Financial system and economic growth: The Korean experience

This paper examines the relationship between the development of financial s ystems and economic growth using Korea as a case study. In particular, we f ocus on the relative development of financial intermediaries and capital ma rkets, and their impact on the portfolio behavior of the household and busi ness sectors. Causality and non-nested model selection tests show that fina ncial development in general leads economic growth and that financial inter mediaries are more important than capital markets in this relationship. (C) 1999 Elsevier Science Ltd. All rights reserved.