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This paper describes the growth of local-currency bond markets in Emerging Asia and the institutional and policy challenges facing the region's economies for their further development. It presents an empirical analysis of the relationship between local-currency government bond (LCGB) market development and the components of financial development, using panel data for selected Emerging Asian economies. The analysis seeks to identify the key determinants for the development of LCGB markets. The results show that the depth of and access to both financial markets and financial institutions have a significantly positive impact on LCGB market development. Critical factors associated with local-currency bond market depth include macroeconomic variables, the exchange-rate regime, capital account openness and creditor rights. Based on these results, the paper offers policy directions for fostering the development of local-currency bond markets in the region. [ABSTRACT FROM AUTHOR]

The economic growth of developing countries has been associated with their exports, and the existing research suggests that exchange rates significantly influence the exports. This study used panel data to investigate the potential nexus of gross domestic product (GDP), exports and exchange rates in Asian countries over the period of 1981–2016. The results portray that nexus between exchange rate and exports holds true for Export-led Growth (ELG) and Growth-led Exports (GLE) hypotheses. This study used the Wald test under Vector Error Correction Model (VECM) with all necessary specifications tests to identify the possible nexus of variables, and applied the fixed effects model along with control variables. The results imply that an undervalued currency enhances exports and has a significant impact on economic growth. Additionally, the results of Fully Modified Ordinary Least Squares (FMOLS) model with financial crises dummy suggested that the estimations are robust. Keeping in view the aforementioned findings, a timely and balanced policy can play a pivotal role in improving the long term nexus of exchange rates, exports and economic growth. [ABSTRACT FROM AUTHOR]

We examine the impact of US monetary policy uncertainty (MPU) on the dollar exchange rates of ten Asian economies between February 2006 and January 2019. Our results, which are based on an EGARCH model, indicate that MPU tends to increase the variance of exchange rates rather than affecting the level of exchange rates. The results may have significant implications for the ten economies' conduct of monetary policy. [ABSTRACT FROM AUTHOR]

Structural change is important in the overall development process. This paper seeks to examine how productivity growth in agriculture influences this process. In particular, technology in agriculture is divided into two types: labour using, land saving (biochemical) and labour saving, land using (mechanical). Some have argued that only labour saving (mechanical) technology promotes the shift of labour into manufacturing, not labour using (biochemical) technology. However, estimations utilizing data from 10 Asian nations indicate that both types of technologies promote structural change. Thus, investments in such technologies will promote structural change. Additional results indicate that labour productivity growth in services is complementary to structural change. In addition, openness to trade and foreign direct investment and diversification away from natural resource abundance as well as avoiding exchange rate overvaluation also promote structural change. [ABSTRACT FROM AUTHOR]

This paper investigates the determinants of external debt in 32 Asian developing and transitioning economies for the period 1995–2019. Estimation is carried out using the generalized method of moments (GMM), which is capable of dealing with potential endogeneity problems. The results show that in both the short- and long-run, economic growth and investment reduce external debt, whereas exchange rate, trade, and government expenditure increase external debt. Diagnostic tests confirm the reliability and consistency of our findings, which should be taken into account by policymakers for policy formulation and implementation. Based on our empirical findings, relevant policy implications, aimed at reducing external debt in the selected Asian developing and transitioning economies, are provided for policy consideration. [ABSTRACT FROM AUTHOR]

Even though a deeper financial integration and higher economic and financial stability are the prime goals of many Asian policymakers, no researcher has studied the relationship between integration and (in)stability in Asia. To fill this gap in the literature, this paper investigates the causality between financial integration and macroeconomic and financial instability. To this end, we use the Generalized Method of Moments to estimate a set of dynamic panel data models for a block of Asian countries over the period 2000–2017. Our estimation results show that there is a bidirectional causal relationship between financial integration and instability in Asia. Moreover, we find that financial integration causes instability in output and credit markets. The overall results show that macroeconomic and financial instability in Asia leads to financial disintegration. More specifically, the volatilities of the exchange rate and output growth cause financial fragmentation. Furthermore, we underscore the role of coordinated fiscal and monetary policies in offsetting the adverse effect of financial integration on macroeconomic and financial stability in Asia. Finally, the global financial crisis of 2008 has increased financial disintegration and instability in Asia. Our findings might help Asian policymakers to choose their policy targets when integrating into the global financial system. • There is bidirectional causality between financial integration and instability. • Financial integration leads to instability in output and credit markets in Asia. • In general, economic and financial instability leads to financial disintegration. • The volatilities of exchange rate and output growth cause financial fragmentation. • Coordinated policies might offset the adverse effect of integration on stability. [ABSTRACT FROM AUTHOR]

