Rebalancing Asia’s growth
A question of balance
This chapter was written by William James, Shikha Jha, Juthathip Jongwanich,
Donghyun Park, and Akiko Terada-Hagiwara of the Economics and Research
Department, ADB, Manila. It draws on background papers that they prepared with
Charles Adams, Peter Minor, Eswar Prasad, and Kwanho Shin, consultants.
Two views about the origins of the global financial crisis predominate.
According to one view, a combination of unsound macroeconomic
policies—lax monetary policy and loss of fiscal discipline—and
inadequate prudential regulation led to serious imbalances in the
United States (US). This combination contributed to low saving rates,
in the process widening current account deficits, and to a massive
extension of credit to high-risk borrowers, especially in the mortgage
market. The result was the bursting of an unsustainable housing boom
with devastating effects on the balance sheets of financial
According to the other dominant view—the global “savings
glut” hypothesis—excess saving in emerging markets generated
low-interest financing allowing industrial countries to maintain
high current account deficits. Lower global interest rates also
encouraged a search for yield, including investments into risky
housing-related assets such as subprime mortgages. These
two views on the causes of the imbalances are not mutually
exclusive and, in fact, they are complementary.
The global savings glut theory implicitly assumes that global
current account imbalances (henceforth, global imbalances)
played a major role in the outbreak of the global financial crisis.
Global imbalances refer to the large current account deficits
and surpluses that have emerged in the world economy since
the Asian financial crisis of 1997–98 (Figure 2.1.1). For the most
2.1.1 World current account balance
% of world GDP
Other industrial countries
People's Rep. of Ch