Understanding bilateral FDI flows in developing Asia

Unlike trade flows, there has been little to no detailed examination of foreign direct investment (FDI) flows between Asian economies. This paper uses bilateral FDI flows data to investigate trends in intra-Asian FDI flows over the period 1990–2005. It employs an augmented gravity model to identify the main determinants of intra-Asian FDI flows. Possible drivers of FDI flows, including transactional and informational distance (proxied by distance), real sector variables, financial variables and quality of institutions are examined.     

Regional Versus Multilateral Solutions to Transboundary Environmental Problems: Insights from the Southeast Asian Haze

At an analytical level, economists have often categorised the international dimensions of environmental problems and policies as being national (or competitiveness), psychological (as opposed to physical) and transboundary (global) in nature. Focusing on transboundary pollution problems, the reasons why a multilateral approach among sovereign nations to solve such global externalities may be difficult are discussed within a simple analytical framework. The paper examines the Southeast Asian experience at a regional approach to tackling the haze problem due to the Indonesian forest fires. It goes on to explore multilateral policy options and constraints for dealing with such transboundary environmental pollution problems.     

Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises

This paper has a number of purposes. First, it revisits the older theory of reserve adequacy and optimality to see whether this can still be used and perhaps strengthened in ways that would inform the current debate. Second, it explores the connection between reserve adequacy and currency crisis in the light of recent experience and empirical research. Third, it critically investigates alternative rule‐of‐thumb measures of reserve adequacy. Fourth, and drawing on the foregoing analysis, it examines the extent to which crisis countries should seek to replenish and build up their international reserves in the post‐crisis period. Additional owned reserves represent a guaranteed and unconditional source of liquidity; is this what is needed?     

Managing the Monetary Consequences of Reserve Accumulation in Emerging Asia

Abstract

The huge increase in international reserve holdings by Asian countries since the 1997 crisis has been one of the most important recent developments on the international financial scene. These buildups have contributed substantially to concerns about the creation of excessive global liquidity. How justified these concerns are depends heavily on the extent to which the reserve accumulating countries have been able to sterilize the effects on their domestic monetary aggregates. We use a unified theoretical framework to undertake dynamic estimations of the magnitude of sterilization and offset coefficients (which measure the degree of capital mobility) for a large set of Asian economies. We find that despite substantial capital mobility there has been a high degree of effective sterilization to date.     

Managing in the Middle: Characterizing Singapore's Exchange Rate Policy*

It is by now common knowledge that there can be a significant divergence in the de facto versus de jure exchange rate regimes operated by economies. Although much of the recent published literature in Asia has focused on the crisis-hit economies, Korea and Thailand in particular, scant attention has been paid to Singapore, which officially targets its nominal effective exchange rate (around a band). The present paper examines the degree of exchange rate intervention for Singapore using various methods of assessing de facto exchange rate regimes. In the main, we show that although the Singapore dollar is primarily influenced by the US dollar, in keeping with its de jure classification of a basket pegged regime, other major currencies, such as the yen and the euro, also impact the Singapore dollar. There is also evidence to indicate that Singapore uses the nominal effective exchange rate strategically as a policy instrument to satisfy domestic inflation objectives.     

Misalignment of the Baht and its Trade Balance Consequences for Thailand in the 1980s and 1990s

This paper examines Thailand's pre‐crisis exchange rate policy, focusing on the degree of the country's real exchange rate misalignment pre‐crisis and its consequent effects on Thailand's trade balance with its two large trading partners, the US and Japan, in the 1980s and 1990s. Defining misalignment as the difference between actual and ‘equilibrium’ exchange rates, we estimate three key ‘equilibrium’ exchange rates of the Thai baht: (a) the real effective equilibrium exchange rate of the Thai baht against its twenty‐two major trading partners; (b) the bilateral real equilibrium exchange rates of the baht against the US dollar; and (c) the bilateral real equilibrium exchange rate of the baht against the Japanese yen.