nep-sea New Economics Papers
on South East Asia
Issue of 2018‒04‒30
sixteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Will the 21st Century Be an Asian Century?: A Global Perspective By Masahiro Kawai
  2. Macroeconomic and demographic determinants of residential property prices in Malaysia. By Trofimov, Ivan D.; Md. Aris, Nazaria; C. D. Xuan, Dickson
  3. Drivers of Growth in Fast Emerging Economies: a Dynamic Instrumental Quantile Approach to Real Output and its Rates of Growth in BRICS and MINT countries, 2001-2011 By Simplice Asongu; Nicholas Odhiambo
  4. Identifying Critical Attributes Using an Importance-Performance Matrix Analysis (IPMA): The Case of Stratified Residential Property Management in Malaysia By Hishamuddin Mohd. Ali; Mustafa Omar; Shahabudin Abdullah; Maimunah Sapri; Ibrahim Sipan; Dzurllkani
  5. Foreign investment regulation and firm productivity: Granular evidence from Indonesia By Genthner, Robert; Kis-Katos, Krisztina
  6. Estimating Urban Water Demand Elasticities using Regression Discontinuity: A Case of Tangerang Regency, Indonesia By Muhammad Halley Yudhistira; Prani Sastiono; Melly Meliyawati
  7. Escaping the Middle-Income Trap: A Cross-Country Analysis on the Patterns of Industrial Upgrading By Wang, Lili; Wen, Yi
  8. A ‘Desi’ Multinational –A Case Study of Hindustan Unilever Limited By Raj, Keerthana; Aithal, Sreeramana
  9. A study on the determinants of office rent: the cases of world cities By ChanWoo Kim; Kyung-Min Kim
  10. Equitable Redistribution without Taxation: A lesson from East Asian Miracle countries By Arifur Rahman
  11. Social Norms, Labor Market Opportunities, and the Marriage Gap for Skilled Women By Bertrand, Marianne; Cortes, Patricia; Olivetti, Claudia; Pan, Jessica
  12. Dangers of a Double-Bottom Line: A Poverty Targeting Experiment Misses Both Targets By Karlan, Dean S.; Osman, Adam; Zinman, Jonathan
  13. Sky high economics By Grous, Alexander
  14. How Do Households Adjust to Trade Liberalization? Evidence from China's WTO Accession By Dai, Mi; Huang, Wei; Zhang, Yifan
  15. Does Indonesia’s Macroeconomic Work Well Towards the Political Year? By Kiki Verico
  16. The Sustainable Black-Scholes Equations By Yannick Armenti; Stéphane Crépey; Chao Zhou

  1. By: Masahiro Kawai (Economic Research Institute for Northeast Asia (ERINA))
    Abstract: This paper discusses the issue of whether the 21st century will be an gAsian century. h According to a study commissioned by the Asian Development Bank, Asia 2050: Realizing the Asian Century, Asian countries will keep growing and eventually account for more than half of global GDP by 2050. The study, however, cautions that developing Asia may fall into the gmiddle-income trap h where growth stagnates due to the lack of productivity growth. This paper provides baseline projections for the world economy up to 2050 and argues that the gAsian century h scenario may be interpreted as one of the high growth cases for the model, and Asia may face the risk of stagnation due to the middle-income trap and/or gAsian conflict h resulting from political, security, and military tensions in Asia. The paper argues that in order to realise an gAsian century, h developing Asia needs to focus on technological progress, inclusive growth, environmental sustainability, institutional and governance quality, and regional cooperation and integration. It also points to possible global governance structures which are alternatives to an Asia-centric world, such as those of a gChina century, h gAmerican century 2.0, h gG-2, h gG-0, h and a gmulti-polar h world. As the two major powers in this region, China and Japan need to cooperate with each other to maintain regional peace and security, and help realise the gAsian century. h The paper concludes that even when the gAsian century h arrives and Asia dominates the world in terms of economic size, it does not necessarily mean that Asia will dominate the world politically, institutionally, militarily, or in soft power. The 21st century will likely be a gmulti-polar h world where the traditional powers of the West (the United States and European Union countries), Japan, and new rising powers (China, India, and other major emerging economies) collectively manage global economic and political affairs.
