Business cycle transmission and interdependence between Japan and Australia

This paper investigates business cycle transmission and interdependence between Australia and Japan over the period 1961.1–1994.4. Vector autoregression (VAR) and vector error correction (VEC) models were constructed utilizing GDP/GNPs, producer prices, interest rates and money supplies. The model is tested for cointegration. Two cointegrating vectors are found, and a vector error correction (VEC) model is estimated. The coefficients and the F-tests of the VEC are used to measure the effect of one economy upon the other. Impulse responses from a VAR are examined for evidence of business cycle transmission, and recursive least squares estimates are used to check for structural change in the relationship. Figures are used to graphically demonstrate these relationships and have been collected in an appendix, which can be found at the end of the text.While the two countries engage in a close trading relationship, the two economies are found to be only somewhat interdependent in macroeconometric terms. Japan is found to transmit some of its business cycle fluctuations to Australia, but there is little reverse transmission.     

东亚经济周期同步性研究

本文首先通过B-B算法,考察东亚各国(地区)的经济周期。然后运用动态因子模型,提取东亚共同经济周期,并通过比较东亚各国(地区)和共同经济周期的关系,直观地判断同步性问题。最后通过B-B算法计算出来各国(地区)经济周期的数据,使用一致指数方法定量地衡量东亚各国(地区)经济周期间的同步性问题。     

The impact of intra-industry trade on business cycle synchronization in East Asia

This paper empirically analyzes distinctions between intra- and inter-industry trade indices. The research indicates that the co-movements of business cycles are influenced more through the intra-industry trade channel than by the total volume of trade itself. As trade integration among Asian countries increased, business cycle synchronization among these countries was expected to expand through trade transmission. Inter-industry trade resulting in higher specialization will induce less synchronized business cycles, while intra-industry trade could lead to increased business cycle synchronization. Moreover, I find that increased business cycle synchronization, as one of the optimum currency area criteria, is overemphasized.     

Testing contagion of the 1997–98 crisis in Asian stock markets with structural breaks and incubation periods

This study tests for the existence of financial contagion, using a method that allows an incubation period before contagion takes effect. We define contagion as an increase in cross-market linkages following shocks. With daily data on Asian stock markets during the 1997–98 crisis, we find significant upward shifts in the linkages between the Asian markets of both crisis and non-crisis countries. The upward shifts are maintained even after controlling for heteroskedasticity and common world and regional factors, providing strong evidence for financial contagion.     

The search for determinants of catching up: Theory, the East Asian experience and the Chinese case

This paper aims to develop a framework to identify the key determinants of a country's growth in late development and apply the framework to analyze the case of China. I analyze the possible necessary and sufficient conditions for catching up. The analyses suggest that an adequate location, initial human capital and institutional arrangements are among the key determinants; for the majority of developing countries, institutional arrangements alone dictate catching up or not. If the institutional arrangements are efficient, then a follower can achieve what I term long-term potential growth rate provided that there exists an adequate location and initial human capital. The experience of Japan and the East Asian newly industrializing economies is evaluated in the framework. Based on the framework of catching up and the experience of East Asia, the Chinese case is analyzed. The analyses suggest with high probability that China will sustain high growth and get close to its long-term potential growth rate in the coming decades: 7–10% annually in the next 15 years and 5–7% annually in the following 15 years.     

Production Structure in the Context of International Trade

This paper deals with the recent empirical phenomenon of intra-industry trade, i.e., trade in similar goods between similar countries. It treats this phenomenon from the point of view of the theory of the structure of production, highlighting the importance of the sequential nature of production and the heterogeneity and specificity of factors of production, as developed by Carl Menger, Eugen von Böhm-Bawerk and their followers of the Austrian School of economics. The reader is first exposed to the historical development of production and capital theory. A simple theory of production structure, along the lines of Austrian economics, is afterwards presented and a useful tool for the analysis of intra-industry trade is developed. In the following discussion of existing theories of intra-industry trade, we make the case for vertical intra-industry specialization, complex manufactured goods and sliced-up production chains across countries. The reader immediately observes the importance of Austrian production structure theory for the analysis of intra-industry trade. We accordingly apply the concepts of the structure of production to intra-industry trade and analyze, in particular, the time- and place-aspects of international production. The concluding section shows the relevance of our approach to intra-industry trade for the analysis of business cycle synchronization across countries, and for the optimum currency areas theory.     

