nep-sea New Economics Papers
on South East Asia
Issue of 2014‒08‒09
fifteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Myths of Political Independence, or How Not to Solve the Corruption Problem: Lessons for Vietnam By Martin Painter
  2. The Renminbi and Exchange Rate Regimes in East Asia By Masahiro Kawai; Victor Pontines
  3. Aid and policy preference in oil-rich countries: Comparing Indonesia and Nigeria By Fuady, Ahmad Helmy
  4. Policies to Enhance Trade Facilitation in South Asia and Southeast Asia By Anthony Bayley
  5. Australian–Indonesian Live Cattle Trade—What Future? By Ray Trewin
  6. Can Electronic Procurement Improve Infrastructure Provision? Evidence From Public Works in India and Indonesia By Sean Lewis-Faupel; Yusuf Neggers; Benjamin A. Olken; Rohini Pande
  7. Are Islamic Banks Truly Shariah Compliant? An Application of Time Series Multivariate Forecasting Techniques to Islamic Bank Financing By Rafi, Umar; Masih, Mansur
  8. The Quality of Outsourced Logistics Service: A Collectivist Culture Perspective By Rahmat, Abdul Khabir; Faisol, Nasruddin
  9. Are The Profit Rates of the Islamic Investment Deposit Accounts Truly Performance Based? A Case Study of Malaysia By Hussan, Subithabhanu; Masih, Mansur
  10. Globalisation, pass-through and the optimal policy response to exchange rates By Michael B Devereux; James Yetman
  11. Measuring Economic Slack: A Forecast-Based Approach with Applications to Economies in Asia and the Pacific By James Morley
  12. The Rentier State at Work: Comparative Experiences of the Resource Curse in East Asia and the Pacific By Naazneen H. Barma
  13. L'esprit du capitalisme capital étranger et développement By Jellal, Mohamed
  14. Financial Stability and Financial Inclusion By Peter J. Morgan; Victor Pontines
  15. Assessing the level of happiness across countries: A robust frontier approach By Cordero, Jose M.; Salinas-Jiménez, Javier; Salinas-Jiménez, Mª Mar

  1. By: Martin Painter
    Abstract: Corruption is widely identified as a critical problem for developing economies and is also viewed as a priority issue by international organisations and donors. Governments such as Vietnam place anti-corruption high on their policy agenda. However, external observers regularly criticise them for not meeting their targets. The problem with the critique is that it mostly places the blame on implementation failures when the issue is as much a design failure. Templates for anti-corruption success in fact misread the practical lessons. One element of the standard template, the need for an ‘independent’ anti-corruption enforcement system, misreads the meaning and empirical reality of ‘independence’. Evidence is presented from Singapore, Hong Kong and Indonesia to show that their anti-corruption agencies are ‘independent’ more in the sense that they are powerful, rather than in the sense that they are apolitical. The lesson for Vietnam is that misleading design principles such as ‘political independence’ are a distraction from the task of strengthening the anti-corruption law enforcement system.
    Keywords: corruption; Vietnam; good governance; political independence; anti-corruption reform
  2. By: Masahiro Kawai (Asian Development Bank Institute (ADBI)); Victor Pontines
    Abstract: With the rise of the People’s Republic of China (PRC) as the world’s largest trading nation (measured by trade value) and second largest economic power (measured by GDP), its economic influence over the neighboring emerging economies in East Asia has also risen. The PRC introduced some exchange rate flexibility in July 2005, and in the wake of the global financial crisis has been pursuing a policy to internationalize its currency, the renminbi (RMB). Clearly the exchange rate policy of the PRC has significant implications for exchange rate regimes in emerging East Asia. This paper examines the behavior of the RMB exchange rate and the impact of RMB movements on those of other currencies in emerging East Asia during the period 2000–2014. We apply the Frankel–Wei regression model to identify changes in the RMB exchange rate regime over time and a modified version of the model, developed by the authors in their earlier paper, to estimate the RMB weight in an emerging East Asian economy’s currency basket. We find that the US dollar continues to be the dominant anchor currency in the region, while the RMB has taken on increasing importance in the currency baskets of many East Asian economies in recent years. The paper also explores how monetary and currency cooperation—led by the PRC and Japan—can promote intra-East Asian exchange rate stability under the pressure of rising financial market openness in the PRC.
