1. Korea’s Economic Development and Lessons for Developing Countries
Chong-Sup Kim
Seoul National University

2. Contents 1. 60 years of the Korean Economy 1
2. Korea’s Trade and Trade Policy 2
3. The Role of the Government 3
4. Lessons 4
5. Challenges 5

3. 1
60 years of the Korean Economy

4. Economy after the Liberation
In the colonial period
The southern region produced agricultural products
The northern part produced electricity, chemical and mineral products.
As a result, after the liberation
agricultural production was abnormally higher in the South than in the North
But, the output from mining and manufacturing sectors was higher in the South.

5. Korean War- 1950

6. Korean War
Industrial facilities were reduced by 43%, power plants by 41%, and coal-mining by 50%.
Number of deaths in South Korea was 1.3 millions.
Per capita GDP reduced from $90 in 1949 to $67 in 1953.

7. Reconstruction based on Foreign Aid
($ million)
1953
1954
1955
1956
1957
1958
1959
1960
U.S. bilateral
12.8
108.4
205.8
271
368.8
313.6
219.7
245.2
CRIK
158.8
50.2
8.7
0.3 ―
UNKRA
29.6
21.3
22.2
22.4
14.1
7.7
2.5
0.2
Total
201.2
179.9
236.7
293.7
382.9
321.3
222.2
245.4
Total imports
345.4
243.3
341.4
386.1
442.1
378.2
303.8
343.5
Aid/IM(%)
58.3
73.9
69.3
76.1
86.6
84.9
73.1
71.4
IM/GNP(%)
12.9
7.3
9.8
13.1 12
10.7
10.1
12.6
Note: CRIK stands for Civil Relief in Korea program. UNKRA stands for United Nations Korean Reconstruction Agency

8. Average Annual Aid Received
($ million)
Period
Total
U.S.
150.9
84.4
299.7
290.3
185.8
91.2 2
0.2

9. Economic Conditions of East Asian Countries in 1960
Country
GDP/worker (dollars)
Secondary Schooling (years)
Hong Kong
2247
1.36
Indonesia
638
0.08
Korea
904
0.66
Malaysia
1420
0.44
Philippines
1133
0.56
Singapore
1658
1.17
Taiwan
1256
0.72
Thailand
943
0.23

10. Military Coup and Economic Development- 1961

12. Korea’s Growth Trend
5,000
10,000
15,000
1945
1953
1962
1970
1980
1990
1998
2007
7,355
Financial
Crisis
12,197
7 ‘Five-Year Economic
Development Plans’
End of the Korean War 67 87
OECD
Member
Liberation
from the Japanese
Colonial Rule
21,695
Per capita income
(US$)
20,000
20,759
17,193
2009
2010

13. Changes in Industrial Structure
2008
Services
Agriculture-Fisheries
Manufacturing
1960
Manufacturing
Agriculture-Fisheries
Services
<Shares in employment>

14. Employment Share of Manufacturing De-industrialization
Japan
Korea
De-industrialization UK
France US

15. What about Output Share of Manufacturing?
Korea
Japan
France US UK

16. Growth by decades 9.4 8.7 7.6 6.2 4.4 ‘1963 ~69 ‘1970 ~79 ‘1980 ~89
‘1990 ~99
‘2000 ~09

17. 2
Korea’s Trade and Trade Policy

18. Main Export Products $ billion 466 172 autos (10.6) semicon (15.1) 65
Ships
(10.0)
textile (11.7)
Computer
(8.5) 17
Semicon
(7.0)
Semicon
(9.3)
autos (7.7)
textile
(16.0)
Shoes(6.6)
0.84
petroch (5.3)
Cellular
(7.7)
Steel (5.4)
0.03
textile (40.8)
Video equip.
(5.6)
Ships
(4.5)
Shoes (5.2)
LCD(6.4)
Iron (13.0)
Ships (3.6)
Ships(4.4)
Wood
(11.0)
Tungsten
(12.6)
petroch(6.4)
Sound
prod (3.4)
Computer
(3.9)
Cellular
(4.6)
Wigs
(10.8)
Thread
(6.7)
Share in ( )
1960
1970
1980
1990
2000
2010

19. Main Export Partners
466
$ billion
172
China (25.1) 65
USA (21.8)
USA (10.7)
USA (29.8) 17
Japan(11.9)
Japan (6.0)
USA (30.0)
Japan(19.4)
China(10.7) 1
Japan(17.1)
H.K.(5.8)
H.K. (5.4)
H.K.(6.2)
SaudiA(5.3)
USA (49.8)
Germany
(4.4)
Singapore
(3.3)
Japan (24.5)
Germany
(4.9)
Taiwan(4.7)
H.K.(3.8)
Taiwan
(3.2)
Singapore
(2.8)
Germany(2.9)
H.K.(4.6)
Canada(2.7)
Share in ( )
1971
1980
1990
2000
2010

