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South Korea's experience with international capital flows

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  • South Korea's experience with international capital flows
  • Noland, Marcus
  • National Bureau of Economic Research


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Title South Korea's experience with international capital flows
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Material Type Reports
Author(English)

Noland, Marcus

Publisher

Cambridge:National Bureau of Economic Research

Date 2005-05
Series Title; No NBER Working Paper Series / 11381
Pages 70
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Original Format pdf
Subject Economy < Financial Policy
Holding National Bureau of Economic Research

Abstract

South Korea’s experience is unparalleled in its combination of sustained prosperity, capital controls, and financial crisis. Over several decades, South Korea experienced rapid sustained growth in the presence of capital controls. These controls and the de-linking of domestic and international financial markets were an essential component of the country's state-led development strategy. As the country developed, opportunities for easy technological catch-up eroded, requiring more sophisticated corporate and financial sector decision-making, but decades of financial repression had bequeathed a bureaucratized financial system and a formidable constellation of incumbent stakeholders opposed to transition to a more market-oriented development model. Liberalization undertaken in the 1990s was less a product of textbook economic analysis than of parochial politicking. Capital account liberalization program affected the timing, magnitude, and particulars of the 1997-98 crisis. Despite considerable reforms undertaken since the crisis, concerns remain about both South Korea’s lending culture and its authorities’ capacity to successfully regulate the more complex financial system. The main lesson of the South Korean case appear to be that while the state-led model may deliver impressive initial gains, transitioning out of this approach presents an exceedingly complex challenge of political-economy.

User Note

I would like to thank Paul Karner for research assistance and participants in the NBER International Capital Flows conference for comments on an earlier draft.The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.