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The government's role in Japanese and Korean credit markets : a new institutional economics perspective

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  • Yoon Je Cho
  • Hellmann, Thomas

Abstract

The authors discuss the effectiveness of credit policies in the early stages of economic development in Japan and Korea. They examine the importance of institutional arrangements for managing credit policies in the two countries. They emphasize participatory government intervention, wherein credit policies could be viewed as part of an internal allocation mechanism: government, banks, and large industrial firms may be said to have formed what the authors call a"government led internal organization"(GLIO). They examine the theoretical foundations for this view and discuss the implications for the efficiency of credit allocations. They argue that in early economic development such a participatory approach may have helped overcome pervasive market imperfections. But there were also significant dangers: problems of entrenched interests and institutional inertia. In both countries, the relative importance of GLIO gradually diminished as competitive capital markets and large conglomerates ("privately led internal government organizations") expanded with economic growth.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1190.

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Date of creation: 30 Sep 1993
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Handle: RePEc:wbk:wbrwps:1190

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Keywords: Financial Crisis Management&Restructuring; Banks&Banking Reform; Environmental Economics&Policies; Economic Theory&Research; Financial Intermediation;

References

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  1. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, American Economic Association, vol. 70(3), pages 393-408, June.
  2. Cho, Yoon Je, 1986. "Inefficiencies from Financial Liberalization in the Absence of Well-Functioning Equity Markets," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 18(2), pages 191-99, May.
  3. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 17(2), pages 133-52, May.
  5. Hurwicz, Leonid, 1973. "The Design of Mechanisms for Resource Allocation," American Economic Review, American Economic Association, American Economic Association, vol. 63(2), pages 1-30, May.
  6. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 716-27, September.
  7. Aoki, Masahiko, 1990. "Toward an Economic Model of the Japanese Firm," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 1-27, March.
  8. Vittas, Dimitri & Wang, Bo, 1991. "Credit policies in Japan and Korea : a review of the literature," Policy Research Working Paper Series 747, The World Bank.
  9. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
  10. Prowse, Stephen D, 1992. " The Structure of Corporate Ownership in Japan," Journal of Finance, American Finance Association, American Finance Association, vol. 47(3), pages 1121-40, July.
  11. Sheard, Paul, 1989. "The main bank system and corporate monitoring and control in Japan," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 11(3), pages 399-422, May.
  12. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(2), pages 229-64, May.
  13. Cho, Yoon Je, 1989. "Finance and Development: The Korean Approach," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 5(4), pages 88-102, Winter.
  14. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 2(2), pages 181-214, Fall.
  15. Horiuchi, Akiyoshi & Packer, Frank & Fukuda, Shinichi, 1988. "What role has the "Main Bank" played in Japan?," Journal of the Japanese and International Economies, Elsevier, vol. 2(2), pages 159-180, June.
  16. Sakakibara, Eisuke & Feldman, Robert A., 1983. "The Japanese financial system in comparative perspective," Journal of Comparative Economics, Elsevier, vol. 7(1), pages 1-24, March.
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Cited by:
  1. Vittas, Dimitri & Akihiko Kawaura, 1995. "Policy-based finance, financial regulation, and financial sector development in Japan," Policy Research Working Paper Series 1443, The World Bank.
  2. Marco Da Rin & Thomas Hellmann, 2000. "Banks as Catalysts for Industrialisation," FMG Discussion Papers, Financial Markets Group dp343, Financial Markets Group.
  3. Vittas, Dimitri & Yoon Je Cho, 1995. "Credit policies : lessons from East Asia," Policy Research Working Paper Series 1458, The World Bank.

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