Capital Account Policy in South Korea: The Informal Residues of the Developmental State
No. 83 (2015-01-01)Author(s)
-
Ralf J. Leiteritz
Abstract
This paper analyzes the political dynamics of capital account policy in South Korea. The first part is devoted to the historical evolution of capital account policy from the 1960s to the present day. It highlights the path of substantial financial opening that began in the early 1990s with two distinct waves of capital account liberalization before and after the Asian financial crisis of 1997-1998. The second part of the paper aims to detect the political origins of why capital account liberalization has not been complete and sustained. It locates them at the level of domestic informal institutions: first, the ideational legacy of the previous developmental state model – economic nationalism – that was predicated upon substantial barriers to international capital movements. Second, the political power of the export-oriented sector, namely of large conglomerates, that prefer exchange-rate stability and thus restrictions on capital inflows. This paper offers a heuristic argument based on a single case study which needs to be subjected to further empirical testing.
References
Abdelal, Rawi.2001. National Purpose in the World Economy. Post-Soviet States in Comparative Perspective. Ithaca: Cornell University Press.
Abdelal, Rawi, Yoshiko M.Herrera, Alastair IainJohnston, and RoseMcDermott. 2009. Identity as a Variable. In Measuring Identity. A Guide for Social Scientists, eds. RawiAbdelal, Yoshiko M.Herrera, Alastair IainJohnston, and RoseMcDermott, 17-32. Cambridge: Cambridge University Press.
Amsden, Alice H.1989. Asiaߣs Next Giant. South Korea and Late Industrialization. Oxford: Oxford University Press.
Amsden, Alice H. and Yoon-DaeEuh. 1993. South Koreaߣs 1980s Financial Reforms: Good-bye Financial Repression (Maybe), Hello New Institutional Restrains. World Development21 (3): 379-390.
Baba, Chikako and AnnamariaKokenyne. 2011. Effectiveness of Capital Controls in Selected Emerging Markets in the 2000s. IMF Working Paper 11/281. Washington: International Monetary Fund.
Baker, Andrew.2013. The New Political Economy of the Macroprudential Ideational Shift. New Political Economy18 (1): 112-139.
Baumann, Britany A. and Kevin P.Gallagher. 2013. Post-Crisis Capital Account Regulation in South Korea and South Africa. Working Paper N. 320, Political Economy Research Institute. Amherst: University of Massachusetts.
Blyth, Mark.2002. Great Transformations. Economic Ideas and Institutional Change in the Twentieth Century. Cambridge: Cambridge University Press.
Chang, Ha-Joon. 1998. Korea: The Misunderstood Crisis. World Development26 (8): 1555-1561.
Chang, Ha-Joon, Hong-JaePark, and Chul GyueYoo. 1998. Interpreting the Korean Crisis: Financial Liberalization, Industrial Policy and Corporate Governance. Cambridge Journal of Economics22 (6): 735-746.
Checkel, Jeffrey T.2012. Theoretical Pluralism in IR: Possibilities and Limits. In Handbook of International Relations, eds. WalterCarlsnaes, ThomasRisse, and Beth A.Simmons, 220-242. London: SAGE Publications Ltd.
Cho, Yoon Je.1989. Finance and Development: The Korean Approach. Oxford Review of Economic Policy5 (4): 88-102.
Chwieroth, Jeffrey M.2014. Managing and Transforming Policy Stigmas in International Finance: Emerging Markets and Controlling Capital Inflows after the Crisis. Review of International Political Economy (Forthcoming).
Clift, Ben and CorneliaWoll. 2012. Economic Patriotism: Reinventing Control over Open Markets. Journal of European Public Policy19 (3): 307-323.
Cortell, Andrew P. and James W.Davis, Jr.1996. How Do International Institutions Matter? The Domestic Impact of International Rules and Norms. International Studies Quarterly40 (4): 451-478.
Culpepper, Pepper D.2005. Institutional Change in Contemporary Capitalism. World Politics57 (2): 173-199.
The Economist. 2010. South Koreaߣs Currency Controls: The Won that Got Away. 16 June. [Online]http://www.economist.com/blogs/newsbook/2010/06/south_koreas_currency_control
Evans, Peter.1995. Embedded Autonomy. States and Industrial Transformation. Princeton: Princeton University Press.
Frieden, Jeffry A.1991. Invested Interests: The Politics of National Economic Policies in a World of Global Finance. International Organization45 (4): 425-451.
Fritz, Barbara and DanielaPrates. 2014. The New IMF Approach to Capital Account Management and Its Blind Spots. Lessons from Brazil and South Korea. International Review of Applied Economics28 (2): 210-239.
Gallagher, Kevin P.2014a. Ruling Capital. Emerging Markets and the Reregulation of Cross-Border Finance. Ithaca and London: Cornell University Press.
