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.
Multinational Tax Avoidance and Anti-Avoidance Enforcement: Firm-level Evidence from Developing ASEAN Countries
We use firm-level data from ASEAN5 to examine the significance of tax-motivated profit shifting by multinational enterprises and to analyze how anti-avoidance measures mitigate the profit shifting. We show 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 implications for developing countries with weak governance but dependent on MNEs.
“Gold Miss” or “Earthy Mom”? Evidence from Thailand
This paper investigates the impact of Thai women’s education on their marriage behavior and fertility. It first uses the data set from the Labor Force Survey to estimate the effect of education on the marriage market. The result from applying the recent doubly robust Inverse Probability Weighted Regression Adjustment (IPWRA) indicates that obtaining a university degree decreases the probability of women’s marriage by 14.8%, emphasizing the rise of the “Gold Miss” phenomenon in Thailand. It further examines the effect of education on fertility. By applying both the instrumental variable using the compulsory education reform as an instrument and pseudo-panel approaches to take into account the endogeneity of schooling, the result shows that education causally reduces fertility, which provides a convincing sequential explanation for the dramatic decline in fertility in Thailand.
The Impact of Regional Isolationism: Disentangling Real and Financial Factors
Recently, there is a pressure for isolation policies both within the United States and among the EU members. The pressure arises due not only to the difference between regions in the U.S. and/or countries in the EU, but also to the difference across their population which affect the gains and losses from economic integration, both real as from trade in a common market and financial as in a monetary financial union. To get a better understanding of this pressure, one would need a model of trade and capital flows that takes into account the difference between individuals in a region and differences across regions. There is also a need for detail data at the individual and aggregated level, which often are not available. In this paper, we use unique long-panel data of households in Thailand, and from these data, we construct the household financial accounts, the village economic accounts, and the village balance of payments account. We also provide stylized facts on factor prices, factor intensities, financial obstacles, and village openness document differences across regions. Finally at the national level it is clear there is co-mingled variation in trade via devaluations and in finance via policies toward off shore bank and within-country financial infrastructure.
We develop a heterogeneous-agent/occupational-choices/trade model with financial frictions carefully built up and calibrated around micro and regional facts, that is, at both the individual level and the aggregate level. Then, we conduct two counterfactual policy experiments. In the first counterfactual experiment, we distinguish the effects of trade from the effects of capital flows. More specifically, we determine what would happen if we allow the prices of goods to change as in baseline scenario while keep borrowing limits and interest rates constant, and vice versa. In the second counterfactual experiment, we determine the effect of isolation policies that impede trade and/or capital flows across regions. We find through these counterfactual experiments that both real and financial factors are at play, that there are differences across regions in impact even when (policy) movements in variables such as interest rates and relative prices, which are exogenous to the regions, are common; impacts can be large, and vary with policy; and impacts are significant heterogeneous with both gains and losses and non-monotone movement across wealth classes and occupations, even allowing for occupation shifts which apriori might have mitigated impact.
Alternative Boomerang Kids, Intergenerational Co-residence, and Maternal Labor Supply
This study investigates the boomerang phenomenon among adult children in Thailand. We estimate the effect of having children on co-residence between parents and adult children using Socio-Economic Survey panel data. We find that adult children who have moved out tend to move back in with their parents after having children to save time and money on childcare. The presence of young children increases the likelihood of intergenerational co-residence by over 30%. This study is the first to provide empirical evidence of boomerang kids in an Asian context, which is distinctive compared with Western countries. The relationship between intergenerational co-residence and the maternal labor supply is also examined using the instrumental variable approach based on the cross-sectional Labor Force Survey, which has data covering over 30 years. Our results show that co-residence increases the female labor supply by 21% and also extends women’s working hours by 10 hours.
Estimating Demand for Long-term Care Insurance in Thailand: Evidence from a Discrete Choice Experiment
At present, the Thai public health insurance schemes cover medical care. However, the financial risk associated with long-term care needs is unprotected. The increasing likelihood of Thai elderly living longer and living alone has raised great concern about their quality of life. In the wake of the declining informal support capacity, a public long-term care insurance (LTCI) system has been considered as a potential alternative. Because the public will have to contribute to the LTCI fund, this paper explores whether the Thai people are willing to pay for such a provision. The LTCI demand is estimated based on the stated preference survey data. Our results show that most respondents are willing to pay to insure against their risk associated with long-term care expenditure, but their preferences are very heterogeneous. Gains and losses for different policy scenarios, measured by consumer surplus, are discussed.
The Movement and Change in Online Price Within and Across Selected Major Retail Stores in Thailand
E-commerce has gained larger market shares in Thailand over the last decade. Yet there is a paucity of studies on online price behaviour and movement. This project is one of the first attempts to explore this topic in the Thai context. Using web scraping technique to acquire the data on price and product information from major retailers that have both physical and online outlets, this paper summarizes its findings into six stylized facts. In short, online price changes more frequent than its offline counterpart, yet the magnitudes of changes are generally much larger. Further, price heterogeneity exists across stores and product categories. However, pricing strategies of the same store seems to differ between its online and offline outlets.
