nep-sea New Economics Papers
on South East Asia
Issue of 2019‒02‒18
thirteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Vietnam: The Next Asian Tiger? By Tom Barker; Murat Ungor
  2. China’s Processing Trade and Value Chains By Lili Yan Ing; Wei Tian; Maiojie Yu
  3. Indonesia Got Schooled: 15 Years of Rising Enrolment and Flat Learning Profiles By Amanda Beatty; Emilie Berkhout; Luhur Bima; Thomas Coen; Menno Pradhan; Daniel Suryadarma
  4. How Would a Slowdown in the People's Republic of China Affect its Trading Partners? By Willem THORBECKE
  5. China Should Join the New Trans-Pacific Partnership By Peter A. Petri; Michael Plummer
  6. General Equilibrium Impacts VAT and Corporate Tax in Thailand By Benjasak, Chonlakan; Bhattarai, Keshab
  7. Division of Labour Amongst Innovation Intermediaries in Agricultural Innovation Systems: The Case of Indonesia By Nobuya Fukugawa; Masahito Ambashi Author-Person : pam152; Yuanita Suhud
  8. The Eurasian Land Bridge: The Role of Service Providers in Linking the Regional Value Chains in East Asia and the European Union By Richard Pomfret
  9. Vietnam: Deviations in real exchange rate levels in the OECD countries and their structural determinants By Martin Berka; Daan Steenkamp
  10. Production networks of the Asian automobile industry: Regional or global? By Bruno Jetin
  11. Economic effects of inward foreign direct investment in Vietnamese provinces By Taguchi, Hiroyuki
  12. The Effects of Financial Crises on Developing Countries By Yudhistira, Bintang
  13. Market Impact: A Systematic Study of the High Frequency Options Market By Ahmed Bel Hadj Ayed; Emilio Said; Ahmed Bel; Hadj Ayed; Damien Thillou; Jean-Jacques Rabeyrin; Fr\'ed\'eric Abergel

  1. By: Tom Barker (Macro Financial Department, Reserve bank of New Zealand); Murat Ungor (Department of Economics, University of Otago)
    Abstract: This paper analyzes how trade integration may affect international financial flows in a world with heterogeneous financial development. In the presence of financial frictions and sector-specific minimum investment requirements, the static gains from trade trigger the cross-sector investment reallocation on the extensive margin, which may allow the more financially developed country (North) to offshore low-return production activities and upgrade to high-return activities. This way, trade-driven sectoral upgrading in North becomes a mechanism through which the substantial decline in trade and communication costs and the resulting boom in supply-chain trade may contribute to the global imbalances in the recent decades.We investigate the growth experience of Vietnam, the country which has been getting recent attention as being the next emerging giant. First, we present an aggregate level investigation of Vietnam\'92s economic growth experience, since the inauguration of reform in 1986 known as Doi Moi. Second, we build a two-sector general equilibrium model, investigating the secular decline in agricultural employment. We conduct aquantitative analysis using a theoretical framework, with an emphasis on the counterfactual outcomes of inheriting Chinese sectoral productivity growth rates, where China is recognized as the paragon emerging economy. The main findings are: (i) Vietnam has grown impressively since 1986, but is still a relatively poor country in absolute terms; (ii) Vietnam must decrease its reliance on factor accumulation as its source of growth and increase its technological capabilities; (iii) economic policies should equally target both agricultural and nonagricultural sectors to increase sectoral productivity growth rates in Vietnam.\
    Keywords: Vietnam, capital formation, convergence, deagriculturalization
    JEL: N10 O47 O53 O57
    Date: 2018
  2. By: Lili Yan Ing; Wei Tian; Maiojie Yu
    Abstract: We investigate how trade liberalisation affects the performance of Chinese manufacturing firms. To better understand China’s role in global value chains, we examine Chinese firms with a significant import share from Indonesia, one of its largest processing source countries. We find that Chinese firms with a greater import share from Indonesia perform better in productivity, export, and sales, and they are more likely to engage in processing exports. Moreover, the impact of foreign trade liberalisation on China’s export scope is more pronounced for firms with a larger import share from Indonesia because of their greater extent of engagement in global value chains.
    Keywords: trade liberalisation, firm performance, processing trade
    JEL: F1 F13 F14
  3. By: Amanda Beatty; Emilie Berkhout; Luhur Bima; Thomas Coen; Menno Pradhan; Daniel Suryadarma
    Abstract: Indonesia has instituted wide-ranging educational reforms over the past twenty years, but recent international assessments of student learning indicate that these reforms may not have translated into learning gains—the country is performing comparatively poorly and worse than its regional neighbours.
