This paper, then, has three purposes. The first is simply to draw attention to the phenomenon of fire- ale FDI, and to stimulate discussion of what is likely to become a major economic and political issue in the coming years. The second is to indicate, in a preliminary way, how this phenomenon might emerge in the context of alternative crisis models. The third is to examine the welfare implications of crisis-induced sales of domestic assets to foreign firms, and in particular to ask how those mplications depend on our diagnosis of the crisis itself. 1. The fire sale: what is the evidence? At the time of writing hard statistical evidence of a surge in FDI into Asia was not yet available However, even a quick search of news databases turns up a plethora of anecdotes about foreign purchases of Asian firms-actual, impending, or potential -especially in South Korea. Recent titles of articles in the financial press include" Korean companies are looking ripe to foreign buyers"(New York Times, Dec 27), "Some U.S. companies see fire sale in South Korea"(Los Angeles Times, Jan 25), "Some companies jump into Asia's fire sale with both feet"(ouch! )(Chicago Tribune, Jan. 18) and"While some count their losses in Asia, Coca-Cola's chairman sees opportunity"(Wall Street Journal, feb. 6). The latter article described Coke's buyout of its Korean bottling partner, as well as its increased stake in its Thai operations. Other reported deals in prospect or under negotiation included General Motors was reported in January to be considering buying stakes in South Korean manufacturers of both automobiles and parts, while Ford was reported to be planning to increase its stake in Kia motors Seoul bank and Korea first bank were supposedly likely to be auctioned off to foreign bidders procter gamble purchased a majority share of Ssanyong Paper Co, a producer of sanitary napkins, diapers, and kitchen towels Royal Dutch Shell was negotiating to buy Hanwha Group's oil refining company; the group had already sold its half of a joint venture in chemicals to the German company BASF My favorite: "Michael Jackson is getting into the action, negotiating to acquire a ski resort from its owner, a bankrupt Korean underwear maker Aside from being entertaining, lists like this one serve to demonstrate an important point about the service companies to be buying up Asian counterparts: this is an area in which the United States has long been perceived to hold a substantial technological and managerial advantage, and has indeed been a focus of U.S. demands for liberalized trade and investment for precisely that reason. However until recently few would have argued that U.S. firms held a comparable advantage across the board in areas as diverse as auto manufacture and paper products. This indicates clearly that the source of the investment surge must lie in a change in conditions that affect all industries, namely the financial situation In a proximate sense there is, of course, no mystery about that change in conditions. In 1997 SouthThis paper, then, has three purposes. The first is simply to draw attention to the phenomenon of fire￾sale FDI, and to stimulate discussion of what is likely to become a major economic and political issue in the coming years. The second is to indicate, in a preliminary way, how this phenomenon might emerge in the context of alternative crisis models. The third is to examine the welfare implications of crisis-induced sales of domestic assets to foreign firms, and in particular to ask how those implications depend on our diagnosis of the crisis itself. 1. The fire sale: what is the evidence? At the time of writing hard statistical evidence of a surge in FDI into Asia was not yet available. However, even a quick search of news databases turns up a plethora of anecdotes about foreign purchases of Asian firms - actual, impending, or potential - especially in South Korea. Recent titles of articles in the financial press include "Korean companies are looking ripe to foreign buyers" (New York Times, Dec. 27), "Some U.S. companies see fire sale in South Korea" (Los Angeles Times, Jan. 25), "Some companies jump into Asia's fire sale with both feet" (ouch!) (Chicago Tribune, Jan. 18), and "While some count their losses in Asia, Coca-Cola's chairman sees opportunity" (Wall Street Journal, Feb. 6). The latter article described Coke's buyout of its Korean bottling partner, as well as its increased stake in its Thai operations. Other reported deals in prospect or under negotiation included: - General Motors was reported in January to be considering buying stakes in South Korean manufacturers of both automobiles and parts, while Ford was reported to be planning to increase its stake in Kia Motors. - Seoul Bank and Korea First Bank were supposedly likely to be auctioned off to foreign bidders. -Procter & Gamble purchased a majority share of Ssanyong Paper Co., a producer of sanitary napkins, diapers, and kitchen towels. - Royal Dutch Shell was negotiating to buy Hanwha Group's oil refining company; the group had already sold its half of a joint venture in chemicals to the German company BASF. - My favorite: "Michael Jackson is getting into the action, negotiating to acquire a ski resort from its owner, a bankrupt Korean underwear maker." Aside from being entertaining, lists like this one serve to demonstrate an important point about the new surge of acquisitions: it is very widely spread across industries. It is one thing for U.S. financial￾service companies to be buying up Asian counterparts: this is an area in which the United States has long been perceived to hold a substantial technological and managerial advantage, and has indeed been a focus of U.S. demands for liberalized trade and investment for precisely that reason. However, until recently few would have argued that U.S. firms held a comparable advantage across the board, in areas as diverse as auto manufacture and paper products. This indicates clearly that the source of the investment surge must lie in a change in conditions that affect all industries, namely the financial situation. In a proximate sense there is, of course, no mystery about that change in conditions. In 1997 South