nep-sea New Economics Papers
on South East Asia
Issue of 2014‒07‒28
sixteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Policies to Enhance Trade Facilitation in South Asia and Southeast Asia By Bayley, Anthony
  2. The Wage Returns to On-the-Job Training: Evidence from Matched Employer-Employee Data By Almeida, Rita K.; de Faria, Marta Lince
  3. The economic impact of the EU - Singapore Free Trade Agreement By Commission, European
  4. Saving Rate, Total Factor Productivity and Growth Process for Developing Countries By Cuong Le Van; Tu Anh Nguyen; Tran Dinh Tuan
  5. Stature, Skills and Adult Life Outcomes: Evidence from Indonesia By Olivier Bargain; Jinan Zeidan
  6. An exact and explicit formula for pricing Asian options with regime switching By Leunglung Chan; Song-Ping Zhu
  7. Does oil price uncertainty transmit to the Thai stock market? By Jiranyakul, Komain
  8. Market concentration and competition in Vietnamese banking sector. By Le, Trung H.
  9. Alternatives to Currency Manipulation: What Switzerland, Singapore, and Hong Kong Can Do By Joseph E. Gagnon
  10. Hong Kong: A Bridge Connecting Mainland China and the International Market By Zhenxi CHEN; Jan F. KIVIET; Weihong Huang
  11. Bhutan: Selected Issues By International Monetary Fund. Asia and Pacific Dept
  12. Internationalization of the Renminbi: The Role of Trade Settlement By Joseph E. Gagnon; Kent Troutman
  13. Estimates of Fundamental Equilibrium Exchange Rates, May 2014 By William R. Cline
  14. Bhutan: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Bhutan By International Monetary Fund. Asia and Pacific Dept
  15. Financial Stability and Financial Inclusion By Morgan, Peter; Pontines, Victor
  16. What Drives the Historical Formation and Persistent Development of Territorial States? By James B. ANG

  1. By: Bayley, Anthony (Asian Development Bank Institute)
    Abstract: This paper discusses trade facilitation in the context of enhancing trading links between South and Southeast Asia, in a manner understandable to the non-specialist. Presently, these two Asian regions tend to trade preferentially with distant markets. One of the reasons cited for the limited trade between themselves is that trade facilitation with trade partners in developed countries is more user friendly and stable. This suggests that enhancing trade facilitation within the two regions could promote intra- and inter-regional trade. The paper identifies the scope of trade facilitation and profiles the current overall situation in the two regions. It highlights the key issues and constraints, often referred to as non-trade barriers, in terms of both “soft” and “hard” infrastructure, and highlights ongoing initiatives designed to promote change, especially through the application of new approaches and procedures. Lastly, the paper concludes by discussing the key regional trade facilitation issues and proposing recommendations to eliminate these non-trade barriers that are adversely impacting on trade within and between these regions.
    Keywords: connecting south asia and southeast; trade facilitation; non-trade barriers
    JEL: F13 F15
    Date: 2014–07–15
  2. By: Almeida, Rita K. (World Bank); de Faria, Marta Lince (Católica Lisbon)
    Abstract: Skills shortages and skill mismatch are a pressing concern for policymakers in several developing countries, and in East Asia specifically. Providing on-the-job training can be an effective policy tool to shape the skills of the existent workforce to the specific needs of the firms. This paper explores a unique data set of matched employer-employee data for Malaysia and Thailand to estimate the wage return to on-the-job training in these two countries. Exploring propensity score matching estimates, we show that the average wage returns to on-the-job training are 7.7% for Malaysia and 4.5% for Thailand. Furthermore, we find evidence that the wage returns to on-the-job training are higher for males than for females in Malaysia and that, for both countries, returns are higher for workers with at least secondary education.
