By RAYMD FISMAN* As the Indesian ecomy went into a downward spiral in the latter half of 1997, there was much speculati and debate as to the reass behind the sudden decline. Most explanatis gave at least some role to investor panic, which had led to a massive outï¬ow of foreign capital. At the root of this hysteria, however, were ccerns that the capital that had ï¬owed into Indesia and elsewhere in Southeast Asia had not been used for productive investments. Much of this discussi focused the role of political cnectis in driving investment. The claim was that in Southeast Asia, political cnectedness, rather than fundamentals such as productivity, was the primary determinant of proï¬tability and that this had led to distorted investment decisis. Obviously, the degree to which this type of problem was truly respsible for the Asian collapse depends very much the extent to which cnectedness really was a primary determinant of ï¬rm value. In making the argument that this was in fact the case, anecdotes about the business dealings of President Suhartoâs children were often cited as evidence. Such stors suggest that the value of some ï¬rms may have been highly dependent their political cnectis.
American Economic Review – American Economic Association
Published: Sep 1, 2001
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