nep-sea New Economics Papers
on South East Asia
Issue of 2015‒05‒30
seventeen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Transmission Channels of Economic Shocks in ASEAN By Ruperto Majuca; Jesson Pagaduan
  2. Export Sophistication and Export-Led Growth: An Analysis of the Export Basket of Selected East Asian Economies By Bayudan-Dacuycuy, Connie; Lim, Joseph Anthony
  3. Diversification strategy, Ownership Structure, and Firm Value: a study of public‐listed firms in Indonesia By Brahmana, Rayenda Khresna; Setiawan, Doddy; Hooy, Chee Wooi
  4. The Sources of Wage Growth in a Developing Country By Marinescu, Ioana E.; Triyana, Margaret
  5. Consumer Valuations of Energy Efficiency Investments: The case of Vietnam's air conditioner market By MATSUMOTO Shigeru; OMATA Yukiko
  6. Does retrenchment strategy mitigate earnings management? Evidence from Public Listed Companies in Malaysia By Ung, Lik-Jing; Brahmana, Rayenda; Puah, Chin-Hong
  7. FDI Restrictiveness Index for ASEAN: Implementation of AEC Blueprint Measures By Shandre Mugan THANGAVELU
  8. AEC Blueprint Implementation Performance and Challenges: Standards and Conformance By Rully PRASSETYA; Ponciano INTAL Jr
  9. When Commitment Fails - Evidence from a Regular Saver Product in the Philippines By Anett John (née Hofmann)
  10. Conditional Asian Options By Runhuan Feng; Hans W. Volkmer
  11. Economic Impact of Illness with Health Insurance but without Income Insurance By Sven Neelsen; Supon Limwattananon; Owen O'Donnell; Eddy van Doorslaer
  12. Hard Pegs versus Intermediate Currency Arrangements in the Pacific By Helble, Matthias; Prasetyo, Ahmad; Yoshino, Naoyuki
  13. [WTO Case Review Series No.11] <i>Philippines—Taxes on Distilled Spirits</i> (WT/DS396/DS403): Liquor tax system in developing countries and the national treatment (Japanese) By ISHIKAWA Yoshimichi
  14. Earnings Management, Ownership Expropriation and Brokerage Fee of Malaysian Property Companies By Ung, Lik-Jing; Brahmana, Rayenda; Puah, Chin Hong
  15. The Political Economy of Inclusive Rural Growth By Michael Carter; John Morrow
  16. Health and Home Ownership: Findings for the Case of Japan By Aizawa, Toshiaki; Helble, Matthias
  17. Optimal taxation and debt with uninsurable risks to human capital accumulation By Piero Gottardi; Atsushi Kajii; Tomoyuki Nakajima

  1. By: Ruperto Majuca (School of Economics, De La Salle University, Philippines); Jesson Pagaduan (School of Economics, De La Salle University, Philippines)
    Abstract: This Policy Brief is based on ERIA Discussion Paper 2013-18 titled “Managing Economic Shocks and Macroeconomic Coordination in an Integrated Region: ASEAN Beyond 2015”. It examines the transmission of economic shocks both from the rest of the world into the ASEAN region and into a typical ASEAN member state (AMS). “Typical” here means representative AMSs, e.g., Singapore for a developed country, Philippines or Indonesia for ASEAN-5 economies and Viet Nam for the CLMV (Cambodia, Lao PDR, Myanmar, Viet Nam), where Viet Nam was chosen for data availability reasons. This paper looks into the trade and financial linkages of a typical AMS and employs a specialised type of vector autoregression (VAR) model to decompose the shocks into trade shocks, financial shocks, and commodity price shocks. The Brief concludes with an analysis of the implications for macroeconomic policy coordination in the region.
    Date: 2015–03
  2. By: Bayudan-Dacuycuy, Connie; Lim, Joseph Anthony
    Abstract: This research aims to examine the sophistication of export portfolios of selected ASEAN and developed Asian economies. It aims to provide evidence on where exactly the ASEAN economies are in the context of exports sophistication and structural transformation. Results from the product space analysis indicate that although limited in product scope, there are prospects for ASEAN economies to converge to the level of the export sophistication of the developed Asian countries.
