The Financial Services View and the Growth of Korean Economy

This research tests the financial services view in the South Korean market, using the data from 1971 to 2007. The research examines the relationship between financial-market - whole Korean financial market(KSE+KOSDAQ+banks), whole financial market(KSE+banks), Korean securities market(KSE+KOSDAQ), securities market(KSE) and banks - intermediation services and the economic growth during the whole period from 1971 to 2007. In order to closely investigate the relationship between the financial-market intermediation services and growth after the outbreak of the financial crisis in 1997, it also examines three sub-periods: 1998-2001, 1998-2007, and 2002-2007. The results of the regression analysis show that the financial services hypothesis does not hold in South Korea(hereafter, Korea). This research finds a negative relationship between the Korean financial market services and the economic growth, opposite from the financial services view. In details, while the relationship of Korean securities market services to growth is insignificant, that of banks services to growth is significantly negative. It also finds that there has been the most significantly negative change in the 1998-2001 period post the 1997 financial crisis in the role of financial services for growth, compared to the other two sub-periods.