This paper examines the effects of private financial (non-FDI) capital inflows in Thailand in the pre-crisis period (1980:I–96:IV). Private capital inflows are found to be associated with higher asset prices, lower lending rates, surges in bank lending and domestic spending driven by higher investment, higher output, modest inflation, and modest real exchange rate appreciation. Inflows are also associated with a greater vulnerability to a liquidity crisis, but not with greater external solvency risk. Current account deficits are temporary, thus sustainable, as exports catch up with higher imports within two years. Consequently, the Thai crisis appears to be more of a liquidity crisis than an external solvency crisis.
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Paper provided by EconWPA in its series Macroeconomics with number
0309012.
Length: 47 pages Date of creation: 17 Sep 2003 Date of revision: Handle: RePEc:wpa:wuwpma:0309012
Note: Type of Document - PDF; prepared on PC; to print on HP, A4 paper; pages: 47 ; figures: included. Final version, forthcoming in Journal of Macroeconomics Contact details of provider: Web page: http://129.3.20.41
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Find related papers by JEL classification: E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy F30 - International Economics - - International Finance - - - General F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
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