ABSTRACT
Since the surprising collapse of the South Korean economy in 1997, many people have enquired into the causes of the crisis. Some explored external factors, including trade shocks and investor behaviour in an open economy despite sound domestic ‘fundamentals’ such as a relatively high growth rate without high inflation. They speculated that the collapse of other economies in the region, such as Thailand and Indonesia, triggered a massive run from the South Korean currency market by investors and creditors. By merely accepting the external factors as catalysts of the crisis, we lack explanations for why investors lost confidence in the South Korean economy and why it was so vulnerable to begin with.
