A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

www.adbi.org
ADBI News Volume 1 Number 4 October 2007

Capital Flows and DISTINGUISHED SPEAKER

Exchange Rates

of producing undesirable macroeconomic side

effects, as Japans experience demonstrates.
Some noted economists, Professor Hamada
pointed out, take the imbalance in the current
account as abnormal and hence, in need of
correction. Taking a different view, Hamada
argued that current account imbalances across
countries are a norm rather than an exception. If
countries have different rates of time preference,
there is no guarantee for the current account to be
balanced. For instance, American consumers
prefer to consume earlier while East Asian
consumers prefer to save and consume later. In
this case, it is natural to observe current account
imbalances in these countries, and inter-temporal
trade of goods will benefit the countries that have
In Professor Hamadas view, current account imbalances
across countries are a norm rather than an exception.
different rates of time preference. Policy or
exchange rate coordination aimed at addressing
Koichi Hamada, Professor of Economics at Yale current account imbalances across countries,
University, addressed invited guests and ADBI Hamada concluded, is futile and sometimes
staff on capital flows and exchange rates on 24 harmful.
July. His lecture, in particular, focused on current View Koichi Hamadas presentation at www.adbi.org/event/
account imbalances in the US, Japan, and the 2320.hamada.distinguished.speaker/.
Peoples Republic of China (PRC). In the past
decade the United States has been running a huge
current account deficit while the PRC in recent In this issue
years has been experiencing a current account
surplus, thus joining Japan and others as a large
current account surplus country.
Professor Hamada conceded that the Plaza
Accord had a genuine effect in reducing Japans
current account surplus from a peak of 4.3% of
GDP in 1986 to 1.4% of GDP in 1990. In a
situation where price and wage movements are
sluggish, nominal exchange rate movements can
create similar movements in the real exchange
rates, which, in turn, can affect the countrys
current account and macroeconomic performance.
However, today he does not recommend a Plaza
Accord type of adjustment to correct the PRCs
current account surplus because it involves the risk