    Keywords: Keywords: product space; export diversification; economic development; Asian economies; ASEAN exports
    JEL: F14
    Date: 2014–12–04
  3. By: Brahmana, Rayenda Khresna; Setiawan, Doddy; Hooy, Chee Wooi
    Abstract: There is a hot debate on whether internationally diversified and or industrially diversified strategy gains premium or discount on firm value. Most of the empirical studies on this topic were conducted in developed markets. However, Indonesia, as an emerging market, offers its unique characteristic in terms of ownership structure. For instance, Indonesia is dominated by family firms, but its SOEs perform better compared to family firms. This research aims to investigate the role of ownership concentration on the value of international and industrial diversification in Indonesia. We investigate how that relationship works in respect of different firm’s identity, such as different ownership level, or different owners (family, government, and foreign). We investigate the value of diversification and ownership structure of Indonesian listed firms over a panel of 2006-2010. We use robust panel regression where we report the probability values based on white robust standard errors that control for heteroscedasticity errors, as well as firm clustering, year clustering, period effect, and industry effect, which induce a within firm serial correlation error structure. To support the results, we also provide graphical evidence of the link between ownership structure, diversification strategy, and firm value. We find that ownership concentration has a prevalent and significant effect on the value of diversification. Further, we also find value discount in the industrial diversification of family firms, and value discount in the international diversification of foreign firms. Overall, our results are consistent with the conjecture that the value of diversification is adversely affected by the agency problem, suggesting that ownership concentration and firm identity play an important role in respect of the value of diversification.
    Keywords: diversification, ownership, firm value, family firms
    JEL: G15 G3 G32
    Date: 2014–09–10
  4. By: Marinescu, Ioana E. (Harris School, University of Chicago); Triyana, Margaret (Nanyang Technological University, Singapore)
    Abstract: What are the sources of wage growth in developing countries? In the US, general labor market experience is the key source of wage growth, with job seniority playing a smaller role. By contrast, in Indonesia, the 10-year return to seniority is 24 to 29%, which is higher than the return to experience. Furthermore, we estimate a 35% return to ten years of tenure in the formal sector, with no significant return to tenure in the informal sector. The difference in the sources of wage growth in Indonesia versus the US may be a reflection of Indonesia's lower level of development.
    Keywords: experience, formality, informality, wages, tenure
    JEL: J31 O1
    Date: 2015–05
  5. By: MATSUMOTO Shigeru; OMATA Yukiko
    Abstract: Typical consumers underestimate the benefits of future energy savings and underinvest in energy efficiency relative to the socially optimal level of energy efficiency. This phenomenon is called the energy-efficiency gap and has been widely studied in many developed countries. However, research on the energy-efficiency gap in developing countries remains very scant. In this study, we use sales data of air conditioners (ACs) in the Vietnamese market and conduct hedonic price analysis to examine how consumers in Vietnam value the energy efficiency of ACs. We find that the implicit discount rate in Vietnam's AC market exceeds 11.7%. This high implicit discount rate suggests that consumers in developing countries place much lower value on energy efficiency than consumers in developed countries, despite the fact that purchasing energy-efficient appliances offers the opportunity to save substantial amounts. Financial and technical support from developed countries are necessary to promote energy-efficient appliances in developing countries.
    Date: 2015–05
  6. By: Ung, Lik-Jing; Brahmana, Rayenda; Puah, Chin-Hong
    Abstract: During the past three decades, many firms in developing market have embarked retrenchment strategy in order to defend firm going concern from economy turbulence. Yet, this strategy is rarely investigated compared to another strategy like diversification. This is not to mention limited research investigating whether companies might manipulate their earnings through the retrenchment costs across ownership expropriation. As Malaysia offers unique background earnings management, corporate strategy and ownership structure, this study aims to answer intriguing yet interesting question: Do Malaysia’s listed companies consider retrenchment costs when they manipulate earning across its ownership expropriation? Using 237 Malaysian listed companies over the period 2008-2013, this study found that retrenchment costs are used to manipulate earnings in companies. In addition, we find that ownership concentration do not significantly affects the earnings management of the firms.
