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The Developing Economies

Volume 40, Number 2 (June 2002)

The Developing Economies ■ The Developing Economies Volume 40, Number 2 (June 2002)
■ B5
■ 105pp.
■ Published in June 2002
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Thiam Hee Ng, "Should the Southeast Asian Countries Form a Currency Union?" pp. 113-34.

This paper examines some of the factors related to the formation of a currency union in Southeast Asia. The main part of the paper presents the results of our examination of the correlation of shocks for the Southeast Asian countries using a structural vector autoregression. The shocks are identified using restrictions on the long-run coefficient matrix as suggested by Blanchard and Quah (1989). The correlations of shocks for the EU and NAFTA countries are used for comparison. The Southeast Asian countries are shown to have more strongly correlated shocks than the EU countries. Compared with the NAFTA countries, external shocks are more closely correlated for the ASEAN countries, but the supply and demand shocks are less correlated. Indonesia, Singapore, and Malaysia, in particular, exhibit a high degree of correlation of shocks. Other criteria for monetary union, such as intra-regional trade, openness of the economy, and similarity of monetary policy are also examined.

Reiny Iriana and Fredrik Sjoholm, "Indonesia's Economic Crisis: Contagion and Fundamentals," pp. 135-51.

The severe and unanticipated economic downturn in Indonesia mirrored the regional economic fallout following the 1997 financial crisis. Although it is likely that the crisis in neighboring countries had an adverse impact on Indonesia, the issue has so far received little attention. This paper examines whether contagion from the economic crisis in Thailand triggered the crisis in Indonesia. Evidence of such a contagion is revealed, and the contagion was possibly exacerbated by increasing imbalances in the Indonesian economy. The paper also examines the channels through which the economic difficulties of Thailand might have been transmitted to Indonesia. Investors' behavior, rather than real links, is identified as one important channel for the contagion.

Miron Mushkat, "The Hong Kong Currency Board's Defense against Financial Market Pressure: A Behavioral Perspective," pp. 152-65.

Exchange rate regimes do not operate in an institutional vacuum, even when the scope for exercising policy discretion is distinctly limited. The Hong Kong linked exchange rate system is no exception. An interesting feature of the institutional environment in this case, not highlighted previously, is the apparent divergence in the assumptions of policymakers and market players regarding the merits of this mechanism in particular and currency boards in general. The corollary is that the Hong Kong monetary authorities need to intensify their efforts to disseminate relevant information, focusing especially on targets in the financial sector.

Eugene Nivorozhkin, "Capital Structures in Emerging Stock Markets: The Case of Hungary," pp. 166-87.

This paper studies developments in the Hungarian capital markets during 1992-95 and investigates the determinants of the capital structures of companies listed on the Budapest Stock Exchange. Hungarian companies had very low leverage ratios. Empirical findings indicate that the negative relationship between leverage and proportion of tangible assets was primarily caused by the lack of long-term debt financing. The relationship between leverage and the size of the company provides some indication of the importance of trade credits for the companies. The more profitable companies had less debt than less profitable ones. This is attributed to the firms' financial incentives aggravated by the segmentation of Hungarian credit markets and credit rationing within the financial environment. Manufacturing firms and firms with the state among their major shareholders enjoyed higher levels of debt financing relative to other companies.

Seoghoon Kang and Dong-Pyo Hong, "Technological Change and Demand for Skills in Developing Countries: An Empirical Investigation of the Republic of Korea's Case," pp. 188-207.

There are few studies that directly address the upskilling issues in developing countries. Since theoretical analyses of these issues usually yield different results, upskilling in developing counties, and the factors of upskilling, if any, are rather empirical questions. This study shows that upskilling that occurs in developed countries in terms of the ratio of the number of white-collar workers to that of blue-collar workers also occurred in the Republic of Korea, one of developing countries. Increasing demand for highly-skilled workers reflected in their employment and wage shares can be largely explained by "within industry" shifts, not by "between industry" shifts, especially in the manufacturing industry. To further investigate the causes of these shifts, changes in white-collar shares are regressed on the capital-output and R&D-sales ratio. Estimated coefficients are all positive, suggesting capital-skill complementarities and skill-biased technological change.