Interdependence of Income between China and ASEAN-5 Countries

This paper examines the interdependence of income between China and ASEAN-5 countries by resorting to the time series econometrics analysis from 1960 to 2000 of the real Gross Domestic Product (GDP). Empirical results are found to support the strong interdependence of income between China and ASEAN-5 countries. With the increasing interest of economic integration around the globe especially the proposed China-ASEAN Free Trade Area (CAFTA), the interdependence and synchronization movements of income between member countries is an important characteristic for suitability toward the regional common currency goal.

The Predictability of ASEAN-5 Exchange Rates

In an attempt to determine the predictability of ASEAN exchange rates, five currencies including Malaysian ringgit, Thailand baht, Singapore dollar, Indonesian rupiah and the Philippines peso, denominated in US dollar as well as Japanese yen, were modeled using advanced time series analysis. Results suggested that Singapore exchange rate could be better predicted when denominated in US dollar, most probably because the East Asian Financial Crisis did not affect them both. On the other hand, other Asean exchange rates were better predicted when denominated in Japanese yen, as they had closer economic ties with Japan. However, while Japan had undergone serious recession after the crisis, it did not experience dramatic political instability as experienced by Indonesia, hence Indonesian rupiah remained unpredictable by yen. These results show that although advanced time series analysis dealt with economic fundamentals implicitly; it still could be a powerful tool for exchange rates modeling and forecasting, especially in the medium to long term.Exchange rate; ASEAN-5, predictibility, ARIMA

Real And Monetary Convergence Of ASEAN-5 Plus Three

Asia consists of numerous countries that vary in population, culture, land area and economic resources. However, within the disparity and diversity of the Asian economies, there are some common grounds that have sparked off regional co-operation. The purpose of this thesis is to evaluate the level of economic convergence of the combinations of ASEAN-5 (namely, Indonesia, Malaysia, the Philippines, Singapore and Thailand), Japan, China and Korea economies, a fundamental source of regional co-operation. The empirical findings suggest that GDP, CPI and interest rates of ASEAN-5, Japan, China and Korea are all cointegrated, signifying synchronisation and initial convergence within the region, a positive indication for closer economic co-operation with lesser adverse impact on any individual economy. Subsequently, three possible economic alliances are identified as ASEAN-5, ASEAN-5, Japan, China and Korea, as well as ASEAN-5, Japan and China. The tests on dynamic properties of GDP of ASEAN-5, GDP of ASEAN-5, Japan and China, CPI of ASEAN-5, Japan China and Korea, and interest rates of ASEAN-5, demonstrate significant macroeconomic linkages among these economies, validating a possible economic co-operation. Apparently, managing the interest rates is a policy tool to keep in check the economy’s price level, the CPI. Since managing CPI would be the concern of most economy to contain inflation, the convergence of CPI among ASEAN-5 + 3 through government intervention, is expected. Furthermore, a relatively short impulse response of ASEAN-5’s interest rates implies monetary co-ordination within the region. Since GDP represents overall macroeconomic activities within an economy, it provides a relatively good implication on the readiness of economies to be integrated. Hence, based on these empirical findings, the first phase of a serious economic integration would be ASEAN-5, to be ready in approximately 4 to 5 years’ time. The second phase should include other economies like Japan, China and perhaps in a later stage, to also include Korea. Besides, the time varying analysis validates these suggestions by revealing gradual convergence for all economies under study. Nonetheless, in order to form a union, ASEAN-5 has to revamp its current financial systems as well as to formulate reasonable and workable economic integration guidelines. Setting clear, consistent and simplified trade procedures and regulations, as well as extending mutual trade collaboration are necessary. Moreover, the underlying incentive structure behind the process of integration should also be made known to all ASEAN economies and not be wiped out with some other trade and non-trade barriers. As for newer ASEAN members like Vietnam, Laos, Myanmar and Cambodia, ASEAN-5 could draft special preferential trade guidelines to boost trade among ASEAN members in preparation to include all ASEAN members into AFTA. However, the realisation of a serious integration may take longer than expected due to the lack of political commitment, economic stability, unpredictable natural disasters and its aftermath, as well as the inevitable spread of deadly diseases

THE ASEAN-5 FUTURE CURRENCY: MAASTRICHT CRITERIA

In this recent decade, many of the economists and policymakers attempted to investigate the suitability of the East Asian region to form a currency union and based on the European countries experience as a benchmark. This study aims to investigate the long-run real convergence in GDP per capita growth among Malaysia, Thailand, Singapore, Indonesia, and the Philippines, over 1978 to 2004. The Dickey-Fuller (DF) and Augmented Dickey-Fuller (ADF) unit root tests were conducted at first difference of GDP per capita for each country; the results demonstrated that all countries GDP per capita are stationary at first difference. The results of the Bound Testing Approach (Auto-Regression Distributed Lag (ARDL)) indicated that there is a long run relationship between variables in the Maastricht Criteria. The results showed that interest rate, inflation rate and the debt ratio experience that negative relationship to the GDP per capita. However, the exchange rate and surplus (or deficit) ratio shown the positive related to the GDP per capita. Therefore, the findings showed the ASEAN 5 countries have fulfilled the Maastricht Criteria with consistent to expected sign(s) except for Singapore’ exchange rate and Indonesia’s debt ratio. Hence, those ASEAN 5 countries in this study have potential to form a single currency.Monetary Union (MU), Bound Test (ARDL), Maastricht Criteria, Single Currency

