Dulani Seneviratne

Trade Integration and Business Cycle Synchronization: A Reappraisal with Focus on Asia

This paper reexamines the relationship between trade integration and business cycle synchronization (BCS) using new value-added trade data for 63 advanced and emerging economies during 1995–2012. In a panel framework, we identify a strong positive impact of trade intensity on BCS—conditional on various controls, global common shocks and country-pair heterogeneity—that is absent when gross trade data are used. That effect is bigger in crisis times, pointing to trade as an important crisis propagation mechanism. Bilateral intra-industry trade and trade specialization correlation also appear to increase co-movement, indicating that not only the intensity but also the type of trade matters. Finally, we show that dependence on Chinese final demand in value-added terms amplifies the international spillovers and synchronizing impact of growth shocks in China.

Infrastructure and Income Distribution in ASEAN-5: What are the Links?

Adequate infrastructure has long been viewed as an important factor in economic development. Based on regressions covering 76 advanced and emerging market economies, this paper estimates the impact of infrastructure and investment on income distribution. It finds that better infrastructure, both quality and quantity, promotes income equality, while the link between investment and income distribution is weak.

China and Asia in Global Trade Slowdown

Asia and China made disproportionate contributions to the slowdown of global trade growth in 2015. China’s import growth slowed starkly, driven by both external and domestic factors, including a rebalancing of demand. Econometric results point to weak investment and rebalancing as the main causes of the import slowdown. Spillover effects from China’s rebalancing are estimated for some 60 countries using value-added trade data, and are found to be more negative on Asia and commodity exporters than others.

Rethinking the Exchange Rate Impact on Trade in a World with Global Value Chains

ABSTRACT Global value chains (GVCs) are a prominent feature of global production and trading systems. Using the OECD-WTO database on trade in value added, this paper examines the exchange rate elasticities of GVC-related exports and imports and compares them with elasticities for trade in traditonal goods. We find that a real depreciation raises both the foreign and domestic value-added content of GVC-related exports. The size of these elasticities is found to be smaller when the import content of GVC exports is larger. Among the key policy implications of these results is that exchange rate changes by small contributors of value added have little effect on their own production or the production of their supply chain partners. On the other hand, large contributors to the value-added of the final product create spillovers to their smaller supply chain partners, obviating traditional beggar-thy-neighbor concerns.

Reaping the Benefits from Global Value Chains

Against the backdrop of the rise of global value chains (GVCs), particularly in Asia, this paper documents key developments of GVCs and investigates what factors cause economies to reap greater benefits from GVC participation. Key findings include: first, moving toward a more upstream position in production and raising economic complexity are associated with the country increasing its share of GVC value added. Second, fostering GVC participation and expanding the share of the domestic value added in a value chain require efforts to reduce trade barriers, enhance infrastructure, foster human capital formation, support research and development, and improve institutions.

China’s Growing Influence on Asian Financial Markets

This paper finds that financial spillovers from China to regional markets are on the rise. The main transmission channel appears to be trade linkages, although direct financial linkages are playing an increasing role. Without an impact on global risk premiums, China’s influence on regional markets is not yet to the level of the United States, but comparable to that of Japan. If China-related shocks are coupled with a rise in global risk premiums, as in August 2015 and January 2016, spillovers to the region could be significantly larger. Over the medium term, China’s financial spillovers could rise further with tighter financial linkages with the region, including through the ongoing internationalization of the renminbi and China’s capital account liberalization.

Monetary Policy Transmission in Emerging Asia: The Role of Banks and the Effects of Financial Globalization

Given the heavy reliance on bank lending as the main source of financing in most Asian economies, banks could potentially play a pivotal role in monetary policy transmission. However, we find that Asia?s bank lending channel or, more broadly, credit channel of domestic monetary policy is not very strong at the aggregate level. Using bank-level data for nine Asian economies during 2000?2013, we show that heterogeneity of bank characteristics (e.g., ownership type, financial position), degree of foreign bank penetration of the domestic banking sector, and global financial conditions all have a bearing on the response of domestic credit to changes in domestic monetary policy, and may account for the apparently weak credit channel at aggregate level.

Monetary Policy Transmission in Emerging Asia

Given the heavy reliance on bank lending as the main source of financing in most Asian economies, banks could potentially play a pivotal role in monetary policy transmission. However, we find that Asia’s bank lending channel or, more broadly, credit channel of domestic monetary policy is not very strong at the aggregate level. Using bank-level data for nine Asian economies during 2000–2013, we show that heterogeneity of bank characteristics (e.g., ownership type, financial position), degree of foreign bank penetration of the domestic banking sector, and global financial conditions all have a bearing on the response of domestic credit to changes in domestic monetary policy, and may account for the apparently weak credit channel at aggregate level. JEL Classification Numbers: E50; E52; E59