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Edited by
jongryn Mo
and
Danie| I. Okimoto
1HL WAL1LR H. SHORLÞS1LIÞ ASIA-PACIIIC RLSLARCH CLÞ1LR
(Sloiensrein APARC) is a unique Sraníoiu Univeisiry insrirurion íocuseu on
rle inreiuisciµlinaiy sruuy oí conremµoiaiy Asia. Sloiensrein APARC`s mission
is ro µiouuce anu µuLlisl oursranuing inreiuisciµlinaiy, Asia-Pacihc÷íocuseu
ieseaicl, euucare sruuenrs, sclolais, anu coiµoiare anu goveinmenral aíhliares,
µiomore consriucrive inreiacrion ro inluence U.S. µolicy rovaiu rle Asia-Pacihc,
anu guiue Asian narions on key issues oí socieral riansirion, ueveloµmenr, U.S.-
Asia ielarions, anu iegional cooµeiarion.
1le Walrei H. Sloiensrein Asia-Pacihc Reseaicl Cenrei
Iieeman Sµogli Insrirure íoi Inreinarional Sruuies
Sraníoiu Univeisiry
Lncina Hall
Sraníoiu, CA 94305-6055
rel. 650-¯23-9¯41
íax. 650-¯23-6530
lrrµ://APARC.sraníoiu.euu
írch Crisis tc Ojjcrtunity: íinancial Clcbalizaticn anJ íast Asian Cajitalish
may Le oiueieu íiom:
Biookings Insrirurion Piess
Deµairmenr 029, Waslingron, DC 20042-0029, USA
rel. 1-S00-2¯5-144¯ oi 202-¯9¯-625S
íax: 202-¯9¯-2960 Arrn: Oiuei Deµr.
lrrµ://Looksroie.Liookings.euu
Walrei H. Sloiensrein Asia-Pacihc Reseaicl Cenrei Nonogiaµls, 2006.
Coµyiiglr © 2006 Ly rle Boaiu oí 1iusrees oí rle Lelanu Sraníoiu |unioi
Univeisiry.
All iiglrs ieseiveu. Þo µair oí rlis µuLlicarion may Le ieµiouuceu, sroieu in
a ieriieval sysrem, oi riansmirreu in any íoim oi Ly any means, elecrionic,
meclanical, µlorocoµying, iecoiuing, oi orleivise, virlour viirren µeimission
oí rle µuLlislei.
Iiisr µiinring, 2006.
10 uigir ISBÞ 1-93136S-0¯-4
13 uigir ISBÞ 9¯S-1-93136S-0¯-0
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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, 1ºº6~2002 / 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
Acx×6wirocur×fs
1
lis Look is rle ourcome oí a joinr ieseaicl µiojecr Lerveen Yonsei
Univeisiry anu Sraníoiu Univeisiry. Yonsei Uuiveisiry µioµoseu rle
µiojecr in 2002 as a µair oí irs gloLalizarion ieseaicl iniriarive. 1le
euirois voulu like ro rlank rle µasr anu cuiienr uiiecrois oí Yonsei Cenrei íoi
GloLal Sruuies, Clung-in Noon, Youngsun Lee, anu Sungslin Haln, íoi rleii
suµµoir anu encouiagemenr.
9
9
FINANCIAL GLOBALIZA1ION AND FAS1 ASIAN
CAPI1ALISM: AN OvFRvIFv
jongryn Mo
Duniel l. Okimoto
S
ince rle miu-1990s, Clina, |aµan, anu Koiea lave come unuei seveie
µiessuie ro iesriucruie anu ieíoim rleii economic sysrems. Inueeu, acioss
Lasr Asia, goveinmenrs aie arremµring ro auuiess rleii sriucruial µioLlems
virl a vaiiery oí ieíoim µiogiams. Þov, aírei rle µiocess las Leen unuei vay
íoi moie rlan hve yeais, ceirain µarreins aie Leginning ro emeige.
1le íolloving geneializarions can Le maue. Koiea seems ro lave
auvanceu rle mosr in clanging irs sysrem. |aµan`s eííoirs lave Leen exrensive
anu visiLle Lur íunuamenrally inciemenral. Reíoim 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 ieíoim µarls as rley assigneu uiííeienr µiioiiries ro uiííeienr aieas
oí ieíoim. 1o Le suie, uiííeiences in rle naruie oí rle µioLlems rlar eacl
counriy coníionrs sloulu accounr íoi some uiííeience in rleii aµµioacles
anu µiioiiries. Yer reclnical imµeiarives cannor µioviue all rle ansveis:
µolirics, roo, µlay a key iole in slaµing rle sequencing oí economic ieíoim
measuies anu rleii oveiall ourcome.
