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on South East Asia |
| By: | Marc-André Gosselin; Nicolas Parent |
| Abstract: | Over the past few years, the ability of the United States to finance its current account deficit has been facilitated by massive purchases of U.S. Treasury bonds and agency securities by Asian central banks. In this process, Asian central banks have accumulated large stockpiles of U.S.-dollar foreign exchange reserves. How far is the current level of reserves from that predicted by the standard macroeconomic determinants? The authors answer this question by using Pedroni's (1999) panel cointegration tests as the basis for the estimation of a long-run reserve-demand function in a panel of eight Asian emerging-market economies. This is a key innovation relative to the existing research on international reserves modelling: although the data are typically I(1), the literature ignores this fact and makes statistical inference based on unadjusted standard errors. While the authors find evidence of a positive structural break in the demand for international reserves by Asian central banks in the aftermath of the financial crisis of 1997-98, their results indicate that the actual level of reserves accumulated in 2003-04 was still in excess relative to that predicted by the model. Therefore, as long as historical relationships hold, a slowdown in the rate of accumulation of reserves is likely. This poses negative risks for the U.S. dollar. However, both the substantial capital losses that Asian central banks would incur if they were to drastically change their holding policy and the evidence that the currency composition of reserves evolves only gradually mitigate the risks of a rapid depreciation of the U.S. dollar triggered by Asian central banks. |
| Keywords: | Econometric and statistical methods; International topics; Financial stability |
| JEL: | C23 F31 G15 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:05-38&r=sea |
| By: | George Allayannis (University of Virginia); Gregory W. Brown (The University of North Carolina at Chapel Hill); Leora F. Klapper (The World Bank) |
| Abstract: | Previous research has documented weak, and sometimes conflicting, effects of legal quality on measures of firm debt. Using WorldScope data for 1,689 firms, as well as more detailed proprietary data for 315 firms across nine East Asian countries, the authors find that access to foreign financing appears to loosen borrowing constraints associated with poor legal systems. This helps resolve inconsistencies in prior findings and explains how legal protection is important for borrowing by firms. In particular, they find that legal effectiveness is important for determining the amount, maturity, and currency denomination of debt. The authors discuss several mechanisms by which firms can avoid the costs of poor legal systems with foreign borrowing. The paper contributes to the policy debate surrounding the importance of creditor rights for domestic lending. |
| Keywords: | Domestic finance, Private sector development, International economics |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3530&r=sea |
| By: | Poh Kam Wong (National University of Singapore); Yuen Ping Ho (National University of Singapore); Annette Singh (National University of Singapore) |
| Abstract: | The city-state of Singapore has achieved rapid economic development in the past by its positioning as an efficient business hub in Asia. To remain competitive in the global knowledge economy, however, Singapore needs to move beyond efficiency by developing a strong "innovative" edge as well. This paper examines the challenges that Singapore faces in seeking to do so through an explorative survey of 40 firms from three innovative sectors: high-tech manufacturing industries, knowledge-intensive business services (KIBS), and creative content industries. Overall, while the survey confirms Singapore's continuing competitive strength in efficiency infrastructure, it also finds a favorable perception of Singapore as an innovative city. Indeed, many of the industry actors indicated that an efficient business infrastructure is a prerequisite for locating their innovative activities in Singapore, suggesting that the relationship between innovation and efficiency is complementary, rather than substitutional. While the study found that intellectual property and its protection are widely recognized by actors in all three sectors, interesting differences exist. In particular, intellectual property protection appears to be of greater concern to the high-tech research and development-intensive manufacturing sector and the creative contents sector than to the KIBS sector. Another interesting difference is that while competition in high-tech innovation tends to be global, competition in creative content tends to have a stronger local or regional dimension. Public policy in East Asia has traditionally emphasized the development of technological innovation capabilities in the manufacturing sector. In light of the findings, public policymakers may need to be more sensitive to the nuanced differences in policies needed to promote the new creative content industries and the associated supporting KIBS. |
| Keywords: | Industry, Private sector development, Urban development |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3568&r=sea |
| By: | Dean Yang (University of Michigan) |
