assistance was not exclusively growth promoting but also included supporting declining sectors in order to minimize rcgional cconomnic distortions (c.g., thc casc of coal mining and shipbuilding in Japan)'. A mcaningful empirical examinationi would require a careful compilation of relevant firm-level economic data that could permit distinguishing the effects oi credit policy fTom oilier policics and could also allow a direct test of the effiectivencss of thec rnn-lovel allocation of credit. Such data arc not readily availabic. Econometric studies arc forced to usc accounting data that often leavc too much to be desired. Moreover, it is impossible to test against a counterfactual. i.c., what would have happened in the absence of government credit policies. The most empirical tests can achieve is to establish significant correlations that would lend support to one or other argument or claim.

Two empirical studies have been undertaken recently that lend support to the argument that Japanese policy-based finance was effective in meeting its objectives of "pump priming" and "crowding in" private credit for growing firms in industries that benefit from dynamic comparative advantage. Horiuchi and Sui (1993) compared the investment behavior of "medium-size" firms receiving JDB assistance with other firms of similar size over the period E964-1988. Tihey found that the year of initial JDB lending was associated with increased investment and also that within three years finns began to move away from reliance on JDB lending to rely more on private banks. Horiuchi and Sui also found that directed credit was more effective for firmns that did not have main bank affiliations.

Calomiris and Himmelberg (1994) examined the effect of policy-based finance over the period 1963-1991 for the machine tool industry, an industry selected for its high potential for spillover effects due to technological innovation and learning. Calomiris and Himmelberg found that there was no capture of government funds either at the industry or firm level. Directed credit was usually provided to a firm only once and it lasted for a brief period. They also found that government credit was provided to growing, large, capital intensive firmns with higher investment rates. Moreover, directed credit appeared to bolster the positive characteristics of recipient firms and thus to reinforce the process of consolidation, investment and technological change of the finns to which government credit was targeted. Government credit also had a significant, positive impact on investment and was positively correlated with private credite.

3 In this respect, the findings of Beason and Weinstein (1993), who claim that by supporting declining industries directed credit programs retarded growth, would not be relevant. Their work implicitly assumes that allowing a collapse of coal mining (and other declining industries) that might have happened in the absence of government support would not have affected the average growth rate of the Japanese economy, despite the massive regional economic distortions such collapse would have entailed.

4 TThe results reported in Calomiris and Himmelberg (1994) were weaker than those reported in an earlier paper (Calomixis and Himmelberg 1993) that focused on the period 1982-91. The main reason for the weaker results seems to be the use of a different methodology in conducting the empirical tests. But another reason may a selection bias in the larger sample covering the longer period as firms that exited in the 1960s and 1970s are not included in the dataset that basically includes surviving firms. If exiting firns were low-investxnent, poor-performance firms while surviving finms were more likely to receive government credit, then the effect of govemment credit would be under-estimated. In addition, accounting data for the earlier years are probably less reliable.

22