1lis oveiviev arremµrs ro iuenriíy emµiiical iegulaiiries acioss Lasr
Asian counriies/secrois anu ro exµlain rlem. Pievious sruuies lave leír ceirain
imµoiranr emµiiical vaiiarions acioss counriies anu secrois unexµlaineu. 1le
geneial conclusion oí rlis oveiviev is rlar rle inreiacrion Lerveen rle íoices
oí hnancial gloLalizarion anu uomesric µolirics lolu rle key ro exµlaining
rle µiocess oí ieíoim. In µairiculai, rlis essay auuiesses a numLei oí issues
imµoiranr ro rle sruuy oí Lasr Asian µolirical economies, incluuing rleii
ieceµriviry ro rle íoices oí hnancial gloLalizarion, rleii hnancial inregiarion,
rle conveigence oi uiveigence oí rleii economic insrirurions, anu rle
imµlicarions rlar rleii insrirurional riansíoimarions lolu íoi rleii narional
comµeririve auvanrage anu rle gloLal economic sysrem.
Key Dimensions oI East Asian Capitalism: Iinance and Corporate
Governance
Alrlougl eacl Lasr Asian counriy las unique µolicies anu insrirurions,
rley collecrively slaie enougl common elemenrs ro uehne a iegional mouel
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oí economic ueveloµmenr. 1le key íearuies oí rlis Lasr Asian mouel aie
macioeconomic sraLiliry, ligl savings iares, anu exµoir/inuusriy µiomorion
Laseu on close Lusiness-goveinmenr ielarions.
1le hnancial anu coiµoiare goveinance sysrems rlar lave Leen associareu
virl rle Lasr Asian mouel aie esµecially imµoiranr ro rle sruuy oí comµaiarive
caµiralism. As µair oí rleii inuusriial µolicy iegime, Lasr Asian goveinmenrs
cieareu hnancial sysrems in vlicl Lanks uominareu in clanneling savings inro
coiµoiare invesrois, consumei lenuing vas µuiµosely uiscouiageu. Given rle
goveinmenr`s exrensive iole, ir is nor suiµiising rlar Lasr Asian Lanks veie
slov ro ueveloµ maiker-Laseu Lusiness µiacrices, rley suííeieu íiom symµroms
oí moial lazaiu (cieareu Ly rle imµlicir goveinmenr µiorecrion), sucl as
excessive iisks anu íavois ro cionies.
1le Lasr Asian mouel las also Leen associareu virl a sysrem oí
coiµoiare goveinance rlar is saiu ro ieµiesenr srakelolueis÷as oµµoseu ro
slaieloluei÷caµiralism. Lasr Asian coiµoiarions veie neirlei oiganizeu noi
goveineu ro maximize slaieloluei inreiesrs. Insreau, rley ielecreu a uesiie ro
Lalance slaieloluei inreiesrs virl rlose oí orlei srakelolueis, sucl as Lanks,
voikeis, anu goveinmenr.
Ovei rime, vlar one miglr call rlis ¨olu¨ mouel came unuei incieasing
economic anu µolirical µiessuie. 1iauirional sysrems simµly coulu nor sarisíy
rle gioving µoµulai uemanu íoi riansµaiency, accounraLiliry, oµenness,
anu comµeririon. Woise, rley íaileu ro uelivei economic Lenehrs, economic
giovrl sloveu, anu Ly rle lare 1990s, eveiy Lasr Asian counriy íounu irselí
in a srare oí ciisis.
In rlis climare oí ciisis, Lasr Asian goveinmenrs caiiieu our exrensive
economic ieíoims. Acioss rle iegion, rle goal oí rle ieíoims vas Lioauly
similai: ro ieíoim ¨goveineu¨ maikers anu cieare in rleii sreau a sysrem moie
Laseu on maikers anu goou goveinance. Goou goveinance, liLeializarion, anu
ueiegularion Lecame carclµliases in µolicy ueLares anu µionouncemenrs.
