nep-sea New Economics Papers
on South East Asia
Issue of 2016‒09‒04
eleven papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Banking Strategy and Implementation of Banking ASEAN Integration Framework(ABIF)in ASEAN Community (AEC)'s Era 2020 ERA 2020 By Suryasnia, Sofi; Primiana, Ina; Sucherly, Sucherly; Herwany, Aldrin
  2. Time-Varying Analysis of CO2 Emissions, Energy Consumption, and Economic Growth Nexus: Statistical Experience in Next 11 Countries By Shahbaz, Muhammad; Kumar, Mantu; Shah, Syed Hasanat; Sato, João Ricardo
  3. China’s evolving role in global production networks: the decoupling debate revisited By Prema-chandra Athukorala; John Ravenhill
  4. Stuck at a Crossroad: A Microeconometric Analysis of Fertility and Married Female Labor Force Supply in the Philippines By Ingco, Katrina Nicole; Pilitro, Ver Lyon Yojie
  5. Firm-level utilization rates of regional trade agreements : importers' perspective By Hayakawa, Kazunobu; Laksanapanyakul, Nuttawut; Yoshimi, Taiyo
  6. Africa’s Prospects for Enjoying a Demographic Dividend By David E. Bloom; Michael Kuhn; Klaus Prettner
  7. The Slowdown in Global Trade By Jane Haltmaier
  8. Reassessing the Economic Effects of Post-Socialist Constitutions Using the Synthetic Control Method By Katarzyna Metelska-Szaniawska
  9. Option Pricing Models By Giandomenico, Rossano
  10. Are the major European wine exporters able to price discriminate across their EU extra wine export destinations? By Imre Ferto; Jeremias Mate Balogh
  11. The Social Discount Rate in Developing Countries By Missaka Warusawitharana

  1. By: Suryasnia, Sofi; Primiana, Ina; Sucherly, Sucherly; Herwany, Aldrin
    Abstract: As the preparation and to support the integration of ASEAN banks in 2020, through the establishment of ASEAN Banking Integration Framework (ABIF), banks and business people are expected to develop their businesses in the region with broader scope, more efficient and stable financial. The main purpose of ABIF 2020 is to provide Qualified ASEAN Banks (QAB) which has adequate capital, resilient, well managed and meet the prudential banking requirements, with more access to the regional markets and freedom to operate in ASEAN member countries. However, currently most Indonesian banks still have limited resources compared to the large banks from other ASEAN countries. Even Indonesia’s largest bank assets is only 1/6 of the largest bank in Singapore. Therefore, if Indonesian Banks want to compete, they certainly have to improve their overall performance. This study is aimed to analyze the strategy that Bank should implement to deal with ABIF. One that must be done is to develop a business strategy that allows banks to achieve the optimum level of profitability and efficiency. The method that will be used in this research is the Seemingly Unrelated Regressions (SUR) for Panel Data. The data used is the entire banking listed in the Stock Market in ASEAN countries. The results of this study are expected to provide a clear picture of the Banking Business Strategy in dealing with the enactment of ABIF in AEC’s era, and enrich the research literature in the field of Banking Business Strategy to challenge the increasing competition in the region.
    Keywords: Banking Strategy, ABIF (ASEAN Banking Integration Framework, ASEAN Economic Community (AEC)
    JEL: G2 G21
    Date: 2016–08–25
  2. By: Shahbaz, Muhammad; Kumar, Mantu; Shah, Syed Hasanat; Sato, João Ricardo
    Abstract: This paper detects the direction of causality among carbon dioxide (CO2) emissions, energy consumption, and economic growth in Next 11 countries for the period 1972–2013. Changes in economic, energy, and environmental policies as well as regulatory and technological advancement over time, cause changes in the relationship among the variables. We use a novel approach i.e. time-varying Granger causality and find that economic growth is the cause of CO2 emissions in Bangladesh and Egypt. Economic growth causes energy consumption in the Philippines, Turkey, and Vietnam but the feedback effect exists between energy consumption and economic growth in South Korea. In the cases of Indonesia and Turkey, we find the unidirectional time-varying Granger causality running from economic growth to CO2 emissions thus validates the existence of the Environmental Kuznets Curve hypothesis, which indicates that economic growth is achievable at the minimal cost of environment. The paper gives new insights for policy makers to attain sustainable economic growth while maintaining long-run environmental quality.
