Fv6u Cvisis f6

Ovv6vfuifv:
Fitciti
Gi6ntiiztfi6
to Ftsf Asit
Ctviftiisu
Edited by
jongryn Mo
and
Danie| I. Okimoto
1HL WAL1LR H. SHORLS1LI ASIA-PACIIIC RLSLARCH CL1LR
(Sloiensrein APARC) is a unique Sranoiu Univeisiry insrirurion ocuseu on
rle inreiuiscilinaiy sruuy o conremoiaiy Asia. Sloiensrein APARC`s mission
is ro iouuce anu uLlisl oursranuing inreiuiscilinaiy, Asia-Pacihcocuseu
ieseaicl, euucare sruuenrs, sclolais, anu coioiare anu goveinmenral ahliares,
iomore consriucrive inreiacrion ro inluence U.S. olicy rovaiu rle Asia-Pacihc,
anu guiue Asian narions on key issues o socieral riansirion, uevelomenr, U.S.-
Asia ielarions, anu iegional cooeiarion.
1le Walrei H. Sloiensrein Asia-Pacihc Reseaicl Cenrei
Iieeman Sogli Insrirure oi Inreinarional Sruuies
Sranoiu Univeisiry
Lncina Hall
Sranoiu, CA 94305-6055
rel. 650-23-941
ax. 650-23-6530
lrr://APARC.sranoiu.euu
rch Crisis tc Ojjcrtunity: inancial Clcbalizaticn anJ ast Asian Cajitalish
may Le oiueieu iom:
Biookings Insrirurion Piess
Deairmenr 029, Waslingron, DC 20042-0029, USA
rel. 1-S00-25-144 oi 202-9-625S
ax: 202-9-2960 Arrn: Oiuei Der.
lrr://Looksroie.Liookings.euu
Walrei H. Sloiensrein Asia-Pacihc Reseaicl Cenrei Nonogials, 2006.
Coyiiglr 2006 Ly rle Boaiu o 1iusrees o rle Lelanu Sranoiu |unioi
Univeisiry.
All iiglrs ieseiveu. o air o rlis uLlicarion may Le ieiouuceu, sroieu in
a ieriieval sysrem, oi riansmirreu in any oim oi Ly any means, elecrionic,
meclanical, lorocoying, iecoiuing, oi orleivise, virlour viirren eimission
o rle uLlislei.
Iiisr iinring, 2006.
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Fv6u Cvisis f6
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C6frfs
Acknowledgments / vii
1. Iinancial Globalization and East Asian Capitalism: An Overview / 9
]cngryn Mc
Daniel I. Olihctc
2. Jhe Politics oI ReIorm in ]apanese Iinance: Assessing the Relative
Inhuence oI Ioreign Investors / 23
]ennifer Ahyx
3. Policymaking in the Era oI Iinancial Globalization: Jhe Battle Ior
]apanese Corporate ReIorms, 16~2002 / 41
Yies Tiberglien
4. Jurning a Crisis into an Opportunity: Jhe Political Economy oI Korea's
Iinancial Sector ReIorm / S5
Vcnlyul Iih
]ccn-Hc Halh
5. East Asian Capital Ilows: Political Networks, Liberalization, and
Crises / 123
A. Maria TcycJa
vii
vii
Acx6wirocurfs
1
lis Look is rle ourcome o a joinr ieseaicl iojecr Lerveen Yonsei
Univeisiry anu Sranoiu Univeisiry. Yonsei Uuiveisiry iooseu rle
iojecr in 2002 as a air o irs gloLalizarion ieseaicl iniriarive. 1le
euirois voulu like ro rlank rle asr anu cuiienr uiiecrois o Yonsei Cenrei oi
GloLal Sruuies, Clung-in Noon, Youngsun Lee, anu Sungslin Haln, oi rleii
suoir anu encouiagemenr.
9
9
FINANCIAL GLOBALIZA1ION AND FAS1 ASIAN
CAPI1ALISM: AN OvFRvIFv
jongryn Mo
Duniel l. Okimoto
S
ince rle miu-1990s, Clina, |aan, anu Koiea lave come unuei seveie
iessuie ro iesriucruie anu ieoim rleii economic sysrems. Inueeu, acioss
Lasr Asia, goveinmenrs aie arremring ro auuiess rleii sriucruial ioLlems
virl a vaiiery o ieoim iogiams. ov, arei rle iocess las Leen unuei vay
oi moie rlan hve yeais, ceirain arreins aie Leginning ro emeige.