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 A s i a n D e v e l o p m e n t
Past Transformations and
Projections for PRC Economy
Angus Maddison, Emeritus Professor, Faculty of
Economics, Groningen University, presented a
paper on Six Transformations in China:
9602030 AD at ADBI on 1 October. The first
transformation relates to the Sung dynasty from
9601280, when per capita income rose by a third
and population almost doubled. There was also a
significant opening to the world economy in the
southern Sung, Yuan, and early Ming dynasties
(11301433). In 1300, China was the worlds
leading economy in terms of per capita income. It
outperformed Europe in levels of technology, the
intensity with which it used its natural resources,
and capacity for administering a huge territorial
empire. By 1500, however, western Europe had
overtaken China in per capita real income, as well
as technological and scientific capacity. The
second transformation occurred between 1700 and
1820, when population rose nearly threefold with
no fall in per capita income. The third
transformation occurred from 1840 to 1950, when
China suffered from internal conflict and collusive
foreign intrusions on its territory and sovereignty.
Chinese GDP (measured at PPP) fell from a third
to a twentieth of the world total, and per capita
income fell in a period when it rose tremendously
in Japan, Europe, and the US. The fourth
transformation is the Maoist period (195078),
which saw a significant recovery of per capita
income, but growth was interrupted by disastrous
economic and social experiments. In the fifth
transformation (19782003), China reversed the
View a summary of Angus Maddisons presentation at www.adbi.org/event/2351.maddison.distinguished.speaker/.
Voice of a Visiting Fellow
Regional and Rural-Urban Income Disparity
by Household Income, Mainland PRC
Source: China Provincial Statistical Yearbook
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B a n k I n s t i t u t e
DISTINGUISHED SPEAKER
Maoist policies and adopted a pragmatic reform
and open door policy which was successful in
sparking growth. There were large gains in
efficiency in agriculture, an explosive expansion of
foreign trade, and accelerated absorption of foreign
technology through foreign direct investment. The
sixth transformation is largely forward-looking
(20032030): Professor Maddison sees catch-up
continuing. But he predicts that the pace of
progress will slacken as China approaches the
technological frontier. By 2015, according to
Maddisons predictions, China will have overtaken
the US as number one economy in terms of PPP
GDP, and by 2030 will be producing nearly a
quarter of world GDP.
Professor Maddison predicts that the PRC will surpass the
US as the number one economy by 2015.
General predictions for the PRCs
economic future may be optimistic,
and the expansive trend of inter-
provincial disparities has slowed
down since 2000 and began to
decrease somewhat in recent years,
but according to ADBI Visiting
Fellow Shantong Li, widening
income disparities between rural and
urban may be cause for concern. The
contribution of urban-rural income
disparities to total regional income
disparities has been widening over
the years, reaching 80.4% in 2004.
 A s i a n D e v e l o p m e n t
ADBI Welcomes New CBT Director
Worapot Manupipatpong joined ADBI as
Director for Capacity Building and Training (CBT)
in August 2007. He earned his Ph.D. in finance
from the Wharton School of the University of
Pennsylvania in 1989. Having been a director at
the ASEAN Secretariat for over eight years, he
brings extensive experience in managing technical
Associates Share Parting Thoughts
Two Research Associates recently completed one-year terms at ADBI. Before embarking on their
future paths, they took some time to reflect on their experiences at the Institute.
Q What contribution are you most proud to have
made during your time at ADBI?
ML: I am most proud to have assisted Dr. Douglas
Brooks in organizing the workshop and conference
for the ADBI research project Infrastructures Role in
Reducing Trade Costs. I was also involved in the
case study of China in this research project. In
addition, I am very proud of the presentation I made
at the ADBI Annual Conference in 2006. Working on
the Chinese version of ADBIs brochure was another
enjoyable project.
RL: I hope that I was able to share what I learned in my
degree regarding evidence-based policymaking,
particularly in making good use of household surveys to
make interventions more relevant to the recipients.
Q What advice would you give to organizations
like ADBI to best deal with development issues?
ML: I think that international organizations like ADBI
should give opportunities to people from a variety of
countries and fields to come together to discuss
development issues.
RL: I think ADBI is already doing a good job in
tackling development issues. The project I was involved
B a n k I n s t i t u t e
ADBI PEOPLE
assistance and research projects in support of
regional cooperation and integration in the areas of
finance, economics, statistics, infrastructure, and
science and technology.
As a knowledge institute, the ADBI, he
believes, has been using its research and CBT
products effectively to strengthen development
management and policymaking in ADB developing
member countries. In his current position, he hopes
to be able to further enhance the quality and
impact of CBT activities through an even more
focused, demand-oriented work program that pays
special attention to the development of appropriate
content and its effective delivery, as well as careful
selection of the target audience. He is also keen to
foster closer collaboration with relevant
departments of ADBI, ADB HQ, international
agencies, and knowledge institutes.
ADBI PEOPLE
Ma Liqiang Rouselle F. Lavado
in regarding agriculture deals with poverty issues from
their core. The project went to the field to understand
the issues first-hand from the point of view of the
farmers, which I thought was a good idea.
Q How would you sum up your experience at
ADBI?
ML: One year working at ADBI was a great experience
for me. I made many friends and learned a lot. It will be
a very nice memory for my life.
RL: It was a wonderful learning experience. I met many
people from different cultures and the insights I got
from them certainly widened my perspective. I learned a
lot of things which will help me as I start on my career