    Keywords: Energy, Growth, Emissions, Next 11 Countries
    JEL: A1
    Date: 2016–08–08
  3. By: Prema-chandra Athukorala; John Ravenhill
    Abstract: This paper examines the implications of the evolving role of China in East-Asia centred global production networks for regional and global integration of the Chinese economy. The main focus is on the ‘decoupling’ thesis, the notion that China’s rise has been instrumental in reshaping the East-Asian region as a self-contained economic entity with potential for maintaining growth dynamism independent of the developed economies. The analysis is based on a new dataset that permits delineating the role of the other East Asian countries as suppliers of parts and components for assembly bases in China and China’s dependence on third-country markets. We find that China’s reliance on East Asian neighbours for parts and component supply has significantly declined in recent years, reflecting deepening of China’s engagement in production networks. China is also emerging as a significant supplier of parts and components within global production networks. There has been a notable geographic diversification of China’s assembly exports with a significant increase in the shares of extra-regional developing countries, but Western countries still absorb a sizeable share.
    Keywords: China, global production networks, trade patterns, decoupling thesis
    JEL: F11 F14 F23 M16
    Date: 2016
  4. By: Ingco, Katrina Nicole; Pilitro, Ver Lyon Yojie
    Abstract: This study investigated the link between fertility and married female labor supply of Filipino women using instrumental variable (IV) probit regression using microeconomic data from the National Demographic and Health Survey (NDHS) published in 2013 with 7,628 married women respondents. The first stage regression results showed that couple’s age has a direct relationship on fertility. On the other hand, variables such as secondary education of married female’s husband as compared to non-educated husband, household wealth of all classes relative to the poorest household, and age of female at first marriage has an inverse relationship with the number of children. Second-stage regression results showed that fertility increases the probability of a married female to look for employment. Married female’s age, higher educational attainment relative to non-educated married female, and household wealth as opposed to the household class with the least wealth have direct relationship with married female employment. Lastly, marginal effects showed that additional children will increase the likelihood of a married female to participate in the labor force by 3 percentage points. Increase in married female’s age also increases her probability of getting employed by 0.9 percent. The chances of having labor market activity is higher by 13 percentage points if a married female attains higher education as compared to a married female that has no formal education. If a married female belongs to a household belonging to the highest wealth quintile among all classes in terms of wealth, she has the greatest chance to be employed by 16 percentage points relative to a married female who is a member of a household belonging to the lowest wealth quintile.
    Keywords: Fertility, Married Female Labor Supply, Endogeneity, IV Probit
    JEL: D13 J13 J21 J22
    Date: 2016–08–27
  5. By: Hayakawa, Kazunobu; Laksanapanyakul, Nuttawut; Yoshimi, Taiyo
    Abstract: While previous theoretical studies have examined exporters' choice of tariff schemes without considering explicit heterogeneity of importers, an empirical analysis on regional trade agreement (RTA) utilization is, in general, possible by employing trade data covering the importers' side. To better link the empirical analysis with a theoretical model, this study develops a model that sheds light on the role of both importers' and exporters' characteristics in RTA utilization. The model enables us to replicate stylized facts concerning importers' RTA utilization. Based on this model, we derive some propositions on the determinants of RTA utilization rates (i.e., share of imports under RTA schemes out of total imports) at an import firm-product level. Finally, we found that these theoretical predictions are supported by highly detailed import data in Thailand from Australia from 2007 to 2009.
    Keywords: International trade, International agreements, RTA, Utilization, Thailand
    JEL: F15 F53
    Date: 2016–08
  6. By: David E. Bloom; Michael Kuhn; Klaus Prettner
    Abstract: We assess Africa’s prospects for enjoying a demographic dividend. While fertility rates and dependency ratios in Africa remain high, they have started to decline. According to UN projections, they will fall further in the coming decades such that by the mid-21st century the ratio of the working-age to dependent population will be greater than in Asia, Europe, and Northern America. This projection suggests Africa has considerable potential to enjoy a demographic dividend. Whether and when it actually materializes, and also its magnitude, hinges on policies and institutions in key realms that include macroeconomic management, human capital, trade, governance, and labor and capital markets. Given strong complementarities among these areas, coordinated policies will likely be most effective in generating the momentum needed to pull Africa’s economies out of a development trap.
