Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows.

• Author: Husted, Steven

This volume contains the papers presented at a 1992 NBER conference on the macroeconomic linkages between the global economy and the East Asian and North American countries. The papers, written by eminent Asian and North American economists, are typically empirically oriented and center on four principal themes: the determinants of growth and trading relations, monetary policies in relation to capital controls and the capital account, the impact of exchange rate behavior on industrial structure, and the potential for greater regional integration.

The book opens with a chapter by Helliwell that seeks to explain why standard empirical growth models applied to a cross section of countries fail to capture well the growth experiences of Asian countries. Helliwell finds that the comparative growth of Asian countries is well explained by the degree of openness, capital investment, and the degree of democratization in each country, with the coefficient on the last variable significantly negative. The paper does not devote enough space to analyzing these results and the empirical setup suffers from limited degrees of freedom, so it is difficult to determine the general applicability of these findings.

The next five chapters are devoted to the balance of payments behavior of several Asian countries. Ito focuses on the early 1990s experience of Japan, which enjoyed a rising current account surplus coupled with net inflow of long term capital. He provides some important insights toward understanding official Japanese capital account data and predicts (correctly) that the current account surplus would continue beyond 1992 but the long term capital inflow would be only temporary. Koo and Park compare Korean current account behavior in the 1980s to that of Japan and Taiwan. They find considerable differences, attributing much of these to differences in national macroeconomic policies. In the next chapter, Gee studies the relationship between the exchange rate and trade flows of Taiwan. A useful contribution of this paper is a data appendix presenting price competition indices between Taiwan and various trade partners. Jwa provides detail on measures taken by Korea to liberalize international capital flows and then attempts to compare its capital account openness to that of Japan and Taiwan. McCulloch concludes this set of chapters with a speculative piece on likelihood of an impending capital shortage and the implications of such an event for the East...