The Effect of Exchange Rate on Bilateral Trade Balance: New Evidence from Malaysia and Thailand

This paper attempts to identify the major economic factors that influence the bilateral trade balances of Malaysia and Thailand with the US and Japan. To this end, an unrestricted VAR model was estimated using quarterly frequency data from 1980: I to 1996: IV. The Johansen results indicate a stable long-run relation between trade and three macro variables: exchange rate, domestic income and foreign income. The main findings of this paper are: (i) the real effective exchange rate is an important variable in the trade balance equation and devaluation improves the trade balances of both economies in the long-run; (ii) the other important variables that determine trade balance include domestic and foreign incomes; (iii) the results indicate no J-curve effect and causal run from exchange rate to trade balance, (iv) the real effects of devaluation are distributed over a period of eight to nine quarters.     

Public Revenue‐Expenditure Nexus in South Africa: Are there Asymmetries?

This paper re‐examines the government revenue and expenditure relationship in South Africa using Enders and Siklos' Threshold adjustment and Granger causality tests. The paper allows for structural breaks in the unit root and cointegration tests. The results indicate the absence of any asymmetries in both the threshold autoregression and momentum threshold autoregression specifications of adjustments in the South African's budgeting process. The estimated symmetric error‐correction models provide support for the fiscal synchronization hypothesis of government revenues and expenditures for long‐run and short‐run dynamic equilibrium. These findings indicate that the South African fiscal authorities should try to maintain or even improve the control of their fiscal policy instruments to sustain the prudent budgetary process.     

Do Indian States Mimic,Compete or Interact in Local Public Spending? A Spatial Econometric Analysis

This paper analyses spatial interaction in public spending decisions across 22 Indian states during the period 1980–1981 to 2014–2015. In particular, we estimate interactive hypotheses for different proximities of states using a spatial panel data approach. The empirical results support strong spatial interaction and yardstick competition in public spending. Interactive behavior among the states has been found to be consistent and conditional on per capita income, fiscal transfers, infrastructure, literacy and population density. Interaction arising from yardstick competition significantly affects public spending decisions. The present study realizes the need for a well‐developed and comprehensive network to strengthen the interdependence in public spending among the states for higher welfare gain.     

Internal Finance and Corporate Investment

This paper examines Pecking Order/Free Cash Flow behavior in small ($25–$50 million), medium ($100–250 million), and large ($1000 million and over) firms. The purpose is to proffer an explanation for the important role of cash flow on the investment expenditure of firms that is more complete than the commonly given accounts. The Pecking order theory (PO) emphasizes the value‐enhancing influence of cash flow, while the free cash flow hypothesis (FCF) underscores its value‐destroying effect. Using the vector error correction model, we find that although the overall behavior of small firms support the pecking order theory, the cash flow of these firms does not have any causal effect on their investment. We further find evidence of free cash flow theory in large firms.     

KLSE Long Run Overreaction and the Chinese New-Year Effect

This study investigates long run overreaction and seasonal effects for Malaysian stocks quoted on the Kuala Lumpur Stock Exchange (KLSE), for the period 1986–1996. Stocks exhibiting extreme returns relative to the market over a three year period experience a reversal of fortunes during the following three years. There is also evidence that employing a contrarian trading strategy may yield excess returns. Of particular interest is the apparent existence of a Chinese New Year effect in both the level of market returns, and the overreaction profile for KLSE stocks. These seasonalities mirror the January-effect observed in US markets.     

Inflationary expectations and transmission of inflation under floating exchange rates

Zusammenfassung Inflationserwartungen und übertragung von Inflation bei flexiblen Wechselkursen. — Dieser Aufsatz befaΒt sich mit den Inflationserwartungen, die vom Devisenmarkt herrühren, und der Art, wie diese von auΒen kommende Preisinipulse auf den Inlandsmarkt übertragen. Mit einem Modell wird analysiert, wie sich nach einer exogenen Verschiebung der Wechselkurserwartungen und/oder nach einer erwarteten Ver?nderung des ausl?ndischen Preisniveaus das inl?ndische Preisniveau verh?lt. Hervorgehoben werden einige Implikationen für Devisenmarktinterventionen und stabilit?tspolitische MaΒnahmen in offenen Volkswirtschaften mit schwankenden Wechselkursen.

---

Résumé Expectatives inflationnistes et transmission d’inflation sous le régime des taux de change flottants. — Cet article s’occupe d’expectatives inflationnistes qui résultent du marché de change et la transmission des perturbations de prix à l’économie locale. Un modéle est appliqué à analyser le développement du prix local qui suit à un changement exogéne des expectatives concernant le taux de change et/ou le taux attendu du changement du prix étranger. L’auteur attire l’attention sur quelques implications du modéle présenté pour ne pas intervenir aux marchés de change et pour l’efficacité des politiques de stabilisation de prix dans les économies ouvertes avec des taux de change flottants.

---

Resumen Expectativas iriflacionarias y transmisi?n de inflatión bajo tipos de cambio flotantes. — Este artfculo se ocupa de la naturaleza de las expectativas inflacionarias que surgen del mercado cambiario, y de la manera que ellas transmiten las perturbaciones de precios a la economfa domèstica. El modelo se emplea para analizar el comportamiento domèstico de precios que le sigue a un desplazamiento exógeno en las expectativas respecta del tipo de cambio y/o la tasa de cambio esperada en el nivel de precios externo. El artfculo centra la atenci?n sobre algunas implicaciones de este marco particular para la no-intervención en los mercados cambiarios extranjeros, y para la efectividad de polfticas de estabilización de precios en economfas abiertas con tipos de cambio volátiles.

     

Does the Notion of ‘Doing Well by Doing Good’ Prevail Among Entrepreneurial Ventures in a Developing Nation?

The rise in ethical and social responsibility awareness in contemporary businesses has led to assumptions that the associated behaviours would enable competitive advantage to be attained as a firm distinguishes itself from its competitors through such practices. This paper reports on a study conducted on the prevalence of such practices among entrepreneurial ventures in an emerging economy (Malaysia), and the effect of such practices on both financial and non-financial performance. A sequential inter-method mixing design was employed in which during stage 1, a series of semi-structured interviews with ten Malaysian SME founder-owners were conducted. Stage 2 involved a survey in which a total of 212 usable questionnaires were received. The results of the first phase of the research (qualitative) found evidence that entrepreneurial ventures in Malaysia do generally engage in both ethical and socially responsible practices. The subsequent model testing using SEM, however, revealed that while ethical practices were positively associated with venture performance, socially responsible practices were not. This may indicate that while entrepreneurial ventures in emerging economies like Malaysia become quickly aware of the more serious consequences of not adopting ethical practices, the concern for social issues may still be lacking, i.e., in terms of motivations, they may be closer to the profitable end of the philanthropy versus profitability spectrum. While the findings may be equivocal, we believe that the paper makes the following two significant contributions: (1) it provides an empirical test of the importance of ethical and socially responsible practices to entrepreneurial venture performance and (2) it furthers understanding of how and why this may be different in an emerging economy context.