A Case Study on the Economic Implications of Capital Account Liberalization: Focused on Korean Business Groups (Chaebols)

Abstract

Capital account liberalization has a dual nature: while it promotes economic growth and improves capital efficiency, it can also increase foreign exchange market volatility and trigger financial crises. Korean business groups (chaebols) have strengthened their growth and competitiveness by utilizing overseas financing, attracting foreign investment, and pursuing global M&A under a liberalized capital account. However, they have also been exposed to risks such as foreign currency debt, exchange rate and stock price volatility, and overseas regulatory uncertainties. As capital account liberalization progresses further through measures such as the internationalization of the Korean won, expanded access for foreign investors, and the relaxation of foreign exchange regulations, the competitiveness of Korean business groups is expected to depend less on their production capacity and more on their ability to manage capital efficiently. Accordingly, in the next phase of liberalization, the key managerial strategy should not be to expand borrowing or investment, but to strengthen risk management capabilities by establishing robust financial management, corporate governance, and foreign exchange risk management systems that effectively support the utilization of global capital.