Asia

Publication date: April 2013
Source:Journal of Asian Economics, Volume 25

Author(s): Bernd Hardeweg , Andreas Wagener , Hermann Waibel

Vulnerability to poverty is an important social indicator of well-being. Yet, comparisons of vulnerability over time or space lack robustness as long as they are based on single measures or use specific poverty lines. We demonstrate that a distributional analysis, based on stochastic dominance orders, can help. Using data from six rural provinces of Thailand and Vietnam, we establish cumulative distribution functions for income and consumption at the provincial level and show how they can provide ethically robust vulnerability comparisons.
Highlights ► Vulnerability to poverty measures the risk of falling into, or staying in, consumption or income poverty in the future. ► The theory of stochastic dominance orders provides tools to establish ethically robust vulnerability comparisons. ► The vulnerability to poverty in six rural provinces in Thailand and Vietnam is compared. ► In the poorest provinces, vulnerability to poverty is unambiguously larger in Vietnam than in Thailand.

Publication date: April 2013
Source:Journal of Asian Economics, Volume 25

Author(s): Yonghyup Oh

Publication date: Available online 19 March 2013
Source:Journal of Asian Economics

Author(s): Atsushi Kato , Takahiro Sato

We examine the effects of the threats to property rights on the economic performance of the manufacturing sector in Indian states. We constructed indices of the threats using data on crime against property rights. In our analysis, we correct for the problem of underreporting of crimes in official crime data. The results of our instrumental variable estimation show that not only threats to private property but also to contracts adversely affect the performance of the manufacturing sector in India. We also extend our basic model to examine the effects of kidnapping and the scale economies of property rights protection.

Publication date: Available online 5 March 2013
Source:Journal of Asian Economics

Author(s): Joakim Westerlund , Jean-Pierre Urbain

Practitioners are generally well aware of the fact that most standard approaches for estimation and inference in panel data regressions are based on assuming that the cross-sectional units are independent of each other, an assumption that is surely mistaken in applications, especially in macroeconomics and finance. Yet, applications involving anything but these standard approaches are very rare. The current paper can be seen as a reaction to this. The purpose is to point to some of the recent advances in the area of factor-augmented panel regressions, and to also provide some guidance regarding their implementation.
Highlights ► Most applications involving panel data regressions are based on OLS. ► Yet, OLS is known not to be robust to cross-section dependence. ► This paper point to some of the recent advances in the area of factor-augmented panel regressions. ► The implementation of these novel approaches is given a detailed treatment.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Gabriella Berloffa , Francesca Modena

Using the Indonesian Family Life Survey, this study investigates whether Indonesian farmers respond differently to income shocks (crop loss) depending on the level of their asset ownership, and whether their responses are aimed at preserving consumption levels or at accumulating assets. We consider a framework in which assets contribute directly to the income generation process. In this context, the need to accumulate assets to ensure future income may lead poor farmers to behave quite differently in terms of both their responses to shocks and their consumption decisions. Our results suggest that while non-poor farmers smooth consumption relative to income, poor households use labor supply to compensate the income loss and, on average, they save half of this extra income. These results confirm the importance of savings for poor households, and highlight a crucial role for policies that support savings or, more precisely, the accumulation of productive assets.
Highlights ► Farmers respond differently to crop loss depending on the level of asset ownership. ► We test this assumption using Indonesian Family Life Survey data. ► Medium and large farms smooth consumption relative to income. ► Poor farms tend to adopt asset smoothing strategies. ► Poor households save half of their current income.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Piriya Pholphirul

Do immigrant workers fill in job vacancies and promote employment dynamics? Using Thailand's firm-surveyed data, this paper investigates the challenges experience by firms employing immigrant workers and how immigrants help to fill job vacancies. Descriptive analysis shows that Thai firms do not have much difficulty employing immigrant workers, who come mostly from neighboring countries. Our regressions shows that, by analyzing firm-level characteristics, firms employing immigrant workers tend to be more labor intensive, use computers or other technologies less in production, are recently established, and employ high proportions of low educated workers. Firms having job vacancies in either skilled or unskilled positions and losing production days due to slowdown and stoppage of workers will tend to employ more immigrant workers in order to fill those vacancies and smooth out its production. The impacts of job vacancies on the demand of immigrant workers was found to be stronger among firms located in non-border areas where immigrants tend to move away from bordering provinces to larger provinces where there are better job opportunities. Labor cost concerns, either wage cost or fringe benefit costs, also force firms to employ more migrants in order to maintain their cost competitiveness. By using firm-level panel dataset, firms employing migrant workers in the past seem to realize the benefits from employing more migrants today. The results pose challenges to migration management policies that aim to harmonize the demand for labor in short-term vis-a-vis long-term development.
Highlights ► Using Thailand's firm-survey data, this paper investigates the challenges experienced by firms employing immigrant workers and how immigrants help to fill job vacancies. ► Firms having job vacancies in either skilled or unskilled positions and losing production days due to slowdowns and stoppage of workers tend to employ more immigrant workers in order to fill those vacancies and smooth out their production. ► Labor cost concerns, either wage costs or fringe benefit costs, also force firms to employ more migrants in order to maintain their cost competitiveness.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Richard Grabowski

