Measuring Underemployment: Establishing the Cut-off Point

Unemployment and underemployment are the most pressing problems in Asia today, which is reflected in the widespread underutilization rate of about 29% of the total labor force. In addition to the fact that most of the labor force in developing countries cannot afford to be completely unemployed, the standard labor force framework currently in use worldwide is biased toward counting labor force as employed rather than as unemployed. This systematically undervalues the full extent of the unemployment problem. This paper suggests a better way to determine the threshold to measure underemployment using the cluster method. The robustness of its results is assessed using ANOVA tests, Chow test, and recursive dynamic regressions. Overall, results indicate that the proposed cut-off point of 40 working hours per week is the best one

Can the Poor Benefit from the Doha Agenda? The Case of Indonesia

Agricultural trade barriers remain prevalent among developing countries. Three important questions arise from this fact. First, is there any justifiable reason for agricultural protection in developing countries? Second, what are the effects of farm trade liberalization that might result from the Doha Development Agenda (DDA) in the current round of multilateral negotiations under the World Trade Organization? Third, as most farm producers are poor, will the poor benefit from the DDA and, if so, how? A computable general equilibrium model of the Indonesian economy is employed to answer these questions for one country by assessing the economywide welfare and distributional implications of the DDA, first with respect to the agricultural sector, and then to broader trade liberalization. To put the current agricultural protection into context, the assessment includes the welfare cost of existing sectoral taxes, and of changes in those taxes. Several trade liberalization scenarios are introduced. These include a complete removal of tariffs on agricultural products, which is then combined with a complete removal of domestic taxation on agricultural products. A complete trade liberalization simulation is also included to provide a ceiling for the benefits from trade liberalization. The overall results suggest that a removal of agricultural tariffs alone will generate adverse effects, while its combination with removal of agricultural taxes will create benefits for the economy, households, and the poor. Single-sector trade liberalization seems not a good strategy and a more comprehensive trade reform is desirable. In addition, the last simulation result provides further evidence of the inefficiency of raising revenue through commodity taxation

Do Minimum Wages Reduce Employment and Training?

Sovereign wealth funds (SWFs) are emerging as developing Asia's main policy tool for handling the region's excess foreign exchange reserves. SWFs represent a strategic shift of excess reserves from low-risk, low-return investments to high-risk, high-return investments, and are subject to a wide range of downside risks. The underlying nature of Asia's reserves, which are the consequence of the central bank's purchases of foreign exchange, means that those reserves have counterpart liabilities in the commercial banks that form the backbone of the region's financial systems. This suggests that the realization of SWFs' downside risks may have serious adverse effects on the region's domestic financial stability. The broader implication is that the transformation of Asia into a major exporter of capital raises the possibility that capital outflows can also be a direct source of financial instability in the region

The economic effects and distributional implications of economic reform policies on the Indonesian economy: a CGE approach

Having discussed issues of economic reform and its applications on the Indonesian economy followed by Indonesian SAMs and CGE applications, three CGE models representative to the economy were developed by using SAMs of 1985, 1990 and 1993 for analysing the effects of economic reform. Production is specified as a two-level nesting of CES functions and total production is allocated to domestic demand and exports. Producers are assumed to be indifferent between selling domestically and exporting, while for imports the `small country' assumption is adopted. Total demands are derived from composite commodities of domestically produced and imported commodities. Fixed and planned consumption patterns are assumed for households and government, which makes government saving a residual. Aggregate investment is accordingly fixed, reflecting the 'investment driven' nature of the economy. Three policy changes (i.e. stabilisation, trade liberalisation and tax reform) are then simulated as well as sequencing simulations, in which the three policy changes are simulated in different orders. Stabilisation simulation results suggest that government spending cut will make contractions, leading to worsening welfare status. This policy, however, has favourable impacts on income distribution, since government consumption has increasingly been favouring higher income households. Trade liberalisation increases trades and availability of products. This in turn improves macroeconomic performance and welfare condition. Trade balance and government deficit, however, worsen. This policy also has favourable impacts on income distribution of rural households since urban households seem to be the ones benefiting from the existing tariff protection. Indirect tax reductions improve macroeconomic performances, welfare condition and income distribution, especially among agriculture households. Government bears the adverse effects due to its consumption behaviour and initial budget deficits. The sequencing simulations show that initial condition is crucial which affects choices of favourable policies. A sensible choice for sequencing of economic reform in Indonesia is to start with tax reform, which can then be followed by, trade liberalisation and stabilisation. By having less distorted domestic market, the benefits from trade and other reform policies can be more realised. If a deficit reduction is a matter of urgency, stabilisation should include other policies that reduce existing distortions. The same is also applied for trade liberalisation. There seems an urgent need to further dismantling the existing distortions in the domestic market, indicating that the actual government policies adopted during, the period concerned were 'not the best ones

Achieving Skill Mobility in the ASEAN Economic Community: Challenges, Opportunity, and Policy Implications

