Economics & Finance / Macroeconomics / Exchange Rates & Forex

Examines the combined impact of political cronyism and capital controls on Malaysian

Simon Johnson, Todd Mitton

study of capital controls and political cronyism in Malaysia, published by Simon Johnson and Todd Mitton in an NBER working paper, examines the combined impact of political cronyism and capital controls on Malaysian businesses during the 1997 Asian financial crisis. 马来西亚资本管制与政治分肥制研究 The study finds that in the early stages of the crisis, companies linked to political power suffered far greater market capitalization losses than ordinary companies due to anticipated declines in government subsidies. However, after Malaysia implemented capital controls in September 1998 and a political reshuffle ensued, the share prices of companies associated with Mahathir's faction rebounded sharply. The authors argue that capital controls effectively provided the government with a "barrier," allowing it to bypass market oversight and provide targeted assistance to specific political cronies. Data shows that this political connection accounted for approximately 16% of the total market capitalization of the companies involved, highlighting the profound impact of the institutional environment on short-term economic fluctuations. This research reveals that in a system lacking strong regulation, macroeconomic policies can become tools for the distribution of spoils among interest groups.