Empirical Methods in International Trade

Empirical Methods in International Trade

Essays in Honor of Mordechai Kreinin

Edited by Michael G. Plummer

Internationalization of the world economy has made trade a key factor in the growth potential of nearly every nation’s economy. Hence, economists have become increasingly interested in the determinants of international trade and competitiveness. Empirical Methods in International Trade captures the many aspects of this trend in globalization through practical techniques well-founded in economic theory. The authors, comprising some of the most influential applied international economists of their generation, use cutting-edge models to develop empirical approaches to critical aspects of economic interchange. These approaches are developed and explained carefully with the goal of making them accessible to a wide audience.

Chapter 13: Selective Intervention and Growth: The Case of Korea

Marcus Noland

Subjects: economics and finance, international economics, methodology of economics

Extract

Marcus Noland* 1. INTRODUCTION Few issues in development economics have been as controversial as the importance of industrial policy in the Republic of Korea’s (henceforth Korea) development. This is a topic of growing importance as economists attempt to distill the ‘lessons’ of the Korean experience for other countries (e.g. Noland and Pack, 2003). For industrial policies to be successful, the market equilibrium must be suboptimal. Governments must be able to identify these opportunities for welfare-enhancing interventions, formulate and implement the appropriate policies, and prevent political market failures from leading the policies astray. In the case of Korea, most conventional static neoclassical analyses have concluded that these conditions were not met, at least in the most interventionist period, that is, the heavy and chemical industry (HCI) drive of 1973–79. One can think of the evidence brought to bear as falling into two broad categories. The first of these are studies that document the actual interventions undertaken by the Korean government and assess those interventions according to a variety of static welfare criteria. So, for example, Kim (1990) surveys the fiscal, credit, tax and trade policies undertaken during this period and concludes that the policy was unsuccessful: it had the predictable result of generating excess capacity in favored sectors while starving non-favored sectors of resources, as well as contributing to inflation and the accumulation of foreign debt. Moreover, ‘the government [was] reckless in its selection of launch enterprises and in its almost haphazard provision of generous incentives . . . [its] direct, unlimited role...

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