in the Philippines.
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 A s i a n D e v e l o p m e n t
Promoting Good Public Governance
A four-day joint Tax Conference with ADB HQ
was held on 811 October in collaboration with
OECD, the International Bureau of Fiscal
Documentation (IBFD), and the Tax Bureau of the
Ministry of Finance of Japan. Governance is one of
the priority themes ADBI works to promote. In
accordance with this priority, the objective of the
conference was to provide developing member
country participants with international knowledge
and experience for tax policy design and tax reform
as well as to share experiences and establish
networks among policymakers responsible for tax
policies and administration.
Senior tax officials from 32 ADB developing
member countries participated in this annual event.
Masahiro Kawai, Dean of the Institute and Toshiya
View more information about the conference at www.adbi.org/event/2353.tax.conference.2007/.
Senior tax officials from 32 ADB developing member countries participated in the conference.
Facilitating Trade and Investment
Together with the Japan Fair Trade Commission
(JFTC) and the Viet Nam Competition
Administration Department in Viet Nams
Ministry of Trade, on 34 May 2007, ADBI
cosponsored the Fourth East Asia Conference
on Competition Law and Policy, and the Third
Top Level Officials Meeting on Competition
Policy in Hanoi. The conference comprised
presentations from individual East Asian
competition authorities and a trial peer review
session, with each session followed by discussion
and questions from the floor.
The objective of the conference was to
develop a common understanding among the East
Asian economies that the establishment of
competition law and its effective implementation
are necessary for facilitation of trade and
investment, and should be an urgent priority for
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B a n k I n s t i t u t e
CONFERENCE
Otsu, Director for International Issues on Taxation,
Japans Ministry of Finance, opened the
conference.
Participants shared country experiences on tax
reforms and exchanged views on the latest
development and trends, such as the increasing
number of international tax treaties following the
ever-growing globalization of economic activities
and the continued decline in customs revenues due
to the WTO and FTA commitments to reduce or
eliminate customs duties on many products. The
progress of tax reform measures in response to
these trends was discussed, including the
increasing use of value-added tax (VAT), its
implementation progress and issues, and measures
to address transfer pricing and double taxation.
each economy. Topics discussed in the conference
included i) recent development of competition
law and policy in East Asian economies and ii)
trial peer review on competition law and policy in
Viet Nam. Subsequently, the officials meeting
discussed issues including i) future challenges for
enacting comprehensive competition law and ii)
technical assistance activities in the East Asian
region and their coordination and cooperation.
Continuing the partnership, ADBI will
cosponsor the Fourth Top Level Officials
Meeting on Competition Policy on 16 April
2008 in Kyoto. The meeting will be held back to
back with the Seventh Annual Conference of the
International Competition Network, which will be
hosted by JFTC on 1416 April 2008. Both
events will take place at the Kyoto International
Conference Center.
 A s i a n D e v e l o p m e n t
Microfinance Course Delivers Training
The fourth delivery of the Blended Distance
Learning Course on Microfinance got off to a
good start on 16 August in Tokyo. With three
billion low-income people worldwide excluded
from formal financial services, the importance of
the course is underscored by the awarding of the
Nobel Peace Prize to Dr. Mohammed Yunus and the
Grameen Bank in recognition of the contribution of
microfinance to world peace and stability.
Of the over 900 participants in the fourth course,
about 250 participated through videoconference in
12 countries while the remaining participants in
over 40 countries watched the session through
Internet webcasting. The participants include 245
from ASEAN, 123 from Northeast Asia (or non-
ASEAN East Asia), 203 from Central and South
Asia, 38 from the Pacific, and 71 from Africa,
Europe, the Americas, and other locations.
The four-month course is jointly organized by
ADBI and the World Banks Tokyo Development
Learning Center (TDLC). Using four information
and communication technologiesself-paced
e-learning CD-ROMs, videoconference with
international experts, on-line tutoring, and an e-
discussion forumthe course delivers high-quality
training to participants in Asia and beyond. In
addition to courseware in English, local-language
materials are made available in Chinese,
Vietnamese, Thai, Laotian, Khmer, and Bahasa
A large number of the microfinance course participants are policymakers and staff of projects funded by donor organizations.
B a n k I n s t i t u t e
COURSE
Indonesia. By removing the language barrier, the
course effectively reaches out to those working
directly with the poor.
A large number of the participants are
policymakers and staff of projects funded by donor
organizations including ADB, International Fund
for Agriculture Development, and the World Bank.
Thus, the course has immediate policy impacts as
well as contributing to improved implementation
of microfinance projects.
A few years ago, the idea of a course like this
would have been nothing more than a dream in
someones fertile imagination, noted ADBI
Director for Research Mario Lamberte in his
opening remarks. That dream has evolved into
one of the most successful distance learning
courses, connecting practitioners from Asia to
Africa to create a truly global microfinance
learning community. To date, the past three
deliveries have certified 91 microfinance trainers,
and over 1,100 microfinance practitioners have
studied in the course.
It is our sincere hope, said Lamberte, that
you will do your best to master the course
materials and thus empower yourselves to become
the seeds of growth for microfinance in your
corner of the world.
View course information at www.adbi.org/event/2240.
microfinance.distance.learning.course/.
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 A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

