South Korea’s Economic Rise
South Korea had a bad economy after the Korean War. In the 1960s, with the right moves and steps, it transformed from poverty into an industrialized country (Çakmak, 2016). Let’s take a closer look at the transformation that started with Park Chung-hee’s administration in South Korea, one of the Asian Tigers.
Export-oriented policies
- Political steps were taken to emphasize the importance of exports and increase production.
- The foreign debts arising from the devaluation and it was tried to be eliminated by reducing the interest rates
- Exporters were given guarantees to facilitate the payment of foreign currency loans.
- They (South Korea) were enabled to increase their profits by purchasing goods from exporters with high inventories.
- The domestic market was protected by allowing exporters to charge high prices in the domestic market.For example; In South Korea, the export price of black and white television was US$42, corresponding to US$180 in 1978.
- Participation in free trade agreements for the liberalization of trade.
- The government supported exporters by providing financing opportunities such as low-interest loans.
- Government incentives included infrastructure development, low tariffs, subsidized loans, and low-income taxes.
- Strong control mechanisms contributed to the success of exporters.
- With the “export targeting system”, it was determined which markets the companies should turn to and communication was established.
(Chaudhuri, 1996)
In addition to the incentives for export growth, other important points
- South Korea had close relationship with the United States.
- As a developing country, South Korea held an advantageous position in systems like GATT (General Agreement on Tariffs and Trade).
- Duty-free export to the USA.
- Efficiency in shaping the export policies of the USA.
- The right timing and coinciding with the liberalization of trade with the rise of capitalism on a global scale.
(Chaudhuri, 1996)
The role of government in industry
- The government prefers state intervention in the use of resources.
- Establishment of the Economic Planning Board (EMK) and becoming authorized for planning, allocating resources, and budgeting.
- Government making decisions on the design and management of industrial sectors.
- Supporting the development of companies in the incentivized industries (for example, large companies such as Samsung, Hyundai, and Sunkyong competing with Japanese companies).
- Use of policy tools such as industry licenses, import controls, foreign investment, foreign exchange control, and tax incentives.
- Reducing the import rate in the machinery sector with import controls.
- Interventions in the banking sector drive investments and initiatives.
- The government’s control mechanisms are robust and problem-solving.
(Chaudhuri, 1996)
In addition to these, foreign capital flow control
- To invite the desired foreign capital investments and provide incentives, and to display a timid attitude in other investments.
- To provide incentives to foreign firms, such as ease of withdrawal of capital, duty-free imports, and dispute resolution laws.
- To give freedom to foreign capitals in the domestic market, to offer opportunities such as profit margin guarantee and tax reduction.
- Incentives often benefit projects that have received approval.
- Appointment of the Economic Planning Board (EPK) to ensure that foreign capital and technology comply with domestic plans.
- To divert foreign capital investments from the production of consumer goods.
- To control the movements of foreign capital investments and to reduce their effectiveness in the local market.
- Restriction of imports and acquisition of capital goods are not only available in South Korea.
- To prevent the demands of foreign capital investments for the acquisition of domestic companies.
- In general, the government’s protection of domestic industries from foreign direct investment and support of joint projects.
(Chaudhuri, 1996)
As a result, South Korea has achieved its current position with cautious and correct policies during the Park period. In the success of this economic development obtained after the war, the role of the government was very important, especially with the correct direction of resources, incentives, support, control, and correct interventions.
References
1-Chaudhuri, S. (1996). Government and Economic Development in South Korea, 1961–79. Social Scientist, 24(11/12), 18–35. https://doi.org/10.2307/3520100
2-Çakmak, U. (2016). GÜNEY KORE’NİN EKONOMİK KALKINMASININ TEMEL DİNAMİKLERİ (1960–1990) . Süleyman Demirel Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi , 21 (1) , 151–171 . Retrieved from https://dergipark.org.tr/tr/pub/sduiibfd/issue/20859/223803
