Real interest rate parity in East Asian countries based on China with flexible Fourier stationary test

This study applies stationary test with a flexible Fourier function proposed by Enders and Lee (2012) to test the validity of long-run real interest rate parity (RIRP) to assess the non-stationary properties of the real interest rate convergence relative to China for ten East Asian countries. We find that our approximation has higher power to detect U-shaped breaks and smooth breaks than linear method if the true data generating process of interest rate convergence is in fact a stationary non-liner process. We examine the validity of RIRP from the non-linear point of view and provide robust evidence clearly indicate that RIRP holds true for ten East Asian countries. It implies that the choices and effectiveness of the monetary and fiscal policies in the East Asian economies will be highly influenced external factors originating from China. Also, our findings point out their real interest rate convergence relative to China is mean reversion towards RIRP equilibrium values in a non-linear way.     

External adjustments and coordinated exchange rate policy in Asia

In this paper, we estimate structural VAR models with contemporaneous restrictions based on neo-classical and Keynesian theories to investigate whether the cause of current account surpluses for East Asian economies is a “saving glut” or undervalued currencies. Analytical results show that the major determinant of the current account is the real effective exchange rate for all East Asian countries with the exception of China for which the major determinant is domestic GDP. Accordingly, the recently requested revaluation of the Chinese yuan may not be an effective policy for reducing the Chinese current account surplus, and may affect other Asian current accounts. We also investigate whether a Chinese currency revaluation would contribute to the improvement of current account imbalances in East Asia and find that a revaluation would, indeed, improve the current accounts of Japan, Korea, Indonesia, and Thailand. Since the trade structures of major East Asian countries are substitutes with that of China, a Chinese currency revaluation might not lead to a decrease in East Asian current account surpluses. Coordination of currency policy among East Asian countries is, therefore, needed to solve the global current account imbalance.     

International monetary transmission in East Asia: Floaters,non-floaters,and capital controls

This paper analyzes the impacts of the United States (US) monetary shocks on East Asian countries using structural vector-autoregression (VAR) model. We find that the impacts of the US monetary shocks on East Asian domestic interest rates and exchange rates contradict conventional wisdom. The conventional exchange rate channel is unlikely to play much role in the transmission of the US monetary policy shocks to floaters in East Asian countries, excluding Japan. In these countries, the domestic interest rates respond strongly to the US interest rate changes, by giving up monetary autonomy, probably because of fear of floating. However, the domestic interest rate does not respond much in countries with fixed exchange rate regimes and capital account restrictions, such as China and Malaysia. This may suggest that the countries with fixed exchange rate regimes enjoy a higher degree of monetary autonomy, most likely with the help of capital account restrictions.     

Total factor productivity, the east Asian miracle, and the world production frontier

Total Factor Productivity, the East Asian Miracle, and the World Production Frontier. — The post WWII growth of the East Asian Tiger states has stimulated the discussion about its determinants. Young and Krugman hold that high capital accumulation rather than gains in efficiency or technological progress has spurred growth. Nelson and Pack, however, have recently criticized the methods of measuring technological progress. Applying the nonparametric approach to frontier production function determination and the Malmquist index of total factor productivity change, the authors take up this criticism. They calculate productivity indicators for a sample of 18 American, Asian, and European countries. For the Tiger states, their results confirm that capital accumulation was the main source of growth in 1960-1973, whereas they find evidence for an increasing importance of efficiency improvements for the growth in 1973-1990.     

Comparative output and labor productivity in manufacturing between China, Japan, Korea and the United States for ca. 1935 - A production-side PPP approach

Following the standard industry-of-origin methodology to measure production-side purchasing power parities (PPPs), this study for the first time provides a set of unit value ratios (UVRs) of manufacturing products between China, Japan, Korea and the US, based on which it derives PPP estimates for individual manufacturing industries for these East Asian countries with the US as the benchmark for ca. 1935. The estimated PPP for total manufacturing suggests that the relative level of the producer price in China, Japan and Korea was about half to two thirds of the prevailing market exchange rates, respectively. The estimated PPPs are used to calculate comparative output and labor productivity for individual industries of these countries for ca. 1935. It shows that the size of factory manufacturing in Japan was 12 percent of the US level and in China only about one percent of the US level. In terms of comparative labor productivity, measured as PPP$ per hour worked, Japanese and Korean manufacturing was 24 and 23 percent of the US level, whereas Chinese manufacturing was only 7 percent of the US level.     