20. Outward-looking Development Strategy
Part-01
Economic growth
Reproduction
Export
Promotion
Manufacturing
Processing
Private
Enterprises
Gov’nment
Technology
development
Financial  tax support
Well-educated labor force
Foreign technology
import
Capital goods import
Raw materials Import
Foreign capital inducement
(Economic aid, external debt)

21. Government-led export promotion
1960s and 1970s
- Outward-looking development strategy
Labor-intensive industries
Heavy machinery and chemical industries
- Government-led export promotion
President chaired monthly trade meeting

22. 3
The Role of the Government

23. The Question about government intervention
What can the government do to spur economic growth?
Did the interventionary economic policy spur the rapid industrialization and growth of Korea during the last three decades?
Can this experience be applied to other countries?
Can government policies as directed credit policies help promote industrialization and growth in the early stages of economic development?

24. Key Features of the Korean Economy before the 1990s
Export-oriented economy
Government-led growth strategy
Active Industrial policy
Chaebol-dominated economy
Highly regulated financial market as a tool for financial resource mobilization for growth

25. Five-year Economic Development Plans
State-led Planning ( ); 1st, 2nd, and 3rd Five-year Economic Development Plans
Focused on setting up sectoral investment plans and mobilizing and allocating domestic and external resources to support the implementation of the plans
Indicative Planning ( ); 4th, 5th, and 6th Five-year Economic Development Plans
Strategic Planning ( ); 7th Five-year Economic and Social Development Plan

26. Five-Year Economic Development Plan: Targeting Investment
First Plan ( ) : Development of basic industries for import substitution and expansion of SOC's
Second Plan ( ) : Development of labor-intensive manufacturing
Heavy and chemical industrialization from the Third Plan ( ) into the Fourth Plan ( )

27. Economic Development Plan
Different from 'Planned Economy' of Socialist Countries
A combination of government-led economic development and private efforts based on market economy
Served as a political tool for mobilizing and directing economic activities towards achieving quantitative growth targets such as Gross GNP, Per Capita Income, and Total Exports
Flexible implementation of the Plan adapting to constantly changing world and domestic economic environments

28. Industrial policy in the 1970s: the HCI drive
In the 1970s, industrial policy shifted toward promoting the buildup of HCIs.
A departure from the export-oriented, non-sectoral-biased strategy
Targeted credit subsidies
Creation of National Investment Fund (NIF), and expanded BOK discounts.
Selective protection
Entry regulations
Government-directed industrial decision making

29. HCI Promotion Plan Declared (1973)
HCI Promotion Plan (1970s)
Unstable political situation
Nixon Doctrine (1969):
Needs to prepare self-defense system
(need to develop military industries)
HCI Promotion Plan Declared (1973)
Changed economic environment
Challenges to the postwar free trade system
: Diversity became a key to continuous
successful exports growth
: labor disputes start

30. Industrial Structure HCIs 100% 90% 80% Service 70%
Power/Gas/Construction
Metal/Machinery
60%
Basic Metal
50%
Petrochemical
40%
Light
30%
Mining
Agriculture
20%
10%
HCIs 0%
1970
1975
1980
1985

31. Composition of Export 90 80 70 HCIs 60 Metal/Machinery 50 Basic Metal40
Petrochemical
Light 30 20 10
1970
1975
1980
1985

32. Consequences Negative Positive Inappropriate scale choices
Excess capacity
Excessively capital-intensive investment
High leverage ratio
The retardation of trade and financial liberalization
A rise in the level of industrialization
Creation of world-competitive firms
Creation of leading export sectors

33. 4
Lessons

34. Comparative Perspective
Government intervention was common in developing countries.
But the experience in most developing countries was not so encouraging.
Where does the difference come from?

35. Less Distortionary Policy
In Korea, the government targeted its credit support programs primarily at promoting exports and industrialization.
The support was not targeted at specific industries (except the support to HCIs), and was temporary.
In most of developing countries the support and protection was directed to selected industries.

36. Consistent Policies
Exchange rate policies provided competitive and stable real exchange rates.
Wage policies ensured that real wage growth was in line with productivity growth.
Korea avoided hyperinflation with a reasonably balanced budget and income policies.

37. Lessons
The intervention may be helpful in the early stages of economic development.
But as economic development advances, the role and scope of government intervention must be reappraised with a view toward fostering greater reliance on market forces.

38. 5
Challenges

39. Challenges Aging Society China Risk Social conflict Concentration
Aged society 14% (2019)
Super-aged society 20% (2026)
China Risk
Exports: 37.0% China(25.1%)+H.K.(5.4%)+Singapore(3.3%)+Taiwan(3.2%)
Social conflict
GINI: 0.306(2003), 0.314(2009)
Concentration

40. Thank You!!