    JEL: J11 J13 J16 O10
    Date: 2016–08
  7. By: Jane Haltmaier
    Abstract: Print{{p}}December 30, 2015{{p}}The Slowdown in Global Trade{{p}}Jane Haltmaier{{p}}The ratio of real global trade to GDP (the blue line in exhibit 1, panel 1) has leveled off since its recovery after a sharp decline during the{{p}}global financial crisis (GFC).1 Relative to industrial production (the red line), trade has continued to edge up, but the increase in this ratio{{p}}is also much slower than before the crisis. The stagnation is even more evident when both trade and GDP are measured in U.S. dollars{{p}}(the green line), as the ratio of nominal trade to GDP has not even re-attained its pre-GFC peak. This development likely reflects the{{p}}steep fall in oil prices, which affects nominal trade more than nominal GDP. Across all these measures, the recent deceleration in trade{{p}}relative to output is particularly striking because it follows nearly three decades of steady increases, most notably from 1995 through{{p}}2007.{{p}}The slowdown in trade has received a great deal of attention, and it is sometimes cited as one of the reasons for the sluggishness of{{p}}global output growth. However, the linkage between the two is not clear-cut. The economic literature has found a positive association{{p}}between openness to trade and GDP growth at the individual country level, which is thought to result from the spread of technology as{{p}}well as pressure to maximize efficiency in exporting and import-competing industries. These forces are likely to be particularly important{{p}}for less-developed countries. But increasing trade is not the only way to achieve further technology dissemination and/or to improve{{p}}efficiency, especially for countries whose production and financial systems are already well-integrated into the global economy. Growth{{p}}in trade also involves a reallocation of resources among countries that increases global output as long as there are unexploited{{p}}comparative advantages. However, it is difficult to judge the extent of such opportunities. Thus, it is not obvious whether the recent{{p}}leveling-off of trade relative to GDP should be a subject of concern.{{p}}Nevertheless, it is useful to try to understand what might be driving the slowdown in trade growth. This note provides some evidence for{{p}}two possible contributors. First, as shown in panel 2, it appears that the rapid increase in the ratio of trade to output between the{{p}}mid-1990s and the GFC was associated with a comparably large increase in participation in global value chains (GVCs), measured as{{p}}described in Koopman et. al. (2010) using data from the WIOD input-input output tables.2 The input-output tables allow the value of each{{p}}country's exports to be separated into the value that is added domestically and the value that added is added from imports. GVC{{p}}participation is measured for each country from the import side as the total amount of foreign value-added from all source countries that{{p}}is embodied in that country's exports, and from the export side as the total amount of value-added which that country's exports add to{{p}}exports of all other countries, including value that gets passed to a third country.3 The overall measure of GVC participation for a country{{p}}is the sum of these two amounts divided by that country's total exports. The aggregate measure is the sum over all countries.{{p}}GVCs involve the dispersion of production across borders, as some countries produce parts and components for assembly in other{{p}}countries. These chains may also involve round-tripping, as is the case for car production in the United States and Mexico, in which{{p}}components may cross borders several times before the final product is produced and exported. Such production arrangements thus{{p}}generate more trade in goods per unit of final product than would be the case if all parts of the final product were made in a single{{p}}country. As the chart indicates, GVC participation appears to have fallen sharply in the GFC and it had not re-attained its previous peak{{p}}by 2011, the last year for which the data are available. Without more recent data it is impossible to determine the extent to which slower{{p}}growth in GVCs might have contributed to the slowdown in global trade. However, less rapid-expansion in GVCs would be consistent{{p}}with China's rebalancing away from dependence on export-led growth, as China is a major GVC hub.{{p}}Another factor that has been suggested as a contributor to the slowdown in growth of trade relative to GDP is a leveling-off of the{{p}}investment share of global GDP (panel 3). The argument for a connection between the investment share and trade is that investment is{{p}}associated with more trade in goods than is either consumption or government spending, and thus a lower investment share should{{p}}correspond to a lower ratio of trade to GDP. These data are available through 2014, and they do show a sharp decline in the investment{{p}}share of output in the GFC, followed by a bounceback and then much slower growth, similar to the behavior of the ratio of trade to GDP.