Export Oriented Growth Country -South Korea

1. South Korea
“The Miracle on the Han River”
Group:
Rashid Abdullah
Raja Shoaib Akber
Abdul Aleem
Choudhary
Azhar Ali
International Political
Economy
How South Korea escaped poverty and
became one of the richest countries in the
world?

2. As recently as the early 1960s South Korea, Taiwan, Singapore and Hong Kong (the “Asian Tigers”) were
considered to be a part of the third world. Since the 1997 Asian Financial Crisis, praise of the “Asian Miracle” has
dwindled in academia, yet the Tigers still stand as rare examples of states which have successfully “developed” in a
manner no one could have predicted 50 years ago – and at a considerably faster rate than any of our current
efforts at third-world development seem to be proceeding.
The Asian Tigers
Republic of Korea
Government: Unitary
Presidential
Constitutional Republic
Population: 51 Million
2014
HDI: 0.891 Very High
GDP 2014: $1.790
Trillion
Republic of Singapore
Government: Unitary
Presidential
Constitutional Republic
Population: 5.5 Million
2014
HDI: 0.901 Very High
GDP 2014: $297.941
Billion
Hong Kong
Government: Special
Administrative Region
Population: 7.2 Million
2014
HDI: 0.891 Very High
GDP 2014: $ 400.607
Billion
Taiwan (Republic of
China)
Government: Unitary
Semi-Presidential
Constitutional Republic
Population: 23 Million
2013
HDI: 0.890 Very High
GDP 2014: $ 517.019
Billion

3. History of South Korea
First Republic
(1948-1960)
Also called the Republic of Korea (ROK). South Korea has been an independent
Constitutional Republic since its liberation from Japan on August 15, 1945.
Republic of Korea marked by Alternating periods of democratic and Autocratic
rules as fellow:
Second
Republic
(1960-1961)
Military Rule
(1961-1963)
Third Republic
(1963-1972)
Fifth
Republic
(1981-1987)
Fourth
Republic
(1972-1981)
Sixth Republic
(1987-
Present)
USAMGIK
(1945-1948)

4. Under the First Republic
 First President of South Korea (1945-1960)
 Anti-Communist
 Events under the First Republic of South Korea. South
Koreas first independent government, ruling the country
from 1945 to1960-the Syngman Rhee administration.
 The government took in vast sums of American Aid in
amounts sometimes near the total size of the national
budget. (Corrupt and inefficient government of ROK)
Major Events occurred during first Republic
 Land reform
 The Korean War
1960 - student demonstrations ousted Syngman Rhee from
presidency
Syngman Rhee (1875-1965)

5. Power Production plummeted down to a miserable level of 11 thousand
KHz, about one-eighth of the earlier production level of 80 thousand MHz
Capitalist VS Communist
The
Korean
WarAt the start of the
Cold War,
Communist North
Korea Went to war
with its Capitalist
neighbor . The
bloody conflict
lasted from 1950 to
1953.
Damage Estimates
The war destroy majority of the industries and industrial infrastructure
By August of 1951, 44% of factory buildings and 42% of Production
facilities lay in ruins
Foreign Trade deteriorated from US$208 Million to US$2.9 Million
All these factors led to serious inflation.

6. POSTWAR SITUATION
The
Korean
War
Chemical
Industry
70%
Overall
Industry
Destroye
d
51%
Agricultural
Machinery
Industry
40%
Rubber
Industry
10%
Power
Plants
80%
At the start of the
Cold War,
Communist North
Korea Went to
war with its
Capitalist
neighbor . The
bloody conflict
lasted from 1950
to 1953.
• GDP per capita around $100, poorer
than Philippines.
• Ravaged by the Korean War
• Large Standing Army-Menace from
North
• Largely agrarian country
• Lack of natural resources Coal, iron,
copper, oil
• U.S. aid kept people barely alive: 1/2
of national budget
• 1/5 of adults unemployed; social
unrest fueled by unemployed youth
Menace from the North

7. Under the Military Rule
Major Events occurred under the Military Rule
The military coup détat led by Major General Park Chung-he
on May 16, 1961,put an effective end to the Second Republic.
Miracle on the Han River Five Year Plan (FYP)
All these factors led to serious inflation.
Park Chung-he

