Asia In The Global Economy: Finance, Trade And Investment Finance, Trade and Investment

This book consists of 20 short essays on different dimensions of international economic policy with specific (though not exclusive) focus on Asia. Topics covered include: exchange rate regimes and reserve buildup in Asia; global macroeconomic imbalances; financial sector liberalization; international capital flows to and from Asia; infrastructure financing in Asia; foreign direct investment (FDI) flows, production networks, manufacturing and outsourcing in Asia; the economic rise of China and India; and trade, financial and monetary regionalism in Asia. While the book covers important and often technical economic issues of contemporary policy relevance, it is written in a manner that is easily accessible to non-economists, including students of public policy, international affairs, international commerce and business, as well as policy-makers and interested observers. Contents: Monetary and Exchange Rates Issues: Asia's Embarrassment of Riches: A Story of Prudence, Global Imbalances, and Some Good Old Fashioned Mercantilism; The Known Unknown: The Whopping US Current Account Deficit and Its Implications (With Surabhi Jain); Will the US Dollar Remain Top Dog ?: The Billion Dollar Question (With Jose Kiran); A Central Banker's Holy Grail: Inflation-Targeting Frameworks with Reference to Asia (With Tony Cavoli); Singapore s Currency Baskets and the Mantra of Competitiveness: The Importance of Real Exchange Rates; Financial Liberalization, Financial Crises and the Financing of Development: Barbarians at the Gates: Foreign Bank Entry in Asia; The Tobin Tax: A Panacea for Financial Crises?; International Capital Flows to Asia: The Never-ending Magic Spigot?; Using Reserves to Finance Infrastructure in India: Will it Clear the Gridlock?; The Goldmine of Development Finance: Reassessing the Importance of Migrants Remittances; Trade, Investment and the Rise of China and India: The Do s and Don ts of Attracting Foreign Direct Investment; Chips from East Asia, Hardware from Southeast Asia, and Assembled in China: Production Sharing and Trade in Asia; All Paths Lead to India: Do Other Asian Countries Pose a Challenge to Its Dominance in Services Outsourcing? (With Sadhana Srivastava); The Rise of the Indian Manufacturing Sector: A True Underdog Story; Will the Big Tiger Leave Any Crumbs for the Little Dragons? China vs Southeast Asia; Economic Regionalism in Asia: Embracing One s Neighbour: Redefining the Importance of India to ASEAN; Going It Alone: Singapore s Trade Strategy (With Rahul Sen); ASEAN Economic Integration: Taking Care of Business; Uncooperative Cooperation: The Saga of Economic Cooperation in South Asia; Monetary and Financial Cooperation in Asia: More than Just Buzzwords?. Contents 12 Preface and Acknowledgments 8 Section 1: Monetary and Exchange Rates Issues 14 1. Asia’s Embarrassment of Riches: A Story of Prudence, Global Imbalances, and Some Good Old Fashioned Mercantilism 16 Introduction 16 Prudence Motive for Reasons Reserve Build-Up — The Limits 18 Mercantilism or Low Domestic Demand? 20 In Search of Higher Yields 21 Costs of Monetary Sterilization 24 Conclusion 26 2. The Known Unknown: The Whopping US Current Account Deficit and Its Implications (With Surabhi Jain) 28 Introduction 28 Evolution of the US CAD and the US Dollar 29 Dynamics of Capital Flows to the United States 31 Conclusion 35 3. Will the US Dollar Remain “Top Dog”?: The Billion Dollar Question (With Jose Kiran) 38 Introduction 38 Rise of the US Dollar Standard 39 The Coming End of the USD Hegemony? 42 Possible Rivals to the US Dollar Standard 45 Conclusion 47 4. A Central Banker’s Holy Grail: Inflation-Targeting Frameworks with Reference to Asia (With Tony Cavoli ) 50 Introduction 50 What is an Inflation-Targeting Arrangement? 