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Foreign direct investment in Korea

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Frame of Image the Korean economy, hailed as an economic miracle in Asia, could have been so vulnerable to the currency attacks of late 1997 and find itself at the risk of default seemingly overnight. Renowned economist Paul Krugman has explained how a cozy, murky relationship between government, firms and financial sectors of the nations in East Asia led to the financial crisis by generating excessive moral hazard problems in terms of dubious investments by firms and reckless lending by banks. In Korea, such a pattern of close government-business-bank interactions gave birth to an intrusive government that encouraged business conglomerates, or chaebols, to rely on debt financing through the government’s system of preferential policy loans. Krugman has labeled this type of interplay as a form of ‘crony capitalism.’ As long as chaebols complied with government policies and responded to government suggestions, they were assured that the government was likely to assist them in any future period of financial stringency. This in turn prompted chaebols to incur the risks of over-expansion and excessive corporate indebtedness. The accumulation of huge non-performing assets by the banks that extended bailout loans to troubled chaebols upon the directives of the government stymied the autonomy and efficiency of the entire banking industry. While the flawed banking system had long been ripe for financial panic, it remained virtually intact so long as the economy and exports grew vigorously. The viabi


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Title Foreign direct investment in Korea
Similar Titles
Material Type Reports
Author(English)

Kim, Wan-soon

Publisher

[Seoul] : Korea Development Institute

Date 2003
Pages 22
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Direct Investment
Holding KDI; KDI School
License