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The Evolution of Large Corporations in Korea

A New Institutional Economics Perspective of the Chaebol

Sung-Hee Jwa

Controversy still looms large both in public and academic circles as to the role of large corporations in sustainable economic growth. In this book, the new-institutional economics perspective is adopted to clarify and answer some of the most critical questions relating to the behaviour of large corporations in Korea, or the chaebol, and the role and impact of institutions on their behaviour.
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Chapter 2: Industrial Policies and the Growth of the Chaebol

A New Institutional Economics Perspective of the Chaebol

Sung-Hee Jwa


1. INTRODUCTION The chaebol is a corporate form emerging from the Korea-specific business environment that includes her political, social and economic institutions. In particular, Korea’s industrial policy has loomed large in shaping the business environment. Thus without a proper understanding of the history and characteristics of her industrial policies, which have been greatly influenced by the dominance of government intervention, one cannot hope to fully understand the factors behind the establishment and growth of the chaebol. In this chapter, we review the pattern of Korea’s industrial policies and show how the chaebol has evolved. 2. 2.1 INDUSTRIAL POLICIES IN KOREA Overview of Korea’s Industrial Policy Schematically, the pattern of Korean industrial policies during the last 30 years may be depicted as a cycle of three phases as depicted in Figure 2.1. First, the government selects industries and corporations to be supported. In the second phase, it sets up trade policies as well as mobilizing tax and financial resources to support those selected industries. The third phase consists of government-led restructuring of industries and corporations that are found to be in distress. In essence, we find active government intervention in every phase of the cycle. Entry and exit barriers, and financial and tax supports acted as tools of industrial policy. Entry barriers basically allowed only selected large corporations to enter the targeted industries, and policies designed to support these corporations contributed to the rise of big diversified enterprises - the Korean chaebols. Moreover, exit barriers, erected as a result of active...

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