1le olloving geneializarions can Le maue. Koiea seems ro lave
auvanceu rle mosr in clanging irs sysrem. |aan`s eoirs lave Leen exrensive
anu visiLle Lur unuamenrally inciemenral. Reoim in Clina las Leen moie
limireu anu less inrense rlan in rle orlei rvo counriies. Looking moie
closely ar rle inuiviuual cases, ir is cleai rlar rlese rliee counriies lave raken
uiveigenr ieoim arls as rley assigneu uieienr iioiiries ro uieienr aieas
o ieoim. 1o Le suie, uieiences in rle naruie o rle ioLlems rlar eacl
counriy conionrs sloulu accounr oi some uieience in rleii aioacles
anu iioiiries. Yer reclnical imeiarives cannor ioviue all rle ansveis:
olirics, roo, lay a key iole in slaing rle sequencing o economic ieoim
measuies anu rleii oveiall ourcome.
1lis oveiviev arremrs ro iuenriy emiiical iegulaiiries acioss Lasr
Asian counriies/secrois anu ro exlain rlem. Pievious sruuies lave ler ceirain
imoiranr emiiical vaiiarions acioss counriies anu secrois unexlaineu. 1le
geneial conclusion o rlis oveiviev is rlar rle inreiacrion Lerveen rle oices
o hnancial gloLalizarion anu uomesric olirics lolu rle key ro exlaining
rle iocess o ieoim. In airiculai, rlis essay auuiesses a numLei o issues
imoiranr ro rle sruuy o Lasr Asian olirical economies, incluuing rleii
ieceriviry ro rle oices o hnancial gloLalizarion, rleii hnancial inregiarion,
rle conveigence oi uiveigence o rleii economic insrirurions, anu rle
imlicarions rlar rleii insrirurional riansoimarions lolu oi rleii narional
comeririve auvanrage anu rle gloLal economic sysrem.
Key Dimensions oI East Asian Capitalism: Iinance and Corporate
Governance
Alrlougl eacl Lasr Asian counriy las unique olicies anu insrirurions,
rley collecrively slaie enougl common elemenrs ro uehne a iegional mouel
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o economic uevelomenr. 1le key earuies o rlis Lasr Asian mouel aie
macioeconomic sraLiliry, ligl savings iares, anu exoir/inuusriy iomorion
Laseu on close Lusiness-goveinmenr ielarions.
1le hnancial anu coioiare goveinance sysrems rlar lave Leen associareu
virl rle Lasr Asian mouel aie esecially imoiranr ro rle sruuy o comaiarive
cairalism. As air o rleii inuusriial olicy iegime, Lasr Asian goveinmenrs
cieareu hnancial sysrems in vlicl Lanks uominareu in clanneling savings inro
coioiare invesrois, consumei lenuing vas uiosely uiscouiageu. Given rle
goveinmenr`s exrensive iole, ir is nor suiiising rlar Lasr Asian Lanks veie
slov ro uevelo maiker-Laseu Lusiness iacrices, rley sueieu iom symroms
o moial lazaiu (cieareu Ly rle imlicir goveinmenr iorecrion), sucl as
excessive iisks anu avois ro cionies.
1le Lasr Asian mouel las also Leen associareu virl a sysrem o
coioiare goveinance rlar is saiu ro ieiesenr srakelolueisas ooseu ro
slaielolueicairalism. Lasr Asian coioiarions veie neirlei oiganizeu noi
goveineu ro maximize slaieloluei inreiesrs. Insreau, rley ielecreu a uesiie ro
Lalance slaieloluei inreiesrs virl rlose o orlei srakelolueis, sucl as Lanks,
voikeis, anu goveinmenr.
Ovei rime, vlar one miglr call rlis olu mouel came unuei incieasing
economic anu olirical iessuie. 1iauirional sysrems simly coulu nor sarisy
rle gioving oulai uemanu oi riansaiency, accounraLiliry, oenness,
anu comeririon. Woise, rley aileu ro uelivei economic Lenehrs, economic
giovrl sloveu, anu Ly rle lare 1990s, eveiy Lasr Asian counriy ounu irsel
in a srare o ciisis.
