Each year, Stanford Ph.D. candidates specializing in contemporary Asia join APARC as predoctoral fellows to advance their work in a collaborative research environment. This academic year, Ph.D. candidate in Economics Sally Zhang is using her time at APARC to form professional connections with a network of interdisciplinary scholars and finalize her dissertation. In it, she provides the first direct empirical evidence that working household members hide employment income from one another. Using a nationally representative dataset in Indonesia and field survey data collected in Kenya, she shows that workers hide up to 20% of their income from other household members.

In this post, Zhang describes her predoctoral fellowship experience at APARC and discusses her research on intrahousehold allocations in developing countries. APARC's predoctoral fellowship is now accepting applications for the 2023-24 academic year.

Most people do not live alone but rather in households where they can care for one another. Households make many important economic decisions that affect the welfare of their members, such as where to live, what to purchase, and how much to invest in children's nutrition and education. However, not all members of the household benefit equally from its decisions. Indeed, previous literature has found that women and children are more likely to live in poverty than men, even within the same household. So, understanding how households make decisions can help us create policies that reduce poverty and promote gender equality.

In my fieldwork, I learned that household members often do not share information about their income with one another, and many hide income from others in the household. I took an interest in studying this topic because without accurate knowledge of household income, households may be unable to make the best decisions, especially when resources are already limited. For example, if households underinvest in children's human capital due to income hiding, this can lead to worse development outcomes for the children and perpetuate the cycle of poverty. However, not much economic literature has been devoted to this topic.

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In my paper, "Hidden in Plain Sight: Asymmetric Information and Hidden Income within the Household," I provide the first direct empirical evidence that working household members hide employment income from one another. Using a nationally representative dataset in Indonesia and field survey data collected in Kenya, I find that workers hide up to 20% of their income from other household members. Income hiding has real implications for household consumption and child development. Children who grow up in households where income is hidden from wives are more likely to be underweight for their age and less likely to be employed in adulthood.

A novel contribution of my paper is that I develop a unique survey-based method of measuring income hiding. Hidden income, by its nature, is difficult to measure. In my paper, I measure hiding by eliciting the same person's income multiple times, varying who answers the question and whether they answer it privately. For example, I compare how much a husband says he earns to how much his wife says he earns. I also compare how much a husband says he earns in private to how much he says he earns when his wife is around. If reported income differs systematically depending on who is doing the reporting and whether other household members are physically present, this suggests that there may be income hiding in the household (In the paper, I rule out alternative explanations such as measurement error or misreporting to the surveyor driving the results). Similarly, I can use the same methodology to measure hidden consumption, hidden savings, and hidden transfers.

I use two datasets in my paper: a nationally representative survey in Indonesia and a field survey that I conducted in western Kenya. Indonesia and Kenya are both lower-middle-income countries with high labor force participation rates. Most workers in these countries are self-employed or work in informal positions, suggesting that their income is easily hidden from others. For example, observing your spouse's income would be challenging if they are a street vendor or a motorbike taxi driver whose income fluctuates daily. By examining hidden income in both Indonesia and Kenya, I show that hidden income is a prevalent phenomenon in the developing world and that my methodology is useful in different contexts.

In both Indonesia and Kenya, I find that working household members hide employment income from other household members. The average magnitude of hiding is between 9% and 20%. In Indonesia, income hiding is correlated with more household spending on tobacco and more transfers to extended families, and less spending on protein-rich food. This is concerning because most low- and middle-income households in Indonesia do not have adequate protein intake, and inadequate protein is a major cause of child malnutrition. Indeed, I find that income hiding is correlated with worse child nutrition, but only when income is hidden from women. Households with measured income hiding from wives are 16% more likely to have underweight children compared to similar households where income is not hidden from wives. As adults, these children still fare worse than their counterparts who grew up in households without measured hidden income: girls are 22% more likely to be underweight, and boys are 7% less likely to be employed. In contrast, income hidden from men is not correlated with worse child outcomes. Such gender differences suggest that people may hide income for different reasons, and understanding why they hide is important for understanding the welfare impact of hidden income. In my ongoing research, I continue to study the causal mechanisms and consequences of intrahousehold hidden income.

