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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 6: Growth and Equity

Wontack Hong


INTRODUCTION In the early 1960s, Korea commenced its export-oriented growth by promoting exports of labor-intensive products. By opening up and integrating its economy into the world market and trading directly with the most advanced countries in the world, the returns on the most abundant factor of production in Korea (that is, the returns on labor) began to catch up with those of the advanced countries. Indeed, the average wage rate in the Korean manufacturing sector amounted to a mere one-twenty-third of that of the U.S. manufacturing sector in 1960 ($2.30 per hour) but grew to oneseventeenth of the latter ($3.35 per hour) in 1970 and to one-quarter ($14.31) by 1989.1 Korea’s per capita GDP was one-thirty-seventh of that of the U.S. in 1960, growing to one-twentieth in 1970, one-seventh in 1980, and one quarter of the latter in the period 1990–2000 (KITA, 2001: 132). The rapid expansion of productive employment opportunities and the steady rise in real wage rates did contribute positively to the reduction of inequality in the distribution of income. The Korean government, however, has pursued export-oriented growth strategy without paying much attention on the distributive aspect of the growth process. Critics have accused the government of promoting export expansion by using various secondbest or third-best policy measures that have generated all kind of undesirable side-effects such as proliferating unearned incomes, institutionalized rent seeking, maintenance of a command economy for the banking sector, and worsening distribution of income and wealth. Presumably in order to take advantage...

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