The Singapore Economic Review

This study examines the causal relationship between financial development, liberalization and economic growth through technological innovation channel in five South East Asia countries during the period 1980–2012, using a fully modified ordinary least square estimation technique. We find that technological deepening is driven by deepening in the financial system and financial liberalization rather than changes in a country’s market capitalization. We also find a negative effect from the financial openness, and a positive effect from financial deregulation.

Many studies have investigated the causal relationship between economic growth and the depth in the stock market, between economic growth and trade openness, or between economic growth and foreign direct investment. Advancing on earlier work, this paper uses vector error-correction and cointegration techniques in order to establish whether there is a long-run equilibrium relationship between all four variables. We consider a sample of 25 ASEAN Regional Forum (ARF) countries which are studied over the period 1961–2012. Our analysis, which combines various strands of the literature, establishes the direction of causality between the variables. Policy recommendations include the encouragement of mutual fund investment by smaller investors to increase stock market depth as well as methods to increase foreign direct investment, such as tax holidays.

In today’s dynamic economy, banks should focus on improving their dynamic performance to stay competitive. Using a dataset for the period 2007–2013, this paper evaluates the dynamic performance of ASEAN-5 banks through a data envelopment analysis (DEA) model, called the dynamic slacks-based measure (DSBM) model. The DEA results indicate that banks in Malaysia perform better than those in Singapore, Thailand, Indonesia and the Philippines. Frontier projections through DEA indicate that banks in the ASEAN-5 countries underutilize their long-term assets, resulting in inefficiencies. Furthermore, this study finds that capital structure as a whole is positively related to bank performance.

This paper examines the benefits of international diversification from the perspective of local investors in 15 Asian markets whose initial portfolio holdings consist of assets from the respective domestic markets. We employ the step-down approach of the mean–variance spanning test to examine the statistical significance of regional and global diversification benefits. The analysis is conducted using three portfolio groups based on relative strength ranking technique. The empirical evidence suggests greater benefits from regional diversification compared to global diversification, in most instances. For Asian economies with restrictions on international investing, these findings suggest a further liberalization of their markets.

We investigate the relationships among credit default swap (CDS), government bond yield, foreign investors’ ownership, and exchange rate by conducting Vector Error Correction Model and Vector Auto Regression. We compare the relationships in the period of 2008 to 2013 and in the sub period when financial crisis happened in 2008. Using daily data from April 28, 2008 to December 31, 2013 in Indonesian government bond market, we find government bond yield plays a significant role; and drives the movement of the other variables. However, during the 2008 crisis, the yield loses its dominance and tends to follow the movement of CDS.

This paper re-examines the hypothesis of unemployment hysteresis using panel data for 11 Asian countries for the period from 1980 to 2008. This study employs a variety of panel data unit root tests recently advanced by Bai and Ng (2004), Pesaran (2007) and Chang and Song (2009). The advantage of these tests is that they are able to exploit the cross-section variations of the series. In addition to these tests, a new powerful panel stationarity test proposed by Carrión-i-Silvestre et al. (2005) is applied which exploits the cross-section variations of the series and also allows for different numbers of endogenous breakpoints in the series. Our findings stress the importance of accounting exogenous shocks in the series and provide stronger evidence against the hypothesis of unemployment hysteresis for the countries analyzed. We also discover critical economic affairs which may cause the unemployment rates to fluctuate significantly. Policy implications are proposed through our observations.

All investigations into the role of institutions in the relationship between foreign direct investment (FDI) and economic growth conclude the impact of interaction between FDI and institutional quality on economic growth is significantly positive. Contrary to the conclusion of these studies, this paper finds it is significantly negative for a panel data of 43 provinces in Vietnam over the period 2005–2012 via the estimation method of difference panel GMM Arellano–Bond. In addition, the estimated results also show: (1) FDI inflows significantly foster economic growth; (2) Good institutional quality has a significantly positive impact while bad institutional quality has a negative albeit insignificant effect on economic growth. From the policy perspective, these findings signal an important message to developing countries that governments should carefully adjust policies and institutions because aside from attracting more FDI inflows and promoting the economic activities, it can also be detrimental to economic growth.

This paper examines ownership-related wage differentials for four types of workers employed by medium–large (20 or more employees) wholly foreign multinational enterprises (WFs), joint-venture multinationals (JVs), state-owned enterprises (SOEs) and domestic private firms in Vietnamese manufacturing in 2009. When all sample firms were combined, unconditional JV-private and WF-private wage differentials were 106–124% for managers, 78–87% for professionals and technicians, 56–68% for clerical and support workers and 22–48% for production workers. Correspondingly, conditional wage differentials which account for influences of worker education and sex, in addition to firm capital intensity and size, were smaller and usually significant: 72–78% for managers, 32–36% for professionals and technicians, 23–28% for clerical and support workers and 15–16% for production workers. SOE-private differentials were all much smaller. There was substantial variation at the industry level, but conditional WF-private differentials were positive and significant for most occupations and industries and JV-private differentials were also positive and significant in most industries for highly paid managers or professionals and technicians, but not for lowly paid clerical and support workers or production workers. Most industry-level SOE-private differentials were also insignificant.