I am honored to be a predoctoral fellow at APARC during the 2022-2023 academic year. With a group of interdisciplinary researchers, the center provides me with a unique opportunity to discuss my research with area experts outside my field. In addition, I had the opportunity to form personal connections with other fellows and learn about their diverse research interests and life experiences. Being located in Encina Hall has also encouraged me to attend events and meet scholars from different institutes across the Freeman Spogli Institute for International Studies, such as young researcher workshops at the Stanford Center on China's Economy and Institutions.

As a sixth-year graduate student, I am primarily focused on completing my dissertation and exploring potential opportunities on the job market. I am deeply grateful for the relationships and opportunities that I have gained through APARC, as they will undoubtedly be invaluable to me in my future professional development.

The Freeman Spogli Institute for International Studies (FSI) is pleased to announce that Ambassador Scot Marciel has been appointed the Oksenberg-Rohlen Fellow, working within the Walter H. Shorenstein Asia-Pacific Research Center (Shorenstein APARC). Mr. Marciel has more than 35 years of experience in diplomacy and public policy, much of it focused on Southeast Asia. Most recently, he was a visiting scholar and practitioner fellow on Southeast Asia at APARC.

“Scot brings a deep understanding of Southeast Asian nations and unique expertise on the policy dynamics that have shaped the course of U.S.-Southeast Asia relations,” said Gi-Wook Shin, director of Shorenstein APARC. “We are fortunate to have him with us at APARC as we continue working together to bridge the worlds of scholarship and practice to foster intellectual exchange and policy dialogue on Southeast Asia and U.S. interests in the region.”

During his foreign service career, Marciel served as U.S. ambassador to Myanmar from March 2016 through May 2020, leading a mission of 500 employees during the difficult Rohingya crisis and spearheading U.S. efforts to normalize the bilateral relationship with Myanmar during its democratic transition. He also served as U.S. ambassador to Indonesia from 2010 to 2013 and the first U.S. ambassador for ASEAN affairs from 2008 to 2010. He twice served as the senior U.S. official responsible for relations with Southeast Asia in the State Department, first as deputy assistant secretary of state for East Asia and the Pacific and later as principal deputy assistant secretary of state for East Asia and the Pacific.

Early in his career, Marciel opened and led the U.S. State Department’s first post-war office in Hanoi, Vietnam, and worked in the U.S. embassies in the Philippines and Hong Kong. His other assignments included posts in Turkey, Brazil, and in the State Department’s Office of Monetary Affairs.

Marciel is the author of the forthcoming book Imperfect Partners: The United States and Southeast Asia, which will be published by Shorenstein APARC in fall 2022. Drawing on his extensive experience as a former senior U.S. diplomat and his direct involvement in some of the most pivotal turning points in America’s relationships with Southeast Asian nations, the book analyzes important domestic developments in the region, examines the interplay between them and U.S. policy toward Southeast Asia, and considers the way forward in U.S. engagement with the region.

“I'm looking forward to continuing to write and speak about critical, current policy issues in Southeast Asia, ranging from the Myanmar crisis to U.S. efforts to bolster its economic diplomacy," said Marciel.

Marciel earned a master’s degree from the Fletcher School of Law and Diplomacy and a bachelor’s degree from the University of California at Davis.

This article originally appeared in The Jerusalem Strategic Tribune.

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The numbers tell part of the story. While US merchandise trade with the Southeast Asian region grew by a respectable 62.4% from 2010 to 2019 (the last pre-pandemic year), China’s trade increased by an impressive 115% during the same period, according to the statistics of the Association of Southeast Asian Nations (ASEAN). Over a longer period, the US share of the region’s total merchandise trade fell from 16.1% in 2000 to 11.6% in 2020, while China’s share rose from 4.3% to 19.4%. Although infrastructure investment numbers are harder to come by, there is no question that China is playing a much more significant role in Southeast Asian infrastructure development than the US.

