Overcapacity and the East Asian Crisis

Abstract:

The historic success of East Asian economies prior to the 1997 financial crisis depended on their ability to escape the trap of deteriorating terms through a regional pattern of development known as the flying geese model. However, this pattern of development has come under increasing strain in the second half of 1980s. As competitive pressures intensified, producers throughout the region early-exited their niches of production in a futile attempt to safeguard their competitive position. The investment boom this has caused in the early 1990s led to the creation overcapacity throughout the region and the reemergence of the fallacy of composition inherent in a generalized system of export led growth, paving the way for the financial crisis of 1997.

Key Words::

• East Asian crisis
• export promotion
• flying geese model of development
• immiserizing growth
• overcapacity