Ar rle rime, rle ourcomes oí ieíoim eííoirs veie nor µieuereimineu. 1le
µosr-ciisis µolicy enviionmenr ruineu our ro Le luiu anu uynamic. Ir vas nor
cleai ex ante vlicl µolicies oi giouµs voulu Le Llameu íoi rle ciisis, vlo
voulu íiame rle issues anu oííei solurions, anu vlicl issues voulu emeige as
key µoinrs íoi ieíoim.
1ouay, ve Lelieve rlar rle ieíoim lanuscaµe Lecame suíhcienrly cleai ro
invesrigare ieíoim iesulrs. 1le key quesrion is vlerlei rle claiacrei oí Lasr
Asian caµiralism las acrually clangeu. In reims oí sysrem µeiíoimance, lave
eacl counriy`s coiµoiare anu hnancial sysrems Lecome moie riansµaienr,
accounraLle, oµen, comµeririve, anu iesµonsiLle (i.e., virlour moial lazaiu)·
1o eííecr insrirurional clange, insrirurional sriucruie musr Le alreieu.
Insrirurional sriucruies aie imµoiranr Lecause rley enlance rle µeiíoimance
oí hnancial maikers anu/oi rle coiµoiare secroi, esµecially vlen rley sarisíy
gloLal sranuaius. Key inuicarois oí nev insrirurional sriucruies incluue size,
comµosirion, ovneisliµ, anu concenriarion oí hnancial sysrems, rle µiorecrion
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oí slaieloluei iiglrs, anu rle acceµrance oí Lusiness µiacrices Laseu on aim`s-
lengrl ielarionsliµs.
Jable 1: Measures oI Institutional Change in the Iinancial and Corporate Sectors
Sysrem Peiíoimance 1iansµaiency
AccounraLiliry
Oµenness
Noial Hazaiu
Insrirurional Sriucruie Size anu Comµosirion oí Iinancial Sysrems
1yµe oí Bank Ovneisliµ
Concenriarion oí Bank Assers anu Lquiry
Naiker Caµiralizarion
Regularion oí Bank Acriviries anu Ovneisliµ
Regularoiy Sriucruie
Coiµoiare Goveinance
Concenriarion oí Coiµoiare Ovneisliµ anu
Naiker Povei
Among rle íacrois conriiLuring ro insrirurional clange, rle iole oí hnancial
gloLalizarion is µairiculaily inreiesring anu imµoiranr. Aírei all, rle ciisis oí
rle lare 1990s Legan as a hnancial one. Unµieceuenreu amounrs oí íoieign
caµiral lave loveu inro Lasr Asian economies as a iesulr oí rle ciisis, making
íoieign invesrois acrive µlayeis in uomesric µolicy anu economic acriviries.
Since rle economic ciisis, many sruuies lave íocuseu on economic ieíoims
anu hnancial gloLalizarion, Lur rley lave Leen rieareu as, anu iemain laigely,
seµaiare issues in rle lireiaruie. We uo nor yer unueisranu rle inreiacrion
Lerveen íoieign caµiral anu economic ieíoim, µairiculaily rle acrive iole rlar
íoieign invesrois µlayeu in ieíoiming economic insrirurions.
Dependent Variables: ReIorm Outcomes
Changes in SysIem Petfotmance
One imµoiranr measuie oí rle sysrem µeiíoimance oí µosr-ciisis Lasr Asian
hnancial anu coiµoiare secrois is economic íieeuom. Lconomic íieeuom las
Liouglr aLour giearei riansµaiency anu accounraLiliry in rle hnancial anu
coiµoiare secrois anu also inuicares, ro some exrenr, lov maiker-Laseu rlose
secrois lave Lecome. Lconomic íieeuom uara aie collecreu íiom Lconomic
Iieeuom oí rle Woilu: 2002 Annual Reµoir (LIW). LIW measuies rle
uegiees oí economic íieeuom µiesenr in hve majoi aieas: 1) size oí goveinmenr:
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exµenuiruies, raxes, anu enreiµiises, 2) legal sriucruie anu secuiiry oí µioµeiry
iiglrs, 3) sounu money, 4) íieeuom ro riaue virl íoieigneis, anu 5) iegularion
oí cieuir, laLoi, anu Lusiness. Because rle LIW inuex ielies mosrly on rliiu-
µairy uara, ir can Le calculareu Lack ro as eaily as 19¯0.
Orlei uara on sysrem µeiíoimance come íiom rle GloLal Comµeririveness
Reµoir. Some quesrions in rle ieµoir aie inrenueu ro measuie rle soununess oí
insrirurions anu µolicies uesigneu ro µiomore accounraLiliry anu riansµaiency.
