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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.
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Chapter 3: Institutionalizing an Export-Oriented Regime

Wontack Hong


1. KOREA VS. TAIWAN Taiwan, in the late 1950s, and Korea, in the early 1960s, both commenced export-oriented growth by promoting the export of labor-intensive manufactured products. As a result, both Korea and Taiwan went through drastic economic transformations from typical backward economies to socalled export-oriented NICs. The objective of this chapter is to analyse the similarities and differences between the experiences of these two countries in their export-oriented growth (see Hong, 1991b, 1993a). Section 2 briefly highlights the initial conditions in Korea and Taiwan prior to their commencement of export-oriented growth. Section 3 delineates the necessity of export promotion efforts and the actual beginning of export-oriented growth strategy in these countries. Section 4 describes how these countries institutionalized the export-oriented regime. Section 5 examines the style of government intervention of markets in Korea and Taiwan. Section 6 examines the financial systems that have been maintained in these countries, and Section 7 attempts a comparative evaluation of the growth performances of these two economies. 2. INITIAL CONDITIONS One may amplify the differences between the initial conditions of Taiwan and of Korea. In 1949, Chiang Kai-shek and his Kuomintang (Nationalist Party) men retreated to Taiwan in defeat. There was a sudden influx of nearly two million elite refugees with distinct characteristic traits, from the mainland. This was indeed a unique occurrence. One may also emphasize the fact that Taiwan could benefit from the extensive network of overseas Chinese and an experienced, though corrupt and discredited,...

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