    Keywords: Asian century, Asian stagnation, middle-income trap, multi-polar world, China-Japan cooperation
    JEL: E01 F01 F02 F55 O40
    Date: 2017–10
  2. By: Trofimov, Ivan D.; Md. Aris, Nazaria; C. D. Xuan, Dickson
    Abstract: This paper studies the relationship between residential property prices and macroeconomic and demographic determinants in Malaysia. In the years following the Asian financial crisis, property prices in Malaysia rose substantially, resulting in an affordability crisis and ultimately policy responses to the problem. Using unit root, Johansen-Juselius cointegration, VECM-based Granger causality tests and variance decomposition, and considering quarterly data that covers 2000-2015 period, we established that residential property price growth is principally driven by strong demographic performance and population growth and is backed by the low interest rate environment and rising consumer prices. Household income and level of GDP do not appear to contribute to property price growth. Certain distortions and asymmetries in the Malaysian real estate markets are documented: oversupply in the higher price segment of the market coupled with the lack of affordable housing in the lower price segment; household income growth lagging behind GDP and property price growth, thereby dampening housing demand; growing rental markets in major urban areas as a result of the affordability crisis; and a quality mismatch between buyers’ preferences and housing supply.
    Keywords: Property prices; housing; cointegration
    JEL: C22 R21 R30 R38
    Date: 2018–04–06
  3. By: Simplice Asongu (Yaoundé/Cameroun); Nicholas Odhiambo (Pretoria, South Africa)
    Abstract: We analyze the evolution of fast emerging economies of the BRICS (Brazil, Russia, India, China & South Africa) and MINT (Mexico, Indonesia, Nigeria & Turkey) countries, by assessing growth determinants throughout the conditional distributions of the growth rate and real GDP output for the period 2001-2011. An instrumenal variable (IV) quantile regression approach is complemented with Two-Stage-Least Squares and IV Least Absolute Deviations. We find that the highest rates of growth of real GDP per head, among the nine countries of this study, corresponded to China, India, Nigeria, Indonesia and Turkey, but the highest increases in real GDP per capita corresponded, in descending order, to Turkey China, Brazil, South Africa and India. This study analyzes the impacts of several indicators on the increase of the rate of growth of real GDP and on the logarithm of the real GDP. We analyze several limitations of the methodology, related with the selection of the explained and the explanatory variables, the effect of missing variables, and the particular problems of some indicators. Our results show that Net Foreign Direct Investment, Natural Resources, and Political Stability have a positive and significant impact on the rate of growth of real GDP or on real GDP.
    Keywords: Economic Growth; Emerging countries; Quantile regression
    JEL: C52 F21 F23 O40 O50
    Date: 2018–01
  4. By: Hishamuddin Mohd. Ali; Mustafa Omar; Shahabudin Abdullah; Maimunah Sapri; Ibrahim Sipan; Dzurllkani
    Abstract: Stratified residential property management, one of the sub-sectors of the real estate industry in Malaysia, has been facing the pressures as the awareness amongst buildings occupiers of effective management has increased. In line with recent literature on the increasing awareness of residents and the critically needs of effective property management, efforts are required to identify and clarify the critical activities and its attributes in managing the stratified residential properties that could effects the property management service delivery. This study used the partial least squares (PLS) and structural equation modeling (SEM) and followed by Importance-Performance Matrix Analysis (IPMA) to examine the 11 activities and their attributes. There were 11 activities and each of them consists of attributes that played as measurement variables that were believed could affect the property management. The IPMA results indicated that maintenance and financial is the key activities that critically affect the stratified residential property management service delivery. Interestingly, it is also found that tenancy & marketing negatively affect the property management service as tenancy and marketing services are not major services for the residential property. It is believed that an identification of the critical attributes for stratified residential property management will lead to more effective and efficient in service delivery
    Keywords: property management activities; service delivery; stratified residential property
    JEL: R3
    Date: 2017–07–01
  5. By: Genthner, Robert; Kis-Katos, Krisztina
    Abstract: Based on a yearly census of Indonesian manufacturing firms for 2000-2014, we investigate the effects of a sector-specific investment policy reform on firm productivity. Hereby we exploit a protectionist foreign direct investment reform (the so-called negative investment list) that designated certain sectors at the five-digit level to become closed or only conditionally open to foreign investors. The list was first released in 2000 and has been repeatedly revised by the Indonesian authorities since. Our empirical analysis links the changes within this regulatory framework to variation in firm-level productivity in a large firm panel. Controlling for an extensive set of fixed effects as well as potential drivers of endogeneous regulation, we find robust evidence of declining foreign capital shares in sectors subject to restrictions on foreign direct investment, followed by a sizable decrease in firm productivity. From the different types of conditions, sector-wide FDI bans were linked to the largest productivity declines. We also document the presence of negative backward productivity spillovers of regulation that propagate throughout the value chain.