Exchange Rate Cycles and Canada/US Manufacturing Prices

The paper examines the industry characteristics that are related to the shifts in competitiveness, measured as the relative common-currency price ratios between Canadian and US manufacturing prices. We find that relative input costs and relative productivity growth are the two most important factors influencing changes in relative Canada/US prices. Competitive pressures emanating from trade are important determinants of the extent to which relative productivity differences are passed through to cross-country relative prices. We also find that the magnitude of domestic market competition and export intensity affects the short-run relative price shifts over the cycle of exchange rate. JEL no. E30, F31, L60     

Tracing Trade Interdependence between EU and East Asia

Abstract

There have been two related trends shaping global trade during the past couple of decades: the increasing role of international supply chains and the rise of China. Increased complexity in global trade has generated a need to construct more processed trade data — trade in value added — in order to deepen our understanding of trade relations between countries. In this article, we present a broad picture of trade in value added between the EU28 and East Asian countries. We find that East Asia is important as a final demand and supply chain export destination, especially for Northern European countries, while for CEE countries it is more important as an import source for both final demand and supply chain trade. Trade with East Asia is least important for Southern European countries. The production structure of an EU country seems to be one of the main factors explaining the importance of supply chain trade with East Asian countries. The data also suggest that supply chain trade could support the growth of domestic value-added exports to the supply chain trade partner country as well as to other countries.     

Regional production networks,service offshoring,and productivity in East Asia

Using the Asian International Input–Output Table (1990, 1995, and 2000), this paper explores regional production networks and offshoring of material and service inputs in East Asia. In doing so, offshoring is measured directly from the Table, which has not been used in previous literature regarding this issue. It turns out that East Asian countries source significant shares of inputs within East Asia. In addition to material offshoring, service offshoring in East Asia has become increasingly common in the era of globalization. We also evaluate the effects of this fast growing offshoring on productivity. Our econometric results demonstrate that offshoring exerts a significant and positive impact on total factor productivity in East Asia. Service offshoring, in particular, performs a more significant role than material offshoring.     

东亚金融一体化的动态及其收益

近年来，东亚一系列区域金融合作引起了学术界对地区金融一体化现状和收益的极大兴趣。文章基于价格和数量的测度考察了东亚地区金融一体化的程度：抛补利差和股权溢价的β收敛结果表明，危机之前东亚金融市场的全球和区域一体化并行，但在近几年，区域一体化趋势更强劲，超过了全球一体化；金融引力模型的结果表明，东亚主要的跨境金融投资者的区域内金融资产持有量比金融引力模型预测的水平更大。此外，面板回归确定了较高的金融一体化作为更广泛的金融发展的关键组成部分，会显著降低东亚国家对发达国家的经常账户失衡，因此，区域层面的金融一体化可以作为加强东亚国家的增长来源和提高经济弹性的重要政策路径。     

An impact of economic integration through trade: on business cycles for 10 East Asian countries

Many recent studies about East Asian countries discussed “natural” economic integration through trade, but there are few rigorous empirical studies on how their economies were affected by the evolution of economic integration within the region. This paper investigates the effect of bilateral trade dependence on the co-movement of business cycles for 10 East Asian countries. We find that economic fluctuations tend to be more synchronized within the region as trade interdependence among them deepens. This finding suggests the necessity of cooperative efforts to prevent or adjust unfavorable future economic crisis in East Asia.     

