The Economy Of South Korea

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The Economy Of South Korea – The Rise Of An Asian Tiger Essay, Research Paper The Economy of South Korea THE RISE OF AN ASIAN TIGER South Korea in recent decades has been one of the most dynamic economies in the world. Over the period from 1965 to 1990, the rate of growth of per capita GNP was greater than that of any other country in the world (Watkins 1999). Major Korean enterprises such as Lucky Goldstar and Samsung are now common household brand names all over the world. As well, Hyundai and Daewoo, the two leading South Korean auto manufacturers, both offer products that are able to compete on the worldwide market along with other major car producers. In analyzing the South Korean economy, it is important to look at the various factors behind this remarkable success

story. The boom and rapid expansion of the Korean economy is due largely in part to the radical changes and new policies introduced under the Park Chung Hee government of 1961-1979. Significant new economic policies included reinforcing the system of chaebol, creating a policy of import substitution with an export-led approach, fostering the development of industries designed to compete effectively in the world’s industrial export markets, nationalizing the banks, as well as working on to reduce Korea’s large external debt. It is these policies, introduced throughout the 1960’s and 70’s, which caused a future boom in South Korea’s economy and continue to influence it at the present day. One extremely important aspect of the South Korean economy is the concept of

chaebol. Fathered by Park Chung Hee in the early 1960’s, chaebol are conglomerates of many companies clustered around one holding company. The parent company is usually controlled by one family. It started off as a few specially selected large firms encouraged to tailor their growth and production targets to meet South Korean government objectives and were dependant on state-owned banks for the credit they needed to operate and grow. Government-chaebol cooperation was essential to the subsequent economic growth and astounding successes that began in the mid-1960’s. The chaebol were able to grow because of two factors – foreign loans and special favors (Song 1997). Access to foreign technology also was critical to its growth throughout the 1970’s and 80’s. Under the

guise of “guided capitalism”, the government selected companies to undertake projects and channeled funds from foreign loans. The government guaranteed repayment should a company be unable to repay its foreign creditors. Additional loans were made available from domestic banks. In the late 1980’s, the chaebol dominated the industrial sector and were especially prevalent in maufacturing, trading, and heavy industries. Today, the chaebol remains the backbone of South Korea’s economy. Examples of chaebol include Samsung, Daewoo, and Goldstar. To give an idea to how successful and powerful this economic concept evolved into, in 1983, the country’s three largest corporations, all under the chaebol system, accounted for over a third of South Korea’s entire Gross National

Product (Ibid, p63). The 1960’s saw the reduction of U.S. aid to South Korea, aid which had largely kept the country afloat for the past decade following the Korean War. This made feasible the import substitution strategy the Park Chung Hee government had established. Combining a policy of import substitution with an export-led approach, government policy planners selected a group of strategic industries to back, including electronics, shipbuilding, and automobiles. New industries were nurtured by making the importation of such goods difficult. When the new industry was on its feet, the government worked to create good conditions for its export. Incentives for exports included a reduction of corporate and private income taxes for exporters, tariff exemptions for raw materials