DEVS 310 Lecture Notes - Lecture 8: Financial Contagion, Washington Consensus, Public Finance

• School: Queen's University
• Department: Global Development Studies
• Course: DEVS 310
• Professor: Mark Hostetler

Document Summary

Week 8: foreign portfolio investment & the asian crisis. Frankel: the asian model, the miracle, the crisis & the fund. More important than the magnitude of the country"s account deficit is how it is financed and how the funds are used. The east asian countries in 1997 relied too much on short-term foreign debt. The main problem in east asia was not macroeconomic, but structural. Excessive leverage (when growth is rapid, high leverage high ratio of debt to equity is sustainable; when growth slows down, firms need to reduce leverage) A banking system based excessively on directed/connected lending and other collusive personal relationships. Industrial policy and other excessive government interference in the economy. There are financial advantages to the rule of law, transparency, freedom of expression, and clearly established procedures for government. International institutions allow creditors to internationalize financial burden.