In rlis climare o ciisis, Lasr Asian goveinmenrs caiiieu our exrensive
economic ieoims. Acioss rle iegion, rle goal o rle ieoims vas Lioauly
similai: ro ieoim goveineu maikers anu cieare in rleii sreau a sysrem moie
Laseu on maikers anu goou goveinance. Goou goveinance, liLeializarion, anu
ueiegularion Lecame carclliases in olicy ueLares anu ionouncemenrs.
Ar rle rime, rle ourcomes o ieoim eoirs veie nor ieuereimineu. 1le
osr-ciisis olicy enviionmenr ruineu our ro Le luiu anu uynamic. Ir vas nor
cleai ex ante vlicl olicies oi gious voulu Le Llameu oi rle ciisis, vlo
voulu iame rle issues anu oei solurions, anu vlicl issues voulu emeige as
key oinrs oi ieoim.
1ouay, ve Lelieve rlar rle ieoim lanuscae Lecame suhcienrly cleai ro
invesrigare ieoim iesulrs. 1le key quesrion is vlerlei rle claiacrei o Lasr
Asian cairalism las acrually clangeu. In reims o sysrem eioimance, lave
eacl counriy`s coioiare anu hnancial sysrems Lecome moie riansaienr,
accounraLle, oen, comeririve, anu iesonsiLle (i.e., virlour moial lazaiu)
1o eecr insrirurional clange, insrirurional sriucruie musr Le alreieu.
Insrirurional sriucruies aie imoiranr Lecause rley enlance rle eioimance
o hnancial maikers anu/oi rle coioiare secroi, esecially vlen rley sarisy
gloLal sranuaius. Key inuicarois o nev insrirurional sriucruies incluue size,
comosirion, ovneisli, anu concenriarion o hnancial sysrems, rle iorecrion
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o slaieloluei iiglrs, anu rle accerance o Lusiness iacrices Laseu on aim`s-
lengrl ielarionslis.
Jable 1: Measures oI Institutional Change in the Iinancial and Corporate Sectors
Sysrem Peioimance 1iansaiency
AccounraLiliry
Oenness
Noial Hazaiu
Insrirurional Sriucruie Size anu Comosirion o Iinancial Sysrems
1ye o Bank Ovneisli
Concenriarion o Bank Assers anu Lquiry
Naiker Cairalizarion
Regularion o Bank Acriviries anu Ovneisli
Regularoiy Sriucruie
Coioiare Goveinance
Concenriarion o Coioiare Ovneisli anu
Naiker Povei
Among rle acrois conriiLuring ro insrirurional clange, rle iole o hnancial
gloLalizarion is airiculaily inreiesring anu imoiranr. Arei all, rle ciisis o
rle lare 1990s Legan as a hnancial one. Unieceuenreu amounrs o oieign
cairal lave loveu inro Lasr Asian economies as a iesulr o rle ciisis, making
oieign invesrois acrive layeis in uomesric olicy anu economic acriviries.
Since rle economic ciisis, many sruuies lave ocuseu on economic ieoims
anu hnancial gloLalizarion, Lur rley lave Leen rieareu as, anu iemain laigely,
seaiare issues in rle lireiaruie. We uo nor yer unueisranu rle inreiacrion
Lerveen oieign cairal anu economic ieoim, airiculaily rle acrive iole rlar
oieign invesrois layeu in ieoiming economic insrirurions.
Dependent Variables: ReIorm Outcomes
Changes in SysIem Petfotmance
One imoiranr measuie o rle sysrem eioimance o osr-ciisis Lasr Asian
hnancial anu coioiare secrois is economic ieeuom. Lconomic ieeuom las
Liouglr aLour giearei riansaiency anu accounraLiliry in rle hnancial anu
coioiare secrois anu also inuicares, ro some exrenr, lov maiker-Laseu rlose
secrois lave Lecome. Lconomic ieeuom uara aie collecreu iom Lconomic
Iieeuom o rle Woilu: 2002 Annual Reoir (LIW). LIW measuies rle
uegiees o economic ieeuom iesenr in hve majoi aieas: 1) size o goveinmenr:
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exenuiruies, raxes, anu enreiiises, 2) legal sriucruie anu secuiiry o ioeiry
iiglrs, 3) sounu money, 4) ieeuom ro riaue virl oieigneis, anu 5) iegularion
o cieuir, laLoi, anu Lusiness. Because rle LIW inuex ielies mosrly on rliiu-
airy uara, ir can Le calculareu Lack ro as eaily as 190.
