The Impact of the US Sub Prime Crisis on South Korean Economy and Its Prospect - Research Paper Example

South Korea comprises of a very important segment in the East Asian region. The way that the contribution of the economy in the development of the region cannot be slighted, the vigorous impact of any shock on the region cannot be denied as well. A primary reason behind the wide exposure of the economy to the international arena is its extensively discussed export-led growth strategy which makes it susceptible to the proceedings carried on globally. The export-led growth strategy was adopted by the nation after the profound impact of the 1997 Asian financial crisis.

Prior to 1997, the nation relied on short-term foreign borrowings to maintain its balance of payment accounts, while a major portion of the foreign exchange reserves in the East Asian region went out for overseas investment drives. Vulnerability of the region during the crisis became severe when Thailand – an integral member of ASEAN, started selling off its foreign exchange reserves to bail out its devaluing domestic currency. The attempt proved to be a futile one, and resulted to a large-scale downfall of the region.

This was when the national authorities of the region realized that unification of the underlying economies would create a stronger financial base for the region. US subprime mortgage crisis evolved out of an excessive demand for subprime loans in the US economy since the beginning of the 21st century, which took a gigantic form in 2007. The subprime crisis is the outcome of disproportionate loans granted to the subprime lenders in the USA, i.e., those who either do not have a very reliable record of creditworthiness or do not earn enough to support monthly installments of loans.