Stablecoins and Central Bank Digital Currencies: Policy and Regulatory Challenges

Stablecoins and central bank digital currencies are on the horizon in Asia, and in some cases have already arrived. This paper provides new analysis and a critique of the use case for both forms of digital currency. It provides time-varying estimates of devaluation risk for the leading stablecoin, Tether, using data from the futures market. It describes the formidable obstacles to widespread use of central bank digital currencies in cross-border transactions, the context in which their utility is arguably greatest. The bottom line is that significant uncertainties continue to dog the region's digital currency initiatives.

Re-examining Gender Earning Differentials in Malaysian Manufacturing

The manufacturing sector is a major avenue for female employment in the urban labor market in Malaysia. Only two studies, both published more than two decades ago, have examined gender earning differentials in this sector. Since then, the percentage of women being educated has increased, along with their participation rate, and several laws protecting their rights have also been passed, making it timely to re-examine the earnings gap. We do this by drawing on more recent data from a larger representative survey of manufacturing employees. The Blinder-Oaxaca technique, utilized in the previous two studies, was used to estimate the existing earnings gap and to decompose it to differences attributable to endowments, coefficients (traditionally viewed as subsuming discrimination), and the interaction between the two. We found a smaller gap than previously reported, with better female endowments helping to narrow the gap, and unexplained differences in coefficients being responsible for the remaining gap. The interaction effect was not statistically significant. Contrary to the earlier studies, the differential treatment of women in the manufacturing sector, rather than endowment differences, is hampering the equalization of earnings. This calls for newer approaches to closing the earnings gap.

Unconventional Monetary Policy through Open Market Operations: A Principal Component Analysis

This paper examines the unconventional monetary policies of the Bank of Japan from 2002 to 2019 with a focus on open market operations. We apply a principal component analysis to investigate the complexity of monetary policy. Our results identify four principal components that explain the variance of measures taken by the Bank of Japan and its operation of various facilities: asset purchase measures including Japanese Government Bonds (JGBs), Exchange-Traded Funds (ETFs), and Japanese Real Estate Investment Trusts (J-REITs), and three different liquidity supply measures. Complexity differs substantially among different governorships of Fukui, Shirakawa (most complex), and Kuroda. We derive some conclusions from the increased complexity with implications for the economy.

Frontier Technology, Trade, FDI, and TFP in the Electrical and Electronic Industries: Exporting or Processing Trade?

Does “openness” determine “catching-up” of establishments to frontier technology and total factor productivity (TFP) in Malaysia's electrical and electronic (E&E) industries? We contribute to this debate by applying a new measurement of processing trade intensity. Utilizing stochastic frontier analysis and Levinsohn and Pertrin (LP) TFP, we investigate determinants of technical efficiency (TE) and TFP. The results show that processing trade intensity and not export intensity determines TE and TFP for the overall sample and subsample of foreign establishments. In the processing trade subsample, export intensity is negatively related to TE and unrelated to TFP, obtaining an unconventional result that exporters are inefficient and not associated with TFP. The results show that higher foreign ownership shares of establishments are negatively associated with LP TFP.

Effects of the Minimum Wage on Small Firms in China: Spillover Effects from Large Firms

This study investigates how minimum wage affects small firms through spillover effects from large firms. Using firm-level panel data from Anhui Province in China, we find that after a minimum wage increase, small firms will reduce workers’ wages and create jobs due to the inflow of displaced workers from large firms. This spillover effect is larger for micro firms and private firms, where minimum wage compliance tends to be lower. We also find that high-tech small firms are more affected than low-tech ones because of their greater demand for skilled labor. Our findings not only highlight the unintended consequences of minimum wage on small firms in China, but also help to explain the ambiguous employment effects of minimum wage on the covered sector in developing countries.

Estimating the Impact of Cumulative Rules of Origin on Trade Costs: An Application to Mega-regional Free Trade Agreements in the Asia-Pacific Region

We investigate the effects of free trade agreements (FTAs), focusing on the impact of cumulative rules of origin (ROO) on trade costs. Using a gravity regression model, we estimate the effect of various cumulative ROO systems on the measured trade costs. We apply these estimates to static and capital accumulation computable general equilibrium models to compare the effects of mega-regional FTAs in the Asia-Pacific region—namely, the Regional Comprehensive Economic Partnership (RCEP), Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), and Free Trade Areas in the Asia-Pacific (FTAAP). We find that mega-regional FTAs may not be a viable alternative to a multilateral trading system or bilateral FTAs unless less restrictive cumulative ROO are adopted. Successful FTAs depend on an appropriate cumulative ROO provision system rather than their membership expansion.

International Production Networks Are Overcoming COVID-19 Shocks: Evidence from Japan's Machinery Trade

This paper investigates the impacts of COVID-19 on international production networks in machinery sectors by shedding light on negative supply shocks, negative demand shocks, and positive demand shocks. Specifically, we examined changes in trade in the trade-fall periods amid COVID-19 in 2020 using Japan's machinery trade at the most disaggregated level and decomposed them into two intensive margins (i.e., the quantity effect and the price effect) and two extensive margins (i.e., the entry effect and the exit effect). Our empirical results show that trade relationships for parts and components were robust even amid COVID-19 and that international production networks in machinery sectors were almost intact. They also demonstrate that COVID-19 brought positive demand shocks for specific products with special demand due to its nature in addition to negative supply shocks and negative demand shocks, which partially explains heterogeneous effects not only among sectors but also among products in the same sector. As of October 2020, Japan's machinery trade seems to have mostly recovered.

The SOE Channel of Monetary Policy Transmission: Evidence from China's Economic Stimulus Package

We examine the state-owned enterprises (SOEs) channel in monetary policy transmission in the context of China's 2008 stimulus package. Using a difference-in-difference approach, we show that the higher SOE share in the cities after the stimulus package, the more bank loans issued in the cities. Furthermore, we find that the role of SOEs in monetary policy transmission is more significant in underdeveloped cities and cities with a high level of government intervention. We adopt propensity score matching difference-in-difference to deal with potential endogeneity problem. The baseline results also survive a series of robustness tests.

Decomposing Effects of Population Aging on Economic Growth in OECD Countries

In this paper, we investigate six channels through which population aging affects output growth per capita of 35 OECD countries where the old dependency ratio is already quite high. The six channels we consider are changes in: (i) physical capital; (ii) human capital; (iii) average working hours; (iv) labor participation rate; (v) age composition of 15–64 (the share of population aged between 15 and 64 years; and (vi) total factor productivity (TFP). We first confirm findings from previous studies that aging in OECD countries has negative effects on GDP growth per capita. We then find that the most important channel through which the negative effects of aging on economic growth operate is lowered TFP growth. Across our empirical specifications, lowered TFP growth associated with aging explains more than fully the lowered growth rate of GDP per capita. We also find evidence of demographic deficit (decreases in working age population share), but this negative effect of aging is more than nullified by compensating increases in the average working hours and the labor force participation rate. We conclude that because TFP growth rate can be permanently lowered, aging's negative effects on GDP growth per capita are expected to be permanent.