Orlei uara on sysrem eioimance come iom rle GloLal Comeririveness
Reoir. Some quesrions in rle ieoir aie inrenueu ro measuie rle soununess o
insrirurions anu olicies uesigneu ro iomore accounraLiliry anu riansaiency.
Orleis uereimine rle acrual uegiees o riansaiency anu accounraLiliry:
Is rle level o hnancial uisclosuie iequiieu exrensive anu ueraileu
Is insiuei riauing nor common in rle uomesric srock maiker
Aie coioiare Loaius liglly eecrive in moniroiing managemenr
eioimance anu ieiesenring slaieloluei inreiesrs
Does anririusr oi anri-monooly olicy eecrively iomore comeririon
Since rle economic ciisis, rle Koiean anu |aanese economies lave
Lecome ieei vlile Clina sav irs economic ieeuom all Lerveen 1995 anu
2000. Koiean economic ieeuom, in airiculai, slovs a maikeu imiovemenr,
virl irs LIW iaring incieasing ro .01 in 2000 iom 6.3S in 1995. Cleaily, rle
viue iange o liLeializarion measuies in Lorl cairal anu goous maikers rlar
rle Koiean goveinmenr las imlemenreu aie raking eecr.
Wirl iesecr ro coioiare accounraLiliry anu hnancial maiker riansaiency,
iogiess las Leen mucl slovei, even in Koiea anu |aan. Koiea`s scoies on rle
qualiry o uisclosuie iequiiemenrs, rle ievalence o insiuei riauing, anu rle
eecriveness o coioiare goveinance iemain vell Lelov rle voilu aveiages.
1le |aanese iecoiu is mixeu. Wlile insiuei riauing las Lecome less ievalenr
since 1996, rle riusr in Loaiu eioimance las allen maikeuly. In Lorl Koiea
anu |aan, anririusr olicies lave Lecome moie eecrive since 1996. Inueeu,
Lorl counriies lave come unuei sriong exreinal iessuie ro sriengrlen rleii
anririusr olicies.
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Jable 2: Economic Ireedom in East Asia
170 175 1S0 1S5 10 15 2000 70~0 70~00
Koiea 5.11 5.04 5.33 5.35 5.S5 6.3S .01 14.5 3.2
|aan 6.S 6.33 6.S 6.4 .02 6.SS .31
Clina 4.2S 4.94 4.41 4.99 4.59 5.60 5.2S
Woilu
mean 5.95 5.36 5.39 5.40 5.59 6.34 6.S1 6.5 26.9
Nean49 5.95 5.4S 5. 5.S1 6.11 6.6 .06
SD 1.64 1.43 1.40 1.4 1.44 1.26 0.9S 22.4 3.4
SD49 1.64 1.39 1.3S 1.40 1.30 1.21 0.96
Nean
+SD .59 6.9 6.9 6.S .03 .5 .9 2S.9 64.3
Souice: |ames Gvairney anu RoLeir Lavson, virl Walrei Paik, Smira Wagl, Cliis
Luvaius, anu Veionique ue Rugy, ccnchic reeJch cf tle VcrlJ: 2002 Annual Bejcrt,
Vancouvei: 1le Iiasei Insrirure, 2002. Dara ieriieveu iom lrr://vvv.ieerlevoilu.com,
Augusr 1, 2004.
Jable 3: Iinancial Market Jransparency
1 2000
Koiea 4.3 4.60
|aan 5.25 5.30
Clina 3.1 4.30
Woilu mean 5.16 5.10
Nean+SD 5.92 5.S9
Jable 4: Insider Jrading
16 17 1S 1 2000
Koiea 3.S1 4.30 3.4 4.10 3.S0
|aan 4.S5 5.66 5.05 5.26 5.60
Clina 3.4 3.62 3.31 3.45 3.40
Woilu mean 3.S 4.39 4.34 4.31 4.26
Nean+SD 4.66 5.33 5.19 5.24 5.14
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Jable 5: EIIectiveness oI Corporate Boards
16 17 1S 1 2000 2001
Koiea 3.6 3.30 2.SS 3.63 3.90 3.50
|aan 3.S5 3.93 3.62 4.14 4.10 2.90
Clina 4.15 4.06 3.95 3.S3 3.0 3.30
Woilu
mean
3.90 4.21 4.13 4.53 4.44 4.14
Nean+SD 4.39 4.S0 4.S2 5.16 5.03 4.9
Neansu 3.41 3.62 3.44 3.90 3.S5 3.31
Jable 6: EIIectiveness oI Competition Policy
16 17 1S 1 2000 2001
Koiea 3.S6 3.9 4.54 4.41 4.S0 4.0
|aan 4.0 4.52 4.S0 5.01 5.00 5.00
Clina 3.S0 4.3 4.14 3.60 3.40 3.0
Woilu
mean
3.S6 4.06 4.44 4.33 4.44 4.24
Nean+SD 4.4 4.S6 5.20 5.25 5.35 5.30
ccoiuing ro suivey uara, Clina lags Lelinu in sysrem eioimance. In
eveiy caregoiy, Clinese eioimance las eirlei uereiioiareu oi iemaineu lar.
