Does Democracy Affect Cyclical Fiscal Policy? Evidence From Developing Countries
Macroeconomics usually prescribes counter-cyclical fiscal policies to stabilise the economy: government spending should increase above trend in the economic downturns, and decrease below trend during booms. Yet, empirical research has documented pro-cyclical fiscal policy in several democratic developing countries. This article uses updated data to analyse 63 developing countries from 1980 to 2013 and robustly shows that pro-cyclical fiscal policy does exist in both democratic and non-democratic developing countries. The essence of this paper is controlling endogeneity issue by the instrumental variable method and investigating the interaction between democracy, its maturity and quality of institutions in affecting fiscal policy cyclical. We provide 3 main findings. Firstly, an improvement in the level of institutions quality plays an important role to restrain pro-cyclical fiscal policy and these effects are larger in democratic countries than non-democratic ones. Additionally, more mature and stable democratic countries tend to implement less pro-cyclical fiscal policy.
Profitability, Investment and Asset Pricing: Reconciling the Valuation and the q-Theory Approaches in the Thai Stock Market
There are several ways to motivate why profitability and investment should affect stock returns. In this paper, I investigate the valuation approach of Fama and French (2015) and the q-theory approach of Hou, Xue and Zhang (2015). While the underlying theories are different, their empirical predictions are the same. Slight differences in factor construction methods afford an opportunity to combine the features of the two models. I find that reinterpreting the q factors (with more frequent rebalancing and more layers of sorting) as Fama-French valuation factors can lead to improvement in model performance. In this modified version, the market risk, size, value, profitability and investment effects are all priced in Thailand.
Reshaping Thailand’s Labor Market Structure: The Unified Forces of Technology and Trade
Improvements in technology can have substantial impact on the labor market both directly and indirectly via changes in global trade patterns. This paper studies the potential impact of computerization and reshoring/relocating of operations by firms on Thailand’s labor market. Specifically, the analysis is built upon Frey and Osborne’s (2017) approach and incorporates additional measures of trade-base tasks. This is so that the revised machine-learning model can account for both the impact of technology and change in global trade patterns. Our results revealed that occupations that are mostly affected are service and sales workers, and agricultural and fishery workers. In the worst-case scenario, approximately one-third of existing jobs (12.14 million jobs) could be at risk. However, in real situations, new types of jobs may be created, workers may voluntarily adjust, or other factors could drive some overseas operations back to Thailand. Therefore, the potential outlook for Thailand’s labor market may not be as severe as the model has predicted.
Farms, Farmers and Farming: A Perspective through Data and Behavioral Insights
This paper aims to contribute to a better understanding of Thai agriculture, the sector that currently employs about one third of the country’s labor force. We first draw out key stylized facts on our farms, farmers and farming from various granular farmer’s administrative data sets that allow us to observe what has happened at the plot, labor and household levels over the past decade, and cover more than 90% of farmers nationwide. We then use a stochastic frontier analysis to identify key drivers of household’s agricultural productivity, and project the potential productivity impacts from the four key driving factors: climate change, aging, irrigation and technology for every tambon nationwide. A meta-analysis is then used to illustrate the landscape of technological development throughout the rice value chain in Thailand. Finally, we use lab in the field experiments to understand behavioral insights that underly farmer’s incentives particularly in the context of technological adoption. Our results shed some lights on how to design, prioritize and implement policies to ensure that our farmers stay competitive, resilient and sustainable.
Words Matter: Effects of Semantic Similarity of Monetary Policy Committee’s Decision on Financial Market Volatility
The objective of the paper is to study the effects of semantic similarity of the Bank of Thailand’s press releases on volatility of financial markets in Thailand from 2010-2018. The Natural Language Processing (NLP) is employed to construct the semantic similarity from 72 press releases. The semantic similarity represents the public signal that the central bank delivers to the public in the framework of a Keynesian beauty contest game.
The semantic similarity of MPC press releases significantly reduce the volatility in 1-month, 3-month, 10-year and 15-year government debt securities. Findings imply that relatively similar language in the MPC press releases reduces the volatility in short-term and long-term bonds. Effects of semantic similarity matter most in the volatility of 10-year bond yield. However, effects of semantic similarity are insignificant in both equity and foreign exchange markets.
