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Macroeconomic Impacts of the Korean Financial Crisis: Comparison with the Cross­country Patterns

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  • Jong­Wha Lee

    (Harvard University and Korea University)

  • Changyong Rhee

    () (Seoul National University and University of Rochester)

Abstract

This paper analyzes the macroeconomic adjustment process of the Korean financial crisis in a broad international perspective. In particular, the impacts of the crisis on GDP growth, inflation, current account balance, and employment are analyzed using a cross­ country data set, which compiled 150 financial crisis episodes from all developing countries that have received conditional financial assistance from the IMF over the period from 1973 to 1994. The cross country patterns show that GDP growth rates sharply drop with the eruption of a crisis but then recover quickly to the pre­crisis level in two or three years, showing a v­ pattern of adjustment; inflation and current account deficit exhibit an inverse v­pattern, but they do not improve to the level of non­program period; employment growth is most sluggish in the recovery process compared with other macroeconomic variables. We find that the Korean case is in general consistent with these stylized patterns. However, the degree of initial contraction and following recovery has been far greater in Korea than what the cross­country evidence predicts. Cross­country comparison indicates that both the export­oriented structure and the swift adjustment of macroeconomic policies contributed to the speedy adjustment of the Korean economy.

Suggested Citation

  • 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).
  • Handle: RePEc:roc:rocher:471
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    Cited by:

    1. José de Gregorio & Jong-Wha Lee, 2004. "Growth and Adjustment in East Asia and Latin America," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2004), pages 69-134, August.
    2. Bernd Hayo & Doh Chull Shin, 2002. "Popular Reaction to the Intervention by the IMF in the Korean Economic Crisis," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(2), pages 89-100.
    3. Bal Gündüz, Yasemin, 2016. "The Economic Impact of Short-term IMF Engagement in Low-Income Countries," World Development, Elsevier, vol. 87(C), pages 30-49.
    4. Marcus Noland, 2007. "South Korea's Experience with International Capital Flows," NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 481-528 National Bureau of Economic Research, Inc.
    5. Yung Chul Park & Jong-Wha Lee, 2003. "Recovery and Sustainability in East Asia," NBER Chapters,in: Managing Currency Crises in Emerging Markets, pages 275-320 National Bureau of Economic Research, Inc.
    6. Siegel, Jordan, 2005. "Can foreign firms bond themselves effectively by renting U.S. securities laws?," Journal of Financial Economics, Elsevier, vol. 75(2), pages 319-359, February.

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