Shifts in the world economy, from oil shocks to Japanese investment and the 1997 crisis, repeatedly changed the direction of Southeast Asian economies.
The oil price rises of the 1970s brought huge revenues to Indonesia and Malaysia. They raised costs for oil importers such as the Philippines and Thailand.
When oil prices collapsed in 1986, Indonesia had to change course. It devalued the rupiah and opened up to manufactured exports.
The Plaza Accord of 1985 raised the value of the yen. Japanese firms moved factories to Thailand, Malaysia and Indonesia, followed by firms from Taiwan, Hong Kong and South Korea. This drove the boom of 1986-1996.
Large flows of foreign money in the 1990s paid for growth but also for bubbles. When investors pulled out in 1997, the Asian Financial Crisis hit Thailand, Indonesia and Malaysia hard.
In the 1990s China rose as a cheap place to manufacture, which increased competition for foreign investment.
- Oil boom
- 1970s.
- Oil price collapse
- 1986.
- Plaza Accord
- 1985: Japanese investment wave.
- Asian Financial Crisis
- 1997.
Worked example: Using external economic developments
How did the world economy shape change?
- Oil: boom in the 1970s, bust in 1986.
- Investment: the Japanese wave after 1985.
- Crisis: capital flight in 1997.
- Competition: China in the 1990s.
Watch out for this
External shocks affected every country in the same way.
The same shock had different effects. The oil boom helped Indonesia but hurt the Philippines, and the 1997 crisis hit Indonesia far harder than Singapore.
Check your understanding
What drove the wave of Japanese investment into Southeast Asia after 1985?
- A stronger yen made it cheaper for Japanese firms to produce abroad.
- Japan was forced out of its own market.
- Southeast Asian countries banned Japanese goods.