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Malaysia: Was it Different?


  • Rudi Dornbusch


In the Asian crisis of 1997-98 some countries followed IMF prescriptions for stabilization and recovery. Malaysia went another route, placing an emphasis on capital controls. Did this strategy work out to lower the costs of the crisis and foster a more rapid recovery as claimed by some observers and notably the Malaysian authorities? It remains to explore whether that claim is indeed appropriate or whether it is primarily domestic grand standing of a weakened and challenged leadership which uses the international issue to deflect from severe domestic political problems. In evaluating the Malaysian experience it must be understood that for this country two crises were unfolding simultaneously. One was the Asian financial crisis that brought down countries with vulnerable financial structures. The other one was the domestic political. The paper concludes that there is no evidence of a better performance and not surprisingly so. Capital controls were imposed after the crisis was over, as interest rates in all Asian crisis economies, including Malaysia, were already declining rapidly and as US interest rate cuts fostered a more stable environment.

Suggested Citation

  • Rudi Dornbusch, 2001. "Malaysia: Was it Different?," NBER Working Papers 8325, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8325
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    References listed on IDEAS

    1. Ethan Kaplan & Dani Rodrik, 2002. "Did the Malaysian Capital Controls Work?," NBER Chapters,in: Preventing Currency Crises in Emerging Markets, pages 393-440 National Bureau of Economic Research, Inc.
    2. Rudi Dornbusch, 2002. "A Primer on Emerging-Market Crises," NBER Chapters,in: Preventing Currency Crises in Emerging Markets, pages 743-754 National Bureau of Economic Research, Inc.
    3. William A. Brock & Steven N.Durlauf, 2000. "Growth Economics and Reality," NBER Working Papers 8041, National Bureau of Economic Research, Inc.
    4. Edison, Hali J. & Reinhart, Carmen M., 1999. "Capital controls during financial crises: the cases of Malaysia and Thailand," Proceedings, Federal Reserve Bank of San Francisco, issue Sep, pages 1-36.
    5. Akira Ariyoshi & Andrei A Kirilenko & Inci Ötker & Bernard J Laurens & Jorge I Canales Kriljenko & Karl F Habermeier, 2000. "Capital Controls; Country Experiences with Their Use and Liberalization," IMF Occasional Papers 190, International Monetary Fund.
    6. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
    7. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to Cross-National Evidence," NBER Working Papers 7081, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Emanuel Kohlscheen, 2010. "Sovereign risk: constitutions rule," Oxford Economic Papers, Oxford University Press, vol. 62(1), pages 62-85, January.
    2. Nicolas Magud & Carmen M. Reinhart, 2007. "Capital Controls: An Evaluation," NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 645-674 National Bureau of Economic Research, Inc.
    3. Ito, Hiro, 2004. "Is Financial Openness a Bad Thing? An Analysis on the Correlation Between Financial Liberalization and the Output Performance of Crisis-Hit Economies," Santa Cruz Department of Economics, Working Paper Series qt5zb2v4c5, Department of Economics, UC Santa Cruz.
    4. Simon Johnson & Kalpana Kochhar & Todd Mitton & Natalia Tamirisa, 2007. "Malaysian Capital Controls: Macroeconomics and Institutions," NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 529-574 National Bureau of Economic Research, Inc.
    5. Anita Doraisami, 2004. "From crisis to recovery: the motivations for and effects of Malaysian capital controls," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(2), pages 241-254.
    6. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February.
    7. repec:wsi:serxxx:v:48:y:2003:i:02:n:s0217590803000670 is not listed on IDEAS
    8. Christian Saborowski & Sarah Sanya & Hans Weisfeld & Juan Yepez, 2014. "Effectiveness of Capital Outflow Restrictions," IMF Working Papers 14/8, International Monetary Fund.
    9. Sebastian Edwards, 2007. "Capital Controls, Sudden Stops, and Current Account Reversals," NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 73-120 National Bureau of Economic Research, Inc.
    10. Mansor H. Ibrahim, 2004. "Integration or Segmentation of Malaysian Equity Market: An Analysis of Pre- and Post- Capital Controls," Finance 0411010, EconWPA.
    11. Florian Neagu, 2003. "Net Foreign Assets Management and Capital Account Liberalization. The Romanian Case," International Finance 0310002, EconWPA.
    12. Hartwell, Christopher A., 2011. "All That’s Old is New Again: Capital Controls and the Macroeconomic Determinants of Entrepreneurship in Emerging Markets," MPRA Paper 40257, University Library of Munich, Germany.
    13. Malleson, Tom, 2014. "After Occupy: Economic Democracy for the 21st Century," OUP Catalogue, Oxford University Press, number 9780199330102, June.
    14. Eswar S. Prasad & Raghuram G. Rajan, 2008. "A Pragmatic Approach to Capital Account Liberalization," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 149-172, Summer.
    15. Nicolas Magud & Carmen Reinhart & Kenneth Rogoff, 2005. "Capital Controls: Myth and Reality A Portfolio Balance Approach to Capital Controls," University of Oregon Economics Department Working Papers 2006-10, University of Oregon Economics Department.
    16. Natalia T. Tamirisa, 2004. "Do Macroeconomic Effects of Capital Controls Vary by their Type? Evidence From Malaysia," IMF Working Papers 04/3, International Monetary Fund.
    17. Stijn Claessens & Luc Laeven, 2006. "A Reader in International Corporate Finance, Volume Two," World Bank Publications, The World Bank, number 7115.
    18. Demirguc-Kunt, Asli & Serven, Luis, 2009. "Are all the sacred cows dead ? implications of the financial crisis for macro and financial policies," Policy Research Working Paper Series 4807, The World Bank.

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    • F3 - International Economics - - International Finance

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