Despite clear aspirations by the Association of Southeast Asian Nations (ASEAN) to create an effective and transparent framework to facilitate movements among skilled professionals within the ASEAN by December 2015, progress has been slow and uneven. This report examines the challenges ASEAN member states face in achieving the goal of greater mobility for the highly skilled, including hurdles in recognizing professional qualifications, opening up access to certain jobs, and a limited willingness by professionals to move due to perceived cultural, language, and socioeconomic differences. The cost of these barriers is staggering and could reduce the region’s competitiveness in the global market. This report launches a multiyear effort by the Asian Development Bank and the Migration Policy Institute to better understand the issues and develop strategies to gradually overcome the problems. It offers a range of policy recommendations that have been discussed among experts in a high-level expert meeting, taking into account best practices locally and across the region

The economic effects and distributional implications of economic reform policies on the Indonesian economy: a CGE approach

Having discussed issues of economic reform and its applications on the Indonesian economy followed by Indonesian SAMs and CGE applications, three CGE models representative to the economy were developed by using SAMs of 1985, 1990 and 1993 for analysing the effects of economic reform. Production is specified as a two-level nesting of CES functions and total production is allocated to domestic demand and exports. Producers are assumed to be indifferent between selling domestically and exporting, while for imports the `small country' assumption is adopted. Total demands are derived from composite commodities of domestically produced and imported commodities. Fixed and planned consumption patterns are assumed for households and government, which makes government saving a residual. Aggregate investment is accordingly fixed, reflecting the 'investment driven' nature of the economy. Three policy changes (i.e. stabilisation, trade liberalisation and tax reform) are then simulated as well as sequencing simulations, in which the three policy changes are simulated in different orders. Stabilisation simulation results suggest that government spending cut will make contractions, leading to worsening welfare status. This policy, however, has favourable impacts on income distribution, since government consumption has increasingly been favouring higher income households. Trade liberalisation increases trades and availability of products. This in turn improves macroeconomic performance and welfare condition. Trade balance and government deficit, however, worsen. This policy also has favourable impacts on income distribution of rural households since urban households seem to be the ones benefiting from the existing tariff protection. Indirect tax reductions improve macroeconomic performances, welfare condition and income distribution, especially among agriculture households. Government bears the adverse effects due to its consumption behaviour and initial budget deficits. The sequencing simulations show that initial condition is crucial which affects choices of favourable policies. A sensible choice for sequencing of economic reform in Indonesia is to start with tax reform, which can then be followed by, trade liberalisation and stabilisation. By having less distorted domestic market, the benefits from trade and other reform policies can be more realised. If a deficit reduction is a matter of urgency, stabilisation should include other policies that reduce existing distortions. The same is also applied for trade liberalisation. There seems an urgent need to further dismantling the existing distortions in the domestic market, indicating that the actual government policies adopted during, the period concerned were 'not the best ones

Remittances and Household Welfare: A Case Study of Bangladesh

This paper examines the impacts of international remittances on household consumption expenditure and poverty in Bangladesh using computable general equilibrium modeling of the Bangladesh economy and microeconometric analysis at the household level. The former assesses the economic effects and distributional implications of remittances at the macro, sectoral, and household group levels, while the latter shows the association between remittances and household consumption expenditure, including poverty status. The first results show that remittances have positive effects on the economy and reduce poverty. It is estimated that 1.7 out of the 9 percentage point reduction in the headcount ratio during 2000–2005 was due to the growth in remittances. A closer look at the household level further reveals the positive and significant impacts of remittances on the household's food and housing-related expenditures. The impacts on education and health expenditures are also positive but insignificant. Moreover, the logit regression results suggest that the probability of the household becoming poor decreases by 5.9% if it receives remittances, which further confirms the positive impact of remittances. Given that migration and remittances also bring costs to the society, the study findings call for policies to maximize their benefits. This includes attracting more remittances through formal channels and increasing their productive use

Energy Security and Economics of Indian Biofuel Strategy in a Global Context

The emergence of biofuel as a renewable energy source offers opportunities for climate change mitigation and greater energy security for many countries. At the same time, biofuel represents the possibility of substitution between energy and food. For developing countries like India, which imports over 75% of its crude oil, fossil fuels pose two risks - global warming pollution and negative economic impacts of oil price hikes. This paper examines India's options for managing energy price risk in three ways: biofuel development, energy efficiency promotion, and food productivity improvements. The overall results suggest that biodiesel shows promise as a transport fuel substitute that can be produced in ways that fully utilize marginal agricultural resources and hence promote rural livelihoods. First-generation bioethanol, by contrast, appears to have a limited ability to offset the impacts of oil price hikes. Combining the biodiesel expansion policy with energy efficiency improvements and food productivity increases proved to be a more effective strategy to enhance both energy and food security, help mitigate climate change, and cushion the economy against oil price shocks