Some of the relative decline in the US economic role in the region is the inevitable result of China’s dramatic economic growth and the resulting increased trade and investment. That trend, however, only partly explains the US predicament. Over the past 10–20 years, Beijing has been much more aggressive in its economic statecraft than Washington. Beijing signed a Free Trade Agreement with ASEAN, then joined a new multilateral trade agreement—the Regional Cooperation and Economic Partnership (RCEP)—and more recently asked to join the high-standard Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free trade accord. On infrastructure, China established the Asian Infrastructure Investment Bank and the high-profile Belt and Road Initiative (BRI), which aims to funnel billions of dollars into infrastructure projects in Southeast Asia and elsewhere.

The BRI initiative generally has been welcomed in the region for one simple reason: Southeast Asia has huge and urgent infrastructure needs—estimated by the Asian Development Bank to be $210 billion per year through 2030—that it cannot meet by mobilizing domestic resources. Through BRI, Beijing is offering to meet a portion of those needs with greater speed and fewer conditions than other would-be partners. Southeast Asian governments have lined up for BRI projects, with outgoing Philippine President Rodrigo Duterte, Indonesian President Joko Widodo, and former Malaysian Prime Minister Najib Razaq having signed on for more than $20 billion of BRI-funded infrastructure projects in the 2015–2018 period. Although the BRI has been the subject of substantial criticism for overpromising, project delays, quality problems, employing Chinese rather than local labor, and raising the host government’s debt obligations, the initiative still dominates the discussion of infrastructure in the region.

The US, meanwhile, has underperformed in terms of its economic diplomacy. Most importantly, in 2017 it summarily withdrew from its primary economic initiative in the region, the Trans-Pacific Partnership (TPP) free trade agreement. President Trump’s decision to pull out of that accord was a severe geostrategic and economic blunder, as TPP would have bound the US into the broader region for a generation or more, as well as facilitated greater US trade with a number of fast-growing economies. With the US out of the TPP and China joining RCEP, the prospects are for a growing percentage of ASEAN trade to be with China (and other RCEP partners) and for the US and American businesses to lose further ground.

The US also has struggled to compete on infrastructure. The US is not going to match China, particularly in areas such as road, rail, and port development, but it could do more. The Trump administration launched several initiatives—including the Blue Dot Network, Clean EDGE Asia, and the establishment of the Development Finance Corporation (DFC), a larger, more ambitious version of the Overseas Private Investment Corporation (OPIC), a federal entity that helps insure US ventures abroad—all of which sought to leverage private sector funding to offer high-quality projects. The Biden administration has followed up with the Partnership for Global Infrastructure and Investment, announced in June in coordination with G-7 partners, and promised via the Quad $50 billion in infrastructure funding. To date, however, these initiatives generally have not significantly changed the overall infrastructure picture in the region.

The US failure to engage in the region’s burgeoning free trade networks—combined with the big splash that China’s BRI initiative is making and the lack of a countervailing American initiative—is fueling the perception in the region that the US is a declining economic player. In an ASEAN 2021 survey of regional opinion leaders, 76% believed China was the most influential economic partner in the region, compared to less than 10% who felt that way about the US. Even more telling, I recall asking a senior Myanmar economic minister in 2017 why he had led private-sector roadshows to China, Japan, and South Korea but not the US, and he replied: “We didn’t even think of the US.”

Thus, the US faces a problem of both reality and perception. To address this, the US does not need to match Chinese numbers. It does, however, need to find a way to re-energize its trade engagement and to become a more significant player in Southeast Asian infrastructure, and to do so in ways that change the narrative in the region.

Recognizing this reality, the Biden administration recently launched the Indo-Pacific Economic Framework (IPEF), which is expected to result in negotiations on trade, supply chains, clean energy, and decarbonization, as well as on tax and corruption issues. The administration touted this initiative as reflecting the needs and realities of the 21st-century global economy. The good news is that seven of the ten ASEAN member nations signed onto IPEF, presumably reflecting their interest in greater US economic engagement and their hope that IPEF can produce just that. Skeptics say the initiative does not offer the promise of greater access to the US market via tariff reductions, which normally would be the carrot to entice other governments into adopting the high standards Washington wants. Also, as Matthew Goodman of the Center for Strategic and International Studies has pointed out, the fact that the administration is unwilling to take any negotiated agreement to Congress for ratification is likely to raise doubts in the minds of Asian partners about the IPEF’s durability, since a future administration can easily toss it aside.

