JEL: C22 G15 Q40
    Date: 2014–06
  15. By: De Arcangelis, Giuseppe; Joxhe, Majlinda; McKenzie, David; Tiongson, Erwin; Yang, Dean
    Abstract: This paper tests how migrants'willingness to remit changes when given the ability to direct remittances to educational purposes using different forms of commitment. Variants of a dictator game in a lab-in-the-field experiment with Filipino migrants in Rome are used to examine remitting behavior under varying degrees of commitment. These range from the soft commitment of simply labeling remittances as being for education, to the hard commitment of having funds directly paid to a school and the student's educational performance monitored. The analysis finds that the introduction of simple labeling for education raises remittances by more than 15 percent. Adding the ability to directly send this funding to the school adds only a further 2.2 percent. The information asymmetry between migrants and their most closely connected household is randomly varied, but no significant change is found in the remittance response to these forms of commitment as information varies. Behavior in these games is shown to be predictive of take-up of a new financial product called EduPay, designed to allow migrants to pay remittances directly to schools in the Philippines. This take-up seems largely driven by a response to the ability to label remittances for education, rather than to the hard commitment feature of directly paying schools.
    Keywords: Remittances,Tertiary Education,Access&Equity in Basic Education,Rural Development Knowledge&Information Systems,Debt Markets
    Date: 2014–05–01
  16. By: Yiping Huang (Asian Development Bank Institute (ADBI)); Daili Wang; Gang Fan
    Abstract: In this paper we try to address the question of what could help make the renminbi a reserve currency. In recent years, the authorities in the People’s Republic of China (PRC) have made efforts to internationalize its currency through a two-track strategy : promotion of the use of the renminbi in the settlement of cross-border trade and investment, and liberalization of the capital account. We find that if we use only the quantitative measures of the economy, the predicted share of the renminbi in global reserves could reach 12%. However, if institutional and market variables are included, the predicted share comes down to around 2%, which is a more realistic prediction. By reviewing experiences of other reserve currencies, we propose a three-factor approach for the PRC authorities to promote the international role of the renminbi : (i) increasing the opportunities of using renminbi in the international community, which requires relatively rapid growth of the PRC economy and continuous liberalization of trade and investment; (ii) improving the ease of using renminbi, which requires depth, sophistication, and liquidity of financial markets; and (iii) strengthening confidence of using renminbi, which requires more transparent monetary policy making, a more independent legal system, and some political reforms. In general, we believe that the renminbi’s international role should increase in the coming years, but it will take a relatively long period before it plays the role of a global reserve currency.
    Keywords: liberalization of the capital account, renminbi internationalization, global reserve currency, three-factor approach, transparent monetary policy
    JEL: F30 F33 F36 F42
    Date: 2014–05
  17. By: Giglio, Stefano (University of Chicago and NBER); Maggiori, Matteo (New York University; NBER & CEPR); Stroebel, Johannes (New York University)
    Abstract: We provide direct estimates of how agents trade off immediate costs and uncertain future benefits that occur in the very long run, 100 or more years away. We exploit a unique feature of housing markets in the U.K. and Singapore, where residential property ownership takes the form of either leaseholds or freeholds. Leaseholds are temporary, pre-paid, and tradable ownership contracts with maturities between 99 and 999 years, while freeholds are perpetual ownership contracts. The difference between leasehold and freehold prices reflects the present value of perpetual rental income starting at leasehold expiry, and is thus informative about very long-run discount rates. We estimate the price discounts for varying leasehold maturities compared to freeholds and extremely long-run leaseholds via hedonic regressions using proprietary datasets of the universe of transactions in each country. Agents discount very long-run cash flows at low rates, assigning high present values to cash flows hundreds of years in the future. For example, 100-year leaseholds are valued at more than 10% less than otherwise identical freeholds, implying discount rates below 2.6% for 100-year claims. Given the riskiness of rents, this suggests that both long-run riskfree discount rates and long-run risk premia are low. We show how the estimated very long-run discount rates are informative for climate change policy.
    Keywords: rental; income
    JEL: G11 G12 R30
    Date: 2014–05–01
  18. By: Ozden, Caglar; Wagner, Mathis
    Abstract: The impact of immigration on native workers is driven by two countervailing forces: the degree of substitutability between natives and immigrants, and the increased demand for native workers as immigrants reduce the cost of production and output expands. The literature so far has focused on the former substitution effect, while ignoring the latter scale effect. This paper estimates both of these effects using labor force survey data from Malaysia (1990-2010), a country uniquely suited for understanding the impact of low-skilled immigration. The instrumental variable estimates imply that the elasticity of labor demand (3.4) is greater than the elasticity of substitution between natives and immigrants (2.5). On average the scale effect outweighs the substitution effect. For every ten additional immigrants, employment of native workers increases by 4.1 in a local labor market. These large reallocation effects are accompanied by negligible relative wage changes. At the national level, a 10 percent increase in immigrants, equivalent to 1 percent increase in labor force, has a small positive effect on native wages (0.14 percent). The impact of immigration is highly heterogeneous for natives with different levels of education, resulting in substantial changes in skill premiums and hence inequality. Immigrants on net displace natives with at most primary education; while primarily benefiting those with a little more education, lower secondary or completed secondary education.
    Keywords: Labor Markets,Population Policies,Labor Policies,Economic Theory&Research,Markets and Market Access
    Date: 2014–06–01

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