Academic journal article Journal of Southeast Asian Economies

Global Economic Effects of the Asian Currency Devaluations

Academic journal article Journal of Southeast Asian Economies

Global Economic Effects of the Asian Currency Devaluations

Article excerpt

Global Economic Effects of the Asian Currency Devaluations. By Marcus Noland, Li-Gang Liu, Sharman Robinson and Zhi Wang. Washington, D.C.: Institute for International Economics July 1998. Pp. 104. This study forms part of an Institute of International Economics trilogy, which addresses the East Asian financial crisis. The three studies consist of Goldstein's The Asian Financial Crisis: Causes, Cures and Systemic Implications, Posen's How Much is Enough for Japan, and this title which focuses on the likely impact of the significant real exchange rate depreciations on the volume and pattern of international trade.

The book consists of three sections. The first section examines the origins and nature of the crisis as an overview. The authors assert that while both fundamentalist and panic considerations are important in examining the origins of the crisis, they conclude that the evidence lends considerable credence to the fundamentalist view, which in turn suggest that the crisis will have real and persistent effects. The second section analyses the global economic effects of the crisis, while the final section is devoted to examining the impacts of the crisis on the United States.

This study quantifies the impact of currency changes on seventeen regions, on a sector by sector basis. It concludes that all the economies most affected by the crisis, (the ASEAN-4 and Korea) are likely to experience a large fall in domestic absorption, increase net exports primarily through a compression of imports, and experience a positive increase in their bilateral trade balances with the United States. The authors argue that the negative impact of the crisis on bilateral trade balances is likely to increase trade tensions and formal trade actions. However, this could be mitigated by two considerations: (1) the fact that the trade disputes arise in a context of financial crisis may temper U.S. trade pressures, and (2) the WTO and its dispute settlement mechanism may constrain U.S. unilateralism. The virulence of the possible trade backlash will most likely be influenced by the macroeconomic environment prevailing in the United States when this adjustment occurs. …

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