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
India
China
55.00
15.0
40.00
12.0
14.0
50.00
13.0
10.0
35.00
8.0
12.0
30.00
45.00
11.0
6.0
10.0
25.00
40.00
4.0
9.0
8.0
35.00
20.00
2.0
7.0
30.00
6.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Investment rate
GDP growth rate (right axis)
Savings rate
15.00
0.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Investment rate
GDP growth rate (right axis)
Savings rate
Savings and investment rates and GDP growth
Thailand
South Korea
38.00
15.0
45.00
15.0
40.00
10.0
35.00
5.0
30.00
0.0
25.00
-5.0
20.00
-10.0
15.00
-15.0
36.00
10.0
34.00
32.00
5.0
30.00
0.0
28.00
26.00
-5.0
24.00
22.00
-10.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Investment rate
GDP growth rate (right axis)
Savings rate
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Investment rate
GDP growth rate (right axis)
Savings rate
Savings and investment rates and GDP growth
Malaysia
Indonesia
35.00
20.0
15.0
30.00
55.00
12.0
10.0
50.00
8.0
45.00
6.0
10.0
40.00
25.00
20.00
4.0
5.0
35.00
2.0
0.0
30.00
0.0
-2.0
25.00
-5.0
-4.0
20.00
15.00
-10.0
10.00
-15.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Investment rate
GDP growth rate (right axis)
Savings rate
-6.0
15.00
-8.0
10.00
-10.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Investment rate
GDP growth rate (right axis)
Savings rate
Domestic credit to private sector
(% of GDP)
180.0
160.0
140.0
120.0
China
100.0
India
Indonesia
Malaysia
80.0
South Korea
Thailand
60.0
40.0
20.0
0.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Financial indicators and investment rates
% of GDP
India
China
200.00
180.00
55.00
160.00
50.00
140.00
45.00
120.00
40.00
100.00
35.00
80.00
30.00
60.00
25.00
40.00
20.00
20.00
15.00
0.00
160.00
140.00
120.00
100.00
80.00
60.00
20.00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0.00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
40.00
Domestic credit to private sector
Domestic credit to private sector
Stock market capitalisation
Investment rate
Investment rate
Stock market capitalisation
Financial indicators and investment rates
% of GDP
Thailand
South Korea
160.00
180.00
140.00
160.00
140.00
120.00
120.00
100.00
100.00
80.00
80.00
60.00
60.00
40.00
40.00
0.00
0.00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
20.00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
20.00
Domestic credit to private sector
Domestic credit to private sector
Stock market capitalisation
Stock market capitalisation
Investment rate
Investment rate
Financial indicators and investment rates
% of GDP
Malaysia
Indonesia
60.00
300.00
50.00
250.00
40.00
200.00
30.00
150.00
20.00
100.00
10.00
50.00
0.00
0.00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
350.00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
70.00
Domestic credit to private sector
Domestic credit to private sector
Stock market capitalisation
Stock market capitalisation
Investment rate
Investment rate
Malaysian financial system in 2011
Total banks
Domestic commercial banks
Foreign commercial banks
Domestic Islamic banks
Foreign Islamic banks
Investment banks
Development finance
institutions
Labuan IBFC
Insurance companies
Pensions and provident funds
Fund management
Other NBFCs
Total financial system assets
Number
Total assets
(MYR bn)
% of GDP
1782
1034
353
284
43
62
205
% of total
financial
system
assets
50.6
29.4
10
8.1
1.2
1.9
5.8
54
6
17
10
6
15
13
517
53
3
82
9101
256
198
563
424
100
3524
7.2
5.6
16
12
2.8
100
29
22
64
48
11
400
202
117
40
32
5
8
23
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
Indonesia - Non-industrial loans as % of total loans
45.0
40.0
35.0
30.0
2010
25.0
2011
2012
20.0
2013
2014
15.0
10.0
5.0
0.0
Housing
Vehicles
Others
South Korea Financial system
(% of total financial assets)
70
350
63.8
63.2
312
60
300
253
48.2
50
250
212
40
37.5
30
200
150
25
24.3
20
100
14.3
11.9
11.8
10
50
0
0
2002
Banks
2007
Non Bank Depository Institutions
2012
Other financial institutions
Finance as % of GDP
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.