Investment during the Korean Financial Crisis: A Structural Econometric Analysis

Simon Gilchrist () and Jae W. Sim

No 13315, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E22 E44 F34 G31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fdg and nep-mac
Date: 2007-08
Note: EFG IFM ITI ME
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