Economic and Political StudiesA Special Issue on Political Economy of Development in Asia
Vol. 6 No. 1, 2018
Positional goods and the challenge of Chinese regional inequality
John V. C. Nye
Scholars have focussed on income inequality as a major source of social instability. But the focus on crude income inequality has masked the deeper developmental problem facing many fastgrowing economies. China is an extreme case of this issue inasmuch as its coastal regions can be viewed as comparable to middle income states, while the greater part of its rural and western areas would be comparable to the poorer nations of the world. That means that the new middle class pays attention to issues such as pollution and status or positional goods than simple material goods. Construction costs of houses are in particular less than location. Other status goods are similar because they are not amenable to simple productivity improvement. This will make policies more difficult as conflict increases between those areas who are still eager for basic economic development and those richer areas whose wants and needs start to more closely resemble the preferences of richer developed countries.
Politics or the economy? Weak economic performance and political support in East and Southeast Asia
O. Fiona Yap
What are the effects of weak economic performance in East and Southeast Asia? In particular, does weak performance lead to citizens’ dissatisfaction and, correspondingly, increase preference for stronger governments who may achieve economic targets more quickly? Recent elections in less-democratic nations and emergent democracies of East and Southeast Asia suggest growing support for political parties carries over from previous authorities. And, governments are harking back to policies of the past that emphasise economic performance over political development in order to motivate political support. However, few studies systematically assess how weak economic performance affects citizens’ political support. This paper addresses this neglect. Using public opinion surveys from the Asian Barometer, we track how economic performance affects political support over time in countries with a multiparty system. The results offer two useful insights. First, economic performance is robustly and positively related to government approval. Thus, strong economic performance corresponds with strong support for government while weak performance yields weak support. Importantly, this finding is consistent with the large amount of literature on economic voting. Second, economic performance is not consistently related to democratic support; instead, political influence plays an intervening role in how economic performance affects democratic support. This underlines the significance of institution-building for political stability and political development in the region. Equally important, the results tie to the literature on political institutionalisation and democratic support. In conjunction, the results embrace East and Southeast Asia into the broader disciplinary research of motivation theory-building and empirical studies.
Singapore’s economic development: pro- or anti-Washington Consensus?
Nathan Peng and Sock-Yong Phang
Singapore’s remarkable economic development in the past five decades since independence has attracted much policy attention. This article first provides a brief overview of Singapore’s economic development. The second part discusses Singapore’s development strategies that are aligned with the Washington Consensus: globalisation, conservative fiscal and monetary policies, investments in education and infrastructure. It also discusses the policies adopted to further enhance the outcomes of such policies. The third part focusses on policies that are inconsistent with the prescriptions of the Washington Consensus: the visible hand of government direction of industry, the important role of state-owned enterprises, as well as growth-enhancing social policies. It concludes with the present challenges facing the city-state.
A currency basket and future exchange rate arrangements in Asia
Junko Shimizu and Kiyotaka Sato
Due not only to a dominant role of the US dollar in regional trade and financial transactions but also to de facto US dollar pegged exchange rate policy, Asian countries cannot avoid exchange rate risks between their own currency and the US dollar. In recent years, however, the Chinese government has actively promoted the Renminbi (RMB) internationalisation especially in international
trade. In December 2015, China introduced a new exchange rate index against a basket of 13 trade-weighted currencies, which can be considered a major turning point from the US dollar standard toward a more flexible currency basket system. However, the estimated implicit basket weights reveal that several Asian economies still tend to stabilise their currencies against the US dollar, while Malaysia and Singapore have stabilised their currencies against RMB in recent years. Since the internationalisation of local currencies and regional monetary arrangements are typically facilitated with each other, further progress of RMB internationalisation is expected to promote a leading role of China in establishing regional exchange rate policy coordination.
Social capital and folk lending in China’s hottest financial market
W. Travis Selmier II
In 2011, responding to a credit crunch, Wenzhou became the first and only municipality to institute complete financial reform. Wenzhou had been the fastest growing municipal economy in China’s fastest-growing province for two decades. But the global financial crisis hit hard the informal financial networks which funded small and medium-sized enterprises. The so-called ‘Wenzhou model’ has long been dependent on financial capital from other parts of China funnelled through these networks to fund local entrepreneurs, especially the person-to-person financing known as folk lending. These informal financial networks relied heavily on interpersonal connections, reputation and trust, the major ingredients of social capital in banking and finance. In order to generate the social capital lost in the credit crunch, Wenzhou created government financial intermediaries, but these have not had much success. However, peer-to-peer on-line financing companies (P2P platforms), established concurrently by private entrepreneurs with little capital, have been highly successful. In effect, P2P platforms have capitalised on the ‘Wenzhou model’ by using the Wenzhou brand name to create a new form of financing network channel.
What attracts China’s contracts to Latin America and the Caribbean? An empirical study of the determinants of Chinese contracts
Yi Feng, Zhijun Gao and Wanjun Jiang
As China’s economy has reached the stage of ‘New Normal’, Chinese companies are increasingly seeking opportunities overseas. In the context of the slow recovery of world economy, China’s outward economic activities have found themselves in many parts of the globe, including the Latin America and the Caribbean (LAC) region, some of the farthest places away from China. While many scholars have conducted extensive studies on China’s trade and foreign direct investment (FDI) in Latin America and the Caribbean, this paper focusses on Chinese contracts in the region, a topic that has been rarely studied. Using both random-effects and fixed-effects models covering 30 LAC economies during 1998–2015, the multivariate panel regressions show that among numerous determinants, Chinese companies prefer to undertake projects in the countries that are economically more advanced and more populous. In addition to the level of development and the size of population, those that have natural resources, expansionary economy, and political openness tend to have Chinese contracts completed. The above, however, is true of only the countries with which China has diplomatic relations. For the countries that recognise China’s Taiwan ‘diplomatically’, Chinese contracts do not seem to be as much economically determined as those that recognise People’s Republic of China (PRC) diplomatically. Politics appear to interfere with contractual decisions except in the following categories: mineral resources and an expansionary economy.
Renmin University of China
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