Financial Restructuring after the 1997 Crisis and Impact of the Lehman Shock: Path Dependence of Financial Systems in Korea and Thailand
After the 1997 Asian financial crisis, South Korea (Korea) and Thailand implemented financial restructuring in a similarly successful manner and regained the healthiness of their banking sectors. However, when the Lehman shock hit their financial markets in 2008, its impact on the two countries was quite different. Korea, which had performed better in the financial restructuring than Thailand, was driven to the brink of a second financial crisis in 2008 while Thailand weathered the shock easily. This paper addresses this paradoxical contrast from the path dependence perspective, focusing on different historical paths of formation and change of the respective financial systems. It concludes that the successful state-led financial restructuring in Korea fostered banks’ propensity of active lending while the private sector-led reform in Thailand only reinforced banks’ conservative lending behavior. Furthermore, betraying the critical juncture theory, the severe economic crises helped reinforce the institutional legacies in the two countries, resulting in aggressive foreign borrowing by Korean banks and timid borrowing by Thai banks. These differences explain their contrasting vulnerability to the Lehman shock.
|Date of creation:||09 Jan 2013|
|Date of revision:|
|Contact details of provider:|| Postal: 6th-13th floors, Shinjuku Maynds Tower, 2-1-1 Yoyogi, Shibuya-ku, Tokyo 151-8558|
Web page: http://jica-ri.jica.go.jp/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kyu-Sung Lee, 2011. "The Korean Financial Crisis of 1997 : Onset, Turnaround, and Thereafter," World Bank Publications, The World Bank, number 2280.
- Stijn Claessens & Daniela Klingebiel & Luc Laeven, 2001. "Financial Restructuring in Banking and Corporate Sector Crises: What Policies to Pursue?," NBER Working Papers 8386, National Bureau of Economic Research, Inc.
- Kevin Hewison, 2005. "Neo-liberalism and Domestic Capital: The Political Outcomes of the Economic Crisis in Thailand," Journal of Development Studies, Taylor & Francis Journals, vol. 41(2), pages 310-330.
- Honohan, Patrick & Klingebiel, Daniela, 2000. "Controlling the fiscal costs of banking crises," Policy Research Working Paper Series 2441, The World Bank.
- Swati R. Ghosh, 2006. "East Asian Finance : The Road to Robust Markets," World Bank Publications, The World Bank, number 7063.
- Patrick Honohan & Daniela Klingebiel, 2000. "Controlling fiscal costs of banking crises," Proceedings 682, Federal Reserve Bank of Chicago.
- Shirai, Sayuri, 2009. "The Impact of the US Subprime Mortgage Crisis on the World and East Asia," MPRA Paper 14722, University Library of Munich, Germany.
When requesting a correction, please mention this item's handle: RePEc:jic:wpaper:51. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Japan International Cooperation Agency Library)
If references are entirely missing, you can add them using this form.