THE BALANCE SHEET APPROACH TO FINANCIAL CRISES IN EMERGING MARKETS

This paper contrasts the conventional balance sheet approach to the analysis of economic disturbances in emerging markets with the alternative balance sheet approach that applies and extends Minsky’s Financial Instability Hypothesis to (open) emerging market economies. Earlier balance sheet studies are flawed because of a failure to disaggregate firms’ balance sheets. Examination of such balance sheets in Thailand, Malaysia, Indonesia, Singapore and Hong Kong, suggests that firms in the three crisis countries shared common causes of financial fragility, but the level of financial development and the particular domestic economic and political situation also affected their situation.