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Financing Export-Oriented Catching-Up in Korea: Credit-Rationing, Sustained High Growth and Financial Chaos

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  • Wontack Hong
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    Abstract

    In the 1960s and 1970s, bank credits were rationed essentially on the basis of firm's export-performance in Korea. Financial institutions did not have the ability to properly evaluate prospective entrepreneurs and potentially high return projects. It was cost-quality competition at the international export market that screened firms for efficiency, and this natural selection process of the fiercely competitive international market compensated for the backwardness of the Korean financial sector, thereby enabling Korea's sustained high growth. Credit-rationing on the basis of firm's export performance very much overcame the adverse selection problems in credit markets. Since the early 1980s, however, bank credit has been rationed less and less in proportion to export performance, while the nominal financial liberalization has failed to develop the Korean financial sector. This may explain the financial chaos in the 1990s.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 12 (1998)
    Issue (Month): 1 ()
    Pages: 141-153

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    Handle: RePEc:taf:intecj:v:12:y:1998:i:1:p:141-153

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    1. Hong, Wontack, 1986. "Institutionalized monopsonistic capital markets in a developing economy," Journal of Development Economics, Elsevier, vol. 21(2), pages 353-359, May.
    2. Fry, M.J., 1993. "Financial Repression and Economic Growth," Papers 93-07, University of Birmingham - International Financial Group.
    3. Rudiger Dornbusch & Alejandro Reynoso, 1989. "Financial Factors in Economic Development," NBER Working Papers 2889, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Ramkishen Rajan, 2010. "The Currency and Financial Crisis in Southeast Asia: A Case of 'Sudden Death' or Death Foretold'?," Working Papers id:2583, eSocialSciences.

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