Table of Contents

A New Financial Market Structure for East Asia

A New Financial Market Structure for East Asia

Edited by Yung Chul Park, Takatoshi Ito and Yunjong Wang

This book contends that the East Asian financial constitution lacks an appropriate infrastructure, resulting in inefficient allocation of high savings and an over-inflated short-term debt market. It goes on to point out that despite high savings, East Asia’s dependency on financial centers outside the region is also relatively high, and that there is no strong region-wide network to connect various financial centers in East Asia.

Chapter 2: Finance and Economic Development in East Asia

Yung Chul Park, Wonho Song and Yunjong Wang

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation

Extract

Yung Chul Park, Wonho Song and Yunjong Wang 1. INTRODUCTION Financial systems and their evolutionary development have been a fundamental component of the overall economic development process in East Asia. This process has been driven by real economic growth and the attendant growth and changes in demand for various types of financial services, by institutional development within the financial system, and by changes in government policies concerning finance. Before the financial crisis broke out in 1997, East Asia’s systems, which are often known as bank-based systems, had been characterized as ‘repressive’ in the sense that loan allocation was controlled and the interest rates on deposits and loans were set – often below market clearing rates – by the government. In many East Asian countries, financial repression was predicated on a development strategy that used finance as an instrument of industrial policy to achieve multiple objectives with considerable success: to promote exports; to build physical infrastructure; and to supply longterm finance at a low cost to firms in manufacturing. In the early 1980s, many East Asian governments began to relax their control over the interest rates and lending policies of banks and other non-bank financial intermediaries, toward fostering capital markets, and gradually opening financial markets to foreign competition. The process of financial liberalization had been accelerated as the liberal ideology of the Washington consensus swept through the region before the crisis broke out in 1997. Since then, a large number of recent studies on the 1997–98 East Asian crisis have blamed the...

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