International Price Linkage within a Region: The Case of East Asia

This paper investigates how “prices” in East Asian economies correlate with those in Japan and the United States. The analysis is particularly noteworthy because although the East Asian economies are geographically close to Japan, their currencies have been tied more closely to the U.S. dollar. In this paper, we analyze two different types of “prices”: overall price levels in terms of the same currency and relative prices among different commodities. We demonstrate that overall price levels in the East Asian economies are more closely related to those in the United States. However, the relative prices in East Asia, especially those in Taiwan and Korea, are more closely correlated with those in Japan. These price correlation patterns are in marked contrast with those in other regions.J. Japan. Int. Econ.December 1993,11(4), pp. 643–666. Faculty of Economics, The University of Tokyo, Tokyo, Japan; and Department of Economics, The University of British Columbia, Vancouver, Canada, and Graduate School of Economics, Hitotsubashi University, Japan.     

Do Asian Countries Upgrade in Global Value Chains? A Novel Approach and Empirical Evidence

This paper examines the move into upstream and downstream global value chain (GVC) activities by 11 Asian countries. We use international input–output tables in combination with employment data and measure the number of workers in each country involved in manufactures GVC. Jobs are classified by business function based on occupational information, such as R&D, fabrication, logistics, sales and marketing. In most Asian countries, we find a faster employment increase in R&D and other support services relative to fabrication activities between 2000 and 2011. However, the participation in GVC and the pace of upgrading appears to differ substantially across Asian countries. We use a structural decomposition method to explore the role of trade, consumption and technological change in accounting for changes in countries' involvement in GVC.     

Implications of financial crisis for east Asian trend growth

The article sets the Asian financial crisis in the context ofthe developmental state model of Asian development and seesit as, in part, the downside risk of a financial liberalizationthat was badly handled but nevertheless appropriate as a stimulusto better productivity performance. The East Asian economiesare shown still to have a large labour productivity gap withthe leading OECD countries and substantial scope for furtherrapid catch-up growth. Historical experience suggests that thepolicy response to the crisis is fundamental not only to immediaterecovery prospects but also to realizing this remaining fastgrowth potential.     

Regional Trade Agreements in East Asia: Will They Be Sustainable?*

By assessing the sustainability of regional trade agreements (RTAs) for East Asia, we quantitatively evaluate the likely impact of proposed East Asian RTA strategies on the East Asian economies and the world economy with respect to consumption, production, volume of trade and terms of trade effects by applying a multi‐country and multi‐sector computable general equilibrium model. These strategies include: (i) the ASEAN Free Trade Area (AFTA: a being‐left‐alone strategy); (ii) an ASEAN Hub RTA (a hub‐and‐spoke type of overlapping RTA strategy); (iii) the AFTA versus a China–Japan–Korea RTA (a duplicating or competing RTA strategy); and (iv) an ASEAN+3 RTA (an expansionary RTA strategy). We find that an expansionary ASEAN+3 RTA could be a sustainable policy option because the members’ gains would be significantly positive, with more equitably distributed gains between members than when using other strategies. The effect on world welfare would also be positive and the negative effect on nonmembers would not be very strong. More interestingly, if the East Asian countries cooperate with Pacific Basin countries to form an APEC‐level RTA, such as a free trade area of the Asia‐Pacific, the extension of the regional trade bloc might be considered a more desirable policy option than the proposed East Asian RTAs for East Asian economies, even though countries excluded from the free trade area of the Asia Pacific are worse off.     

Business cycle synchronisation in East Asia

Against the background of the rapid inter- and intra-regional integration of East Asia, we examine the extent and nature of synchronisation of business cycles in the region. We estimate a dynamic common factor model for output growth of 10 East Asian countries. A significant common factor is shared by all Asian countries considered, except China and Japan. The degree of synchronisation has fluctuated over time, with an upward trend particularly evident for the newly industrialised economies. Synchronisation appears to mainly reflect strong export synchronisation, rather than common consumption or investment dynamics. A number of external factors, such as the oil price and the JPY–USD exchange rate, appear to play a role in synchronising activity.     

