Sources of fluctuations in parallel exchange rates and policy reform in Myanmar

Myanmar maintained a multiple exchange rate system, and the parallel market exchange rate was left untamed. In the last two decades, the Myanmar kyat exchange rate of the parallel market has exhibited the sharpest fluctuations among Southeast Asian currencies in real terms. Since the move to a managed float regime in April 2012, the question arises of whether exchange rate policies will be effective in stabilizing the real exchange rate. This paper investigates the sources of fluctuations in the real effective exchange rate using Blanchard and Quah’s (1989) structural vector autoregression model. As nominal shocks can be created by exchange rate policies, a persistent impact of a nominal shock implies more room for exchange rate policies. Decomposition of the fluctuations into nominal and real shocks indicates that the impact of nominal shocks is small and quickly diminishes, implying that complementary sterilization is necessary for effective foreign exchange market interventions.

Economic impact of political protests (strikes) on manufacturing firms : evidence from Bangladesh

Political protests in the form of strikes, locally known as hartal, remain quite common in the Indian subcontinent countries. Such a form of protests is associated with mass movement, intended to cause a total shutdown of economic activities and often results in coercion, violence, and damage to both public and private properties. Utilizing the World Bank Enterprise survey data of 2007 and 2013 of Bangladesh, this study examines the impacts of hartals on manufacturing firms. We find that political protests significantly increase costs for firms. Using flexible cost function based on factor analysis we see that the factor-neutral effect of strikes is positive and statistically significant, showing evidence of a reduction in firm productivity due to hartals. However, we did not find any evidence for systematic factor re-optimization by firms – in response to political strikes – suggesting that firms do not reallocate factor shares to tackle uncertain and irregular shocks like hartals.

The informal labour market in India : transitory or permanent employment for migrants?

The informal economy is a very important sector of the Indian economy. The National Council of Applied Economic Research estimates that the informal sector - "unorganised sector" - generates about 62% of GDP and provides for about 55% of total employment (ILO 2002, p. 14). This paper studies the characteristics of the workers in the informal economy and whether internal migrants treat this sector as a temporary location before moving on to the organised or formal sector to improve their lifetime income and living conditions. We limit our study to the Indian urban (non-agricultural) sector and study the characteristics of the household heads that belong to the informal sector (self-employed and informal wage workers) and the formal sector. We find that household heads that are less educated, come from poorer households, and/or are in lower social groups (castes and religions) are more likely to be in the informal sector. In addition, our results show strong evidence that the longer a rural migrant household head has been working in the urban sector, ceteris paribus, the more likely that individual has moved out of the informal wage sector. These results support the hypothesis that, for internal migrants, the informal wage labour market is a stepping stone to a better and more certain life in the formal sector.