Tài liệu Volatility and Contagion in a Financially-Integrated World:Lessons from East Asia’s Recent Experienc

December 3, 1998


Volatility and Contagion in a Financially-Integrated World:
Lessons from East Asia’s Recent Experience


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By Pedro Alba , Amar Bhattacharya , Stijn Claessens ,
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Swati Ghosh , and Leonardo Hernandez


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World Bank and Central Bank of Chile


Recent events in East Asia have highlighted the risks of financial structures in a financially
integrated world. This paper documents that the buildup of vulnerabilities in East Asia was
mainly the result of weaknesses in domestic financial intermediation, poor corporate governance,
and deficient government policies, including poor macro-economic policy responses to large
capital inflows. Weak due diligence by external creditors, in part fueled by ample global liquidity,
also played a role in building up vulnerabilities, but global factors were more important in
triggering the crises than in causing them. In spite of these policies and weaknesses, we argue,
however, that for most East Asian countries a large financial crisis was not “inevitable,” but was
mainly triggered by spillovers from nearby countries. Differences between countries, both in
degree of vulnerability and depth of crisis, support this conclusion. The paper concludes with
some lessons for other countries.


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Paper presented at the PAFTAD 24 conference, “Asia Pacific Financial Liberalization and Reform”, May 20-22,
1998, Chiangmai, Thailand, hosted by School of Development Economics, NIDA, in collaboration with PAFTAD
International Steering Committee. This paper has really been a group effort. We would like to thank Jos Jansen
and Peter Montiel for very useful contributions, Sergio Schmukler for his insights, Michael Dooley, the discussant,
Akira Kohsaka, and seminars participants for comments, and the PAFTAD steering committee for guidance. This
paper draws on and extends the analysis in the joint-World Bank-ADB study: Managing Global Financial
Integration In Asia: Emerging Lessons and Prospective Challenges, March 10-12, 1998, for comments. The
opinions expressed do not necessarily reflect those of the World Bank or of the Central Bank of Chile.