The conventional wisdom is that crises are largely due to swings in short-term capital (mainly bank loans in the case of East Asia). Hence economies that finance their current account deficits mainly via foreign direct investment (FDI) are seen as being less susceptible to a crisis. The spate of...

Economies that finance their current account deficits mainly via foreign direct investment (FDI) are therefore seen as being less susceptible to a crisis. The analysis in this article, backed up by some empirical evidence drawn from Malaysia, challenges the casual presumption that the switch...