The first part of this paper provides some empirical evidence on the patterns of growth
in countries hit by the banking crisis. Specifically, we examine whether the banking crisis
accompanies changes in medium or long term growth rates and, if so, whether the changes
in growth are mainly driven by the changes in TFPG or by the changes in the pace of input
accumulation. It is found that per worker GDP growth lacks persistency over the banking
crises, suggesting that high-growth countries could become low-growth countries, and vice
versa, as they go through the crises. Growth accounting exercise shows that the changes in
growth are mainly driven by the changes in TFPG. This conclusion holds regardless of
whether we view that the changes in capital stock are induced by the changes in total factor
productivity or not. The implications are as follows. First, although predicting post-crisis
growth based on pre-crisis growth might not be easy, it might be more fruitful to direct
research efforts to understanding why TFPG changes, rather than why the pace of input
accumulation changes, in order to understand post-crisis growth outcome. Second, the
policies that are important in determining post-crisis growth outcome are likely to be the
ones that can explain the changes in medium or long term TFPG. Viewed in this way, the
findings of this paper seem at least consistent with the hypothesis that structural reforms
matter in post-crisis growth.
The second part of the paper focuses on bankruptcy policy among the potentially
important determinants of TFPG in Korea. Specifically, we attempt to examine empirically
the effect of the post-crisis bankruptcy policy reform on the efficiency in resource allocation.
In the analysis, we focus on the policy reform in the court-administered bankruptcy system.
By using firm-level data, the paper shows that the post-crisis reform on the courtadministered
bankruptcy system made economic efficiency criterion replace social or
political criterion in selecting target firms for rehabilitation procedures.
This kind of change in the way the court-administered bankruptcy system works has
far-reaching consequences. It is because, for the pre-bankruptcy informal arrangements,
one of the most effective disciplines comes from the discipline in the court-administered
bankruptcy procedures. Except for the small-sized firms with simple capital structure, the
court-administered bankruptcy procedures would be usually the last stages for ailing firms
to resort to if the interested parties could not agree on the pre-bankruptcy informal
arrangements for corporate restructuring. Therefore, in out-of-court administered
settlements, the interested parties’ incentives would be directly affected by the structure of
court-administered bankruptcy settlements.
Although this paper focused exclusively on bankruptcy policy reform as one
determinant of post-crisis TFPG performance, there might also be other important policies
or institutional factors that are potentially important for understanding movements of
TFPG. In this sense, it is still premature to make a bold prediction about post-crisis growth
in Korea. With this caveat in mind, we believe one should not overlook the important
changes in the area of bankruptcy policy after the crisis when projecting the future growth
of the Korean economy. Lastly we should bear in mind that the full-fledged effect of the
bankruptcy policy reform is likely to be realized over the longer run, in as much as the
bankruptcy policy affects the dynamic efficiency of resource reallocation.