nep-sea New Economics Papers
on South East Asia
Issue of 2017‒11‒12
twelve papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Developing Asia in the Era of Cross-border E-commerce By Lurong Chen
  2. Should the Malaysian islamic stock market investors invest in regional and international equity markets to gain portfolio diversification benefits? By Umairah, Fatin; Masih, Mansur
  3. Asia’s rebalancing and growth By Soyoung Kim; Jong-Wha Lee; Warwick J. McKibbin
  4. Decline and Restructuring of a State-owned Enterprise Group in the Vietnamese Iron and Steel Industry (Japanese) By KAWABATA Nozomu
  5. Export orientation vs import substitution : which strategy should the government adopt? Evidence from Malaysia By Nurhaliq, Puteri; Masih, Mansur
  6. Predicting exchange rates in Asia: New insights on the accuracy of survey forecasts By Kunze, Frederik
  7. Firms and Regional Favoritism By VU, Manh Tien; Yamada, Hiroyuki
  8. The Risks for ASEAN of New Mega-Agreements that Promote the Wrong Model of e-Commerce By Jane Kelsey
  9. Global Value Chains and Development of Light Manufacturing in Ethiopia By Ben Shepherd
  10. Equilibrium Exchange Rates and Misalignments: The Case of Homogenous Emerging Market Economies By Christian K. Tipoy; Marthinus C. Breitenbach; Mulatu F. Zerihun
  11. Capital Flows and Financial Stability in Emerging Economies By Christopher F. Baum; Madhavi Pundit; Arief Ramayandi
  12. Sleep and Student Success: The Role of Regularity vs. Duration By Luong, Phuc; Lusher, Lester; Yasenov, Vasil

  1. By: Lurong Chen
    Abstract: Cross-border e-commerce has been a major development trend of international trade and globalization. In the next 5-10 years, the top three fastest-growing markets in the world-India, Indonesia, and Malaysia-will all come from Asia. Connectivity is the cornerstone of e-commerce development. E-commerce supporting connectivity aims to ease free information flow, logistics, free cash flow, and seamless links between the virtual and physical parts of e-commerce network. Accordingly, policy efforts include: increasing the supply of public goods to improve connectivity infrastructure in both physical world and cyberspace; establishing rules and regulations to ensure dynamics and competition of online marketplace; improving connectivity-derived services to generate more value added; prioritizing smartphone economy and Internet financial innovation, and collaboration in the region-wide E-commerce supporting environment.
    Keywords: digital economy, e-commerce, connectivity, developing Asia
    Date: 2017–11
  2. By: Umairah, Fatin; Masih, Mansur
    Abstract: The paper asks the following questions: (i) What is the extent of the dynamic linkage of the conventional and Islamic stocks with the Malaysian Islamic stock market? (ii) Should the Malaysian Islamic stock market investors invest in (regional and international) conventional or Islamic equity market to gain international portfolio diversification benefits? (iii) How would the portfolio diversification benefits of the Malaysian Islamic investors change given different investor stock holding periods (e.g. 2-4 days, 4-8 days, 8-16 days, etc.)? The appropriate methods employed to addressing these questions are MGARCH-DCC and Continuous Wavelet Transformation (CWT). The data period covered is 2007 – 2017. The results tend to indicate that the FTSE Bursa Malaysia Hijrah Shariah Index has low correlation with the global stock market index, regardless of conventional or Islamic. However, the correlations in between the Islamic stock markets are quite high. Malaysian Islamic stock market investors who have allocated their investment in the global markets may enjoy portfolio diversification benefits. However, Malaysian Islamic stock market investors may not enjoy the real benefit if they allocate their funds in Dow Jones Islamic Asia Pacific Market but interestingly the medium-term investors may benefit from their investment. Also, the Malaysian Islamic stock market investors may lose if they invest in the conventional Malaysia Stocks Market (EMAS) as they may consist of the same stocks. Overall, the results tend to indicate that the Malaysian Islamic stock investors can reap the benefits of portfolio diversification in the regional and international equity markets if they take care of the extent of correlations between stocks at different investment horizons.
    Keywords: Stock market, Dynamic linkage, MGARCH, Wavelet Coherence, Malaysia, FTSE Hijrah Shariah Stock Index
    JEL: C22 C58 G11 G15
    Date: 2017–07–06
  3. By: Soyoung Kim; Jong-Wha Lee; Warwick J. McKibbin
    Abstract: The paper investigates the impact of Asia’s demand rebalancing and supply-side productivity changes on long-term economic growth in Asia and worldwide. Results from a panel vector autoregression model show that a productivity-neutral demand rebalancing shock has no permanent effect on Asian output, whereas labor productivity shocks have significant, positive, and permanent effects. Simulations using a global intertemporal multi-sector general equilibrium model suggest that labor productivity shocks increase the foreign GDP over time, but rebalancing shocks have a negative international spillover effect. In addition, labor productivity shocks helps rebalancing. Structural reforms promoting labor productivity growth along with rebalancing policies across Asia can achieve higher economic growth worldwide.
