ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Ramkishen S RajanSubscribe to Ramkishen S Rajan

ASEAN-India Economic Relations

While the density of economic and political interactions between ASEAN and India has been increasing, there has not been much progress in the evolution of the mindset among ASEAN elites in some countries towards deepening engagement with India. There is also a curious lack of expertise about or interest in India in ASEAN universities, think tanks, and the media. Thus, while the next natural upgrading of relations would be to turn the de facto ASEAN plus Three grouping to ASEAN plus Four to include India, there remain ideological, informational and other biases that seem to be hindering this from happening in the near term. This paper examines the future of ASEAN-India economic relations.

Measures to Attract FDI

Foreign direct investment (FDI) is attracted into countries for different reasons. At a general level, in order for a country to be more attractive to investors, there is a need to create an enabling environment by reducing so-called hassle costs. But what are these costs? A new study involving 32 developing economies indicates there exists a statistically and economically significant negative nexus between administrative costs and FDI to GDP ratio after controlling for other factors.

Production-Sharing in East Asia

Despite beginning the industrialisation process ahead of most of east Asia, India's manufactured exports as a whole have stagnated when benchmarked against east Asia. While its east Asian neighbours have been able to move rapidly from manufactured labour-intensive commodities, India has largely been left out of the production-sharing process. If India is to become a manufacturing powerhouse like China and most of the other middle-income countries in east Asia, it needs to take steps to integrate more effectively and intensively with the rest of east Asia and become an important participant in the regional and global division of labour.

Emergence of China as an Economic Power

While in the long run south-east Asia will benefit from a prosperous and economically strong and stable large neighbour, the issues tend to be more complex in the short and medium terms. South-east Asian countries have hitherto been able to adjust to China's initial opening up between 1990 and 1997 fairly successfully. However, the crisis of confidence following the regional crisis of 1997-98 and loss of forward momentum with regard to regional integration among ASEAN members and a feeling of vulnerability to an increasingly volatile global economy are some of the reasons for heightened concerns about the economic ascendancy of China.

Is There a Case for an Asian Bond Fund?

While there has been a tendency to over-sell the merits of the Asian Bond Fund in some circles, the proposal ought to facilitate the diversification of the region's external financing from quantity-based bank lending to price-based bond financing and should also help reduce the region's vulnerability to 'erratic' international investors.

Trade Liberalisation and Poverty

What is the nexus between trade liberalisation and poverty? This question can be subdivided into two parts. One, recognising that growth is a necessary condition for a sustained reduction in poverty, what is the link between trade and growth. Two, since growth is by no means a sufficient condition for poverty reduction, what is the nexus between trade and income distribution?

Trade and Monetary Regionalism

There has been a marked tendency to treat trade and monetary regionalism independently and scant attention has been paid to the connections between the two. The conventional wisdom has been that trade integration must precede monetary integration. However, this 'trade-first' sequencing has recently come under scrutiny in Latin America and particularly in east Asia, which is actively considering if and how intra-regional monetary cooperation might be enhanced in parallel with ongoing steps towards trade integration. There are in fact some good reasons to question the 'trade-first' conventional wisdom.

International Financial Liberalisation

Theory offers a number of plausible benefits from international financial liberalisation. However, a careful examination of available empirical literature on the subject suggests much less reason to be sanguine about the benefits. In view of the widelynoted concerns regarding short-term indebtedness, a strong case can be made for the setting of prudential limits on the amount of short-term debt that a country can accumulate. Somewhat less clear is what steps need to be taken to reduce vulnerability due to uncovered long-term foreign currency borrowing.

Japan-Singapore Economic Partnership Agreement

The Japan-Singapore trade agreement which has been agreed to recently and is in the process of being implemented is viewed as a possible template for other trade agreements in Asia and therefore warrants close examination.

International Reserve Holdings by Developing Countries

Rapid reserve depletion has been one of the defining features of currency crises and reserve levels ex ante have showed up as a significant variable in many studies examining the predictability of crises. This would appear to suggest that countries need to look beyond domestic reserve and debt management to buttress their international liquidity positions to effectively protect themselves from the vagaries of international capital markets.

Tobin Tax Revisited

With growing evidence that foreign aid is effective when combined with good domestic economic policies, the global political environment may become less hostile to using global taxation as a way of bringing about global income redistribution aimed at poverty reduction. To use the revenue from a currency transaction tax to augment multilateral aid flows would, in these circumstances, have the appeal of assisting countries that are largely bypassed by private international capital markets. Thus, a policy directed towards offsetting the inefficiencies of markets could also be used to mitigate inequity, i e, a global tax for global purposes.

Coping with Capital Account Crises

Selected east Asian countries have recently agreed to create a network of bilateral currency swaps and repurchase agreements as a 'firewall' against future financial crises. Termed the Chiang Mai Initiative (CMI), it is aimed at providing countries facing the possibility of a liquidity shortage with additional short-term hard currencies and encompasses all ASEAN countries as well as China, Japan and Korea. We will have to wait and see if and how monetary cooperation in east Asia progresses, but to the extent such regional arrangements help to reinvigorate interest in strengthening the international financial architecture, they could act as stepping stones towards multilateral reforms rather than as stumbling blocks.

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