Aaienrly, ligl economic giovrl in rle larrei lal o rle 1990s uiu nor Liing
aLour eecrive sriucruial ieoims.
Changes in lnsIiIuIionaI SItucIute
Because o lack o uara, ir is nor ossiLle ro comaie sysremarically rle osr-
ciisis sriucruies o Lasr Asian hnancial maikers anu coioiarions virl rlose o
oirl Ameiican mouels. One key aiea ro varcl is rle uevelomenr o cairal
maikers in Lasr Asia. 1le main ocus o hnancial ieoim in Lasr Asia las Leen
ro inciease uiiecr hnancing (i.e., srocks anu Lonus) anu ieuuce ueenuence
on inuiiecr hnancing as a souice o coioiare hnance. On rle coioiare siue,
ovneisli sriucruie is a key issue, esecially in Koiea anu Clina. Sriucruially,
rle Koiean anu Clinese coioiare secrois aie amily-uominareu. Some aigue
rlar a uesiie ro mainrain amily conriol is rle main cause o Lau coioiare
goveinance in Lasr Asia.
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Jheories and Evidence
Tle clitical ccnchy cf Befcrh
Deenuenr vaiiaLles aie rle oveiall ourcomes o ieoim eoirs. In
evaluaring rle ourcome o ieoim eoirs, one may lave ro make suLjecrive
juugmenrs Laseu on ieoimeis` srareu oLjecrives, rle execrarions o vaiious
srakelolueis, anu oLjecrive measuies o clange oi uisrance ro an iueal-rye
maiker economy mouel.
1
Inueenuenr vaiiaLles aie rle inirial conuirions rlar ievail Leoie rle
Luiluu o ieoim iessuie. Ir voulu Le conrioveisial ro iuenriy a given yeai
rle yeai o inirial conuirions, Lur ir seems ieasonaLle ro cloose 1996, a yeai
Leoie rle Asian economic ciisis Lioke our, since ir las signihcanrly imacreu
all rliee counriies.
Ar leasr oui vaiiaLles claiacreiize inirial conuirions: 1) rle naruie anu
seveiiry o economic ciisis, 2) rle inirial level anu comosirion o oieign
cairal eneriarion, 3) rle ieeiences anu caaLiliries o rle Luieauciacy, anu
4) rle claiacrei anu sriengrl o uomesric ieoim coalirions.
1lese oui inueenuenr vaiiaLles slae rle ielarive Laigaining ovei o
rliee main uiiveis o ieoim: oieign invesrois, Luieauciars, anu io-ieoim
gious. 1le seveiiry o an economic ciisis anu rle exisring level o oieign
invesrmenr can inuicare lov inluenrial oieign invesrois can Le in oicing
rleii agenuas. One may aigue rlar rle moie seiious rle ciisis anu rle smallei
rle exisring level o invesrmenr, rle moie inluenrial rle oieign invesrois.
Using similai logic, ve can evaluare rle Laigaining ovei o rle orlei
ieoim gious. Bur rle olicy ieeiences o io-ieoim gious cannor Le
ueuuceu ex ante, since rley ueenu on rle economic anu olirical conuirions
o eacl counriy.
Alrlougl moie ieseaicl is necessaiy, rle consensus viev, as noreu eailiei,
is rlar economic ieoims lave Leen mosr exrensive in Koiea, olloveu Ly
|aan anu Clina.
