Catch-up and Crisis in Korea

Catch-up and Crisis in Korea

Wontack Hong

Whilst the process of catch-up in Korea – led by export-oriented growth – has been rapid and, in a sense, very successful, it has also been subject to turbulence, not least in a crisis of near bankruptcy that has dramatically revealed its Achilles heel. Informed by the 1997 crisis, Wontack Hong writes a new history of the Korean economy; one that seeks to understand export-oriented catch-up in newly industrialized countries (NICs) whilst offering a realistic appraisal and forewarning of the pitfalls which could signal self-destruction.

Chapter 2: Export-Oriented Growth: Positive Aspects

Wontack Hong

Extract

1. INTRODUCTION Within a quarter century from its commencement of export-oriented growth, Korea transformed itself from a typical backward economy into one of the so-called NICs. The main objective of this chapter is to illuminate the positive aspects of the development mechanism of the Korean economy in this early phase of catch-up, that is, during the regime (1961–79) of the late President Park Chung-Hee. Section 2 delineates the implications of infant industry promotion in a developing country that pursues industrialization as a means of catch-up. Section 3 summarizes the well-known characteristics of export-promotion (EP) oriented and importsubstitution (IS) oriented regimes. Section 4 briefly summarizes the exportoriented high growth in Korea and Section 5 delineates the mechanism that maintained such high growth dynamism. Section 6 examines the extent of market intervention by the Korean government, Section 7 describes the process of import liberalization in Korea and Section 8 identifies some favorable elements that were conducive to the high growth performance of Korea. The final section gives concluding remarks. 2. COMPARATIVE ADVANTAGE AND PROMOTION OF INFANT INDUSTRIES Infant industries may be defined as production activities in early (infant) learning stages of trial and error which generate, for a limited period of time, substantial external economies that will accrue, mostly with some time lag, to those who are not the initial undertakers of such production activities. An industry stops being an infant industry when it stops generating external economies. The case for time-limited government intervention during the early stage...

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