South Korean Economy Analyzed

reciprocal ohm 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 whatever other country in the world (Watkins 1999). Major Korean enterprises such(prenominal) as Lucky Goldstar and Samsung are now common household brand name all over the world. As come up, Hyundai and Daewoo, the two leading southern Korean auto manufacturers, both offer products that are able to compete on the universal 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 achievement 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 super acid Chung Hee government of 1961-1979. satisfying new economic policies included reinforcing the pullment of chaebol, creating a policy of import substitu tion with an export-led approach, fostering the development of industries designed to compete efficaciously in the worlds industrial export markets, nationalizing the banks, as hale as working on to educe Koreas large external debt.It is these policies, introduced throughout the 1960s and 70s, which caused a future boom in South Koreas economy and continue to influence it at the present day. One extremely important aspect of the South Korean economy is the concept of chaebol. Fa on that pointd by cat valium Chung Hee in the early 1960s, chaebol are conglomerates of many companies clustered around one holding company. The parent company is usually overtopled 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 credence they needed to operate and grow. Government-chaebol cooperation was essential to the subsequent econ omic growth and astounding successes that began in the mid-1960s. The chaebol were able to grow because of two factors outside loans and special favors (Song 1997). Access to foreign technology also was critical to its growth throughout the 1970s and 80s.Under the guise of guided capitalism, the government selected companies to undertake projects and channeled funds from foreign loans. The government guaranteed quittance should a company be unable to repay its foreign creditors. Additional loans were made available from domestic banks. In the late 1980s, the chaebol dominated the industrial firmament and were especially prevalent in maufacturing, trading, and dark industries. Today, the chaebol remains the backbone of South Koreas 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 countrys three largest corporations, all under the chaebol system, accounted for over a third of South Koreas entire Gross National Product (Ibid, p63). The 1960s 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 scheme 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 moment 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 import for export production, business tax exemptions, and accelerated depreciation allowances (Kim 1997).This strategy was largely responsible for establishing Koreas stro ng export-led industries that exist today. Favorable conditions mean that there will ever so be a demand for their product, both domestically and overseas. In the latter part of Parks reign as president, he fostered the development of industries designed to compete effectively in the worlds industrial export markets. These major strategic industries consisted of technology-intensive and skilled labor-intensive industries such as machinery, electronics, and shipbuilding.The plan stressed large heavy and chemical industries, such as iron and steel, petrochemicals, and nonferrous metal. As a result, heavy and chemical industries grew by an impressive 51. 8 percent in 1981 (Amsden 1992) their exports increased to 45. 3 percent of keep down output (Ibid, p103). These developments can be ascribed to a favorable turn in the export performance of iron, steel, and shipbuilding, which occurred because high-quality, low-cost products could be produced in South Korea. By contrast, the heavy a nd chemical industries of advanced countries slumped during the late 1970s.This strategy helped to establish South Koreas economic role as a major worldwide industrial exporter, nonetheless in a time of turmoil created by the OPEC debacle. It was a plan that was carried right through the 1980s and well into the 90s by successive governments, who recognized its formula for success. When Park took control in 1961, one of his first orders of business was to extend government control over business by nationalizing the banks. As well, he merged the agricultural reconciling movement with the agricultural bank.The governments direct control over all institutional credit further extended Parks command over the business community. The Economic training Board was created in 1961 and became the nerve center of Parks plan to promote economic development (Kearny 1991). The Board exists to this day it is charged primarily with economic planning, as well as coordinating the economic functions o f other government ministries. The Bank of Korea continues to exist as a government-controlled financial institution, operated by the Ministry of Finance.In 1975 South Korea was the fourth largest debtor among developing countries with external debt totaling nearly $47 billion U. S. (52 percent of GNP) (Kim 1997). The Park government used its substantial current account surpluses between 1976 and 1979 to reduce and even repay its foreign debt. South Korean banking institutions were banned from obtaining long-term bank loans until the end of the year. The government also reduced the availability of foreign currency loans. This strategy worked, and as a result, South Koreas gross foreign debt dropped to $29. billion U. S. in 1979 (Ibid, p. 74).The dramatic reduction of the debt by the Park government established a warm groundwork for economic growth and expansion by successive governments in the 1980s and 90s. Today, South Korea has in place solid debt management policies and has gra duated from its status as a World Bank loan recipient. In analyzing the South Korean economy, it is not hard to see why it has developed into the worlds 11th largest economic system (Song 1997). The truth is in the numbers.During the 1970s, some estimates indicate, Seoul had the worlds most productive economy. The annual industrial production growth rate was about 25 percent (Ibid, p131) there was a fivefold increase in the GNP from 1965 to 1978 (Ibid, p131). In the mid-1970s, exports increased by an average of 45 percent a year (Ibid, p132). Today, it is a major exporter of electronics, heavy machinery, and automobiles. The remarkable success of this dynamic economy can be attributed to the radical new economic policies and changes brought about by the Park Chung Hee government of 1961-1979. operative new economic strategies included developing the system of chaebol, creating the import-substitution policy, fostering the development of industries designed to compete in the worlds i ndustrial export markets, nationalizing financial institutions, as well as working on to reduce South Koreas large external debt. Successive governments continued to implement these policies and many are still in place today. South Korea is definitely an economic powerhouse to be reckoned with, and the world may still have yet to feel the wrath of this Asian Tiger.