The decline of investment in east asia since the asian financial crisis

An overview and empirical examination

Donghyun Park, Kwanho Shin, Juthathip Jongwanich

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

A key legacy of the Asian financial crisis of 1997-1998 is a sustained drop-off in the investment rates of East Asian countries that were hardest hit by the crisis. We first review the stylized facts of investment in those countries, and then explore and evaluate the various possible explanations for the decline in investment. In our empirical analysis, which expands upon Park and Shin (2009) by updating the data to include 2005-2008, we investigate the extent to which the investment rates of Asian countries can be explained by the underlying fundamental determinants of investment such as gross domestic product (GDP) growth and demographic variables. We also empirically revisit the various hypotheses put forth to explain the investment drop-off, in particular competitive pressures from the People's Republic of China and heightened risk and uncertainty. Our analysis yields two main findings: (i) some evidence of overinvestment in the precrisis period but (ii) very little evidence of underinvestment in the postcrisis period. The results suggest that investment rates are currently more or less at appropriate levels despite their postcrisis decline. The salient policy implication is that quantitatively boosting investment may be less important for future growth than enhancing the investment climate.

Original languageEnglish
Pages (from-to)1-32
Number of pages32
JournalADB Economics Working Paper Series
Volume187
Publication statusPublished - 2009 Dec 1

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financial crisis
examination
Asia
Asian financial crisis
East Asia
gross domestic product
empirical analysis
Gross Domestic Product
evidence
climate
uncertainty
determinants
China

ASJC Scopus subject areas

  • Economics and Econometrics
  • Geography, Planning and Development
  • Political Science and International Relations

Cite this

The decline of investment in east asia since the asian financial crisis : An overview and empirical examination. / Park, Donghyun; Shin, Kwanho; Jongwanich, Juthathip.

In: ADB Economics Working Paper Series, Vol. 187, 01.12.2009, p. 1-32.

Research output: Contribution to journalArticle

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