Income redistribution through commodity programmes and the marginal welfare cost of taxation

Most economic welfare analysis of farm programmes are usually computed based on the assumption that the social opportunity cost of a dollar of public spending is equivalent to a dollar of private income. The approach simplifies the analysis but ignores the welfare cost of distortion caused by collection of taxes to finance public expenditure. This study shows that when the marginal opportunity cost of a dollar of government spending is greater than one dollar then the net social cost of farm programmes involving public expenditure is greater than typically estimated. Four policy options were considered in this paper and we showed that output subsidy is less pareto superior than tariff as commonly thought. Further, our analysis shows the pareto superior program is the one that combines production control couple with target prices and output subsidy

The effect of exchange rate on bilateral trade balance: new evidence from Malaysia and Thailand

This paper attempts to identify the major economic factors that influence the bilateral trade balances of Malaysia and Thailand with the US and Japan. To this end, an unrestricted VAR model was estimated using quarterly frequency data from 1980: I to 1996: IV. The Johansen results indicate a stable long-run relation between trade and three macro variables: exchange rate, domestic income and foreign income. The main findings of this paper are: (i) the real effective exchange rate is an important variable in the trade balance equation and devaluation improves the trade balances of both economies in the long-run; (ii) the other important variables that determine trade balance include domestic and foreign incomes; (iii) the results indicate no J-curve effect and causal run from exchange rate to trade balance, (iv) the real effects of devaluation are distributed over a period of eight to nine quarters

The intertemporal approach to the current account: Evidence from Indonesia and Malaysia

The study presents the empirical analysis of the current account positions of two ASEAN countries (namely, Indonesia and Malaysia) during the past four decades. We address the issue of external solvency by measuring the deviation of actual from the optimal path of the current account balance using Sachs’s (1982) intertemporal model. Of these two countries, our results show that the model performed noticeable better for Malaysia. We found that the Malaysia’s actual path moves closely to the estimated consumption-smooth currents accounts, with small (insignificant) deviations between them. Unlike Malaysia, we found weaker support of the model for the case of Indonesia. Indonesia’s external imbalances reveal the following: (i) the deficits of the mid 1980s and 1990s prior to 1997 financial crisis appear to be unsustainable; (ii) the evidence appears to be broadly consistent with the intertemporal model and hence suggests that capital is mobile; (iii) the large surpluses observed during the post-1997 period significantly deviate from the optimal path, implying that savings have reached a level that is beyond what would be required to support full consumption smoothing;and (iv) there is excessive volatility in international capital movements for consumption-smoothing purpose

A Model for the Rice and Wheat Economy in Malaysia: An Empirical Assessment of Alternative Specifications

A model of the Malaysian rice and wheat economy is specified and fitted to data from 1960-87. Several diagnostic tests were employed in the analysis to determine the specification of the model. The present work incorporates the interaction between rice and wheat. The estimate for the short-run supply price elasticity is 0.03 while the long-run price elasticity is estimated at 0.11. The matrix of price and income elasticities obtained from the demand analysis indicates that the own-price elasticities are less than unity. The present work supports the hypothesis that rice is an inferior good while wheat is normal. The leVel of imports depends on domestic supply, income level and domestic prices of rice and wheat

Halal economy in the global markets: new source of investment and economic growth

There are approximately 1.5 billion Muslims in the world and majority of the world’s Muslim population is located in the Asia-Pacific region. According to Global Islamic Economy Report in 2013, the global expenditure of Muslim consumers on food and lifestyle sector is being estimated to be 1.62 trillion US dollar in 2012 and is expected to increase by more than 53 by 2018. This has raised attention in many people’s minds recently as to what the Halal Economy refers to. Does it refer to the economies of the Organization of Islamic Cooperation (OIC)? Are the consumers of the Islamic economy (e.g. Islamic finance) limited only to Muslims? Does it refer to green, purity and non-pollution? Can this halal economy promote new investments and economic growth? The primary aim of this paper is to offer a global perspective of the halal economy. The paper looks at the definition of halal economy and five existing sectors, namely halal food, Islamic finance, clothing or fashion, halal tourism, and pharmaceutical and cosmetic sectors. In addition to that, the prospects of Malaysia’s major halal exported products and destinations are reviewed. Some challenges and opportunities will be highlighted in the last section

Purchasing power parity in Central and Eastern European countries

This paper investigates the validity of the purchasing power parity (PPP) hypothesis for 13 Central and Eastern European countries (CEEC) in transition. The results based on the seemingly unrelated regression ADF (SURADF) method reveal that the PPP relationship holds in 7(6) out of the 13 countries when the real exchange rate is based on US dollar (euro). Our empirical findings appear to support a long-run PPP in some of the transition countries that appears insensitive to the base country.

Structural breaks and the twin deficits hypothesis: Evidence from East Asian countries

In this paper, we examine the relevance of the twin deficits hypothesis (TDH) for selected East Asian countries. Empirical results reveal that the admission of regime shifts substantially influences the conclusion that TDH exists in four out of the seven countries that we have investigated. It seems that TDH are less likely to be evident in countries with highly developed financial systems (Singapore and Japan).Current account, Budget deficit, Twin deficits hypothesis, Regime shift, Asian countries

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

Measuring Capital Mobility in the Asia Pacific Rim

This study revisits the Feldstein-Horioka puzzle by investigating the saving-investment nexus through the unit root test, cointegration procedure, unrestricted VAR causality, and dynamic OLS (DOLS). Ten Asia Pacific nations of different level of economic development and financial openness were being examined, using data from 1971-1999. Overall, the long run capital mobility is more apparent for four newly industrialised economies while capital flows in ASEAN countries seem to be more restricted (especially Indonesia and Thailand). As for the US and Japan, their long run saving retention coefficients are in the moderate range (0.56 and 0.45). In brief, our findings indicate that the heftiness of Feldstein-Horioka criterion in measuring capital mobility is more subjected to econometric specifications rather than country size alone.Feldstein-Horioka puzzle; capital mobility; Asia pacific region; unrestricted VAR causality; dynamic OLS

On the twin deficits hypothesis: is Malaysia different?

This paper discusses the on-going debates surrounding the issue of twin deficits in Malaysia. The statistical technique advocated by Toda and Yamamoto (1995) for handling economic variables that might spuriously move together is utilized to examine the long run causal relationships between budget and current account deficits. We examine more than the three decades of time series data to answer the question of whether the budget deficit had led to current account deficit. The empirical result reveals the presence of bi-directional causality between the two deficits in Malaysia. It is this finding that makes Malaysia different from the major industrialized countries. On the one hand, we find that the causal relationship is from budget to current account deficits providing evidence of twin deficits phenomena. On the other hand, the reverse causation as detected in this study tends to suggest some evidence of current account targeting. Therefore, policy to curb 'chronic' current account deficit cannot be achieved if the policy markers simply rely on curtailing budget deficit