A striking feature of South Korea’s
economic structure is its heavy dependence on international trade. In 2003, the value of merchandise trade was equivalent to 35.7% of GDP, compared with 10% of GDP in the early 1970s, following the export-oriented industrialization drive initiated by the then president, Park Chung-hee.
Korean exports mainly consist of elctronic products, machinery and transport equipment, Semiconductors, wireless telecommunications equipment, computers, steel, ships and petrochemicals. The main exports partners of Korean republic are China (18.2%), US (17.8%), Japan (9%), and Hong Kong (7.6%).( figures in the bracket indicate these countries’ share in 2003) Imports commodities are machinery, electronics and electronic equipment, oil, steel, transport equipment, organic chemicals, plastics. In 2003, the share of different countries from which Korea imported these products was -Japan 20.3%, US 13.9%, China 12.3%, Saudi Arabia 5.2%.
ROLE OF GOVERNMENT vs MARKET
During late 1950s, South Korea GDP per capita was comparable with levels in the poorer countries of Africa and Asia. Today its GDP per capita is 18 times North Korea’s and equal to the lesser economies of the European Union. This success through the late 1980s was achieved by a system of close government/business ties, including directed credit, import restrictions, sponsorship of specific industries, and a strong labor effort. The government promoted the import of raw materials and technology at the expense of consumer goods and encouraged savings and investment over consumption.
In 1961 General Park Chung Hee overthrew the popularly elected regime of Prime Minister Chang Myon. A nationalist, Park wanted to transform South Korea from a backward agricultural nation into a modern industrial nation that would provide a decent way of life for its citizens.The Park administration decided that the central government must play the key role in
economic development because no other South Korean institution had the capacity or resources to direct such drastic change in a short time.
Park extended government control over business by nationalizing the banks and merging the agricultural cooperative movement with the agricultural bank. Economic programs were based on a series of five-year plans that began in 1962. The Economic Planning Board was created in 1961 and became the nerve center of Park’s plan to promote economic development. The early economic plans emphasized agriculture and infrastructure; the latter were closely tied to construction. Later, the emphasis shifted consecutively to light industry, electronics, and heavy and chemical industries. Using these strategies, an export-driven economy developed.
The economic system incorporated elements of both state capitalism and free enterprise. The economy was dominated by a group of chaebol (large private conglomerates) and also was supported by a significant number of public corporations in such areas as iron and steel, utilities, communications, fertilizers, chemicals, and other heavy industries. In 1995, for example, the top 30 chaebol produced 16% of South Korea’s GDP and accounted for 41% of manufacturing value added and 50% of exports. Among the top 30
chaebol, the top four groups at the time Hyundai, Samsung, Daewoo and LG clearly dominated, producing 9% of GDP in 1995. Although the corporate landscape has changed considerably since 1997, partly as a result of government reforms only 18 of the largest chaebol in 1997, remained on the list in 2001, they continue to dominate economic activity. The government guided private industry through a series of export and production targets utilizing the control of credit, informal means of pressure and persuasion, and traditional monetary and fiscal policies.
Significant economic policies included strengthening key industries, increasing employment, and developing more effective management systems. Because South Korea was dependent on imports of raw materials, such as oil, a major government objective was to significantly increase the level of exports, which meant stressing greater international competitiveness and higher productivity.
The government combined a policy of import substitution with the export-led approach. 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 imported for export production, business tax exemptions, and accelerated depreciation allowances.
In 1990 the Economic Planning Board primarily was charged with economic planning; it also coordinated and often directed the economic functions of other government ministries, including the Ministry of Finance.
