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Investment during the Korean financial crisis : A structural econometric analysis

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  • Investment during the Korean financial crisis
  • Gilchrist, Simon; Sim, Jae W.
  • NATIONAL BUREAU OF ECONOMIC RESEARCH


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Title Investment during the Korean financial crisis
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Sub Title

A structural econometric analysis

Material Type Reports
Author(English)

Gilchrist, Simon; Sim, Jae W.

Publisher

Cambridge:NATIONAL BUREAU OF ECONOMIC RESEARCH

Date 2007-08
Series Title; No Working Paper / 13315
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Financial Policy
Economy < Economic Conditions
Economy < Direct Investment
Holding NBER

Abstract

This paper uses firm-level panel data to analyze the role of financial factors in determining investment outcomes during the Korean financial crisis. Our identification strategy exploits the presence of foreign-denominated debt to measure shocks to the financial position of firms following the devaluation that occurred during the crisis period. Structural parameter estimates imply that financial factors may account for 50% to 80% of the overall drop in investment observed during this episode. Our estimates also imply that foreign-denominated debt had relatively little effect on aggregate investment spending. Counterfactual experiments suggest sizeable contractions in investment through this mechanism for economies that are more heavily dependent on foreign-denominated debt however.