In many developing countries, government has intervened in financial market to allocate the economic resources to the sectors that are considered most productive in some national sense.
To carry out these tasks, the Korea government has used all pos...
In many developing countries, government has intervened in financial market to allocate the economic resources to the sectors that are considered most productive in some national sense.
To carry out these tasks, the Korea government has used all possible monetary instruments including selective credit controls, which mainly based on controlling interest rates and credit rationing.
With the adoption of an outward looking development strategy in the mid-1960s that placed on promoting export, the government has attempted to allocate a larger share of investment resources to manufacturing sector through the form of credit rationing at subsidised interest rates.
The purpose of this paper is to test the effect of the credit rationing especially in the sense that whether the governments credit allocation can achieve the desired allocation of physical investment.
According to the evidence of this paper, the pattern of the investment generally shows that the Korea government has not been as successful as influencing sectoral investment through directed allocation of bank credit and we can conclude that, in korea, there in no empirical basis for the credit controls for long term objectives.