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Financial reform and the efficiency of credit allocation in Korea

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  • EDUARDO BORENSZTEIN
  • JONG‐WHA LEE

Abstract

This study analyzes some of the structural problems associated with the Korean financial sector, and investigates the efficiency of credit allocation by the financial system over the period from 1970 to 1996. Using data at the level of 32 industrial branches, we find no evidence that credit flows were directed sectors that were more profitable, either before or after financial reforms were initiated in the 1980s. We also find that the financial support did not contribute to improve the performance of the favored industries over time.

Suggested Citation

  • Eduardo Borensztein & Jong‐Wha Lee, 2005. "Financial reform and the efficiency of credit allocation in Korea," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 8(1), pages 55-68.
    • Handle: RePEc:taf:jpolrf:v:8:y:2005:i:1:p:55-68
    DOI: 10.1080/1384128042000328941
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    1. Dailami, Mansoor & Han Kim, E., 1995. "The effects of debt subsidies on corporate investment behavior: The Korean experience," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 137-137, May.
    2. Galindo, Arturo & Schiantarelli, Fabio & Weiss, Andrew, 2007. "Does financial liberalization improve the allocation of investment?: Micro-evidence from developing countries," Journal of Development Economics, Elsevier, vol. 83(2), pages 562-587, July.
    3. Borensztein, Eduardo & Lee, Jong-Wha, 2002. "Financial crisis and credit crunch in Korea: evidence from firm-level data," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 853-875, May.
    4. Cho, Yoon Je, 1988. "The effect of financial liberalization on the efficiency of credit allocation : Some evidence from Korea," Journal of Development Economics, Elsevier, vol. 29(1), pages 101-110, July.
    5. Leipziger, D.M. & Petri, P.A., 1993. "Korean Industrial Policy: Legacies of the Past and Directions for the Future," World Bank - Discussion Papers 197, World Bank.
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    Cited by:

    1. Philippe Aghion & Sergei Guriev & Kangchul Jo, 2021. "Chaebols and firm dynamics in Korea [Distance to frontier, selection, and economicgrowth]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 36(108), pages 593-626.
    2. Junghwan Hyun & Raoul Minetti, 2019. "Credit Reallocation, Deleveraging, and Financial Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(7), pages 1889-1921, October.

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