expected rate of return on these projects, includes the offer of tax reduction and investment subsidies in various forms.

The structure of a financial system which can financially support the FWG pattern of economic development is, if generally designed, based on the above mentioned factors $ ^{11} $ . If the newly introduced industry uses similar technology to the existing industries, the funds demanded for the new industry have similar characteristics and can be financed at the market base through the existing financial system. However, if there is a wide technological gap between the newly introduced industry and the existing industries, the investment risk may be so high that the funds demanded for investment in the new industry cannot be raised through the existing financial system. In this situation, there are two types of policies available. The first option is to allocate resources to selected target industries through non-market mechanisms (mandated provision of resources), such as policy based lending schemes. The second option is to develop the financial infrastructure for promoting resource mobilization at the commercial base through market mechanisms, which include deregulation of unnecessary financial regulations (including the relaxation of foreign exchange control), as well as more basic policies such as strengthening supervision over financial sector, introducing internationally standardized accounting system and prudential regulations, etc.

In the next section, I will examine the experience of NIEs and ASEAN countries in utilizing foreign capital in their FWG pattern of economic development.

### 2.2 The Diversification of Industrial Structure and Financial Development in NIEs and ASEAN Countries

During the last 20 years, the ratio of industrialization (i.e. the share of value added in the manufacturing sector to GNP) has been increasing in all NIEs and ASEAN nations. However, comparing the industrialization ratio of these countries at each level of per capita GNP (see Figure 3), we can understand that the pattern of industrialization differs from country to country $ ^{12} $ . Compared with Korea, the ratio of industrialization of Taiwan is lower at each per capita GNP, which shows that the Korean economy has been more dependent on manufacturing than Taiwan. Compared with these two countries, the ratio of industrialization of ASEAN countries are lower at each per capita GNP level. This shows that economic development in these countries has been less dependent on manufacturing than NIEs countries.

Accompanied by the development of the real sector, the financial sector has developed in these nations during the last 20 years. Notably, when comparing the level of financial deepening (i.e. the ratio of M2 to GNP) at each level of per capita GNP, it is recognizable that different countries have different paths of financial development (see Figure 4). In Taiwan, accompanied with the rise in the per capita income in the last 20 years, its development of organized financial markets has steadily progressed. In Korea, in which per capita income has also been continuously rising, the development of organized financial markets has been depressed for long periods. For all ASEAN countries, financial deepening had progressed at a very slow pace in the 1970's. In these countries, except the Philippines, however, financial systems expanded quickly in the 1980's.

The experience of financial sector development in these countries is intimately related