ABSTRACT
This chapter tackles the questions: why the business groups are developing in so many countries, and what went wrong in many of them. It looks at the first question from a new perspective, namely the economic catch-up perspective. The chapter sees the business groups as an organizational device for economic catch-up, and suggests that the business groups not only just emerge in response to market failure but also serve as a vehicle for economic catch-up. Most catch-up economies face the problem of capital scarcity unless they have enough domestic savings even from the early stage of industrialization, like Taiwan and China. The success of the quasi-internal organization, however, planted the seeds of its own demise as chaebols grew and became a dominant force in the national economy. Economic liberalization is supposed to establish a competitive market in which many sellers of financial instruments compete in an open, rule-based manner.
