Appendix 5.2 Hodrick-Prescott Filtering Results
6.2 O THER OCA C RITERIA
Similarity of inflation rates
The convergence of price level is an important criterion in the literature on the suitability of monetary integration among a group of economies. Figure 6.1 depicts the movements of consumer prices in
56 Williamson examined the following nine economies in East Asia due to the impression that they are close competitors to each other: China, Hong Kong SAR, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan (China), and Thailand.
the region. Clearly, the 1997–1998 regional financial crisis strongly affected consumer prices. The inflation rates of Cambodia, Indonesia, Lao PDR, Myanmar, the Philippines, Thailand and Vietnam hiked in 1998 and 1999. The difference of inflation rates among economies decreased slightly from 2000 until the break of the recent global financial crisis; dramatic changes of inflation were rare except for Indonesia, Myanmar and Vietnam. However, prices became volatile again during the recent financial crisis. Cambodia, Myanmar and Vietnam had usually high inflation rates in 2008. The volatility of consumer prices ended quickly from 2010 except for Vietnam. The period from 2010 to 2013 was characterized by increased convergence of price levels among East Asian economies.
Figure 6.1 Inflation Rates in East Asia, Consumer Prices (%), 1994–2013
Note: The graph plots inflation rates of the first ten economies (Brunei, China, Hong Kong SAR, Japan, Korea, Macao SAR, the Philippines, Singapore, Thailand and Vietnam) versus time with y-axis labeling on the left and plots inflation rates of the last five economies (Cambodia, Indonesia, Lao PDR, Malaysia and Myanmar) versus time with y-axis labeling on the right.
Source: Author’s calculations based on data from the World Bank’s World Development Indicators database.
Factor mobility
Factor mobility is one of the most important criteria in evaluating the feasibility of monetary integration among a certain group of economies. In the case of the European monetary integration, capital mobility and labor mobility remain at the center of research interest and policy making.
A considerable amount of literature examined capital mobility in East Asia. Foreign direct investment (FDI) increased quickly in the region over the last two decades mainly due to liberalized trade and FDI
050100150
-100102030
1994 1995
1996 1997
1998 1999
2000 2001
2002 2003
2004 2005
2006 2007
2008 2009
2010 2011
2012 2013
Brunei China Hong Kong SAR Japan Korea, Rep.
Macao SAR Philippine Singapore Thailand Vietnam
Cambodia Indonesia Lao PDR Malaysia Myanmar
policies as well as high economic growth (e.g., Urata, 2006; Kawai and Urata, 2004). Urata (2008) found that unlike the pattern observed for international trade, where intra-regional trade accounted for approximately 40–60 percent of the total trade for all the East Asian economies, dependence on intra-regional FDI varied widely. Only three economies (Indonesia, Thailand, and Korea) saw increases in the share of East Asia as a source of FDI inflows out of eight countries (the other five include China, Japan, Malaysia, the Philippines, and Singapore) using data from 1995–2004. Recent studies on Japanese outward FDI flows revealed that the share of East Asia as a destination increased dramatically from 2005 to 2009 (e.g., Takagi and Shi, 2011).
Equity market integration attracted much research interest. For example, Yu, Fung, and Tam (2010) showed that equity markets of two groups of economies were more integrated than others (table 6.1). The first group included the four-dragon bloc and Japan.57 The other group included China, Hong Kong SAR, and Taiwan (China). Their findings also indicated that the equity markets cycles in the region except for Japan became highly synchronized from 2007 to 2008.
Research on debt market integration is generally limited. Debt market integration comprises an indispensible part of capital market integration and becomes increasingly important taken into consideration that bond markets developed rapidly in the region over the last two decades. The Appendix roughly describes the degree of debt market integration in the region based on data from the International Monetary Fund’s Coordinated Portfolio Investment Survey (CPIS). The tables list the bilateral asset holdings of debt securities from 2001 to 2013. Data is incomplete due to accessibility. For example, bilateral asset holdings between China and other economies are missing.
The ten tables in the Appendix show that debt markets grew dramatically over the past years and economies varied significantly in terms of the importance in regional debt market integration.
Unsurprisingly, bilateral debts holdings involving Japan, Singapore, and Hong Kong SAR were among the highest. On the other hand, debt securities involving a number of emerging markets including Korea, Malaysia, and China increased quickly. The degree of debt market integration in the region was increasing after the 1997–1998 financial crisis until the recent global financial crisis.