Gaining from Digital Disruption: the Thai Financial Landscape in the Digital Era
This paper examines competitiveness of the Thai financial sector through the dimensions of depth, access, efficiency, and stability, as compared to peers. The paper finds that while the Thai financial sector compares reasonably well with peers in most dimensions, it does not fare well in term of SME access to bank credit. Using Panzar-Rosse H-Statistic, the paper also examines competition in the Thai banking sector and finds that the level of competition in the Thai banking sector is consistently high over the sample period. The results raise the question: Why does SME access to bank credit remain low, despite high level of competition in the banking sector? This puzzle is important since SMEs are a key driver of the Thai economy. Reviewing results from various studies and interviews with SMEs and bank credit officers, the paper identifies several bottlenecks in the SME lending process that may lead to market failures. Using data from 1.29 million individual SME loan contracts obtained from 15 Thai commercial banks, and six Specialized Financial Institutions (SFIs), the paper finds that only a few banks attempt to penetrate SMEs at the lower tiers of loan size and income. Although SME lending by SFIs are found to be a good complement to SME lending by banks, the fact remains that fewer than half of SMEs in Thailand have loans from these financial institutions. The paper then discusses how several initiatives have been attempted to harness the power of technology and data to help improve SME access to finance, whether from traditional banks or other types of players. Lessons from the case of SME financing and from other segments of financial sectors in selected countries are then drawn into common themes that might help guide the design of financial landscape in the digital era.
Why Does the WTO Prohibit Export Subsidies But Not Import Tariffs?
We develop a three-stage lobbying game to explain why the WTO prohibits export subsidies but not import tariffs. In this model, the government chooses trade policies (i.e., import tariffs or export subsidies) to maximize a weighted sum of social welfare and lobbying contributions. We argue that the economic rents from export subsidies cannot be contained exclusively within lobby groups because new capitalists, who will enter the growing export sector, freely benefit from export subsidies without paying political contributions at the time of lobbying. In the contracting import-competing industries, no new entrants erode the protection rents from tariffs. Therefore, the government receives large political contributions by protecting these import-competing industries. We show that, given that capital reallocation is costly, when the free-rider problem is severe the government will sign a trade agreement that prohibits only export subsidies.
Connecting Locals to Locals: Market Discovery through E-Commerce
Despite rapid growth in e-commerce, there has been little systematic research examining the impact of online commerce adoption on the entrepreneurs in ASEAN. Using a unique survey data of around 7,000 merchants on Shopee in Thailand, this paper seeks to fill that gap through a mix of econometric and trade connectivity analyses. We found that e-commerce adoption is associated with improvement in household incomes for the sellers. The benefits come from two different channels. First, e-commerce empowers existing SMEs by significantly boosting their revenue, efficiency, and profit growth. The improvement in profitability seems to go beyond a one-off gain as going online seems to also result in stronger profit growth rates. Second, our trade connectivity analysis illustrates how e-commerce allows merchants, especially those in the poorer regions, discover new market opportunity outside their own regions. In addition, e-commerce allows people of various employment status including full-time employees, homemakers, students, etc. to earn additional income, while maintaining other responsibilities.
Labor Income Inequality in Thailand: the Roles of Education, Occupation and Employment History
Thailand’s income inequality has reportedly declined since the mid-1990s. This paper examines possible mechanisms underlying the dynamic patterns of the country’s labor income inequality. Using the Thai labor force survey between 1988 and 2017, we document that the country’s reduction in income inequality is likely driven by the fact the earnings at the bottom part of the distribution have become more similar. The median wage gap between college and non-college workers, however, still gets larger over time. Our key explanation is the changes in education-occupation composition. Recently college graduates are no longer concentrated in high skill jobs. A larger share of secondary educated workers works in low-skill jobs instead of the middle-skill ones. Using panel administrative data from the Thai Social Security Office, we find that wage disparity can also be explained by employment history. The high wage earners earn more since they enter the market, and the gap gets wider as the workers age. Additionally, the top of the group can command higher wages by working at a large firm or switching to a new job. These findings highlight the fact that to tackle the income inequality issue, the country needs to understand the underlying mechanisms behinds its dynamics.
The European Smoking Bans and Mature Smokers: Can They Kick the Habit?
Using individual level data, this paper investigates whether nationwide smoke-free legislations in Europe lead to smoking reduction and cessation among mature smokers. It exploits cross-country data and the European Union’s multinational governance that provides a quasi-experimental setting. Top-down regulations on smoke-free environment by the EU mitigate the self-selection bias and endogeneity bias of smoke-free laws generally faced in other settings. The results show that comprehensive bans lower smoking propensity by approximately 7 percent and reduced smoking intensity by 10 percent. The effect persisted and increased over time. Light smokers and heavy smokers were 14.5 and 7.2 percent more likely to quit while there is no significant effect on average smokers. Those working in industry and occupation that faced with more comprehensive and strict bans were also more likely to quit, showing that comprehensive bans can increase smoking cessation even among mature smokers with well-established addiction.
