Asia’s Trade Performance after the Currency Crisis

he Asian currency crisis of 1997-98 was characterized by an abrupt reversal of foreign capital flows. Before the crisis, foreign capital inflows had allowed the crisis countries to attain a higher level of investment spending than could have been supported by domestic saving alone. Domestic and foreign investors suddenly lost confidence, liquidating their local asset holdings, and moving their capital to the safety of the United States and other countries. For the crisis countries, the shift from capital inflows to outflows had to be matched by their current account balances moving from deficit to surplus. The improvement in the crisis countries’ current account balances was achieved through lower dollar imports, with dollar exports relatively unchanged. This picture, though, becomes richer when trade flows are viewed in terms of the volume of goods being shipped and the prices for these goods. With this breakdown, the flatness of exports is seen as a result of falling export prices masking increases in export volumes. Dollar imports dropped because both the volume of goods imported and the price of these goods fell sharply. Simple trade models are used to flesh out the factors that drove the trade adjustment in South Korea and Thailand during the Asia crisis. The price models have dollar import and export prices tied to the country’s dollar exchange rate and world prices for tradable goods. Export volumes (dollar exports deflated by dollar export prices) are tied to foreign