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Government, Social Policy and the Role of the State in determining economic development in Southeast Asia

Friday 20 March 2015, 1630 – 1830, Lecture Theatre 7

Jarupasin Kritchasorn
University of Exeter

Jarupasin Kritchasorn
University of Exeter

The current level of economic development in a country is significantly determined by policies implemented by central government. Tabellini (2004) concludes that government incentives to enact sound policies are the key to economic success. More importantly, this should be suggested as a main focus for developing countries; however the implementation of this concept can be substantially different across country.

Four papers included in this panel address crucial concern in the context of South East Asian countries by empirical and case studies which are all aim to offer a set of policy prescription in various settings. The following studies lay the ground for further discussion in different level from the impact of government to the economy as a whole, labour market, collective actions towards banking industry, and factors determining school enrolment.

The first paper relates the role of the state and development by establishing the linkage between public spending and rate of growth in South East Asian Countries. It offers uniquely differential growth effect for this diversified region. The second paper focuses on the change in Indonesia’s labour market as a result of the interaction between government and Japanese multinational corporations (JMNCs) through work and employment policies. The third paper investigates the effects of shari’ah regulation on the relationship between trust and Islamic banking practice are prudently examined by using data from the fieldwork in Kuala Lumpur, Malaysia. The fourth paper studies the determinants of school enrolment by using the data of Indonesian households and villages. The suitable way of moving ASEAN economy forward is still yet to be verified.


Paper 1: A Disaggregated Analysis of Public Spending and Growth in South East Asian countries

Jarupasin Kritchasorn
University of Exeter

Economic theory suggests that the government has a key role in determining the growth rate of a country, especially for developing nations. In particular, endogenous growth models show how government expenditure on human capital and infrastructure can sustain the growth process. This study conducts an empirical investigation of these ideas for South East Asian countries. Date for the period 1972-2010 is used to analyse the relationship between the growth of GDP per capita and government expenditure by function. The first set of results uses a monetary variable, trade flow and living conditions as conditioning variables. The standard process of grouping expenditures into productive and unproductive classes is followed, and it is shown that neither class has a significant impact on growth. Individual expenditures are then considered. Transportation and housing expenditures have a significantly positive effect on growth in both static and dynamic settings. Expenditures on defence, energy, mining, and public order have negative impacts on growth. The second set of results adds tax revenue and gross capital as conditioning variables. Public order spending then becomes growth- promoting whereas recreational spending is growth-retarding. Spending on education is positively inked to growth in several settings even though its impact is not significant. The results demonstrate that the growth of South East Asian economies is positively impacted by several types of public spending. The allocation of public expenditure can be improved by taking these differential growth effects into account.


Paper 2: A study of the work and employment policies of Japanese multinational corporations in Indonesia in light of institutional changes in both countries

Joey Soehardjojo
Warwick Business School

Historically, Japanese multinational corporations (JMNCs) sought resources in Southeast Asia securing raw materials and taking advantage of cheap labour in offshore production. After the Asian financial crisis, JMNCs identified new growth regimes and intensified their economic involvement in ASEAN regional integration. Japan has been the major FDI player in Indonesia’s market, and Indonesia has managed to attract the greatest FDI in ASEAN since the mid-1990s. In recent years in Indonesia, a number of Japanese automotive plants have opened and are fully operating under Japanese management to serve Southeast Asia’s emerging markets. This paper examines the study of work, employment and organisational practices adopted by JMNCs in Indonesia. Its aim is to develop an since the 1990s, and applies comparative labour market institutions analysis to the Indonesian context, i.e. human capital development, labour policies and interaction between social economy actors. The primary topics of this paper are: (1) home-country effects; (2) host-country effects; and (3) interactions between the two on the work and employment practices of JMNCs in Indonesia, and how the practices of JMNCs have an impact on Indonesia’s institutional context. It focuses on socioeconomic and political economy differences between Japan and Indonesia in relation to the employment practices of multinational corporations through the lens of comparative capitalism and Asian business theory approaches of Japan and Indonesia.


Paper 3: Trust, shari’ah regulation and everyday Islamic banking practices

Michaela Muscat
London School of Economics

Islamic banking is unique in its reliance on regulation informed by religious norms and rules. The state-driven development of shari’ah regulation is central to its purported Islamic value and its unique position as an ethical financial sector. It is the generalised trust in the values underpinning shari’ah regulation, and the shari’ah experts who give it their blessing, that enables the elective affinity underpinning demand for Islamic banking. This paper develops the analysis of shari’ah regulation by examining the relationship between trust and laypeople’s everyday Islamic banking practices. My findings, which emerged during my fieldwork in Kuala Lumpur, reveal that for those who perceive Islamic value, trust in shari’ah regulation is the first condition to their choice (Islamic banking) and has “extrinsic instrumental value in helping to reduce the risks”, associated to choosing Islamic banking (Nooteboom 2007:30). Thus, trust in shari’ah regulation and its experts is the primary embedding mechanism of everyday Islamic banking practices. I will go on to show that the trust in shari’ah regulation, depends on two main factors: trust in the workings and underlying values of the shari’ah regulatory regime, and trust in the “competence and cognitive intensions” (Nooteboom 2007:35) of the shari’ah scholars as ‘flesh-and blood’ expert intermediaries of shari’ah regulation (Giddens 1990). Trust has a significant purpose; it is the ‘glue’ underpinning Malays’ everyday Islamic banking practices. Using three ideal types, I show that trust in abstract systems is a thoroughly modern phenomenon linked to reflexivity, routine and the unique quality of trust: the leap-of-faith.

Paper 4 : Gender, Geography, and Household Income: The Determinants of Islamic School Choice in Indonesia

M Niaz Asadullah
University of Malaya

Using a large data set on Indonesian households and villages, we study the determinants of enrolment in recognized Islamic schools (i.e. madrasahs) and private schools vis-à-vis government schools. Multinomial logit estimates indicate that madrasahs systematically attract children from poorer households, rural locations and less educated parents while the opposite is true for private school enrolment. Moreover, girls are significantly more likely to be in madrasahs while boys in schools, particularly in urban areas. The overall level of economic development of the village (e.g. availability of different types of schools, presence of village cooperatives for savings and loans and so on) reduces madrasah participation. However a significant effect of household poverty remains even after factoring out the influence of child characteristics, parental background, and village characteristics. Therefore policies that reduce poverty are likely to reduce demand for Islamic schooling. However the presence of a “girl effect” in madrasah enrolment independent of household income underscores the need to better understand the socio-cultural determinants of school choice in Indonesia. Among other things, we also discuss regional pattern of madrasah enrolment in Indonesia.