What this lesson teaches
I can judge which factors, at home and abroad, did most to shape economic change in Southeast Asia.
Syllabus 9174, Paper 2, Theme II, Learning Outcomes. evaluate the factors shaping economic change in different contexts and over time
Make a guess
In 1985 the Plaza Accord raised the value of Japan's yen. How do you think this affected Southeast Asia?
- It hurt the region, as Japan stopped buying its goods.
- It made little difference to the region.
- Japanese firms moved factories to Thailand, Malaysia and Indonesia.
Show the answer
Japanese firms moved factories to Thailand, Malaysia and Indonesia.
A dearer yen made producing in Japan costly. Firms from Japan, then Taiwan and South Korea, invested in the region.
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.
Real examples to use
Oil collapse, 1986
Indonesia's oil price fell below 10 dollars a barrel, pushing it to devalue the rupiah by 31 per cent and move towards factory exports.
Plaza Accord, 1985
The yen rose from about 237 to the dollar in September 1985 to about 155 a year later, so Japanese firms moved factories to Southeast Asia.
Asian Financial Crisis, 1997 to 1998
Thailand floated the baht on 2 July 1997. The crisis spread, and Indonesia's economy shrank by about 13 per cent in 1998.
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?
- Japan was forced out of its own home market by American competition.
- A stronger yen made it cheaper for Japanese firms to produce abroad.
- Southeast Asian countries banned Japanese imports.
Show the answer
A stronger yen made it cheaper for Japanese firms to produce abroad.
Right. The Plaza Accord raised the yen.