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Fiscal stimulus programs have contributed substantially to developing Asia's faster and stronger-than-expected recovery from the global financial crisis. This may lead to political pressures for greater use of countercyclical fiscal policy in the postcrisis period. However, the countercyclical effectiveness of fiscal policy depends critically on the extent to which it crowds out private investment and consumption. In the medium term, the use of fiscal policy to promote rebalancing toward domestic demand may require a moderate fiscal expansion. The extent of crowding out will impinge upon the effectiveness of such fiscal expansion in boosting domestic demand. In this paper we perform empirical analysis on both cross-country panel data and country-specific time-series data to investigate crowding out in the region. Overall, our empirical evidence is decidedly mixed, with no clear evidence of either crowding out or crowding in. The evidence fails to provide compelling support for greater use of fiscal policy for countercyclical purposes. In the context of rebalancing, fiscal expansion will not, in and of itself, contribute to a more balanced demand and output structure. That would require using fiscal policy to help remove structural impediments to private consumption and investment. [ABSTRACT FROM AUTHOR]

The article presents information on the financial risks in the developing countries in context to Asia. It mentions the currency crises in the years 1980 and 1990 in the emerging markets (EM) due to the sudden stopping in the capital flows. It highlights the risk of investments taken after the global financial crisis, and mention the reforms introduced after the East Asian crisis in the year 1997 for the EM which includes the high transparency in the cross border trades.