Front Matter

Front Matter Page

© 2002 International Monetary Fund

February 2002

IMF country Report No. 02/20

Republic of Korea: Selected Issues

This Selected Issues paper on the Republic of Korea was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on January 24, 2002. The views expressed in this document are those of the staff team and do not necessary reflect the views of the government of the Republic of Korea or the Executive Board of the IMF.

The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to

Copies of this report are available to the public from

International Monetary Fund • Publication Services

700 19th Street, N.W. • Washington, D.C. 20431

Telephone: (202) 623 7430 • Telefax: (202) 623 7201

E-mail: • Internet:

Price: $15.00 a copy

International Monetary Fund

Washington, D.C.

Front Matter Page



Selected Issues

Prepared by Anthony Richards, Keneeth Kang, Henry Ma, Hong Liang, and Aung Win (all APD), Paul Cashin (RES), Meral Karasulu (MAE), Thomas Laryea (LEG), and Sungbin Cho (Summer Intern, APD)

Approved by the Asia and Pacific Department

January 24, 2002


  • I. Features of Korean Business and Export Cycles

    • A. Introduction

    • B. Data

    • C. Dating Business Cycles Using Bry-Boschan Methods

    • D. Conclusion

    • References

    • Appendix

  • Figures

  • I.1. Industrial Production, Korea

  • I.2. Industrial Production, Japan

  • I.3. Industrial Production, United States

  • I.4. Real Korean Exports to the World

  • I.5. Real Korean Exports to Europe

  • I.6. Real Korean Exports to the United States

  • I.7. Real Korean Exports to Japan

  • Tables

  • I.1. Business Cycle Dates and Durations of Booms and Slumps in Korea Industrial Production and Real World Exports, 1960–2001

  • I.2. Descriptive Statistics of Business Cycle and Export Cycles, 1960–2001

  • I.3. Descriptive Statistics of Contractions and Expansions in Korean, Japanese and United States Industrial Production and Korean Real Exports, 1960–2001

  • I.4. Correlation Statistics, First Differences, 1961–2001

  • I.5. Correlation Statistics, First Differences, 1990–2001

  • I.6. Concordance Statistics, 1960–2001

  • I.7. Concordance Statistics, 1990–2001

  • II. Labor Market Developments in Korea Since the Crisis

    • A. Introduction

    • B. Immediate Impact of the Crisis and Policy Responses

    • C. Labor Market Adjustments Since the Crisis

    • D. Remaining Issues

    • References

    • Appendix

  • Figures

  • II.1. Unemployment Rate

  • II.2. Labor Force Participation Rate

  • II.3. Earnings Growth

  • II.4. Unemployment Rate

  • II.5. Employment

  • II.6. Employment by Type of Worker

  • II.7. Nonregular Employment

  • II.8. Growth of Hours Worked by Type

  • II.9. Employment by Productive Sector

  • II.10. Average Earnings by Productive Sector

  • II.11. Labor Productivity and Unit Labor Cost

  • III. Changes in the Structure of Financing in Korea

    • A. Introduction

    • B. Overall Developments

    • C. Households

    • D. Businesses

    • E. Conclusion

    • References

  • Text Boxes

  • III.1. The Flow of Funds: Key Concepts

  • Figures

  • III.1. Economy-wide Stocks of Financial Assets

  • III.2. Selected Financial Instruments

  • III.3. Sectoral Holdings of all Financial Assets

  • III.4. Korean Households’ Net Worth

  • III.5. Korean Households’ Financial Assets

  • III.6. Cross-country Comparison of Households Financial Assets

  • III.7. Cross-country Comparison of Sectoral Holdings of Stocks

  • III.8. Korean Households’ Sources of External Finance

  • III.9. Korean Businesses’ Sources of Financing

  • III.10. Korean Businesses’ Sources of External Finance

  • III.11. Korean Businesses’ Sources of Loans

  • III.12. Korean Businesses’ Sources of Foreign Financing

  • III.13. Cross-country Comparison of Sources of Business Financing

  • Appendix Tables

  • III.1. Distribution of Types of Financial Assets

  • III.2. Distribution of Selected Financial Assets, by Type of Holder

  • III.3. Distribution of Selected Financial Liabilities, by Type of Holder

  • III.4. Households’ Financial Assets and Liabilities (in percent of disposable income).

  • III.5. Households’ Financial Assets and Liabilities (in percent of totals)

  • III.6. Financial Liabilities of Businesses

  • III.7. Asset Accumulation of Businesses

  • III.8. Sources of Financing for Businesses

  • IV. Linkages Between Domestic and International Asset Markets: The Korean Case

    • A. Introduction

    • B. The Korean Equity Market: Structure and Recent Trends

    • C. The Korean Equity Market—Statistical Analysis

    • D. The Role of Foreign Investors in the Equity Market

    • E. The Currency Market

    • F. External Debt

    • G. Conclusion

    • References

  • Figures

  • IV.1. Foreign Investment in the Korea Stock Exchange

  • IV.2. Korean Stock Prices

  • IV.3. Spreads on Korean and Other BBB-rated Countries

  • Tables

  • IV.1. Price Earnings Ratios

  • IV.2. Regressions of Korean Returns on Regional and U.S. Returns

  • IV.3. What Drives Net Purchases?

  • IV.4. Foreign Exchange Turnover

  • V. Firm Level Analysis of the Korean Corporate Sector: 1996–2000

    • A. Introduction

    • B. Data

    • C. Corporate Performance During 1996–2000

    • D. The Chaebol Factor

    • E. Regression Analysis

    • F. Conclusion

    • References

  • Figures

  • V.1. Debt-Equity Ratios, Chaebol vs. Non-Chaebol

  • V.2. Share of Short-term Debt in Total, Chaebol vs. Non-Chaebol

  • V.3. Distribution of ROS

  • V.4. Return on Sales (ROS), Chaebol vs. Non-Chaebol

  • V.5. Tobin’s Q—Ratio of Market Value to Book Value Chaebol vs. Non-Chaebol

  • Tables

  • V.1. Leverage and Debt Structure, 1996–2000

  • V.2. Liquidity-Current Ratios, 1996–2000

  • V.3. Indicators of Profitability, 1996–2000

  • V.4. Indicators of Financial Costs, 1996–2000

  • V.5. Turnover and Productivity, 1996–2000

  • V.6. Comparison of Chaebol vs. Non-Chaebol

  • V.7. Regression Results—Determinants of Profitability, 1996–2000

  • V.8. Regression Results Market Value to Book Value, 1996–2000

  • VI. Bank Privatization in Korea: Developments and Strategies

    • A. Introduction

    • B. Emerging Structure of Korean Banking Sector

    • C. Privatization Efforts in 1999–2001

    • D. Remaining Challenges in Bank Privatization

    • E. Conclusion

    • References

  • Text Boxes

  • VI.1. Use of Public Funds and Recovery Prospects

  • VI.2. Privatization Methods

  • VI.3. Bank Ownership Limits in Korea

  • Figures

  • VI.1. Two-tier Structure in Commercial Banking (end-March 2001)

  • Tables

  • VI.1. Change in Ownership in the Banking Sector

  • VI.2. Concentration in Commercial Banking

  • VII. Reform of Korean Insolvency Laws: A Review of Key Issues

    • A. Introduction

    • B. Principal Elements of Effective Insolvency Law Reform

    • C. Conclusion