The concepts of potential output and output gap are central to the policymakers’ analytical work in providing guidance to policy decisions. This paper presents three different estimation approaches for the Malaysian economy, namely, the univariate, multivariate and structural models. While the multivariate and structural models are mainly underpinned by theory and captured the concept of potential output better, most policymakers still maintain a suite of models to preserve diversity. Diversity provides a greater scope for cross-checking the robustness of results. The paper attempts to contribute by first, providing a critical assessment of the different models in estimating potential output and the output gap, and, second, the usefulness of each models in terms of assessing the drivers of future potential output, predicting price trends and identifying sources of inflation in the economy.

Since there is a general perception that the defence industry is more susceptible to corruption compared to other sectors, using a unique database provided by Transparency International (TI), we examine the role of firm level antecedents on firm level corruption risk in the defence industry. We find that larger firms have lower levels of firm level corruption risk. Managerial shareholding is associated with higher levels of corruption risk. Firms that voluntarily disclose more information regarding their corruption control systems tend to have lower levels of corruption risk. Finally, listed firms also have lower levels of firm level corruption risk. We find that the “listing effect” is stronger among firms in financially developed countries ostensibly due to the better scrutiny and monitoring by market participants. In our analysis, we control for country level variables such as a composite index of government effectiveness in controlling defence industry corruption.

The change of trade structures from the dynamic development of production networks globally had caused processing trade to become more prominent in China. This change drives ASEAN5 to be more aggressive in developing vertical intra-industry trade (VIIT) with China. This study aims to identify the catalysts that strengthened the VIIT relationship between ASEAN5 and China for manufacturing sub-sectors. Both decomposition-type threshold method and spatial panel econometric modelling are used and the results show that foreign direct investment (FDI) and difference in gross domestic products (DGDP) are the influential determinants of VIIT although their impacts vary across manufacturing sub-sectors. The results also confirm the presence of spatial interaction effects among ASEAN5 countries in relation to China’s trade. These suggest that deeper economic integration among ASEAN5 countries is vital in strengthening bilateral VIIT with China. Moreover, to foster the value chain between the two regions, emphasis on performing similar tasks with differentiated varieties of products is essential as the two regions have similar comparative advantages.

We analyze the effects of the New Rural Cooperative Medical Scheme (NCMS) on poverty, using micro-level household data from 17 villages in a poor area of China’s Guizhou province. A four-wave panel dataset allows us to follow NCMS through its reforms. First-order impact assessments suggest NCMS helps reduce the poverty rate by up to 3 percentage points, and the poverty gap by up to 15 percentage points. It also reduces the contribution of health expenditures to inequality as measured by Gini coefficient. The benefits of NCMS in terms of poverty and inequality appear considerably larger after major reforms in 2009, which expanded benefits and coverage.

We empirically examine the relationship between capital accumulation, vintage and productivity of industries in Japan using firm-level microdata. Our analyses confirm that vintage significantly influenced productivity during the period of economic expansion. The effect was particularly notable during the upturn that started in 2000, when most examined industries displayed strong vintage effects. The rejuvenation of capital equipment during this period clearly resulted from a strong productivity effect. During the economic bubble of the late 1980s, by contrast, vintage exerted no observable effects on productivity despite significant increase in investment. This finding shows that an increase in capital stock during this period was not necessarily productive and likely produced a merely temporary boom. We reconfirm that the relation between vintage and productivity changed in subtle ways in response to the phases of business cycles.

This study analyzed the interdependent relationships among marital status, fertility rate and other socioeconomic factors in Japan in the 2000s by using fixed-effect 2SLS. In addition to higher fertility due to an increase in the number of married females, we demonstrated that economic conditions of males and the male co-residence rate have positive and negative co-relation on the married rate, respectively. We also found a downward convex co-relation between co-residence and parental economic condition, indicating that greater parental assets promote co-residence because of independence of children; however, poor independent parents also promote co-residence in case of less parental assets.

We generalize the analysis of Brueckner’s [(2006). Friendship networks. Journal of Regional Science, 847–865] friendship networks under different types of asymmetries. We first study cost asymmetries by allowing for cost-magnetic agents. These are players whose linking costs are the lowest. Next we focus on network-based asymmetries by allowing for knows-everyone agents. We identify conditions under which Nash networks are interlinked stars in both these cases. We also find that for asymmetric situations (whether in costs, values, or architectures), the equilibrium effort choices regarding the links between different types of agents are robust across the various friendship network models.