    Keywords: Remminbi, China, PRC, exchange rate regime, East Asia, exchange rate policy, the Frankel–Wei model, Japan, financial market openness
    JEL: F15 F31 F36 F41 O24
    Date: 2014–05
  3. By: Fuady, Ahmad Helmy
    Abstract: This paper analyses the role of foreign aid to assist development in two oil-rich countries: Indonesia and Nigeria. This paper seeks to understand the way foreign aid provided assistance to transform Indonesia from a .fragile. state in the 1960s into one
    Keywords: aid, fragile state, policy, oil, Indonesia, Nigeria
    Date: 2014
  4. By: Anthony Bayley (Asian Development Bank Institute (ADBI))
    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 the non-trade barriers that are adversely impacting on trade within and between the regions.
    Keywords: trade facilitation, trading links, South Asia, Southeast Asia, intra-regional and inter-regional trade, Infrastructure
    JEL: F15 F13
    Date: 2014–07
  5. By: Ray Trewin
    Abstract: Australian live cattle exports were a growing $1 billion trade from northern Australia to Indonesia for finishing and slaughter for Indonesian consumers. This all changed in recent years with the trade being disrupted by a series of constraints which have shrunk the trade and raised uncertainty. Will it ever get back on trend or continue to shrink and disappear? Greater integration between Australia's live cattle trade and Indonesia's cattle feeding and processing industries through investment and technological transfer offers the potential of not only better meeting Indonesia's beef security but also strong processed meat opportunities in rich neighbours to the benefit of both countries. A continuation of the recent volatile and uncertain trade will be detrimental to both countries, with Indonesia losing a food-secure, reliable livestock supply to which value was added, and Australia a significant industry for one more dependent on costlier markets.
    Keywords: live cattle trade; policy analysis; economic analysis
  6. By: Sean Lewis-Faupel; Yusuf Neggers; Benjamin A. Olken; Rohini Pande
    Abstract: Poorly functioning, and often corrupt, public procurement procedures are widely faulted for the low quality of infrastructure provision in developing countries. Can electronic procurement (e-procurement), which reduces both the cost of acquiring tender information and personal interaction between bidders and procurement officials, ameliorate these problems? In this paper we develop a unique micro-dataset on public works procurement from two fast-growing economies, India and Indonesia, and use regional and time variation in the adoption of e-procurement across both countries to examine its impact. We find no evidence that e-procurement reduces prices paid by the government, but do find that it is associated with quality improvements. In India, where we observe an independent measure of construction quality, e-procurement improves the average road quality, and in Indonesia, e-procurement reduces delays in completion of public works projects. Bidding data suggests that an important channel of influence is selection -- regions with e-procurement have a broader distribution of winners, with (better) winning bidders more likely to come from outside the region where the work takes place. On net, the results suggest that e-procurement facilitates entry from higher quality contractors.
    JEL: H57 O12 O53
    Date: 2014–07
  7. By: Rafi, Umar; Masih, Mansur
    Abstract: This paper analyzes the Shariah compliant nature of Islamic banks (IB) by using Time Series Multivariate Forecasting techniques to test the correlation and direction of causality between interest rates and IB financing . Islamic finance defines a 0% Interest rate, both on the asset and on the liability side. Thus, in a utopian Islamic financial system, any movement in interest rates should have no direct impact on any aspect of any Islamic bank. However, the supposition of IBs being genuinely Shariah compliant from a Credit Risk perspective has been challenged by many Shariah scholars. Using Malaysia as a test case, this paper measures changes in KLIBOR (Kuala Lampur Interbank Offer Rate) and tests them for correlations and directional causality with the IB Lending rate (used as a proxy measure for financing by Malaysian IBs). If a correlation and causality can be established between KLIBOR and financing by IBs, then it is an indication that IB’s may not be genuinely Shariah compliant. This research is original in that it attempts to relate an important issue of a fiqhi nature to data analysis, via some time series forecasting techniques. It also discusses the policy impacts of the results, and the subsequent risk faced by the Regulators in managing the Interest rate risks for a financial system structured on dual banking - Islamic and Conventional. The findings of the research tend to indicate a correlation and lead-lag causality relationship between Interest rate changes and Islamic bank financing.
