Focusing on corporate governance and financial resource allocation mechanisms, this paper uses path dependence and comparative institutional analyses to trace the evolution of Korea’s development paradigm and to assess the extent of changes in the economy since the 1997 crisis. However, the transition from an established government-business risk partnership to a market-oriented paradigm has not proved easy. Although the government dealt with the nonperforming loans problem, the author contends that it has been less willing to take substantive measures to enable financial institutions to lead corporate restructuring based on market principles. As long as Korea continues to harbor structural problems in corporate governance and the allocation of financial resources, the investment efficiency of the economy is likely to suffer. Instead the reform program should concentrate on improving the autonomy of the financial sector and introducing private remedies to address the persistent problems of corporate governance.