55 The Role of Exchange Rates Under Inflation Targeting 56 Strict versus Flexible Targeting 58 Conclusion 61 5. Singapore’s Currency Baskets and the Mantra of Competitiveness: The Importance of Real Exchange Rates 64 Introduction 64 Competitiveness Indices 65 Real Exchange Rates and Currency Basket Regimes 68 A Study of Policy Discretion in Singapore 72 Conclusion 74 Section 2: Financial Liberalization, Financial Crises and the Financing of Development 76 6. Barbarians at the Gates: Foreign Bank Entry in Asia 78 Introduction 78 Economic Motivations Behind Foreign Bank Entry 79 The Fear Behind Foreign Bank Entry 84 Conclusion: Timing and Pace of Foreign Bank Entry 87 7. The Tobin Tax: A Panacea for Financial Crises? 90 Introduction 90 Open Capital Accounts, Financial Crises and Safeguards 92 The Tobin Tax Reconsidered12 94 Conclusion 96 8. International Capital Flows to Asia: The Never-Ending Magic Spigot? 100 Introduction 100 Current Account Balances and Reserve Accumulation Since the Crisis 100 Capital Flows and International Financial Intermediation 104 Conclusion: The Yen-Carry Trade 108 9. Using Reserves to Finance Infrastructure in India: Will It Clear the Gridlock? 112 Introduction 112 The Importance of Infrastructure in India 113 Using Foreign Reserves to Finance Infrastructure 116 Problems with the Reserves-Funded SPV Approach 117 Macroeconomic Consequences of Using Reserves to Finance Infrastructure 119 Conclusion 120 10. The Goldmine of Development Finance: Reassessing the Importance of Migrants’ Remittances 124 Introduction 124 Significance of Migrants’ Remittances 127 Economic Effects of Remittances 131 Conclusion 133 Section 3: Trade, Investment and the Rise of China and India 136 11. The “Do’s and Don’ts” of Attracting Foreign Direct Investment. 138 Introduction 138 Investment Promotion and Government Intervention Policies 140 Fiscal and Financial Incentives 145 Conclusion 149 12. Chips from East Asia, Hardware from Southeast Asia, and Assembled in China: Production Sharing and Trade in Asia 152 Introduction 152 The Importance and Implications of Production Sharing 155 Conclusion: Production Fragmentation and Regional Trade Arrangements (RTAs) 159 13. All Paths Lead to India: Do Other Asian Countries Pose a Challenge to Its Dominance in Services Outsourcing? (With Sadhana Srivastava) 162 Introduction 162 Extent and Types of Outsourcing 163 Economic Benefits of Outsourcing 168 Conclusion: Can Asian Countries Challenge India’s Dominance? 170 14. The Rise of the Indian Manufacturing Sector: A True Underdog Story 172 Introduction 172 Indian Companies Going Global 175 Selected Manufacturing Industries in India 178 Automobiles and Auto Components 178 Mobile Telephony 179 Textile Industry 179 Pharmaceuticals 180 Impediments for Manufacturing in India 181 Going Forward: Overcoming Obstacles 183 15. Will the Big Tiger Leave Any Crumbs for the Little Dragons? China vs. Southeast Asia 188 Introduction 188 China’s Impact on Southeast Asia’s Exports 189 China’s Impact on Southeast Asia’s Investment Prospects 195 Conclusion: The ASEAN–China Free Trade Agreement (ACFTA) 199 Section 4: Economic Regionalism in Asia 204 16. Embracing One’s Neighbor: Redefining the Importance of India to ASEAN 206 Introduction 206 India–ASEAN Relationship 208 Conclusion 213 17. Going It Alone: Singapore’s Trade Strategy (With Rahul Sen) 216 Introduction 216 A Going-It-Alone Trading Strategy for Singapore 217 Singapore’s Economic Partnerships with China and India 219 Bilateral Trade Agreements 225 Conclusion: Areas of Concern with Trade Agreements12 227 18. ASEAN Economic Integration: Taking Care of Business 230 Introduction 230 A Brief History of ASEAN Economic Integration 232 Limited de facto Integration 233 ASEAN Competitiveness as seen by McKinsey 235 Conclusion: Multi-Speed Approach within ASEAN 237 19. Uncooperative Cooperation: The Saga of Economic Cooperation in South Asia 242 Introduction 242 Trade Agreements in South Asia 243 Limited de facto Integration in South Asia 245 Conclusion: SAARC and the Role of India 250 20. Monetary and Financial Cooperation in Asia: More than Just Buzzwords? 