Independent Variable: Oil Vulnerability Indicator

The OV indicator is made up of market and supply risks.63 _{Market risks relate to} the effect of fluctuations of oil prices on national economies, such as inflation. In this project, they are measured by: (1) per capita cost of imported oil as a percentage of the economy’s per capita GDP (all in US$); and (2) oil consumption as a percentage of the total primary energy consumption. Supply risks relate to an economy’s vulnerability to oil supply disruptions. The supply-risk measures chosen are: (1) oil self-sufficiency rate; and (2) the amount of crude an economy imported as a percentage of the global crude imported of the same period. The logic for this second measure is that the higher this percentage is, the more difficult it would be to acquire the amount needed due to market liquidity issue during supply disruption situations. Equal weights are given to all four measures, which are normalised so that a higher overall score means a higher OV.64 _{Table 3.5 below summarises} the 2013 OV of all nine case-study economies, 100 being the highest and 0 being the lowest. The right hand column shows their corresponding trichotomous OV, that is the IV levels in this study:65

Country Oil Vulnerability Trichotomous OV (IV) Level

China 23.18 Low India 28.15 Low Indonesia 21.90 Low Japan 38.80 High Philippines 33.91 Medium Singapore 47.66 High

South Korea 36.44 Medium

Taiwan 35.36 Medium

Thailand 28.11 Low

Table 3.5 Oil Vulnerability of Nine Asian Net Importing Economies in 2013 2.3 Intervening Variable 1: Strength of Private Capital

In this section, I examine the strength of private capital by investigating the overall economic freedom in the nine case studies in 2013. The results of two “off-the-shelf” indicators are averaged to obtain the readings used in this study. The proposed model

63 _{The OV index developed by Eshita Gupta, which the OV indicator in this project is simplified and}

adapted from, has four different measures or each of the two types of risks. See “Oil Vulnerability Index of Oil-Importing Countries,” Energy Policy 36 ((2008); 1198-1200.

64 _{In a natural setting, the higher the value of the first supply risk measure (oil self-sufficiency rate),}

the lower the OV. So this indicator will be normalised to reflect the same direction as the other three indicators: Higher values indicate higher OV.

65 _{For details of the calculation of countries’ OV in 2013, see Table A3, Appendix B. The same}

principle of how the trichotomous levels are devised described in footnote 62 also applies here and in the rest of this chapter except noted otherwise.

65 expects that the freer and more open an economy is at any given time, the stronger private capital in it would be versus the state.

I use the Index of Economic Freedom (IEF) put out by the Heritage Foundation and the Wall Street Journal and the Economic Freedom of the World (EFW) Annual Reports released by the Fraser Institute. Both assign an annual overall score of economic freedom to each economy surveyed. For the IEF, 10 components in the four major categories of rule of law, limited government, regulatory efficiency, and open markets;66 _{the five components of} the EFW are size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation.67 _{Both of these indexes take into consideration a} wide range of economic and legal/regulatory status quo that reflect the power equilibria of major stakeholders in an economy. They are, therefore, fair representations of the spirit of the reasoning of the proposed model.

The IEF scores range from 0 to 100, 100 being “the freest” while the EFW spans from 0 to 10. Since the scores of the other two indicators in this project range from 0 to 100 (and to facilitate comparison), the EFW scores are adjusted to the same scale. The two scores of each economy are then averaged to gauge the overall economic freedom of the nine case studies in this project.68 _{Table 3.6 below presents these scores and the trichotomous levels} of economic freedom, which are also the historical-institutional strength of private capital of the case-study economies in 2013:

Economy IEF with 2013 Data EFW with 2013 Data (adjusted) Combined Average Economic Freedom Scores Economic Freedom (Private Capital Strength) Level China 52.5 64.4 58.45 Low India 55.7 66.1 60.90 Low Indonesia 58.5 71.7 65.10 Medium Japan 72.4 75.0 73.70 High Philippines 60.1 70.7 65.40 Medium Singapore 89.4 83.9 86.65 High S. Korea 71.2 71.9 71.55 Medium

66 _{“About the Index,” accessed 14 May 2014, http://www.heritage.org/index/about. On the website,}

it says 12 factors are taken into consideration, but for 2013 data, only 10 are used for calculation on the spreadsheet for downloading on its site, which is the source for the analysis in this study: (http://www.heritage.org/index/download ).

67 _{James Gwartney, Robert Lawson, and Joshua Hall, Economic Freedom of the World 2014 Report}

(Fraser Institute, 2014), 231-243.

68 _{This means I simply multiply the original EFW scores by 10. The IEF scores are from the 2014}

index, which covers data from the second half of 2012 and the first half of 2013. See “About Index” and “Explore the Data” pages, accessed 10 November 2014, http://www.heritage.org/index/about. For the actual IEF scores, see Terry Miller, Anthony B. Kim, and Kim R. Holmes, “Highlights of the 2014 Index of Economic Freedom,” accessed 1 December 2015,

http://thf_media.s3.amazonaws.com/2014/pdf/Index2014_Highlights.pdf. The EFW scores are drawn from the 2015 report which covers 2013 data. See James Gwartney, Robert Lawson, and Joshua Hall Economic Freedom of the World 2015 Report (Fraser Institute, 2015), 17-20.

66

Taiwan 73.9 78.4 76.15 High

Thailand 63.3 65.9 64.60 Low

Table 3.6 Economic Freedom Scores and Private Capital Strength Levels of Nine Case-Study Economies in 2013

The results show that in 2013 China, India, and Thailand had a low trichotomous level of overall economic freedom among the cohort of nine Asian-Pacific economies examined in this plausibility probe. China scored the lowest in both indicators overall, but it actually only scored the lowest in three of the 10 components that make up the IFE indicator for that year. These three components are “property rights,” “investment freedom,” and “financial freedom.” India scored the second lowest on the IFE index and also ranked the bottom in three components: “business freedom,” “monetary freedom,” and “trade freedom.” Thailand did not rank the lowest in any of the IFE index components, but ranked lower than both China and India in one of the five categories investigated by the EFW indicator: “Legal System and Property Rights.”

Indonesia, the Philippines, and South Korea had a medium trichotomous level of overall economic freedom. The scores of Indonesia and South Korea were very similar, but South Korea’s was noticeably higher, meaning it enjoyed a freer economy and private capital there was stronger than in the other two medium-level countries in 2013.

Japan, Singapore, and Taiwan had a high level of overall economic freedom, with Singapore scored much higher than the other two in both indicators. In fact, Singapore received the highest scores in nine out of the 10 components of the IEF indicator. It only scored lower than Japan for “Monetary Freedom.” Japan, however, scored the lowest among all nine case studies in 2013 for “Fiscal Freedom” in the IEF indicator. This component compares individual income and corporate tax rates among economies to judge the “freedom” the public had in spending their income or revenues after fulfilling their tax obligations. Taiwan ranked the second highest in both indicators and received higher scores in four of IEF’s 10 components than Japan: “Investment Freedom,” “Trade Freedom,” “Business Freedom,” and “Fiscal Freedom.” Singapore received the highest scores in four of the five categories investigated by the EFW indicator, but scored lower than Japan, South Korea, and Taiwan in “Sound Money,” which measures “money growth,” inflation, and freedom to own foreign currency bank accounts.