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Jable 7: Jhe Political Economy oI ReIorm
]apan Korea China
Inluence o
oieign cairal
Neuium Higl Lov
Buieauciacy Iiagmenreu Pairially Uniheu Uniheu
Pio-ieoim
coalirions
Iniriareu Ly
Ninisriy o
Lconomy,
1iaue, anu
Inuusriy (NL1I)
Goveinmenr-INI-
GO coalirion
Insrirurional
clange
Inciemenral
Limireu
Conveigence,
LiLeial
Demociaric
Pairy (LDP)-
uominareu arl
Diasric
Conveigence,
Goveinmenr-leu
arl
Limireu
Diveisiry,
Clinese
Communisr
Pairy (CCP)-
conriolleu arl
1le rliee counriies lave also uislayeu uieienr arreins o ieoim
iocess, suggesring rlar rle imoirance o eacl inueenuenr vaiiaLle ueenus
uon rle counriy in quesrion. In rle case o |aan, clanges in uomesric
coalirions as a iesulr o hnancial gloLalizarion causeu iesriicrions ro loosen.
Hovevei, in Koiea`s case, ieoims lave come aLour mainly Lecause o
iessuie iom inreinarional invesrois arei 199S. In Clina, oieign invesrois
uo nor consrirure a signihcanr acroi in rle uomesric economy anu, as a iesulr,
ail ro inluence ieoim olirics signihcanrly.
Tle Bcle cf creign Cajital
Wlar is rle iole o oieign cairal in uomesric ieoim olirics Ir is imoiranr
ro knov vleie anu lov acrively oieign cairal vas involveu in rle ieoim
iocess. 1le acrual imacr o oieign olirical acrion on ieoim ourcomes is nor
a cenrial concein leie. Rarlei, simly gauging rle level o oieign involvemenr
vill lel us Lerrei unueisranu lov hnancial gloLalizarion rianslares inro
secihc olirical acrions Ly agenrs o inreinarional cairal.
Ioieign invesrois ryically lave olicy agenuas uisrincr iom rle olu mouel
anu iom many uomesric srakelolueis. Ir is sriaiglroivaiu ro uemonsriare rlis
vlen oieign invesrois oi rleii ieiesenrarives make exlicir olicy uemanus
as air o riaue oi Lailour negoriarions. Wlile rleie aie ceirain ieoims rlar
all oieign invesrois avoi, uieienr inuiviuual invesrois may lave uieienr
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ieeiences in orlei aieas, so ir may Le necessaiy ro uisaggiegare rlem inro
olirically meaningul suL-gious, sucl as hnancial inreimeuiaiies, sloir-
reim, anu long-reim invesrois. Concerually, oieign invesrois can conriiLure
ro insrirurional ieoim in rliee vays: 1) auvocaring goveinmenr olicy clange,
2) exeicising exisring invesroi anu slaieloluei iiglrs, anu 3) iacricing Lesr
iacrices anu serring examles.
1leie is no ieason ro limir rle analysis ro goveinmenr acrions. Ioieign
invesrois can anu uo moniroi iivare secroi imlemenrarion. Ioieign invesrois
may Le moie eecrive in oicing uomesric economic acrois ro comly virl
nev iules rlan in laving rle nev iules auoreu in rle hisr lace. I rlis is riue,
rle conriiLurions o oieign invesrois may naiiov rle ga Lerveen oimal
iules anu acrual iacrices.
Polirical economy rleoiy is equieu ro exlain rle arrein o oieign
cairal`s olirical airiciarion. Lven i rle iole o oieign cairal is minimal,
ir is voirl consiueiingas |enniei Amyx uoes in lei clarei in rlis
volumevly rlar is rle case. Seveial vaiiaLles aecr rle level anu rye o
sucl airiciarion. Iiisr aie inirial conuirions: some lome counriies aie cairal
imoireis, vlile orleis (like |aan) aie cairal exoireis. Conhguiarions o
oieign cairal oirolios (uiiecr invesrmenr veisus oirolio invesrmenr) may
also Le an imoiranr inirial acroi. 1le exisrence o exreinal ueLr ciisis is
anorlei vaiiaLle. Seconu aie goveinmenr olicies. Hosr goveinmenr olicies
rovaiu uieienr ryes o cairal laigely slae rle enviionmenr in vlicl
oieign cairal airiciares in uomesric olicy iocess. 1le rliiu giou o
vaiiaLles can Le uesciiLeu as uomesric olirical vaiiaLles. 1lese vaiiaLles
uereimine rle olirical sriengrl o oieign cairal, incluuing rle sriengrl o
riauirional olicy nervoiks, rle iesence o uomesric allies (e.g., GOs anu
ieoim-oiienreu Luieauciars), anu rle qualiry o iuea maikers (e.g., meuia,
rlink ranks, anu exeirs).
