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Financial dependence, growth opportunities, and industrial growth in Korea

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Frame of Image xternal finance through credit rationing and in the 1990s by financing according to growth opportunities. The results show that as financial markets develop, finances flow to industries where the growth opportunities are highest (Fisman and Love (2003)’s hypothesis) and to industries that predominate at each stage of economic development (Rajan and Zingales (1998) ’s hypothesis). JEL Classification: G15, G21, O16
Key words: financial development, growth opportunities, external finance, economic growth
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* The authors thank Hang-Yong Lee for helpful comments and suggestion. The opinions expressed in the paper are ours and are not those of the Korea Institute of Finance. Any remaining errors are the responsibility of the authors. ** Research Fellow, Korea Institute of Finance, Tel: +82-2-3705-6329, Email: ysshyn@kif.re.kr
Table of Contents
1. Introduction
2. Financial Development and Industrial Growth 2.1. Theoretical Approach
3. Data and Results 3.1. 3.2. 3.3. Data Results (1) Results (2)
4. Summary and Conclusions
5. References
. Introduction
Opinions on the relationship between economic growth and financial development run the gamut, from there being little or no role of financial development in economic growth (e.g. the Solow model1) to financial development being the engine of economic development.2 McKinnon (1973) and Shaw (1973) are important to the initial debate. They claim that financial liberalization catalyzes financial development and economic


Full Text
Title Financial dependence, growth opportunities, and industrial growth in Korea
Similar Titles
Material Type Reports
Author(English)

Shyn, Yong-Sang

Publisher

[Seoul]:Korea Institute of Finance

Date 2005-11
Pages 31
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding kif; KDI School of Public Policy and Management

Abstract

We examined Rajan and Zingales (1998)'s and Fisman and Love (2003)'s argument on
the relationship between technological external finance dependency, growth opportunities, and
industrial growth by applying them to Korea's industrial growth to ascertain the relationship.
Using domestic industry/year panel data, we find that industrial growth increased in the 19080s as a
result of external finance through credit rationing and in the 1990s by financing according to growth
opportunities. The results show that as financial markets develop, finances flow to industries where
the growth opportunities are highest (Fisman and Love (2003)’s hypothesis) and to industries that
predominate at each stage of economic development (Rajan and Zingales (1998) ’s hypothesis).