{{p}}Furthermore, this ratio has not re-attained its pre-recession peak. Of course, the behavior of the investment share is not necessarily{{p}}separate from the development of value chains, as outsourcing of production in the 1995-2007 period may have played a part in the{{p}}concurrent sizable increase in the investment share of global GDP.{{p}}To assess the relationship between the trade ratio and these factors more rigorously, I first regress the ratio of aggregate trade to GDP{{p}}on GVC participation and the share of investment in output. These regressions suggest that the relationships are highly significant,{{p}}although stronger for GVC participation than for investment. I then repeat the analysis for the 26 countries for which GVC data are{{p}}available, both separately and in a panel regression. I find a very strong relationship between both of these variables and the trade ratios{{p}}across countries, both separately and as a group.{{p}}These results may suggest that the slowdown in global trade should not necessarily be viewed, in and of itself, as a source of concern.{{p}} FRB: IFDP Notes: The Slowdown in Global Trade{{p}}1 of 6 12/31/2015 7:47 AM{{p}}Global value chains may have contributed to a more efficient allocation of resources across countries (although to the extent that they{{p}}were driven by over-dependence on external demand in China, the re-allocation of resources may turn out not to have been efficient in{{p}}the long run). However, there is no reason to believe that this process can or should continue indefinitely, or at as rapid a rate as it did{{p}}before the crisis. Similarly, the leveling-off of the share of investment in global GDP follows a long period in which it trended upward, and{{p}}at 24 percent it is still higher than its historical average (22.8 percent from 1970 to 2014).{{p}}Figure 1: Global Aggregates{{p}} Sources: National accounts, World Input-Output Database, and International Monetary Fund’s World Economic Outlook.{{p}}Accessible version{{p}}Regional Measures{{p}}Before discussing my regression results in more detail, I will first provide some information on regional developments in global value{{p}}chain participation and investment trends.{{p}}GVC participation is plotted along with the trade ratio for five groups of countries and the United States in exhibit 2. The pattern is{{p}}remarkably consistent. All of the groups—emerging Asia, Latin America, the euro area, other advanced Europe, other advanced{{p}}(Canada, Japan and Australia) and the United States saw both an increase in the trade ratio as well as a sharp increase in GVC{{p}}participation over the period shown. Furthermore, GVC participation appears to have dropped sharply in all areas during the GFC and{{p}}generally had not fully rebounded through 2011. Of course, this probably does not mean that countries that had been participating in{{p}}value chains suddenly started producing all of the goods domestically. A more plausible explanation is that demand for the goods{{p}} FRB: IFDP Notes: The Slowdown in Global Trade{{p}}2 of 6 12/31/2015 7:47 AM{{p}}produced using value chains was hit especially hard. This would help to explain why trade contracted so much more sharply that did{{p}}GDP (or even industrial production, as shown in exhibit 1, panel 1). However, the fact that GVC participation has only partly recovered in{{p}}most regions does suggest that there may be a structural break with their pre-crisis rapid growth, consistent with China's push to{{p}}rebalance its economy away from heavy dependence on manufacturing for export. Such a shift also affects China's regional trading{{p}}partners.{{p}}Another noteworthy element of these charts is that the recent behavior of the ratio of trade to GDP differs substantially across groupings,{{p}}in marked contrast to the very widespread increase in the ratio before the GFC. The ratio is falling in emerging Asia and other Europe,{{p}}while continuing to rise in the euro area and the other advanced economies, as well as in the United States. In Latin America it has been{{p}}mostly flat since the GFC, although it has turned up more recently.{{p}}Exhibit 3 shows the trade ratio along with the investment share for the same country groupings. The investment share generally appears{{p}}to be less highly correlated than GVC participation with the trade ratio, especially for emerging Asia, where it did not fall in the GFC.{{p}}However, it has leveled off more recently as the trade ratio has fallen.