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Regional Segregation of Financial Markets in Korea(Vol.7 No.2)

연구조정실 (Tel: 02-759-5407) 2004.12.13 8420

Regional Segregation of Financial Markets in Korea(Vol.7 No.2)

Jaewoon Koo

Professor, Department of Economics, Chonnam National University (Tel: 062-530-1551, e-mail: jwkoo@chonnam.ac.kr).

Ho-Seong Moon

Instructor, Department of Economics, Chonnam National University and Researcher, Department of Risk Management, Kwangju Bank Ltd. (Tel: 062-239-5138, e-mail: hsmoon@kjbank.com).

Contrary to the conventional view that financial markets are integrated nation-wide, we find evidence for the regional segregation of financial markets in Korea. Because of legal restrictions and the asymmetry of information in financial markets, funds seem to be imperfectly mobile across regions. Using the annual data for eleven regions during 1985-2001, we find that deposits are positively associated with loans at the regional level. This implies that financial markets are regionally segregated. Banks have greater locality than non-bank financial institutions. The degree of regional segregation, however, has been decreasing after the IMF crisis, implying that financial markets are tending to become more integrated.

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