ASEAN+3 or ASEAN+6: FEATURED PUBLICATION

Which Way Forward?

The surge in free trade agreements (FTAs) in East further expanded and the negative aspects of FTAs
Asia since the Asian financial crisis (see Figure) be minimized. The paper suggests that
has prompted a lively debate on the characteristics, consolidation of multiple and overlapping FTAs
impact, and future path of FTAs in the region. This into a single East Asian FTA could help mitigate
paper, by Masahiro Kawai (ADBI Dean) and the harmful noodle bowl effects of different rules
Ganeshan Wignaraja (ADB HQ), maps the of origin and standards and that consolidation at
salient characteristics of East Asian FTAs using a the ASEAN+6 level would yield the largest gains
new FTA database, identifies several key issues to to East Asiawhile the losses to non-members
be addressed, and explores economic effects using would be relatively small.
computable general equilibrium analysis. The To make such consolidation possible, the paper
paper argues that WTO-plus elements need to be recommends that
(i) ASEAN act as the regional
Growth of FTAs in East Asia, 19762007 hub by further deepening
ASEAN economic integration,
(ii) the plus-three countries
(Peoples Republic of China,
Japan, and Korea) collaborate
more closely, and
(iii) India pursue further structural
reforms.
The paper also observes the
need for international support,
such as WTO-led Aid for Trade
(including trade-supporting
infrastructure) to facilitate the
participation of poorer ASEAN
countries. Over time an ASEAN+6
Notes: FTA should be connected with
a Concluded FTAs include those signed and/or under implementation; FTAs under
NAFTA and EU to further promote
negotiation cover those with or without a signed Framework Agreement; and
proposed FTAs include official pronouncements of parties to negotiate an FTA or
global economic integration.
actually conduct a feasibility study.
bData as of June 2007.
Read Discussion Paper 77 at
Source: ADB FTA Database, Asia Regional Integration Center (www.aric.adb.org),
www.adbi.org/discussion-paper/
as presented by the authors (p. 26)
2007/09/13/2359.asean.3.asean.6/.

Flagship Study Launched on Infrastructure RESEARCH

and Regional Cooperation

ADBI has recently launched a flagship study on (iv) transnational issues.

Infrastructure and Regional Cooperation. The
objective of this study is to examine the key issues
and challenges facing infrastructure in Asia in its
ongoing efforts to support regional cooperation.
The four broad themes are:
(i) trade and logistics;
(ii) institutions, regulations, and policy;
(iii) financing; and
The study will focus on both software and
hardware issues affecting infrastructure, especially
when transnational cooperation is required. It will
also attempt to outline what the region needs to do
in terms of policies and best practices to meet these
challenges and address these issues so essential to
achieve inclusive growth. The study will be
completed in early 2009.

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 A s i a n D e v e l o p m e n t B a n k I n s t i t u t e

Selected Upcoming Events

Distinguished Speaker Seminar: Todd Sandler (Tokyo)

12 November Todd Sandler, the Vibhooti Shukla Professor of Economics and Political Economy at the
University of Texas, will present a paper titled Regional Public Goods, Aid, and Development.
Cross-border Infrastructure Management: Managing Public Goods (Tokyo)
1215
November This workshop will provide training for policymakers in charge of regional public goods,
specifically on cross-border infrastructure management in the region.
Private Sector Participation in Physical Infrastructure (Tokyo)
1922 This course is designed to improve the understanding of policymakers of the main challenges to
November greater private sector participation and investment in infrastructure projects in the region and
facilitate accelerated development of policy reform programs that will strengthen the enabling
environment and legal and governance frameworks.
Distinguished Speaker Seminar: Richard Baldwin (Tokyo)
Richard Baldwin, Professor of International Economics, Graduate Institute of International
26 November
Studies, Geneva, and Policy Director, Centre for Economic Policy Research, will present a paper
titled The 3-Trade-Bloc Dance in East Asia: Preliminary Reflections.
View all upcoming events at www.adbi.org/calendarofevents/.