    Keywords: matched employer-employee data, wages, on-the-job training
    JEL: J24 J30
    Date: 2014–07
  3. By: Commission, European (DG Trade)
    Abstract: This Chief Economist Special Report analyses the economic benefits of the recently negotiated agreement between the EU and Singapore. The results estimated in this paper suggest that the bilateral reduction of tariff and non-tariff barriers in services trade brings benefits for both sides: Singapore GDP is expected to increase by € 2.7 billion whereas the EU gains are assessed at € 550 million. In addition, EU exports to Singapore would rise by some € 1.4 billion and Singapore's exports to the EU by some € 3.5 billion. Given that this is the EU's first FTA with an ASEAN member country and the second one with a key Asian trading partner after the conclusion of the EU-Korea FTA, this agreement sets an important benchmark for future FTAs with countries in the region.
    Keywords: International Trade; Economic modelling; FTA
    JEL: F13 F41 F47
    Date: 2013–09–01
  4. By: Cuong Le Van; Tu Anh Nguyen; Tran Dinh Tuan
    Abstract: The Solow [1957] implies that the TFP is the core factor of economic growth. If the economy bases merely on capital accumulation without technological progress, the diminishing returns on capital accumulation will eventually de- presses economic growth to zero. Accordingly, Solowian supporters attribute the miracle economic growths in Newly Industrialized Economies (NIEs) in sec- ond half of 20th century to adoption of technologies previously developed by more advanced economies. Pack [1992] suggests "the source of growth in a few Asian economies was their ability to extract relevant technological knowledge from industrial economies and utilize it productively within domestic economy".
    Date: 2014–07–15
  5. By: Olivier Bargain (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), IZA - Institute for the Study of Labor); Jinan Zeidan (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))
    Abstract: We investigate the effect of height on earnings, occupational choices and a subjective measure of well-being among Indonesian men. We explore the extent to which height captures the effects of human capital endowments set before entry on the labor market. Cognitive skills, co-determined with stature early in life, do not explain much of the height earnings premium directly. Yet, human capital more broadly, including cognition, educational attainment and other factors related to parental investments and background characteristics, explains around half of the height premium and does so through occupational sorting. Indeed, taller workers tend to have more education, and educated workers tend to work in more lucrative occupations that require brain and social skills, not brawn. The unexplained share of the height earnings premium reflects other labor market advantages of taller workers, including psycho-social dimensions. We also find a height premium in happiness, half of which simply accounts for the educational and earnings advantages of taller workers.
    Keywords: height; cognitive skills; physical skills; childhood conditions; earnings; occupation; happiness
    Date: 2014–07
  6. By: Leunglung Chan; Song-Ping Zhu
    Abstract: This paper studies the pricing of European-style Asian options when the price dynamics of the underlying risky asset are assumed to follow a Markov- modulated geometric Brownian motion; that is, the appreciation rate and the volatility of the underlying risky asset depend on unobservable states of the economy described by a continuous-time hidden Markov process. We derive the exact, explicit and closed-form solutions for European-style Asian options in a two-state regime switching model.
    Date: 2014–07
  7. 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. It is also found that oil price movement and its uncertainty adversely affect two main sub-index returns. These important findings give some 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
  8. By: Le, Trung H.
    Abstract: Vietnamese banking system has been playing a vital role in the development and economic growth since the economic renewal campaign namely “Doi Moi” in 1986. However, since the global financial crisis, financial and banking system has been under stress, exposing much weaknesses, severely affecting the whole economy. Additionally, the wave of financial liberalization raise questions about the competitiveness of Vietnamese commercial banks in the competition with the foreigners. The main purpose of this paper is to measure the market concentration using Hirschman-Herfindahl index (HHI) and test for the market competition in Vietnamese banking sector under Panzar – Rossse approach by an unbalanced panel data of 33 commercial banks for the period from 2004 to 2013. Vietnamese banking sector is found to be high-concentration although it is experiencing a decreasing trend. The test for market competition indicate a monopolistic behavior of Vietnamese commercial banks. No surprising, the state-owned commercial banks and foreign banks are found to be superior in the competition with joint-stock commercial banks and domestic banks respectively. In addition, the foreign investment in banks seem to increase competitiveness of a commercial bank.
