nep-sea New Economics Papers
on South East Asia
Issue of 2015‒12‒28
eighteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Tax Revenue Trends in Asia and Latin America: A Comparative Analysis By Joshua Aizenman; Yothin Jinjarak; Jungsuk Kim; Donghyun Park
  2. The Role of Domestic and Global Economic Policy Uncertainties in Predicting Stock Returns and their Volatility for Hong Kong, Malaysia and South Korea: Evidence from a Nonparametric Causality-in-Quantiles Approach By Mehmet Balcilar; Rangan Gupta; Won Joong Kim; Clement Kyei
  3. Explaining Foreign Holdings of Asia's Debt Securities: The Feldstein-Horioka Paradox Revisited By Charles Yuji Horioka; Akiko Terada-Hagiwara; Takaaki Nomoto
  4. RMBI or RMBR: Is the Renminbi Destined to Become a Global or Regional Currency? By Barry Eichengreen; Domenico Lombardi
  5. Export of Recyclable Materials: Evidence from Japan By Toshihiro Okubo; Yuta Watabe; Kaori Furuyama
  6. Shrinkage Estimation of Common Breaks in Panel Data Models via Adaptive Group Fused Lasso By Su Liangjun; Junhui Qian
  7. Limit Theory for Continuous Time Systems with Mildly Explosive Regressors By Peter C. B. Phillips; Ye Chen; Jun Yu
  8. Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America By Lee E. Ohanian; Paulina Restrepo-Echavarria; Mark L. J. Wright
  9. Creativity and entrepreneurial efforts in an emerging economy By Quan Hoang Vuong; Nancy K. Napier; Thu Hang Do; Thu Trang Vuong
  10. Bias correction for fixed effects spatial panel data models By Zhenlin Yang; Jihai Yu; Shew Fan Liu
  11. Social rate of return: A new tool for evaluating social programs By Nanak Kakwani; Hyun H. Son
  12. On Time-Varying Factor Models: Estimation and Testing By Su Liangjun; Xia Wang
  13. Business Networks and Crisis Performance: Professional, Political, and Family Ties By Richard W. Carney; Travers Barclay Child
  14. Specification Test for Spatial Autoregressive Models By Su Liangjun; Xi Qu
  15. Semiparametric Estimation of Partially Linear Dynamic Panel Data Models with Fixed Effects By Su Liangjun; Zhang Yonghui
  16. Who cares about your Facebook friends? Credit scoring for microfinance By DE CNUDDE, Sofie; MOEYERSOMS, Julie; STANKOVA, Marija; TOBBACK, Ellen; JAVALY, Vinayak; MARTENS, David
  17. Panel Data Models with Interactive Fixed Effects and Multiple Structural Breaks By Degui Li; Junhui Qian; Su Liangjun
  18. Testing Mean Stability of Heteroskedastic Time Series By Violetta Dalla; Liudas Giraitis; Peter C.B. Phillips

  1. By: Joshua Aizenman; Yothin Jinjarak; Jungsuk Kim; Donghyun Park
    Abstract: We take stock of and compare tax revenue trends in Asia and Latin America. The tax revenues to GDP ratios increased significantly in both regions in the 2000s, although they remain visibly below European levels. Our analysis portrays a complex picture of the tax collection challenges facing developing countries. Overall, there remains sizable heterogeneity in the revenue performance of developing countries, and across regions. While progress has been made, the gap between the advanced economies and developing countries suggests ample room for future fiscal developments, and for more disaggregated studies of the tax mobilization challenges facing developing countries in the aftermath of the global financial crisis.
    Date: 2015–11
  2. By: Mehmet Balcilar (Eastern Mediterranean University, Turkey and University of Pretoria, South Africa); Rangan Gupta (Department of Economics, University of Pretoria); Won Joong Kim (Department of Economics, Konkuk University, Seoul, Republic of Korea.); Clement Kyei (Department of Economics, University of Pretoria)
    Abstract: This paper analyses whether we can predict stock return and its volatility of Hong Kong, Malaysia and South Korea based on measures of domestic and global (China, the European Area, Japan, and the US) economic policy uncertainties (EPU). While, linear Granger causality tests fail to find evidence of predictability, barring the case of South Korean EPU predicting its own stock returns, when we use a nonparametric causality-in-quantiles test, strong evidence of causality is detected from the EPUs for stock return volatility of Malaysia, and both returns and volatility at certain parts of the conditional distributions for South Korea. There is no evidence of predictability from domestic and global EPUs for return and volatility of the Hong Kong stock market. Given the statistical evidence of nonlinearity in our data set, we consider the results from the nonparametric test as more robust relative to the standard linear causality test.