Despite or maybe because of these doubts, the US needs to do all it can to turn the IPEF into something that is economically meaningful. Can it produce a digital trade agreement, real substance on strengthening supply chains, or can it possibly even use trade facilitation tools to enhance market access as former senior US trade official Wendy Cutler has suggested in a recent podcast hosted by the Center for Strategic and International Studies? It is too early to say, but the bottom line is that many in the region—and indeed even in the US—will remain privately doubtful until and unless the IPEF shows that it can result in tangible business and economic benefits.

The White House put the IPEF forward because it believes it lacks the political support either to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or to launch another significant trade initiative. The domestic politics of trade might be tough right now, but that is not an excuse that is going to go very far in Southeast Asia. The region is not going to say “no problem, we understand.” Instead, it will go ahead without the US. If Washington wants to maintain influence, it needs to find a way to make the domestic politics on trade work. That almost certainly will entail appealing to bipartisan concern about Chinese geostrategic dominance, as trade alone probably will not sell.

On infrastructure, the various US initiatives to date have disappointed to some extent, although the Development Finance Corporation has been a step in the right direction. They do little other than offer the prospect of quality to give the US a competitive edge over Chinese-funded projects. The Chinese offer relatively speedy approval processes, low or zero conditionality deals, and complete project packages, including financing. Chinese state companies often are willing to undertake projects that do not appear to be commercially viable. Plus, Chinese political leaders weigh in personally to push the projects forward. I have seen this on the ground, in Indonesia and Myanmar, countless times. The Chinese pull out all of the stops, with intensive lobbying and full financing, and they often win.

Economic officials in the region complain that the multilateral development banks and Japan, which also offer substantial infrastructure deals, move much more slowly and laboriously than China. The design, discussion, and approval process often takes many years. With the US, it is almost always the private sector taking the lead, and private American companies have a hard time finding well-developed, “bankable” infrastructure projects in the region. Plus, US companies often come to the table without full financing or even all the pieces of the project. Government lobbying and financing usually lags, if it is there at all.

If the US is going to compete effectively for infrastructure projects in the region, it is going to have to change the way it does business. To begin with, the US will have to make it easier for Southeast Asian governments to say “yes” to deals. That means offering the full project package, including financing, and accelerating the project preparation and approval timeline to come closer to matching that of the Chinese. It also means more government funding for project development along with heavy US government lobbying, including by the president when appropriate, for major projects. The US is not going to engage in bribery or support projects that destroy communities or the environment, nor should it. But it needs to use just about all the other available tools to compete.

The US should consider establishing an overseas infrastructure czar in Washington who can lead and oversee government-business teams that identify potential projects where the US can compete, put together a full project package, including private and public financing, and then aggressively lobby the host government for approval. I often hear that the US does not work that way on overseas business. Perhaps, but if Washington wants to win some victories—and more significant projects—it needs to be willing to adopt new thinking.

Re-engaging on trade and winning more infrastructure deals are essential, but there is one more thing the US needs to do to reverse the perception that it is a declining economic player in Southeast Asia. It needs to do a much better job of telling its economic story. For example, the US remains the largest foreign investor in Southeast Asia, but I am willing to bet few people in the region know that. Similarly, America remains a huge market for Southeast Asian exports, just slightly smaller than China, but again that is not well known or much talked about in the region. The US should devote more resources and time to telling this story and to reminding the region of the incredible power of American private sector innovation and the US commitment to quality investment. Better communications alone will not solve the problem, but combined with trade and infrastructure initiatives it can help the US persuade the governments and people of Southeast Asia that it remains a major economic partner.

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Conceptualizing China as an Unconventional Great Power

Most studies on China’s presence in Southeast Asia tend to focus on China’s power dynamics and how it wields it to gain influence within the region. The emphasis is on intention and causation: how China willingly uses its power to coerce, coopt, or persuade Southeast Asian states to behave in particular ways. This characterization, Han argues, ignores the contemporary Chinese state as fragmented, decentralized, and internationalized. Han goes beyond this conventional approach to explore the variety of actors and the intended versus unintended outcomes associated with China’s presence in Southeast Asia. It is necessary to understand such nuance and complexity, he claims, if we are to make sense of China’s relations with Southeast Asian states.

