Sasidaran Gopalan

Financial Sector De-Regulation in Emerging Asia: Focus on Foreign Bank Entry

Over the last decade many emerging Asian economies have been liberalizing their financial sectors, including opening up of their banking systems to foreign competition. This paper examines the extent of de jure and de facto policies in Asia with regard to the introduction of greater foreign competition. To preview the main conclusion, while there has clearly been greater international financial liberalization in the region, Asia lags behind emerging Europe and Latin America when it comes to the relative significance of foreign banks in their respective domestic economies. The paper goes on to discuss possible reasons behind Asia’s relatively cautious approach towards this policy.

Revisiting Bilateral Foreign Direct Investment Inflows into BRIC Economies

Tracking the origins of bilateral foreign direct investment (FDI) flows is required to understand de facto real linkages between countries, which remains an important area of research and policy concern. However, existing bilateral FDI data may fail to correctly identify the original sources of FDI flows because they are based on flow of funds rather than ultimate ownership. As a consequence, several offshore financing centers (OFCs) and tax havens emerge as top sources of FDI flows which provide a misleading picture of bilateral real linkages between countries. In this context, this paper proposes an alternative framework to overcome this problem by examining data on mergers and acquisitions (M&As), which offers a far more informative geographical breakdown of sources of FDI inflows. The paper reconciles bilateral FDI inflows data with M&A data for the BRIC economies covering Brazil, Russia, India and China, for the period 2001–12. Further, in light of the increasing M&A flows to BRICs, of equal policy importance is the issue of what kind of FDI should the BRICs attract. In this regard, the paper also sheds some light on the macroeconomic policy implications of the different kinds of FDI flows to the BRIC economies.

Understanding foreign direct investment in Indonesia

Purpose This paper aims to examine the dynamics of foreign direct investment (FDI) inflows into Indonesia. It is interested specifically in analysing and deliberating on two important policy questions: First, are all kinds of FDI useful from a policy perspective and what does the existing data on FDI reveal about the type of FDI inflows into Indonesia? Second, does the existing data help understand the extent of de facto bilateral linkages between Indonesia and other countries? Design/methodology/approach The paper offers an in-depth case study of Indonesia using extensive exploratory data analysis on FDI inflows into Indonesia. As discussed in the paper, the data investigation uses and reconciles available FDI data both from national and international sources to understand the usefulness of such data for policy analysis. Findings A data investigation of the trends in different types of FDI flows reveals a discernible downward trend in the ratio of mergers and acquisitions (M&A)–FDI ratio over the years. The paper argues that from a sequencing perspective, while a medium-to-long-term framework encouraging both domestic and foreign Greenfield investments could help Indonesia regain its growth luster, in the near term much more attention needs to be paid to FDI inflows in the form of M&As. Further, reconciling FDI and M&A data might help identify the original sources of FDI flows because existing data are based on flow of funds rather than ultimate ownership. Practical implications Since the Asian financial crisis, Indonesia has successfully embarked on a phase of economic and political transition post-Suharto, with the cornerstones of such a strategy being a process of greater democratisation and decentralisation. However, there have been growing concerns of economic growth stagnation in recent years. One of the policies to revive the economy’s lustre adopted by the government has been to attract greater FDI inflows. In this light, this paper examines the dynamics of FDI into Indonesia and deliberates on what kinds of FDI policymakers should focus on attracting to restore the country’s growth lustre. Originality/value The question of whether a policy to attract FDI should be careful in distinguishing the kind of FDI it wants to attract has not been sufficiently addressed in the related literature. This paper provides a framework to understand the different macroeconomic policy implications of types of FDI and provides extensive data analysis to not only understand the types of FDI but also sources of bilateral FDI inflows to Indonesia by reconciling FDI and M&A data.

Understanding India's Regional Initiatives with East and Southeast Asia

In recent years, India has concluded several bilateral and regional agreements with countries in East and Southeast Asia. This paper discusses four motivating factors underlying these initiatives: (i) the recognition by other Asian countries of Indias growing importance as an investment and export market, as a supplier of manpower, and as a counterbalance to Chinas growing regional dominance; (ii) Indias recognition of Asias growing importance in the world economy; (iii) Indias desire to prevent its marginalisation and to create a sphere of political and economic influence within East and Southeast Asia; and (iv) geo-political considerations such as securing energy interests, and addressing transport and connectivity concerns and long-term political and sub-regional stability objectives. Indias approach to these integration efforts has been largely defensive and its future integration initiatives are likely to be more geo-political and strategic in nature.

Financial Deepening and Economic Growth in Transition Economies of Southeast Asia: A Geweke Causality Analysis

Cambodia, Laos and Vietnam (CLV) have come to be recognized as the new growth frontiers in the Association of Southeast Asian Nations (ASEAN) bloc, especially since the 2000s. Though all the CLV countries were hit by the global financial crisis (GFC), there has been a sharp recovery in all the economies from around 2010 or so, partly aided by the rapid development of their financial sector. While this has formed the basis for optimism about the growth potential of these countries, there have also been concerns that these countries have been experiencing a period of excessive credit growth – an offshoot of rapid financial deepening – which in turn is hampering growth and aggravating financial instability. In light of this discussion, this paper examines the nexus between financial deepening and economic growth employing a Geweke causality framework with quarterly data for CLV countries from 1996 to 2010.

Economic and Financial Interconnections and Income Growth Convergence in Asia: A Real-Financial Nexus?

ABSTRACT This article empirically examines economic and financial linkages for emerging Asian economies for the period 2000 to 2014. Taking a multivariate approach to measuring integration, we examine a number of measures of economic interconnections to investigate whether (and which) individual dimensions of these connections might drive economic integration. We also provide an empirical assessment of whether and how real and financial linkages drive income growth convergence. Our article finds two important results: First, interconnections between the ASEAN-5 countries are driven primarily by financial linkages while those for the larger countries in the region are driven by real linkages. Second, greater interconnections though prices tend to lead to greater income growth convergence.

Foreign Bank Presence and Financial Development in Emerging Market and Developing Economies: An Empirical Investigation

This chapter empirically examines the relationship between foreign bank presence and financial development in a panel framework covering 57 emerging market and developing economies (EMDEs) over 1995–2009. Specifically, the chapter undertakes an empirical investigation of three inter-related questions: One, how does greater foreign bank presence affect domestic credit creation in EMDEs? Two, are there threshold levels of foreign bank presence associated with financial sector development? Three, is the relationship between foreign banks and financial development conditional on the presence of a threshold level of institutional environment? While we find a positive relationship between foreign banks and financial development in general, the empirical results suggest that a strong information environment tends to strengthen the beneficial impact that foreign banks can have on financial development.