| Abstract: | Millions of households in developing countries receive financial support from family members working overseas. How do the economic prospects of overseas migrants affect origin-household investments-in particular, in child human capital and household enterprises? Yang examines Philippine households' responses to overseas members' economic shocks. Overseas Filipinos work in dozens of foreign countries which experienced sudden (and heterogeneous) changes in exchange rates due to the 1997 Asian financial crisis. Appreciation of a migrant's currency against the Philippine peso leads to increases in household remittances received from overseas. The estimated elasticity of Philippine peso remittances with respect to the Philippine/foreign exchange rate is 0.60. In addition, these positive income shocks lead to enhanced human capital accumulation and entrepreneurship in origin households. Favorable migrant shocks lead to greater child schooling, reduced child labor, and increased educational expenditure in origin households. More favorable exchange rate shocks also raise hours worked in self-employment and lead to greater entry into relatively capital-intensive enterprises by migrants' origin households. |
| Keywords: | International economics |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3578&r=sea |
| By: | Aaditya Mattoo (The World Bank); Ileana Cristina Neagu (The World Bank); Çalar Özden (The World Bank) |
| Abstract: | The authors investigate the occupational placement of immigrants in the U.S. labor market using census data. They find striking differences among highly educated immigrants from different countries, even after they control for individuals' age, experience, and level of education. With some exceptions, educated immigrants from Latin American and Eastern European countries are more likely to end up in unskilled jobs than immigrants from Asia and industrial countries. A large part of the variation can be explained by attributes of the country of origin that influence the quality of human capital, such as expenditure on tertiary education and the use of English as a medium of instruction. Performance is adversely affected by military conflict at home which may weaken institutions that create human capital and lower the threshold quality of immigrants. The selection effects of U.S. immigration policy also play an important role in explaining cross-country variation. The observed under-placement of educated migrants might be alleviated if home and host countries cooperate by sharing information on labor market conditions and work toward the recognition of qualifications. |
| Keywords: | International economics |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3581&r=sea |
| By: | Yoichiro Ishihara (The World Bank) |
| Abstract: | Studies use different conceptual and operational definitions of crises. The different crisis identifications can lead to inconsistent conclusions and policy formulation even if the same analytical framework is applied. Also, most studies focus on only a few types of crises. This narrow focus on crises may not capture the multidimensionality of crises. Seven crisis types are analyzed, namely (1) liquidity type banking crises, (2) solvency type banking crises, (3) balance of payments crises, (4) currency crises, (5) debt crises, (6) growth rate crises, and (7) financial crises. Crisis data were collected from 15 emerging economies in 1980-2002 on a quarterly basis. The crisis identification exercise finds that multidimensionality in which different crisis types occur in short periods is one of the most important characteristics of recent crises. Further, the Granger causality tests in five Asian economies (Indonesia, the Republic of Korea, Malaysia, the Philippines, and Thailand) find that currency crises tend to trigger other types of crises, and therefore exchange rate management is essential. |
| Keywords: | International economics, Macroeconomics and growth |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3598&r=sea |
| By: | Kym Anderson (The World Bank); Will Martin (The World Bank) |
| Abstract: | Anderson and Martin examine the extent to which various regions, and the world as a whole, could gain from multilateral trade reform over the next decade. They use the World Bank's linkage model of the global economy to examine the impact first of current trade barriers and agricultural subsidies, and then of possible outcomes from the World Trade Organization's Doha round. The results suggest moving to free global merchandise trade would boost real incomes in Sub-Saharan Africa and Southeast Asia (and in Cairns Group countries) proportionately more than in other developing countries or high-income countries. Real returns to farm land and unskilled labor and real net farm incomes would rise substantially in those developing country regions, thereby alleviating poverty. A Doha partial liberalization could take the world some way toward those desirable outcomes, but more so the more agricultural subsidies are disciplined and applied tariffs are cut. |
| Keywords: | International economics |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3607&r=sea |
| By: | Ellen M. Douglas (University of New Hampshire); Kate Sebastian (International Food Policy Research Institute); Charles J. Vörösmarty (The World Bank); Stanley Wood (International Food Policy Research Institute); Kenneth M. Chomitz (The World Bank) |
