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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 4: A New Interpretation of the Chaebol Problem and Evaluation of Chaebol Policy

A New Institutional Economics Perspective of the Chaebol

Sung-Hee Jwa


1. INTRODUCTION This chapter presents and applies a new analytical framework to study the chaebol problem. Basically, the new framework utilizes the two-stage budgeting system based on a multi-stage decision-making model commonly employed in economic analysis. This chapter will pinpoint and distinguish between those aspects of the chaebol problem that can be addressed through economic analysis and those that need to be understood as being part of the political decision-making process. A second task of this chapter is to critically evaluate past and current chaebol policy in line with the categorization made in the first part of the chapter. Essentially, this chapter presents the first steps toward a new paradigm of chaebol policy, which is developed in the later chapters of this book. 2. 2.1 REINTERPRETATION OF THE CHAEBOL PROBLEM Application of the Two Stage Decision-Making Process to the Chaebol Problem We make use of the multi-stage decision-making system usually applied to the analysis of consumer behavior patterns. Simply put, it is assumed that in the first stage, consumers will allocate their income to a wide range of categories such as food, clothes and leisure, while, in the second stage, they allocate their budget to specific goods and services within each category, for example, rice and meat, jackets and suits, and foreign and domestic travel.1 In this manner, the consumer will optimize his consumption. In the same vein, in the context of the chaebol problem, it may be assumed that the government pursues industrial policy intended to achieve an optimal...

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