The Financial Role of East Asian Economies in Global Imbalances: An Econometric Assessment of Developments after the Global Financial Crisis

Hyun-Hoon Lee and Donghyun Park

No 118, Working Papers on Regional Economic Integration from Asian Development Bank

Abstract: The central objective of this paper is to empirically assess how global imbalances have evolved since the global financial crisis of 2008/09. More specifically, we examine how the security investment positions of major East Asian economies in United States (US) financial markets—equities, bonds, and bank lending—changed after the crisis. Our econometric analysis, which is based on the gravity model to identify the determinants of foreign portfolio investment in the US, finds that the "overinvestment" of most East Asian economies in the US has remained substantial after the global financial crisis, especially in long-term bonds. That is, even after the crisis, most East Asian economies continue to hold excessive amounts of US securities, but the degree of overinvestment appears to have declined for some economies such as the PRC. However, the PRC still has the largest excessive holdings of US securities. We also find that East Asian economies over-invest in US financial markets largely due to excessive savings and foreign exchange reserves.

Keywords: Global financial crisis; global imbalances; US; East Asia; portfolio investment (search for similar items in EconPapers)
JEL-codes: F21 F32 F34 F42 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2013-08-01
New Economics Papers: this item is included in nep-cwa, nep-opm and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbrei:0118

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