Economics Working Papers

The ADB Economics Working Paper Series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the Asian Development Bank (ADB) staff, consultants, or resource persons. The series deals with key economic and development problems, particularly those facing the Asia and Pacific region; as well as conceptual, analytical, or methodological issues relating to project/program economic analysis, and statistical data and measurement. The series aims to enhance the knowledge on Asia's development and policy challenges; strengthen analytical rigor and quality of ADB's country partnership strategies, and its subregional and country operations; and improve the quality and availability of statistical data and development indicators for monitoring development effectiveness.

  • October 2012

    Ending 'Too Big To Fail': Government Promises versus Investor Perceptions

    Can a government credibly promise not to bailout firms whose failure would have major negative systemic consequences? Our analysis of the Republic of Korea's 1997-1999 crisis, suggests an answer: No. Despite a general "no bailout" policy during the crisis, the largest Korean corporate groups (chaebol)-facing severe financial and governance problems-could still borrow heavily from households through issuing bonds at prices implying very low expected default risk.
  • October 2012

    A Note to Schooling in Development Accounting

    How much would output increase if underdeveloped economies were to increase their levels of schooling? We contribute to the development accounting literature by describing a non-parametric upper bound on the increase in output that can be generated by more levels of schooling. The advantage of our approach is that the upper bound is valid for any number of schooling levels with arbitrary patterns of substitution/complementarity.
  • September 2012

    Do Contagion Effects Exist in Capital Flow Volatility?

    The paper aims to assess what influences volatility of capital flows to emerging countries and whether or not there is a spillover or contagion effect in the volatility. The empirical results suggest strong and significant contagion effects from global and regional volatilities on the volatility of capital flows in different types to individual economies. The evidence of contagion from global and regional volatilities implies that there is a strong need for global and regional policy cooperation to contain the spillover or contagion effects.
  • September 2012

    On Measuring Human Capital: A Case Study of Viet Nam

    This study develops a productivity-based single measure of human capital, taking account different levels of education and productivity differentials across workers. Using this new measure, the paper presents empirical estimates of human capital in Viet Nam and compares the stock of human capital contributed by vocational and general education. It also deals with equity in human capital particularly as contributed by vocational education, and measures this equity across income quintiles and various socioeconomic and demographic groups in Viet Nam.
  • July 2012

    Vertical Gravity

    The paper examines the drivers of international production networks and vertical trade integration in an augmented gravity model that employs the newly developed Network Trade Index. Based on bilateral trade data among 75 countries from 1998 to 2005, the findings emphasize trade policy's role in facilitating network trade. For example, a 10% tariff reduction raises vertical trade by 6.2%, on average. Preferential trade agreements are found to significantly boost vertical integration.
  • June 2012

    Inequality of Human Opportunities in Developing Asia

    The paper analyzes equity of opportunity in basic education and infrastructure services in seven developing countries, namely, Bangladesh, Bhutan, Indonesia, Pakistan, the Philippines, Sri Lanka, and Viet Nam. It uses a method developed by the World Bank called the Human Opportunity Index. The study finds that inequality of opportunity is driven mainly by per capita household expenditure. This suggests that household poverty plays a crucial role in determining equitable access to basic services.
  • June 2012

    Global Value Chains and the Transmission of Business Cycle Shocks

    In this paper, we investigate empirically two channels through which a country's integration into global value chains (GVCs) may increase the income elasticity of its exports. First, GVCs may simply be concentrated in sectors that are more sensitive to external income fluctuations (a composition effect). Alternatively, some characteristics inherent to GVCs may trigger a faster and more amplified propagation of business cycle shocks (a supply chain effect). Using trade data of the People's Republic of China, we find supporting evidence for the composition effect.
  • April 2012

    Rural-Urban Migration and Employment Quality: A Case Study from Thailand

    This study uses a panel database of rural households in Thailand collected from 2008-2010 to investigate the effects of rural-urban migration on economic development. One finding is that social protection policies for the rural poor in Thailand may be less effective for urban migrants. Another is that while migration increases income growth among rural households, it is less effective in reducing inequality and relative poverty in rural areas.
  • April 2012

    Malaysia's Investment Malaise: What Happened and Can It be Fixed?

    Private investment in Malaysia has never fully recovered from the impact of the Asian financial crisis (AFC). Both domestic and foreign investment have remained lackluster post-AFC; while foreigners continue to shun Malaysia, it seems even domestic investors are fleeing as well, with Malaysia having become a net exporter of capital since 2005. The crucial questions are: what happened and can it be fixed?
  • March 2012

    Tracking the Middle-Income Trap: What is It, Who is in It, and Why? (Part 1)

    Jesus Felipe provides a working definition of the middle-income trap. In 2010 and out of 124 countries with available data, there were 52 middle-income countries, of which 35 were in this trap. Of the 35, 13 were in Latin America, 11 in the Middle East and North Africa, six in Sub-Saharan Africa, three in Asia, and two in Europe. The three Asian countries trapped were the Philippines, Sri Lanka, and Malaysia, although the last two may escape it soon. Indonesia and Pakistan are at the risk of falling into it in the coming years. The People's Republic China and India are not in the trap.

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