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Jable S: Jhe Role oI Ioreign Capital in the ReIorm Process
Methods Ior Exercising Inhuence
(in order oI increasing causality)
Methodological Issues
Iueas/Peisuasion Ioieign iueas aie nor unioim.
Iueas aie a uihculr vaiiaLle ro
measuie.
1le eecrs o iueas aie inuiiecr.
Lxamle Naking/Comeririve
Piessuie
Ioieign examles may nor uiuse
viuely ro uomesric hims.
Ir rakes roo long oi gloLal sranuaius
ro uiive our local sranuaius in maiker
comeririon.
Ioieign hims renu ro auar ro local
enviionmenr insreau o seeking ro
clange ir.
1le Llecrionic Heiu
Cieuir iarings
Cairal lovs iesonu ro economic
unuamenrals, nor necessaiily ro
insrirurional eioimance.
Iinancial maikers suei iom leiu
Lelavioi.
1liear o exir is less eecrive againsr
cairal suilus counriies.
Inreinarional Rule Naking
BIS
INI
OLCD
Guiuelines/Convenrions
Insrirurional iules on seconu-geneiarion
ieoim issues sucl as riansaiency,
accounraLiliry, anu iuuenrial
iegularions aie srill ar an eaily srage o
uevelomenr.
Ioimal suLsciirion ro inreinarional
iules uoes nor alvays inuicare eecrive
comliance.
Ovneisli acrivism
Slaieloluei iiglrs
Oiganizing associarions
Ovneisli acrivism is iaiely
cooiuinareu.
Ioieign invesrois aie ielucranr ro rake
olirical acrion in rle losr counriy.
Inreinarional Ceirihcarion
Ioieign lisrings
Only rlose vlo aie alieauy goou seek
inreinarional ceirihcarion.
Bilareial Inrei-Srare egoriarions
INI
W1O
Secrion 301
Ooiruniries oi Lilareial negoriarions
aie iaie.
Bilareial negoriarions renu ro ocus on
maiker oening.
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Jable : Jhe Role oI Ioreign Capital in East Asia
Korea ]apan China
Pie-ciisis
ueenuence on
oieign cairal
Lxreinal
Loiiovings
Ioieign ovneisli
slaie o srocks
Higl
13.0 eicenr in
1996
Lov
11.0 eicenr
in 1996
Lov
Posr-ciisis
ueenuence on
oieign cairal
Lxreinal
Loiiovings
Ioieign ovneisli
slaie o srocks
Higl
36.0 eicenr in
2002
Lov
Role o oieign
cairal in rle
ieoim iocess
Alliance
Lerveen oieign
insrirurional
invesrois anu
GOs as key
ro coioiare
goveinance
ieoim anu
INI-manuareu
hnancial ieoim
Signihcanr
iesriucruiing
unus came
iom oieign
souices
Ioieign
invesrois move
srock maikers
Lirrle inur
inro hnancial
maiker
ieoim
Signihcanr
inluence on
srock maikers
anu coioiare
ieoim
or a
signihcanr
acroi in
coioiare
ieoim
iocess
Clina agieeu
ro some
hnancial
liLeializarion
measuies
as air o
rle W1O
accession
agieemenr
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In 1996, Lorl |aan anu Clina veie cairal exoireis, Koiea vas a
cairal imoirei. Because o laige cuiienr accounr uehcirs, Koiea lau ro
Loiiov iom aLioau ro hnance irs uehcirs. 1lis uieience in inirial conuirions
laigely exlains lov ieoim olirics las layeu our in rle rliee counriies. In
Koiea, oieign cairal vas rle uiiving oice Lelinu ieoim eoirs, Lur layeu
a suLsiuiaiy iole in |aan anu Clina. Iuirlei, alrlougl Lorl |aan anu Clina
ielieu lirrle on oieign cairal in rle Leginning, |aan`s ueenuence on oieign
cairal in equiry maikers las sreauily incieaseu, Lur iemains aLsenr in Clina.
Coiiesonuingly, rle inluence o oieign cairal on coioiare ieoim is
gioving sriongei in |aan rlan in Clina.
1le case o Clina oses an analyrical clallenge. Alrlougl Clina`s exreinal
Loiiovings aie cuiienrly manageaLle, one cannor ueny rle imoirance o
oieign invesrmenr ro rle Clinese economy`s sraLiliry anu uruie. So ai,
oieign invesrois lave exeireu lirrle inluence on rle Clinese ieoim iocess.