    Keywords: Islamic banks, Shariah compliant, Time series techniques, Malaysia
    JEL: C22 C58 G21 G28
    Date: 2014–07–27
  8. By: Rahmat, Abdul Khabir; Faisol, Nasruddin
    Abstract: The purpose of the study is to explore on the elements of outsourced logistics service quality and how the users’ satisfaction was formed within the Malaysian culture context. This qualitative study was based on five semi-structured interviews which were carried out with the executive officers and department managers of four logistics providers firms and one manufacturer. The data were analyzed using thematic analysis method. Rather than the organization’s performance-related factors, the results revealed that, within the Malaysian national culture context, there are influence of the cultural element towards customer satisfaction. There are four (4) logistics service quality elements identified include timeliness, task accuracy and the condition of the product, and the quality of key contact personnel. There are eight (8) other elements leading to satisfaction which is not within the original logistics service quality theory. They include efficient, consistent service, responsiveness, ensuring customers’ reputation, sensitive to other people feelings, taking blame to ensure satisfaction, emotional closeness between personnel and the family as a base of identity. The emerging elements provides the key insights on the elements which lead to satisfaction in the context of Malaysian logistics service users. Rather than the organization’s performance-related factors, the results revealed that, within the Malaysian national culture context, there are influence of the cultural element towards customer satisfaction.
    Keywords: Logistics Service Quality, Collectivist Society, Customer Satisfaction, Third Party Logistics, Manufacturing, Malaysia
    JEL: L80 L84 L9 L91
    Date: 2014–07–08
  9. By: Hussan, Subithabhanu; Masih, Mansur
    Abstract: In this study we were motivated to ascertain whether the profit rates of the investment deposit accounts based on the profit and loss sharing contracts offered by the Islamic banks are truly based on the performance of the underlying assets or otherwise, by taking Malaysia as our case study. Given the facts that Islamic investment deposits are interest free in nature and that they are supposedly used in real economic activities, one would naturally expect that their returns are directly related to the actual performance of the investment activities undertaken by the Islamic banks. However, this notion stands to be statistically validated since the likelihood of Islamic finance, operating in the same financial markets of the conventional finance, to be influenced by the regulatory intervention and interest rate regimes is equally high. Using time series techniques, we have tried to establish whether there were any significant cointegration among profit rates of the Islamic investment deposit accounts and the selected interest rate regimes. Our test results reveal that, instead, they are heavily influenced by the interest rate regimes.
    Keywords: Profit rates, Islamic investment deposit accounts, time series techniques
    JEL: C22 C58 G21 G28
    Date: 2014–07–26
  10. By: Michael B Devereux; James Yetman
    Abstract: In this paper we examine how monetary policy should respond to nominal exchange rates in a New Keynesian open economy model that allows for a non-trivial role for sterilised intervention. The paper develops the argument against the backdrop of the evolving policy-making environment of Asian economies. Sterilised intervention can be a potent tool that offers policymakers an additional degree of freedom in maximising global welfare. We show that the gains to sterilised intervention are greater when goods market integration is low and exchange rate pass-through is high. However, increased financial internationalisation reduces the effectiveness of sterilised intervention, as the international policy trilemma becomes more relevant. Unsterilised intervention may also have a role to play, although the potential welfare gains from this are generally smaller. Most central banks in Asia have actively used sterilised foreign exchange intervention as a policy tool to smooth exchange rates. But, over time, declining exchange rate pass-through and the increasing international integration of financial and goods markets will tend to reduce the efficacy of sterilised intervention. Given the limited effectiveness of unsterilised intervention, our model implies that the role of exchange rate movements in the optimal setting of monetary policy in Asia is decreasing.