"Convergence and Catching Up in ASEAN: A Comparative Analysis"

The increasing diversity of average growth rates and income levels across countries has generated a large literature on testing the income convergence hypothesis. Most countries in South-East Asia, particularly the five founding ASEAN member countries (ASEAN-5), have experienced substantial economic growth, with the pace of growth having varied substantially across countries. Recent empirical studies have found evidence of several convergence clubs, in which per capita incomes have converged for selected groupings of countries and regions. This paper applies different time series tests of convergence to determine if there is a convergence club for ASEAN-5, as well as ASEAN-5 and the USA. The catching up hypothesis states that the lagging country, with low initial income and productivity levels, will tend to grow more rapidly by copying the technology of the leader country, without having to bear the associated costs of research and development. Given the important effects of technological change on growth, this paper also examines whether ASEAN-5 is catching up technologically to the USA.

Business Cycles Synchronization in East Asia: A Markov-Switching Approach

This paper attempts to analyze the relationships between the ASEAN-5 countries' business cycles. We examine the nature of business cycles correlation trying to disentangle between regional spillover effects (expansion and recession phases among the ASEAN-5 are correlated) and global spillovers where the business cycles of other countries (China, Japan and the US) play an important role in synchronizing the activity within the ASEAN-5. We employ a time-varying transition probability Markov switching framework in order to allow the degree of synchronization to fluctuate over time and across the phases of the business cycles. We provide evidence that the signals contained in some leading business cycles can impact the ASEAN-5 countries' individual business cycles

Interdependence of Income between China and ASEAN-5 Countries

This paper examines the interdependence of income between China and ASEAN-5 countries by resorting to the time series econometrics analysis from 1960 to 2000 of the real Gross Domestic Product (GDP). Empirical results are found to support the strong interdependence of income between China and ASEAN-5 countries. With the increasing interest of economic integration around the globe especially the proposed China-ASEAN Free Trade Area (CAFTA), the interdependence and synchronization movements of income between member countries is an important characteristic for suitability toward the regional common currency goal.interdependence; cointegration; China; ASEAN-5

A Panel Data Analysis of FDI, Trade Openness, and Liberalization on Economic Growth of the ASEAN-5

Foreign Direct Investment (FDI) has contributed heavily to development of the Association of South East Asian Nations (ASEAN). In this study, the concentration is on five ASEAN countries: namely Malaysia, Singapore, Thailand, Indonesia, and the Philippines. FDI inflows into the ASEAN-5 multiplied spectacularly from 1980 to 1997, but the trend has reversed since the Asian financial crisis in 1997. This paper seeks to examine the contributions of FDI, trade openness, and liberalization to economic growth and development in the ASEAN-5

Demand For International Reserves in ASEAN-5 Economies

The ASEAN-5 economies were observed to increase their demand for international reserves after the 1997 Asian financial crisis. This was coincided with their consistent current account surplus during the same period. Thus, this study attempts to investigate the existence of long-run relationship between reserve demand and current account for the period of 1997-2005. The Autoregressive Distributed Lag (ARDL) bounds test approach as proposed by Pesaran, Shin, and Smith (2001) was employed, and the empirical results revealed that current account surplus leads to the rise in the demand for international reserves in Indonesia, Malaysia, and Singapore.Bound Test, ARDL Approach, International Reserves, ASEAN-5

ASEAN-5 Macroeconomic Forecasting Using a GVAR Model

This paper examines and evaluates macroeconomic forecasts for the original ASEAN-5 members in the context of a global vector autoregressive (GVAR) model covering 20 countries, grouped into nine countries/regions. After estimating the GVAR model, we generate 12 one-quarter-ahead forecasts for the next quarter including real GDP, inflation, short-term interest rates, real exchange rates, and real equity prices over the period 2009Q1–2011Q4, with four out-of-sample forecasts over the period 2009Q1–2009Q4. Forecast evaluation results based on the panel Diebold-Mariano (DM) tests show the GVAR forecasts tend to outperform forecasts based on the benchmark country-specific models, especially for short-term interest rates and real equity prices, emphasizing the interdependencies in the global financial market.Macroeconomic Forecasting; Global vector autoregressive model (GVAR); Southeast Asia