Financial Restraints in the South Korean Miracle
Panicos Demetriades () and
Kul Luintel ()
No 00/5, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester
We provide novel empirical evidence on the effects of financial restraints on South Korean financial development. The evidence is linked to a simple model of the Korean banking system that encapsulates its cartelised nature, which predicts a positive association between financial development and (i) the degree of state control over the banking system, (ii) mild repression of lending rates. The model also predicts that in the presence of lending rate controls, increases in the level of the administered deposit rate are unlikely to influence financial deepening. We test the model empirically by constructing individual and summary measures of financial restraints. Our empirical findings are consistent with our theoretical predictions but contrast sharply with the predictions of earlier literature that postulates that interest rate ceilings and other financial restraints constitute sources of ‘financial repression’.
Keywords: Financial deepening; financial restraints (search for similar items in EconPapers)
JEL-codes: O16 G18 G28 (search for similar items in EconPapers)
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Journal Article: Financial restraints in the South Korean miracle (2001)
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