The Singapore Economic Review

This study empirically investigates the dynamic effects of Japan’s quantitative easing (QE) policy on industry-specific business activity using a time-varying parameter model and monthly data spanning 2001–2006. This model yields more reliable and precise results than earlier fixed effects models using quarterly data. The first major finding is that the effect of QE on yen–dollar exchange rates varied during the sampled period and is most evident in the final phases, whereas its effect on stock prices persisted almost continuously. Second, QE’s effect on Japan’s real economy — i.e., on industrial production — varies by industry and over time. Most notably, QE raised production via yen–dollar depreciation in the machinery sector (e.g., general and transport machinery) and the sector including chemicals, non-ferrous metals and iron and steel during its latter phases. This study is the first to investigate how unconventional monetary policy influences Japan’s real economy by analyzing the real exchange rate during the second half of QE implementation in Japan.

Intergovernmental fiscal transfer (IFT) is one of the several sources of funds of sub-national governments. There are two general types of IFT — conditional and unconditional. In many developing economies including the Philippines, the usual existing IFT is a form of unconditional fiscal transfer called revenue shares. In the Philippines, this revenue-sharing scheme is called the internal revenue allotment (IRA). Empirical literature says that unconditional IFTs are the type of fiscal transfers with the least effect on local government spending. The literature posits that the reason for this is that local governments use these transfers to substitute for own-sourced revenues such as local taxes. This explanation was formalized through a framework presented in this paper. Using panel data from Philippine provinces for the years 2001 to 2015, this paper attempted to determine the effect of revenue shares, in the form of IRA, on local government expenditures. Using different econometric methodologies, this paper arrived at several conclusions. First, IRA has a strong positive effect on total local government spending with a marginal effect slightly greater than one — much higher than what comparable studies found using data from other countries. Secondly, the effect of IRA on local government expenditures is even stronger for provinces with relatively greater ability to generate its own funds. Next, IRA and other externally sourced revenues have much stronger marginal effects on local government spending than do own-sourced revenues. Finally, IRA has widely varying effects on different components of local government expenditures.

There have been growing concerns that volatile international capital flows could harm macroeconomic conditions in a country, although capital mobility generally promotes efficient resource allocation. To understand the roles of gross capital inflows and outflows, this study examines the effects of extreme capital flow waves on economic growth in 164 developing and advanced economies. The main results show clear differences between them. Growth in advanced countries is insensitive to extreme capital flow waves, but for developing countries, sudden stops and retrenchments (sudden decreases in capital inflows and outflows) hurt growth, while surges (sudden increases in capital inflows) are positively associated with growth. The analysis indicates that developing economies are vulnerable to sharp decreases in both capital inflows and capital outflows. Our findings have policy implications for financial regulators, particularly in developing countries, indicating that they should pay more attention to macroprudential policies related to capital flow management aimed at stabilizing capital flow movements.

This paper explores the effectiveness in which the Central Bank of the Republic of China (Taiwan) artificially devalues the New Taiwan Dollar relative to the US Dollar via the major foreign exchange brokered firm in Taiwan. The empirical results support that Taiwan’s central bank targets to step into the major market to influence the exchange rate at some specific intervals. However, the effectiveness of intervention in the major brokered company is short run and might reverse overnight. Moreover, intervention increases the returns and spreads of the two markets for a few minutes. Finally, the effectiveness of moral suasion is insignificant, depending on the timing of interventions and the response of market participants to those interventions.

This paper seeks to explore the motivations behind agricultural trade-related support policies through extending the two-sector specific factor production model to three sectors to make the model more relevant for a one-party state such as China. This model suggests that the switch from taxing to subsidizing the agricultural sector depends not only on changes in the economy’s structure but, more critically, on the underlying political support from heterogeneous interest groups in the course of economic development. The equilibrium agricultural protection level is determined by equating the marginal political returns from supporting farmers with the marginal political costs from opposing groups (including manufacturers).

Using stochastic frontier analysis, the paper measures the technical efficiency of cement industry of Pakistan. For this purpose, technical efficiency is calculated for 16 cement industries using panel data for the period 2000–2016. Two models are estimated to measure the technical efficiency of cement industry, i.e., the industrial model and the macro-model. In the former model, only industry related variables are used, while in the latter model macroeconomic variables are also used as input variables besides industrial variables. The results indicate that all industrial variables, i.e., capital, labor, raw material, repair and maintenance, energy inputs and advertisement have positive effect on production of cement industry measured by net sales. In macro-model, gross domestic product (GDP) growth and exchange rate have significant positive effect on production. It is found that one percent increase in economic growth will increase cement production by 0.061%. Similarly, one percent devaluation in exchange rate will bring 0.855% increase in cement production. The results show that there is 48.4% efficiency in cement industry of Pakistan, which indicates that cement industry in Pakistan is inefficient by 51.6%. It implies that there is a need to improve the efficiency of cement industry. Further, macroeconomic variables should be incorporated while examining the efficiency of cement industry in Pakistan.