Orleis uereimine rle acrual uegiees oí riansµaiency anu accounraLiliry:
ºIs rle level oí hnancial uisclosuie iequiieu exrensive anu ueraileu·
ºIs insiuei riauing nor common in rle uomesric srock maiker·
ºAie coiµoiare Loaius liglly eííecrive in moniroiing managemenr
µeiíoimance anu ieµiesenring slaieloluei inreiesrs·
ºDoes anririusr oi anri-monoµoly µolicy eííecrively µiomore comµeririon·
Since rle economic ciisis, rle Koiean anu |aµanese economies lave
Lecome íieei vlile Clina sav irs economic íieeuom íall Lerveen 1995 anu
2000. Koiean economic íieeuom, in µairiculai, slovs a maikeu imµiovemenr,
virl irs LIW iaring incieasing ro ¯.01 in 2000 íiom 6.3S in 1995. Cleaily, rle
viue iange oí liLeializarion measuies in Lorl caµiral anu goous maikers rlar
rle Koiean goveinmenr las imµlemenreu aie raking eííecr.
Wirl iesµecr ro coiµoiare accounraLiliry anu hnancial maiker riansµaiency,
µiogiess las Leen mucl slovei, even in Koiea anu |aµan. Koiea`s scoies on rle
qualiry oí uisclosuie iequiiemenrs, rle µievalence oí insiuei riauing, anu rle
eííecriveness oí coiµoiare goveinance iemain vell Lelov rle voilu aveiages.
1le |aµanese iecoiu is mixeu. Wlile insiuei riauing las Lecome less µievalenr
since 1996, rle riusr in Loaiu µeiíoimance las íallen maikeuly. In Lorl Koiea
anu |aµan, anririusr µolicies lave Lecome moie eííecrive since 1996. Inueeu,
Lorl counriies lave come unuei sriong exreinal µiessuie ro sriengrlen rleii
anririusr µolicies.
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Jable 2: Economic Ireedom in East Asia
1º70 1º75 1ºS0 1ºS5 1ºº0 1ºº5 2000 Δ70~º0 Δ70~00
Koiea 5.11 5.04 5.33 5.35 5.S5 6.3S ¯.01 14.5° 3¯.2°
|aµan 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, íccnchic íreeJch cf tle VcrlJ: 2002 Annual Bejcrt,
Vancouvei: 1le Iiasei Insrirure, 2002. Dara ieriieveu íiom lrrµ://vvv.íieerlevoilu.com,
Augusr 1, 2004.
Jable 3: Iinancial Market Jransparency
1ººº 2000
Koiea 4.¯3 4.60
|aµan 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
1ºº6 1ºº7 1ººS 1ººº 2000
Koiea 3.S1 4.30 3.¯4 4.10 3.S0
|aµan 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
1ºº6 1ºº7 1ººS 1ººº 2000 2001
Koiea 3.6¯ 3.30 2.SS 3.63 3.90 3.50
|aµan 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¯
Nean÷su 3.41 3.62 3.44 3.90 3.S5 3.31
Jable 6: EIIectiveness oI Competition Policy
1ºº6 1ºº7 1ººS 1ººº 2000 2001
Koiea 3.S6 3.¯9 4.54 4.41 4.S0 4.¯0
|aµan 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 µeiíoimance. In
eveiy caregoiy, Clinese µeiíoimance las eirlei uereiioiareu oi iemaineu lar.
Aµµaienrly, ligl economic giovrl in rle larrei lalí oí rle 1990s uiu nor Liing
aLour eííecrive sriucruial ieíoims.
Changes in lnsIiIuIionaI SItucIute
Because oí lack oí uara, ir is nor µossiLle ro comµaie sysremarically rle µosr-
ciisis sriucruies oí Lasr Asian hnancial maikers anu coiµoiarions virl rlose oí
Þoirl Ameiican mouels. One key aiea ro varcl is rle ueveloµmenr oí caµiral
maikers in Lasr Asia. 1le main íocus oí hnancial ieíoim in Lasr Asia las Leen
ro inciease uiiecr hnancing (i.e., srocks anu Lonus) anu ieuuce ueµenuence
on inuiiecr hnancing as a souice oí coiµoiare hnance. On rle coiµoiare siue,
ovneisliµ sriucruie is a key issue, esµecially in Koiea anu Clina. Sriucruially,
rle Koiean anu Clinese coiµoiare secrois aie íamily-uominareu. Some aigue
rlar a uesiie ro mainrain íamily conriol is rle main cause oí Lau coiµoiare
goveinance in Lasr Asia.