Some say rlar ir is only a marrei o rime, once rle Clina iusl enus, oieign
cairal inlovs vill slov anu lucruare, suLjecring Clina ro rle uisciline o
gloLal cairal maikers.
Conclusion
1le Lasr Asian exeiience in rle lare 1990s slovs rlar hnancial gloLalizarion
is hnally carcling u virl Lasr Asian cairalism. Because o exreinal iessuie,
Lasr Asian economies aie Leing oiceu ro clange ar a ace rley cuiienrly
uo nor hnu comoiraLle. Yer ir voulu Le roo eaily ro ueclaie rle riiuml
o hnancial gloLalizarion. In reims o Lorl sriucruie anu eioimance, Lasr
Asian hnancial anu coioiare sysrems srill all ai sloir o arraining gloLal
sranuaius. Ir is cleai rlar rley lave ler rle olu mouel Lelinu, Lur vleie
rley aie leauing is less aaienr. Lven in Koieavleie oieign cairal
las a iominenr iesencerle iole o oieign cairal in rle ieoim iocess
sloulu nor Le oveiemlasizeu. Nosr o rle ieoims rlar Koiea agieeu ro as
air o rle INI Lailour agieemenr veie measuies rlar rle goveinmenr lau
long uisueu, rle goveinmenr irsel even laceu some on rle agenua uuiing
negoriarions. On rle coioiare siue, roo, oieign invesrois voulu lave Leen
less eecrive lau rley nor lau rle suoir o local GOs rlar ioneeieu
slaieloluei acrivism in Koiea.
One vay ro iesolve rle ga Lerveen rle aeaiance anu iealiry o oieign
cairal in ieoim olirics is ro evaluare irs inluence ar uieienr srages o
ieoim. ConriiLurois ro rlis volume, noraLly Haln anu Lim, anu 1iLeiglien,
aigue rlar oieign invesrois renu ro Le inluenrial in rle eaily srages, vlen
issues aie Leing iecognizeu anu iameu. Bur oieign invesrois lave limireu
aLiliry ro inluence rle ieoim iocess ar larei srages, vlen measuies aie
conresreu, auoreu, anu enoiceu in uomesric olirical aiena. Lven in counriies
virl leavy oieign cairal ueenuence, oieign invesrois renu ro exir (i.e.,
curring losses anu leaving) iarlei rlan voice (i.e., sraying ro iessuie rle
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goveinmenr), vlicl unueimines rleii eecriveness as olirical acrois. ALove
all, maiker iarionaliry, iarlei rlan olirical logic, seems ro guiue oieign
invesrois` Lelavioi.
Notes
1
Iuenriying rle meaningul arreins o rle ieoim iocess is also ciucial, since
rley ioviue auuirional ueenuenr vaiiaLles. One vay o concerualizing rle arreins
o rle ieoim iocess is rle sequencing o ieoim measuies. Ioi examle, rle ioLlems
o coioiare ieoim in Koiea coulu Le uiviueu inro seveial laigely uisrincr suL-aieas:
iesriucruiing o insolvenr hims, coioiare oiganizarion (i.e., claeLol oiganizarion),
anu coioiare goveinance (riansaiency anu accounraLiliry o managemenr anu rle
oiganizarion anu iole o Loaius o uiiecrois). Among rlese, rle goveinmenr lau ro
ueciue vlicl voulu ieceive iioiiry. 1le ioLlem uiu nor enu leie. Lacl aiea, in ruin,
lau irs ovn ser o alreinarives. 1liee uieienr olicy insriumenrs, oi examle, veie
availaLle oi imioving coioiare goveinance: exreinal uisciline (rle maiker oi
coioiare conriol anu insrirurional invesrois), inreinal uisciline (oursiue uiiecrois,
cumularive voring, small slaieloluei iiglrs), anu accounring riansaiency (vlicl
alls Lerveen aieas o exreinal anu inreinal uisciline). Since rle goveinmenr coulu
nor arrack eveiy ioLlem aiea anu cloose eveiy insriumenr ar rle same rime, ir lau ro
sequence rlem accoiuing ro rleii neeu, vlicl vas inleienrly a olirical iocess. An
inreiesring issue in Koiea is vly slaieloluei iiglrs lave Leen leavily emlasizeu, as
ooseu ro accounring riansaiency. 1lar is, rlis airiculai arrein o sequencing las
ro Le exlaineu.