Investment, institutions, and governance in Asia

We investigate the extent to which the investment slowdown in many Asian countries since the Asian Financial Crisis is attributable to changes in governance institutions. In the process we test the more general hypothesis that different aspects of governance will become relevant constraints to investment and growth at differing levels of countries’ development. This hypothesis is validated and explains a standing paradox that finds certain governance aspects – notably voice and accountability and control of corruption – do not apparently figure as explanations in the average growth record. We show that in fact they do, though only at certain levels of development.

The Impact of Basic Education Reform on the Educational Participation of 16 to 17-year-old Youth in the Philippines

The study measures the impact on the school participation of 16 to 17-year-old learners in the Philippines of the implementation of the Senior High School program (SHS), which came into full effect in school year 2017–2018. The SHS program, which extended secondary education in the country from four to six years, was the most ambitious education reform action in the country in recent memory. The study found that the SHS program resulted in an increase in overall school participation rate of at least 13 percentage points among 16 to 17-year-olds. Perhaps more importantly, the increase in school participation rate was found to be highly progressive with those 16 to 17-year-olds in the two bottom income quintiles experiencing the highest increase in school participation rates by a wide margin. The study also found that both male and female students benefited from the program, although the gains appear to be higher for female students. Most of the gains in school participation were also found to occur outside Metro Manila

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

An Error Correction Model for Forecasting Philippine Aggregate Electricity Consumption

This paper presents an error correction model for forecasting electricity consumption in the Philippines based on income, price, and temperature. The empirical evidence shows that there is a long-run positive and inelastic relationship between electricity consumption and income. We find that income, price, and temperature have significant short-run effects. Short-run demand is positive and inelastic with respect to income, negative and inelastic with respect to price, and positive and elastic with respect to temperature. Despite the small sample size, the model passes the standard diagnostic and parameter stability tests and performs well in within-sample and out-of-sample forecasting. It can be used not only for forecasting but also for analyzing, through simulations, the impacts on electricity consumption of changes in income, price, and temperature. The simulations confirm that, in the long run, electricity consumption is mainly driven by economic growth. Increasing GDP growth rate from 6% per year to 7% could increase electricity consumption at the end of 15 years by 10%. Although the effect of electricity price on electricity consumption is small (because of low price elasticity in absolute terms) and the effect of temperature change is also small (because annual average temperature change is small), their combined effects could add up and our simulation indicates that under very conservative assumptions, electricity consumption at the end of 15 years could rise further by 2%. Thus, it is important to include these variables in the simulations in order to account for their combined effects

An Error Correction Model for Forecasting Philippine Aggregate Electricity Consumption

This paper presents an error correction model for forecasting electricity consumption in the Philippines based on income, price, and temperature. The empirical evidence shows that there is a long-run positive and inelastic relationship between electricity consumption and income. We find that income, price, and temperature have significant short-run effects. Short-run demand is positive and inelastic with respect to income, negative and inelastic with respect to price, and positive and elastic with respect to temperature. Despite the small sample size, the model passes the standard diagnostic and parameter stability tests and performs well in within-sample and out-of-sample forecasting. It can be used not only for forecasting but also for analyzing, through simulations, the impacts on electricity consumption of changes in income, price, and temperature. The simulations confirm that, in the long run, electricity consumption is mainly driven by economic growth. Increasing GDP growth rate from 6% per year to 7% could increase electricity consumption at the end of 15 years by 10%. Although the effect of electricity price on electricity consumption is small (because of low price elasticity in absolute terms) and the effect of temperature change is also small (because annual average temperature change is small), their combined effects could add up and our simulation indicates that under very conservative assumptions, electricity consumption at the end of 15 years could rise further by 2%. Thus, it is important to include these variables in the simulations in order to account for their combined effects

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

Income Disparity and Economic Growth: Evidence from China

This paper carries out a pilot empirical study on how income inequality affects growth and the macro economy by means of incorporating panel data information into a macro-econometric model. China is used as the pilot field. Provincial urban and rural household data are used to construct inequality measures, which are then used to augment household consumption equations in the ADB China model. Model simulations are performed to study the effect of inequality on GDP growth and its sectoral components. Results show that inequality is a robust explanatory variable of consumption and that the way inequality develops over time carries certain negative consequences on GDP and sectoral growth.Income inequality, Growth, Econometric model, China

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

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