Many developing countries have chosen to use a variety of policy instruments to transfer resources out of agriculture and to the manufacturing and, in some countries, the service sector. It will be argued in this paper that such policies slow structural change, create incentives for capital intensive production in non-agricultural sectors, and slow the process of technical innovation in agriculture. These arguments will be illustrated by examining the recent growth experience in India.
Highlights ► Agricultural distortions influence structural change in terms of employment. ► This paper examines the impact of policies which discriminate against agriculture in India. ► These policies not only slow structural change (in terms of employment), but they also slow technical innovation in agriculture. ► Thus structural change in India has been slowed.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Carolina Osorio , D. Filiz Unsal

The perception that Asia's inflation dynamics are driven by idiosyncratic supply shocks implies, as a corollary, a limited scope for policy responses to inflationary pressures. However, Asia's fast growth and integration with the global economy in the last couple of decades suggest that the drivers of inflation may have changed. This paper presents a quantitative analysis of inflation dynamics in Asia using a Global VAR (GVAR) model, which explicitly incorporates trade and financial linkages among economies, as well as the role of regional and global inflationary spillovers. Our results suggest that over the past two decades, the main drivers of inflation in Asia have been monetary and supply shocks; but that, in recent years, the contribution of these shocks to the region's inflation has fallen. Domestic demand pressures, however, have played a larger role in driving inflation in Asia over the last decade. Moreover, economies in the region are exposed to notable inflation spillovers from China, both directly from higher imported goods prices and indirectly through higher commodity prices.
Highlights ► The perception that inflation dynamics in Asia are driven by supply shocks implies a limited role for monetary policy. ► The region's economic developments over the last two decades suggest that the drivers of inflation may have changed. ► We use a Global VAR to analyze inflation dynamics in Asia, incorporating trade and financial linkages among economies. ► Monetary and supply shocks have been the main drivers of inflation in Asia over the past two decades. ► The role of demand pressures has been recently increasing; and inflation spillovers from China to the region are sizable.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Dong Jin Shin , Brian H.S. Kim

The Korean government consolidated several banks following the Asian Financial Crisis of 1997–1998 to stabilize the financial market and to improve international competitiveness. This process has brought sound capital reserves, assets and profitability to the banking industry. However, due to the resulting increase in market concentration, this process has also produced concerns about the monopolistic and oligopolistic power of the banks. Recently, the growing concern within the government is the weakening of bank competition due to the sharp increase in market concentration. This study reviews and examines the status of bank consolidation and the competitive structure of the banking industry. The degree of competitiveness in the banking industry is analyzed using the Panzar and Rosse model with a non-structural approach and data from 1992 to 2007 (before the beginning of the 2008–2009 Global Financial Crisis). This time span is divided into a pre- and a post-bank consolidation period. The estimation results indicate that monopolistic competition in the market exists but that the competitiveness of the banks has improved with the increased market concentration. This finding contradicts previous beliefs regarding the increased risk and lower competition derived from a concentrated financial system.
Highlights ► This paper examines the competitiveness of the Korean banking industry after consolidation. ► It analyzes the degree of competition within an improved Panzar and Rosse model, which uses cross-sectional data to assess the competitive behavior of banks. ► H-statistics results reveal the existence of monopolistic competition in the market. ► There is evidence of improvements in bank competition and profitability after consolidation. ► These results contradict the belief of increased risk and lower competition within this concentrated system.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Adrian (Wai Kong) Cheung , Eduardo Roca

We examine the impact on returns, risk and liquidity of stocks in the Asia Pacific markets when included into and deleted from the Dow Jones Sustainability World Index over the period 2002–2010. Using an event study methodology, we test five existing hypotheses and two new ones, called the “sustainability taste hypothesis” and “sustainability redundancy hypothesis”, which we developed. Consistent with the “sustainability redundancy hypothesis”, we find that both index addition and index deletion stocks experience a significant decline in returns, an increase in trading volume, no change in systematic risk and an increase in idiosyncratic risk. This indicates that sustainability matters to Asia Pacific investors, although in a somewhat negative manner.
Highlights ► We examine the effects of stock inclusion and deletion from a sustainability index. ► We test whether investors’ prefer sustainability and whether sustainability inhibits portfolio optimization. ► We examine Asia Pacific markets using event study method over 2002–2010. ► Returns decrease but risk and volume increase for included/deleted stocks. ► The findings imply sustainability matters but in a negative way.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Mamoru Nagano , Yuan Yuan

