SESRIC





Journal of Economic Cooperation and Development, Vol.40 No.1
     
Date : 28 May 2019

Considering the prevailing and recent major economic developments in the OIC Member States, ASEAN economic communities and South Africa and the links between these developments and those of developing and developed countries as well as the world economy as a whole, this issue of the Journal of Economic Cooperation and Development - March 2019 analyses trends in the main economic indicators of these countries based on recent projections regarding risk-taking behaviour in the Ecuadorian private banking industry and the effect of minimum wage policies on economy and employment of Thailand. It highlights assets and poverty alleviation in South Africa and provides a meta-analysis approach to investigate the statistical significance of financial contagion based on past empirical contagion studies. This issue also analyses the determinants of intra-OIC trade and the impact of IDB trade financing on intra-OIC trade and examines electricity consumption, trade openness and economic growth in South Africa.

The first article examines the effects of deposit insurance implementation on risk-taking behaviour in the Ecuadorian private banking system. Aggregated financial annual data of private banks financial statements from January 2007 to January 2015 were used. Time series analysis employing system-wide financial ratios are meant to support the hypothesis that the levels of risk increased after deposit insurance was implemented in Ecuador on May 2009. In addition, the increase of risk-taking behaviour was observed to be mainly driven by large banks, which hold more than 60% of the banking system assets in total. This can, in fact, easily have devastating effects on the insurance system and the whole economy if the moral hazard problem is left unattended.

The second article attempts to estimate the impact of wage policies on the economy and employment of Thailand as a part of the AEC. The paper also suggests appropriate policies for a sustainable Thai economy in the long run. The results indicated that negative correlations between minimum wage and the gross domestic product, and minimum wage and employment are the result of higher costs of production. Therefore, in this paper, increasing minimum wage or subsidy wage policies are not appropriate for Thailand under the AEC because these policies would reduce investment and reduce incentives to accumulate human capital. The study found that increasing labour productivity can compensate the effect from these negative wage policies. However, a lower minimum wage led to an increase in the gross domestic product, investment, and employment for both the skilled and unskilled labour force in every sector.

The third article investigates a number of factors responsible for asset poverty in South Africa. Data was selected from the first four waves of the National Income Dynamic Study to bring new evidence to bear on the determinants of assets poverty. The Principal Component Analysis (PCA) was used to create the asset index and the logit model to identify the main determinants of asset poverty in South Africa. Results of the logit model show that some factors such as education levels (secondary, matric and tertiary), race dummies and location dummies (farms and urban areas) have a reducing effect on asset poverty in South Africa. Yet, other factors such as employment and household size seem to have no significant effect on asset poverty.

The fourth article investigates the phenomenon of financial contagion in numerous pieces of research. In spite of its severe implications for the stability of domestic financial systems as well as potential diversification benefits of international portfolio investment, there has yet to be universally agreed conclusion on the relevance of financial contagion. Therefore, this study has been designed to apply the meta-analysis approach to investigate the statistical significance of financial contagion based on past empirical contagion studies. As implications, policy makers should establish contingent credit lines to ensure the liquidity of financial market during the turbulence time, and portfolio investors should diversify away from the potentially contagious markets. It is suggested that future contagion-based meta-analysis may include contagion studies with different methodologies, as well as meta-regression analysis to provide more insights on the sources of variability in the contagion studies.

The fifth article tries to shed a light on the determinants of intra-OIC trade and the impact of IDB trade financing on intra-OIC trade. By using gravity model both the intuitive and the theoretical one; this article observes eighteen OIC countries from 2000 until 2014. It finds that GDP, distance of two capitals, IDB trade financing, common language, common colony, colony, landlocked, contiguous, the Arab Spring events and Asian as PTA are statistically significant factors in determining export. In the end, this article focuses on producing an output that can guide OIC member countries and IDB in developing a trade-financing scheme meant to increase intra-OIC trade.

The sixth and last article examines the short- and long-run relationships as well as the causal directions between electricity consumption, trade openness and economic growth in South Africa from 1984 to 2015 using auto regressive distributed lag (ARDL) model. It found that both the electricity consumption and trade openness have a positive and significant effect on economic growth in the long run. Granger-causality test revealed that electricity consumption and trade openness Granger-cause economic growth without any feedback effects. This concluded that South Africa’s economy significantly benefits from boosting energy production and trade openness.

SESRIC and its JECD team will continuously work to serve its readers by consistently screening the most appropriate articles with long-term valuable and constructive information, which will be useful and serve the best interests of the OIC countries by upholding their commitment to contribute to the expansion of economic and technical cooperation among them on a long-term basis and beyond.

Nebil DABUR

Editor-in-chief

Articles of the Journal of Economic Cooperation and Development, Vol.40 No.1 (2019)