Business Sector Debt, Capital Markets Expansion and Liberalization in South Korea: Evidence from National Accounts Data

Abstract

In this work the�sources of investment financing in South Korea in the period 1970-1997 are calculated�following the same method used by Colin Mayer and Jenny Corbett in their influential works. An anomaly of the Korean case is stressed. In the period before the financial crisis of 1997 the gross share of loans in investment finacning does not decrease while the net one�instead does. The reason may be the accumulation of financial (bank and other institutions) assets on the assets side of the corporate sector. This in turn may be due to timing of the�liberalization of interest rates�in that country. Interest rates on banks liabilities were liberalized before interest rates on bank assets. As a consequence of this timing the latter increased to very high levels while the former stayed constant.Investment financing,Financial liberalization,Net proportions,National accounts