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

30 Pages Posted: 20 May 2014

See all articles by Jungsoo Park

Jungsoo Park

Sogang University

Yung Chul Park

Korea University - Department of Economics

Date Written: May 19, 2014

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.

Keywords: financial liberalization, economic efficiency, banking, external finance

JEL Classification: G20, O40

Suggested Citation

Park, Jungsoo and Park, Yung Chul, Has Financial Liberalization Improved Economic Efficiency in the Republic of Korea? Evidence from Firm-Level and Industry-Level Data (May 19, 2014). ADBI Working Paper 480. Available at SSRN: https://ssrn.com/abstract=2438633 or http://dx.doi.org/10.2139/ssrn.2438633

Jungsoo Park (Contact Author)

Sogang University ( email )

35 Baekbeom-ro
Seoul, 121-742

HOME PAGE: http://hompi.sogang.ac.kr/parkjs

Yung Chul Park

Korea University - Department of Economics ( email )

Anam-dong, Sungbuk-Ku
Seoul, 136-701
Korea

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