    Keywords: FDI,regulation,Indonesia,total factor productivity,spillovers
    JEL: F23 L51 D24 F21 L6
    Date: 2018
  6. By: Muhammad Halley Yudhistira (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Prani Sastiono (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Melly Meliyawati (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))
    Abstract: We estimate the effect of water tariff adjustment in Tangerang city, Indonesia in November 2014 on monthly water consumption. Due to typical water-block pricing strategy, estimating water demand elasticities are likely to be complex. A unique panel monthly water consumption dataset at consumer level in Tangerang regency covering the period of January 2011–September 2016 is used. Using regression discontinuity framework, we find a 13% average tariff increase reduces 4% household water consumption on average. Further, our estimates suggest the tariff adjustment provides no effects on high-income households, industrial, and commercial consumers. We also find more elastic response of water consumption in short-run period than in long-run.
    Keywords: Water Demand Elasticities — Urban Water — Regression Discontinuity Design — Indonesia
    JEL: L95 R22 R53
    Date: 2018–03
  7. By: Wang, Lili; Wen, Yi (Federal Reserve Bank of St. Louis)
    Abstract: With rapid industrial upgrading along the global value chain of manufactured goods, China has transformed, within one generation, from an impoverished agrarian society to a middle-income nation as well as the largest manufacturing powerhouse in the world. This article identifies the pattern of China’s industrial upgrading and compares it with those of other successfully industrialized economies and the failed ones. We find that (i) China (since 1978) followed essentially the same path of industrial upgrading as that of Japan and the “Asian Tigers.” These economies succeeded in catching up with the developed western world by going through three developmental stages sequentially; namely, a proto-industrialization in the rural areas, a first industrial revolution featuring mass production of labor-intensive light consumer goods, and then a second industrial revolution featuring mass production of the means of mass production (i.e., capital-intensive heavy industrial good s such as steel, machine tools, electronics, automobiles, communication and transport infrastructures). (ii) In contrast, economies stuck in the low-income trap or middle-income trap did not follow the above sequential stages of industrialization. For example, many Eastern European and Latin American countries after WWII jumped to the stage of heavy industrialization without fully developing their labor-intensive light industries, and thus stagnated in the middle-income trap. Also, there is a clear lack of proto-industrialization in the rural areas for many African economies that have remained in the low-income trap. We believe that laissez-faire and “free market” alone is unable to trigger industrial upgrading. Instead, correct government-led bottom-up industrial policies are the key to escaping the low- and middle-income traps.
    Keywords: China’s Economic Development; Industrial Revolution; Middle-Income Trap; New Institutional Theory; New Stage Theory; New Structural Economics
    JEL: F02 N10 O11 O40
    Date: 2018–01–16
  8. By: Raj, Keerthana; Aithal, Sreeramana
    Abstract: India has become a second home to many multinationals’ over the years. The fact that India has second largest population in the world is alluring because it translates itself into a huge opportunity to encash for marketers across the globe. Hindustan Lever Limited which set foot as the subsidiary of Unilever has been one such multinational which has almost become a home grown brand. The strategies adopted by this corporate leaves no stone unturned in cashing in on the tiniest niche markets available. Reaching the four billion populations in the base of the pyramid markets has been a topic of research in recent times. Lot of exploratory and case studies have been made in this field. This paper is a study on the strategies developed by Hindustan Lever Limited which has been one of the most successful companies to foray into the emerging markets in South East Asia and successfully tapped the base of the pyramid in India. A case study using archival material and secondary information sources suggest that having a global lookout and one world one market strategy is not successful when attempting to cut into base of the pyramid segments in emerging markets. The critical aspect here is developing grassroots’ connection and social empathy which should translate to a cooperative spirit which will leverage the strengths and overcome the weaknesses.
