Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 17, No. 1, pp.117-151
ISSN: 1225-0279 (Print)
Print publication date 29 Feb 2004
Received 19 Jan 2004 Revised 23 Jul 2004

Interdependency in East Asia and the Post-Crisis Macroeconomic Adjustment in Korea

Hak K. Pyo
Professor, School of Economics, Seoul National University, Seoul 151-742, Korea, Tel: +82-2-880-6395 pyohk@plaza.snu.ac.kr

JEL Classification: E2, E6, F1

Abstract

The purpose of this paper is to reexamine the financial crisis in Korea and its post-crisis macroeconomic adjustment reviewing changing structure of interdependency in East Asia and to make a critical assessment on its post-crisis reform programs. The painful experience of Korea's post-crisis macroeconomic adjustment and structural reforms seem to have received both positive and mixed evaluations. The overall macro economic environment in the post-crisis period has been stabilized. The Korean economy seems to have recovered some of its growth potentials and competitiveness. The movement in the overall productivity indicators such as labor productivity and total factor productivity seem to validate this judgment even though there was a structural break in 1997-8. However, it has long way to go because both financial sector reforms and corporate restructuring are far from being completed.

Keywords:

Interdependency, Macroeconomic adjustment, East Asia, Financial crisis

Acknowledgments

For presentation at Seoul National University and University of Tokyo Joint Conference, Contemporary Economic Policy Issues in Asia at Seoul National University February 2, 2004. An earlier version of this paper was presented at RIETI-KEIO International Conference on Japanese Economy on May 30, 2003 in Tokyo.