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Jheories and Evidence
Tle íclitical íccnchy cf Befcrh
Deµenuenr vaiiaLles aie rle oveiall ourcomes oí ieíoim eííoirs. In
evaluaring rle ourcome oí ieíoim eííoirs, one may lave ro make suLjecrive
juugmenrs Laseu on ieíoimeis` srareu oLjecrives, rle exµecrarions oí vaiious
srakelolueis, anu oLjecrive measuies oí clange oi uisrance ro an iueal-ryµe
maiker economy mouel.
1
Inueµenuenr vaiiaLles aie rle inirial conuirions rlar µievail Leíoie rle
Luiluuµ oí ieíoim µiessuie. Ir voulu Le conrioveisial ro iuenriíy a given yeai
rle yeai oí inirial conuirions, Lur ir seems ieasonaLle ro cloose 1996, a yeai
Leíoie rle Asian economic ciisis Lioke our, since ir las signihcanrly imµacreu
all rliee counriies.
Ar leasr íoui vaiiaLles claiacreiize inirial conuirions: 1) rle naruie anu
seveiiry oí economic ciisis, 2) rle inirial level anu comµosirion oí íoieign
caµiral µeneriarion, 3) rle µieíeiences anu caµaLiliries oí rle Luieauciacy, anu
4) rle claiacrei anu sriengrl oí uomesric ieíoim coalirions.
1lese íoui inueµenuenr vaiiaLles slaµe rle ielarive Laigaining µovei oí
rliee main uiiveis oí ieíoim: íoieign invesrois, Luieauciars, anu µio-ieíoim
giouµs. 1le seveiiry oí an economic ciisis anu rle exisring level oí íoieign
invesrmenr can inuicare lov inluenrial íoieign invesrois can Le in ¨íoicing¨
rleii agenuas. One may aigue rlar rle moie seiious rle ciisis anu rle smallei
rle exisring level oí invesrmenr, rle moie inluenrial rle íoieign invesrois.
Using similai logic, ve can evaluare rle Laigaining µovei oí rle orlei
ieíoim giouµs. Bur rle µolicy µieíeiences oí µio-ieíoim giouµs cannor Le
ueuuceu ex ante, since rley ueµenu on rle economic anu µolirical conuirions
oí eacl counriy.
Alrlougl moie ieseaicl is necessaiy, rle consensus viev, as noreu eailiei,
is rlar economic ieíoims lave Leen mosr exrensive in Koiea, íolloveu Ly
|aµan anu Clina.
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Jable 7: Jhe Political Economy oI ReIorm
]apan Korea China
Inluence oí
íoieign caµiral
Neuium Higl Lov
Buieauciacy Iiagmenreu Pairially Uniheu Uniheu
Pio-ieíoim
coalirions
Iniriareu Ly
Ninisriy oí
Lconomy,
1iaue, anu
Inuusriy (NL1I)
Goveinmenr-INI-
ÞGO coalirion
Insrirurional
clange
Inciemenral
Limireu
Conveigence,
LiLeial
Demociaric
Pairy (LDP)-
uominareu µarl
Diasric
Conveigence,
Goveinmenr-leu
µarl
Limireu
Diveisiry,
Clinese
Communisr
Pairy (CCP)-
conriolleu µarl
1le rliee counriies lave also uisµlayeu uiííeienr µarreins oí ieíoim
µiocess, suggesring rlar rle imµoirance oí eacl inueµenuenr vaiiaLle ueµenus
uµon rle counriy in quesrion. In rle case oí |aµan, clanges in uomesric
coalirions as a iesulr oí hnancial gloLalizarion causeu iesriicrions ro loosen.
Hovevei, in Koiea`s case, ieíoims lave come aLour mainly Lecause oí
µiessuie íiom inreinarional invesrois aírei 199S. In Clina, íoieign invesrois
uo nor consrirure a signihcanr íacroi in rle uomesric economy anu, as a iesulr,
íail ro inluence ieíoim µolirics signihcanrly.