    Keywords: Base of the pyramid, Grassroots, Marketers, Multinationals, Niche, Strategies
    JEL: A1 A14 M2
    Date: 2018–01–02
  9. By: ChanWoo Kim; Kyung-Min Kim
    Abstract: Spatial integration and increased connectivity have hugely affected regions and cities across national borders, and real estate assets, including offices, have inevitably felt the effects of global consolidation. Despite the abundance of discussions on the real estate and office markets, research that focusses on this phenomenon has rarely been conducted.Thus, this study aims to reflect the effects of inter-city connectivity on the world's office market and office rents. The spatial scope of the paper is 50 major cities throughout the world, and the time scope is the period 2010-2014. This study is distinctive in that it conducts a comparative study amongst cities worldwide, and tries to discover a previously unidentified determinant of office rents. The basic assumption of the study is that the spatial integration effect, represented by air connectivity, positively affects office rents. Three models have been set up according to aspects of air connectivity: the number of flight seats, the number of flights, and ASKs (available seat kilometres). Formerly established determinants of office rents, vacancy and GDP per capita are also set as independent variables.Panel analysis of the 50 cities resulted in the following: In the case of Europe and North America, which comprise 80 percent of all samples, correlation of rent and air connectivity turned out to be significantly positive in all models. This empirical result satisfies the basic assumption of the study that increased spatial integration significantly affects world office rents on the whole. Asia Pacific samples, however, turned out to have a statistically insignificant correlation between rents and air connectivity. This result suggests that Asia Pacific's regional complexity is not fully reflected in the models, and shows that the study has some limitations with respect to explanatory power.Considering the office market’s importance in both the commercial real estate market and the real estate market as a whole, it is a crucial task to determine factors that affect office rents to properly understand the asset market and predict the market’s future movement. This study acquires significance in this context because it involves considering how connectivity effects may lessen uncertainty in the real estate market and improve efficiency in this market, where illiquidity has long been thought of as one of its feature
    Keywords: Air Connectivity; Determinant; Office Rent; Panel Model; World City
    JEL: R3
    Date: 2017–07–01
  10. By: Arifur Rahman
    Abstract: Does uncertainty of labor earning over the life-time increase income inequality? – This paper finds that there is a direct positive relationship between life-time uncertainty and income inequality. Earlier studies single out the effect of uncertainty to pin point the effects of predictable factors (i.e. education, family background, etc.), whereas the uncertainty is treated as uncontrollable factor. This paper finds that, the degree of earning uncertainty is predictable to a large extent, which is one of the corner-stones of life cycle models with stochastic earnings. Therefore, the uncontrollable uncertainty can be influenced by policy decisions. The EAM countries have set examples of such policies and have shown that despite their rapid economic growth, inequality has been decreased in those countries. The degree of earning uncertainty can be reduced by creating more jobs in less volatile Dependent Employment. In other words, by giving a worker higher opportunity to find a less volatile job, earning uncertainty can be reduced. And reduced earning uncertainty eventually results in reduced income inequality.
    Keywords: Inequality, Redistribution
    JEL: D33 E24
    Date: 2018–01
  11. By: Bertrand, Marianne (University of Chicago); Cortes, Patricia (Boston University); Olivetti, Claudia (Boston College); Pan, Jessica (National University of Singapore)
    Abstract: In most of the developed world, skilled women marry at a lower rate than unskilled women. We document heterogeneity across countries in how the marriage gap for skilled women has evolved over time. As labor market opportunities for women have improved, the marriage gap has been growing in some countries but shrinking in others. We discuss the comparative statics of a theoretical model in which the (negative) social attitudes toward working women might contribute to the lower marriage rate of skilled women, and might also induce a non-monotonic relationship between their labor market prospects and their marriage outcomes. The model delivers predictions about how the marriage gap for skilled women should react to changes in their labor market opportunities across economies with more or less conservative attitudes toward working women. We verify the key predictions of this model in a panel of 26 developed countries, as well as in a panel of US states.