| Abstract: | Conservation of high-biodiversity tropical forests is sometimes justified on the basis of assumed hydrological benefits - in particular, the reduction of flooding hazards for downstream floodplain populations. However, the "far-field" link between deforestation and distant flooding has been difficult to demonstrate empirically. This simulation study assesses the relationship between forest cover and hydrology for all river basins intersecting the world's tropical forest biomes. The study develops a consistent set of pan-tropical land cover maps gridded at one-half degree latitude and longitude. It integrates these data with existing global biogeophysical data. The study applies the Water Balance Model - a coarse-scale process-based hydrological model - to assess the impact of land cover changes on runoff. It quantifies the impacts of forest conversion on biodiversity and hydrology for two scenarios - historical forest conversion and the potential future conversion of the most threatened remaining tropical forests. A worst-case scenario of complete conversion of the most threatened of the remaining forested areas would mean the loss of another three million km2 of tropical forests. Increased annual yield from the conversion of threatened tropical forests would be less than 5 percent of contemporary yield in aggregate. However, about 100 million people - 80 million of them in floodplains - would experience increases of more than 25 percent in annual water flows. This might be associated with commensurate increases in peak flows, though further analysis would be necessary to gauge the impact on flooding. The study highlights basins in Southeast Asia, southern China, and Latin America that warrant further study. |
| Keywords: | Environment |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3635&r=sea |
| By: | Norbert Fiess (The World Bank); Rashmi Shankar (Brandeis University) |
| Abstract: | The authors apply regime-switching methods to a monetarist model of exchange rates and identify well-defined intervention policy cycles. The policy response indices include a standard exchange market pressure-based index and a model-based volatility ratio that is endogenized relative to Japan, assumed to be a "benchmark" floater. The authors find strong evidence that balance sheet effects, proxied by the stock ratio of external liabilities to assets, and economic performance, as measured by GDP and stock market indices, determine the cost of the regime shift. They use a panel of quarterly data from 1985 to 2004 for a sample of 15 countries, mostly in East Asia and Latin America. |
| Keywords: | International economics |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3653&r=sea |
| By: | Indermit Gill (The World Bank); Brian Pinto (The World Bank) |
| Abstract: | Over the past 25 years, significant levels of public debt and external finance are more likely to have enhanced macroeconomic vulnerability than economic growth in developing countries. This applies not just to countries with a history of high inflation and past default, but also to those in East Asia, with a long tradition of prudent macroeconomic policies and rapid growth. The authors examine why with the help of a conceptual framework drawn from the growth, capital flows, and crisis literature for developing countries with access to the international capital markets (market access countries or MACs). They find that, while the chances of another generalized debt crisis have receded since the turbulence of the late 1990s, sovereign debt is indeed constraining growth in MACs, especially those with debt sustainability problems. Several prominent MACs have sought to address the debt and external finance problem by generating large primary fiscal surpluses, switching to flexible exchange rates, and reforming fiscal and financial institutions. Such country-led initiatives completely dominate attempts to overhaul the international financial architecture or launch new lending instruments, which have so far met with little success. While the initial results of the countries' initiatives have been encouraging, serious questions remain about the viability of the model of market-based external development finance. Beyond crisis resolution, which has received attention in the form of the sovereign debt restructuring mechanism, the international financial institutions may need to ramp up their role as providers of stable long-run development finance to MACs instead of exiting from them. |
| Keywords: | Macroeconomics and growth |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3674&r=sea |
| By: | Paul Noumba Um (The World Bank); Severine Dinghem (The World Bank) |
| Abstract: | In the aftermath of the 1997 East Asian financial crisis, the government of the Republic of Korea published a Private Participation in Infrastructure (PPI) Act to remove the main impediments to private investment in infrastructure sectors. The implementation of the Act was followed by a steady increase in the number of PPI projects, thus spurring the modernization of the main infrastructure facilities in transport, water, electricity, and telecommunications. Despite this progress, the Korean PPI market still faces critical challenges that are probably related to its nascent stage of development. The market is dominated by five construction and engineering firms, but lacks world-class project developers. At the same time, the procurement of PPI projects takes on average four years, and competition in tenders is limited. The number of unsolicited proposals is abnormally high, whereas the number of solicited proposals remains flat. The participation of foreign firms is very limited despite the size of the market and the number of projects awarded. Although local financing is available, the maturity of financing instruments does not exceed five years for most corporate papers, and 10 years for government bonds. This paper reviews the procurement of PPI projects in Korea and benchmarks it to international best practices before proposing options for its improvement. |