    Keywords: Indonesia, education reform, student learning
    JEL: F Z
  4. By: Willem THORBECKE
    Abstract: The People's Republic of China (PRC) has become an important importer for many countries. This paper investigates how turbulence in the PRC can spill over to trading partners through the trade channel. Exports from several East and Southeast Asian countries to the PRC exceed 10 percent of their GDPs. To shed light on countries' exposures to the PRC, this paper estimates a gravity model. The results indicate that Taiwan and the Association of Southeast Asian Nations are exposed to the PRC because they produce goods for the Chinese market and exposed to advanced economies because they ship parts and components to the PRC for processing and re-export to the West. South Korea is more exposed to a slowdown in advanced economies that purchase processed exports from the PRC than to a slowdown in the PRC. Major commodity exporters such as Australia, Brazil, Indonesia, and Saudi Arabia and exporters of sophisticated consumer and capital goods such as Germany and Switzerland are exposed to a slowdown in the Chinese domestic market. This paper also estimates import elasticities for the PRC. The results indicate that imports for processing into the PRC are closely linked to processed exports from China to the rest of the world and that ordinary imports are closely linked to Chinese GDP. The renminbi exerts only a weak impact on imports, however. The paper concludes by recommending that firms and countries diversify their export base and their trading partners to reduce their exposures to the PRC and to advanced economies.
    Date: 2019–01
  5. By: Peter A. Petri (Peterson Institute for International Economics); Michael Plummer (Johns Hopkins University and East-West Center)
    Abstract: A year after President Donald Trump’s ill-advised pullout from the Trans-Pacific Partnership (TPP) trade agreement in early 2017, the remaining 11 Asian and Pacific countries agreed on a deal in spite of the absence of the United States. Renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the accord took effect on December 30, 2018, and provides rigorous, up-to-date rules for Asia-Pacific trade—but it excludes the region’s two biggest economies, the United States and China. Petri and Plummer calculate that Chinese membership in the CPTPP would yield large economic and political benefits to China and other members. The CPTPP, in its current form, would generate global income gains estimated at $147 billion annually. If China were to join, these gains would quadruple to $632 billion, or a quarter more than in the original TPP with the United States. But to join the CPTPP, China would have to undertake unprecedented reforms and manage complex political challenges.
    Date: 2019–01
  6. By: Benjasak, Chonlakan; Bhattarai, Keshab
    Abstract: We construct a CGE model of Thailand in order to assess economy wide impacts of reforms in the value added tax (VAT) and corporate income tax (CIT) on welfare and reallocation of resources across production sectors in the Thai economy. Our model was calibrated to the micro consistent benchmark data set contained in the Input-Output Table published in 2010 by the Office of National Economics and Social Development Board (NESD) with some restructuring into 18 sectors. The general algebraic modelling system (GAMS) was used to estimate the parameters of the model. The findings reveal that aggregate net changes in welfare of 10 percent VAT are better than zero percent VAT. Thus, increasing VAT from 7 to 10 percent becomes desirable policy action on the basis of economy wide welfare analysis because utility from the public services for the households more than compensates their loss of utility due to higher taxes. On the net welfare basis, the decreasing CIT rate from 30 to 20 percent is more preferable policy than 23 percent CIT. This model based analysis is a unique contribution to the current literature on impacts of VAT and corporate income tax in the Thai economy though further scope remains for full impact analysis of comprehensive reforms such as the GST with dynamic model and multi households.
    Keywords: Tax Policy, VAT, Thailand’s CGE model
    JEL: D58 D61 H2
    Date: 2017–08–01
  7. By: Nobuya Fukugawa; Masahito Ambashi Author-Person : pam152 (Economic Research Institute for ASEAN and East Asia (ERIA)); Yuanita Suhud (Economic Research Institute for ASEAN and East Asia (ERIA))
    Abstract: Innovation intermediaries are individuals and organisations that enhance connectivity amongst constituencies of national, sectoral, and regional systems of innovation, thereby facilitating knowledge spillover. This paper articulates the whole picture of Indonesia’s agricultural innovation system, with a special focus on how different innovation intermediaries play different roles in technology transfer and knowledge dissemination. First, the public sector accounts for more than half of the actors involved in research and extension, but insufficient routes to transfer local needs to the public sector impede efficient feedback. Second, village unit cooperatives are closely associated with extension workers, suggesting the presence of a feedback mechanism, but many of them face serious financial distress. Third, private agricultural research and development and extension are organised and managed efficiently where they involve fewer internal actors working in an environment with minimal bureaucracy. However, a vague regulatory environment makes it difficult for multinational enterprises to hold a positive view towards agricultural research and development and extension from the public sector. Last, the changing governance system and the ensuing shift in political decision-making have introduced uncertainties to the arrangement of actors and resources in the system, which may take some time to resolve.
