Analyses | 04 October 2006

Domestic investment and external imbalances in East Asia

Since the 1997-98 Asian crisis, the investment decline in East Asia, outside of China, combined with the falling in public and private savings in the United States, has contributed to the surge in global current account imbalances. 

Warwick McKibbin

  • Warwick McKibbin

Since the 1997-98 Asian crisis, the investment decline in East Asia, outside of China, combined with the falling in public and private savings in the United States, has contributed to the surge in global current account imbalances. 

Warwick McKibbin

  • Warwick McKibbin
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Executive Summary

Using a global simulation model, this paper explores the nature of policies and shocks that might reduce these imbalances: policies to raise domestic investment in East Asia; structural reforms in the corporate and financial sectors that lower financial risk and improve investment efficiency in East Asia; a significant fiscal consolidation in the United States; and a substantial decline in the housing market in the United States.