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South Korea's Experience with International Capital Flows

  • Marcus Noland

    ()

    (Peterson Institute for International Economics)

South Korea's experience is unparalleled in its combination of sustained prosperity, capital controls, and financial crisis. Over several decades, South Korea experienced rapid sustained growth in the presence of capital controls. These controls and the de-linking of domestic and international financial markets were an essential component of the country's state-led development strategy. As the country developed, opportunities for easy technological catch-up eroded, requiring more sophisticated corporate and financial sector decision-making, but decades of financial repression had bequeathed a bureaucratized financial system and a formidable constellation of incumbent stakeholders opposed to transition to a more market-oriented development model. Liberalization undertaken in the 1990s was less a product of textbook economic analysis than of parochial politicking. Capital account liberalization program affected the timing, magnitude, and particulars of the 1997-98 crisis. Despite considerable reforms undertaken since the crisis, concerns remain about both South Korea's lending culture and its authorities' capacity to successfully regulate the more complex financial system. The main lesson of the South Korean case appear to be that while the state-led model may deliver impressive initial gains, transitioning out of this approach presents an exceedingly complex challenge of political-economy.

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Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP05-4.

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Date of creation: Jun 2005
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Handle: RePEc:iie:wpaper:wp05-4
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  1. Susan M. Collins & Won-Am Park, 1989. "II. External Debt and Macroeconomic Performance in South Korea," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 3: Country Studies - Indonesia, Korea, Philippines, Turkey, pages 151-152 National Bureau of Economic Research, Inc.
  2. Susan M. Collins & Won-Am Park, 1989. "External Debt and Macroeconomic Performance in South Korea," NBER Chapters, in: Developing Country Debt and the World Economy, pages 121-140 National Bureau of Economic Research, Inc.
  3. Anusha Chari & Paige P. Ouimet & Linda L. Tesar, 2004. "Acquiring Control in Emerging Markets: Evidence from the Stock Market," NBER Working Papers 10872, National Bureau of Economic Research, Inc.
  4. Stephan Haggard, 2000. "Political Economy of the Asian Financial Crisis, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 107.
  5. Kang, David C., 2002. "Bad Loans to Good Friends: Money Politics and the Developmental State in South Korea," International Organization, Cambridge University Press, vol. 56(01), pages 177-207, December.
  6. Kenneth Kang & Hong Liang & Henry Ma & Anthony J. Richards & Ajai Chopra & Meral Karasulu, 2001. "From Crisis to Recovery in Korea; Strategy, Achievements, and Lessons," IMF Working Papers 01/154, International Monetary Fund.
  7. Jeffrey A. Frankel, 1992. "Liberalization of Korea's foreign exchange markets," Pacific Basin Working Paper Series 92-08, Federal Reserve Bank of San Francisco.
  8. Jong­Wha Lee & Changyong Rhee, 2000. "Macroeconomic Impacts of the Korean Financial Crisis: Comparison with the Cross­country Patterns," RCER Working Papers 471, University of Rochester - Center for Economic Research (RCER).
  9. Morris Goldstein & Philip Turner, 2004. "Controlling Currency Mismatches in Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 373.
  10. Marcus Noland, 1996. "Restructuring Korea's Financial Sector for Greater Competitiveness," Working Paper Series WP96-14, Peterson Institute for International Economics.
  11. Stijn Claessens & Moon-Whoan Rhee, 1994. "The Effect of Barriers to Equity Investment in Developing Countries," NBER Chapters, in: The Internationalization of Equity Markets, pages 231-275 National Bureau of Economic Research, Inc.
  12. Yung Chu Park & Chi-Young Song, 1996. "Managing Foreign Capital Flows: The Experience of Korea, Thailand, Malaysia, and Indonesia," Economics Working Paper Archive wp_163, Levy Economics Institute.
  13. Marcus Noland, 2000. "Avoiding the Apocalypse: The Future of the Two Koreas," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 94.
  14. Fukuda, Shin-ichi & Hoshi, Takeo & Ito, Takatoshi & Rose, Andrew, 2006. "International Finance," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 455-458, December.
  15. Marcus Noland & Howard Pack, 2003. "Industrial Policy in an Era of Globalization: Lessons from Asia," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 358.
  16. repec:sae:niesru:v:145:y::i:1:p:43-63 is not listed on IDEAS
  17. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-63, September.
  18. Marcus Noland, 1996. "Some Unpleasant Arithmetic Concerning Unification," Working Paper Series WP96-13, Peterson Institute for International Economics.
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