What causes business cycles? Analysis of the Japanese industrial production data

We explore what causes business cycles by analyzing the Japanese industrial production data. The methods used are spectral analysis and factor analysis. Using the random matrix theory, we show that two largest eigenvalues are significant. Taking advantage of the information revealed by disaggregated data, we identify the first dominant factor as the aggregate demand, and the second factor as inventory adjustment. They cannot be reasonably interpreted as technological shocks. We also demonstrate that in terms of two dominant factors, shipments lead production by four months. Furthermore, out-of-sample test demonstrates that the model holds up even under the 2008–2009 recession. Because a fall of output during 2008–2009 was caused by an exogenous drop in exports, it provides another justification for identifying the first dominant factor as the aggregate demand. All the findings suggest that the major cause of business cycles is real demand shocks.     

China and the Exports of Other Asian Countries

We analyze the impact of China’s growth on the exports of other Asian countries, distinguishing China’s demand for imports from its penetration of export markets. We account for the endogeneity of Chinese exports by applying instrumental variables in a gravity model with country-pair fixed-effects. We find that China’s crowding-out effect is felt mainly in markets for consumer goods and hence by less-developed Asian countries, not in markets for capital goods or by the more advanced Asian economies. Meanwhile, China has been sucking in imports from its Asian neighbors, but this effect is mainly felt in markets for capital goods. Hence, more and less developed Asian countries are being affected very differently by China’s rise. JEL no. E5, F4     

Bank market power, economic growth and financial stability: Evidence from Asian banks

This paper examines whether Asian banks are still prone to moral hazard in the aftermath of the 1997 Asian crisis. Using a sample of commercial banks from 12 Asian countries during the 2001–2007 period, our empirical findings highlight that greater market power in the banking market results in higher instability. Although banks are better capitalized in less competitive markets their default risk remains higher. A deeper investigation however shows that such behaviour is dependent on the economic environment. Higher economic growth contributes to neutralize greater risk taking and higher instability in less competitive markets.     

全球化与经济周期同步性——以中国和OECD国家为例

本文利用新方法测度经济周期同步性,构建1984～2007年面板数据研究中国与OECD国家的经济周期同步性及其传导机制。研究发现,中国同OECD国家的经济周期同步性与传统理论存在一定差异,双边贸易强度、金融与投资开放度、产业结构的相似程度都将显著地增加中国同OECD国家的经济周期同步性。     

Maintenance expenditures and indeterminacy under increasing returns to scale

This paper develops a one-sector real business cycle model in which competitive firms allocate resources for the production of goods, investment in new capital and maintenance of existing capital. Firms also choose the utilization rate of existing capital. A higher utilization rate leads to faster capital depreciation, and an increase in maintenance activity has the opposite effect. We show that as the equilibrium ratio of maintenance expenditures to GDP rises, the required degree of increasing returns for local indeterminacy declines over a wide range of parameter combinations. When the model is calibrated to match empirical evidence on the relative size of maintenance and repair activity, we find that local indeterminacy (and belief-driven fluctuations) can occur with a mild and empirically-plausible degree of increasing returns: approximately 1.08.     

Transactional activities and total factor productivity growth in Taiwan

Total factor productivity (TFP) growth shows how rapidly an economy is enhancing technology and the efficiency with which it allocates resources. It has been argued that “miraculous” growth in East Asian economies may not be sustainable, due to relatively low rates of TFP growth. Among these economies, it appears that Taiwan has indeed exhibited substantial technological progress. Failure to control for transactional activities, however, can distort the impression of TFP growth. This study recalculates Taiwan's TFP growth for the 1957–1993 sample period, adjusting for transaction costs in the government and private sectors. For the early years of the sample, 1957–1973, the economy's technological progress is better than GDP-based calculations suggest. In recent years, 1983–1993, productivity improvement has been overstated, but the economy has still exhibited relatively fast TFP growth.     

The Leontief paradox in a multi-country setting: Comments

Conclusions Apart from the commodity mix effect, exports, imports consumption and production respond identically to changes in relative capital endowment, regardless of whether one refers to physical capital, human capital or total capital. Hence, when allowing technology and product mix to vary, one cannot distinguish between export goods and import goods in terms of capital intensity. These conclusions are still in agreement with Hirsch [1977, p. 418] who argues “Poor countries export low capital-intensive and import high capital-intensive goods, while rich countries import low capital-intensive and export high capital-intensive goods.” The only response that is significantly different is due to the commodity mix effect.     

Business Cycle Synchronization in the EMU: Core vs. Periphery

This paper examines business cycle synchronization in the European Monetary Union with a special focus on the core-periphery pattern in the aftermath of the crisis. Using a quarterly index for business cycle synchronization by Cerqueira (Int Econ Econ Policy 10(3):349–363, 2013), our panel data estimates suggest that it is countries belonging to the core that are faced with increased synchronization among themselves after 2007Q4, whereas peripheral countries decreased synchronization with regards to the core, non-EMU countries and among themselves. Correlation coefficients and nonparametric local polynomial regressions corroborate these findings. The usual focus on co-movements and correlations might be misleading, however, since we also find large differences in the amplitude of national cycles. A strong common cycle can thus lead to large differences in cyclical positions even if national cycles are strongly correlated.     

