The Asian Currency Crisis: The Role of Industrial Policy and Imbalanced Embedded Autonomy

Over the past few decades, East Asian countries achieved unprecedented rates of economic growth. Starting with Japan’s post-World War II economic miracle, followed by South Korea, Taiwan and Singapore, the region raised itself from an abyss of poverty to glorious economic prosperity. The grace of the East Asian model continued with great economic success, only to see its ultimate collapse in the Asian Financial Crisis in the late 1990s. This paper argues that certain sectoral dynamics combined with industrial policy had led to the imbalance of embedded autonomy. This imbalance is accountable for various policy consequences that generated perception noise among international portfolio investors. Through these observations, investors inferred about the high risk of industrial policy and launched massive speculative attacks on the victims of the Asian Financial Crisis in 1997.