Liberalization of Capital Flows in Korea: Big-Bang or Gradualism?
NBER Working Paper No. 5824
Capital market liberalization has become an irreversible trend in Korea since 1992. With the current level of high interest rate in Korea, however, drastic full-scale liberalization would certainly attract a large amount of capital inflows and appreciate the Korean won. This would affect the price competitiveness of Korean products in international markets, which could bring about significant macro-instability in an economy like Korea which relies heavily upon external transactions. Through simulations using a macro-model based on the neoclassical long-run convergence and the Keynesian short-run dynamics, this paper attempts to provide some quantitative assessments of several alternative policy choices including the speed of liberalization.