Working Paper: CEPR ID: DP2112
Authors: Ishac Diwan; Bernard Hoekman
Abstract: This paper explores to what extent the magnitude and speed of the contagion effects that materialized in East Asia in the second half of 1997 may have had "real" underpinnings, in the sense that the pattern of production, consumption and trade increased the vulnerability of East Asian countries to external shocks. Two major possibilities are investigated using available disaggregated data on intra- and extra-regional trade and direct investment: that Asian economies compete extensively with each other on world markets; or, to the contrary that Asia is best regarded as an integrated economy with countries specializing in complementary production. The data provide greater support for the latter hypothesis.
Keywords: East Asia; Financial Crisis; Contagion; Regional Economic Integration; Interdependence
JEL Codes: F14; F15; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Competition among Asian economies (F69) | Contagion effects (E44) |
| Devaluation in one country (F31) | Competitive pressures on others (L19) |
| Strong interdependence among East Asian economies (F41) | Stabilization (E63) |
| Devaluation by one country (F31) | Enhanced competitiveness of joint outputs in the region (R15) |
| Complementarity in trade and investment flows (F14) | Contagion effects (E44) |