East Asian Economic Issues

The following sections are included:

• FOREWORD

• PREFACE

• INTRODUCTION

Measuring and evaluating the efficiency of a bank branch through use of traditional financial and accounting ratios may not be sufficient because of the difficulties imposed by the numerous outputs and inputs involved in the operations of a bank branch. A complementary tool, known as the Data Envelopment Analysis (DEA), can provide more useful insights - it not only locates inefficient branches and but it also traces the sources of inefficiency. In this study, we will use the DEA method to evaluate the branches of a local bank. We demonstrate that DEA can in fact be a very useful complementary tool to the bank's existing internal methods of measuring operating efficiency. Furthermore, we show that if the bank implements the recommendations made by DEA, there will be potential annual savings of S$1.2 million.

Electronic Road Pricing (ERP) began operations in April 1998. This paper presents a model of the road price derived from the traffic engineer's concept of speed flow relationships. We utilise the basic framework from Walters (1961) and attempt to derive a series of theoretical road prices corresponding to various speed levels for the expressways in Singapore.

We examine old-age security provided by the Central Provident Fund (CPF) in Singapore by estimating replacement rates for CPF members and comparing them with replacement rates of non-members. Calculations are based on a life-cycle model of individuals with different earnings profiles. To study the cost of post-retirement income security, we also examine the implicit post-retirement risk premia payable for annuities. We find that replacement rates are inversely related to average income but the variation in relative loss to CPF members vis-à-vis non-members is sensitive to the annual rate of earnings growth. High-income women pay higher implicit risk-premia for post retirement annuities than males.

Singapore presents a unique case of a privately run public bus transport system. We review its regulatory policies and contrast them with those of other countries. At the same time, we evaluate fare efficiency using a marginal cost pricing model. Our result shows that Singapore's public bus transport is relatively efficient under the break-even rule of the new financing policy as set out in the 1996 White Paper.

This paper measures the comparative performance of minimum variance hedge ratios calculated using 3 different approaches. The appropriate econometric techniques of classical OLS regression, the error correction method, and the GARCH model are investigated using various portfolios consisting of Asian Yankee and Samurai bonds, as well as Japanese bonds. Asian Yankee bonds are Asian international bonds issued in US dollars into the US market. Similarly, a Samurai bond is a Yen denominated bond issued into the Japanese market. The optimal hedge ratio under the error correction method incorporates non-stationarity, long-run equilibrium relationship, and short-run dynamics. Revised optimal hedge ratios are contrasted with those estimated from regression. It is shown that when a cointegrating relationship is ignored by simply using the classical linear regression, hedge ratios underperform.

This paper uses econometric techniques to model resale prices of public housing and private housing markets in Singapore. Regression equations of the public resale market, the condominium, terrace, semi-detached and detached housing markets were estimated using Two-stage Least Squares. We analysed the impact of macroeconomic factors, supply factors and the price of substitute housing on the price of housing in Singapore. Our analysis shows that there is a trickle-up effect of prices in the real estate market. Furthermore, macroeconomic factors are significant but supply factors are not.

This paper examines the long-run determinants of the Singapore-US bilateral real exchange rate from a stock-flow perspective. Our empirical exercise uses cointegration analysis and produces a sensible long-run relationship between the real exchange rate, net foreign assets, productivity, real price of oil, terms of trade, and real interest rates differentials. Key conclusion is that viewing the real exchange rate as a constant as postulated by the PPP theory is not valid since it ignores the role of real disturbances. The long-run real exchange rate can indeed be explained by real fundamental determinants.

This study analyses determinants of the Singapore stock exchange for both the 1997-98 financial crisis period and the pre-crisis period. Although foreign exchange markets fail to predict the Straits Times Industrial Index (STII) in the pre-crisis period, M1 has a positive impact both instantaneously and for lags of up to four months whereas the government finance status affects the STII with only a two-month lag. In the crisis model, however, foreign exchange rates, interest rates, and international stock exchanges explain the fluctuations in the STII; they affect the STII more strongly and persistently. The impulse response of the STII to the short-term interest rate undergoes a sign reversal and exhibits a positive relationship in the crisis period, since the short-term interest rate has been raised to boost confidence and counter the regional pressure of depreciation on the Singapore currency

This paper examines the basic patterns of co-ordination between the exchange rate and public debt policies in Singapore in a vector error correction (VEC) model. The cointegration relationship suggests that, as inflation builds up through either higher import prices or rising unit labour costs, the monetary-fiscal authority tends to concede an appreciation of Singapore currency vis-à-vis US dollar and a continuous increase in public debt. By impulse response analysis, although any inflationary impulse tends to keep accumulating public debt over time, an increase in unit labour costs leads to a reversal of the exchange rate policy responses from appreciation to depreciation, thus reflecting the arising concern of competitiveness as inflation impulse abates.