{{p}}Figure 2: Trade and Participation in Global Value Chains{{p}}Accessible version{{p}}Figure 3: Trade and the GDP Share of Investment{{p}} FRB: IFDP Notes: The Slowdown in Global Trade{{p}}3 of 6 12/31/2015 7:47 AM{{p}}Accessible version{{p}}Regression Results{{p}}As shown in table 1 below, there appears to be a significant relationship between changes in the ratio of trade to output and both GVC{{p}}participation and the share of investment in GDP. This is true for the aggregate measure whether output is measured as GDP or IP,{{p}}although the sample size is small, especially for the GVC variable, which is available only from 1995 to 2011. However, a panel{{p}}regression with country fixed effects over the 26 countries that have GVC data (thus a much larger sample size) shows very similar{{p}}results. (These regressions are done using only the trade/GDP variable because not all of these countries have IP data.) Not{{p}}surprisingly, the fit of these equations is not as good as it is for the aggregate equations. However, the GVC participation variable alone{{p}}appears to explain nearly half of the variation in the trade ratio. This is also considerably more than is explained by the investment share{{p}}alone (20 percent). When both variables are included in the equation, the R2 is only slightly higher than that of the equation that only{{p}}includes the GVC participation variable, but more than twice as large as that for the equation that only includes the investment share{{p}}variable.{{p}}Similar regressions were also estimated for each of the 26 countries in the sample separately (table 2). The value chain variable is{{p}}significant for all of the countries and the investment share variable is significant for 19 of the 26. The coefficients on the value chain{{p}}variables are particularly large for China, Taiwan, and Indonesia.{{p}}Conclusion{{p}}The results presented here support the view that the recent slowdown in the growth of global trade relative to GDP may be at least partly{{p}}due to slower growth in global value chains, which expanded rapidly in the decade and a half preceding the global financial crisis.{{p}}Slower growth in the global share of investment in GDP, which may be related to the declining role of global value chains, may also have{{p}}played a role. This may suggest that the pause in trade relative to GDP is not a major cause for concern.{{p}} FRB: IFDP Notes: The Slowdown in Global Trade{{p}}4 of 6 12/31/2015 7:47 AM{{p}}Table 1{{p}}Aggregate Regressions{{p}}Dep. Var. Trade/GDP Trade/IP{{p}}Sample 1996 - 2011 1981-2014 1996 - 2011 1981-2014{{p}}Expl. Var. GVC I/GDP I/GDP GVC I/GDP I/GDP{{p}}0.9 1.38 1.12 0.49 0.7 0.51{{p}}R2 0.77 0.79 0.63 0.63 0.55 0.3{{p}}Panel Regression{{p}}Trade/GDP{{p}}Sample 1996 - 2011 1981-2014{{p}}Expl. Var. GVC I/GDP Multivariate equation I/GDP{{p}}GVC I/GDP{{p}}0.83 0.35 0.74 0.16 0.09{{p}}R2 0.45 0.2 0.48 0.07{{p}}Equations are estimated in log first differences. All coefficients are significant at the 1 percent level.{{p}}Table 2{{p}}Individual Country Regressions{{p}}Expl. Var. GVC I/GDP Expl. Var. GVC I/GDP{{p}}Coeff R2 Coeff R2 Coeff R2 Coeff R2{{p}}United States .81* 0.72 .91* 0.82 Ireland .86* 0.42 0.12 0.06{{p}}Canada .70* 0.42 .56* 0.44 Italy .75* 0.83 1.08* 0.63{{p}}Japan .90* 0.69 1.25* 0.56 Netherlands .75* 0.63 0.29 0.07{{p}}Australia .39* 0.53 .40# 0.18 Portugal .72* 0.58 .39+ 0.3{{p}}United Kingdom .56+ 0.26 .59* 0.48 Spain .84* 0.76 .61+ 0.34{{p}}Sweden .94* 0.58 .71* 0.65 China 1.32* 0.64 -0.39 0.01{{p}}Denmark .52* 0.35 .44* 0.63 Korea .70* 0.4 .30* 0.52{{p}}Austria 1.21* 0.81 .90+ 0.26 Taiwan 1.25* 0.71 .66* 0.89{{p}}Belgium/Lux .40# 0.2 0.24 0.11 India .82+ 0.34 -0.15 0.03{{p}}Finland .94* 0.59 .85* 0.6 Indonesia 2.04* 0.56 0.68 0.17{{p}}France .81* 0.73 .77* 0.57 Brazil .61* 0.36 .60+ 0.25{{p}}Germany .81* 0.77 .57* 0.49 Mexico .99+ 0.31 .94* 0.43{{p}}Greece .39+ 0.59 .35* 0.4 Russia .47+ 0.31 0.09 0.13{{p}}*significant at 1% level, + significant at 5% level, # significant at 10% level.{{p}}References{{p}}Amador, Joao and Sonia Cabral, "Global Value Chains: Surveying Drivers and Measures," ECB Working Paper 1739, 2014.{{p}}Antras, Po and Davin Chor, "Organizing the Global Value Chain," NBER Working Paper 18163, 2012.{{p}} FRB: IFDP Notes: The Slowdown in Global Trade{{p}}5 of 6 12/31/2015 7:47 AM{{p}}Accessibility Contact Us Disclaimer Website Policies FOIA PDF Reader{{p}}Bems, Rudolfs, and Robert Johnson, "Value-Added Exchange Rates," NBER Working Paper 18498, 2012.{{p}}Chen, Hogan, Matthew Kondratowicz, and Kei-Mu Yi, "Vertical Specialization and Three Facts about U.S. International Trade," North{{p}}American Journal of Economics and Finance, 16: 35-39, 2005.{{p}}Daudin, Guillaume, Christine Rifflart, and Danielle Schweisguth, "Who Produces for Whom in the World Economy?" Canadian Journal of{{p}}Economics, 2011.{{p}}Dietzenbacher, E., B. Los, R. Stehrer, M.P. Timmer and G.J de Vries, "The Construction of World Input-Output Tables in the WIOD{{p}}Project," Economic Systems Research, 25, 71-98, 2013.