The Rise of Asia
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The Rise of Asia

The ‘Flying-Geese’ Theory of Tandem Growth and Regional Agglomeration

Terutomo Ozawa

Terutomo Ozawa introduces a newly reformulated theory of ‘flying-geese’ economic development, exploring Asia’s dynamic growth and financial development. This unique book shows how the flying-geese theory can be expanded and applied to both the real- and the financial-sector structural transformation of regionally clustered economies.
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Chapter 7: Borrowed Growth: Balance of Payments, Capital Flows, and Development Finance

Terutomo Ozawa


THE ROLE OF FINANCE IN ECONOMIC DEVELOPMENT 7.1. How a catching-up country may climb the ladder of economic development is examined in earlier chapters. Asian countries have been capitalizing on the growth opportunities created by global capitalism, and in turn boosting the forces of globalization as they themselves further integrate into, and shape, the world economy. Yet, so far we have looked only at real-sector catch-up growth (though we did briefly touch on the role of exchange rates as a prompter of industrial upgrading). It is time to take account of the financial dimension of growth. How has the catch-up in the real economy been financed? What sorts of financial markets and products have been brought into existence as Asian economies climbed onto the higher stages of growth? What is the role of the government in financial development at different stages? In other words, we need a financial-sector model of growth comparable to and consistent with its real-sector counterpart. The purpose of this chapter is to introduce the money-side story of the FG model of growth. We will first consider the notion of ‘borrowed growth’ as the critical feature of US-led growth clustering, and will conceptually explore the ‘business-cycle-magnification’ effect of the current account-(CA)-deficitbased financing of economic growth. That is, the danger of ‘externally originated (via the financial account) balance-of-payments (BOP) imbalance’ is analyzed so as to relate to the currency and financial crises of Asian countries during the late 1990s, America’s recent longest boom with its record...

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