    Keywords: Retrenchment; Ownership Expropriation; Earnings Management; Corporate Governance
    JEL: G30 G32 G34
    Date: 2014–12–14
  7. By: Shandre Mugan THANGAVELU (Institute of International Trade University of Adelaide)
    Abstract: This paper is an extension of the FDI restrictiveness index created for the ASEAN Free Trade Agreement (AFTA) in Thangavelu and Lim (2011). It provides more detailed and updated information for the index for AFTA; a new FDI restrictiveness index is also created for the ASEAN Framework Agreement on Services Eighth Package (AFAS 8) and the ASEAN Comprehensive Investment Agreement (ACIA). The study highlights the differences between the 2010 and 2014 FDI restrictiveness indices.
    Keywords: FDI Restrictiveness Index, ASEAN
    JEL: F21 F23
    Date: 2015–05
  8. By: Rully PRASSETYA (Economic Research Institute for ASEAN and East Asia, Indonesia); Ponciano INTAL Jr (Economic Research Institute for ASEAN and East Asia, Indonesia)
    Abstract: ASEAN aims to reduce, if not eliminate, technical barriers to trade through standards and conformance (S&C) initiatives towards a highly integrated economy, or the so-called single market and production base. This paper aims to evaluate the progress and challenges of S&C initiatives implementation in three ASEAN priority integration sectors, namely, the automotive sector, the electrical and electronic equipment sector, and the health sector (cosmetics, medical devices, and pharmaceutical). The paper uses questionnaires and interviews with government officials and the private sector in 10 ASEAN members states (AMSs). The scoring method is similar to the one used in the ERIA Mid-Term Review study 2011, thus allowing for comparison across period. The result shows, in general, there have been many improvements in reducing technical barriers to trade through the S&C initiatives in ASEAN compared to the 2011 mid-term review; nonetheless, the progress varied across sectors and across member states. The main challenges include technical capacity, physical infrastructure, governance, and some countryspecific and sector-specific challenges. The paper concludes with recommendations for ASEAN S&C initiatives post-2015.
    Keywords: ASEAN Economic Community, standards and conformance, standards harmonization, mutual recognition arrangement, technical regulations.
    JEL: F13 F14 F15
    Date: 2015–05
  9. By: Anett John (née Hofmann)
    Abstract: Recent literature promotes commitment products as a new remedy for overcoming self-control problems and savings constraints. Committing to a welfare-improving contract requires knowledge about one's preferences, including biases and inconsistencies. If agents are imperfectly informed about their preferences, they may choose ill-suited commitment contracts. I designed a regular-instalment commitment savings product, intended to improve on pure withdrawal-restriction products by mimicking the fixed-instalment nature of loan repayment contracts. I conduct a randomised experiment in the Philippines, where individuals from a general low-income population were randomly offered to take up the product. Individuals chose the stakes of the contract (in the form of a default penalty) themselves. The result is that a majority appears to choose a harmful contract: While the intent-to-treat effect on bank savings for individuals assigned to the treatment group is four times that of a withdrawal-restriction product (offered as a control treatment), 55 percent of clients default on their savings contract. The explanation most strongly supported by the data is that the chosen stakes were too low (the commitment was too weak) to overcome clients' self-control problems. Moreover, both take-up and default are negatively predicted by measures of sophisticated hyperbolic discounting, suggesting that those who are fully aware of their bias realise the commitment is too weak for them, and avoid the product. The study suggests that research on new commitment products should carefully consider the risk of adverse welfare effects, particularly for naïve and partially sophisticated hyperbolic discounters.
    Keywords: commitment savings, hyperbolic discounting, partial sophistication, regular instalments, Philippines.
