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Has Financial Liberalization Improved Economic Efficiency in the Republic of Korea? Evidence from Firm-Level and Industry-Level Data

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  • Jungsoo Park

    (Asian Development Bank Institute (ADBI))

  • Yung Chul Park

Abstract

This study analyzes the effects of financial liberalization on the lending behavior of banks and non-bank financial institutions (NBFIs) before and after the 1997 Asian financial crisis, using panel regressions on Republic of Korea firm-level and industry-level data of the period 1991–2007. It also develops a financial liberalization index to incorporate the multifaceted nature of financial reform. Findings show that financial liberalization has led banks and NBFIs to allocate more of their loans to small and medium-sized firms with good performance histories, thereby helping these entities to improve their total factor productivity growth. This paper does not find similar effects of financial liberalization on efficiency at large firms or at the industry level. Heavier reliance on direct financing after the crisis has not improved the productivity of large firms.

Suggested Citation

  • Jungsoo Park & Yung Chul Park, 2014. "Has Financial Liberalization Improved Economic Efficiency in the Republic of Korea? Evidence from Firm-Level and Industry-Level Data," Finance Working Papers 24163, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:financ:24163
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    References listed on IDEAS

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    1. Valerie R. Bencivenga & Bruce D. Smith, 1991. "Financial Intermediation and Endogenous Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 195-209.
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    8. 白, 哲宇 & Baek, Chulwoo & 金, 榮愨 & Kim, Young Gak & 権, 赫旭 & Kwon, Heog Ug, 2009. "金融危機後の市場競争と生産性上昇 : 韓国企業データに基づく実証分析, Market Competition and Productivity after the Asian Financial Crisis: Evidence from Korean Firm Level Data," CEI Working Paper Series 2009-12, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
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    Cited by:

    1. Park, Donghyun & Shin, Kwanho & Tian, Shu, 2021. "Does bond market development enhance the banking sector’s efficiency in resource allocation? Industry-level evidence from Korea," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Financial Liberalization; non-bank financial institutions; Lending Behavior; firm-level and industry-level data; Financial Reform; small and medium-sized firm; Total Factor Productivity Growth;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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