{{p}}Fally, Thibault, "On the Fragmentation of Production in the US," 2011.{{p}}Feenstra, R.C., and G.H. Hanson, "Globalization, Outsourcing, and Wage Inequality," American Economic Review 86(20), 240-45, 1996.{{p}}Georgiadis, Georgios, Johannes Grab, and Fabian Trottner, "Global Chain Participation and Current Account Imbalances," December{{p}}2014.{{p}}Hummels, David, Jun Ishii, and Kei-Mu Yi, "The Nature and Growth of Vertical Specialization in World Trade," Journal of International{{p}}Economics, Vol. 54(1), 2001.{{p}}IMF, "Trade Interconnectedness: The World With Global Value Chains," 2013.{{p}}Johnson, Robert, "Five Facts about Value-Added Exports and Implications for Macroeconomics and Trade Research," Journal of{{p}}Economic Perspectives, 2014.{{p}}Johnson, Robert, and Guillermo Noguera, "Fragmentation and Trade in Value Added Over Four Decades," NBER Working Paper 18186,{{p}}2012.{{p}}Johnson, Robert, and Guillermo Noguera, "Accounting for Intermediates: Production Sharing and Trade in Value Added," Journal of{{p}}International Economics, 2011.{{p}}Koopman, Robert, William Powers, Zhi Wang, and Shang-Jin Wei, "Give Credit Where Credit is Due: Tracing Value Added in Global{{p}}Production Chains," NBER Working paper 16426, 2010.{{p}}Koopman, Robert, Zhi Wang, and Shang-Jin Wei, "How Much of Chinese Exports is Really Made in China? Assessing Domestic{{p}}Value-Added When Processing Trade is Pervasive," NBER Working paper 14109, 2008.{{p}}Lejour, Arjan, Hugo Rojas-Romagosa and Paul Veenendall, "Identifying Hubs and Spokes in Global Supply Chains Using Redirected{{p}}Trade in Value Added," ECB Working Paper 1670, 2014.{{p}}Matras, Chor, D., Fally, T., and Hillberry, H., "Measuring the Upstreamness of Production and Trade Flows," NBER Working Paper{{p}}17819, February 2012{{p}}Riad, Nagwa, Luca Errico, Christian Henn, Christian Saborowski, Mika, and Jarkko, Turunen, "Changing Patterns of Global Trade," IMF,{{p}}2012.{{p}}Timmer, M. P., Erumban, A., Los, B., Stehrer, R., and de Vries, G., Slicing Up Global Value Cahins," Journal of Economic Perspectives{{p}}28(2), 99-118, 2014.{{p}}Timmer, M. P., Dietzenbacher, E., Los, B., Stehrer, R., and de Vries, G.J., "An Illustrated Guide to the World Input-Output Database: The{{p}}Case of Global Automotive Production," Review of International Economics, 23: 575-605, 2015.{{p}}1. This note refers to trade in goods. Trade in services is much more difficult to measure across countries. Return to text{{p}}2. Timmer et. al (2015). Return to text{{p}}3. This is done by inverting the global input-output table. Return to text{{p}} Disclaimer: IFDP Notes are articles in which Board economists offer their own views and present analysis on a range of topics in{{p}}economics and finance. These articles are shorter and less technically oriented than IFDP Working Papers.{{p}}Last update: December 30, 2015{{p}}Home | Economic Research & Data{{p}} FRB: IFDP Notes: The Slowdown in Global Trade{{p}}6 of 6 12/31/2015 7:47 AM
    Date: 2015–12–30
  8. By: Katarzyna Metelska-Szaniawska (Faculty of Economic Sciences, University of Warsaw)
    Abstract: In response to the problems of endogeneity and causality in comparative studies with relatively small sample sizes, a new statistical approach has recently been developed, called the synthetic control method. In this paper we apply this method to reassess the effect of constitution-making in post-socialist countries of Europe and Asia on performance of these countries in the field of economic reforms during the post-1989 transition. We first verify the existence of such effects and evaluate their statistical significance. Then we search for the explanation of these effects and their magnitude focusing on the characteristics of these constitutions and the solutions that they envisage (structural provisions, bills of rights and enforcement mechanisms). Thanks to employing this approach we are able to avoid several technical caveats that have arisen in earlier studies and verify the validity of their conclusions. In addition, we obtain country-specific results for each individual post-socialist state, as well as formulate detailed insights regarding the actual mechanisms or channels of influence of the constitutional framework on economic reforms.
    Keywords: Constitutional Economics, post-socialist transition, economic reforms, synthetic control method, synthetic counterfactuals
    JEL: H11 K19 P21 P26
    Date: 2016
  9. By: Giandomenico, Rossano
    Abstract: The study faces the problem of the skew for American and European options by using stochastic volatility and optimal stopping problem by simulating till Asian options in binomial model. The problem of local volatility is also faced with geometrical applications for option pricing with implications for the smile phenomenon.
