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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

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.

Suggested Citation

  • Wontack Hong, 1998. "Financing Export-Oriented Catching-Up in Korea: Credit-Rationing, Sustained High Growth and Financial Chaos," International Economic Journal, Taylor & Francis Journals, vol. 12(1), pages 141-153.
    • Handle: RePEc:taf:intecj:v:12:y:1998:i:1:p:141-153
    DOI: 10.1080/10168739800000009
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    1. Dornbusch, Rudiger & Reynoso, Alejandro, 1989. "Financial Factors in Economic Development," American Economic Review, American Economic Association, vol. 79(2), pages 204-209, May.
    2. Fry, M.J., 1993. "Financial Repression and Economic Growth," Papers 93-07, University of Birmingham - International Financial Group.
    3. Hong, Wontack, 1986. "Institutionalized monopsonistic capital markets in a developing economy," Journal of Development Economics, Elsevier, vol. 21(2), pages 353-359, May.
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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.
    2. Ramkishen S. Rejan, 1998. "The Currency And Financial Crisis In Southeast Asia - A Case Of `Sudden Deathã¢Â‚¬Â„¢ Or `Death Foretoldã¢Â‚¬Â„¢," Macroeconomics Working Papers 22381, East Asian Bureau of Economic Research.
    3. Francisco Garcia-Blanch, 2001. "An Empirical Inquiry into the Nature of South Korean Economic Growth," CID Working Papers 74A, Center for International Development at Harvard University.

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