Foreword ..................................................... ix
Acknowledgments .............................................. xi
Contributors ............................................... xiii
Acronyms and Abbreviations ................................... xv
1 Introduction .................................................. 3
Robert J. Barro and Jong-Wha Lee
2 East Asian Currency Union .................................... 10
Jong-Wha Lee and Robert J. Barro
1 Introduction .............................................. 10
2 The Benefits and Costs of an East Asian Currency Union .... 13
2.1 Benefits and Costs of Currency Unions ................ 13
2.2 Optimum Currency Area (OCA) Criteria ................. 13
3 Which Currency Union for East Asia? ....................... 16
3.1 Data for East Asia Monetary Union Analysis ........... 17
3.2 Is East Asia an OCA? ................................. 30
4 Welfare Effects of East Asian Currency Unions ............. 33
4.1 The Effects of Currency Unions on Growth and
Volatility ........................................... 34
4.2 Rare Disasters and Currency Unions ................... 37
4.3 Estimation of Welfare Effects of East Asian
Currency Unions: An Illustration ..................... 39
5 Conclusion ................................................ 44
3 Asian Financial Integration: Trends and Interruptions ........ 53
Eduardo Borensztein and Prakash Loungani
1 Introduction .............................................. 53
2 Convergence in Interest Rates and Equity Premia ........... 55
3 Portfolio Holdings and Home Bias .......................... 61
3.1 Portfolio Holdings: Summary Statistics ............... 61
3.2 Portfolio Holdings: Gravity Model Estimates .......... 65
3.3 Home Bias ............................................ 70
4 Risk Sharing and Financial Stability ...................... 75
4.1 Risk Sharing ......................................... 75
4.2 Financial Integration and Crises ..................... 77
4.3 Local vs. Foreign Investors: Recent Studies .......... 79
4.4 Investor Behavior during the Subprime Crisis:
Evidence from Brazil ................................. 81
5 Conclusions ............................................... 84
4 Understanding Business Cycle Synchronization: Is Inflation
Targeting Paving the Way to Asian Monetary Union? ............ 89
Andrew K. Rose
1 Motivation and Introduction ............................... 89
2 The Effect of Trade on Business Cycle Synchronization ..... 90
3 Inflation Targeting and Business Cycle Synchronization:
Theory and Literature ..................................... 94
4 The Data Set .............................................. 96
5 Decoupling ................................................ 99
6 Business Cycle Synchronization and Inflation Targeting ... 102
7 Regression Analysis ...................................... 105
8 Estimating Treatment Effects via Matching ................ 108
9 Why? ..................................................... 115
10 Summary and Conclusion ................................... 116
Appendix ................................................. 124
5 Trading Silver for Gold: Nineteenth-Century Asian Exports
and the Political Economy of Currency Unions ................ 126
Kris James Mitchener and Hans-Joachim Voth
1 Introduction ............................................. 126
2 Historical Background and Context ........................ 128
3 Data ..................................................... 134
4 Method and Results ....................................... 135
4.1 Multilateral Resistance ............................. 138
4.2 Results for Subperiods .............................. 141
4.3 Discussion .......................................... 141
5 Identifying the Effects of Currency Choice ............... 143
6 The Political Economy of Currency Arrangements ........... 144
7 Conclusion ............................................... 148
6 The ASEAN Free Trade Agreement: Impact on Trade Flows and
External Trade Barriers ..................................... 157
Hector Calvo-Pardo, Caroline Freund, and Emanuel
Ornelas
1 Introduction ............................................. 157
2 Trade Creation, Trade Diversion, and Import Barriers
on Outsiders ............................................. 160
3 The ASEAN Free Trade Agreement ........................... 163
3.1 Data ................................................ 164
3.2 Tariffs ............................................. 165
3.3 Aggregate Trade ..................................... 165
4 The Effect of Tariffs on Trade in ASEAN .................. 171
5 Preferences and External Tariffs in ASEAN ................ 176
6 Conclusion ............................................... 181
7 Economic Integration in Remote Resource-Rich Regions ........ 187
Anthony J. Venables
1 Introduction ............................................. 187
2 Regional Characteristics ................................. 188
3 Trade Policy for Remote-Rich Economies ................... 192
3.1 Low Supply Response of External Exports ............. 192
3.2 The Distribution of Natural Resources ............... 192
3.3 Regionally and Globally Traded Goods ................ 194
4 A Benchmark Model ........................................ 195
5 Trade Liberalizations .................................... 198
5.1 Trade Policy and the Intra-Regional Terms of
Trade ............................................... 198
5.2 Trade Policy: General Equilibrium Outcomes .......... 200
5.3 Non-Resource Income and Within-Country Income
Distribution ........................................ 202
5.4 Trade Creation and Trade Diversion .................. 204
6 Policy Implications ...................................... 205
7 Conclusion ............................................... 206
8 Regional Trade Integration and Multinational Firm
Strategies .................................................. 208
Pol Antràs and C. Fritz Foley
1 Introduction ............................................. 208
2 A First Look at the Data ................................. 212
3 Theoretical Framework .................................... 218
3.1 A Simple Model of FDI ............................... 219
3.2 Analysis ............................................ 221
3.3 Effects of a Regional Trade Agreement ............... 223
4 Econometric Evidence ..................................... 225
5 Conclusion ............................................... 234
6 Appendix ................................................. 235
9 A World Factory in Global Production Chains: Estimating
Imported Value-Added in Exports by the People's Republic
of China .................................................... 241
Robert Koopman, Zhi Wang, and Shang-Jin Wei
1 Introduction ............................................. 241
2 Conceptual Framework and Estimation Method ............... 246
2.1 When Special Features of Processing Exports Are
Not Taken into Account .............................. 246
2.2 Domestic Content in Exports When Processing Trade
Is Prevalent ........................................ 248
2.3 Estimation Issues ................................... 251
3 Estimation Results on Domestic and Foreign Content in
Exports of the PRC ....................................... 252
3.1 Data ................................................ 252
3.2 Domestic and Foreign Contents in Total Exports ...... 252
4 Slicing Up the Value Chains along Multiple Countries:
Methodology .............................................. 254
4.1 When a World Input-Output Table (That Covers All
Countries) Is Available ............................. 256
4.2 Working with an Interregional Input-Output Table
(for a Subset of Countries) ......................... 261
5 Empirical Estimates on Value-Added along Production
Chains ................................................... 262
5.1 Data Source ......................................... 262
5.2 Comparing the PRC with Other Asian Economies in
Production Chain .................................... 263
5.3 Slicing Up Production Chains across Countries ....... 265
5.4 Multinational Value-Added Chains in the PRC for
Disaggregated Export Categories ..................... 268
6 Conclusion ............................................... 273
Index .......................................................... 277
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