The Korean Economy in Transition

The Korean Economy in Transition

An Institutional Perspective

O. Yul Kwon

This informative book provides a comprehensive examination of the dynamics of institutional reform and the transition of the South Korean economy. The analysis, based on an institutional approach, stretches over three decades of remarkable economic success under a state-led system, through the 1997 financial crisis, to the current market-oriented system.

Chapter 8: Recent Evolution of the Business Sector: Chaebols and SMEs

O. Yul Kwon

Subjects: asian studies, asian economics, economics and finance, asian economics


8.1 INTRODUCTION The Korean business sector has undergone a metamorphosis in its configuration in parallel with its economic transformation. In the wake of the Korean War (1950-53), there were few incorporated companies with business activity largely undertaken by small enterprises. By 2008, the number had increased rapidly to more than 3 million, of which 99.9 per cent were SMEs (SMBA 2009). The most distinctive feature of the Korean business sector is the dominance of large conglomerates, or chaebols, although it has always consisted predominantly of SMEs in terms of 1 numbers. Before the crisis in 1997, the largest 30 chaebols had extensively diversified their operations into 821 subsidiaries, and their economic concentration increased steadily (Jwa 2002: 45). By 1995, the top 30 chaebols accounted for 16.2 per cent of total value-added in the economy, 45.8 per cent of total sales, and 44.6 per cent of total assets in the economy (Jwa 2002: 33). After the post-crisis restructuring, the number of subsidiaries was reduced to 544 in 2000 (Choe and Pattnaik 2007). In 2002, the 30 largest chaebols accounted for 17.7 per cent of total value-added, 36 per cent of total sales and 34 per cent of total assets in the economy (J.O. Kim 2006). That is, chaebols' economic concentration in terms of their shares of total sales and assets decreased substantially, while their share of value-added actually increased. A question naturally arises as to why such a concentration of economic power in chaebols has occurred and been maintained. This chapter...

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