57 The four-dragon bloc in Yuet al. (2010) covered Hong Kong SAR, Singapore, Korea, and Taiwan (China).
Table 6.1 Financial Integration in East Asia, Equity Markets
China HK
1 2 1 2 TW SG KR TH MY PH ID JP US R
China
1 1.00 0.92 0.16 0.24 0.11 0.11 0.08 0.08 0.15 0.10 0.12 0.10 0.04 0.12 2 1.00 0.12 0.18 0.08 0.08 0.06 0.04 0.14 0.06 0.10 0.80 0.03 0.11 HK
1 1.00 0.63 0.41 0.66 0.50 0.44 0.43 0.37 0.40 0.41 0.48 0.56
2 1.00 0.28 0.46 0.37 0.35 0.33 0.29 0.33 0.25 0.28 0.37
TW 1.00 0.43 0.41 0.35 0.34 0.34 0.29 0.31 0.31 0.42
SG 1.00 0.48 0.54 0.55 0.48 0.52 0.44 0.42 0.59
KR 1.00 0.42 0.29 0.35 0.31 0.42 0.35 0.54
TH 1.00 0.45 0.45 0.50 0.33 0.29 0.44
MY 1.00 0.40 0.48 0.31 0.29 0.43
PH 1.00 0.48 0.29 0.29 0.37
ID 1.00 0.27 0.24 0.38
JP 1.00 0.33 0.93
US 1.00 0.40
R 1.00
Notes: Abbreviation (HK-Hong Kong SAR, TW-Taiwan (China), SG-Singapore, KR-Korea, TH-Thailand, MY-Malaysia, PH-the Philippines, ID-Indonesia, JP-Japan, R-Region, US-United States). China 1 denotes Shanghai A-shares;
China 2 denotes Shenzhen A-shares; Hong Kong SAR 1 denotes Hang Seng China Enterprises Index; and Hong Kong SAR 2 denotes Hang Seng Index. The Dow Jones Industrial Average of the US is used as the proxy for the external market. The MSCI AC Far East Free Index (Regional MSFE) which consists of indices of the same 10 East Asian economies listed here is used as the regional benchmark. Numbers denote the pairwise concordance indices over the full period. Different measures yield slightly different results of the degree of market integration in the region. For example, correlation coefficients of the Asian emerging equity markets are similar to those in the four-dragon bloc using the correlation estimated from the dynamic conditional correlation model.
Source: Yuet al.(2010), table 1, p. 2882.
The United States is included in the Appendix for comparison. The share of bilateral debts involving the United States in most of the East Asian emerging markets decreased between the 1997–1998 crisis and the recent global crisis, both in bilateral assets and liabilities. Nevertheless, the United States’ share of debt securities in the total debt holdings remained very high. Noticeably, the recent global financial crisis strongly affected capital flows in the region. The US residents held a larger share of debt securities issued by East Asian emerging markets from 2007 to 2013.
Labor mobility comprises another important aspect of factor mobility. Tables 6.2 and 6.3 present the degree of labor mobility in the region using data from the United Nations database on international migration in 1990 and 2013. Table 6.2 presents the percentage share of bilateral migrants change in total migrants change to the destination, i.e.,
change of migrants from economy݅(origin) to economy݆(destination) change of migrants from the world to economy݆ × 100.
Table 6.3 presents the percentage share of bilateral migrants change in total migrants change from the origin, i.e.,
change of migrants from economy݅(origin) to economy݆(destination) change of migrants from economy݅to the world × 100.
The tables show that the share of intra-regional migrants increased from 1990 and 2013. On the other hand, economies varied in terms of the importance in intra-regional labor mobility. Besides, bilateral migration differed significantly across pairs of economies. The rates of the increase in labor mobility among a group of economies (Indonesia, Malaysia, Singapore, and Thailand) were relatively higher in the region.