References

  • The Bank of Korea. 1995 Input-Output Table. Seoul, November, 1998.
  • Backus, David, Patrick, Kehoe, and Kydland, Finn. “International Real Business Cycles.” Journal of Political Economy 100 (No. 4 1992): 745-75. [https://doi.org/10.1086/261838]
  • Barro, Robert J. “Economic Growth in East Asia Before and After the Financial Crisis.” In David T. Coe and Se-Jik Kim (eds.), Korean Crisis and Recovery. Washington DC: International Monetary Fund and Korea Institute for International Economic Policy, 2002.
  • Chang, Roberto, and Velasco, Andres. “The Asian Liquidity Crisis.” NBER Working Paper No. 6796, 1998. [https://doi.org/10.3386/w6796]
  • Chopra, Ajai et al. “From Crisis to Recovery in Korea: Strategy, Achievements, and Lessons.” In David T. Coe and Se-Jik Kim (eds.), Korean Crisis and Recovery. Washington DC: International Monetary Fund and Korea Institute for International Economic Policy, 2002.
  • Cho, Dong Chul. “Monetary Policy during and after the Crisis.” Paper Presented at the Conference on The Korean Economy-Beyond the Crisis at Coex Convention Center, October 4-5, 2002, Organized by Research Center for International Finance, Seoul National University.
  • Choi, Young-Ki, and Dae Il, Kim. “Changes in the Labor Markets and Industrial Relations since the Crisis in Korea.” Paper Presented at the Conference on The Korean Economy-Beyond the Crisis at Coex Convention Center, October 4-5, 2002, Organized by Research Center for International Finance, Seoul National University.
  • Corsetti, G., Pesenti, P., and Roubini, N. ““Paper Tigers” A Model of the Asian Crisis.” NBER Working Paper No. 6783, 1998. [https://doi.org/10.3386/w6783]
  • Eichengreen, B. “Toward a New International Financial Architecture: A Practical Post-Asia Agenda.” Institute of International Economics, 1999.
  • Fisher, Stanley. “Response: In Defense of the IMF, Specialized Tools for a Specialized Task.” Foreign Affairs 77 (No. 4 1998): 103-6. [https://doi.org/10.2307/20048970]
  • Haggard, Stephan. The Political Economy of Asian Financial Crisis. Washington D.C.: Institute for International Economics, 2000.
  • Hong, Kiseok, Jong-Wha, Lee, and Changyong, Rhee. “Recurrence of Financial Crises: Cross Country Patterns and Implications for the Korea.” Paper Presented at the Conference on The Korean Economy-Beyond the Crisis at Coex Convention Center, October 4-5, 2002, Organized by Research Center for International Finance, Seoul National University.
  • International Monetary Fund. The IMF and Recent Capital Account Crises: Indonesia, Korea, Brazil, Evaluation Report by Independent Evaluation Office. Washington DC, 2003.
  • Itoh, M., Okuno, M., Kiyono, K., and Suzumura, K. “Industrial Policy as a Corrective to Market Failures.” In Komiya et al. (eds.), Industrial Policy of Japan. 1988.
  • Joh, S. W. “The Korean Corporate Sector: Crisis and Reform.” In Kwon and Shepherd (eds.), Korean Economic Prospects: from Financial Crisis to Prosperity. UK: Edward Elgar Publisher, 2001.
  • Joh, S. W. “Chaebol Reform and Structural Change in the Corporate Sector.” Paper Presented at the Conference on The Korean Economy Beyond the Crisis at Coex Convention Center, October 4-5, 2002, Organized by Research Center for International Finance, Seoul National University.
  • Kim, In June, Baekin, Cha, and Chi-Young, Song. “Reform, Sustainable Growth and Vulnerability to Crisis in Korea.” Paper Presented at the Conference on The Korean Economy-Beyond the Crisis at Coex Convention Center, October 4-5, 2002, Organized by Research Center for International Finance, Seoul National University.
  • Krueger, Anne O., and Jungho, Yoo. “Falling Profitability, Higher Borrowing Costs, and Chaebol Finances during the Korean Crisis.” In David T. Coe and Se-Jik Kim (eds.), Korean Crisis and Recovery. Washington DC: International Monetary Fund and Korea Institute for International Economy Policy, 2002.
  • Krugman, Paul. “The Myth of Asias Miracle.” Foreign Affairs 73 (No. 6 1994): 62-78.   [https://doi.org/10.2307/20046929]
  • Krugman, Paul. “Mything My Point.” Letters to the Editor, Foreign Affairs 74 (No. 2 1995): 176-7. [https://doi.org/10.2307/20047113]
  • Krugman, Paul. “What happened to Asia?” Mimeograph from Paul Krugman Home Page, January 1998. [https://doi.org/10.1007/978-1-4615-5109-6_14]
  • Lau, Lawrence J., and Jong-Il, Kim, “The Sources of Economic Growth of East Asian Newly Industrialized Countries.” Journal of Japanese and International Economies 8 (No. 3 1994): 235-71. [https://doi.org/10.1006/jjie.1994.1013]
