Did the East Asian Crisis Disproportionately Hit Small Businesses in Korea?

Ilker Domac and Giovanni Ferri

Economic Notes, 1999, vol. 28, issue 3, 403-429

Abstract: type="main" xml:lang="en">

The paper demonstrates that Korean small and medium-sized enterprises (SMEs) suffered disproportionately from the crisis and the severe monetary restriction. The descriptive analysis suggests that disruptions in credit markets were particularly pronounced for SMEs. The empirical results underscore that prior movements of the interest rate spreads influence the SMEs' industrial production, while they do not contain any significant information for the overall industrial production. Furthermore, the results from VAR analysis suggest that shocks to the interest rates and to the spreads contribute more to the variance of the SMEs' production than to that of overall production. Consequently, authorities should consider the credit channel effects to avoid ‘overkilling the economy’, and to provide relief to those particular business segments that face greater market imperfections.

Date: 1999
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