    Keywords: Contingent Claim, Stochastic Volatility, Optimal Stopping, Levy Process
    JEL: C63 G13
    Date: 2016–09
  10. By: Imre Ferto (Institute of Economics - Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Jeremias Mate Balogh (PhD candidate, Corvinus University of Budapest, Department of Agricultural Economics and Rural Development)
    Abstract: In recent decades, New World has increased its wine export to European markets and became considerable in the global wine competition. However, the export share of traditional wine producers has decreased; Europe still remained market leader on world wine market. Moreover, the global wine market is characterised by progressively concentrated production, France, Italy and Spain accounting for about 50% of world wine production. Consequently, it is important to investigate what kind of pricing strategy the largest wine exporters of the world including France, Italy, Spain, Portugal and Germany can employ in their foreign wine export markets. The pricing behavior of five European wine exporters in their major destination markets is examined using a pricing-to-market (PTM) model for noncompetitive and exchange rate related pricing behaviour between 2000 and 2013. The results suggest that France and Italy were able to pursue price discrimination in many wine export destinations by contrast this advantage was not observable in a case of Spain, Portugal and Germany. The analysis of the asymmetric effects of exchange rates on wine export prices suggests that in many cases the depreciation of Australian, Hong Kong’s; Singapore’s dollar relating to euro had a greater impact than the appreciation while appreciation of Canadian and Singaporean dollar exceeded the effect of depreciation.
    Keywords: price discrimination, pricing to market (PTM), wine industry
    JEL: Q17 F13 F14
    Date: 2016–07
  11. By: Missaka Warusawitharana
    Abstract: October 9, 2014{{p}}The Social Discount Rate in Developing Countries{{p}}{{p}}Missaka Warusawitharana{{p}}{{p}}The "social discount rate" is the interest rate used in cost-benefit analyses of infrastructure and other public projects. As seen from the discussion of the Stern report on climate change (see Stern, 2007, and Nordhaus, 2007), differences in the social discount rate can have substantial implications for evaluating the costs and benefits of public projects. This note proposes a heuristic approach to deriving a social discount rate for developing countries based on the sovereign borrowing rate.{{p}}{{p}}The main methods currently used to calculate the social discount rate are: (1) the social rate of time preference and (2) the social opportunity cost of capital. The first approach is based on the argument that public investment reduces private consumption and thus equates the social discount rate to a rate of time preference, usually estimated with the Ramsey formula.1 The second approach is based on the argument that public investment crowds out private investment one-for-one and, as such, the discount rate is estimated based on the pre-tax real rate of return for private investment, typically estimated using returns to private capital. Based partly on this approach, leading development banks, such as the World Bank and the Asian Development Bank, typically apply a real discount rate in the range of 10 percent to 12 percent when evaluating projects in developing countries (see Zhuang et al., 2007, and Harrison, 2010). Many government agencies in these countries follow such guidelines and apply a similar discount rate when evaluating public projects. Applying such relatively high discount rates implies, for example, that projects requiring a significant upfront cost to realize a flow of benefits over long periods of time may be discouraged.{{p}}{{p}}This note proposes using the real interest rate at which developing countries can borrow as the social discount rate. For instance, one could use a recent average of a sovereign government's cost to borrow in U.S. dollars, adjusted for U.S. inflation rates, to measure the social discount rate for a developing country. A rationale for this measure is that it would significantly correspond to the borrowing cost of the government that would, in most cases, be responsible for funding the project. Thus, using the sovereign borrowing rate as the social discount rate would enable one to match the projected cash inflows from the project to the cash outflows for the government responsible for financing it.2 This approach, in fact, reflects the current practice of most European governments, who link the social discount rate to their borrowing costs. In addition, U.S. government agencies either use a rate based on government borrowing rates or a higher rate obtained from a social opportunity cost of capital calculation (see Office of Management and Budget, 1992).{{p}}{{p}}The proposed method would not have been feasible until recently, as most developing countries were not able to access dollar-denominated sovereign debt markets. Reflecting the increased globalization of financial markets, however, there has been a marked increase in access to sovereign debt markets for developing countries, as detailed in The Economist (2014). Table 1 lists data on recent issuance of dollar-denominated sovereign debt with maturity greater than five years by selected developing countries.3 Many of these countries issued their first such bond during the past few years.