For an excellent macroeconomic analysis of the Asian crisis, take a look at Lester Thurow's article in the latest NY Review of Books --
nybooks.com
Thurow points out that axiom of the dismal science -- countries cannot have their trade deficits rise faster than their GDP growth rate. With the entry of China in the game of 'export-led growth', countries like Thailand, Indonesia and Korea turned from trade surpluses to large deficits in their efforts to import enough capital equipment to move up the export-growth food chain (shoes to chips). At first, the international credit markets were only too happy to provide the inflows, but as the deficits widen and it becomes clear that quite a bit of the money is getting skimmed by ruling cliques, the capital inflows start drying up and the collapses start ...
Export-led growth worked for the first Asian tigers because the numbers of exporters were small -- 65 million in Hong Kong, Singapore, Taiwan -- selling to a global population of 5 billion. Thailand, Indonesia, Malaysia and South Korea came later to the table. Their initial success attracted China and India; and this, essentially, ended the party. China and India, with their combined population of 2 billion, cannot generate enough exports to realize 10% growth if the global economy grows at only 2%, but, in the process of trying to do so, they squeeze the smaller, earlier arrivals like Thailand off the table.
Thurow's article is for the longer attention span -- be sure to read to the end for his conclusion, that March- April may only be, as pass pass says, the beginning of the end. |
