Title

Economic Fundamentals or Financial Panic? An Empirical Study on the Origins of the Asian Crisis

Abstract

The existing discussions about the origins of the Asian crisis can be summarized into two broad views: the "economic fundamentals" view and the "financial panic" view. This paper attempts to distinguish between these two views empirically by testing external solvency and examining intertemporal borrowing constraints of the three most-affected countries: Thailand, Indonesia and Korea. The evidence indicates that while the external solvency condition was generally satisfied in Indonesia and Korea in the pre-crisis period, it was not in the case for Thailand with a sample extending to the 1990s when massive capital inflows took place and external liabilities of the economy became unsustainable. This suggests that poor economic fundamentals were the main origins of the Thai crisis while financial panic was a more plausible cause of the Indonesian and Korean crises.

Ryuzo MIYAO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059