Regional Financial Market Integration in Korea, 1876-1942 (in Korean)

This paper attempts to identify when and how regional financial market integration was accomplished in Korea. Modern financial systems was introduced after the 1876 Open Port. Heavy brass coins were replaced with light banknotes, and commercial papers entered into general use. Banking system, which raises funds from foreign and domestic savings and allocates them, was also developed. Modern transportation and communication systems such as railway, telegraph, and telephone enabled people to cut the transaction costs related to the transfer of funds and market informations. Substantial regional interest rate differentials between traditional informal money markets reflect regionally splitted markets and low-level integration. The settlement and development of modern banking system reduced regional interest rate differentials through efficient financial resource allocation. According to unit root test, arbitrage opportunities tapping into interest rate gap between cities did not always arise in major cities. But, arbitrage trades seemed to be possible all the time in the peripheral areas with low density of financial intermediaries. Panel analyses using regional interest rate and intermediary data show that competition among intermediaries stimulated regional financial market integration. Competition effects were more apparent in the peripheral areas.