    Keywords: Economic Policy Uncertainty, Stock Returns, Volatility, Linear Causality, Nonparametric Quantile Causality, Emerging Markets
    JEL: C32 C53 E60 G12 G17
    Date: 2015–11
  3. By: Charles Yuji Horioka; Akiko Terada-Hagiwara; Takaaki Nomoto
    Abstract: In this paper, we find that home bias is still present in all economies and regions, especially in the case of short-term debt securities, but that there are substantial variations among economies and regions in the strength of home bias, with the Eurozone economies, the US, and developing Asia showing relatively weak home bias and advanced Asia, especially Japan, showing relatively strong home bias. We then examine trends over time in foreign holdings of debt securities and find that capital has been flowing from the US and the Eurozone economies to both advanced Asia (especially Japan) and developing Asia and that foreign holdings of debt securities have been increasing in advanced as well as developing Asia but for different reasons. The main reason in the case of advanced Asia (especially Japan) appears to be higher risk-adjusted returns, whereas the main reason in the case of developing Asia appears to be the growth of debt securities markets combined with relatively weak home bias and (in the case of short-term securities) lower exchange rate volatility. Finally, we find that since the Global Financial Crisis, foreign holdings of debt securities have declined (i.e., that home bias has strengthened) in all economies and regions except developing Asia, where they have increased (except for a temporary decline in 2008) but where their share is still much lower than the optimal share warranted by the capital asset pricing market model.
    JEL: F21 F32 F34 G01 G15 O53
    Date: 2015–11
  4. By: Barry Eichengreen; Domenico Lombardi
    Abstract: Previous studies have focused on when the renminbi will play a significant role as an international currency, but less attention has been paid to where. We fill this gap by contrasting two answers to the question. One is that the renminbi will assume the role of a global currency similar to the U.S. dollar. Supporters point to China’s widely diversified trade and financial flows and to its institutional initiatives, not just in Asia but around the world. The other is that the renminbi will play a regional role in Asia equivalent to that of the euro in greater Europe. Proponents of this view argue that China has a natural advantage in leveraging regional supply chains and deepening its links with other Asian countries as well as in developing regional institutions. Asia, they argue on these grounds, will become the natural habitat for the renminbi.
    JEL: F0 F02
    Date: 2015–11
  5. By: Toshihiro Okubo (Faculty of Economics, Keio University); Yuta Watabe (Faculty of Economics, Keio University); Kaori Furuyama (Japan International Cooperation Agency (JICA))
    Abstract: In this paper, we study the waste haven hypothesis that waste materials are exported to developing countries. Using Japanese trade data on recyclable waste resources (plastic waste, waste paper, iron and steel scrap, and nonferrous metal scraps), we find evidence from our econometric analysis that Asian countries provide a waste haven for Japan. In particular, Japan exports waste materials to Asian countries with low per-capita incomes and large markets. We suggest that environmental regulation should be tightened to reduce traded waste in Asia.
    Keywords: waste haven, willingness-to-pay, recyclable waste resources, environmental regulations
    JEL: F18 L51 Q56
    Date: 2015–12–15
  6. By: Su Liangjun (Singapore Management University); Junhui Qian (Shanghai Jiao Tong University)
    Abstract: In this paper we consider estimation and inference of common breaks in panel data models via adaptive group fused lasso. We consider two approaches — penalized least squares (PLS) for firstdifferenced models without endogenous regressors, and penalized GMM (PGMM) for first-differenced models with endogeneity. We show that with probability tending to one both methods can correctly determine the unknown number of breaks and estimate the common break dates consistently. We establish the asymptotic distributions of the Lasso estimators of the regression coefficients and their post Lasso versions. We also propose and validate a data-driven method to determine the tuning parameter used in the Lasso procedure. Monte Carlo simulations demonstrate that both the PLS and PGMM estimation methods work well in finite samples. We apply our PGMM method to study the effect of foreign direct investment (FDI) on economic growth using a panel of 88 countries and regions from 1973 to 2012 and find multiple breaks in the model.