This study investigates the association between remittances, FDI, energy use, and CO₂ emissions for a sample of the top six Asian nations receiving remittances, namely, China, India, the Philippines, Pakistan, Bangladesh, and Sri Lanka, during the 1982–2014 period. The results of employing an autoregressive distributed lag (ARDL)-bound technique signify that there is a stable long-run association among the stated variables. The empirical findings indicate that CO₂ increases significantly with a rise in energy use in all sample nations in both the long and short-runs. Conversely, the association between CO₂ emissions and remittances is found to be significantly positive for Sri Lanka, Pakistan, the Philippines, and Bangladesh in the long-run, positive for Pakistan, the Philippines, and Sri Lanka only in the short-term, and non-significant for India and China in both the long and short-runs. Furthermore, the empirical results illustrate that the inflow of FDI significantly increases CO₂ emissions in the cases of China, Sri Lanka, and India in both the long and short-runs. While FDI inflow has no significant effect on CO₂ emissions for the Philippines and Pakistan, it has a significant negative effect for Bangladesh in both the long and short-runs. Thus, the connection between remittances, FDI, and CO₂ emissions varies significantly across the countries considered in our study.

The relationship between macroeconomic factors and firm performance is important, especially for growth and development in developing countries. In this paper, a firm-level dataset is used for estimating the role of macroeconomic factors on firm performance in the period 2006–2017 for the Turkish manufacturing sector by using GMM model. Four macroeconomic factors are considered for estimating their roles on firm performance; openness, financial depth, real exchange rate, and economic growth rate. The obtained findings show that the macroeconomic conditions have a significant effect on firm performance in the manufacturing sector in Turkey.

This paper explores the relationship between inflation and relative price variability (RPV) in Turkey for the period 2004–2017 to shed further light on the issue with relatively recent data. For this purpose, we use monthly price data for 12 main item groups and 414 specific items thereof. Analyses show that RPV for the period of interest exhibits large fluctuations, being particularly salient in the categories of communications and food. Regarding the underlying functional form, semi-parametric estimation results indicate a U-shaped relationship between inflation and RPV, where the latter reaches its minimum at an inflation level close to 8%.

This study uses a firm-level dataset to examine the impacts of taxation on multinationals’ decisions to set up new foreign subsidiaries in developing ASEAN countries. It finds that while taxes play a critical role in multinational enterprises’ location choice decision, there is an important heterogeneity in the tax responsiveness. First, the tax sensitivity for high-tech firms is significantly lower than that for low-tech firms. Second, having a prior presence in the respective host country is associated with substantially lower tax responsiveness. Finally, in accordance with international-tax-avoidance considerations, the tax responsiveness is significantly diminished for affiliates with a connection to tax-haven countries.

The study examines the extent of gender- and caste-based discrimination among the formally and informally employed in India using the National Sample Survey Office (NSSO) Employment-Unemployment Survey (EUS) data for the four major rounds from 1999–00 to 2011–12. Oaxaca-Blinder decomposition results corrected for self-selection show wage discrimination to be significantly higher in informal employment compared to the formally employed. Similarly, caste-based discrimination is found to be lower compared to gender-based discrimination. The quantile decomposition results show discrimination to vary across the quantiles. Our results highlight the need for better regulation of the informal labor market in India.

A better understanding of how society anticipates and adapts to future changes is critical to inform impact assessment and to develop timely and well-targeted policies to support adaptation. However, the forward-looking adaptation process remains poorly understood. In this paper we introduce choice experiment as a useful approach to investigate how households prefer to adapt livelihoods ex ante to the economic impact of climate and policy changes. This allows us to frame adaptation decisions within the random utility theory and explicitly quantify the likelihoods of particular adaptation choices given varied attributes of contextual changes and households. We collected data from 162 rural households in three Chinese mountain villages. Overall, households chose primarily to increase efforts in agriculture activities or stick to current livelihood portfolios. The results of a Mixed Logit model indicated that households’ choice of agriculture was certain while their adoption of non-agriculture livelihoods to safeguard the households from future changes. Moreover, several possibilities were evaluated for policy interventions to build adaptive capacity of households and facilitate adaptation. Such measures could, for instance, focus on supporting agricultural inputs, providing access to credit as well as practical skills training.

Using panel data from China’s publicly listed companies (PLCs), this paper investigates the relationship between acquisitions and executive compensation. Empirical analysis based on panel regression reveals that acquisitions lead to a significant increase in executive compensation. Further evaluation, using disaggregated data, shows that acquisitions have a significant and positive impact of executive compensation of state-owned PLCs, but its effect on executive compensation paid by private-owned PLCs is statistically insignificant. The state-owned PLCs give less weight to financial performance compared with private-owned PLCs. State ownership and shareholding concentration increase the executive compensation, which gives rise to a principal–principal type problem. Moreover, using the generalized propensity score (GPS) methodology, which allows one to control for the presence of the selection bias, we find that the compensation-increasing effect of acquisitions for the top executive managers is higher than the effect for the top board directors. Finally, once the selection bias is taken into account, we find that acquisitions have almost no effect on the compensation of lower level executive managers and board directors, which suggests the presence of a principal–agent type problem in the two-tiered governance structure of the Chinese PLCs.