    Keywords: social norms, marriage gap, labor market opportunities
    JEL: J12 J16
    Date: 2018–03
  12. By: Karlan, Dean S.; Osman, Adam; Zinman, Jonathan
    Abstract: Two for-profit Philippine social enterprises, aiming to demonstrate corporate social responsibility by increasing microlending to the poor, incorporated a widely-used poverty measurement tool into their loan applications and tested the tool using randomized training content. Treated loan officers were instructed why and how to use the tool for targeting; control group training merely labelled the tool "additional household information". The targeting training backfired, leading to no additional poor applicants and lower-performing loans. Descriptive evidence suggests the targeting training exacerbated loan officer misperceptions and multitasking problems. Our results help explain why corporate social responsibility efforts are often siloed from core operations.
    Keywords: Corporate social responsibility; discrimination; double-bottom line; microcredit; Microfinance; Multi-tasking; poverty targeting; social business
    JEL: D12 D22 D92 G21 O12 O16
    Date: 2018–04
  13. By: Grous, Alexander
    Abstract: The global airline industry is on the cusp of a connectivity revolution. Currently 3.8 billion passengers fly annually, with only around 25% of planes in the air offering them some form of onboard broadband. This is often of variable quality, with patchy coverage, slow speeds and low data limits. By 2035, it is likely that inflight connectivity will be ubiquitous across the world. Non-broadband-enabled ‘traditional’ sources such as seat upgrades, onboard duty free and baggage fees are currently worth around $60 billion to airlines. For the first time, this research study bridges the gap between current market estimates of traditional revenues and the forecasting of incremental revenue from broadbandenabled cabins. Using IATA passenger traffic data and forecasts of growth, including a near doubling of passenger numbers to 7.2 billion annually, this research study forecasts that broadband-enabled ancillary revenue will reach an estimated $30 billion for airlines by 2035. Overall, a total market of $130 billion of additional revenues will be created. As well as airlines, this market will include content providers, retail goods suppliers, hotel and car suppliers, airlines and advertisers. The four primary areas of broadband enabled ancillary revenue have been defined in the research are: • Broadband access • Advertising, encompassing interruptive advertising and pay-per-click • E-commerce and destination shopping • Streaming, including premium content The research looks at six key regions: Asia Pacific, Europe, North America, Africa, Middle East and Latin America, analysed using both primary and secondary research, drawing on available data of passenger numbers and of forecasted aircraft growth globally. By 2035, broadband-access revenue is forecast to remain the highest single source of new ancillary revenues, accounting for 53% of the total market, followed by e-commerce and destination shopping at 40% of the market, with advertising revenue accounting for 8% of the market, and premium content at around 2.5% of the market. Per passenger, this means an increase of 1,129% in broadband enabled ancillary revenue from the current $0.23 per passenger in 2018, to $2.82 in 2028, reaching $4 per passenger by 2035. With current traditional ancillary revenue for airlines of around $17 per passenger, the research study projects that broadband connectivity will add around 24% to ancillary revenues for airlines in real terms by 2035. Growth in broadband-enabled ancillary revenue will be driven by the introduction of new generation satellites. These address the key requirements sought by passengers that have been lacking to date in many cases, most importantly high bandwidth and continuous connectivity. Passenger surveys continue to confirm that these are integral components of quality, which remains the primary driver of broadband take-up, and that passengers are willing to pay more for high quality onboard connectivity. When combined with a well-developed ecosystem of content, products and services, this can spur the development of related ancillary revenues from both leisure and business passengers on Low Cost Carriers and Full Service Carriers. Globally, Low Cost Carriers (LCCs) are forecast to account for around $11 billion of revenues, and Full Service Carriers (FSC) around $19 billion. The capitalisation of opportunities presented by a connected cabin with high quality continuous coverage will depend on the degree that airlines are willing to engage with third party suppliers, retailers, destination