Economic and Political Freedom as Determinants of the 1997-98 Financial Crisis

Abstract

The recent east Asian crisis has lead to calls for a new international financial architecture. This paper investigates the crisis in terms of a "grabbing hand" theory of the state. Results indicate that those economies that chose not to have floating exchange rates and chose to have inconsistencies between economic freedom and political and civil freedoms were most affected by the crisis. This finding undermines any contagion arguments and consequently there is no basis for restructuring the financial architecture.

JEL Classification: D23, F02, H11, P16