Patterns and determinants of intra-industry trade in Asia

Intra-industry trade (IIT) has gained in importance across Asia as a result of the rapid growth of Asian economies and their key role in the international fragmentation of production. This paper examines the level of IIT for 22 countries in East, Southeast, South, and Central Asia in 2003. IIT is measured as a multilateral trade-weighted index and is reported for ten different categories of goods in the primary and secondary sectors. In addition, the determinants of IIT are investigated using a Tobit regression model. The results indicate that ASEAN and the high-income countries in East Asia exhibit the highest levels of IIT, followed closely by China and India. R&D spending, openness, and a higher share of manufactured exports were found to promote IIT, while geographical distance and the difference in economic size had an adverse effect, especially for manufactured goods. The ASEAN free trade area was most prominently associated with IIT across all SITC categories. Central and South Asian regional trade agreements had a positive influence on IIT in primary products.     

Financial constraints and corporate investment in Asian countries

This study overcomes the analytic shortcomings of the linear investment models and applies a Panel Smooth Transition Regression model to examine the investment ratios of 519 non-financial listed firms in six Asian countries over the period of 1991–2004. We find that investment-cash flow sensitivities vary across firms in the sample countries. Additionally, our findings also show that investment-cash flow sensitivity has also been affected by the business cycle in these countries. Furthermore, we find new evidence that tangible assets play a significant role in explaining the increase (decrease) in the investment-cash flow sensitivities for South and East Asian countries. These results imply that possession of the tangible assets increases debt capacity, which in turn reduces under-investment. These new findings have significant implications for financing and investment choices of the firms in the sample countries.     

Asian holding of US Treasury securities: Trade integration as a threshold

This paper empirically investigates if there have been any shifts in regimes with Asian holding of US long-term Treasury securities with particular attention paid to the role of growing regional integration in trade. A panel regression estimation of eight Asian countries for 1998–2004 confirms the striking persistency of the portfolio weight of US Treasury securities. It also reveals, without a surprise, that the traditionally strong trade link with US as well as exchange rate regime and volatility of local currency bond index explain observed overinvestment in US Treasury securities deviating from what can be warranted by the market share of the US Treasury securities. What is interesting, however, is the estimated regime switches as found when examined with a threshold estimation (Hansen, 1999). We find three thresholds which divide the sample into four regimes—a decreasing persistency as intraregional trade link becomes tighter.     

Globalization, industrialization and urbanization in Pre-World War II Southeast Asia

This article uses new data to analyze the impact on Southeast Asian urbanization of globalization and industrialization in the world economy's core countries between the 1870s and World War II. Dramatic falls in transport costs and free trade, enforced, if necessary, by colonial rule, combined to open vast frontier areas throughout Southeast Asia to global commerce and create a handful of large urban centres. These cities, through linking Southeast Asian primary commodity exporters to world markets, grew predominantly as part of the global economy. Our econometric analysis shows that measures of globalization — in particular industrial production in the world core and international transport costs — are much better predictors of the size of Southeast Asia's main cities than domestic factors such as total population, GDP per capita, land area or government expenditure.     

An analysis on technical efficiency in post-reform China

This paper employs a fully nonparametric stochastic frontier model with time and individual effects to study technical efficiency in China's post-reform economy. The panel data cover China's thirty provinces for the period of 1985–2008. The empirical results show that the average output elasticity of labor is larger than the other two inputs of capital and human capital. Based on the specified inefficiency Tobit model, the factor analysis on technical efficiency shows that the time effects of technical efficiency in China's post-reform economy are significantly contingent on the factors. There exists significant regional differences in technical efficiency in China's economic development, and a number of policy implications can be drawn.     

中国在东亚经济一体化中的角色演化与策略选择:基于经济周期同步性的实证研究

本文利用经济周期同步性对于区域经济一体化的理论涵义,选取5种代表性度量方法,分析了1990Q1～2011Q3期间包含中国在内9个东亚经济体和多种经济体组合的经济周期同步性及其阶段性变化,并将实证结果同东亚经济一体化进程的评价与展望、中国在区域经济中的角色演化及未来参与区域合作的策略选择等分析相融合。结果表明,东亚的总体经济周期同步性程度还不高,增长也不明显,但中日韩组合的总体同步性明显强于其它经济体组合,且显著增强;同时,中国与其他东亚经济体的同步性近年来有显著提高,充分体现出自身经济与区域经济的加速融合以及在未来区域一体化进程中赶超日本地位的趋势。尽管美国与其他东亚经济体的同步性情况与中国相似,却存在本质上的差别。