|
Brief Economic History and
Government Policy Korea was one of the poorest countries in world after
experiencing two wars. World War II and Korean war (1950 ~ 1953). The country
even experienced a food shortage so that it had to heavily rely on the foreign
aid. Yearly per capita consumption was a mere $88 as late as 1965. However,
since 1965, Korea has been transformed from its underdeveloped agricultural
economy to a leading Newly Industrializing Country. Between 1965 and 1981, its
gross national product GNP multiplied twenty times from $3 billion to $63
billion and per capita GNP increased sixteen times from $88 to $1,554. There
have been many explanations for Korea’s successful story.
Among those, the
strong role of government would be probably the most important one. At the same
time, this would be also responsible for current recession. After Koran war, the
government in fact had no sense of direction and also due to the unstable
political situation, the country didn’t have specific economic policy until 1961
when military government came to power and established the major institution
guiding its economic planning called Economic Planing Board (EPB). This
government set economic development as the top national priority and recognized
the financial system in support of economic development plan. To achieve this
purpose, it focused its policies mainly on export expansion moving its emphasis
from import substitution
The result was considered
quite successful for economic growth. Between 1965 and 1973, exports grew at
average annual rate of 45%, from $175 million to $3,271 million. The success of
the expansion was due primary to three factors (Kwack, 72). The first was a
favorable international economic environment, which saw total world imports
expand from $175 billion in 1965 to $536 billion by 1973. This boom in imports
of the world reflected the fact that the industrialized had not yet erected
import barriers against exports from developing countries and were, on the
contrary, quite active importers of cheaper goods from Newly Industrializing
Countries such as Korea. A second significant factor was the Korean government’s
policy of promoting exports, which was set in motion in 1965. Initially, the
government introduced a number of fiscal and financial incentives, which I will
discuss more later. A third factor was Korea’s abundant and highly productive
labor force.
This gave Korea a strong comparative advantage in producing labor
intensive products and provided the impetus for the notable expansion for
exports. In order to expand total exports over time periods, however, Korea
turned to new export industries that were expected to have a comparative
advantage with abundant labor, but skilled labor at this time, such as
shipbuilding, electronics, and steel industries. This attempt was viewed as a
manufacturing shifting of its emphasis from light industries to heavy industries
which later started to produce intermediary goods as substitutes for imports (Kwack,
77). However, this government’s promotion of heavy industries for large-scale
economies led to under-investment in light manufacturing industries causing
productive gap between small and large firms. Actually, the large firm that runs
heavy industries has been given priorities, and small and medium firms
relatively disregarded in government’s allocation of loanable funds and other
administrative preference. As a result, conglomerates later known as chaebol
(family owned conglomerate) have been formed through this expansion of heavy
industries. Government’s Policy Before 1961 As seen above, the Korean government
has been focused on import substitution for economic growth during 1953 ~ 65
period and followed by export expansion policy after 1965. However, to progress
its policy efficiently, the government had to face to one of serious problem,
poverty.
|