Gallagher, Kevin P.2014b. Countervailing Monetary Power: Re-Regulating Capital Flows in Brazil and South Korea. Review of International Political Economy (Forthcoming).
Haggard, Stephan.1990. Pathways from the Periphery: The Politics of Growth in the Newly Industrializing Countries. Ithaca: Cornell University Press.
Hahm, Joon-Ho, Frederic S.Mishkin, Hyung SongShin, and KwanhoShin. 2012. Macroprudential Policies in Open Emerging Economies. NBER Working Paper No. 17780. Cambridge: National Bureau of Economic Research.
Hall, Rodney Bruce.2003. The Discursive Demolition of the Asian Development Model. International Studies Quarterly47 (1): 71-99.
Hall, Peter A. and DavidSoskice (Eds.). 2001. Varieties of Capitalism. The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press.
Helleiner, Eric and AndreasPickel (Eds.). 2005. Economic Nationalism in a Globalizing World. Ithaca and London: Cornell University Press.
Hundt, David.2009. Koreaߣs Developmental Alliance. State, Capital, and the Politics of Rapid Development. Abingdon: Routledge.
International Monetary Fund. International Financial Statistics. Various years. Washington, D.C.: IMF.
Kalinowski, Thomas.2013a. Crisis Management and the Varieties of Capitalism. Fiscal Stimulus Packages and the Transformation of East Asian State-Led Capitalism since 2008. Discussion Paper SP III 2013-501. Berlin: Social Science Research Center.
Kalinowski, Thomas.2013b. Regulating International Finance and the Diversity of Capitalism. Socio-Economic Review11 (3): 471-496.
Kalinowski, Thomas.2009. The Politics of Market Reforms: Koreaߣs Path from Chaebol Republic to Market Democracy and Back. Contemporary Politics15 (3): 287-304.
Kalinowski, Thomas and HyekyungCho.2009. The Political Economy of Financial Liberalization in South Korea: State, Big Business and Foreign Investors. Asian Survey49 (2): 221-242.
Kang, C. S.Elliot. 2000. Segyehwa Reform of the South Korean Developmental State. In Koreaߣs Globalization, ed. Samuel S.Kim, 76-101. Cambridge: Cambridge University Press.
Kang, David C.2002. Bad Loans to Good Friends: Money Politics and the Developmental State in South Korea. International Organization56 (1): 177-207.
Karcher, Sebastian and David A.Steinberg. 2013. Assessing the Causes of Capital Account Liberalization: How Measurement Matters. International Studies Quarterly57 (1): 128-137.
Kim, Eun Mee.1997. Big Business, Strong State: Collusion and Conflict in South Korean Developments, 1960-1990. Albany: State University of New York Press.
Kim, Soyoung and Doo YongYang. 2010. Managing Capital Flows. The Case of the Republic of Korea. In Managing Capital Flows. The Search for a Framework, eds. MasahiroKawai and Mario B.Lamberte, 280-304. Cheltenham and Northampton: Edward Elgar and Asian Development Bank Institute.
Korea Joong Ang Daily. 2013a. KB Chief Worrying about Outflows. May 10. [Online] http://koreajoongangdaily.joins.com/news/article/Article.aspx?aid=2971345
Korea Joong Ang Daily. 2013b. Shin Pushes Bankers on Added Value. May 25-26. [Online] http://koreajoongangdaily.joins.com/news/article/Article.aspx?aid=2972109
Leiteritz, Ralf J.2012. National Economic Identity and Capital Mobility: State-Business Relations in Latin America. Wiesbaden: Springer VS.
Lim, Timothy C.1998. Power, Capitalism, and the Authoritarian State in South Korea. Journal of Contemporary Asia28 (4): 457-483.
Lim, Haeran.2010. The Transformation of the Developmental State and Economic Reform in Korea. Journal of Contemporary Asia40 (2): 188-210.
Lim, Wonhyuk and Joon-HoHahm. 2006. Turning a Crisis into an Opportunity: The Political Economy of Koreaߣs Financial Sector Reform. In From Crisis to Opportunity: Financial Globalization and East Asian Capitalism, eds. JongrynMo and Daniel I.Okimoto, 83-119. Washington D.C.: Brookings Institution Press.
Magud, Nicolás E., Carmen M.Reinhart, and Kenneth S.Rogoff. 2011. Capital Controls: Myth and Reality. A Portfolio Balance Approach. NBER Working Paper 16805. Cambridge: National Bureau of Economic Research.
Mo, Jongryn.2008. The Korean Economic System: Ten Years after the Crisis. In Crisis as Catalyst: Asiaߣs Dynamic Political Economy, eds. by AndrewMacintyre, T.J.Pempel, and JohnRavenhill, 251-270. Ithaca: Cornell University Press.
Moon, Chung-In. 1999. Democratization and Globalization as Ideological and Political Foundations of Economic Policy. In Democracy and the Korean Economy, eds. JongrynMo and Chung-InMoon, 1-33. Stanford: Hoover Institution Press.
