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From East Asian “Miracle” to Neo-liberal “Mediocrity”: The Effects of Liberalization and Financial Opening on the Post-crisis Korean Economy

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  • James Crotty
  • Kang-Kook Lee

Abstract

In December 1997 the International Monetary Fund (IMF) offered Korea loans to help alleviate its financial crisis. These loans were accompanied by what the IMF called “extreme structural conditionality.” Korea was required to replace its traditional East Asian economic system with a neo-liberal model. We review economic performance in the neo-liberal era. Growth has slowed, poverty and inequality have risen, and investment spending has stagnated, while foreign ownership of Korean firms and banks has skyrocketed. We argue that foreign investment has not helped Korea. For example, by leading a shift from corporate to consumer lending, foreign control of Korea's financial markets has constrained capital accumulation and helped create an excessively indebted household sector, while making it harder for the government to adopt progressive economic policies. We conclude that the 8 year experiment with radical neo-liberal restructuring has turned out well for foreign capital and wealthy Koreans, but has been a failure for the majority of Korea's people.

Suggested Citation

  • James Crotty & Kang-Kook Lee, 2005. "From East Asian “Miracle” to Neo-liberal “Mediocrity”: The Effects of Liberalization and Financial Opening on the Post-crisis Korean Economy," Global Economic Review, Taylor & Francis Journals, vol. 34(4), pages 415-434.
    • Handle: RePEc:taf:glecrv:v:34:y:2005:i:4:p:415-434
    DOI: 10.1080/12265080500441388
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    References listed on IDEAS

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    1. Keun Lee & Byung-Kook Kim & Chung H. Lee & Jaeyeol Yee, 2005. "Visible success and invisible failure in post-crisis reform in the Republic of Korea : interplay of the global standards, agents, and local specificity," Policy Research Working Paper Series 3651, The World Bank.
    2. International Monetary Fund, 2004. "Republic of Korea: Selected Issues," IMF Staff Country Reports 2004/045, International Monetary Fund.
    3. Kang-Kook Lee & James Crotty, 2001. "Economic Performance in Post-Crisis Korea: A Critical Perspective on Neo-Liberal Restructuring," Working Papers wp23, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Stanley Fischer, 1996. "Lessons from East Asia and the Pacific Rim," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 345-350.
    5. Mr. Eduardo Borensztein & Jong-Wha Lee, 1999. "Credit Allocation and Financial Crisis in Korea," IMF Working Papers 1999/020, International Monetary Fund.
    6. James Crotty, 2002. "The Effects of Increased Product Market Competition and Changes in Financial Markets on the Performance of Nonfinancial Corporations in the Neoliberal Era," Working Papers wp44, Political Economy Research Institute, University of Massachusetts at Amherst.
    7. Joon-Ho Hahm & Frederic S. Mishkin, 2000. "Causes of the Korean Financial Crisis: Lessons for Policy," NBER Working Papers 7483, National Bureau of Economic Research, Inc.
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