Helpless victim of financialisation? Financial liberalisation, crisis and taking back control in South Korea

Abstract

Abstract The literature often portrays emerging market economies as helpless victims of international financialisation. Based on evidence from central banks, international organisations and finance associations, this paper shows how in South Korea financial liberalisation heavily depended on the support of domestic interest groups. After the 1998 Asian financial crisis, Korean policy-makers adopted a pragmatic approach allowing a degree of financialisation while reviving state-led investment strategies. The financial sector expanded in the realm of consumer credit and real estate but alongside this, public financial institutions revived their influence and became an ally to the government in promoting innovation through their active engagement in venture capital. The strategy also pushed back on foreign banks operating in Korea. With its approach, the Korean government successfully prevented any financial instability in the country after the 1997 Asian financial crisis and promoted state-led investment showing that emerging market economies can take control of financialisation.