8. Under the Military Rule
 Seized the capital + other important cities
 Brought businessmen into submission (June 14 law)
 The first South Korean five-year plan was inaugurated in 1962
 Economic growth as the historical goal, to be achieved at all cost
“In human life, economics precedes politics or culture.” – Park
 Qualification for the special treatment was quantifiable and
objective
 Per capita output doubled in the following decade
 South Korea became an industrialized country
 Influenced by state-planning in Manchukuo
 “Guided Capitalism”: The state as the engine of economic
development central planning + gov’t intervention in the market
industrial policy, corporate state

9. South Korean economy roars
 GDP growth averaged 9-10% a year
 Manufacturing sector took greater share of the economy (close to
30% - comparable to West Germany)
 “Boys who grew up working in rice paddies found themselves
building oil tankers and designing semiconductor chips.” - Mark L.
Clifford

10. State-owned
banks
industry/business
associations
FKTU (Federation of
Korean Trade
Unions)
(gov’t-controlled)
industrial unions
Businesses
Coopted labor
MOF (Ministry of
Finance)
Other Gov’t
Ministries
MTI (Ministry of
Trade + Industry)
Top-Down, General Headquarter (Park himself made major
decisions)
National Budget
EPB (Economic
Planning Board)

11. The State Intervenes in individual
firms’ decisions
planning,
national
budget
Economic
Planning
Board (EPB)
Korean Corporate State
Controlled the
Banking Sector
•Nationalization
of Banks.
•Extraordinary
power over
credit-starved
businesses
Ministry of
Finance
(MOF)
Policies,
regulations, order
to move quickly
from minister to
firms, domestic
cartels, steady
stream of profit
All Businesses
were required
to join
associations
Cutting of credit
line, Arbitrary tax
audit, Personal
Connections,
Uneven law
enforcement
Enforcement
devices

12. President, Gov’t Officials, Academics
Reps from trading companies
Rapid response team for exporters
Monthly Export
Promotion Meeting
Export Day (11/30)
“Export towers” to
companies w/ best
export performance
Early 1960s: Dollar
began to run out; US
threatened to cut aid
2nd
FYP: Build industries
targeted to export
markets.
1960s: South Korea
utilized cheap labor-
light manufacturing
 Import license conditional or export performance
 Tariff exemption for raw material and machinery
Exporters could automatically borrow against overseas orders
More credit to companies w/superior export performance
Huge Incentives for
Exports
Coercive element:
Corporate state had
business go along
Export-Oriented Industrialization
(EOI)

13. What’s good about Export Oriented Industrialization?
Selective use of
FDI (Foreign
Direct
Investment)
Reduced
possibility of
BOP crisis
Gov’t
Complements
market forces
Correction of
market failure
high set up costs
of exports
imperfection
information.
Meritocracy in
allocating credit
South Korea
Up-to-date
Selective, short-
term protection-
International
competition
makes infant
industries grow
up.
New Machinery
introduced.
Experience
w/overseas
market

14. Korea Trade Promotion Agency (KOTRA)
Helped Korean
businesses
how to market
their products
in foreign
countries
Scoured the
world for new
export
markets
Key to
overcoming
the obstacles
early
exporters
faced

15. Results (1961-73)
Exports
skyrocketed:
trade deficit
stayed under
$1 billion
Huge
Success
Export: $33
Million >
$3.3 Billion
(100 times)
Imports:
$343
million >
$3.8 Billion
(11 times)
Investment:
6% of GDP
> 23 % of
GDP
South Korea established a firm
international standing in light
industries e.g. shoes, clothes,
plywood etc.
Raw Materials + Machinery for
export industries

16. Five Year Plan
Emphasized
industrial
growth rather
than food self-
sufficiency
Five Year Plan (FYP)
GOAL: lay a foundation for future
economic growth by developing a
base industry in South Korea
Aims to increase
wealth within
South Korea and
Strengthen
Political
stability.
Change in Policy.
Import
substitution
industrialization
to export
oriented growth
Nathan Plan
UN plan for the
economic
recovery of
South Korea.
Not
Implemented
Second FYP (1967-1971)
South to shift the
South Korean
state into heavy
industry
Emphasized
textile exports as
a leading sector
Increasing the
Public sector for
social overhead
capital
investment