    Keywords: Rebalancing, Export-led growth, Asia, VAR, Multi-country simulation model.
    JEL: F41 F43 F47
    Date: 2017–11
  4. By: KAWABATA Nozomu
    Abstract: This paper analyzes the decline and restructuring of VN Steel, a state-owned steel company group in Vietnam. In the gradual transition to a market economy in Vietnam, most large-scale state-owned enterprises (SOEs) have undergone a reform process without privatization. Among them, VN Steel is important as a case where it was urged to rebuild its business as a result of defeat in market competition. This paper analyzes the following points. (1) As a steel company analysis, it reveals how VN Steel lagged behind the investment competition through the production system approach. (2) As SOE analysis, it looks at it from two angles. One is the effects of the curtailment of governmental support and execution of corporate governance reform on VN Steel. The other is the possibility that government support and intervention would be reinforced when the decline leads to a management crisis. Moreover, this paper evaluates the impact of economic reform on not only VN Steel but also the industrial organization of the iron and steel industry. The analysis result shows the following findings. (1) VN Steel has been greatly recessed in the Vietnamese steel market, and is still in the process of restructuring even after the management crisis. (2) The reason for the decline of VN Steel is the halfway and inconsistent policy of the government. On the one hand, the government did not give subsidies to VN Steel for corporate growth. On the other hand, it did not reform the corporate governance of VN Steel rapidly. As a result, VN Steel's corporate behavior has remained characteristic of SOEs. Performance deteriorated due to the appearance of some incomplete factories as a result of quantity-oriented investments and the delay of project execution. After withdrawal of financial support to VN Steel, the government was pulled back to involvement in management reconstruction. (3) In spite of failure in VN Steel's reform at the enterprise level, the government succeeded in developing a competitive environment at the industry level. The reform of the economic institutions with the background of international economic integration promoted the rise of private and foreign-owned enterprises in the steel industry. VN Steel did not prevent that process. The analysis of this paper shows the importance of the problem area of government involvement in SOEs in the declining process. Inconsistent combinations between the curtailment of government support and delays in corporate governance reforms could lead to a business crisis, eventually bringing the government back to involvement in management reconstruction. This paper also shows that it is necessary to evaluate at both the state-owned company level and the industrial level when assessing the impact of international economic integration on the economic reform of a transition economy.
    Date: 2017–11
  5. By: Nurhaliq, Puteri; Masih, Mansur
    Abstract: Many previous empirical studies focused mainly on the effect of export expansion while ignoring the potential contribution of import substitution in developing economic growth especially for the case of emerging countries. This paper attempts to investigate the relationship between trade and economic growth emphasising the role of import and export in Malaysia over the period 1970 to 2014. The study treats the impact of export and import separately to allow the possibility of asym-metric influences on economic growth by adopting recent time series modelling. The study used Granger Causality test and Variance Decomposition (VDC) method to analyse the influences of trade improvement on growth development. This is important in providing evidence whether growth is driven mainly by trade activities or whether there is a reciprocal impact between trade and growth. The result confirms the existence of bidirectional long run relationship between growth and export and between growth and import, suggesting that singular focus on export from previous study tends to be misleading. This is crucial from the policy point of view in developing strategies to enhance growth. If export drives the economic growth, policy should be directed more towards export orientation and likewise for import.
    Keywords: Export orientation, import substitution, Malaysia
    JEL: C22 C58 F13
    Date: 2016–06–15
  6. By: Kunze, Frederik
    Abstract: This paper evaluates aggregated survey forecasts with forecast horizons of 3, 12, and 24 months for the exchange rates of the Chinese yuan, the Hong Kong dollar, the Japanese yen, and the Singapore dollar vis-à-vis the US dollar using common forecast accuracy measures. Additionally, the rationality of the exchange rate predictions are assessed utilizing tests for unbiasedness and efficiency. All investigated forecasts are irrational in the sense that the predictions are biased. However, these results are inconsistent with an alternative measure of rationality based on methods of applied time series analysis. Investigating the order of integration of the time series and using cointegration analysis, empirical evidence supports the conclusion that the majority of forecasts are rational. Regarding forerunning properties of the predictions, the results are less convincing, with shorter term forecasts for the tightly managed USD/CNY FX regime being one exception. As one important evaluation result, it can be concluded, that the currency regime matters for the quality of exchange rate forecasts.
    Keywords: exchange rates,survey forecasts,forecast evaluation,forecast acccuracy,forecast rationality,cointegration,impulse response analysis
    JEL: F31 F37 G17 O24
    Date: 2017
  7. By: VU, Manh Tien; Yamada, Hiroyuki
    Abstract: We examine formal firm behavior in response to regional favoritism by top-ranked politicians using a balanced panel of 444 rural districts (yearly observations) in Vietnam during 2000 to 2011 and census microdata of firms, politicians’ home towns, and climate and population microdata. The study finds that the number of firms and aggregated employment of firms increase in the home town districts of politicians after they resume office. The findings suggest that regional favoritism in a single–party system maintains the continuous development of firms in politicians’ home town districts and widens the gaps among rural districts.
