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Excess Credit and the South Korean Crisis

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  • Panicos O. Demetriades
  • Bassam Fattouh

Abstract

We provide a novel empirical analysis of the South Korean credit market that reveals large volumes of excess credit since the late 1970s, indicating that a sizeable proportion of total credit was being used to refinance unprofitable projects. Our findings are consistent with theoretical literature that suggests that soft budget constraints and overborrowing were significant factors behind the Korean financial crisis of 1997-98.

Suggested Citation

  • Panicos O. Demetriades & Bassam Fattouh, 2006. "Excess Credit and the South Korean Crisis," WIDER Working Paper Series RP2006-84, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:rp2006-84
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    File URL: https://www.wider.unu.edu/sites/default/files/rp2006-84.pdf
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    References listed on IDEAS

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    Cited by:

    1. Qiankun Meng & Yupei Liu & Wei’an Li & Mingshan Yu, 2023. "Bonding or Indulgence? The Role of Overborrowing on Firms’ Innovation: Evidence from China," Sustainability, MDPI, vol. 15(2), pages 1-23, January.

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