Republic of Korea

Financial globalization makes peripheral countries, especially small open economies with deep international financial linkages, vulnerable to credit shocks originating from the core countries. Regardless of their economic fundamentals, many emerging market countries (EMCs) were severely hit by the global financial crisis. In fact, one may even say that financial globalization has led to collateral damage, instead of the collateral benefits promised earlier (Kose and others, 2006). The Republic of Korea is a good example. This vulnerability has two specifics. One is the so-called capital inflows problem – that is the vulnerability of the economy and its financial system to massive capital inflows which could be suddenly stop. The other is the potential for high volatility in the foreign exchange (FX) market.

Related Subject(s): Economic and Social Development

Countries: Korea, Republic of