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GTAP Resource #893

"How the Asian Crisis Affected the World Economy: A General Equilibrium Perspective"
by Diao, Xinshen, Wenli Li and A. Erinc Yeldan

The East Asian financial crisis exposed among other problems the excessive government interventions in credit allocation. This, together with poor supervision of the banking system, resulted in large volume of inefficient investment especially in the subsidized sectors. We argue that the crisis is an opportunity to reformulate the strategies of growth by way of eliminating politicized interventions on investment. In an intertemporal general equilibrium framework, we model the crisis as an exogenous investment technological shock and a financial shock generating excessive risk premia. We examine the adjustment processes of both the crisis-hit region and the world economies, and investigate the resource allocation and welfare outcomes of the removal of the investment subsidies. Our results suggest a contraction of GDP and investment immediately after the crisis, and significant welfare gains in the crisis-hit economies in return to elimination of the subsidies on firm’s investment. Other developing countries and developed countries will be affected differently depending on their trade patterns with the crisis-hit economies.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
Status: Published
By/In: Economic Quarterly
Date: 2000
Version: 86(2)
Created: Diao, X. (11/14/2001)
Updated: Dimaranan, B. (11/15/2001)
Visits: 2,826
- Calibration and parameter estimation

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