Japanese direct investment in Asia and the European union: Is there an interdependence?

The 1997-8 Asian financial crisis indicates the growing interdependence existing between EU and Asian economies. Excessive reliance upon international capital flows is currently seen as one of the main explanatory factors of this turmoil, combined with an inappropriate allocation of domestic resources and the many distortions induced by market-unfriendly policies. The rapid depreciation of most Asian currencies against both the US dollar and major European currencies may enhance the comparative advantage of these countries. However, the collapse of domestic demand in the ASEAN countries has induced a cautious attitude on the part of foreign investors, who had to postpone or cancel several projects. In addition, they had to reconsider or even to change drastically their strategy aimed at implementing - within their business group - an international division of labor, and therefore international trade flows between their subsidiaries.