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Financial liberalization and private sector borrowing in ASEAN 4 economies 1990–2012

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  • Percival Pineda

    (The New School for Social Research)

Abstract

Using quarterly data spanning 1990–2012, this study estimates the optimal debt/net worth ratio for ASEAN 4 economies and whether business indebtedness of the private sector in Indonesia, Malaysia, the Philippines, and Thailand was excessive during the period. Using the single-equation model from Stein’s stochastic optimal control-dynamic programming, I find that increased capital inflows and lower borrowing costs following financial liberalization spurred excessive borrowing before Asia’s 1997–1998 financial crisis. Results confirm Stein’s theory that rising excess indebtedness signals an impending financial crisis.

Suggested Citation

  • Percival Pineda, 2017. "Financial liberalization and private sector borrowing in ASEAN 4 economies 1990–2012," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 7(2), pages 277-295, August.
    • Handle: RePEc:spr:eurase:v:7:y:2017:i:2:d:10.1007_s40822-017-0066-0
    DOI: 10.1007/s40822-017-0066-0
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    2. Mutarindwa, Samuel & Schäfer, Dorothea & Stephan, Andreas, 2021. "Differences in African banking systems: causes and consequences," Journal of Institutional Economics, Cambridge University Press, vol. 17(4), pages 561-581, August.

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    More about this item

    Keywords

    Financial crises; Capital flows; Debt/equity ratio; Over-leverage;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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