ASIA'S ROLE IN THE GLOBAL ECONOMIC ARCHITECTURE

The global economic and financial landscape has been transformed over the past decade by the growing economic size and financial power of emerging economies. The new Group of Twenty summit process, which includes the largest emerging economies, has established high‐level international policy cooperation in this new setting. This article argues that effective global economic governance will also require changes in key global organizations—such as the International Monetary Fund, World Bank, World Trade Organization, and the Financial Stability Board—and closer collaboration between global and regional organizations. We suggest that federalism be introduced on a global scale by creating hierarchies of global and regional organizations with overlapping ownership structures in various functional areas (as is already the case with the World Bank and regional development banks in the area of development finance). Asia could contribute to this transformation by building effective institutions to promote macroeconomic and financial stability and deepen regional trade and investment integration. Similar logic could be applied to a broader issue of providing international public goods, such as environmental and climate protection, communicable disease control, and disaster risk management. (JEL F02, F13, F33, F55, O59)     

EVALUATION OF CONTINGENT REPAYMENTS IN MICROFINANCE: EVIDENCE FROM A NATURAL DISASTER IN BANGLADESH

Frequent and strictly scheduled repayments and savings in microfinance often deteriorate the liquidity of members in the face of negative shocks. Previous articles suggest the introduction of a contingent repayment system that allows such members to be rescheduled, but the unavailability of a suitable dataset makes it difficult to examine how it would actually work. This study is one of the first to evaluate the impact of this repayment system on household livelihood. In employing a unique dataset from Bangladesh, I show that rescheduling reduces the possibility of binding credit constraints and borrowing from moneylenders, and may also reduce transitory poverty. However, short‐term rescheduling has insignificant effects. Indebted members with less liquid assets are more likely to be rescheduled.     

Voluntarily Separable Repeated Prisoner's Dilemma

Ordinary repeated games do not apply to real societies where one can cheat and escape from partners. We formulate a model of endogenous relationships that a player can unilaterally end and start with a randomly assigned new partner with no information flow. Focusing on two-person, two-action Prisoner's Dilemma, we show that the endogenous duration of partnerships generates a significantly different evolutionary stability structure from ordinary random matching games. Monomorphic equilibria require initial trust building, while a polymorphic equilibrium includes earlier cooperators than any strategy in monomorphic equilibria and is thus more efficient. This is due to the non-linearity of average payoffs.     

COMPETITIVE LONG RUN INDUSTRY EQUILIBRIUM AND FACTOR-PRICE UNCERTAINTY*

In this paper we have considered competitive long run industry equilibrium with factor-price uncertainty. We discussed the long run equilibrium output of firms with risk neutrality, output price and their responses to changes in uncertainty, factor price and industry demand. In the first part of this paper we have derived a result that, given risk neutrality, the firms operate at proper capacity, i.e. where expected long run marginal cost is equal to expected long run average cost, as shown in the case of output-price uncertainty. This result is, however, different from that obtained from Sheshinski and Dréze (1976). From the comparative static analysis we first discovered that even under risk neutrality factor-price uncertainty affects the long run industry equilibrium: that is, a mean preserving increase in uncertainty leads firm's to enter the industry, because they can decrease expected long run costs as the variability of factor price increases. Consequently, output price goes down. In contrast, firm size is kept invariable in response to its increase as long as the cost function is separable, i.e. the separability of the cost function holds when production functions are the Cobb-Douglas and CES types used commonly in empirical work, although firm size might, generally, be affected by the increase. It is an interesting fact that firm size and industry size will express different responses to a change in risk. The result that the long run industry equilibrium with cost uncertainty is explicitly affected is a sharp contrast to the result under output-price uncertainty and provides a new aspect for understanding about the behaviour of the industry with uncertainty. Secondly, increased factor-price causes the number of firms in the industry to decline and output price to rise. In addition, firm's size will expand with its increase if that factor is inferior, while the effect on firm size is ambiguous if it is normal. The firm's output, i.e. firm size, is, however, kept constant if the cost function is separable. Thirdly, the long run equilibrium output of the firm remains intact but the number of firms increases as industry demand rises. This result holds, regardless of the firm's attitude towards risk. Finally, we find throughout the paper that the functional form of the cost function plays a significant role in determining the behaviour of the industry with factor-price uncertainty.     

EXCHANGE RATES, THE CURRENT ACCOUNT AND MONETARY-FISCAL POLICIES IN THE SHORT RUN AND IN THE LONG RUN

An original version of the paper was presented at the TwentiethAnnual Rokko Conference (July 1982) in Kobe, Japan. The authoris thankful to Bela Balassa, Carl Christ, Louis Maccini, JürgNiehans, Daniel Nolle, Hugh Rose, Peter Sinclair, Kazuo Ueda,Steven Vaughan, and an anonymous referee for helpful conversationsand comments on earlier drafts He is, of course, solely responsiblefor any errors and deficiencies that may remain in the paper.     

THE EAST ASIAN CURRENCY CRISIS: CAUSES AND LESSONS

Financial deregulation and capital-account liberalization preceded speculative currency attacks in Thailand. A combination of de facto fixed exchange rates and high rates of interest generated excessive capital inflows, which led to too much liquidity chasing bad investments. The under-supervised and over-guaranteed financial sector extended loans excessively, particularly for non-productive, speculative purposes. Non-transparent practices, in the form of weak disclosure of institutions' true balance sheets and insider relations, masked these poor investments. The buildup of short-term, unhedged debt left East Asian economies vulnerable to a sudden collapse of confidence. Currency attacks ran down official foreign exchange reserves. Rapid capital outflows and the consequent depreciation of currencies exacerbated the strains on private sector balance sheets. The policy lessons are to (i) use macroeconomic policy to avoid excessive capital inflows and currency overvaluation, (ii) strengthen the financial system, with proper disclosure and accounting requirements, stringent loan classification and provisioning rules, and capital adequacy requirements, prior to capital-account liberalization, (iii) stabilize exchange rates based on currency baskets that reflect trade and investment linkages, and (iv) develop regional. financial cooperation with regional surveillance and peer pressure to maintain policy discipline.     

DO SMALL DEPOSITORS EXIT FROM BAD BANKS? EVIDENCE FROM SMALL FINANCIAL INSTITUTIONS IN JAPAN*

This paper empirically investigates the issues of depositor discipline by examining deposit shifts among Japan's small banking institutions in the 1990s. We are concerned with two questions: (i) whether depositor discipline has effectively worked since the early 1990s, and (ii) whether changes in the regulatory frameworks, including the deposit insurance scheme, affect depositor discipline. Our findings support the effective role of market discipline by depositors. Riskier institutions attract smaller amounts of deposits and are required to pay higher interest rates. Depositor sensitivity to bank risks has changed over time, in compliance with the historical developments of the deposit insurance system.JEL Classification Numbers: G21, G32.