Lessons From the Corporatist Crisis in Some Asian Nations

Abstract

1. First, rapid change in investment flows—both flows to individual domestic industries within a market economy and flows to individual countries operating in a global market economy—is a normal feature of our traditional competitive equilibrium models of intertemporal resource allocation. Investment’s moving finger writes, then moves on. In this respect—through the removal of policy barriers to capital movements and the leaps in the information technology—the real world has been moving to catch up to theory. 2. Second, a typical result in these traditional models is that the intertemporal equilibrium path is efficient: the equilibrium path does not contain any wasteful behavior whose correction (through taxes and other interventions) would enable everyone to be better off. So when we observe the rapid subsiding of a capital inflow into some country, this may only reflect that the economy receiving the flow is rapidly reaching the largest stock of capital it can justify in view of the global cost of capital. 3. Third, if, in fact, there is excessive fluctuation in international investment flows, which I do not doubt, this implies that