    Keywords: Market concentration, bank competition, commercial banks
    JEL: G21
    Date: 2014–07–15
  9. By: Joseph E. Gagnon (Peterson Institute for International Economics)
    Abstract: Economists have long decried the efforts of large, advanced economies to manipulate their currencies to boost net exports at their trading partners' expense. But the International Monetary Fund appears to have ignored the beggar-thy-neighbor exchange rate policies of countries with developed, highly open economies. This Policy Brief examines Switzerland, Singapore, and Hong Kong, which have actively kept the value of their currencies low since the 2008–09 global recession. In each case, greater fiscal and especially domestic monetary ease would have achieved similar macroeconomic outcomes with less currency intervention and declining current account surpluses. If such countries had adopted these strategies to increase domestic demand, the global economy would have rebounded faster.
    Date: 2014–05
  10. By: Zhenxi CHEN (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.); Jan F. KIVIET (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.); Weihong Huang (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.)
    Abstract: Chow et al. (2011) apply three time-varying parameter methods to investigate the relationship between the stock markets of Shanghai and New York and find that the mutual influence between the two markets has increased since 2002. We reconsider their approaches and find that two suffer from parameter underidentification and all three from underspecification of the parameter variation. We include Hong Kong in an analysis based on standard and partial correlations over a running window in order to depict the change in the mutual relationships between these three markets. It is found that the observed increasing co-movement between Shanghai and New York is mainly due to the channel of Hong Kong. So Hong Kong appears to connect mainland China with the global market.
    Keywords: China; Co-movement, Globalization; Specification analysis, Stock markets
    JEL: C29 C58 G14
    Date: 2014–06
  11. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: SUMMARY The first chapter describes the current tax system and suggests options for tax policy reform in Bhutan. Though significant hydropower revenues are expected in the medium term as major projects come on-stream, reforms to the existing tax system in the interim will generate fiscal room and prevent recourse to domestic debt to finance development needs. Key reforms include reducing tax exemptions in the near term and introduction of VAT in the medium term. The second chapter analyses the adequacy of international reserves in Bhutan using a customized risk-weighted metric. The results indicate that Bhutan’s reserve levels are ample. Notwithstanding this adequate buffer, there are significant challenges to reserve management as hydro-related debt service is lumpy and there is a currency mismatch between the composition of reserves and that of trade and debt service flows which can create short-term pressures. The third chapter looks at the prospects for diversification of growth in Bhutan. Dependence on hydropower is set to increase, and exports will likely continue to become less diversified. As well, employment gains from hydropower generation are limited. Potential alternative sources of growth to hydropower—such as tourism, agri- business, and energy intensive activities—do exist, but require policy interventions addressing key structural deficiencies such as shortage of skilled labor and access to finance and an effort to address other business climate issues.
    Date: 2014–07–01
  12. By: Joseph E. Gagnon (Peterson Institute for International Economics); Kent Troutman (Peterson Institute for International Economics)
    Abstract: The renminbi (RMB) is not yet an international currency that could challenge the position of the dollar or the euro, but it is heading in that direction. Chinese officials support the limited goal of increasing usage of the RMB in international transactions, but they do not publicly advocate full reserve-currency status and free convertibility that such status would require. Yet international use of the RMB is an important element of China's reform agenda. China has announced the opening of offshore RMB centers in Hong Kong, Singapore, Taipei, London, Frankfurt, Paris, and Luxembourg, to the delight of offshore investors eager to invest in the RMB, which has not depreciated significantly against the dollar since 1994 and is widely viewed as having further room for appreciation given China's strong economic fundamentals. The ability of Chinese exporters and importers to make and accept payments in RMB is helping to drive the growth of offshore RMB markets. The excess of settlements in RMB by Chinese importers over RMB settlement by Chinese exporters leads to growing volumes of RMB deposits offshore. But the RMB cannot become a true international currency until Chinese authorities drop their strict limits on capital flows between China and the rest of the world.
    Date: 2014–05
  13. By: William R. Cline (Peterson Institute for International Economics)
    Abstract: The latest estimates of fundamental equilibrium exchange rates (FEERs) in this semiannual series indicate that the currencies of the United States, the euro area, China, and Japan are approximately at their FEER levels and need no adjustment to reduce excessive external imbalances. The medium-term current account, however, is at the lower bound of the desired range for the United States and at the upper bound for the euro area and China. For Japan, even though a large improvement in the current account remains in the pipeline from the lagged influence of the past sharp depreciation of the yen, higher fuel import costs and export weakness mean the surplus is unlikely to rise above 3 percent of GDP; the new FEER estimate for the yen is therefore significantly lower than before. A familiar list of currencies remain persistently overvalued (New Zealand, Turkey, South Africa, and Brazil) and undervalued (Singapore, Taiwan, Sweden, and Switzerland).
