Weaker Industrial Circulation, Stronger Financial Circulation, and Lending Boom in Korea during 2000s

Unlike the U.S. households lending boom which triggered the recent financial crisis, financial innovations such as securitization and capital inflow from foreign countries did not contribute to the Korean household lending boom in 2000s. Alternatively, in this paper, we argue that low productive investment, increasing gross saving in the nonfinancial sector, and increasing financial circulation of credit within business sector can be considered as a critical factor in explaining the Korean lending boom in 2000s. We illustrate this by presenting the idea of weaker industrial and stronger financial circulation of credit, which has its origin in Keynes’ literature.