    Keywords: Adaptive Lasso; Change point; Group fused Lasso; Panel data; Penalized least squares; Penalized GMM; Structural change
    JEL: C13 C23 C33 C51
    Date: 2015–09
  7. By: Peter C. B. Phillips (Yale University); Ye Chen (Singapore Management University); Jun Yu (Singapore Management University)
    Abstract: Limit theory is developed for continuous co-moving systems with mildly explosive regressors. The theory uses double asymptotics with in…ll (as the sampling interval tends to zero) and large time span asymptotics. The limit theory explicitly involves initial conditions, allows for drift in the system, is provided for single and multiple explosive regressors, and is feasible to implement in practice. Simulations show that double asymptotics deliver a good approximation to the …nite sample distribution, with both …nite sample and asymptotic distributions showing sensitivity to initial conditions. The methods are implemented in the US real estate market for an empirical application, illustrating the usefulness of double asymptotics in practical work.
    Keywords: Cointegrated system; Explosive Process; Moderate Deviations from Unity; Double Asymptotics; Real Estate Market.
    JEL: C12 C13 C58
    Date: 2015–03
  8. By: Lee E. Ohanian; Paulina Restrepo-Echavarria; Mark L. J. Wright
    Abstract: Since 1950, the economies of East Asia grew rapidly but received little inter-national capital, while Latin America received considerable international capitaleven as their economies stagnated. The literature typically explains the failureof capital to flow to high growth regions as resulting from international capitalmarket imperfections. This paper proposes a broader thesis that country-specificdistortions, such as domestic labor and capital market distortions, also impactcapital flows. We develop a DSGE model of Asia, Latin America, and the Rest ofthe World that features an open-economy business cycle accounting framework tomeasure these domestic and international distortions, and to quantify their con-tributions to international capital flows. We find that domestic distortions havebeen the predominant drivers of international capital flows, and that the generalequilibrium effects of these distortions are very large. International capital market distortions also matter, but less.
    JEL: F21 F32 F41 F44
    Date: 2015–11
  9. By: Quan Hoang Vuong; Nancy K. Napier; Thu Hang Do; Thu Trang Vuong
    Abstract: While much research has focused on entrepreneurship and creativity in developed economies, the notions of both topics are still embryonic in many emerging economies. This paper focuses on entrepreneurs in one such economy, Vietnam, to understand the perceptions of entrepreneurs about the role that innovation and creativity may play in their own entrepreneurial ventures and success. This is important because before reaping benefits from entrepreneurship, entrepreneurs need to decide when and on what conditions they start based on their calculations of required resources and predictions of likely outcomes. The research also sought to understand how "creativity," broadly applied ("innovation" and "creative performance") affects the ways that entrepreneurs think about and anticipate their own success and decisions. In essence, the study suggests that the higher the entrepreur’s creativity is, the more likely she or he is to start a new business and believe success will result. Future research could examine whether history, industry and geographic location matter in entrepreneurs’ perceptions as well as whether transition/emerging economies like Vietnam may have different views altogether about the two key concepts.
    Keywords: Creativity/innovation; entrepreneurship; economic conditions; emerging economy; Vietnam
    JEL: M13 O33 P21 P27
    Date: 2015–12–21
  10. By: Zhenlin Yang (Singapore Management University); Jihai Yu (Peking University); Shew Fan Liu (Singapore Management University)
    Abstract: This paper examines the finite sample properties of the quasi maximum likelihood (QML) estimators of the fixed effects spatial panel data (FE-SPD) models of Lee and Yu (2010). Following the general bias correction methods recently developed by Yang (2015), we derive up to third-order bias corrections for the QML estimators of the FE-SPD model, and propose a simple bootstrap method for their practical implementation. Monte Carlo results reveal that the QML estimators of the spatial parameters can be quite biased and that a second-order bias correction effectively removes the bias. The validity of the bootstrap method is established. Variance corrections are also considered, which together with bias corrections lead to improved inferences.
    Keywords: Bias correction, Variance correction, Bootstrap, Spatial panel, Individual fixed effects, Time fixed effects, Quasi maximum likelihood, Spatial lag, Spatial error, Spatial ARAR.
