and outward direct investment. The striking points are both the very low level of inward investment given the size of overall inflow, and the remarkable position of Korea as a net direct investor abroad Whatever the strengths of Korean management, this seems a peculiar position for a middle-income country; a parsimonious explanation of the pattern is that moral-hazard-driven lending both allowed Korean firms to crowd out potential inward investors and to pursue grandiose schemes abroad even given their debt burdens. Moreover. while much of the real slump in Asia may be due yethe And yet while asset prices were surely overheated on the eve of the it is also easy to make case that the crisis itself has overshot. The market values of Asian firms do seem extraordinarily low, demand-side effects of plunging asset values, and to the effects of the high interest rates being used to defend currencies against hyper-devaluation, there is also considerable anecdotal evidence of a supply-side disruption of activity due to a breakdown of the credit system; this may be viewed as a ersion of the liquidation costs in our financial panic model So does the foreign purchase of Asian assets represents the transfer of control to efficient owners who were previously unable to buy at a reasonable price; or does it represent sales to inefficient owners who happen to have cash? Alas, probably some of both What we need-surprise-is more research Luckily, the issue of fire-sale FDi is not likely to go away anytime soon; even if the asian crisis eases, its legacy of foreign ownership will be a contentious legacy for years to come REFERENCES Flood, R and Garber, P(1984)"Collapsing exchange rate regimes: some linear examples", Journai of International Economics 17: 1-13 Krugman, P(1979)"A model of balance of payments crises", Journal of Money, Credit, and Banking 11: 311-325 Krugman, P(1998a)"Bubble, boom, crash: theoretical notes on Asia's crisis",mimeo Krugman, P(1998b)What happened to Asia? mimeo McKinnon, R. and Pill, H. (1996),"Credible liberalizations and international capital flows: theand outward direct investment. The striking points are both the very low level of inward investment given the size of overall inflow, and the remarkable position of Korea as a net direct investor abroad. Whatever the strengths of Korean management, this seems a peculiar position for a middle-income country; a parsimonious explanation of the pattern is that moral-hazard-driven lending both allowed Korean firms to crowd out potential inward investors and to pursue grandiose schemes abroad. And yet while asset prices were surely overheated on the eve of the crisis, it is also easy to make the case that the crisis itself has overshot. The market values of Asian firms do seem extraordinarily low, even given their debt burdens. Moreover, while much of the real slump in Asia may be due to demand-side effects of plunging asset values, and to the effects of the high interest rates being used to defend currencies against hyper-devaluation, there is also considerable anecdotal evidence of a supply-side disruption of activity due to a breakdown of the credit system; this may be viewed as a version of the liquidation costs in our financial panic model. So does the foreign purchase of Asian assets represents the transfer of control to efficient owners who were previously unable to buy at a reasonable price; or does it represent sales to inefficient owners who happen to have cash? Alas, probably some of both. What we need -surprise - is more research. Luckily, the issue of fire-sale FDI is not likely to go away anytime soon; even if the Asian crisis eases, its legacy of foreign ownership will be a contentious legacy for years to come. REFERENCES Flood, R. and Garber, P. (1984) "Collapsing exchange rate regimes: some linear examples", Journal of International Economics 17:1-13 Krugman, P. (1979) "A model of balance of payments crises", Journal of Money, Credit, and Banking 11: 311-325 Krugman, P. (1998a) "Bubble, boom, crash: theoretical notes on Asia's crisis", mimeo Krugman, P. (1998b) "What happened to Asia?", mimeo McKinnon, R. and Pill, H. (1996), "Credible liberalizations and international capital flows: the