Moon-Chung-in and Sang-YoungRhyu. 2000. The State, Structural Rigidity, and the End of Asian Capitalism: A Comparative Study of Japan and South Korea. In Politics and Markets in the Wake of the Asian Crisis, eds. RichardRobinson and Hyuk-RaeKim, 77-98. New York: Routledge.
Moon, Chung-in and Seung-WonSuh. 2007. Burdens of the Past: Overcoming History, the Politics of Identity and Nationalism in Asia. Global Asia2 (1): 32-48.
Organization for Economic Cooperation and Development (OECD). 2000. Economic Survey of Korea. Paris: Organization for Economic Cooperation and Development.
Organization for Economic Cooperation and Development (OECD). 1998. Economic Survey of Korea. Paris: Organization for Economic Cooperation and Development.
Onis, Ziya.1991. The Logic of the Developmental State. Comparative Politics24 (1): 109-126.
Pirie, Iain.2008. The Korean Developmental State: From Dirigisme to Neo-Liberalism. Abingdon: Routledge.
Pradhan, Mahmood, RaviBalakrishnan, RezaBaqir, GeoffreyHeenan, SylwiaNowak, CeydaOner, and SanjayaPanth. 2011. Policy Reponses to Capital Flows in Emerging Markets. IMF Staff Discussion Note SDN/11/10. Washington: IMF.
Rhyu, Sang-young. 2012. The Spirit of Korean Development. Center for International Studies, Yonsei Graduate School of International Studies and Presidential Council on Nation Branding.
Shin, Gi-Wook. 2006. Ethnic Nationalism in Korea: Genealogy, Politics, and Legacy. Stanford: Stanford University Press.
Stiglitz, Joseph E.2003. Globalization and Its Discontents. New York: W.W. Norton.
Tett, Gillian.2011. New Ways to Control Hot Money Bubbles. Financial Times. January 13. [Online] http://www.ft.com/intl/cms/s/0/8bfc81e2-1f30-11e0-8c1c-00144feab49a.html#axzz3FQ6IKebz
Thurbon, Elizabeth and LindaWeiss. 2006. Investing in Openness: The Evolution of FDI Strategy in South Korea and Taiwan. New Political Economy11 (1): 1-22.
Tsygankov, Andrei P.2001. Pathways after Empire. National Identity and Foreign Economic Policy in the Post-Soviet World. Lanham: Rowman & Littlefield.
Tudor, Daniel.2012. Korea: The Impossible Country. Tokyo, Rutland and Singapore: Tuttle Publishing.
Wade, Robert.1990. Governing the Market. Economic Theory and the Role of Government in East Asian Industrialization. Princeton: Princeton University Press.
The Wall Street Journal. 2010. The Miracle Is Over. Now What? November 8. [Online] http://online.wsj.com/articles/SB10001424052748704791004575519703277433756
The Wall Street Journal. 2007. Koreaߣs Mixed Signals May Keep Foreign Investors from Diving in. July 26. [Online] http://online.wsj.com/articles/SB118538295410577725
Walter, Andrew.2008. Governing Finance. East Asiaߣs Adoption of International Standards. Ithaca: Cornell University Press.
Walter, Andrew and XiaokeZhang. 2012. Debating East Asian Capitalism: Issues and Themes. In East Asian Capitalism. Diversity, Continuity, and Change, eds. AndrewWalter and XiaokeZhang, 3-25. Oxford: Oxford University Press.
Wendt, Alexander.1998. On Constitution and Causation in International Relations. Review of International Studies24 (5): 101-118.
Wong, Joseph.2004. The Adaptive Developmental State in East Asia. Journal of East Asian Studies4 (3): 345-362.
Woo, Jung-en. 1991. Race to the Swift. State and Finance in Korean Industrialization. New York: Columbia University Press.
Woo-Cumings, Meredith (Ed.). 1999. The Developmental State. Ithaca: Cornell University Press.
Woo-Cumings, Meredith. 1997. Slouching toward the Market: The Politics of Financial Liberalization in South Korea. In Capital Ungoverned. Liberalizing Finance in Interventionist States, MichaelLoriaux, MeredithWoo-Cumings, Kent E.Calder, SofiaPerez, and SylviaMaxfield, 57-91. Ithaca: Cornell University Press. 57-91.
Yoon, Dae-yeob. 2013. The End of Korean Model? The Politics of Export-Led Development after the 1997 Financial Crisis. Presentation given at ISEF Seminar. Seoul: Korea Foundation for Advanced Studies.
Choong-YongAhn, Foreign Investment Ombudsman, June 4, 2013.
HyekyungCho, former staff member of Banking Trade Union, June 5, 2013.
Joon-HoHahm, Professor of International Economics and Finance, Yonsei University, March 12, 2013.