    JEL: C10 C13 C21 C23 C15
    Date: 2015–03
  11. By: Nanak Kakwani (University of New South Wales, Sydney, Australia); Hyun H. Son (Asian Development Bank, Manila, Philippines)
    Abstract: This study proposes the method of social rate of return (SRR) to evaluate safety net programs such as conditional cash transfer (CCT) schemes. Two types of SRRs are derived in the study: one based on the poverty social welfare function that focuses on the poorest 20\% of the population and the other based on the Gini social welfare function that focuses on inequality as measured by Gini. Defined as the social welfare generated by a program as a percentage of the cost of the program, the SRR is used in this study to conduct a comparative evaluation of CCT programs in Brazil ({\it Bolsa Familia} Program) and the Philippines ({\it Pantawid Pamilyang Pilipino} Program or 4Ps). The findings reveal that the targeting of {\it Bolsa Familia} has improved substantially during 2001–2012, with the poor comprising almost two-thirds of the beneficiaries in 2012. Meanwhile, the 4Ps has rapidly expanded to cover 21\% of the population in 2013, but at the expense of increased leakage of beneficiaries from 45.33\% in 2011 to 52.20\% in 2013. The study finds that both programs have become more efficient in alleviating poverty and inequality – albeit {\it Bolsa Familia} is deemed more efficient given its better targeting system and lower operational cost. Nevertheless, the 4Ps’ targeting efficiency and administrative costs associated with the delivery of transfers have improved within a short period. The findings also indicate that both programs contribute more to the reduction in poverty than inequality.
    Keywords: Social rate of return, Gini social welfare function, poverty social welfare function, inequality, targeting, beneficiary and benefit analysis, cost effectiveness, poverty, education, conditional cash transfer program, Bolsa Familia, Pantawid Pamilyang Pilipino Program, social assistance.
    JEL: D61 D63 I24 I32 I38
    Date: 2015–11
  12. By: Su Liangjun (Singapore Management University); Xia Wang (University of Chinese Academy of Sciences)
    Abstract: Conventional factor models assume that factor loadings are fixed over a long horizon of time, which appears overly restrictive and unrealistic in applications. In this paper, we introduce a time-varying factor model where factor loadings are allowed to change smoothly over time. We propose a local version of the principal component method to estimate the latent factors and time-varying factor loadings simultaneously. We establish the limiting distributions of the estimated factors and factor loadings in the standard large  and large  framework. We also propose a BIC-type information criterion to determine the number of factors, which can be used in models with either time-varying or time-invariant factor models. Based on the comparison between the estimates of the common components under the null hypothesis of no structural changes and those under the alternative, we propose a consistent test for structural changes in factor loadings. We establish the null distribution, the asymptotic local power property, and the consistency of our test. Simulations are conducted to evaluate both our nonparametric estimates and test statistic. We also apply our test to investigate Stock and Watson’s (2009) U.S. macroeconomic data set and find strong evidence of structural changes in the factor loadings.
    Keywords: Factor model, Information criterion, Local principal component, Local smoothing, Structural change, Test, Time-varying parameter.
    JEL: C12 C14 C33 C38
    Date: 2015–07
  13. By: Richard W. Carney (Australian National University, Australia); Travers Barclay Child (VU University Amsterdam, the Netherlands)
    Abstract: Do political ties, family-business group affiliation, and professional connections collectively matter for firm performance? By exploiting a new dataset for 1,290 large East Asian firms during the 2008 financial crisis, we offer a holistic comparison of these different networks. We find that professional networks buoyed performance; political and family networks did not. This suggests information access is a key benefit of business networks. A one standard deviation improvement to a firm's professional network position cushioned quarterly ROA by 2/5 of a percentage point during the crisis.
    Keywords: networks; political connections; interlocking directorates; family ownership; corporate governance
    JEL: G3 G14 L14
    Date: 2015–12–18
  14. By: Su Liangjun (Singapore Management University); Xi Qu (Shanghai Jiao Tong University)
    Abstract: This paper considers a simple test for the correct specification of linear spatial autoregressive models, assuming that the choice of the weight matrix  is true. We derive the limiting distributions of the test under the null hypothesis of correct specification and a sequence of local alternatives. We show that the test is free of nuisance parameters asymptotically under the null and prove the consistency of our test. To improve the finite sample performance of our test, we also propose a residual-based wild bootstrap and justify its asymptotic validity. We conduct a small set of Monte Carlo simulations to investigate the finite sample properties of our tests. Finally, we apply the test to two empirical datasets: the vote cast and the economic growth rate. We reject the linear spatial autoregressive model in the vote cast example but fail to reject it in the economic growth rate example.