Insurance and Propagation in Village Networks
We study the dual role of networks in providing insurance and in propagating idiosyncratic shocks by using variation in the timing of severe shocks on health spending experienced by households in Thai villages. We find no impacts on food consumption. Smoothing is largely achieved through local gift and loan networks. However, insurance is partial for some households so they adjust their production decisions-drawing on their working capital, cutting input spending, and reducing labor hiring, hence propagating the shocks to other households. Wefind that upstream businesses close to the underinsured households in the supply chain network experience reduced local sales and increased inventories. Likewise, workers closer to the underinsured households in the labor network experience declined probability of working locally and reduced earnings. We find evidence of ex-post adjustments of these upstream households through shifting resources towards activities with lower exposure to local shocks. Our results suggest that social (village-level) gains of expanding health insurance might be higher than private (household-level) gains.
Mapping Thailand’s Financial Landscape: A Perspective through Balance Sheet Linkages and Contagion
This paper conducts in-depth profiling of players and interlinkages in the Thai financial system based on sectoral balance sheet data and disaggregated supervisory data on banks and mutual funds. Several aspects of Thailand’s financial landscape have been documented. We find that financial interconnectedness has risen and become more complex, with the financial landscape increasingly tilted toward non-bank intermediaries. Network topology suggests a segmented landscape, with the presence of a core cluster where key players including households, firms, large domestic banks, and mutual funds of large banks’ asset management arms are located, indicating their tight interconnections. Leveraging on entity-level balance sheet profiles, we develop a stress-testing framework that is based on a network model of financial contagion. Two types of shocks are studied. For industry shocks, we find that losses generally propagate via the liability and ownership channel and the reverse liquidity channel. But when the losses are large enough, the fire-sale effects dominate. For bank reputational shocks, we simulate a loss of confidence in major banks via deposit withdrawal and fund redemption. While the overall losses are much smaller than those of industry shocks, these risks cannot be ignored since the mutual fund industry stands to suffer and panic selling could amplify the losses.
Should All Blockchain-Based Digital Assets Be Classified Under the Same Asset Class?
The literature is well aware that blockchain-based digital assets would constitute a new asset class. However, it has been rather silent about the distinction among them. This paper discusses the digital tokens’ differences and similarities by their (i) creation and initial distribution; (ii) intended properties; (iii) actual usage; and (iv) behaviors. Although the digital tokens are indistinguishable in some aspects, they differ in the way they are created and initially distributed. Some of them have distinguishable risk and return profiles. Therefore, we take a view that the digital tokens take (or will take) different roles in the financial systems; should be classified under different asset classes; and should be subject to different sets of regulations (although some may overlap).
Understanding Corporate Thailand I: Finance
This study analyzes the entire universe of registered firms in Thailand. There are five main findings. First, firm size distribution is smooth, with a majority of firms in the middle of the distribution; the apparent ”missing middle” phenomenon is entirely driven by arbitrary categorization of small and medium enterprises (SMEs). Second, the Thai corporate sector is very concentrated; the concentration has also risen over the past decade. Third, larger firms seem to have advantages over smaller firms regarding financing. Fourth, smaller firms tend to disproportionately invest less in fixed assets than larger firms. Finally, firms in the middle of the size distribution exhibit the highest return on asset (ROA) but have low leverage, consistent with the symptom of credit constraints. Large firms, in contrast, seem to have lower ROA but higher debt. Meanwhile, smaller firms seem to have both lower leverage and ROA. Overall, our results suggest that the Thai corporate sector exhibits both inefficient capital allocation and financial vulnerability. The paper has important policy implications on resource allocation in the economy, particularly, regarding appropriate assistance provided to small and medium enterprises.
Tax-Motivated Profit Shifting and Anti-Avoidance Stringency: Firm-Level Evidence from Developing Countries
This paper uses firm-level data from developing countries to examine the significance of tax-motivated profit shifting from high-tax to low-tax countries by multinational enterprises and to analyze the extent to which anti-avoidance measures mitigate the profit shifting. Focusing on firms in ASEAN5, this study shows that (1) tax-motivated profit shifting is statistically and economically significant, especially for manufacturing firms, (2) auditing and transfer-pricing scrutiny is more effective in reducing profit shifting than documentation requirement alone, and (3) tax-motivated profit shifting is prominent for large firms, while anti-tax avoidance measures result in the absence of profit shifting detected from small manufacturing firms. The findings have important policy implications regarding tax revenues in developing countries, especially those depending on multinational enterprises but having weak governance.