    Keywords: globalisation; foreign exchange intervention; exchange rate pass-through
    Date: 2014–06
  11. By: James Morley
    Abstract: The presence of "economic slack" directly implies that an economy can grow quickly without any necessary offsetting slow growth or retrenchment in the future. Based on this link between economic slack and future economic growth, I argue for a forecastbased estimate of the output gap as a measure of economic slack. This approach has the advantage of being robust to different assumptions about the underlying structure of the economy and allows for empirical analysis of a Phillips Curve relationship between the output gap and inflation. I apply this approach to investigate economic slack and its relationship with inflation for selected economies in Asia and the Pacific, taking into account structural breaks in long-run growth and uncertainty about the appropriate forecasting model. The estimated output gap is highly asymmetric for most the economies and implies a convex Phillips Curve in many of the cases.
    Keywords: output gap; model averaging; business cycle asymmetry; convex Phillips Curve
    Date: 2014–06
  12. By: Naazneen H. Barma
    Abstract: Countries rich in natural resources do not all experience the resource curse in the same way. The rentier state logic holds that the main political–economic impacts of resource dependence rest on how the state handles windfall resource rents. I differentiate how countries experience the resource curse by disaggregating the rentier effect into how governments generate and distribute resource rents. A simple typology of variation in rentier state experiences explains how the overall credibility of intertemporal commitment and degree of political inclusiveness in a country determine its distinct experience of the resource curse. Four brief country cases—comparing the micro political economy of natural resource governance in Laos, Papua New Guinea, Mongolia, and Timor-Leste—illustrate how intertemporal credibility and political inclusiveness affect patterns of resource rent generation and rent distribution. Different countries experience the resource curse in different ways, with implications for policy attempts at mitigation.
    Keywords: resource curse; rentier state; natural resource sector governance; intertemporal commitment; political inclusivness
  13. By: Jellal, Mohamed
    Abstract: We consider a model of open economy with a culture of spirit of capitalism. As a first step, we show that the entry of foreign capital flows can support an endogenous economic growth of the host country. Further, our model shows a positive correlation between the entry of foreign direct investment and economic growth. The entry of foreign capital depends on both the quality of institutions as the quality of education and national culture of the host country. In particular, we show that the countries with strong culture of wealth accumulation attract more foreign investments that accelerated the pace of economic growth leading to a self sustaining virtuous circle. Our theoretical model can explain the miracle of the economic success of some Asian countries
    Keywords: The Spirit of Capitalism ,Wealth Accumulation, Open Economy,Foreign Capital, Endogenous Growth, Asian Countries
    JEL: A13 F21 F23 F41 O43 Z1 Z12 Z13
    Date: 2014–08–04
  14. By: Peter J. Morgan (Asian Development Bank Institute (ADBI)); Victor Pontines
    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, low-income households, non-performing loans
    JEL: G21 G28 O16
    Date: 2014–07
  15. By: Cordero, Jose M.; Salinas-Jiménez, Javier; Salinas-Jiménez, Mª Mar
    Abstract: In this paper we propose an innovative approach based on life satisfaction to estimate efficiency measures for individuals considering how they convert their resources into higher levels of happiness. We use an extension of the conditional nonparametric robust approach which allows us to consider a mixed set of individual and institutional variables that can affect the levels of life satisfaction. Our empirical analysis includes data about 31,854 individuals from 26 OECD countries participating in the last wave of the World Values Survey. Results obtained indicate that the most efficient individuals in achieving happiness tend to live in northern and central European countries whereas the less efficient individuals are found, in average, in Asian transitional economies. In addition, it is also found that most of the traditional determinants of wellbeing (e.g. age, marital status, religion or unemployment) also have a significant impact on efficiency measures.
    Keywords: Efficiency, Happiness, Cross-country analysis, nonparametric
    JEL: C14 I30
    Date: 2014–07–30

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