    Keywords: Generalized method of moments; Nonlinearity; Spatial autoregression; Spatial dependence; Specification test
    JEL: C12 C14 C21
    Date: 2015–09
  15. By: Su Liangjun (Singapore Management University); Zhang Yonghui (Renmin University of China)
    Abstract: In this paper, we study a partially linear dynamic panel data model with fixed effects, where either exogenous or endogenous variables or both enter the linear part, and the lagged dependent variable together with some other exogenous variables enter the nonparametric part. Two types of estimation methods are proposed for the first-differenced model. One is composed of a semiparametric GMM estimator for the finite dimensional parameter  and a local polynomial estimator for the infinite dimensional parameter  based on the empirical solutions to Fredholm integral equations of the second kind, and the other is a sieve IV estimate of the parametric and nonparametric components jointly. We study the asymptotic properties for these two types of estimates when the number of individuals  tends to ∞ and the time period  is fixed. We also propose a specification test for the linearity of the nonparametric component based on a weighted square distance between the parametric estimate under the linear restriction and the semiparametric estimate under the alternative. Monte Carlo simulations suggest that the proposed estimators and tests perform well in finite samples. We apply the model to study the relationship between intellectual property right (IPR) protection and economic growth, and find that IPR has a nonlinear positive effect on the economic growth rate.
    Keywords: Additive structure, Fredholm integral equation, Generated covariate, GMM, Local polynomial regression, Partially linear model, Sieve method, Time effect
    JEL: C14 C33 C36
    Date: 2015–09
  16. By: DE CNUDDE, Sofie; MOEYERSOMS, Julie; STANKOVA, Marija; TOBBACK, Ellen; JAVALY, Vinayak; MARTENS, David
    Abstract: Microfinance has known a large increase in popularity, yet the scoring of such credit still remains a difficult challenge. In general, retail credit scoring uses socio-demographic and credit data. We complement such data with social network data in an innovative manner i.e. with fine-grained interest and social network data from Facebook. Using a unique dataset of 4,985 microfinance loans from the Philippines, we show how the different data types can predict creditworthiness. A distinction is made between the relationships that the available data imply: (1) look-a-likes are persons who resemble one another in some manner, be it liking the same pages, having the same education, etc. (2) friends have a clearly articulated friendship relationship on Facebook, and finally (3) the \Best Friends Forever" (BFFs) are friends that interact with one another. Our analyses show two interesting conclusions for this emerging application. Firstly, applying relational learners on BFF data yields better results than considering only the friends data. Secondly, the interest-based data that defines look-a-likes, is more predictive than the friendship or BFF data. Moreover, the model built on interest data is not significantly worse than the model that uses all available data, including the friendship data. Hence begging the question: who cares about your Facebook friends when your interest data is available?
    Keywords: Networks, Data mining, Default prediction, Microcredit
    Date: 2015–10
  17. By: Degui Li (University of York); Junhui Qian (Shanghai Jiao Tong University); Su Liangjun (Singapore Management University)
    Abstract: In this paper we consider estimation of common structural breaks in panel data models with unobservable interactive fixed effects. We introduce a penalized principal component (PPC) estimation procedure with an adaptive group fused LASSO to detect the multiple structural breaks in the models. Under some mild conditions, we show that with probability approaching one the proposed method can correctly determine the unknown number of breaks and consistently estimate the common break dates. Furthermore, we estimate the regression coefficients through the post-LASSO method and establish the asymptotic distribution theory for the resulting estimators. The developed methodology and theory are applicable to the case of dynamic panel data models. Simulation results demonstrate that the proposed method works well in finite samples with low false detection probability when there is no structural break and high probability of correctly estimating the break numbers when the structural breaks exist. We finally apply our method to study the environmental Kuznets curve for 74 countries over 40 years and detect two breaks in the data.
    Keywords: Change point; Interactive fixed effects; LASSO; Panel data; Penalized estimation; Principal component analysis.
    Date: 2015–09
  18. By: Violetta Dalla (National and Kapodistrian University of Athens); Liudas Giraitis (Queen Mary University of London); Peter C.B. Phillips (Yale University, University of Auckland, University of Southampton, Singapore Management University)
    Abstract: Time series models are often fitted to the data without preliminary checks for stability of the mean and variance, conditions that may not hold in much economic and financial data, particularly over long periods. Ignoring such shifts may result in fitting models with spurious dynamics that lead to unsupported and controversial conclusions about time dependence, causality, and the effects of unanticipated shocks. In spite of what may seem as obvious differences between a time series of independent variates with changing variance and a stationary conditionally heteroskedastic (GARCH) process, such processes may be hard to distinguish in applied work using basic time series diagnostic tools. We develop and study some practical and easily implemented statistical procedures to test the mean and variance stability of uncorrelated and serially dependent time series. Application of the new methods to analyze the volatility properties of stock market returns leads to some unexpected surprising findings concerning the advantages of modeling time varying changes in unconditional variance.
    Keywords: Heteroskedasticity, KPSS test, Mean stability, Variance stability, VS test
    JEL: C22 C23
    Date: 2015–12

This nep-sea issue is ©2015 by Kavita Iyengar. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.