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Macroeconomic Effects of Capital Account Liberalization: The Case of Korea

In: Volatile Capital Flows in Korea

Author

Listed:
  • Soyoung Kim
  • Sunghyun H. Kim
  • Yunjong Wang

Abstract

Many emerging market economies have relaxed and removed statutory restrictions on capital account transactions and liberalized domestic financial markets to capture the benefits of capital inflows.1 However, in a number of cases, capital account liberalization and ensuing capital surges seem to be associated with financial crises. We also observe that, following capital account liberalization, many countries experience so-called “boom-bust cycles.”2 Then, does capital account liberalization lead to financial crises or boom-bust cycles? This question has significant policy implications for developing countries under the process of capital account liberalization. In order to answer this question, it is necessary to understand how capital account liberalization affects the dynamics of domestic macroeconomic variables. However, despite its importance, this issue has not been explored much in the literature, as authoritatively suggested by Eichengreen et al. (1998) surveying the related studies.3

Suggested Citation

  • Soyoung Kim & Sunghyun H. Kim & Yunjong Wang, 2014. "Macroeconomic Effects of Capital Account Liberalization: The Case of Korea," Palgrave Macmillan Books, in: Kyuil Chung & Soyoung Kim & Hail Park & Changho Choi & Hyun Song Shin (ed.), Volatile Capital Flows in Korea, chapter 2, pages 27-49, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-36876-8_2
    DOI: 10.1057/9781137368768_2
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    2. Müller-Plantenberg, Nikolas A., 2010. "Balance of payments accounting and exchange rate dynamics," International Review of Economics & Finance, Elsevier, vol. 19(1), pages 46-63, January.
    3. Soyoung Kim & Doo Yong Yang, 2014. "Do Capital Inflows Matter to Asset Prices? The Case of Korea," Palgrave Macmillan Books, in: Kyuil Chung & Soyoung Kim & Hail Park & Changho Choi & Hyun Song Shin (ed.), Volatile Capital Flows in Korea, chapter 3, pages 51-82, Palgrave Macmillan.
    4. Soyoung Kim & Doo Yong Yang, 2010. "Managing Capital Flows: The Case of the Republic of Korea," Chapters, in: Masahiro Kawai & Mario B. Lamberte (ed.), Managing Capital Flows, chapter 11, Edward Elgar Publishing.
    5. Bram Daelemans & Joseph P. Daniels & Farrokh Nourzad, 2018. "Free Trade Agreements and Volatility of Stock Returns and Exchange Rates: Evidence from NAFTA," Open Economies Review, Springer, vol. 29(1), pages 141-163, February.
    6. Soyoung Kim & Doo Yang, 2011. "The Impact of Capital Inflows on Asset Prices in Emerging Asian Economies: Is Too Much Money Chasing Too Little Good?," Open Economies Review, Springer, vol. 22(2), pages 293-315, April.
    7. In‐Bong Ha & Bong‐Soo Lee & Chongcheul Cheong, 2007. "What Caused the Korean Currency Crisis in 1997?: Weak Fundamentals or Self‐fulfilling Expectations," Asian Economic Journal, East Asian Economic Association, vol. 21(2), pages 195-206, June.
    8. April Knill & Bong Soo Lee, 2014. "The Volatility of Foreign Portfolio Investment and the Access to Finance of Small Listed Firms," Review of Development Economics, Wiley Blackwell, vol. 18(3), pages 524-542, August.
    9. Tomer Shachmurove & Yochanan Shachmurove, 2007. "In the Same Boat: Exchange Rate Interdependence in the Asia-Pacific Region," PIER Working Paper Archive 07-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    10. Soyoung Kim & Doo Yong Yang, 2008. "The Impact of Capital Inflows on Emerging East Asian Economies: Is Too Much Money Chasing Too Little Good?," Working Papers on Regional Economic Integration 15, Asian Development Bank.
    11. Bilge Bakin & Gozde Gurgun, 2014. "Portfolio Investments and Asset Prices Relationship in Turkey," Proceedings of International Academic Conferences 0201138, International Institute of Social and Economic Sciences.

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