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Title: The 'new financial development paradigm' : the role of the state vis-a-vis the financial market in east Asia.
Authors: Lehmann, Jeanine Andrea.
Keywords: DRNTU::Humanities
Issue Date: 2013
Abstract: This dissertation addresses the two-folded question of what role the contemporary East Asian state adopts with regards to the 'new financial development paradigm' and how this role contrasts with earlier development strategies promoted in East Asia from the 1950/60s onwards, while paying special attention to Malaysia, South Korea and Thailand.The paper starts with tracing the emergence of the 'new financial development paradigm' and the changing role of the state until the Asian Financial Crisis, where the debate between liberalists and state interventionists peaked. In fact, the 'capitalist development state' model of Chalmers Johnson (1982), promoted by the East Asian states until the 1980190s, is identified as an extension of the 'Varieties of Capitalism' approach of Hall and Soskice (2001). It refers to a state-led development strategy that is based on the political rationale of prioritizing economic growth. Hence, a technocratic elite 'governed' the market while promoting close ties with corporations and businesses. However, raising liberalist criticism, supported by international financial institutions and regional bodies, encouraged the East Asian states to deliberately limit their role in the economy and to deregulate and liberalize their markets. When in 1997, the Asian Financial Crisis hit the East Asian economies the role of the state in development was being debated by liberalizers and interventionists, leading to the emergence of a convergence of opinion between the two opposing views and to the 'new financial development paradigm', which argues that it is crucial to financial stability and efficiency that financial markets are being further developed and diversified.The transformed role of state in the 'new financial development' paradigm is then being illustrated with the example of the bond market development. Following Hall and Soskice's argument (2001), the role of the state in establishing an enabling institutional framework for the market economy is identified as essential. Consequently, the role of the state in the 'new financial development' paradigm refers to the development of an accurate infrastructure, a regulatory, legal and supervisory framework, as well as regional and international initiatives that facilitate the development of the financial system. As a result, in contrast to earlier direct state interventions, the state within the 'new financial development paradigm' seeks to indirectly influence economic outcomes in reforming the economic constitution. The rationale behind this role of the state is, similar as during the development state era, rooted in the public good character of financial stability. However, it is unclear if the prioritizing of the financial system development represents a sovereign decision by the governments, as the decisions of the latter are being influenced from top down, notably by the normative values promoted by the international 'epistemic community'. Moreover, the 'epistemic community' largely depoliticized the financial system development and made it a purely technical matter. Even though, East Asian countries historically haven't been included in the major 'epistemic communities' shaping the values and architecture of the financial system, there is a emerging trend towards the inclusion of East Asia, as these countries have significantly developed in recent years. Moreover, Rana (2010) identifies the ASEAN community as potential platform through which East Asia can participate more strongly in the international 'epistemic community' and thus regain authority and sovereignty in shaping the role of the state with regards to the financial system development.Nevertheless, the depoliticized financial market development gives the state certain authority in implementing the financial development on a domestic level, as it can circumvent political debates. The importance of the bureaucratic actors in promoting development mirrors to a certain extent the importance of the technocratic elite during the development state era, as they also remained largely unquestioned by society. However, the embedendess of the economy in the 'social whole' (Polanyi 1957) challenges the validity of the 'new financial development' paradigm. Consequently, this paper concludes that the angle of the definition of the financial development should be widened in order to include other aspects, such as participation or equity. Furthermore, more empirical research is suggested regarding the actual, current potential of East Asian bond market to make the economy more stable and efficient, because, even though bond markets have developed rapidly over the last decade, they remain rather small in size. Moreover, it is stressed that the stability and efficiency of the financial system, and thus the validity of the new paradigm, depends on the state's capacity to correctly evaluate the degree of regulation needed in order to provide an enabling financial environment without over-regulating.
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