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Domestic Investment And External Imbalances In East Asia

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  • Jong-Wha Lee
  • Warwick J. McKibbin

Abstract

Since the 1997-98 financial crisis, many East Asian economies have experienced permanent declines of domestic investment and output growth, mainly resulting from the increase in financial risk and decrease in the return on investment. The investment decline in East Asia, outside of China, combined with the falling in public and private savings in the United States, has contributed to recent surges in global current account imbalances. The reduction of global current account imbalances requires adjustment polices to raise domestic investment in East Asia, such as expansion of public infrastructure investment and an increase in R&D and human capital investment. Continuous structural reforms in the corporate and financial sectors are also required to lower financial risk and improve investment efficiency. Simulations with a global general equilibrium model support the positive role of the investment increase or strong productivity related growth in reducing current account surpluses in East Asia. Nevertheless, a fiscal adjustment in the United States turns out to be more effective in reducing the US current account deficit and thereby correcting global imbalance.

Suggested Citation

  • Jong-Wha Lee & Warwick J. McKibbin, 2007. "Domestic Investment And External Imbalances In East Asia," CAMA Working Papers 2007-04, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2007-04
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2021-06/4_lee_mckibbin_2007.pdf
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    References listed on IDEAS

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    Cited by:

    1. Joonkyung Ha & Jong-Wha Lee & Lea Sumulong, 2010. "Rebalancing Growth in the Republic of Korea," Working Papers id:3120, eSocialSciences.
    2. Herrmann, Sabine & Winkler, Adalbert, 2009. "Real convergence, financial markets, and the current account - Emerging Europe versus emerging Asia," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 100-123, August.
    3. Rod Tyers & Ying Zhang & Tsun Se Cheong, 2013. "China’s Saving and Global Economic Performance," Economics Discussion / Working Papers 13-20, The University of Western Australia, Department of Economics.
    4. Rod Tyers & Yixiao Zhou, 2019. "Financial Integration and the Global Effects of China's Growth Surge," Economics Discussion / Working Papers 19-01, The University of Western Australia, Department of Economics.
    5. Tai-Kuang Ho & Kuo-Chun Yeh, 2014. "The Post-Asian Crisis Drop In Investment: The Cases Of Indonesia, Korea, Malaysia, And Thailand," Contemporary Economic Policy, Western Economic Association International, vol. 32(3), pages 618-638, July.
    6. Philip R. Lane & Sergio L. Schmukler, 2006. "The international financial integration of China and India," Proceedings, Federal Reserve Bank of San Francisco, issue jun.
    7. Vipin Arora & Rod Tyers & Ying Zhang, 2014. "Reconstructing the Savings Glut: The Global Implications of Asian Excess Saving," CAMA Working Papers 2014-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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