The Association of Southeast Asian Nations (ASEAN) celebrated its 30th anniversary in 1997. The ASEAN countries have repeatedly called for greater economic integration in the region. This article examines the prospects of economic integration in Southeast Asia. On the basis of theoretical economic considerations alone, the prospects of further integration are limited. However, ASEAN is a unique grouping with a history of close political co-operation among its member states. This history suggests that ASEAN may well succeed in promoting regional economic integration despite the absence of compelling economic rationale.

The paper first examines the trend of growth in intra-regional trade in the Asia Pacific. The second part involves the decomposition of the growth in intra-regional trade into inter-industry trade and intra-industry trade. This is an important issue since growth in inter-industry trade entails greater adjustment costs. We hope to draw certain policy implications from the results of this study, such as the significance of costs due to further liberalisation of trade in the region and the prospects for economic groupings. Our results indicate that intra-industry trade is a significant contributor to the growth in intra-regional trade. We expect any further liberalisation efforts in the region to be relatively painless and smooth in the future.

More open capital markets and better telecommunication in the 1980s and 1990s may have made emerging stock markets more interdependent. We examine the interdependence of stock markets in eight East Asian countries using an MA(1)-GARCH(1,1)-M model and tests of causality in mean and variance. In addition, we also consider the influence of the three major international stock markets on eight emerging Asian markets. Our results show that causality in mean exists among most East Asian emerging markets except for South Korea and Indonesia. Both South Korea and Indonesia have stiff barriers to foreign entry. The results also indicate the presence of a ‘rippling’ effect whereby the New York stock market influences the East Asian markets, which in turn affect the London market.

Much has been made of the competition between China and ASEAN-5. This paper looks at the complementarities between them instead. Examination of their trade structures reveals changing trends. The relationship between foreign direct investment and trade is, however, strong for all. Empirical examination shows that direct investment by the ASEAN-5 in China contributes to China-ASEAN trade. Integration between China and the ASEAN-5 may thus take primarily the form of increasing intra-regional investment leading to greater intra-regional trade among them.

China and ASEAN have seen much growth in foreign direct investment (FDI) in recent years. Investors have been showing growing interest in these regions. Many factors account for this phenomenon. In this paper, we provide some background information on each country. An econometric analysis will be used to identify the key determinants and their impact on FDI. Finally, we will examine the similarities and differences between China and ASEAN.

This paper looks at the changing trade specialisation of seven selected East Asian economies over the period 1980 - 1995 by adopting Lafay's revealed comparative advantage f indicator. We attempt to highlight the degree of competitiveness between China and the other counties by tracing the relative importance of their common export products. Evidence shows that China has gradually displaced its trade competitors over the years. We further evaluate the general trend of individual product groups in each country to find out the specific commodity groups that the country is competing in. The results from a cross-country comparison reveal that China has successfully replicated Indonesia, Thailand and Malaysia's trade structure.

Vietnam has an abundance of cheap labour. However, trained technical labour accounts for only a small percentage of the total labour force, implying a poorly skilled population. The government has implemented a programme of higher educational reforms following the country's socio-economic restructuring. It is hoped that this will help Vietnam's workers adapt better to the market economy, and lead to the establishment of stronger labour links with the outside world. Furthermore, better-trained workers attract the foreign investment needed to absorb the surplus labour, and also increases the returns to labour. This paper examines the relationships between higher education and earnings, as well as between supplementary training and earnings in Vietnam. We hope to evaluate the efficiency of such education and training in preparing graduates for the labour market.

This paper aims to highlight the distinguishing features in the development experiences of six East Asian countries - Japan, Korea, Singapore, Thailand, Malaysia and Indonesia. They all achieved and sustained supernormal economic growth within a short period of time and at around the same time. As a whole, the region possesses similar characteristics which enabled it to achieve what is now commonly termed as the East Asian Miracle. However, there are significant differences in industrial policies, degree of openness towards foreign direct investment and financial markets that distinguish the Northeast Asian countries - Japan and Korea - from their Southeast Asian counterparts - Singapore, Thailand, Malaysia and Indonesia. This paper will discuss these differences.