companies, content providers and others. The research study forecasts that by 2035, from the estimated $30 billion airline share of the total broadbandenabled revenue of $130 billion, Asia Pacific has the highest figure at $10.3 billion, followed by Europe with $8.2 billion, North America with $7.6 billion, Latin America with $1.9 billion, Middle East at $1.3 billion and Africa with $0.58 billion. The opportunity for revenue growth from broadband enabled services is dependent on airlines commercialising passenger data to a much greater degree than occurs currently. Today, only 11% of existing airline schemes offer personalised rewards based on purchase history or location data. More loyal customers can generate a 23% premium in profitability and revenue to airlines. Airlines today have failed to fully develop the potential opportunities offered by passenger data. Airlines are in the driver’s seat for realising a massive opportunity. By bringing together right technological, retail, advertising and content partners, airlines will be able to offer passengers the services they are asking for, whilst improving the bottom line. With the number of passengers currently flying every day forecast to almost double by 2035 this is a ‘sky high’ multibillion dollar opportunity for the global airline industry.
    JEL: J1
    Date: 2017
  14. By: Dai, Mi (Beijing Normal University); Huang, Wei (National University of Singapore); Zhang, Yifan (Chinese University of Hong Kong)
    Abstract: We investigate the impacts of trade liberalization on household behaviors and outcomes in urban China, exploiting regional variation in the exposure to tariff cuts resulting from WTO entry. Regions that initially specialized in industries facing larger tariff cuts experienced relative declines in wages. Households responded to this income shock in several ways. First, household members worked more, especially in the non-tradable sector. Second, more young adults co-resided with their parents, and thus household size increased. Third, households saved less. These behaviors significantly buffered the negative wage shock induced by trade liberalization.
    Keywords: household adjustments, trade liberalization, WTO
    JEL: F14 F16 J20 R23
    Date: 2018–03
  15. By: Kiki Verico (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))
    Abstract: This paper utilizes the timeframe of 2014–2018 as the period with some of the global underperformed macroeconomic indicators. This paper found that in late 2016, Indonesia’s macroeconomic indicators started shown some improvements that keep real and monetary sector’s equilibrium to be stable. This paper observes the external balance of current account, exchange rate stability, inflation and interest rate as well as consumption patterns, saving-investment gap, fiscal discipline and fiscal sustainability. It analyses the government expenditure multiplier, real and monetary sector stability and institutional coordination between fiscal authority, monetary authority, and financial service authority. Real sector improvements which have been rolling since 2017 has significantly contributed to the recent Indonesia’s macroeconomic stability. Technically, if all on the track, this will sustain during the upcoming political year of 2019.
    Keywords: Current Account — Exchange Rate — Economic Growth — Inflation — Interest Rate — Saving-Investment Gap — Real
    JEL: L95 R22 R53
    Date: 2018–04
  16. By: Yannick Armenti (LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - ENSIIE - CNRS - Centre National de la Recherche Scientifique); Stéphane Crépey (LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - ENSIIE - CNRS - Centre National de la Recherche Scientifique); Chao Zhou (Department of Mathematics [Singapore] - NUS - National University of Singapore)
    Abstract: In incomplete markets, a basic Black-Scholes perspective has to be complemented by the valuation of market imperfections. Otherwise this results in Black-Scholes Ponzi schemes, such as the ones at the core of the last global financial crisis, where always more derivatives need to be issued for remunerating the capital attracted by the already opened positions. In this paper we consider the sustainable Black-Scholes equations that arise for a portfolio of options if one adds to their trade additive Black-Scholes price, on top of a nonlinear funding cost, the cost of remunerating at a hurdle rate the residual risk left by imperfect hedging. We assess the impact of model uncertainty in this setup.
    Keywords: Market incompleteness,cost of capital (KVA),cost of funding (FVA),model risk,volatility uncertainty,optimal martingale transport
    Date: 2018–04–11

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