IS EAST ASIA FIT FOR AN OPTIMUM CURRENCY AREA? AN ASSESSMENT OF THE ECONOMIC FEASIBILITY OF A HIGHER DEGREE OF MONETARY COOPERATION IN EAST ASIA

This paper attempts to make a contribution to the recent search for a suitable assessment of the economic feasibility of a higher degree of monetary cooperation in East Asia. By using a structural vector autoregression approach as well as a generalized purchasing power parity approach, we find that a larger group of appropriately selected East Asian economies does satisfy the macroeconomic conditions for forming an Optimum Currency Area (OCA). The East Asian group consists of four ASEAN countries (Indonesia, Malaysia, Singapore, and Thailand) and four Northeast Asian economies (Hong Kong SAR, Japan, Republic of Korea, and Taiwan). This finding presents a striking contrast to the existing research results whose policy recommendation has generally been that countries in East Asia should start with a smaller subgroup currency area. It is time that many East Asian economies as a region made a serious effort to pursue a higher degree of monetary cooperation among themselves for forming an OCA.     

ASEAN FTA,distribution of income,and globalization

This paper examines the impact of Free Trade Agreements on income distribution within the Association of Southeast Asian Nations (ASEAN) and between the members and their trading partners outside ASEAN. The study uses a Computable General Equilibrium model, a modified version of the 57 sector, 87 country, Global Trade Analysis Project (GTAP) integrated model of national input–output tables, version-6.2 (2001 database) with its reserve matrix facility, to simulate income distribution results as an outcome of certain parameter changes that appear in intra and inter regional trade.Within ASEAN, trade liberalization will stimulate the output of each country within the region according to their comparative advantage. Since trade liberalization tends to increase output of capital-intensive goods more than labor-intensive goods, the less-developed countries within the region tend to get smaller benefits compared to other member countries. In addition, the physical means of production tend to gain more relative to the gains of labor from the FTAs. This tends to widen the income gap between high-income and low-income households within ASEAN.Comparing ASEAN and the developed non-ASEAN countries, an FTA within ASEAN tends to reduce the returns to labor of the developed non-member countries and narrow the income gap between ASEAN, as a whole, and those rich countries since capital-intensive products of developing countries are often labor-intensive goods of developed countries.     

Similarities in the Consumption Patterns of the Five Asian Tigers

The five countries of Hong Kong, Japan, Korea, Singapore and Taiwan are considered to be the major Asian economic 'Tigers' behind Asia's growth in the late 1900s. In this paper, we analyze the consumption patterns of these five countries, using the most recent consumption data and employing the system-wide approach. We find that the consumption data from these five countries support a number of empirical regularities, including the 'law of demand' and 'Engel's law'. Based on the estimation results, we find that in all five countries, food, housing and medical care (except in Taiwan) are necessities, while clothing, durables (except in Singapore) and transport are luxuries. Demand for all the commodities is price inelastic. Furthermore, we find that the demand hypothesis, homogeneity, is acceptable for all five countries while Slutsky symmetry is acceptable only for Hong Kong, Singapore and Taiwan. We also find that the preference-independence hypothesis is acceptable for all countries except Japan. Overall, consumption patterns of consumers appear to be similar across the five countries, while some differences exist between Japan and the other four countries.     

East Asian Export Competitiveness: New Measures and Policy Implications

This paper demonstrates the remarkable competitiveness of East Asian countries in world export markets for manufactures and develops some policy implications, both for developed and other developing economies. Using constant market share analysis, applied to data for exports from three East Asian countries–Korea, China and Indonesia–to markets in the industrially advanced economies (IAEs), it shows that East Asian countries have increased their share, not merely in IAE imports, but in total IAE market sales at the expense of exporters from other countries and of domestic IAE producers.     

实际汇率与居民消费风险分担的动态关系——基于预期的视角

通过考虑居民预期行为的作用，实际汇率与居民消费风险分担的动态关系是一个附带预期的渐进调整过程。在利用东亚9个主要经济体的数据对该关系进行研究后发现：（1）东亚各国居民之间的消费风险分担程度较低，但是从2000年之后，居民消费风险分担程度在逐渐提高；（2）实际汇率变动基本上没有平滑东亚各国（地区）居民的消费变动；（3）持有静态预期行为的居民朝向长期消费风险分担均衡的调整程度较小，并且该调整速度较慢，同时持有理性预期行为的居民、持有适应性预期行为的居民背离长期消费风险分担均衡的调整程度较大，并且该调整速度较快，这是造成非完全消费风险分担均衡的重要原因。