The Korean Economy in Transition
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The Korean Economy in Transition

An Institutional Perspective

O. Yul Kwon

This informative book provides a comprehensive examination of the dynamics of institutional reform and the transition of the South Korean economy. The analysis, based on an institutional approach, stretches over three decades of remarkable economic success under a state-led system, through the 1997 financial crisis, to the current market-oriented system.
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Chapter 12: Income Distribution and Social Welfare Policy: Issues and Strategy

O. Yul Kwon


12.1 INTRODUCTION The Korean government started its economic development strategy of 'growth-fIrst' in the early 1960s, focusing on maximizing annual growth rates, paying little attention to policy regarding income distribution and social development until the mid-1980s. Despite this emphasis on the growth-fIrst strategy, the World Bank (1993: 72) indicated that the distribution of income in Korea was among the most equitable in the developing world. The Gini coefficient started at 0.344 in 1965, which was one of the lowest of all developing countries, and declined to 0.279 in 1997 (Table 12.1). Absolute poverty was ameliorated to a remarkable extent as indicated by a decrease in the proportion of population below the official poverty line from 40.9 per cent in 1965 to 4 per cent in 1997 (Table 12.1). The 1997 fmancial CrISIS profoundly transformed distribution, employment and reward structures in the economy. The immediate manifestation of this was unprecedented high unemployment and significantly worsened inequality in income and asset ownership. The Gini coefficient increased from 0.279 in 1997 to 0.296 in 1998, and the poverty rate increased from 4 per cent in 1997 to 7.8 per cent in 1998 (Table 12.1). The unemployment rate increased from 2.7 per cent in 1997 to 7 per cent in 1998. The adverse impacts of the fmancial crisis on income distribution and employment produced an inevitable upsurge in the demand for state welfare provision. The Kim Dae-jung government, inaugurated in 1998, sought to improve the social welfare system as one of the top national...

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