    JEL: D03 D14 O12 O16
    Date: 2014–08
  10. By: Runhuan Feng; Hans W. Volkmer
    Abstract: Conditional Asian options are recent market innovations, which offer cheaper and long-dated alternatives to regular Asian options. In contrast with payoffs from regular Asian options which are based on average asset prices, the payoffs from conditional Asian options are determined only by average prices above certain threshold. Due to the limited inclusion of prices, conditional Asian options further reduce the volatility in the payoffs than their regular counterparts and have been promoted in the market as viable hedging and risk management instruments for equity-linked life insurance products. There has been no previous academic literature on this subject and practitioners have only been known to price these products by simulations. We propose the first analytical approach to computing prices and deltas of conditional Asian options in comparison with regular Asian options. In the numerical examples, we put to the test some cost-benefit claims by practitioners. As a by-product, the work also presents some distributional properties of the occupation time and the time-integral of geometric Brownian motion during the occupation time.
    Date: 2015–05
  11. By: Sven Neelsen (Erasmus University Rotterdam, the Netherlands); Supon Limwattananon (Ministry of Public Health, Thailand; Khon Kaen University, Thailand); Owen O'Donnell (Erasmus University Rotterdam, the Netherlands); Eddy van Doorslaer (Erasmus University Rotterdam, the Netherlands)
    Abstract: We examine economic vulnerability to illness when, as for informal sector workers in Thailand, there is universal coverage for health care but earnings losses are uninsured. Even with comprehensive health care entitlement, severe illness that strikes an initially healthy worker is found to raise out-of-pocket medical expenses by around two thirds and increase the probability that medical spending absorbs more than a tenth of the household budget by nine percentage points. Moreover, severe illness reduces the probability of remaining in employment by 18 points and precipitates a reduction in household labor income of almost one third. Despite the rise in medical expenses and fall in earnings, households are able to maintain expenditure on goods and services other than medical care by drawing on remittances and informal transfers, cutting back on saving, and by borrowing. In the short term, informal insurance fills gaps left uncovered by formal insurance but there is likely to be subst antial exposure to economic risks associated with long-term illness.
    Keywords: Health; medical expenditure; social insurance; universal coverage; Thailand
    JEL: I13 O12
    Date: 2015–05–21
  12. By: Helble, Matthias (Asian Development Bank Institute); Prasetyo, Ahmad (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute)
    Abstract: The 14 Pacific developing member countries (DMCs) of the Asian Development Bank (ADB) have opted for very different exchange rate regimes with varying degrees of flexibility. Whereas several microstates have adopted an external currency as their legal tender, others have decided to use a basket currency and yet others have chosen a managed float. The choice of exchange rate regime can have far reaching economic consequences. In this paper, we first build a simple exchange rate model that illustrates how monetary authorities should best determine the weights of the basket currencies in order to keep fluctuations in gross domestic product (GDP) and in exchange rates to a minimum. We add to the literature by explicitly modeling tourism flows. In the second part of the paper we study the recent developments of the Pacific DMCs in terms of the volatility of their exchange rates, their GDP and their balance of trade. We find that Pacific DMCs with external currencies systematically exhibit lower GDP volatility compared to Pacific DMCs with basket currencies or floats. We conclude that Pacific DMCs with basket currencies or floats seem to have managed their exchange rate with the objective to minimize fluctuations of exchange rates, rather than those of their GDP. Our model therefore provides valuable guidance for those monetary authorities in the Pacific that would like to lower GDP fluctuations.