256 Introduction 256 Monetary Regionalism in Asia: Chiang-Mai Initiative (CMI) 257 Financial Regionalism in Asia: Asia Bond Fund (ABF) 261 Conclusion: The Asian Currency Unit (ACU) 267 Index 270 Contents......Page 12 Preface and Acknowledgments......Page 8 Section 1: Monetary and Exchange Rates Issues......Page 14 Introduction......Page 16 Prudence Motive for Reasons Reserve Build-Up — The Limits......Page 18 Mercantilism or Low Domestic Demand?......Page 20 In Search of Higher Yields......Page 21 Costs of Monetary Sterilization......Page 24 Conclusion......Page 26 Introduction......Page 28 Evolution of the US CAD and the US Dollar......Page 29 Dynamics of Capital Flows to the United States......Page 31 Conclusion......Page 35 Introduction......Page 38 Rise of the US Dollar Standard......Page 39 The Coming End of the USD Hegemony?......Page 42 Possible Rivals to the US Dollar Standard......Page 45 Conclusion......Page 47 Introduction......Page 50 What is an Inflation-Targeting Arrangement?......Page 55 The Role of Exchange Rates Under Inflation Targeting......Page 56 Strict versus Flexible Targeting......Page 58 Conclusion......Page 61 Introduction......Page 64 Competitiveness Indices......Page 65 Real Exchange Rates and Currency Basket Regimes......Page 68 A Study of Policy Discretion in Singapore......Page 72 Conclusion......Page 74 Section 2: Financial Liberalization, Financial Crises and the Financing of Development......Page 76 Introduction......Page 78 Economic Motivations Behind Foreign Bank Entry......Page 79 The Fear Behind Foreign Bank Entry......Page 84 Conclusion: Timing and Pace of Foreign Bank Entry......Page 87 Introduction......Page 90 Open Capital Accounts, Financial Crises and Safeguards......Page 92 The Tobin Tax Reconsidered12......Page 94 Conclusion......Page 96 Current Account Balances and Reserve Accumulation Since the Crisis......Page 100 Capital Flows and International Financial Intermediation......Page 104 Conclusion: The Yen-Carry Trade......Page 108 Introduction......Page 112 The Importance of Infrastructure in India......Page 113 Using Foreign Reserves to Finance Infrastructure......Page 116 Problems with the Reserves-Funded SPV Approach......Page 117 Macroeconomic Consequences of Using Reserves to Finance Infrastructure......Page 119 Conclusion......Page 120 Introduction......Page 124 Significance of Migrants’ Remittances......Page 127 Economic Effects of Remittances......Page 131 Conclusion......Page 133 Section 3: Trade, Investment and the Rise of China and India......Page 136 Introduction......Page 138 Investment Promotion and Government Intervention Policies......Page 140 Fiscal and Financial Incentives......Page 145 Conclusion......Page 149 Introduction......Page 152 The Importance and Implications of Production Sharing......Page 155 Conclusion: Production Fragmentation and Regional Trade Arrangements (RTAs)......Page 159 Introduction......Page 162 Extent and Types of Outsourcing......Page 163 Economic Benefits of Outsourcing......Page 168 Conclusion: Can Asian Countries Challenge India’s Dominance?......Page 170 Introduction......Page 172 Indian Companies Going Global......Page 175 Automobiles and Auto Components......Page 178 Textile Industry......Page 179 Pharmaceuticals......Page 180 Impediments for Manufacturing in India......Page 181 Going Forward: Overcoming Obstacles......Page 183 Introduction......Page 188 China’s Impact on Southeast Asia’s Exports......Page 189 China’s Impact on Southeast Asia’s Investment Prospects......Page 195 Conclusion: The ASEAN–China Free Trade Agreement (ACFTA)......Page 199 Section 4: Economic Regionalism in Asia......Page 204 Introduction......Page 206 India–ASEAN Relationship......Page 208 Conclusion......Page 213 Introduction......Page 216 A Going-It-Alone Trading Strategy for Singapore......Page 217 Singapore’s Economic Partnerships with China and India......Page 219 Bilateral Trade Agreements......Page 225 Conclusion: Areas of Concern with Trade Agreements12......Page 227 Introduction......Page 230 A Brief History of ASEAN Economic Integration......Page 232 Limited de facto Integration......Page 233 ASEAN Competitiveness as seen by McKinsey......Page 235 Conclusion: Multi-Speed Approach within ASEAN......Page 237 Introduction......Page 242 Trade Agreements in South Asia......Page 