What Makes Developing Asia Resilient in a Financially Globalized World?

58 Pages Posted: 18 Jun 2010

See all articles by Hiro Ito

Hiro Ito

Portland State University - Department of Economics

Juthathip Jongwanich

Asian Development Bank

Akiko Terada-Hagiwara

Asian Development Bank

Date Written: December 1, 2009

Abstract

The pullbacks of capital inflows to developing Asia following the onset of the global financial crisis in 2008 have brought renewed attention to the role and benefits of financial globalization. A number of notable distinctions between the current global crisis and the Asian financial crisis have become evident. Solid domestic institutions, especially in the financial sector; swift policy responses; and a sound macroeconomic environment with adequate reserves have helped the region to manage well the adverse impacts of the global crisis. Empirical analysis examining the link between capital account openness and output volatility reveals that a developing country with a more open capital market tends to experience lower output volatility, contrary to what might be expected. It is also found that countries can mitigate the destabilizing effect of pursuing greater exchange rate stability by holding a sufficiently high level of foreign reserves. Furthermore, if they want to reap the benefit of financial liberalization to reduce output volatility, highly integrated economies need to be equipped with highly developed financial markets, particularly of banking and stock markets.

Keywords: Financial Globalization, Financial Development, Output Volatility, Trilemma

JEL Classification: F36, F21, F32, E32, O50

Suggested Citation

Ito, Hiro and Jongwanich, Juthathip and Terada-Hagiwara, Akiko, What Makes Developing Asia Resilient in a Financially Globalized World? (December 1, 2009). Asian Development Bank Economics Working Paper Series No. 181. Available at SSRN: https://ssrn.com/abstract=1626544 or http://dx.doi.org/10.2139/ssrn.1626544

Hiro Ito (Contact Author)

Portland State University - Department of Economics ( email )

Portland, OR 97207-0751
United States
503-725-3930 (Phone)
503-725-3945 (Fax)

HOME PAGE: www.econ.pdx.edu

Juthathip Jongwanich

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Akiko Terada-Hagiwara

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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