Has the Koreanchaebolmodel succeeded?

Seung‐Rok Park and Ky‐hyang Yuhn

Journal of Economic Studies, 2012, vol. 39, issue 2, 260-274

Abstract: Purpose - The purpose of this paper is to investigate how Korean conglomerates (chaebol) have rapidly ascended to international prominence. The success of Koreanchaebolfirms seems to be associated with internal market transactions. Just as Japanese keiretsu firms succeeded by utilizing a bank‐centred financing system, Koreanchaebolfirms devised an internal financing system such as payment guarantees and collateral provisions in a restrictive regulatory environment. Design/methodology/approach - This study examines the effects of such internal market transactions on the technical efficiency ofchaebolfirms using a stochastic frontier function for a panel data set of 1,675 firms from 1992 to 1998. Findings - The study has found thatchaebolfirms have achieved a net gain in technical efficiency by utilizing internal market transactions as a way of mitigating liquidity constraints. Thus, thechaebol's role as an internal capital provider has given Korean conglomerates a competitive advantage in product pricing and capital financing, which is the main source of the success of Koreanchaebolfirms. Originality/value - What is new in the paper is that the positive effects of the Koreanchaebolon the Korean economy have outweighed the negative effects of thechaebol. The paper has provided empirical evidence that thechaebolplayed a major role in transforming the Korean economy from an agricultural economy to an IT‐led economy. The main value of the paper may be found in its attempt to analyze the technical efficiency of Korean large business groups using a stochastic frontier production approach. The paper will appeal to readers who are interested in the driving forces of rapid economic growth in a developing economy.

Keywords: Chaebol; Keiretsu; Internal market transactions; Stochastic frontier function; Technical inefficiency; Payment guarantees; Republic of Korea; Conglomerates (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:v:39:y:2012:i:2:p:260-274

DOI: 10.1108/01443581211222680

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