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The Overborrowing Syndrome: Are East Asian Economies Different?

Mar 1997
Stanford King Center on Global Development Working Paper
3
The Mexican crisis of 1994-95 has again demonstrated the vulnerability of economies undertaking structural economic reform to financial crises associated with the reversal of excessive capital inflows. Several South East Asian countries may be suffering from similar problems, conveniently labeled the "overborrowing syndrome." In the context of a simple Fisherian two-period model, this paper develops a chronology of the boom-bust cycle associated with overborrowing. This suggests that Asian countries are less vulnerable, since their history of balanced economic growth and prompt policy reaction offers some hope of minimizing the destabilizing macroeconomic consequences of overborrowing that may have occurred.