Asia Rising
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Asia Rising

Growth and Resilience in an Uncertain Global Economy

Edited by Hal Hill and Maria Socorro Gochoco-Bautista

The centre of global economic activity is shifting rapidly towards Asia, driven by a combination of the economic dynamism of China, India and other middle-income Asian countries, and sluggish growth in the OECD economies. The rapid growth and rising global prominence has raised a range of major challenges for Asia and for the rest of the world. This comprehensive, forward-looking book examines these issues through in-depth studies of major Asian economies and an analysis of the key development policy options.
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Chapter 6: Finance

Shin- ichi Fukuda


Most Asian economies achieved remarkable economic growth during the so- called East Asian Miracle, the period of rapid growth that preceded the Asian financial crisis (AFC). That growth was accompanied by high investment ratios that brought substantial capital accumulation to Asia in the 1980s and the first half of the 1990s. However, the AFC not only caused a temporary slowdown of the growth rates but also the persistent stagnation of capital accumulation. Investments that had plummeted in the late 1990s remained low in the following decade. With the exception of the Philippines, investment ratios had experienced significant upward trends before 1997. However, those ratios dropped sharply after 1998, with the exception of the People’s Republic of China (PRC) and Viet Nam, and showed only modest recovery in the 2000s. The modest recovery in investment ratios is in marked contrast with Asian savings rates that remained high both before and after the AFC. This chapter explores how financial development was linked to such investment stagnation in Asia. The AFC began with the currency crisis in Thailand in July 1997 and quickly spread to other Asian countries. Several economists pointed to the vulnerability of Asian financial systems as largely responsible for the crisis, arguing that those systems had fundamental problems of organization and supervision, with implicit government guarantees creating an inefficient allocation of funds that helped deepen the crisis.

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