This study aims to appraise the effects of the opening of the securities market on the national economy, and determine the steps Korea should take towards opening the market.
Opening the securities market can generate useful economic effects. On the other hand, it can also cause issues, such as disruption of the domestic securities market, challenges in the control of major industries' management, disruption of international balance payments and domestic monetary policy, and excessive profit outflow. However, how serious these concerns become depends on domestic economic conditions, as well as the size and quality of the securities market. Recent comparison between Korean economic conditions and those of Japan in the 1960s shows Korea lags slightly behind Japan in terms of the size of the economy, stability of international balance payments, and corporate financial structure. Korea is at the same level, or ahead of Japan in economic growth potential and foreign dependence.
The Korean securities market grew significantly in the 1970s, but still trails Japan and the U.S. in terms of size and quality. This study determines that it is urgent to take the following actions before opening the securities market to foreign entities:
First, stock volume should be increased by encouraging IPOs, and capital increased by issuing new stocks. Second, the number of market investors needs to increase and institutional investors should be cultivated to create reliable demand for stocks. Third, market efficiency should be enhanced through improvement of corporate disclosure systems, increases in securities finance and the strengthening of the management of securities firms. This study also suggests fundamental measures to support each of these actions.
Lastly, this study analyzes the process of securities market openings in Japan, Brazil and Mexico. Japan had gradually opened up its securities market from the early 1960s to the mid-1970s and had taken instituted complementary measures in the process. In other words, the country imposed strict regulations on the type of industries foreigners could invest in, as well as a stock-holding rate. To prevent foreigners from controlling the management of major industries, Japan fostered institutional investors and encouraged tender offers and shares in mutual ownership between Japanese companies. The country also applied a Yen-based investment system, as well as loan terms and amortization payments for remittance of investment principal and dividends. These measures were made to defend international payment balance. As a result, Japan's policy for opening its securities markets contributed significantly to the inflow of foreign capital and the development of the Japanese securities industry. These policies also enhanced international reliability on Japanese companies and its economy without raising significant concerns.
Brazil and Mexico started to allow foreigners to invest in their securities with limitations from the mid-1970s and early 1980s, respectively. Since then, the countries' domestic economic conditions have worsened and the methods by which they enforced regulations were excessively biased in favor of their national interests. As a result, it is difficult to conclude that Brazil's policy for opening up its securities market has been successful, whereas it is safe to say Mexico's policy was a great failure.
Therefore, the way Korea opens its securities market should maximize national economic development in the long term, based on the principle of international reciprocity, instead of focusing only on short-term profits.
자본자유화와 증권시장의 개방(Capital liberalization and opening of the securities market)
서울 : 한국개발연구원
|Series Title; No||정책연구시리즈 / 84-07|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < General|
|Holding||KDI; KDI School|