The Impact Of Financial Crisis On Korea' Economy And Transmission Channels

The US financial crisis has been drifting away,but global economic situation still isn't optimistic now,downward pressure increases.Also,the political problems,like British exit from Europe and Turkey's coup,exacerbated the economic environment uncertainty.The financial crisis in US subprime crisis erupted as ammunition,quickly penetrate into the capital market of developed countries,such as Europe,Japan and so on,then spread to emerging markets like BRICS,South Korea,India,and shock to the consumption,investment,price level,import and export in various countries,eventually lead to the real economy into recession.We try to study the effect of financial crisis on the real economy by using South Korea manufacturing enterprises.It is well known that South Korea is a typical external development backwardness country.When the US subprime mortgage crisis broke out,problems such as exports sharply reduce,cheap won,foreign mass exodus,and lack of liquidity in the market cause significant damage to the real economy.South Korea's economic fundamentals were damaged,and prompted the economy into recession,economist began to assert that the south will be the next "Iceland".Under this background.Through the government capital injection,set up the rescue fund,tax breaks and other ways,South Korea government and central bank complete the process from recession to recovery in a relatively short time.As a strategic neighbors,China and South Korea have many similarities in such aspects as politics,economy and culture.Though the financial crisis in 2008 has little impact on the economy of our country,how can we cope with the future crisis along with the further open of China market and further acceleration of marketization.So we analysis the financial crisis transmission mechanism by the real economy in South Korea from microscopic based on macro level which is great significant for us to prevent and cope with the financial crisis in the future.In the literature,scholars tend to analyze the transmission mechanism of the financial crisis at the macro level,although with the deepening of the study,the theory of micro-level conduction has been improved,but still is given priority to with sector level.So we try to find a better way to analyze transmission channels,The innovation including that we've taken Korea's special national condition into consideration,and the sample covers various scale enterprise.In addition,we've done a comparative analysis of crisis transmission channels both in sector level and firm level,and implements the effective combination of macro and micro.At first,we summarize the relevant theories of financial crisis,including Currency crisis theory,Financial instability hypothesis,Key theory of banking system,"financial panic" theory and Debt-currency austerity theory.And financial crisis transmission channels were introduced detailed based on the financial crisis,including trade channel triggered by income and price mechanism,financial channel triggered by common creditor effect and herding effect,and business cycle channel triggered by common factors and foreign direct investment channel.Expounding how the financial crisis spread to other markets from a state of a market,and then to other countries from three different angles.Secondly,we analysis the crisis effects to South Korea's consumption,investment and exports using macro-quarterly data.After the outbreak of the financial crisis,demand reduction of the developed country lead to many problems of South Korea,such as,export decreasing sharply,rising unemployment,real disposable incomes,consumer confidence fell,a large number of foreign capital fled,small and medium-sized enterprise financing difficulties,and resulting in business failures and real economy shocked eventually.Third,based on 25373 South Korean manufacturing enterprise which include data in 2006-2009,draw lessons from Tong&Wei(2011)model was investigated from two aspects,i.e.enterprise and sector of the financial crisis of main transmission mechanism of South Korea's real economy.We found that trade channels,financial channels and business cycle channels have significantly impact on enterprise performance.While from the industry level,the result shows that the financial channels is the only effective transmission way,and this is because of that the sector regression ignore the differences between various firms.At the same time,it also shows that companies affected by the crisis degree decreases with the expansion of scale.Also,different industries have different effect on crisis.Industries such as tobacco,textile.etc did not suffer significant impact,while electronic,transportation equipment and other South Korean pillar industries are influenced by the financial crisis seriously.Further study shows that though the sector regression results is significant,the main channel of transmission also vary in different years.Business cycle channel is the primary way of crisis conduction business cycle in 2008 and 2009,but with the development of crisis,financial channel plays a much more important role in 2009,while the trade channel is the least,and South Korea's economy in 2009 by the extent of the impact of the crisis is far greater than in 2008.Sector dynamic regression shows that unlike based regression results,2008 channels also showed a significant business cycle.At the end of the paper introduces the financial crisis broke out in South Korea take the fiscal and monetary policies of South Korea's get rid of the financial crisis.Though our government in macroeconomic regulation and control has made great achievements,measures in microeconomic still exist many problems.Therefore,we should draw lessons from the practice of South Korea both in macro and micro,encourage private investment,based on the long-term and sustainable development.