Financial Markets, Public Policy, and the East Asian Miracle

Many factors contributed to the rapid growth of the economies of East Asia in the past quarter century. This article examines one important aspect of that growth--commonly referred to as the "East Asian miracle"--public policies affecting the financial markets. East Asian governments intervened extensively in financial markets at all stages of their development. What sets their actions apart from those of other developing countries that have not fared as well? We do not have the information to answer conclusively what effect particular actions had (that requires a counterfactual test of what growth would have been without the particular intervention). But we can identify the market failures the East Asian governments addressed, assess some of the theoretical reasons why each policy might be growth enhancing, and provide some data attesting to the impacts of the policy. Several characteristics of financial sector interventions in East Asia stand out: they incorporated design features that improved the chances of success and reduced opportunities for abuse; interventions that did not work out were dropped unhesitatingly; and policies were adapted to reflect changing economic conditions.