Tle Bcle cf ícreign Cajital
Wlar is rle iole oí íoieign caµiral in uomesric ieíoim µolirics· Ir is imµoiranr
ro knov vleie anu lov acrively íoieign caµiral vas involveu in rle ieíoim
µiocess. 1le acrual imµacr oí íoieign µolirical acrion on ieíoim ourcomes is nor
a cenrial concein leie. Rarlei, simµly gauging rle level oí íoieign involvemenr
vill lelµ us Lerrei unueisranu lov hnancial gloLalizarion rianslares inro
sµecihc µolirical acrions Ly agenrs oí inreinarional caµiral.
Ioieign invesrois ryµically lave µolicy agenuas uisrincr íiom rle olu mouel
anu íiom many uomesric srakelolueis. Ir is sriaiglríoivaiu ro uemonsriare rlis
vlen íoieign invesrois oi rleii ieµiesenrarives make exµlicir µolicy uemanus
as µair oí riaue oi Lailour negoriarions. Wlile rleie aie ceirain ieíoims rlar
all íoieign invesrois íavoi, uiííeienr inuiviuual invesrois may lave uiííeienr
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µieíeiences in orlei aieas, so ir may Le necessaiy ro uisaggiegare rlem inro
µolirically meaningíul suL-giouµs, sucl as hnancial inreimeuiaiies, sloir-
reim, anu long-reim invesrois. Conceµrually, íoieign invesrois can conriiLure
ro insrirurional ieíoim in rliee vays: 1) auvocaring goveinmenr µolicy clange,
2) exeicising exisring invesroi anu slaieloluei iiglrs, anu 3) µiacricing Lesr
µiacrices anu serring examµles.
1leie is no ieason ro limir rle analysis ro goveinmenr acrions. Ioieign
invesrois can anu uo moniroi µiivare secroi imµlemenrarion. Ioieign invesrois
may Le moie eííecrive in íoicing uomesric economic acrois ro comµly virl
nev iules rlan in laving rle nev iules auoµreu in rle hisr µlace. Ií rlis is riue,
rle conriiLurions oí íoieign invesrois may naiiov rle gaµ Lerveen íoimal
iules anu acrual µiacrices.
Polirical economy rleoiy is equiµµeu ro exµlain rle µarrein oí íoieign
caµiral`s µolirical µairiciµarion. Lven ií rle iole oí íoieign caµiral is minimal,
ir is voirl consiueiing÷as |enniíei Amyx uoes in lei claµrei in rlis
volume÷vly rlar is rle case. Seveial vaiiaLles aííecr rle level anu ryµe oí
sucl µairiciµarion. Iiisr aie inirial conuirions: some lome counriies aie caµiral
imµoireis, vlile orleis (like |aµan) aie caµiral exµoireis. Conhguiarions oí
íoieign caµiral µoiríolios (uiiecr invesrmenr veisus µoiríolio invesrmenr) may
also Le an imµoiranr inirial íacroi. 1le exisrence oí exreinal ueLr ciisis is
anorlei vaiiaLle. Seconu aie goveinmenr µolicies. Hosr goveinmenr µolicies
rovaiu uiííeienr ryµes oí caµiral laigely slaµe rle enviionmenr in vlicl
íoieign caµiral µairiciµares in uomesric µolicy µiocess. 1le rliiu giouµ oí
vaiiaLles can Le uesciiLeu as uomesric µolirical vaiiaLles. 1lese vaiiaLles
uereimine rle µolirical sriengrl oí íoieign caµiral, incluuing rle sriengrl oí
riauirional µolicy nervoiks, rle µiesence oí uomesric allies (e.g., ÞGOs anu
ieíoim-oiienreu Luieauciars), anu rle qualiry oí iuea maikers (e.g., meuia,
rlink ranks, anu exµeirs).
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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 ºIoieign iueas aie nor uniíoim.
ºIueas aie a uiíhculr vaiiaLle ro
measuie.
º1le eííecrs oí iueas aie inuiiecr.
Lxamµle Naking/Comµeririve
Piessuie
ºIoieign examµles may nor uiííuse
viuely ro uomesric hims.
ºIr rakes roo long íoi gloLal sranuaius
ro uiive our local sranuaius in maiker
comµeririon.
ºIoieign hims renu ro auaµr ro local
enviionmenr insreau oí seeking ro
clange ir.
1le Llecrionic Heiu
ºCieuir iarings
ºCaµiral lovs iesµonu ro economic
íunuamenrals, nor necessaiily ro
insrirurional µeiíoimance.
