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Discusses the differences in financial policy toward small business in South Korea, Japan, and Taiwan. Variations in small business activities among the three countries; Factors that explain financial policy toward small business; Changes in financial policy.

South Korea and Taiwan share common structural characteristics and export-led industrialization. Several studies have documented in active role of government, beyond correcting market failures. But the role of government differs. The Taiwan government has been supportive rather than interventionist, whereas the Korean government has been collaborative and even coercive in relations with the private sector. Government in both countries helped launch and sustain the export-led strategy, taking into consideration the initial conditions in industrial organization and structure, capital markets and trade. Although the strategy contributed to export development, once put in place, the respective governments have been unwilling and unable to adjust their role to changing circumstances. This rigidity accounts for the inefficiency of government in Korea in the 1970s and in Taiwan in the 1980s. Since the import substitution in the 1950s, the Korean government has intervened in the allocation of resources creating an entrenched policy bureaucracy that controls the means for plan implementation. The institutional setup provides domestic market protection, implements industrial targeting, and issues permits of entry in many industries and foreign loan guarantees.