China’s presence in Southeast Asia is by no means monolithic, notes Han. Rather, it takes numerous everyday forms and involves not only state actors, such as diplomatic missions and state-owned enterprises, but also non-state actors that may or may not be closely associated with the Chinese state. These include civil society organizations, private businesses, and ordinary Chinese citizens who reside in Southeast Asia for work, study, or retirement, in addition to Chinese tourists. The actions of these multiple stakeholders can have intended and unintended consequences, Han argues. In particular, the effects of non-state Chinese actors’ daily encounters with local communities in Southeast Asia deserve attention, he says.

Shadow Economy and Offshore Gambling in Eastern Myanmar

Consider, for instance, the case of the “new city” of Shwe Kokko in Myanmar’s Southeastern Kayin State (known as 'Karen State' among the ethnic-Karen population living there), on the border with Thailand. The emerging “Chinatown” project in Shwe Kokko began attracting international attention as capital investment flowed into the former farmland on the banks of the Moei River and residential complexes, hotels, shops, Chinese restaurants, and glitzy casinos sprang up. Allegations of Chinese mafia involvement have plagued the massive city project, and media outlets and Western observers attributed culpability to the Chinese government, portraying the project as part of the Belt and Road Initiative.

However, Han points out that empirical details show that the new city project was led by a company headed by a fugitive Chinese businessman fleeing the Chinese government’s crackdown on illegal offshore gambling. Therefore, Shwe Kokko is not quite a case of Chinese Belt and Road Initiative expansionism using complex networks of PRC citizens and ethnic Chinese in a neighboring country to fuel dangerous activities colluding with Chinese officials and government agencies. Instead, it demonstrates how shadow economies like the online gambling industry are responding to regulatory attempts by the Chinese state. According to Han, to make sense of the Shwe Kokko story, one must understand who the non-state actors are and how they interact with local communities in Southeast Asian borderlands.

Market Demand and Agricultural Transformation in Northern Myanmar

Now turn to Northern Myanmar, where Han conducted fieldwork in 2019. Over the past decade, he explains, Northern Myanmar has undergone accelerated deforestation due to rising agricultural production in response to increasing demand for grains such as maize and their elevated global commodity market prices. In Myanmar’s Shan State, which borders China, the expansion of maize cultivation is closely related to a surge in Chinese demand for animal feed resulting from the rising domestic consumption of meat. However, a Chinese state ban on maize import from Myanmar had created rampant smuggling coupled with irregular enforcement of border inspections and schisms between the commodity production cycle and financing for local farmers.

One may draw a correlation between the rising demand for meat consumption in China that seemingly created a ripple effect in Myanmar, leading to the expansion of maize cultivation, deforestation, and economic precarity for local farmers. But then again, is this a case of Chinese influence operations? There is no evidence pointing to such deliberate attempts by the Chinese state to influence its neighboring country, although the resulting economic and environmental consequences are related to conditions in China.

Thus, Han argues, understanding an increasingly globalized China and its variegated impacts around the world requires conceptual flexibility. In particular, when referring to China's presence and influence in Southeast Asia, one must not assume a monolith with hegemonic designs for its neighboring states but rather differentiate between multiple types of actors with long histories and multifaceted consequences, both intended and unintended.

China is ready to rock with the Treaty of Bangkok.

In a rare appearance at the special online summit for the Association of Southeast Asian Nations (ASEAN) on Nov. 22, China’s President Xi Jinping announced that China is prepared to sign the protocol of a 1995 agreement that establishes Southeast Asia as a nuclear-weapon-free zone. Under the agreement, known as the Bangkok Treaty, 10 regional states renounce the right to nuclear weapons in any form within the ASEAN zone. If it joins the treaty, China would agree not to use or threaten the use of nuclear weapons within the zone or against its members. It would make China the first nuclear-weapon state to adhere.

Read the rest at Lawfare Blog