Hostname: page-component-586b7cd67f-vdxz6 Total loading time: 0 Render date: 2024-11-22T06:13:18.407Z Has data issue: false hasContentIssue false
  • English
  • Français

Real Estate Speculation as a Source of Banking and Currency Instability: Some Different Lessons from the Asian Crisis

Published online by Cambridge University Press:  01 January 2023

Brian L. Bentick  and
Mervyn K. Lewis
Brian L. Bentick
Affiliation:
School of Economics, The University of Adelaide
Mervyn K. Lewis
Affiliation:
School of International Business, The University of South Australia
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

A central feature of the Asian currency crisis of 1997/1998 was the vast prior capital inflow into the region, and the later rapid reversal of that movement. In seeking to explain why this outflow of capital took place and was so devastating for the countries concerned, various writers have laid blame upon a combination of connected lending, poor bank supervision, moral hazard and “crony capitalism”.

Our emphasis is different. Much of the capital inflow financed a vast over-expansion of commercial real estate development. Plunging real estate values accompanied by severe difficulties in the banking and financial sector were common occurrences across the region. The argument we advance is that property plays a special role in banks’ portfolios and that large international portfolio capital flows mediated by banks will usually lead to rapidly appreciating asset prices which will result in banking/currency crises.

Type
Current Issues
Information
The Economic and Labour Relations Review , Volume 14 , Issue 2 , January 2004 , pp. 256 - 275
Copyright
Copyright © The Author(s) 2004

References

Akerlof, G.A., Romer, P.M. (1993) ‘Looting: The Economic Underworld of Bankruptcy for Profit’, Brookings Papers on Economic Activity, 2, 1–73.CrossRefGoogle Scholar
Baum, A.E. and Schofield, A. (1991) ‘Property as a Global Asset’, in Venmore-Rowland, P., Mole, T., and Brandon, P. (Eds.), Investment, Procurement and Performance in Construction, London: Chapman and Hall.Google Scholar
Bentick, Brian (1969) ‘Foreign Borrowing, Wealth and Consumption’, Economic Record, 45(3), September, 415–431.CrossRefGoogle Scholar
Berg, A., Patillo, C. (1999) ‘What caused the Asian crises: an early warning system approach’, Economic Notes, 28 (3), 285–334.CrossRefGoogle Scholar
Browne, L.E., Hellerstein, R., Little, J.S. (1998) ‘Inflation, Asset Markets, and Economic Stabilization: Lessons from Asia’. New England Economic Review, Sept/Oct., 3–32.Google Scholar
Burnside, C., Eichenbaum, M., Rebelo, S. (2001) ‘Prospective deficits and the Asian currency crisis’, Journal of Political Economy, 109 (6), 1155–1197.CrossRefGoogle Scholar
Butlin, S.J. (1961) Australia and New Zealand Bank, the Bank of Australasia and the Union Bank of Australia Limited 1828–1951, Melbourne: Longman.Google Scholar
Calvo, G., Leiderman, L., Reinhart, C. (1996) ‘Inflows of Capital to Developing Countries in the 1990s’, Journal of Economic Perspectives, 10 (2), Spring, 123–139.CrossRefGoogle Scholar
Cannon, Michael (1966) The Land Boomers, Melbourne: Melbourne University Press.Google Scholar
Case, Bradford, Goetzmann, William, Rouwenhorst, K. Geert (2000) ‘Global Real Estate Markets — Cycles and Fundamentals’, NBER Working Paper Series, Paper No 7566, February.CrossRefGoogle Scholar
Corsetti, G., Pesenti, P., Roubini, N. (1999) ‘What caused the Asian currency and financial crisis?’, Japan and the World Economy, 11 (3), 305–373.CrossRefGoogle Scholar
Davidson, Paul (1997) ‘Are Grains of Sand in the Wheels of International Finance Sufficient to do the Job When Boulders Are Often Required?’, Economic Journal, 107 (442), May, 671–686.CrossRefGoogle Scholar
Eaton, Jonathan (1988) ‘Foreign Owned Land’, American Economic Review, 78(1), March, 76–88.Google Scholar
Eichengreen, B., Tobin, J., Wyplosz, C. (1995) ‘Two cases for sand in the wheels of international finance’, The Economic Journal, 105, 162–172.CrossRefGoogle Scholar
Fourcans, Andre, Franck, Raphael (2004, forthcoming) Currency Crises — A Theoretical and Empirical Perspective, Cheltenham, UK: Edward Elgar.Google Scholar
Furman, J., Stiglitz, J.E. (1998) ‘Economic crises: evidence and insights from East Asia’, Brookings Papers on Economic Activity, 2, 1–135.CrossRefGoogle Scholar
Krugman, Paul (1998a) ‘What Happened to Asia’, http://web.mit.edu/krugman/www/disinter.html. [accessed on January 1998].CrossRefGoogle Scholar
Krugman, Paul (1998b) ‘Saving Asia: It’s Time to Get Radical’, Fortune, September, 33–38.Google Scholar
Lewis, M.K. (1994) ‘Banking on Real Estate’, The Competitiveness of Financial Institutions and Centres in Europe, edited by Fair, D.E., Raymond, Robert, Kluwer Academic Press, Dordrecht, 47–71.CrossRefGoogle Scholar
Lewis, M.K. (1998) ‘Banks and Property: Preparing for the Next Cycle’, The Valuer and Land Economist, February, 48–56.Google Scholar
Lewis, M.K. (2000) ‘The next property cycle: a survival kit for banks’, in Green, Bo (Ed), Risk Behaviour and Risk Management in Business Life, Dordrecht: Kluwer Academic Publishers, 98-110Google Scholar
Lewis, M.K., Wallace, R.H. (1997) The Australian Financial System. Melbourne: Longman.Google Scholar
Mera, Koichi and Renaud, Bertrand (eds.) (2000) Asia’s Financial Crisis and the Role of Real Estate, London: M.E. Sharpe.Google Scholar
Radelet, S., Sachs, J. (1998) ‘The East Asian financial crisis: diagnosis, remedies, prospects’, Brookings Papers on Economic Activity, 1, 1–90.CrossRefGoogle Scholar
Summers, Lawrence (1995) ‘Ten Lessons to Learn’, The Economist, 23 December. http://www.economist.com/archive/ Google Scholar
Ul Haq, M., Kaul, I. and Grunberg, I. (Eds.) (1996) The Tobin Tax, Coping with Financial Volatility, Oxford: Oxford University Press.Google Scholar
Wilson, P., Zurbruegg, R., Gerlach, R. (2002) ‘Structural Breaks and Diversification: The Impact of the 1997 Asian Financial Crisis on the Integration of Asia-Pacific Real Estate Markets’, School of Finance and Economics WPS, University of Technology, Sydney, Working Paper No 121, October.CrossRefGoogle Scholar
World Bank (1998) Global Development Finance, Vol 1. Washington: World Bank.Google Scholar