Abstract

http://ssrn.com/abstract=286858
 
 

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Directed Credit? Capital Market Competition in High-Growth Japan


Yoshiro Miwa


Osaka Gakuin University

J. Mark Ramseyer


Harvard Law School

September 2001

Harvard Law and Economics Discussion Paper No. 334

Abstract:     
Observers routinely claim that the Japanese government during the high-growth 1960s and 70s rationed and ultimately directed credit. It banned investments by foreigners, barred domestic competitors to banks, and capped loan interest rates. Through the resulting credit shortage, it manipulated credit to promote its industrial policy.

In fact, the government did nothing of the sort. It did not bar foreign capital, did not block domestic rivals, and did not set maximum interest rates that bound. Using evidence on loans to all 1000-odd firms listed on Section 1 of the Tokyo Stock Exchange from 1968 to 1982, we show that the observed interest rates reflected borrower risk and mortgageable assets, and that banks did not use low-interest deposits to circumvent any interest caps. Instead, the loan market probably cleared at the nominal rates.

We follow our empirical inquiry with a case study of one of the industries where the government tried hardest to direct credit: ocean shipping. We find no evidence of credit rationing. Rather, we show that non-conformist firms funded their projects readily outside authorized avenues - so readily that the non-conformists grew with spectacular speed and earned their investors enormous returns.

Number of Pages in PDF File: 35

JEL Classification: G21, G32, G34, K22, L52, N25, O53

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Date posted: October 12, 2001  

Suggested Citation

Miwa, Yoshiro and Ramseyer, J. Mark, Directed Credit? Capital Market Competition in High-Growth Japan (September 2001). Harvard Law and Economics Discussion Paper No. 334. Available at SSRN: http://ssrn.com/abstract=286858 or http://dx.doi.org/10.2139/ssrn.286858

Contact Information

Yoshiro Miwa (Contact Author)
Osaka Gakuin University ( email )
2-36-1 Kishibe-Minami
Suita, Osaka 5645811
Japan
J. Mark Ramseyer
Harvard Law School ( email )
1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-496-4878 (Phone)
617-496-6118 (Fax)
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