THE EFFECT OF FINANCIAL ENFORCEMENT ON ENTREPRENEURSHIP AND DEVELOPMENT IN A 'GROWTH MIRACLE'

Abstract

This paper uses a GE model of occupational choice with financial frictions to explain development in a 'growth miracle'. We analyze two historical periods that correspond to different steady states, and find that Korea's development was largely due to human and physical capital deepening. Whilst this result is consistent with growth regressions, our alternative method shows how changes in enforcement, ability, bequest preferences and technology drive development. The model also provides quantitative measures of improvements in institutions and changes in the distribution of ability, magnitudes that are not directly observable in data.