ºIinancial maikers suííei íiom leiu
Lelavioi.
º1liear oí exir is less eííecrive againsr
caµiral suiµlus counriies.
Inreinarional Rule Naking
ºBIS
ºINI
ºOLCD
Guiuelines/Convenrions
ºInsrirurional iules on seconu-geneiarion
ieíoim issues sucl as riansµaiency,
accounraLiliry, anu µiuuenrial
iegularions aie srill ar an eaily srage oí
ueveloµmenr.
ºIoimal suLsciiµrion ro inreinarional
iules uoes nor alvays inuicare eííecrive
comµliance.
Ovneisliµ acrivism
ºSlaieloluei iiglrs
ºOiganizing associarions
ºOvneisliµ acrivism is iaiely
cooiuinareu.
ºIoieign invesrois aie ielucranr ro rake
µolirical acrion in rle losr counriy.
Inreinarional Ceirihcarion
ºIoieign lisrings
Only rlose vlo aie alieauy goou seek
inreinarional ceirihcarion.
Bilareial Inrei-Srare Þegoriarions
ºINI
ºW1O
ºSecrion 301
ºOµµoiruniries íoi Lilareial negoriarions
aie iaie.
ºBilareial negoriarions renu ro íocus on
maiker oµening.
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Jable º: Jhe Role oI Ioreign Capital in East Asia
Korea ]apan China
Pie-ciisis
ueµenuence on
íoieign caµiral
ºLxreinal
Loiiovings
ºIoieign ovneisliµ
slaie oí srocks
Higl
º13.0 µeicenr in
1996
Lov
º11.0 µeicenr
in 1996
Lov
Posr-ciisis
ueµenuence on
íoieign caµiral
ºLxreinal
Loiiovings
ºIoieign ovneisliµ
slaie oí srocks
Higl
º36.0 µeicenr in
2002
Lov
Role oí íoieign
caµiral in rle
ieíoim µiocess
ºAlliance
Lerveen íoieign
insrirurional
invesrois anu
ÞGOs as key
ro coiµoiare
goveinance
ieíoim anu
INI-manuareu
hnancial ieíoim
ºSignihcanr
iesriucruiing
íunus came
íiom íoieign
souices
ºIoieign
invesrois move
srock maikers
ºLirrle inµur
inro hnancial
maiker
ieíoim
ºSignihcanr
inluence on
srock maikers
anu coiµoiare
ieíoim
ºÞor a
signihcanr
acroi in
coiµoiare
ieíoim
µiocess
ºClina agieeu
ro some
hnancial
liLeializarion
measuies
as µair oí
rle W1O
accession
agieemenr
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In 1996, Lorl |aµan anu Clina veie caµiral exµoireis, Koiea vas a
caµiral imµoirei. Because oí laige cuiienr accounr uehcirs, Koiea lau ro
Loiiov íiom aLioau ro hnance irs uehcirs. 1lis uiííeience in inirial conuirions
laigely exµlains lov ieíoim µolirics las µlayeu our in rle rliee counriies. In
Koiea, íoieign caµiral vas rle uiiving íoice Lelinu ieíoim eííoirs, Lur µlayeu
a suLsiuiaiy iole in |aµan anu Clina. Iuirlei, alrlougl Lorl |aµan anu Clina
ielieu lirrle on íoieign caµiral in rle Leginning, |aµan`s ueµenuence on íoieign
caµiral in equiry maikers las sreauily incieaseu, Lur iemains aLsenr in Clina.
Coiiesµonuingly, rle inluence oí íoieign caµiral on coiµoiare ieíoim is
gioving sriongei in |aµan rlan in Clina.
1le case oí Clina µoses an analyrical clallenge. Alrlougl Clina`s exreinal
Loiiovings aie cuiienrly manageaLle, one cannor ueny rle imµoirance oí
íoieign invesrmenr ro rle Clinese economy`s sraLiliry anu íuruie. So íai,
íoieign invesrois lave exeireu lirrle inluence on rle Clinese ieíoim µiocess.
Some say rlar ir is only a marrei oí rime, once rle Clina iusl enus, íoieign
caµiral inlovs vill slov anu lucruare, suLjecring Clina ro rle uisciµline oí
gloLal caµiral maikers.
