Introduction

The economic performance of South Korea (Korea henceforth) and Taiwan over the last three decades has been exceptional by any international standard. Building on overpopulated and agriculture-dominated economies belonging to the poorest group of countries in the 1950s, both Korea and Taiwan have succeeded in sustaining rapid growth and industrialization to join the ranks of newly industrialized countries over a period of three decades.

The two countries share a similar Confucian cultural background, in which education is highly valued and obedience to the authorities and frugality are emphasized. They are also poorly endowed in terms of natural resources, making it necessary to trade with other economies. In fact, both Korea and Taiwan stand out as the two most successful cases of economic development and industrialization through the promotion of exports of manufactures.

Because of their colonial heritage and economic dependence on Japan, Korea and Taiwan have developed a financial system that is quite similar to that of Japan in its structure and role, which is bank-oriented, highly regulated, and which was until recently insulated from world financial markets. Joining the worldwide trend of financial liberalization and internationalization in the 1970s, Japan has managed a substantial deregulation and opening up of its financial markets and industries, and Korea and Taiwan have embarked on a similar course of financial adaptation since the early 1980s.