    Keywords: Firms, Favoritism, Politician, Rural, Vietnam, D22, D25, D72, R11, Z1, P28, O17
    Date: 2017–10–31
  8. By: Jane Kelsey
    Abstract: Digital technology offers exciting new opportunities and advances for ASEAN member states, individually and as a region. The benefits have so far been captured by first movers, especially in the United States. ASEAN countries need time and flexibility to develop their own digital industrialization strategies that can harness the potential gains and minimize the risks, and regulate accordingly. This paper explains how that opportunity would be foreclosed by a new normative framework on electronic commerce and cross-border services that is being systematically advanced by developed countries on behalf of their globally dominant digital industries. Starting with the Trans-Pacific Partnership Agreement, the template is being promoted through a network of mega-regional trade and investment agreements, including the Regional Comprehensive Economic Partnership and potentially the World Trade Organization. Instead of delivering a digital dividend to ASEAN countries, this model of e-commerce could impede their development, create negative fiscal and employment consequences, and leave them dependent on an oligopoly of private corporations that control the global digital infrastructure and mass data. ASEAN member states will need to resist those proposals if they are to maintain their regulatory sovereignty and the policy space to capitalize on the 21st century digital revolution.
    Keywords: e-commerce, ASEAN, mega FTAs, WTO, RCEP
    Date: 2017–10
  9. By: Ben Shepherd (Developing Trade Consultants)
    Abstract: Development of manufacturing activity will be a key component of Ethiopia’s development program over the next decade, and probably well beyond. As the country remains relatively capital scarce, the focus is necessarily on light manufacturing, which covers sectors or activities that are relatively labor intensive. Although Ethiopia is the second most populous country in Africa, its low level of per capita income means that the domestic market remains very small by international standards. This factor is one important reason that GVC participation is attractive. GVCs are focused on global markets, and so offer the potential for serving much larger world markets for intermediates or final consumption goods. Although there is clearly scope for higher incomes within Ethiopia to support and grow domestic demand, the opportunities offered by the world market are much greater, which makes increased GVC participation a potentially attractive option for Ethiopia, building on the experiences of countries like China and Vietnam.
    Date: 2017–10
  10. By: Christian K. Tipoy; Marthinus C. Breitenbach; Mulatu F. Zerihun
    Abstract: We compute the exchange rate misalignment for a set of emerging economies between 1980 and 2013 using the behavioural equilibrium exchange rate definition. The real equilibrium exchange rate is constructed using a parsimonious model and estimators that are robust to cross-sectional independence and small sample size bias. We find that these countries tend to intervene to avoid real appreciation of their currencies following a rise in relative productivity, casting doubt on the Balassa-Samuelson effect. East-Asian countries have maintained their currencies at an artificially low level in order to remain competitive and boost economic growth these past years.
    Keywords: equilibrium exchange rate, panel cointegration, autoregressive distributed lag
    JEL: F31 C23
    Date: 2017–10
  11. By: Christopher F. Baum (Boston College; DIW Berlin); Madhavi Pundit (Asian Development Bank); Arief Ramayandi (Asian Development Bank)
    Abstract: There is mixed evidence for the impact of international capital flows on financial sector's stability. This paper investigates the relationship between components of gross capital flows and various financial stability indicators for 16 emerging and newly industrialized economies. Departing from panel data methods, for each financial stability proxy, we employ systems of seemingly unrelated regression estimators to allow variation in the estimated relationship across countries, while permitting crossequation restrictions to be imposed within a country. The findings suggest that, after controlling for macroeconomic factors, there are significant effects of different gross capital flow measures on the financial stability proxies. However, the effects are not homogeneous across our sample economies and across flows. Country-specific financial and macroeconomic characteristics help to explain some of these differences.
    Keywords: emerging economies, financial stability, international capital flows
    JEL: E44 F41
    Date: 2017–10–30
  12. By: Luong, Phuc (University of California, Davis); Lusher, Lester (University of Hawaii at Manoa); Yasenov, Vasil (University of California, Berkeley)
    Abstract: Recent correlational studies and media reports have suggested that sleep regularity – the variation in the amount of sleep one gets across days – is a stronger determinant of student success than sleep duration – the total amount of sleep one receives. We identify the causal impacts of sleep regularity and sleep duration on student success by leveraging over 165,000 student-classroom observations from a large university in Vietnam where incoming freshmen were randomly assigned into course schedules. These schedules varied significantly: some had the same daily start time across the week, while others experienced extreme shifts. Across a multitude of specifications and samples, we precisely estimate no discernible differences in achievement between students with highly varying start times versus students with consistent schedules. Moreover, we find much smaller gains to delayed school start times compared to previous studies.
    Keywords: school start time, sleep regularity, education policy
    JEL: I20 I21 I23
    Date: 2017–10

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