Conclusion
1le Lasr Asian exµeiience in rle lare 1990s slovs rlar hnancial gloLalizarion
is hnally carcling uµ virl Lasr Asian caµiralism. Because oí exreinal µiessuie,
Lasr Asian economies aie Leing íoiceu ro clange ar a µace rley cuiienrly
uo nor hnu comíoiraLle. Yer ir voulu Le roo eaily ro ueclaie rle riiumµl
oí hnancial gloLalizarion. In reims oí Lorl sriucruie anu µeiíoimance, Lasr
Asian hnancial anu coiµoiare sysrems srill íall íai sloir oí arraining gloLal
sranuaius. Ir is cleai rlar rley lave leír rle olu mouel Lelinu, Lur vleie
rley aie leauing is less aµµaienr. Lven in Koiea÷vleie íoieign caµiral
las a µiominenr µiesence÷rle iole oí íoieign caµiral in rle ieíoim µiocess
sloulu nor Le oveiemµlasizeu. Nosr oí rle ieíoims rlar Koiea agieeu ro as
µair oí rle INI Lailour agieemenr veie measuies rlar rle goveinmenr lau
long µuisueu, rle goveinmenr irselí even µlaceu some on rle agenua uuiing
negoriarions. On rle coiµoiare siue, roo, íoieign invesrois voulu lave Leen
less eííecrive lau rley nor lau rle suµµoir oí local ÞGOs rlar µioneeieu
slaieloluei acrivism in Koiea.
One vay ro iesolve rle gaµ Lerveen rle aµµeaiance anu iealiry oí íoieign
caµiral in ieíoim µolirics is ro evaluare irs inluence ar uiííeienr srages oí
ieíoim. ConriiLurois ro rlis volume, noraLly Haln anu Lim, anu 1iLeiglien,
aigue rlar íoieign invesrois renu ro Le inluenrial in rle eaily srages, vlen
issues aie Leing iecognizeu anu íiameu. Bur íoieign invesrois lave limireu
aLiliry ro inluence rle ieíoim µiocess ar larei srages, vlen measuies aie
conresreu, auoµreu, anu eníoiceu in uomesric µolirical aiena. Lven in counriies
virl leavy íoieign caµiral ueµenuence, íoieign invesrois renu ro ¨exir¨ (i.e.,
curring losses anu leaving) iarlei rlan ¨voice¨ (i.e., sraying ro µiessuie rle
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goveinmenr), vlicl unueimines rleii eííecriveness as µolirical acrois. ALove
all, maiker iarionaliry, iarlei rlan µolirical logic, seems ro guiue íoieign
invesrois` Lelavioi.
Notes
1
Iuenriíying rle meaningíul µarreins oí rle ieíoim µiocess is also ciucial, since
rley µioviue auuirional ueµenuenr vaiiaLles. One vay oí conceµrualizing rle µarreins
oí rle ieíoim µiocess is rle sequencing oí ieíoim measuies. Ioi examµle, rle µioLlems
oí coiµoiare ieíoim in Koiea coulu Le uiviueu inro seveial laigely uisrincr suL-aieas:
iesriucruiing oí insolvenr hims, coiµoiare oiganizarion (i.e., claeLol oiganizarion),
anu coiµoiare goveinance (riansµaiency anu accounraLiliry oí managemenr anu rle
oiganizarion anu iole oí Loaius oí uiiecrois). Among rlese, rle goveinmenr lau ro
ueciue vlicl voulu ieceive µiioiiry. 1le µioLlem uiu nor enu leie. Lacl aiea, in ruin,
lau irs ovn ser oí alreinarives. 1liee uiííeienr µolicy insriumenrs, íoi examµle, veie
availaLle íoi imµioving coiµoiare goveinance: exreinal uisciµline (rle maiker íoi
coiµoiare conriol anu insrirurional invesrois), inreinal uisciµline (oursiue uiiecrois,
cumularive voring, small slaieloluei iiglrs), anu accounring riansµaiency (vlicl
íalls Lerveen aieas oí exreinal anu inreinal uisciµline). Since rle goveinmenr coulu
nor arrack eveiy µioLlem aiea anu cloose eveiy insriumenr ar rle same rime, ir lau ro
sequence rlem accoiuing ro rleii neeu, vlicl vas inleienrly a µolirical µiocess. An
inreiesring issue in Koiea is vly slaieloluei iiglrs lave Leen leavily emµlasizeu, as
oµµoseu ro accounring riansµaiency. 1lar is, rlis µairiculai µarrein oí sequencing las
ro Le exµlaineu.