| Keywords: | Infrastructure, Private sector development |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3689&r=sea |
| By: | Branko Milanovic (The World Bank and Carnegie Endowment for International Peace) |
| Abstract: | The paper studies regional (spatial) inequality in the five most populous countries in the world: China, India, the United States, Indonesia, and Brazil in the period 1980-2000. They are all federations or quasi-federations composed of entities with substantial economic autonomy. Two types of regional inequalities are considered: Concept 1 inequality, which is inequality between mean incomes (GDP per capita) of states/provinces, and Concept 2 inequality, which is inequality between population-weighted regional mean incomes. The first inequality speaks to the issue of regional convergence, the second, to the issue of overall inequality as perceived by citizens within a nation. All three Asian countries show rising inequality in terms of both concepts in the 1990s. Divergence in income outcomes is particularly noticeable for the most populous states/provinces in China and India. The United States, where regional inequality is the least, shows further convergence. Brazil, with the highest level of regional inequality, displays no trend. A regression analysis fails to establish robust association between the usual macroeconomic variables and the two types of regional inequality. |
| Keywords: | Poverty |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3699&r=sea |
| By: | Fan Zhai (Asian Development Bank); Thomas Hertel (The World Bank and Purdue University) |
| Abstract: | The authors assess the implications of multilateral trade reforms for poverty in China. They do so by combining results from a global modeling exercise with a national CGE model that features disaggregated households in both the rural and urban sectors. They examine two trade reform scenarios: one involving global trade liberalization, and one involving possible Doha Development Agenda reforms. Using the World Bank's $2 a day poverty line, the authors find that multilateral trade reforms do in fact reduce poverty in China. The biggest reductions occur in the rural areas-largely as a result of higher prices for farm products. |
| Keywords: | Agriculture, Industry, Transition, Poverty, International economics, Labor and employment |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3702&r=sea |
| By: | Jayanta Roy (Confederation of Indian Industry, India); Shweta Bagai (Confederation of Indian Industry, India) |
| Abstract: | Trade facilitation is the ability of countries to deliver goods and services on time at the lowest possible cost. It has emerged as an important issue in unilateral, bilateral, and multilateral trade liberalization. Most countries have embarked on heroic reforms aimed at reducing transaction costs of trade. Thus, among the four new Singapore issues, there was least resistance from World Trade Organization (WTO) member countries to include trade facilitation in the Doha Round discussions. However, all countries are not equally placed in initiating reforms in the complex areas of customs procedures, transport and port logistics, harmonization of standards, and simplification of procedures. Trade facilitation reforms require a large volume of technical assistance for national capacity building. To facilitate what these reforms entail and what can be learned from cross-country experiences, the EU and the World Bank organized two workshops in Dhaka (South Asian countries) and Shanghai (East Asian countries) in 2004. Jointly they succeeded in bringing together renowned experts from multilateral organizations, selected bilateral donor community, the private sector, ex civil servants, and scholars. The participants were largely drawn from the relevant government departments and chambers of commerce and industry. This paper summarizes the main presentations in the workshops. It also indicates the areas that need more focus in future events. The paper should serve as a reference document for national policymakers and for future seminars and workshops on trade facilitation. It has also linked the presentations to the ongoing research work on trade facilitation. |
| Keywords: | International economics |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3703&r=sea |
| By: | Caroline Freund (The World Bank); Nikola Spatafora (International Monetary Fund) |