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Purpose: This study empirically examines the effect of capital controls on the volume and composition of capital flows at aggregated as well as at disaggregated level by different asset classes such as debt, FDI, equity, and derivatives. Design/methodology/approach: Several dynamic panel SYS-GMM models are employed on two sets of unique data on cross-border capital flows and capital control index along with control variables at aggregated and disaggregated level by different asset classes during 1995–2015 for a sample of 31 Asian economies. Findings: Econometric findings suggest that higher capital controls effectively reduce gross capital flows. The reduction in gross capital flows is largely found to be on account of effectiveness of controls on equity flows. However, the impact of controls on overall debt and derivative flows is found to be insignificant. Further, it was found that an increase in direct capital controls disaggregated by inflow and outflow categories significantly reduced the inflow of debt and equity + FDI flows and outflow of equity + FDI and derivative flows. Finally, the study did not find any substitution effect (due to indirect controls) and net effect on capital flows. Practical implications: Results of such empirical examination may enable governments in respective countries to pursue prudent and rational capital controls as a shield against capital flight and shock transmission. Social implications: Preventing capital flight through effective controls has macroeconomic benefits such as maintaining stability in income, growth, interest rate, exchange rate, and employment levels for the society. Originality/value: The primary contribution of the study is the analysis of effectiveness of capital controls disaggregated by different asset categories such as debt, equity, FDI, and derivatives using two unique recent data sets for a large sample of Asian economies. [ABSTRACT FROM AUTHOR]

Exchange rates and exchange rate regimes in a constantly changing economy have always attracted much attention from scholars. However, there has not been a consensus on the effect of exchange rate on economic growth. To determine the direction and magnitude of the impact of an exchange rate regime on economic growth, this study uses the exchange rate database constructed by Reinhart and Rogoff. This study also employs the GMM(GeneralizedMethod ofMoments) technique on unbalanced panel data to analyze the effect of the exchange rate regime on economic growth in Asian countries from 1994 to 2016. Empirical results suggest that a fixed exchange rate regime (weak flexibility) will affect economic growth in the same direction. As such, results from the study will serve as quantitative evidence for countries in the Asian region to consider when selecting a suitable policy and an exchange rate regime to attain high economic growth. [ABSTRACT FROM AUTHOR]

It is argued in this paper that agriculture plays a here-to-for unrecognized role in the process of structural change. In very poor countries agriculture is the key sector in the economy and agricultural prices greatly influence the overall price level in such an economy. It is hypothesized that if agricultural productivity grows faster than manufacturing productivity this will, under certain conditions, cause the price of the former to fall relative to the latter which in turn implies that the overall price level in the economy should fall, ceteris paribus. This results in a fall in the real effective exchange rate, ceteris paribus. This decline increases the competitiveness of producing tradable goods, in particular manufactured goods. Thus the process of structural change (shifting employment and resources out of agriculture) becomes easier. These hypotheses are empirically analyzed utilizing a data set for twelve Asian countries for an extended time period. [ABSTRACT FROM AUTHOR]

This paper examines and compares the determinants of producer and consumer price inflation in ten Asian countries during 2000–2015. In this connection, we also investigate the pass-through of global oil prices, global food prices and exchange rates to domestic producer and consumer prices. The model applied here is based on the dynamic interrelationship between the price variables in the distribution chain. Our results show that external cost-push factors such as oil and food prices are more important in explaining producer price inflation than consumer one. For consumer prices, demand-pull factors still explain much of the variation in inflation. The pass-through of oil (food) prices tends to be higher in oil (food) exporting countries than in oil (food) importing countries. Government policy measures played a role in reducing or delaying the pass-through of oil and food prices to domestic prices. Lastly, exchange rate pass-through tends to be higher in countries with more flexible exchange rates. [ABSTRACT FROM AUTHOR]

Inflation targeting has become a popular option among many developing economies, including those in Asia. Despite a gradual move towards inflation targeting, many Asian economies remain concerned about exchange rate variability. Motivated by this, this paper is interested in the impact of inflation targeting on real exchange rate volatility in the Asian economies. In particular, using a panel of developing countries that includes many from Asia for the period 2007–2012, the paper explores the impact of inflation targeting on real exchange rate volatility as well as in terms of its two component parts, i.e. relative tradable prices across countries (external prices) and the sectoral prices of tradables and non-tradables within countries (internal prices). The paper also compares the inflation and growth effects of inflation targeting regimes with non-inflation targeters. [ABSTRACT FROM PUBLISHER]