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Three-and-a-half Cycles of ‘Mania, Panic, and [Asymmetric] Crash’: East Asia and Latin America Compared

In: Financial Liberalization and the Asian Crisis

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  • Gabriel Palma

Abstract

This paper argues that, despite some significant differences, the 1982 debt crisis, the 1994 Mexican crisis, and the 1997 East Asian crisis share the common characteristic that ‘over-lending’ and ‘over-borrowing’ are basically endogenous market failures of over-liquid and under-regulated financial markets — along the lines described by Kindleberger’s Manias, Panics, and Crashes (although these crashes have tended to be ‘asymmetric’, as the largest international lenders have emerged relatively intact). The paper concludes with a discussion of Brazil’s increasing vulnerability to a sudden collapse of confidence and withdrawal of finance, which indicates the probability of another impending crisis. In the last 15 years, the world economy has witnessed three major financial crises: the 1982 (mainly Latin American) debt crisis; the 1994 Mexican crisis, and its repercussions throughout Latin America (commonly known as the ‘Tequila effect’); and the 1997 East Asian crisis. Furthermore, Brazil’s growing financial vulnerability signals the probability of another major crisis in the not too distant future (see Postscript, p. 273). This paper argues that the last three financial crises share many common characteristics.

Suggested Citation

  • Gabriel Palma, 2001. "Three-and-a-half Cycles of ‘Mania, Panic, and [Asymmetric] Crash’: East Asia and Latin America Compared," Palgrave Macmillan Books, in: Ha-Joon Chang & Gabriel Palma & D. Hugh Whittaker (ed.), Financial Liberalization and the Asian Crisis, chapter 15, pages 254-286, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-0-230-51862-9_15
    DOI: 10.1057/9780230518629_15
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    Cited by:

    1. Kohler, Karsten, 2019. "Exchange rate dynamics, balance sheet effects, and capital flows. A Minskyan model of emerging market boom-bust cycles," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 270-283.
    2. Özgür Orhangazi & A. Erinç Yeldan, 2021. "The Re‐making of the Turkish Crisis," Development and Change, International Institute of Social Studies, vol. 52(3), pages 460-503, May.
    3. Ocampo, José Antonio, 2001. "Raúl Prebisch and the development agenda at the dawn of the twenty-first century," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    4. Karsten Kohler & Engelbert Stockhammer, 2023. "Flexible exchange rates in emerging markets: shock absorbers or drivers of endogenous cycles?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 32(2), pages 551-572.
    5. Pompeo Della Posta, 2002. "Modelli di crisi valutarie e misure di politica economica," Moneta e Credito, Economia civile, vol. 55(219), pages 237-262.
    6. Machiko Nissanke & Howard Stein, 2003. "Financial Globalization and Economic Development: Toward an Institutional Foundation," Eastern Economic Journal, Eastern Economic Association, vol. 29(2), pages 287-308, Spring.
    7. Anuradha Seth & Amr Ragab, 2012. "Macroeconomic Vulnerability in Developing Countries: Approaches and Issues," Working Papers 94, International Policy Centre for Inclusive Growth.
    8. Jan Toporowski & Giovanni Cozzi, 2006. "The Balance Sheet Approach to Financial Crises in Emerging Markets," Economics Working Paper Archive wp_485, Levy Economics Institute.
    9. Chang, Ha-Joon, 2000. "The Hazard of Moral Hazard: Untangling the Asian Crisis," World Development, Elsevier, vol. 28(4), pages 775-788, April.
    10. Palma, J. G., 2012. "How the full opening of the capital account to highly liquid financial markets led Latin America to two and a half cycles of ‘mania, panic and crash’," Cambridge Working Papers in Economics 1201, Faculty of Economics, University of Cambridge.
    11. Pablo Bustelo & Clara Garcia & Iliana Olivie, 1999. "Global and Domestic Factors of Financial Crises in Emerging Economies: Lessons from the East Asian Episodes (1997-1999)," Working Papers 002, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    12. Mahfuzul Haque & Oscar Varela, 2010. "US-Thailand Bilateral Safety-first Portfolio Optimisation around the 1997 Asian Financial Crisis," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 9(2), pages 171-197, August.
    13. Gabriel Palma, 2000. "The Magical Realism of Brazilian Economics: How to Create a Financial Crisis by Trying to Avoid One," SCEPA working paper series. 2000-16, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    14. Ajit Singh, 2003. "Competition, corporate governance and selection in emerging markets," Economic Journal, Royal Economic Society, vol. 113(491), pages 443-464, November.
    15. Alfredo Saad-Filho, 2007. "Life beyond the Washington Consensus: An Introduction to Pro-poor Macroeconomic Policies," Review of Political Economy, Taylor & Francis Journals, vol. 19(4), pages 513-537.
    16. Nikita Sud & Diego Sánchez‐Ancochea, 2022. "Southern Discomfort: Interrogating the Category of the Global South," Development and Change, International Institute of Social Studies, vol. 53(6), pages 1123-1150, November.
    17. Zunaira Aman & Brigitte Granville & Sushanta K. Mallick & Ilayda Nemlioglu, 2024. "Does greater financial openness promote external competitiveness in emerging markets? The role of institutional quality," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 486-510, January.
    18. Naqvi, Natalya, 2018. "Manias, panics and crashes in emerging markets: an empirical investigation of the post-2008 crisis period," LSE Research Online Documents on Economics 90368, London School of Economics and Political Science, LSE Library.
    19. Hausken, Kjell & Plumper, Thomas, 2002. "Containing Contagious Financial Crises: The Political Economy of Joint Intervention into the Asian Crisis," Public Choice, Springer, vol. 111(3-4), pages 209-236, June.
    20. Bustelo, Pablo, 2000. "Novelties of financial crises in the 1990s and the search for new indicators," Emerging Markets Review, Elsevier, vol. 1(3), pages 229-251, November.
    21. Ilene Grabel, 2003. "Predicting Financial Crisis in Developing Economies: Astronomy or Astrology?," Eastern Economic Journal, Eastern Economic Association, vol. 29(2), pages 243-258, Spring.

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