    Keywords: Agricultural innovation system; ASEAN; division of labour; extension workers; Indonesia; innovation intermediaries; knowledge spillover; technology transfer
    JEL: Q16 Q18 O31 O32
    Date: 2018–11
  8. By: Richard Pomfret
    Abstract: Rail links between China and Europe are typically analysed in the context of China’s Belt and Road Initiative, focusing on China’s economic rise and the implications for international relations. This paper argues that establishment of the China–Europe Land Bridge predated the Belt and Road Initiative and has been market-driven, as service-providers identified and responded to demand for efficient freight services along pre-existing railway lines. Governments’ role was trade facilitating, i.e. reducing delays and costs at border crossing points, rather than investing in hard infrastructure. Service-providers responded by linking European and Asian value chains (e.g. in automobiles and electronic goods) and reducing costs for traders shipping between China and Europe. The Eurasian Land Bridge provides a case study of ‘servicification’ as a component of increased trade in the 21st century.
    Keywords: Servicification, Belt and Road Initiative, Trade costs
    JEL: L92 O18 F14
  9. By: Martin Berka (School of Economics and Finance, Massey University); Daan Steenkamp (South African Reserve Bank)
    Abstract: We study the validity of an augmented Balassa-Samuelson theory in a panel of real exchange rate levels across 17 OECD countries between 1970 and 2012 using a unique panel of levels of total factor productivity (TFP) across sectors. We find that real exchange rates can be explained by relative sectoral TFP levels both across countries and over time in the direction predicted by Balassa-Samuelson hypothesis. We also show that drivers of labour wedges such as structural labour market differences are important in explaining real exchange rate levels. Nevertheless, large average conditional deviations in real exchange rate levels remain across countries in our sample.
    Date: 2018
  10. By: Bruno Jetin (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)
    Date: 2017–08–17
  11. By: Taguchi, Hiroyuki
    Abstract: This article examines the effect of FDI on economic growth and domestic investment with a focus on Vietnamese provinces by conducting the Granger causality and impulse response tests under a vector auto-regression (VAR) estimation using panel data. The major research questions in this study are twofold: whether the inward FDI causes economic growth or economic growth induces the FDI, and whether the inward FDI crowds in or crowds out domestic investment. Since this study targets Vietnamese provinces, it explores reginal differences in the FDI effect by dividing Vietnamese provinces according to FDI-value intensity. The VAR estimation results showed two clear contrasts on FDI effects between the FDI-intensive region and the FDI-less-intensive one. One contrast was that FDI causes economic growth in the FDI-intensive region, whereas economic growth induces FDI in the FDI-less-intensive region. Another contrast was that FDI crowds in domestic investment in the FDI-intensive region, whereas FDI crowds out domestic investment in the FDI-less-intensive region. These contrasts suggest the existence of FDI’s agglomeration effects.
    Keywords: Inward foreign direct investment (FDI), Economic growth, Domestic investment, Crowd-in or -out effects, Vietnamese provinces, Vector auto-regression estimation, Granger causality and Impulse responses
    JEL: F21 O47 O53
    Date: 2019–02
  12. By: Yudhistira, Bintang
    Abstract: In ten years, emerging countries have moved from net borrowers to net lenders. At the root of the 1997-98 financial crisis, they became collateral victims of the 2007-08 crisis that erupted in the United States and Europe, after having withstood relatively well at first. This article proposes an analysis of the repositioning of emerging countries in the global financial sphere on two levels. This concerns, on the one hand, institutional representativeness vis-à-vis the industrialized countries, the IMF and, on the other hand, the role of emerging countries in the context of a contagious financial crisis. In this sense, the article raises the question of the coupling or the decoupling of the economic cycles of the emerging countries with those of the industrialized countries, in an environment of financial interconnection. Indeed, this 2008 crisis will appear as a shock common to emerging countries from a financial point of view, while the Asian crises of 1997-98 were not triggered by common shocks. But the economic decoupling hypothesis has yet to be verified: everything will depend on the depth of the US recession and the continued strength of domestic demand in emerging economies.
    Keywords: Financial crises
    JEL: G01
    Date: 2018–07
  13. By: Ahmed Bel Hadj Ayed (FiQuant); Emilio Said (FiQuant); Ahmed Bel (FiQuant); Hadj Ayed (FiQuant); Damien Thillou (FiQuant); Jean-Jacques Rabeyrin (FiQuant); Fr\'ed\'eric Abergel (FiQuant)
    Abstract: This paper deals with a fundamental subject that has seldom been addressed in recent years, that of market impact in the options market. Our analysis is based on a proprietary database of metaorders-large orders that are split into smaller pieces before being sent to the market on one of the main Asian markets. In line with our previous work on the equity market [Said et al., 2018], we propose an algorithmic approach to identify metaorders, based on some implied volatility parameters, the at the money forward volatility and at the money forward skew. In both cases, we obtain results similar to the now well understood equity market: Square-root law, Fair Pricing Condition and Market Impact Dynamics.
    Date: 2019–02

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