Recent Discussion Papers

Evolving ASEAN+3 ERPD: Towards Peer Reviews

or Due Diligence?
Authors: Cindy Houser, Masahiro Kawai

The ASEAN+3 finance ministers group has decided to
integrate the economic review and policy dialogue
(ERPD) process with the regional liquidity support
facility, called the Chiang Mai Initiative (CMI), and has
taken steps to transform CMI into a multilateral
arrangement that is more independent of IMF programs.
To accomplish the required strengthening of the
effectiveness of ERPD, the authors recommend a
balance between an OECD-type peer review and peer
pressure approach and an IMF-type due diligence
approach.
Read Discussion Paper 79 at
www.adbi.org/discussion-paper/2007/09/20/2363.
asean3.regional.financial.cooperation/.

Prospects of IndiaBangladesh Infrastructure Challenges in

Economic Cooperation: South Asia: The Role of
Implications for South Asian Public-Private Partnerships
Regional Cooperation Author: Geethanjali Nataraj
Authors: Biswa Bhattacharyay, Prabir De

To maximize the benefits of the regions integration into
the global economy, South Asia will need to strengthen
regional and bilateral cooperation. This paper discusses
various opportunities and associated prospects and
problems in strengthening the IndiaBangladesh
economic cooperation and integration agenda in the
context of the South Asian Association for Regional
Cooperation.
Read Discussion Paper 78 at
www.adbi.org/discussion-paper/2007/09/13/2360.
india.bangladesh.economic.cooperation/.
This paper examines the existing infrastructure facilities
and infrastructure needs of the South Asian region and
looks at the role played by public-private partnerships
(PPPs) as important tools in enhancing infrastructure
development in South Asia. The study points out the
constraints to private sector participation in South Asia
and looks at the experience of India and a few other
countries in the region with respect to PPPs.
Read Discussion Paper 80 at
www.adbi.org/discussion-paper/2007/09/27/2364.
infrastructure.challenges.south.asia/.

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 A s i a n D e v e l o p m e n t
Asia on the Move
Coming up: ADBI Annual Conference
On 4 December, ADBI will hold its Annual
Conference, A Decade of Developments,
marking its 10-year anniversary. The conference
will highlight topics emphasized by its Deans over
the years. Session One, Asian Crisis Ten Years
OnFinancing for the Future, is chaired by
Thanong Bidaya, Visiting Fellow, ADBI. Speakers
in this session include Peter Petri, Brandeis
University and Mohamed Ariff, Malaysian Institute
of Economic Research. Session Two, Achieving
Poverty Reduction for an Inclusive and
Equitable Asia, is chaired by former Dean Peter
McCawley, Australian National University. Justin
ADBI News
Publisher: Mamoru Umemoto
ADBI News reports quarterly on the activities of the Asian
Development Bank Institute. The views expressed in this
newsletter do not necessarily reflect the views or policies
of the Asian Development Bank Institute or the Asian
Development Bank. Materials may be reprinted with credit
given to ADBI News. To send comments or to request a
free subscription, e-mail adbinews@adbi.org; fax a
message to +81-3-3593-5571; or write to ADBI News,
Kasumigaseki Building 8F, 3-2-5, Kasumigaseki,
Chiyoda-ku, Tokyo 100-6008, Japan. For the web version,
go to www.adbi.org/newsletter/.
B a n k I n s t i t u t e
Infrastructure development is facilitating Asias
rapid trade expansion by reducing shipping costs
and time. An edited volume on the infrastructure-
trade nexus is being put together by ADBI Senior
Research Fellow Douglas H. Brooks and former
Senior Research Fellow Jayant Menon. In mid-
October, at the end of his two years at ADBI as a
secondee from ADB HQ, Menon said working at
the Institute had provided him the freedom to be
able to think and to focus on research, away from
the hustle and bustle of the big building in
Manila. The co-edited volume, Infrastructure and
Trade in Asia, is due out in 2008.
Yifu Lin, of Peking University and Ifzal Ali,
ADBs Chief Economist, will present in this
session. Session Three, Regional Growth
through Integration and Cooperation, is chaired
by Isher Judge Ahluwalia, Vice Chairperson,
Planning Board, Punjab and member of ADBs
Eminent Persons Group. Invited speakers for this
session are Antoni Estevadeordal, Inter-American
Development Bank and Yuen Pau Woo, Asia
Pacific Foundation of Canada.
View the agenda and more information about this event at
www.adbi.org/event/2367.adbi.10th.anniversary.conference/.
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