Eurasian Economic Review

, Volume 7, Issue 2, pp 277–295 | Cite as

Financial liberalization and private sector borrowing in ASEAN 4 economies 1990–2012

Original Paper


Using quarterly data spanning 1990–2012, this study estimates the optimal debt/net worth ratio for ASEAN 4 economies and whether business indebtedness of the private sector in Indonesia, Malaysia, the Philippines, and Thailand was excessive during the period. Using the single-equation model from Stein’s stochastic optimal control-dynamic programming, I find that increased capital inflows and lower borrowing costs following financial liberalization spurred excessive borrowing before Asia’s 1997–1998 financial crisis. Results confirm Stein’s theory that rising excess indebtedness signals an impending financial crisis.


Financial crises Capital flows Debt/equity ratio Over-leverage 

JEL Classification

G01 E22 E44 



I thank Dr. Willi Semmler, Arnhold Professor of International Cooperation and Development, The New School for Social Research, for his comments that greatly helped to improve an earlier version of this manuscript.


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Copyright information

© Eurasia Business and Economics Society 2017

Authors and Affiliations

  1. 1.The New School for Social ResearchNew YorkUSA

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