243 Limited de facto Integration in South Asia......Page 245 Conclusion: SAARC and the Role of India......Page 250 Introduction......Page 256 Monetary Regionalism in Asia: Chiang-Mai Initiative (CMI)......Page 257 Financial Regionalism in Asia: Asia Bond Fund (ABF)......Page 261 Conclusion: The Asian Currency Unit (ACU)......Page 267 Index......Page 270 Cover -- Copyright -- Dedication -- Preface And Acknowledgments -- Contents -- Section 1: Monetary And Exchange Rates Issues -- 1. Asia's Embarrassment Of Riches: A Story Of Prudence, Global Imbalances, And Some Good Old Fashioned Mercantilism -- Introduction -- Prudence Motive For Reasons Reserve Build-up -- The Limits -- Mercantilism Or Low Domestic Demand? -- In Search Of Higher Yields -- Costs Of Monetary Sterilization -- Conclusion -- 2. The Known Unknown: The Whopping Us Current Account Deficit And Its Implications (with Surabhi Jain) -- Introduction -- Evolution Of The Us Cad And The Us Dollar -- Dynamics Of Capital Flows To The United States -- Conclusion -- 3. Will The Us Dollar Remain Top Dog?: The Billion Dollar Question (with Jose Kiran) -- Introduction -- Rise Of The Us Dollar Standard -- The Coming End Of The Usd Hegemony? -- Possible Rivals To The Us Dollar Standard -- Conclusion --^ 4. A Central Banker's Holy Grail: Inflation-targeting Frameworks With Reference To Asia (with Tony Cavoli) -- Introduction -- What Is An Inflation-targeting Arrangement? -- The Role Of Exchange Rates Under Inflation Targeting -- Strict Versus Flexible Targeting -- Conclusion -- 5. Singapore's Currency Baskets And The Mantra Of Competitiveness: The Importance Of Real Exchange Rates -- Introduction -- Competitiveness Indices -- Real Exchange Rates And Currency Basket Regimes -- A Study Of Policy Discretion In Singapore -- Conclusion -- Section 2: Financial Liberalization, Financial Crises And The Financing Of Development -- 6. Barbarians At The Gates: Foreign Bank Entry In Asia -- Introduction -- Economic Motivations Behind Foreign Bank Entry -- The Fear Behind Foreign Bank Entry -- Conclusion: Timing And Pace Of Foreign Bank Entry -- 7. The Tobin Tax: A Panacea For Financial Crises? -- Introduction -- Open Capital Accounts, Financial Crises And Safeguards --^ The Tobin Tax Reconsidered12 -- Conclusion -- 8. International Capital Flows To Asia: The Never-ending Magic Spigot? -- Introduction -- Current Account Balances And Reserve Accumulation Since The Crisis -- Capital Flows And International Financial Intermediation -- Conclusion: The Yen-carry Trade -- 9. Using Reserves To Finance Infrastructure In India: Will It Clear The Gridlock? -- Introduction -- The Importance Of Infrastructure In India -- Using Foreign Reserves To Finance Infrastructure -- Problems With The Reserves-funded Spv Approach -- Macroeconomic Consequences Of Using Reserves To Finance Infrastructure -- Conclusion -- 10. The Goldmine Of Development Finance: Reassessing The Importance Of Migrants' Remittances -- Introduction -- Significance Of Migrants' Remittances -- Economic Effects Of Remittances -- Conclusion -- Section 3: Trade, Investment And The Rise Of China And India -- 11. The Do's And Don'ts Of Attracting Foreign Direct Investment. -- Introduction --^ Investment Promotion And Government Intervention Policies -- Fiscal And Financial Incentives -- Conclusion -- 12. Chips From East Asia, Hardware From Southeast Asia, And Assembled In China: Production Sharing And Trade In Asia -- Introduction -- The Importance And Implications Of Production Sharing -- Conclusion: Production Fragmentation And Regional Trade Arrangements (rtas) -- 13. All Paths Lead To Ind. Ramkishen S. Rajan, Sunil Rongala. Includes Bibliographical References And Index. This is one of the few books written on policy issues in Asian economies. It covers contemporary international economic issues that are easily accessible to non-economists. It can also be read by students of applied economics, public policy and international affairs, and international commerce courses. Policy-makers, practitioners and interested observers will also benefit from this book