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The effects of financial development and growth opportunities on industrial growth in Korea

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Frame of Image sed in the 19080s as a result of external finance through credit rationing by government and in the 1990s by financing according to growth opportunities. We find 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 Dennis W. Jansen and 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. Wankeun Oh gratefully appreciates the hospitality given by the Department of Economics, Texas A&M University. ** Research Fellow, Korea Institute of Finance, Email: ysshyn@kif.re.kr *** Corresponding author, Professor, Department of Economics, Hankuk University of Foreign Studies, and Visiting Scholar, Texas A&M University, Email: wanoh@hufs.ac.kr
Ⅰ. 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 t


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Title The effects of financial development and growth opportunities on industrial growth in Korea
Similar Titles
Material Type Reports
Author(English)

Shyn, Yong-Sang; Oh, Wankeun

Publisher

Hankuk University of Foreign Studies

Date 2008
Pages 23
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Economic System
Industry and Technology < General

Abstract

We examine Rajan and Zingales (1998)'s and Fisman and Love (2003)'s analysis of the relationship between technological external finance dependency, growth opportunities, and industrial growth, and use a modification of their approach to examine Korea's industrial growth. Using domestic industry/year panel data, we find that industrial growth increased in the 19080s as a result of external finance through credit rationing by government and in the 1990s by financing according to growth opportunities. We find 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).