Vietnam and the downsides of financial globalization by mattsteinglass
March 17, 2009, 8:58 am
Filed under: Economics

Megan McArdle has an honest post up that raises some good questions. Two leap out at me. The first is her last one:

  • (The one that comes to me at 3 am) Does the information problem inherent in investing in a foreign country mean we should rethink financial globalization?  Are foreigners a source of bubbles?

Having lived through the Vietnam bubble and crash of 2006-7, I would say: unequivocally yes. Portfolios were investing in “Vietnam, the next China” without having any idea what that was supposed to mean. The results were basically bad for everyone. I can’t think of anything positive that came out of that bubble. Capital was misdirected to stupid projects (a $4 billion casino resort in Vung Tau???) rather than important ones (why does Vietnam, an export-based economy, have virtually no freight rail?). Foreign investors lost money, but more tragically, many naive first-time Vietnamese investors lost the small savings they had painstakingly amassed over the previous 5 years. Vietnamese tycoons amassed fortunes which they promptly spent importing Rolls-Royces and driving up the country’s trade deficit.

The second question is also one with which Vietnam has some experience: collective punishment. But I don’t think the Vietnamese model there is a very good one, and actually that issue is so complex I think I’ll do a separate post on it.


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