2021 (18), №3

The Financial Instability Hypothesis and the Case of Private Non-Financial Firms in South Korea

For citation: 

Rozmainsky, I. V. & Selitsky, M. S. (2021). The Financial Instability Hypothesis and the Case of Private Non-Financial Firms in South Korea. Zhurnal Economicheskoj Teorii [Russian Journal of Economic Theory], 18(3), 417-432. https://doi.org/10.31063/2073-6517/2021.18-3.7.


The paper aims to test the Financial Instability Hypothesis (FIH) proposed by Hyman Minsky by looking at the case of private non-financial firms in South Korea. The FIH offers analytical tools to explore how an economy endogenously becomes financially fragile and is therefore prone to crises. Using this toolkit and a sample of 102 leading South Korean nonfinancial private companies, we analyze how their financing regimes changed between 2005 and 2019. We applied five different classification criteria developed over the past few years within the framework of the FIH. The paper brought to light two time periods when the sector of private non-financial firms in South Korea became more financially fragile. The first period is the few years before and during the Great Recession. The second period is the few years preceding 2019, the last year of the analyzed period. The conclusion is made that by the beginning of the COVID-19 pandemic, the South Korean economy was vulnerable to crisis shocks. Therefore, there is a need for macroeconomic policies that will saturate the firm sector with funds. Otherwise, the crisis could turn into an economic collapse. Our findings also show the applicability of the FIH to the case of South Korean economy.

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Ivan V. Rozmainsky — PhD in Economics, Associate Professor, Department of Economics, Saint Petersburg School of Economics and Management, National Research University Higher School of Economics; http://orcid.org/0000–0003–1321–2718 (3A, Kantemirovskaya st., Saint Petersburg, 194100, Russian Federation: e-mail: irozmain@yandex.ru).

Mark S. Selitsky — Master in Applied Economics and Mathematical Methods, Saint Petersburg School of Economics and Management, National Research University Higher School of Economics (3A, Kantemirovskaya st., Saint Petersburg, 194100, Russian Federation: e-mail: markselitsky@gmail.com).

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