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Working Paper

The Role of the Government in Korea's Industrial Development

페이스북
커버이미지
  • 저자 구본영(具本英)
  • 발행일 1984/10/01
  • 시리즈 번호 8407
원문보기
요약 Korea's economic growth during the 1960s and 1970s was a
model for other developing countries; and the recent successful
adjustment of the Korean economy to adverse external conditions
has rendered Korea a model country for adjustment/ This
successful economic performance was not the result of
inward-looking industrial targeting or protectionistic policies,
rather it was the result of industrial policies in the opposite
direction.

Korea's economic system has always been market-oriented.
It has not ben the government but businessmen who saw the
opportunities for profits, made the necessary investments and
tried to produce in the most efficient way the products in
demand either in Korea or around the world.

The government, of course, has set the basic rules for their
investments, through providing tax, financial, or market
incentives for their investments; but the rules in general have
been to promote efficient allocation of resources in the direction
of properly exploiting the nation's comparative advantage.

In this light, the strengthening of the protection and
incentives for some industries during the 1970s can also be
understood as the government's efforts to speedily adjust to the
changing nature of Korea's comparative advantage in the
international economy. The problem was that the government
encouraged overadjustment. The speed of the adjustment induced
by the realignment of the incentive system in Korea turned out
to be faster than the rate at which the nation's comparative
advantage was changing; and Korea has had to pay a high cost
for its mistake.

The recent shift in the Korean government's policy
emphasis towards establishing a greater role for the market
mechanism and reducing protection and incentives for specific
industries has been in direct response to the costly
overadjustment in the late 1970s. That is why the Korean
government has pursued liberalization programs in the face of a
deteriorating external environment.

It must be noted that Korea's recent efforts to liberalize its
economy have been made in spite of continuing current account
deficits, mounting foreign debts and rising protectionism abroad.
Korea has followed this course, not because of pressure from
other countries, but because of the government's firm conviction
that a greater role for the market mechanism is needed to
ensure long-run industrial competitiveness and sustained
economic development. As a result, Korea has become one of the
few countries that has reduced protection and cut back its
assistance to industries in recent years.

When we take the background of Korea's recent policy
changes into consideration, it is very clear that Korea is not
promoting exports through targeting specific industries. Some of
its industries like steel, electronics, and shipbuilding habe grown
remarkably in recent years helped by exports; but the basis of
their strength was not the government assistance of protection
but efficient production with the help of diligent and low-cost
technicians, engineers and labor force.

Furthermore, the story of Korea's rapid export growth tends
to hide the fact that Korea has been a net importer over the
past two decades. In fact, its high growth of exports
notwithstanding, Korea has consistently run trade account
deficits over the past two decades. In 1983 alone, Korea bought
$1.7 billion more foreign products than it sole to other countries.
This has resulted in a substantial increase in Korea's
outstanding foreign debt($40.4 billion at the end of 1983), and
continued increases of its exports is the only way to service this
debt.

Korea has successfully met, and will continue to meet the
challenges in the international economy, not through industrial
targeting, but through concerted efforts to improve its products'
competitiveness in the world market, to develop new products
and to provide new services where it has comparative
advantage.

It is widely recognized that developing countries habe a
special need for proper government guidance, since their social
and economic institutions are not developed enough to support
efficient production or rational allocation of the resources. Even
the General Agreement on Tariffs and Trade(GATT), recognized
some government assistance for promotion of industrial
development for developing countries, during the process of
development. U.S. trade policy also recognized the principle of
special and differential treatment for developing countries.

However, in recent years Korea has tried to remove these
special provisions that affect the allocation of resources and has
tried to integrate its trade system into the multilateral regime
through import liberalization.

Korea's current industrial incentive system. in fact, when
viewed in this light. is closer to the ones existing in industrial
countries than those existing in most developing countries.
Moreover, when the current liberalization program is successfully
implemented, its economic system will be much more liberal and
market-oriented.

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