The East Asian crisis and international capital markets

This paper reviews the theoretical and empirical evidence about international capital mobility. The authors find that its potential benefits depend on certain assumptions about market structures and institutions. Many of these conditions were absent in the economies worst affected by volatile capital movements. The main features of the recent East Asian financial crisis are described, and the principal distortions that led to the crisis. In some instances, these distortions were due to government policies; in others, they stemmed from market failures that had not been adequately addressed either by individual governments or by international financial institutions.