This paper investigates the causes and consequences of inward cross-border acquisitions in emerging countries. The focus is on business deals made by firms in China and India, where government ownership ratios remain high. Our empirical analysis yields two important findings. First, the Chinese and Indian firms targeted by foreigners have statistically higher cash-reserve ratios and growth opportunities that do not attract domestic acquirers. This result suggests that both target characteristics are required to influence the inward investment decisions of foreign firms. Second, shareholder value created through cross-border acquisitions is higher for foreign acquirers than for domestic acquirers. This finding implies that investment returns on foreign acquisitions in high-growth emerging markets in which governments promote state-owned share releases are higher than returns from domestic takeovers. It also explains why the number of cross-border deals has recently increased in these countries.
Highlights ► We verify causes and consequences of cross-border acquisitions in China and India. ► The targeted Chinese and Indian firms have higher cash reserve ratio. ► Cross-border acquisitions bring about higher shareholders’ values among foreigners. ► The characteristics are common regardless of the degree of economic development.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Anthony J. Makin

This paper proposes a straightforward model for analysing the impact of export commodity price fluctuations on open macroeconomies with particular reference to Australia and New Zealand, major commodity exporters in the Asian region. It extends the dependent economy approach, first by re-specifying goods and services production as either exportable, importable or non-tradable, and second by adding a monetary sector to highlight key linkages between commodity prices, the exchange rate, price level, national output and trade account. The framework sheds new light on the phenomenon of ‘commodity currencies’, how exchange rate movements shield national output from terms of trade shocks, the importance of economic openness in this process, and the significance for monetary and exchange rate policy of short term, versus sustained, commodity price movements.
Highlights ► Proposes a new theoretical framework for analysing the impact of commodity price fluctuations on exchange rates, GDP and trade balances. ► Shows the severity of Dutch disease effects depends on how open an economy is. ► Provides a new theoretical rationale for the ‘commodity currency’ phenomenon. ► Shows how a free floating exchange rate acts as a useful shock absorber for national output in the face of commodity price shocks. ► Examines empirical implications of the model with reference to Australia and New Zealand, major commodity exporters in Asia.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Vinod Mishra , Russell Smyth

This paper examines economic returns to schooling for China's Korean minority in the urban labour market using ordinary least squares (OLS) and two-stage least squares. The OLS estimates of the returns to schooling are similar to findings from recent studies for the Chinese urban labour market. We use parents’ education and spouse's education to instrument for education as well as exploit heteroskedasticity to aid in identification. The two-stage least squares estimates using parents’ and spouse's education are considerably higher than the OLS estimates for returns to schooling, while the estimates which exploit heteroskedasticity for identification lie between the OLS and conventional two-stage least squares estimates. The economic returns to schooling reported in this study assist in explaining why private demand for education is strong among the ethnic Koreans in China. It also provides a justification for the Korean minority's focus on educational attainment.
Highlights ► We estimate the economic returns to China's Korean ethnic minority. ► We employ both ordinary least squares (OLS) and two-stage least squares (TSLS). ► We use parents’ and spouse's education as conventional instruments. ► We also exploit heteroskedasticity to aid in identification. ► The TSLS estimates are considerably higher than the OLS estimates.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Hsiao Chink Tang , Philip Liu , Eddie C. Cheung

This paper investigates the effectiveness of fiscal policy in five Association of Southeast Asian Nations: Indonesia, Malaysia, the Philippines, Singapore and Thailand. Through a small open economy structural vector autoregression model, government spending is found to have weak and largely insignificant impact on output, while taxes are found to have outcomes contrary to conventional theory. Extensions using a time-varying VAR model reveal that the positive impact from higher taxes on output mainly reflects heightened concerns over public finances during the Asian financial crisis and the recent global financial crisis. On the other hand, for Thailand, there is some evidence that government spending can at times be useful as a tool for short-term countercyclical policy.
Highlights ► This paper investigates the effectiveness of fiscal policy in five ASEAN economies using an open economy SVAR model. ► We found government spending has no immediate and statistically significant impact on output for countries studied here. ► Tax increases generate positive output growth in all countries but only statistically significant in Thailand and Indonesia. ► Time-varying VAR reveal that the positive impact from higher taxes mainly concentrated around crisis periods.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Yuki Toyoshima , Shigeyuki Hamori

