Integrated but uncoordinated: Real economies in Asia in the era of financial liberalisation Jayati Ghosh IDEAs Conference Muttukadu January 2015.

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Integrated but uncoordinated: Real economies in Asia in the era of financial liberalisation Jayati Ghosh IDEAs Conference Muttukadu January 2015

Savings and investment rates and GDP growth

Financial indicators and investment rates % of GDP

Malaysian financial system in 2011

Composition of bank lending in Malaysia, 2011

Composition of bank loans in Malaysia

Lending to households in Malaysia

Indonesia Financial system assets

Indonesia distribution of loans

South Korea Household debt (Currently more than 156% of HH disposable income)

Lessons  Financial deepening does not have a positive effect on investment and real economic growth, but can generate savings “surpluses” that are then exported.  Domestic growth is increasingly sustained by consumer credit that fuels housing and real estate booms.  This is obviously unsustainable and indeed the downturn has already begun.  Unravelling of household debt has knock-on effect on bank viability and on investment.  Downward pressure on economic activity cannot be countered by further financial deregulation, but attempts at tightening regulation add to the pressure.  Absence of co-ordination across countries further complicates the problems because of cross-border capital flows.