The Korean Economy Beyond the Crisis

The Korean Economy Beyond the Crisis

Edited by Duck-Koo Chung and Barry Eichengreen

Providing an integrated analysis of the event and its consequences, the chapters in the book consider the causes of the crisis, the response of the US government and International Monetary Fund, adjustments in the Korean monetary and fiscal policies, and the success of financial and corporate restructuring. The concluding chapters bring the story up-to-date, describing the aftermath of the crisis and assessing whether there has been sufficient reform to facilitate the country’s recovery and growth.

Chapter 1: Introduction

Barry Eichengreen and Duck-Koo Chung

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation


Barry Eichengreen and Duck-Koo Chung Of all the countries to fall prey to the Asian financial crisis, South Korea was the most unexpected. Korea was an industrial and export powerhouse, by some measures the eleventh largest economy and twelfth largest exporter in the world.1 It was one of the world’s leading producers of semiconductors and computer disk drives. Its economic coming of age was acknowledged in 1996 by its admission to the Organisation for Economic Co-operation and Development (OECD), the club of high-income countries. That a country that had moved so far in the direction of economic maturity could be brought to its knees by a financial crisis pointed up doubts about the viability of the ‘Asian model’ of economic development and the ‘Washington consensus’ of economic and financial liberalization – or at least about their compatibility with one another. The impact of the crisis was profound. This refers not simply to the sharp drop in output and the alarming rise in poverty and unemployment that occurred as events unfolded. At a deeper level the crisis provoked far-reaching changes in Korean economy and society. The Korean financial system was fundamentally reshaped by merger, consolidation and closure. A number of the country’s leading industrial conglomerates were dismantled, and their viable lines of business were spun off to other companies. There was a transformation of Korean society, reflected in deepening class divides and a weakened labor movement. Five years after the onset of the crisis, the Korean economy is recovering robustly. Growth...