Economic and Strategic Issues for Developing an International Financial Center in Korea

Economic and Strategic Issues For Developing an International Financial Center in Korea Yoon-shik Park Professor of International Finance George Washington University Washington, D.C. Banking and other financial institutions have developed international financial centers to benefit from economies of scale in their global operations. Modern financial centers require a sophisticated and costly infrastructure to support them, including telecommunication, air transportation, accounting and legal professions, and other service industries. A sufficient number of banking and financial institutions must be located in one financial center in order to provide the critical mass needed to effectively and efficiently service the international clientele. There are different types of international financial centers. The International Monetary Fund distinguishes three categories: international financial centers (IFCs), regional financial centers (RFCs) and offshore financial centers (OFCs). Korea has many advantages to develop a major international financial center. First of all, Korea with the 13th largest economy in the world is strategically located at the heart of Northeast Asia that produces one fourth of the world GDP and is expected to lead the world economic growth in this century. Second, with its financial assets amounting to over eight times that of GDP, Korea has the third largest pool of domestic financial assets in Asia after Japan and China, thus providing a growing demand for various investment opportunities. Third, Korea is home to a large number of world-class companies, with their brand names readily recognized not only in Asia but also throughout the world. Fourth, it has large and active financial markets, supported by Korean corporations and a wide range of financial institutions from banks, mutual funds, life and non-life insurance companies, etc. In addition, strong demographic and human capital base, well-developed IT infrastructure, momentum for financial reform since the 1997 financial crisis, strong and independent judiciary, and Korea’s vibrant and deep-rooted democracy are also the key advantages enjoyed by Korea.