  • Lee, Hong Bae, and Okamoto, Nobuhiro. “Analysis of Industrial Interdependency among Japan, China and Korea: Application of International Input-Output Table, Korea International Economic Policy.” Policy Analysis I, 02-25, Seoul, 2002 (in Korean).
  • Lee, Joung-Woo. “Social Impacts of the 1997 Economic Crisis in Korea.” Paper Presented at the Conference on The Korean Economy-Beyond the Crisis at Coex Convention Center, October 4-5, 2002, Organized by Research Center for International Finance, Seoul National University.
  • Nam, Kwanghee, and Hak K., Pyo. “International Linkage of Real Business Cycles in Korea.” Journal of Korean Economic Analysis. Panel for Korean Institute of Finance, Vol. 3, No. 1 1997 (in Korean).
  • Okuno-Fujiwara, M. “Interdependence of Industries, Coordination Failure and Strategic Promotion of an Industry.” Journal of International Economics 25 (Nos. 1-2 1988): 25-43. [https://doi.org/10.1016/0022-1996(88)90003-7]
  • Okuno-Fujiwara, M., Postlewaite, A., and Roberts, J. “Oligopoly and Competition in Large Markets.” American Economic Review 70 (No. 1 1980): 22-31.
  • Park, Won-Am, and Gongpil, Choi. “What Caused the Crisis in Korea.” Paper Presented at the Conference on The Korean Economy-Beyond the Crisis at Coex Convention Center, October 4-5, 2002, Organized by Research Center for International Finance, Seoul National University.
  • Pyo, Hak K. “The Transition in The Political Economy of South Korean Development.” Journal of Northeast Asian Studies Vol. 12, No. 4, 1993, Transaction Periodical Consortium.
  • Pyo, Hak K. “Sustainability of Export Growth in East and Southeast Asia.” Invited Paper at Asian Development Outlook Conference, Asian Development Bank, Manila, November 1996.
  • Pyo, Hak K. “Is Export-Led Growth in South Korea Sustainable?” Paper Presented at East Asian Seminars of East Asian Institute, Columbia University and Asia Society Meetings in Washington DC, November 1997.
  • Pyo, Hak K. “Excess Competition, Moral Hazard and Industrial Trauma in Korea, 1997-8.” In U. Dadush, D. Dasgupta, and M. Uzan (eds.), Private Capital Flows in the Age of Globalization: The Aftermath of the Asian Crisis. Edward Elgar, Northampton, MA, The World Bank, 2000.
  • Pyo, Hak K. “Discussion on Evaluation Report by Independent Evaluation Office.” Discussion Paper Presented at KERI- IMF Joint Conference on The Role of the IMF in Recent Capital Account Crises, December 1, 2003, Seoul, Korea.
  • Pyo, Hak. K., and Ahn, S. “The Differential Impacts of Exchange Rate Variations on Investment in Manufacturing by Industries: Korea (1985-1996).” Mimeograph, Seoul National University, May 1998.
  • Pyo, Hak K., and Kwanghee, Nam. “A Test of the Convergence Hypothesis by Rates of Return to Capital: Evidence from OECD Countries.” CIRJE Discussion Paper Series F-51, Faculty of Economics, University of Tokyo, Tokyo, June 1999.
  • Pyo, Hak K., K. H., Kim, and I., Cheong, “Foreign Import Restrictions, WTO Commitments, and Welfare Effects: The Case of Republic of Korea.” Asian Development Review, Vol. 14. No. 2 1996, Asian Development Bank.
  • Pyo, Hak K., Keun-Hee, Rhee, and Bong Chan, Ha. “Growth Accounting, Productivity Analysis and Purchasing Power Parity in Korea (1984-2000).” Paper presented at the Fourth Workshop on the International Comparison of Productivity among Asian Countries, November 11, 2003, RIETI, Tokyo, Japan.
  • Radelet, S., and Sachs, J. “The East Asian Financial Crisis: Diagnosis, Remedies, Prospects.” Brookings Papers on Economic Activity 1 (1998): 1-74. [https://doi.org/10.2307/2534670]
  • Scherer, F. M. Industrial Market Structure and Economic Performance. Second Edition, Chicago: Rand McNally, 1980.
  • Stiglitz, J. E. “Potential Competition may Reduce Welfare.” American Economic Review 71 (No. 2 1981): 184-9.
  • Suzumura, K., and Kiyono, K. “Entry Barriers and Economic Welfare.” Review of Economic Studies 54 (No. 1 1987): 157- 67. [https://doi.org/10.2307/2297451]
  • Yoo, K. J. “Direction of Welfare Policy through International Comparison of Income Distribution.” KDI Policy Forum No. 167, Korea Development Institute, Seoul, October 2003 (in Korean).
  • Young, Alwyn. “Lessons from the East Asian NICs: A Contrarian View.” European Economic Review 38 (Nos. 3-4 1994): 964- 73. [https://doi.org/10.1016/0014-2921(94)90132-5]