17. The Big Push (1973-79) Fourth FYP 1977-1981
HCI (Heavy and
Chemical Industries)
Five Year Plan (FYP)
Aims: Build up defense
Shipbuilding,
Machinery, Chemicals,
Steel, Electronic,
Automobile
Unprecedented
industrial expansion
Good: gain experience in
heavy industries, which
create far more added
value; acquire
managerial skills;
economies of scale
Bad: Policy loans caused
massive inflation in
1970s; some target
industries didn’t work
out in the end (i.e.
aluminum)

18. “Reverse brain drain”
KAIST (Korea
Institute of
Science of
Technology)
•Engineering
education
Lure Koreans
who’d been
educated overseas
with attractive pay
packages
State-
owned
enterprise
World Bank
refused to
finance the
Project
Park Tae Joon used
personal
connection in
Japan to channel
reparations (for
past Colonization)
Cutting-edge managerial
techniques and scientific
knowledge
Ran like
military
Rapid construction schedule +
high quality standard.
Long work hours (60-70 hour
work week)
Become one of
the Largest,
most efficient
steel maker in
the world
Opened up the
way for heavy
industries

19. Rise of Chaebols
 Today South Korea is a highly Industrialized country.
 National conglomerates (groups) run by founding families
 Profitable firms subsidize less profitable firms within the
conglomerate (cross-subsidization)
Factors
 Scarce credit + abounding investment opportunities
 Red tape – lots of paperwork
 Export promotion – bigger is better in export market
 State-owned banking sector – political clout was a must to secure loans

20. Quite a few became Successful Global Multinationals
Samsung Electronics world’s larges information technology
Company, Samsung Heavy industries, Samsung Life insurance
worlds 14th
largest life insurance company.
SAMSUNG
LG Corporation is the 4th
largest company in South Korea and
become second largest in USA market share.
LG Electronics, LG Telecom, LG Display and LG Solar Energy
LG
Corporation
DAEWOO Group of Industries, Daewoo Motors, Daewoo
Electronics, Daewoo Heavy industries, Daewoo Shipping
DAEWOO
GROUP
Hyundai Motor Groups second largest automakers in Asia and
fourth largest automakers in the world.
Hyundai
Motor
Group
Chaebols of South Korea
Earlier : The Centrally planned and government directed investment
Now: Completely market oriented economy

21. USA
$ 16.768
China
$ 16.149
India
$ 7.277
Japan
$ 4.788
Germany
$ 3.621
Russia
$ 3.559 Brazil
$ 3.073
France
$ 2.587
Indonesia
$ 2.554 UK
$ 2.435 Mexico
$ 2.143
Italy
$ 2.066
South Korea
$ 1.790
GDP in trillions of U.S. dollars. Data: IMF, WB, CIA WFBook.
South Korea is 13th
Largest Economy of the World (GDP “2013 by IMF
and WB” )
Third Largest in AsiaDonor to international Financial AidMember of OECDFour Asian Tigers (South Korea)G-20

22. Conclusion
“Tiger Daddy State”
 Economic development in exchange for political freedom
 Single party corporate state speeded up development
 Businesses were forced to compete overseas
 Leadership was pragmatic and flexible
 Took maximum advantage of international + domestic politics
 EOI as result of policy adaptation
 Acknowledged role of businessmen and Entrepreneurs
 Recognized need for advanced foreign technology

23.  It takes right kind of “parenting” to develop a country’s industrial
base to internationally competitive level
– South Korea: Too authoritarian
– Latin America: Too overprotective
Countries should integrate into world economy, on their own terms
 Infant industries need some time to grow and mature
 The individual cannot overcome market failures
 The individual succeed only so far as his country provides him
opportunities to do so
Conclusion

24. Degrees of Success
• Budget deficits were kept within the limits of their financial
limits, as to not destabilize the macro-economyBudget deficits
• Debt levels during 1980-1985 was quite high compared to their
GNP ratios, it was sustained by the country’s high levels of
export
External debt
• Exchange rates had been changed from long-term fixed rate
regimes to fixed-but-adjustable rate regimes with the occasional
steep devaluation of managed floating rate regimes
Exchange rates

25. THANK
YOU