Table 6.2 International Migration in East Asia, Percentage of Total Migrants Change to the Destination over 1990–2013
(A)
Destination Origin
World Brunei Cambodia China Hong Kong
SAR
Macao SAR
Indonesia Japan
World 8.E+07 0.02 0.97 6.80 0.26 0.05 2.14 0.29
China 5.E+05 0.93 2.55 7.91 0.89
Hong Kong SAR
6.E+05 105.93 2.26 7.30 0.77
Japan 1.E+06 0.12 37.10 1.87
Macao SAR 1.E+05 79.34 7.55
Korea 1.E+06 1.23 53.61 2.89 1.62
Brunei 1.E+05 -0.35 4.65 -2.24 76.98
Cambodia 4.E+04 2.27 0.17 0.16 0.19
Indonesia -2.E+0 5
114.67 -2.34
Lao PDR -1.E+0 3
18.50 104.32
Malaysia 1.E+06 0.09 0.88 -8.45 46.94 0.58
Myanmar -3.E+0 4
81.09
Philippine 5.E+04 -0.05 0.02 -36.29 0.10 -1.04 20.18
Singapore 2.E+06 14.44 2.56 0.53 8.22
Thailand 3.E+06 21.18 2.87 0.00 -0.10
Vietnam 4.E+04 0.27 -47.31 18.69 2.68 17.68 1.48
Table 6.2 Continued (B)
Destination Origin
Lao PDR Malaysia Myanmar Philippine Korea Singapore Thailand Vietnam
World 1.02 1.42 2.65 4.07 1.14 0.17 0.70 1.67
China 1.04 19.73 15.70 3.71 2.77
Hong Kong SAR
0.83 6.40 0.26 0.54 1.04 0.59
Japan 0.33 13.01 0.82 0.12 2.91 2.33
Macao SAR 7.30 -0.71
Korea 0.39 4.12 2.90 10.33
Brunei -29.83 -3.29 7.86 0.59 14.17
Cambodia 0.39 0.26 0.08 0.23 0.08 0.18 46.04 54.46
Indonesia 2.01 -0.03 -10.01 -9.01 -10.71
Lao PDR 11.46 58.69 225.82
Malaysia 16.57 -9.02 0.11 2.24 -2.56 4.60
Myanmar
Philippine 1.01 0.68 11.79 1.28 0.29 -34.23
Singapore 53.23 0.81 1.02
Thailand 23.85 0.00 52.08 0.00 0.01 -0.01 -0.40
Vietnam 9.48 21.82 -0.31 0.35 0.95 0.96
Notes:The first column of the upper table presents the total migrants to the destination.
Source: Author’s calculations using data from the United Nations.
Table 6.3 International Migration in East Asia, Percentage of Total Migrants Change from the Origin over 1990–2013
(A)
Destination Origin
World Brunei Cambodia China Hong Kong
SAR
Macao SAR
Indonesia Japan
World 77360231 18860 749560 5258968 203295 39970 1655650 226402
China 0.61 2.15 30.18 2.25 1.85
Hong Kong SAR
0.76 11.81 33.10 2.59 1.99
Japan 1.76 0.21 9.60 1.54
Macao SAR 0.17 2.00 4.93
Korea 1.53 1.94 12.06 2.06 8.45
Brunei 0.17 -0.01 3.04 -0.18 45.21
Table 6.3 Continued (A)
Destination Origin
World Brunei Cambodia China Hong Kong
SAR
Macao SAR
Indonesia Japan
Cambodia 0.05 0.02 0.03 0.00 0.03
Indonesia -0.22 -3.71 1.76
Lao PDR 0.00 -0.03 -0.02
Malaysia 1.88 6.69 1.71 -2.34 41.25 3.75
Myanmar -0.04 -0.47
Philippine 0.07 -0.15 0.00 -0.37 0.03 -0.03 4.79
Singapore 2.06 4.38 20.13 21.07 7.92
Thailand 4.13 90.23 1.74 0.01 -1.48
Vietnam 0.05 0.57 -2.54 0.14 0.53 0.43 0.26
(B)
Destination Origin
Lao PDR Malaysia Myanmar Philippine Korea Singapore Thailand Vietnam World 788328 1100158 2048963 3152397 883455 131684 538621 1293740
China 0.45 2.96 8.39 3.25 1.01
Hong Kong SAR
0.44 1.19 0.17 2.39 1.13 0.27
Japan 0.41 5.62 1.26 1.22 7.35 2.45
Macao SAR 0.31 -0.18
Korea 0.23 1.55 6.37 9.45
Brunei -3.61 -0.14 1.18 0.60 3.50
Cambodia 0.02 0.01 0.00 0.00 0.00 0.05 3.18 1.57
Indonesia -0.31 0.00 1.93 11.65 3.38
Lao PDR -0.01 -0.12 -0.19
Malaysia 11.77 -4.16 0.18 24.70 -6.91 5.17
Myanmar
Philippine 0.05 0.02 0.72 0.52 0.03 -1.42
Singapore 77.22 0.41 3.01
Thailand 96.59 -0.01 81.16 0.00 0.03 -0.13 -1.00
Vietnam 0.48 0.43 0.00 0.02 0.29 0.07
Notes:The first rows of the two tables present the total migrants from the origin.
Source: Author’s calculations using data from the United Nations.