This paper uses the asymmetric dynamic conditional correlation model developed by Cappiello et al. (2006) to analyze the correlation between the Japanese and Singaporean stock markets and makes two principal findings. First, it finds that financial integration has advanced because of the Japan–Singapore Economic Partnership Agreement, thereby strengthening the bidirectional relationship between Japan and Singapore. Second, it demonstrates empirically that the weight of Asian stocks in portfolios within the Asian region has increased since the global financial crisis, again strengthening the relationships among Asian region economies.
Highlights ► This paper analyzes the conditional correlation between Japanese and Singaporean stock markets. ► Because of the Japan–Singapore Economic Partnership Agreement, the mutual relationship between Japan and Singapore has been strengthened. ► After the global financial crisis, the mutual relationship among Asian region economies has become stronger.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Biswa Nath Bhattacharyay

One of the major reasons behind the Asian financial crisis in 1997 was the excessive dependence of the Asian economies on commercial banks for domestic financing. The region failed to diversify its sources of corporate financing as it relied mainly on banks since its other types of financing, namely bond markets, were still underdeveloped and their sizes were quite small. On the other hand, the 2008 global financial crisis and the ongoing European debt crisis have led to constraints in acquiring local currency and foreign currency liquidity in the corporate sector in Asia as foreign banks withdrew investments from Asia. Furthermore, Asia needs large long term capital (US$ 750 billion per year for 2010–2020) for developing infrastructure connectivity within and across its economies. Local and regional capital can be channeled for long-term infrastructure projects and other productive investment through bond markets. Having a well-developed local currency bond markets can enhance the resilience of domestic financial sector to external shocks and it can facilitate better intermediation of savings into productive investments in Asia. To enhance corporate bond financing, it is important to examine factors that affect the effective development of bond markets in Asia. The study attempts to identify the determinants of bond market development in Asian economies through examining the relationship of bond issuance with selected key financial and economic factors. It also intends to provide policy recommendations for the further development of the Asian bond market. Major determinants for bond market development in Asia include the size of an economy, the stage of economic development, the openness of an economy, the exchange rate variability, the size of the banking system, and interest rate variability.
Highlights ► We empirically examine the determinants of bond market development in 10 East major Asian economies. ► We provide policy recommendations for further developing Asian bond market. ► Major determinants include the size of an economy, the stage of economic development, the openness of an economy, the size of the banking system, the exchange rate variability and the variability of interest rate.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Juthathip Jongwanich , Archanun Kohpaiboon

This paper examines the impact of capital flows on real exchange rates in emerging Asian countries during 2000–2009 using a dynamic panel-data model. The estimation results show that the composition of capital flow matters in determining the impact of the flows on real exchange rates. Other forms of capital flow, especially portfolio investment, bring in a faster speed of real exchange rate appreciation than foreign direct investment (FDI). However, the magnitude of appreciation among capital flows is close to each other. The increasing importance of merger and acquisition (M&A) activities in FDI in the region makes these flows behave closer to other forms of capital flow. The estimation results also show that during the estimation period, capital outflows bring about a greater degree of exchange rate adjustment than capital inflows. This evidence is found for all types of capital flow. All in all, the results indicate that the swift rebound of capital inflows into the region could result in excessive appreciation of (real) currencies, especially when capital inflows are in the form of portfolio investment.
Highlights ► This paper examines the impact of various forms of capital flows on real exchange rates in emerging Asian countries. ► It is highlighted that capital flow composition matters in terms on both the magnitude and speed of change of real exchange rates. ► FDI inflows are more favorable than other capital inflow in terms of the speed of real exchange appreciation, but not the magnitude. ► The increasing importance of M&A FDI lowers the favorable impact of FDI on real exchange rate.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Roshaiza Taha , Sisira R.N. Colombage , Svetlana Maslyuk , Loganathan Nanthakumar

We provide new empirical evidence on the relationship among direct tax revenue and banking and non-banking activities in Malaysia's financial system, utilising monthly data for the period 1997–2008. The existence of the long run equilibrium relationship between tax revenue and the financial system was investigated using the autoregressive distributive lag (ARDL) bounds testing approach to cointegration. We find a long-run equilibrium relationship between the financial system and tax revenue in Malaysia. The short-run dynamic relationship between direct tax revenue and financial system was investigated using the vector error correction model (VECM). The estimated ECT t−1 coefficient indicates a relatively fast speed of adjustment from short-run disequilibrium to long-run equilibrium. The Granger causality tests reveal unidirectional causality running from stock market towards direct tax revenue, indicating that an increase in stock market activities is likely to improve the collection of direct tax revenue. Overall, we show that the impact of the financial system on direct tax revenue is more profound in the short run than in the long run.
Highlights ► We examine the nexus between the financial system and tax revenue collection in Malaysia. ► We found that unidirectional causality running from stock market to direct tax revenue. ► The impact of the financial system on direct tax revenue is more profound in the short run than in the long run. ► Banking and non-banking financial activities play a vital role in determining direct tax revenue. ► Tax incentives contributed more towards increased revenue collection from stock market than corporate debt market.

Publication date: February 2013
Source:Journal of Asian Economics, Volume 24

Author(s): Barbara O’Neill