{{p}}Table 1: Recent US$ Sovereign Debt Issuance by Developing Countries{{p}}Country Issue Date Yield-to-maturity Amount (US$ millions){{p}}Kenya 6/17/2014 6.88% 1500{{p}}Zambia 4/7/2014 8.63% 1000{{p}}Ivory Coast 7/16/2014 5.63% 750{{p}}Sri Lanka 4/8/2014 5.13% 500{{p}}Pakistan 4/9/2014 8.25% 1000{{p}}Ecuador 6/16/2014 7.95% 2000{{p}}Senegal 7/23/2014 6.25% 500{{p}}Honduras 12/11/2013 8.75% 500{{p}}Gabon 12/5/2013 6.38% 1500{{p}}Bolivia 8/15/2013 6.25% 500{{p}}Nigeria 7/2/2013 6.63% 500{{p}}{{p}}The figures in Table 1 indicate that using sovereign borrowing costs would result in lower social discount rates than are currently applied in developing countries' cost-benefit analyses for public projects. The (nominal) interest rates in Table 1 (labeled "yield-to-maturity") average about 7 percent; after adjusting for U.S. inflation, the implied social discount rate would be on the order of 5 percent. This lower discount rate is similar to that recommended by Lopez (2008) for selected Latin American countries. It should be noted that the low social discount rate implied by the proposed method would rise if sovereign debt yields were to increase notably, possibly due to a change in the global macroeconomic environment or country-specific developments.{{p}}{{p}}Discount rates ought to incorporate a risk premium, since the projected future benefits of a project may not materialize. The use of sovereign borrowing rates implicitly assumes that the risk premium on public infrastructure projects is the same as the premium for the default risk of a country. In contrast, the social opportunity cost of capital approach assumes that the risk premium on public infrastructure projects is the same as that on private investment. But the private risk premium on private project is likely too high for public sector projects, due to the fact that it involves compensation for factors (for instance, weak institutions) that may not apply for the consideration of public projects.{{p}}{{p}}Another consideration that points toward using a moderate social discount rate in developing countries is that current practices might tend to underestimate some of the potential benefits of many infrastructure projects. For instance, public infrastructure projects frequently are expected to generate positive externalities (see Fernald, 1993), which would potentially amplify the returns from the infrastructure investment compared with current estimation practices. These externalities are hard to estimate, and are typically overlooked in a traditional cost benefit analysis.{{p}}{{p}}To summarize: this note argues for using real sovereign borrowing rates as the social discount rate for evaluating public projects in developing countries. Compared with standard approaches, such an approach would currently result in a lower discount rate than currently applied, potentially leading to greater public infrastructure investments in developing countries. If carried out wisely, such investments may help boost living standards for many people in these countries.{{p}}{{p}}{{p}}References{{p}}Fernald, John, 1999, Roads to prosperity? Assessing the link between public capital and productivity, American Economic Review, volume 89(3), pages 619-638.{{p}}{{p}}Harrison, Mark, 2010, Valuing the future: The social discount rate in the cost-benefit analysis, Visiting Researcher Paper, Australian Government Productivity Commission.{{p}}{{p}}Nordhaus, William, 2007, The Stern Review on the economics of climate change, Journal of Economic Literature, volume 45, pages 686-702.{{p}}{{p}}Office of Management and Budget, 1992, Circular no. A-94, Guidelines and discount rates for Benefit-Cost Analysis of Federal Programs. Washington, D.C.{{p}}{{p}}Stern, Nicholas, 2007, The Economics of Climate Change: The Stern Review, Cambridge University Press Cambridge, UK.{{p}}{{p}}The Economist, 2014, Frontier markets: Wedge beyond the edge, The Economist, April 5.{{p}}{{p}}Zhuang Juzhong, Zhihong Liang, Tun Lin, and Franklin De Guzman, 2007, Theory and practice in the choice of social discount rate for cost-benefit analysis: A survey, Asian Development Bank ERD Working Paper #94.{{p}}{{p}}1. The Ramsey formula implies that the social rate of time preference equals the intertemporal discount rate plus the consumption growth rate times the elasticity of the marginal utility of consumption. Return to text{{p}}{{p}}2. This ignores the potential foreign currency risk faced by the borrowing government. This risk could, in principle, be hedged using financial instruments, though such hedging would need to be included in the total cost of the project. Return to text{{p}}{{p}}3. I thank Wenxin Du and Rick Ogden for helping provide the data. Return to text{{p}}{{p}} Disclaimer: FEDS Notes are articles in which Board economists offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers.{{p}}Search Working Papers{{p}}{{p}}{{p}}Last update: October 9, 2014
    Date: 2014–10–09

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