    Keywords: exchange rate policy; economic integration; economic development; microstates
    JEL: F31 F33
    Date: 2015–05–12
  13. By: ISHIKAWA Yoshimichi
    Abstract: In the Philippines, domestic distilled spirits that are made mainly from sugar cane molasses are produced through a unique production process, that may involve stripping the ethyl alcohol from its natural congeners and later adding natural or artificial flavorings so as to ensure that they are replicated as close as possible to imported distilled spirit made from traditional materials, including grapes, grains, and potatoes. As a result, domestic distilled spirits share the same physical characteristics—including color, flavor, and aroma—with imported ones, while materials and production methods differ. Moreover, labels of domestic distilled spirits tend to mimic the names of products and designs of imported ones, and they may also be sold in the Philippines as gin, brandy, or whisky even though they are all made from sugar cane molasses. Therefore, domestic distilled spirits are presented to consumers so as to be indistinguishable from imported ones. Under the measure at issue, distilled spirits made from sugar cane molasses are subject to the lower specific tax, while distilled spirits made from other traditional material are highly taxed in accordance with the idea of progressive taxation. However, all domestic distilled spirits fall under the former, and the vast majority of imported spirits are categorized into the latter. Based on these characteristics that are unique to the current dispute, this article examines the decisions by the Panel and the Appellate Body, and aims to explore the implications for further clarifying the disciplines under Article III:2 of the GATT.
    Date: 2015–05
  14. By: Ung, Lik-Jing; Brahmana, Rayenda; Puah, Chin Hong
    Abstract: Real estate values in Malaysia have climbed steadily over the years due to a combination of reasons giving companies a higher brokerage fee. In corporate governance literature, ownership expropriation is crucial in the relationship between income (brokerage fee) and earnings management. However, research investigating whether real estate companies might manipulate their earnings through the brokerage fee across ownership expropriation is limited. Therefore, this study uses real estate firms listed on the Kuala Lumpur Stock Exchange (KLSE) to investigate how the brokerage fee in the real estate industry might affect the earnings management of firms across its ownership expropriation. Using annual report data, we investigate the associations over a panel for the period 2008-2012. Robust panel regression is used to divulge the probability values with reference to robust White standard errors that regulate heteroscedasticity errors. Overall, our results show that high brokerage fees would drive more events of earnings management and that, generally, the ownership concentration among Malaysian real estate firms significantly affects the earnings management of the firms.
    Keywords: Brokerage Fee; Ownership Expropriation; Earnings Management; Corporate Governance
    JEL: G30 G32 G34
    Date: 2014–11–19
  15. By: Michael Carter; John Morrow
    Abstract: Commentators on the ‘East Asian Miracle’ of inclusive rural growth have often pointed toward shared growth policies. But why were these policies not chosen elsewhere? This paper shows that economies with a stronger middle class may sustain higher productivity through public good provision. We model voters who invest in either subsistence or technologies in which public goods complement private capital. Investment and technology choices vary with wealth and the level of public goods enforced by political lobbies. We show that increased productive possibilities, such as those of an emerging middle class, can further power reforms when money matters in politics.
    Date: 2015–04–14
  16. By: Aizawa, Toshiaki (Asian Development Bank Institute); Helble, Matthias (Asian Development Bank Institute)
    Abstract: The research objective of this paper is to test whether health conditions and health behavior are related to home ownership. This question has not yet been examined quantitatively in the existing literature. Our estimation results show that homeowners consistently report better health and less physical problems. The significance of home ownership remains even after controlling for financial assets and housing conditions. Furthermore, our estimations indicate that homeowners invest more in their future health by undergoing voluntarily medical screenings more frequently. Finally, our estimations suggest that home ownership is positively correlated with health care expenditure even when controlling for income, debt, and other financial assets and we could not reject the exogeneity of home ownership. Our empirical results thus provide evidence for the importance of home ownership for health.
    Keywords: health; home ownership; housing conditions; grossman model; medical expenditures
    JEL: I12 I15
    Date: 2015–05–13
  17. By: Piero Gottardi (European University Institute); Atsushi Kajii (Kyoto University and Singapore Management University); Tomoyuki Nakajima (Kyoto University and CIGS)
    Abstract: We consider an economy where individuals face uninsurable risks to their human capital accumulation, and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt. We show that in the presence of such risks it is beneficial to tax both labor and capital and to issue public debt. We also assess the quantitative importance of these findings, and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion.
    Keywords: incomplete markets; Ramsey equilibrium; optimal taxation; optimal public debt.
    JEL: D52 D60 D90 E20 E62 H21 O40
    Date: 2015–03

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