Democratization and the Transformation Process in East Asian Developmental States: Financial Reform in Korea and Taiwan

Abstract

This study explores the impact of democratization on financial reform in Korea and Taiwan. In Korea, democratization decreased the autonomy and efficiency of bureaucrats and increased the power of business groups, which led to unregulated financial liberalization. Crisis contributed to the urgency of reform, coalitional support, and burden sharing among people. After the crisis, the re-strengthened bureaucracy and weakened veto power of business and labor sectors resulted in “path-breaking” reform in Korea. In Taiwan, the historically conservative financial system remained stable, allowing Taiwan to escape the Asian crisis but later becoming obstacles to reform. Democratization decreased the autonomy of bureaucrats and increased money politics: Lack of consensus among parties, divided government, and opposition within vested interest groups led to “lagged and stalemated” financial reform in Taiwan.