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Financial Liberalization and the Evolution of Banking and Financial Risks The Case of South Korea


  • Panicos Demetriades


  • Bassam Fattouh
  • Kalvinder Shields


The paper provides new insights into the role of financial liberalization in the South Korean financial crisis using a number of novel approaches. Firstly, primary information regarding the relaxation of financial restraints, such as interest rate ceilings, capital controls and reserve requirements, is collected and summarised. Secondly, this information is used to construct summary measures of financial liberalization. Thirdly, qualitative information on the role of financial liberalization in the financial crisis is presented from a new survey of 44 IMF, World Bank and Korean officials who had direct exposure to the events surrounding the financial crisis. Fourthly, the effects of financial liberalization on the evolution of banking and financial risks are estimated utilising a conditional CAPM with time-varying market risk. Finally, qualitative and quantitative findings are juxtaposed, allowing insights into the extent to which financial markets recognized the increased banking and financial risks, which emanated from financial liberalization.

Suggested Citation

  • Panicos Demetriades & Bassam Fattouh & Kalvinder Shields, 2001. "Financial Liberalization and the Evolution of Banking and Financial Risks The Case of South Korea," Discussion Papers in Economics 01/1, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:01/1

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    Cited by:

    1. Sikandar Hussain & M. Shahid Ebrahim, 2005. "Financial Development and Property Valuation," Computing in Economics and Finance 2005 24, Society for Computational Economics.
    2. Yang, Yung Y. & Yi, Myung Hoon, 2008. "Does financial development cause economic growth? Implication for policy in Korea," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 827-840.

    More about this item


    Financial liberalization; financial crisis; banking and financial risks;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates


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