The goal of my research is to understand the nature of interaction between the financial sector and the industrial sector in the international environment. My graduate research focuses on the government-guaranteed foreign loan program which mobilized export credits and syndicated loans during the 1960s and 1970s. Export credits as government exchanges and syndicated loans as exchanges between sovereign and private banks inevitably require examining the role of governments of both creditor and debtor countries. Chapter 1 describes how the availability of export credits, guaranteed by the creditor governments, induced the involvement of the Korean government in international financial flows and the increase of private loans to Korea. Thus, industrial promotion policies adopted by the Korean government were not simply domestic policies but were financially supported and shaped by the export promotion policies of the developed countries. Chapter 2 examines the enforcement issues in international loan contracts which shaped the debt service problems in the 1980s. It is argued that the de facto guarantees provided by the creditor governments led to risky international loans by private banks. Using micro-level data on international loan contracts of Korea from 1973 to 1981, the lending behaviors associated with syndicated loans are compared to those of export credits. The regression analysis suggests that, in contrast to the case of export credits, the private bankers made riskier syndicated loans during the times of the clear political and economic uncertainty. Thus, the result supports the hypothesis that it was the expected side-payment effects that led to risky lending behaviors of private banks. Chapter 3 focuses on how lending rules of the Korean government in foreign loan operations engendered the increasing domination of the diversified business groups known as Chaebols. In order to enhance the probability of success, the government adopted a set of rules that linked foreign loans to self-financing capabilities and export performances. Through repeated application of these rules, an advantage to incumbents naturally emerged. A model based on several simple assumptions and results from a regression analysis argue that the incumbent effects were the real mechanism of the gradual domination of Chaebols.
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