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Crisis, Adjustment, and Reform in Thailand's Industrial Firms

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  • Dollar, David
  • Hallward-Driemeier, Mary

Abstract

New data on Thailand's industrial firms shed light on the origins of the East Asian financial crisis and on the response of the manufacturing sector to the structural adjustment program supported by the international financial institutions. Before the crisis, Thai firms had declining profitability, but they nevertheless maintained high levels of investment, often in domestically oriented areas (notably the auto sector). Thai firms financed these investments with short-term borrowing from financial institutions, which in turn borrowed short term on foreign markets. That only 40 percent of firms provided audited financial statements to their banks meant that the financial sector had poor information for assessing the true riskiness of these investments. The financial structure was thus vulnerable even to small shocks. How well did the adjustment program deal with the crisis? Thai firms had difficulty increasing their exports quickly because of investment in the wrong sectors, a decline in regional demand, and bottlenecks that included red tape and poor customs administration. Because of the poor export response, the brunt of adjustment had to come through compression of demand and of imports. In retrospect, the macroeconomic program--which assumed quick export recovery--was too tight. Copyright 2000 by Oxford University Press.

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  • Dollar, David & Hallward-Driemeier, Mary, 2000. "Crisis, Adjustment, and Reform in Thailand's Industrial Firms," World Bank Research Observer, World Bank Group, vol. 15(1), pages 1-22, February.
  • Handle: RePEc:oup:wbrobs:v:15:y:2000:i:1:p:1-22
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    1. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
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    1. Stijn Claessens & Daniela Klingebiel & Luc Laeven, 2001. "Financial Restructuring in Banking and Corporate Sector Crises: What Policies to Pursue?," NBER Working Papers 8386, National Bureau of Economic Research, Inc.
    2. Mary Hallward-Driemeier & Giuseppe Iarossi & Kenneth L. Sokoloff, 2002. "Exports and Manufacturing Productivity in East Asia: A Comparative Analysis with Firm-Level Data," NBER Working Papers 8894, National Bureau of Economic Research, Inc.
    3. Magnus Saxegaard, 2006. "Excess Liquidity and Effectiveness of Monetary Policy; Evidence from Sub-Saharan Africa," IMF Working Papers 2006/115, International Monetary Fund.
    4. Rahman, Asheq & Yammeesri, Jira & Perera, Hector, 2010. "Financial reporting quality in international settings: A comparative study of the USA, Japan, Thailand, France and Germany," The International Journal of Accounting, Elsevier, vol. 45(1), pages 1-34, March.
    5. Michael P. Dooley & Sujata Verma, 2003. "Rescue Packages and Output Losses Following Crises," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 125-186, National Bureau of Economic Research, Inc.
    6. Martin Brown & Steven Ongena & Pinar Yeşin, 2014. "Information Asymmetry and Foreign Currency Borrowing by Small Firms," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 56(1), pages 110-131, March.
    7. Clarke, George R.G. & Cull, Robert & Kisunko, Gregory, 2012. "External finance and firm survival in the aftermath of the crisis: Evidence from Eastern Europe and Central Asia," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 372-392.
    8. Brown, M. & Ongena, S. & Yesin, P., 2008. "Currency Denomination of Bank Loans : Evidence from Small Firms in Transition Countries," Discussion Paper 2008-16, Tilburg University, Center for Economic Research.
    9. Recanatini, Francesca & Wallsten, Scott J. & Lixin Colin Xu, 2000. "Surveying surveys and questioning questions - learning from World Bank experience," Policy Research Working Paper Series 2307, The World Bank.
    10. Ikhide, Sylvanus, 2003. "Was There a Credit Crunch in Namibia Between 1996-2000?," Journal of Applied Economics, Universidad del CEMA, vol. 6(2), pages 1-22, November.
    11. Spiros Bougheas & Paul Mizen & Cihan Yalcin, 2007. "An Open Economy Model of the Credit Channel Applied to Four Asian Economies," Working Papers 082007, Hong Kong Institute for Monetary Research.
    12. Khanna, Gaurav & Newhouse, David & Paci, Pierella, 2011. "Fewer Jobs or Smaller Paychecks? Aggregate Crisis Impacts in Selected Middle-Income Countries," IZA Discussion Papers 5956, Institute of Labor Economics (IZA).
    13. Firano, Zakaria, 2014. "Systemic liquidity risk index for Moroccan banking sector," MPRA Paper 95344, University Library of Munich, Germany.
    14. Brown, Martin & Ongena, Steven & Yesin, Pinar, 2009. "Foreign Currency Borrowing by Small Firms," CEPR Discussion Papers 7540, C.E.P.R. Discussion Papers.
    15. Dev Prasad & Yash R. Puri & Ravi Jain, 2015. "Return to Profitabiolity after a Financial Crisis," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(1), pages 89-101.
    16. Boorman, Jack & Lane, Timothy & Schulze-Ghattas, Marianne & Bulir, Ales & Ghosh, Atish R. & Hamann, Javier & Mourmouras, Alex & Phillips, Steven, 2000. "Managing financial crises: the experience in East Asia," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 1-67, December.
    17. Asli Demirgüç-Kunt & Enrica Detragiache, 2005. "Cross-Country Empirical Studies of Systemic Bank Distress: A Survey," National Institute Economic Review, National Institute of Economic and Social Research, vol. 192(1), pages 68-83, April.
    18. Dell'Ariccia, Giovanni & Detragiache, Enrica & Rajan, Raghuram, 2008. "The real effect of banking crises," Journal of Financial Intermediation, Elsevier, vol. 17(1), pages 89-112, January.
    19. Prema-chandra Athukorala, 2006. "Multinational Enterprises and Manufacturing for Export in Developing Asian Countries: Emerging Patterns and Opportunities for Latecomers," Hi-Stat Discussion Paper Series d06-193, Institute of Economic Research, Hitotsubashi University.
    20. Takuji Kinkyo, 2004. "Transmission channels of capital flow shocks: why Korean crisis was so severe," Working Papers 139, Department of Economics, SOAS, University of London, UK.
    21. Agenor, Pierre-Richard & Aizenman, Joshua & Hoffmaister, Alexander W., 2004. "The credit crunch in East Asia: what can bank excess liquid assets tell us?," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 27-49, February.
    22. Hallward-Driemeier, Mary, 2001. "Firm-level survey provides data on Asia's corporate crisis and recovery," Policy Research Working Paper Series 2515, The World Bank.
    23. Mohamed Lamine Mbengue & Mamadou Abdoulaye Konté, 2017. "Is Excess Bank Liquidity within the West African Economic and Monetary Union Explained by Regulations?," International Business Research, Canadian Center of Science and Education, vol. 10(10), pages 106-112, October.
    24. Luc E. Leruth & Yougesh Khatri & J. Piesse, 2002. "Corporate Performance and Governance in Malaysia," IMF Working Papers 2002/152, International Monetary Fund.

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