    Date: 2014–05
  14. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: KEY ISSUES Outlook and Risks: Growth in Bhutan was robust during the last Five-Year Plan (2008/09 to 2012/13), driven by the development of the hydropower sector. However, growth has slowed recently due to policy efforts to moderate aggregate demand to ameliorate overheating pressures. Downside risks remain due to high public debt, potential financial sector vulnerabilities, and the need to manage recurrent pressures on Indian rupee reserves. The main external vulnerability stems from a prolongation of the slowdown in India, Bhutan’s main trade and development partner. Main Policy Recommendations: The main near-term policy challenge is to revive growth while ensuring that external pressures do not reemerge. The key policy recommendations are: • Fiscal policy should be tightened while preserving social and productive expenditure. Revenue reforms, including broadening the tax base by reducing the number of zero- sales tax-rated goods and taxing domestic value added more extensively, would help in the near term. Over the medium term, consideration should be given to introducing a value-added tax. • On monetary policy, external flows should be fully sterilized and liquidity should be tightened to prevent credit growth from rebounding too strongly. Interest rate spreads need to be narrowed and better reflect market conditions. Over the medium-term, there is a need to further improve the monetary transmission mechanism and deepen the financial system. In particular, it is essential to further develop the government bond market by greater and more regular issuance. • Reserves have to be managed carefully to contain recurrent pressures on rupee reserves, including by aligning the currency composition of reserves with that of the structure of external liabilities and trade. • Further financial deepening should be balanced with maintaining financial stability. Risks to stability necessitate continued vigilance, given past rapid private credit growth. Supervision and regulation need to be strengthened to monitor and safeguard banks’ asset quality and limit systemic risk, including by use of macroprudential measures.
    Date: 2014–07–01
  15. By: Morgan, Peter (Asian Development Bank Institute); Pontines, Victor (Asian Development Bank Institute)
    Abstract: Developing economies are seeking to promote financial inclusion, i.e., greater access to financial services for low-income households and firms, as part of their overall strategies for economic and financial development. This raises the question of whether financial stability and financial inclusion are, broadly speaking, substitutes or complements. In other words, does the move toward greater financial inclusion tend to increase or decrease financial stability? A number of studies have suggested both positive and negative ways in which financial inclusion could affect financial stability, but very few empirical studies have been made of their relationship. This partly reflects the scarcity and relative newness of data on financial inclusion. This study contributes to the literature on this subject by estimating the effects of various measures of financial inclusion (together with some control variables) on some measures of financial stability, including bank non-performing loans and bank Z scores. We find some evidence that an increased share of lending to small and medium sized enterprises (SMEs) aids financial stability, mainly by reducing non-performing loans (NPLs) and the probability of default by financial institutions. This suggests that policy measures to increase financial inclusion, at least by SMEs, would have the side-benefit of contributing to financial stability as well.
    Keywords: financial stability; financial inclusion; SMEs; bank z-scores; non-performing loans
    JEL: G21 G28 O16
    Date: 2014–07–09
  16. By: James B. ANG (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.)
    Abstract: The importance of the length of state history for understanding variations in income levels, growth rates, quality of institutions and income distribution across countries has received a lot of attention in the recent literature on long-run comparative development. The literature, however, is silent about its deep historical origins. Against this backdrop, this paper makes the first attempt to explore the determinants of statehood by considering the potential roles of an early transition to fully-fledged agricultural production, the adoption of state-of-the-art military innovations, and the opportunity for economic interaction with the regional economic leader. The results demonstrate that only the association between economic interaction and the rise and development of the state is statistically robust.
    Keywords: state antiquity; nation formation; long-run comparative economic development
    JEL: H70 O10 O40
    Date: 2014–05

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