The minimal conditions for a financial crisis: A multiregional intertemporal CGE model of the Asian crisis

The globalization of world capitalism constrains the ability of the develop mental state to pursue an independent industrialization and foreign trade s trategy. We use an intertemporal, multiregion CGE model, to study the funda mental reasons for a financial crisis. We find that we can create a realist ic crisis in the Asia region when capital markets are open and there is an unexpected rise in the risk premium of the Asia region. When capital market s are closed and the state retains all its policy instruments, the Asia reg ion not only avoids a crisis but increases its rate of growth. (C) 2000 Pub lished by Elsevier Science Ltd. All rights reserved.