| Abstract: | This article deals with the adjustment following external shocksin two open Asian economies: the Republic of Korea and Malaysia.There were important differences in the economic structure ofthe two countries as well as significant differences in theway external events produced "crises" that interrupted theirdynamic economic growth. Detailed analyses of economic cyclesin the two decades preceding 198788 show that the behaviorof factor markets, particularly the markets for labor and foreignexchange, helped Korea to adjust quickly to the shocks but inMalaysia actually caused the crisis to deepen. For economies heavily dependent on exports, the unit cost oflabor in dollars is of central importance as an index of thecompetitiveness of exports and hence of their ability to mounta sustained recovery after a difficult period. Accordingly,the heart of the analysis is the determination of the unit costof labor and the factors affecting its change throughout thecycles. Concentration on this critical variable helps to spotlightthe crucial differences in the factor markets of the two economies. |