Foreign Exchange Order Flows and the Thai Exchange Rate Dynamics
Applying the microstructure approach to exchange rates, this paper aims to shed light on the price formation process in the Thai foreign exchange market using a unique supervisory dataset of daily foreign exchange transactions from all licensed dealers in Thailand. We examine the main drivers of different types of order flows and the effect of resident and non-resident customer order flows on the Thai exchange rate. The results suggest that non-resident order flows have an important influence on movements in the Thai baht, while resident order flows do not. Regarding investors’ trading behavior, we find that non-resident order flows are driven by both fundamentals and movements of the Thai baht. Specifically, non-resident players appear to be ‘trend-followers’ with regard to exchange rate returns, exerting buying pressure when the baht recently appreciated. In contrast, domestic players tend to behave as ‘contrarians’, by buying the Thai baht after it depreciates.
An Early Evaluation of a HighScope-Based Curriculum Intervention in Rural Thailand
This paper evaluates the early impact of an early childhood curriculum intervention on child development. Impact is measured at the end of the academic year, one year after implementation. Teachers in rural childcare centers in northeastern Thailand were encouraged to employ the new curriculum, which is based primarily on the HighScope approach. We overcome the endogenous decision of teachers to adopt the new curriculum by using the randomization of additional teachers as an instrument. We find that the new curriculum significantly improved child development in multiple dimensions, including gross motor, fine motor, expressive language, and personal and social skills. We also find evidence that exposure to the new curriculum significantly helps children with absent parents more than children with at least one parent present. The results are robust with regards to various estimation methods, child development measures, and sample selections.
Parenthood Penalty and Gender Wage Gap: Recent Evidence from Thailand
This study first examines the evolution of gender wage gap in Thailand, using cross-sectional data from the Labor Force Survey (LFS) for 1985–2017. We find that education, occupation, and industry significantly contribute to gender wage gap convergence in Thailand. Furthermore, for females, the wage gap between mothers and non-mothers has increased over time, while for males, the changes are relatively small. Thereafter, we examine the gender wage gap associated with marriage and parental status, using panel data from the Socio-Economic Survey (SES) for 2005– 2012, and find wage penalty for both motherhood and fatherhood in Thailand.
The Journey to Less-Cash Society: Thailand’s Payment System at a Crossroads
Digital technology is changing the way we transact and pay each other, but cash usage remains dominant in many countries. In Thailand, it remains a question whether and to what extent electronic payments (e-payment) can replace cash. What is the role of a central bank amid challenges and opportunities at this crossroads? The paper explores global trends in cash and e-payment and outlines Thailand’s existing retail payment landscape. Both physical and IT/ICT infrastructure are assessed at micro-level with regard to Thailand’s readiness to move away from cash. However, given coexistence of cash and e-payment at present, we explore ways in which efficiency of cash management process can be improved. Data on cash distribution by geographical area are utilized to illustrate usage of Thai consumers and identify costs and inefficiency associated with cash management. On the other hand, adoption of e-payment can play a critical role in moving toward a less-cash society, if not a cashless one. The paper highlights the latest data on e-payment behavior in Thailand, especially PromptPay transactions as well as mobile/internet transactions after the transfer fee reduction in March 2018.
Integrating Monetary Policy and Financial Stability: A New Framework
Since the aftermath of the Global Financial Crisis during 2007-2008, financial stability (FS) has become top priority for central banks around the world. The conduct of monetary policy (MP) sees no exception. By leveraging on the existing literature, we propose a systematic approach to incorporate FS considerations into MP framework. This starts with calculating a financial cycle (FC) which is a measure of financial imbalances and a predictor of financial crises. We then look at an FS dashboard which consolidates pockets of risks facing the financial sector, and show how it may be used in FS surveillance. Next, we discuss the concept of model development and introduce an example of a model platform to facilitate MP formulation. Nevertheless, when implementing MP to address FS risks, policymakers encounter an inter-temporal trade-off between financial and price stability. A key challenge towards MP decision-making is, therefore, to strike a balance between both mandates by designing the appropriate policy mix between monetary and macroprudential policies. As a demonstration of our approach, we discuss, in each section, an on-going attempt at the Bank of Thailand to systematically incorporate FS into flexible inflation targeting.
Thailand’s Car Tax Rebate Scheme and Consumption Responses: the Role of Durable Goods with Adjustment Costs
In 2011, Thailand faced the largest ood in seventy years. In response to the unexpected crisis the Thai government rolled out Thailand’s car tax rebate scheme in an attempt to prevent the economy from slipping into a deep recession. This study investigates consumption responses to changes in vehicle prices induced by the car tax rebate scheme presented in the framework of a life-cycle model. The model features durable goods with adjustment costs and non-homothetic preference. The key features match the fact that car purchases are lumpy and infrequent and that cars are luxury goods in Thailand. Additionally, liquidity constraints and adjustment costs are also important features for the evaluation of shorter-run consumption responses. Key parameters are estimated to match household-level data. Then partial equilibrium responses, which are key inputs to inform the aggregate outcome of the policy, are simulated given a distribution of the population wealth, income,and age in the economy. Findings show that Thai households have large elasticity of intertemporal substitution (EIS), hence large responses to the scal stimulus. Furthermore, non-homotheticity in the preference generates heterogeneous policy responses varied by household income and wealth. The model predicts that the temporary price shock will lead to a large cutback in future consumption and saving, consistent with the evidence shown by aggregate data. A number of alternative policy experiments are also conducted.