Financial Transition in Pre-World War II Japan and Southeast Asia

This article compares Japan and Southeast Asia before the Second World War to explore the question Goldsmith posed: why, since financial transition in all countries follows the same path, should there be such remarkable differences in the speed of transition? Beginning after the Meiji Restoration in 1868 and starting from the same per capita income as Southeast Asian countries, Japan had, by 1913, built a modern financial system comparable to those in the West. But finance in Southeast Asian countries was (and remained in 1939) little developed, dominated by metropolitan interests, heavily reliant on informal finance, and geared towards primary commodity exports. The article argues that Southeast Asia's no more than partial financial transition is explained by a continued ability to tap natural resources, limited technological change, and the laissez-faire stance of colonial governments. Japan, by contrast, could not depend on abundant resources for growth. Its experience demonstrates how nationalist objectives of military power and industrialisation can motivate government to accelerate financial transition