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Challenges and choices in post-crisis East-Asia: simulations of investment policy reform in an intertemporal, global model

  • Xinshen Diao
  • Wenli Li
  • Erinc Yeldan

The East Asian financial crisis exposed the problems of excessive government intervention in credit allocation and poor supervision of the banking system. We argue that the crisis is an opportunity to reformulate the strategies of growth by way of eliminating politicized intervention on investment. In an intertemporal general equilibrium model, we examine the adjustment processes of the crisis-hit region and the world economies, and investigate the removal of the investment subsidies. Our results suggest that the immediate impact of the crisis on the Asian economies is a contraction of GDP and investment. We also find significant welfare gains in the crisis-hit economies in response to elimination of the subsidies to firm's investment.

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Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 98-07.

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Date of creation: 1998
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Handle: RePEc:fip:fedrwp:98-07
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  1. Corsetti, G. & Pesenti, P. & Roubini, N., 1998. "What Caused the Asian Currency and Financial Crisis?," Papers 343, Banca Italia - Servizio di Studi.
  2. Dalla, I. & Khatkhate, D., 1995. "Regulated Deregulation of the Financial System in Korea," World Bank - Discussion Papers 292, World Bank.
  3. repec:bil:bilpap:964 is not listed on IDEAS
  4. repec:bil:bilpap:981 is not listed on IDEAS
  5. Bardhan, Pranab, 1990. "Symposium on the State and Economic Development," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 3-7, Summer.
  6. Mercenier, J. & Da Conceicao Sampaio De Souza, M., 1991. "Structural Adjustment And Growth In A Highy Indebted Market Economy: Brazil," Cahiers de recherche 9103, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  7. Diao, Xinshen & Somwaru, Agapi, 2000. "An Inquiry on General Equilibrium Effects of MERCOSUR--An Intertemporal World Model," Journal of Policy Modeling, Elsevier, vol. 22(5), pages 557-588, September.
  8. Diao, Xinshen & Roe, Terry & Yeldan, Erinc, 1999. "Strategic policies and growth: an applied model of R&D-driven endogenous growth," Journal of Development Economics, Elsevier, vol. 60(2), pages 343-380, December.
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