Book Description

"This thesis presents three empirical papers (Chapters 2 to 4) on the contributors to the growth of Southeast and South Asian countries, their financial and business fluctuations, and the relationship between these fluctuations. The empirical analysis is carried out for China, India, Indonesia, Japan, South Korea, Malaysia, Thailand and Vietnam.Chapter 2 provides a quantitative assessment of the effects of various types of capital inflows (including foreign investment, foreign aid, long-term debt and openness to trade) and human capital (in the forms of education enrollment and education expenditures) on the growth process of the selected Asian countries over the period 1970 - 2010. Our empirical analysis is based on dynamic panel data, and can be categorized into three aspects: for stationary variables, we employ VAR methodology, Granger-causality, causality strength measure, impulse response functions and variance decomposition; to analyze the non-stationary variables, we employ cointegration analysis and VECM model; and to investigate the common effects shared by all these countries, we use panel data analysis. Our results show that capital inflows affect the growth process in our sample of countries both in the short and the long term. In the majority of countries, per capita real GDP and its growth rate respond positively to four of the components in capital inflows: foreign investment, openness to trade, public investment and human capital; on the other hand, capital inflows of aid and long-term debt seem has adverse or insignificant effects on economic growth in some cases. Further, our finding is that there exists significant two-way Granger-causality between capital inflows and economic growth across multiple time horizons, and that causality is strongest between foreign capital inflows and economic growth. The third chapter empirically investigates the characteristics of financial cycles using turning points and frequency-based filters analyses. Our sample of countries in this chapter covers 11 Southeast and South Asian countries over the period 1960 to 2013. We examine the frequency, duration and amplitude of the cycles in credit, house prices and equity prices, and their synchronizations within a country as well as across countries. We find, first, that financial cycles in the Asian countries are longer and severer than the business cycle in output, but not as long as those in developed countries; second, the credit cycle displays a quite skewed shape with exceptionally longer and stronger expansions than contractions, and that, in the cycles on credit, house prices and equity prices, equity prices show the greatest volatility, the shortest cycle duration and the greatest amplitude; third, the peaks of financial cycles are closely followed by financial crises. Finally, the cycles in financial variables are highly synchronized within each country and across countries. The fourth chapter investigates the features of business cycles and their relationship with those of financial cycles in our set of 11 Asian countries. The data used is for the period 1980Q1 - 2013Q4. Our results show, first, that financial cycles tend to be deeper and sharper than business cycles. Second, cycles in output tend to display high-level synchronization with cycles in credit, whereas they do not feature much commonality with cycles in employment and with some of our other financial variables. Third, the dynamic correlations between business cycles and financial cycles in most countries are significantly positive at low frequencies while not being significant at higher frequencies. Finally, though Granger-causality tests generate mixed results between the financial and business variables, there exists strong two-way causality between credit and real GDP, with credit having very high predictive power for the growth of real GDP, and real GDP helping to predict the growth of credit. " --