How Much Does Investment Drive Economic Growth in China?

Investment-driven growth has long been regarded as a key development strategy in China. This paper investigates empirically the validity of this view. Post-1990 data analyses and macroeconometric model simulations show that market demand has become a regular force in driving investment since reforms, that non-demand-driven investment growth contributes to increasing capital-output ratio far more than output growth, that government investment exerts a pivotal role in amplifying investment cycles, albeit effective in promoting employment, and that delayed and rising consumption from current investment surge can help sustain the impact of growth even with constant-returns-to-scale in the long-run GDP.Investment, Growth, Impulse response function, Cointegration, Granger non-causality

Macroeconomic Effects of Fiscal Policies: Empirical Evidence from Bangladesh, China, Indonesia and the Philippines

This paper studies macroeconomic effects of fiscal policies in four Asian countries - Bangladesh, China, Indonesia, and the Philippines - by means of structural macroeconometric model simulations. It is found that short-term fiscal multipliers from an untargeted increase in government expenditure are positive but much less than those from an increased expenditure targeted to capital spending. The multiplier effects from fiscal expansion via a tax rate reduction are found to be typically much less than through higher spending. The effectiveness of automatic stabilizers in general, and more specifically whether expenditure or tax-side stabilizer is more effective, differs across countries.Fiscal policy, Growth, Public finance, Deficit

Forecasting Inflation and GDP growth: Comparison of Automatic Leading Indicator (ALI) Method with Macro Econometric Structural Models (MESMs)

This paper compares forecast performance of the ALI method and the MESMs and seeks ways of improving the ALI method. Inflation and GDP growth form the forecast objects for comparison, using data from China, Indonesia and the Philippines. The ALI method is found to produce better forecasts than those by MESMs in general, but the method is found to involve greater uncertainty in choosing indicators, mixing data frequencies and utilizing unrestricted VARs. Two possible improvements are found helpful to reduce the uncertainty: (i) give theory priority in choosing indicators and include theory-based disequilibrium shocks in the indicator sets; and (ii) reduce the VARs by means of the general→specific model reduction procedure.Dynamic factor models, Model reduction, VAR

Measuring Regional Market Integration in Developing Asia: a Dynamic Factor Error Correction Model (DF-ECM) Approach

This paper examines empirically the dynamic process of regional market integration in twelve Asian economies using a new modeling approach combining DF with ECM. This approach enables us to obtain latent regional dynamic factors which correspond well with the 'foreign' parity variables in theory when a market is imperfectly integrated and which act, in explaining domestic short-run price adjustments, as leading-indicators in an errorcorrection form. The power of the DF-ECM approach is illustrated in its application to measuring market integration in the developing Asian region using monthly data from the past decade.Law of one price; market integration; dynamic factor; error-correction model

Empirical Assessment of Sustainability and Feasibility of Government Debt: The Philippines Case

This paper develops empirical methods of assessing the sustainability and feasibility of public debt using the No Ponzi Game criterion, using the Philippines as the testing case. Both historical data and forecasts generated by a quarterly macro-econometric model are used in the assessment. Stochastic simulations are carried out to mimic future uncertainty. The test results show that, up to the end of the present administration in 2010, the Philippine government debt is not sustainable but weakly feasible, that the feasibility is vulnerable to major adverse shocks, and that simple budgetary deficit control policy is inadequate for achieving debt sustainability or strengthening feasibility.Government debt, Ponzi game, Rollover bond portfolio

A Macroeconometric Model of the Chinese Economy

This paper describes a quarterly macroeconometric model of the Chinese economy. The model comprises household consumption, investment, government, trade, production, prices, money, and employment blocks. The equilibrium-correction form is used for all the behavioral equations and the general→simple dynamic specification approach is adopted. Great efforts have been made to achieve the best possible blend of standard long-run theories, country-specific institutional features and short-run dynamics in data. The tracking performance of the model is evaluated. Forecasting and empirical investigation of a number of topical macroeconomic issues utilizing model simulations have shown the model to be immensely useful.Macroeconometric model, Chinese economy, Forecasts, Simulations

Trade openness and regional development in a developing country

This paper examines how economic openness influences regional development in a developing country, with the Philippines as a case study. It first looks at the disparities in economic and social indicators across the country's 14 regions and over time. Metro Manila continues to tower over the national economic landscape, although economic dispersal especially in adjacent regions appears to be expanding. The paper then analyzes the determinants of regional development, using five-year panel data. Trade openness appears to be beneficial to regional economic growth and, via growth, poverty reduction. However, it cannot by itself be expected to bring about more balanced regional development. Copyright Springer-Verlag 2003I32, 018, R11,

Macroeconomic Uncertainties, Oil Subsidies, and Fiscal Sustainability in Asia

Global oil prices have subsided relative to the peak reached in mid-2008, but compared to historical levels they remain elevated and volatile as economic uncertainties continue to unfold. The likelihood of these prices rising again soon cannot be ruled out. High oil prices can adversely affect growth, employment, external accounts, and fiscal positions of governments. An overwhelming response across Asia as international oil prices spiked in 2008 was to shield domestic consumers more than before through oil subsidies, which are inequitable, economically inefficient, and environmentally unfriendly. These subsidies add directly to the fiscal deficit and public debt, but are generally hidden, making their measurement difficult. Additionally, in combination with lower growth rates, higher spending to rev up demand across Asia is also worsening the fiscal positions of governments. This paper computes the transmission of recent global oil price movements to domestic markets and estimates oil price subsidies in a diverse group of 32 Asian economies. Using data for 18 of these countries and applying a forward-looking methodology for debt dynamics, the paper then examines the potential impact of responses to macroeconomic shocks and a possible rise in oil prices on public debt and estimates the fiscal correction needed to sustain debt at a steady-state level. Based on the findings from the empirical analysis, the paper extracts some guiding principles for fiscal policy responses to the economic shocks depending on country-specific circumstances.Oil subsidies; price pass through; macroeconomic uncertainty; stimulus packages; fiscal sustainability; public debt; Asia

CHANGING PATTERNS IN MINCERIAN RETURNS TO EDUCATION AND EMPLOYMENT STRUCTURE IN THREE ASIAN COUNTRIES

We analyze large nationally representative surveys of the labor force from three developing Asian economies (India, the Philippines and Thailand) at two points in time separated by a decade or more. Secondary and tertiary education attainment rose in the interim while the Mincerian education-wage profile became more convex. We document these shifts, allowing for inter-cohort dynamics. Returns to secondary education fell. Returns to college rose for older workers everywhere and for young workers in India, but fell for young Thais and Filipinos. We develop a new decomposition that permits us to attribute the shifting returns to education to the evolving structure of employment and inter- and intra-industry wage patterns. Secondary returns fell sharply in every sector as secondary-educated workers rapidly became available, while employment structures shifted slowly to absorb them. Conversely, rising returns within modern services were instrumental in lifting the returns to tertiary education. More manufacturing jobs will enable the Philippines to leverage higher growth from its human capital stock. Returns to secondary education in India have come to depend less on the manufacturing sector as manufacturing employment growth has been concentrated in low-skill sub-sectors. The intercohort divergence in returns to college arises in the Philippines and Thailand because excess young college-educated workers are pushed into low-wage or low-return jobs, while older college graduates are more likely to work in modern services. As modern service employment grows slowly, the largest and growing share of services employment has been in low-wage traditional services. From an employment perspective, “services-led development” therefore appears to be a red herring