| Abstract: | Recorded workers' remittances to developing countries have grown rapidly, to more than $100 billion in 2004, bringing increasing attention to these flows as a potential tool for development. But even these statistics are likely to significantly understate true remittances, as a large share is believed to flow through informal channels. Estimates of the importance of the informal sector vary widely, ranging from 35 percent to 250 percent of total remittances. The primary motivation of the authors is to develop the first empirical methodology to estimate informal flows. They use insights from the literature on shadow economies and empirically estimate informal remittances for more than 100 countries using historical data on the balance of payments (BOP), migration, transaction costs, and country characteristics. Their results imply that informal remittances amount to about 35-75 percent of official remittances to developing countries. There is significant regional variation: informal remittances to Sub-Saharan Africa and Eastern Europe and Central Asia are relatively high, while those to East Asia and the Pacific are relatively low. These estimates are supplemented with detailed household survey data on remittance receipts in a number of countries. The results also shed light on the determinants of recorded remittances and the associated fees in the formal sector. The authors find that the stock of migrants in OECD countries is the primary determinant of remittances. In addition, money transfer fees and the presence of dual exchange rates reduce the share of remittances reported in national accounts. In turn, transaction costs are systematically related to concentration in the banking sector, lack of financial depth, and exchange rate volatility. There is also evidence that remittances are misrecorded in the BOP as "errors and omissions." |
| Keywords: | International economics |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3704&r=sea |
| By: | Anne-Sophie Robilliard (Institut de Recherche pour le Développement (IRD) and DIAL, Paris); Sherman Robinson (University of Sussex) |
| Abstract: | Indonesia experienced rapid growth and the expansion of the formal financial sector during the last quarter of the 20th century. Although this tendency was reversed by the shock of the financial crisis that spread throughout Asia in 1997 and 1998, macroeconomic stability has since then been restored, and poverty has been reduced to pre-crisis levels. Poverty reduction remains nevertheless a critical challenge for Indonesia with over 110 million people (53 percent of the population) living on less than $2 a day. The objective of this study is to help identify ways in which the Doha Development Agenda might contribute to further poverty reduction in Indonesia. To provide a good technical basis for answering this question, the authors use an approach that combines a computable general equilibrium (CGE) model with a microsimulation model. This framework is designed to capture important channels through which macroeconomic shocks affect household incomes. It allows making recommendations on specific trade reform options as well as on complementary development policy reforms. The framework presented in this study generates detailed poverty outcomes of trade shocks. Given the magnitude of the shocks examined here and the structural features of the Indonesian economy, only the full liberalization scenario generates significant poverty changes. The authors examine their impact under alternative specifications of the functioning of labor markets. These alternative assumptions generate different results, all of which confirm that the impact of full liberalization on poverty would be beneficial, with wage and employment gains dominating the adverse food price changes that could hurt the poorest households. Two alternative tax replacement schemes are examined. While direct tax replacement appears to be more desirable in terms of efficiency gains and translates into higher poverty reduction, political and practical considerations could lead the Government of Indonesia to choose a replacement scheme through the adjustment of value-added tax rates across nonexempt sectors. |
| Keywords: | International economics |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3747&r=sea |
| By: | Ali Zafar (The World Bank) |
| Abstract: | The author estimates the degree of misalignment of the CFA franc since the introduction of the euro in 1999. Using a relative purchasing power parity-based methodology, he develops a monthly panel time series dataset for both the Economic and Monetary Community of Central Africa (CEMAC) zone and the West African Economic and Monetary Union (UEMOA) zone to compute a trade-weighted real effective exchange rate indexed series from January 1999 to December 2004. The author's main finding is that the real effective exchange rate appreciated by close to 8 percent in UEMOA and 7 percent in CEMAC, influenced by volatility in the euro-dollar bilateral exchange rate and conservative monetary policies in the two zones, resulting in a partial loss of competitiveness in export markets. The lower appreciation in Central Africa can be explained by lower inflation in CEMAC than in UEMOA and by the greater trade with higher inflation East Asian countries, partially offset by the peg to the dollar. However, the inclusion of "unrecorded trade" results in an appreciation of only 6 percent in the UEMOA zone and 6 percent in the CEMAC zone due to higher inflation in the two countries with unmonitored cross-border flows, Ghana and Nigeria. Using time series econometrics, an Engle-Granger two stage procedure for cointegration, and an error correction framework, a single equation modeling of the real exchange rate from 1970 to 2005 as a function of terms of trade, economic openness, aid inflows, and a dummy representing the 1994 devaluation, the author finds little statistical evidence of a long-run equilibrium exchange rate that is a vector of economic fundamentals. The dummy explains most of the real exchange rate behavior in the two zones, while openness in UEMOA has contributed to an appreciation of the real effective exchange rate. |
| Keywords: | International economics, Macroeconomics and growth |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3751&r=sea |