Dr. Alejandro Diaz-Bautista, Korea Mexico Economy Presentation, University of Colima 2010
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Dr. Alejandro Diaz-Bautista, Korea Mexico Economy Presentation, University of Colima 2010

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“Competitiveness and Economic Growth. An Analysis of Mexico and Korea.” Crecimiento Económico y Competitividad. Un Análisis de México y Corea. ...

“Competitiveness and Economic Growth. An Analysis of Mexico and Korea.” Crecimiento Económico y Competitividad. Un Análisis de México y Corea.
Dr. Alejandro Díaz-Bautista
Professor of Economics and Researcher at
El Colegio de la Frontera Norte (COLEF)

Profesor Investigador del Colef. Miembro del SNI Conacyt.

adiazbau@hotmail.com

Prepared for the Conference at the Faculty of Economics, University of Colima, April 29-30, 2010. Colima, Colima, Mexico.

Preparado para la Conferencia en la Facultad de Economía de la Universidad de Colima, para los estudios en Cuenca del Pacífico en la Universidad de Colima, los días 29 y 30 de abril de 2010.

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  • 1. “ Competitiveness and Economic Growth. An Analysis of Mexico and Korea.” “ Crecimiento Económico y Competitividad. Un Análisis de México y Corea.” Dr. Alejandro Díaz-Bautista Professor of Economics and Researcher at El Colegio de la Frontera Norte (COLEF) Profesor Investigador del Colef. Miembro del SNI Conacyt. adiazbau@hotmail.com Prepared for the Conference at the Faculty of Economics, University of Colima, April 29-30, 2010. Colima, Colima, Mexico. Preparado para la Conferencia en la Facultad de Economía de la Universidad de Colima, y para los estudios en Cuenca del Pacífico y APEC en la Universidad de Colima, los días 29 y 30 de abril de 2010.
  • 2. Korean Economy
    • Economy - Overview: Since the 1960s, South Korea has achieved an incredible record of growth and global integration to become a high-tech industrialized economy. Four decades ago, GDP per capita was comparable with levels in the poorer countries of Africa and Asia. In 2004, South Korea joined the trillion dollar club of world economies, and currently is among the world's twenty largest economies. Initially, this success was achieved by a system of close government and business ties including directed credit and import restrictions. The government promoted the import of raw materials and technology at the expense of consumer goods, and encouraged savings and investment over consumption .
  • 3.  
  • 4. Korean Economy
    • The Asian financial crisis of 1997-98 exposed longstanding weaknesses in South Korea's development model including high debt/equity ratios and massive foreign borrowing. GDP plunged by 6.9% in 1998, then recovered by 9% in 1999-2000. Korea adopted numerous economic reforms following the crisis, including greater openness to foreign investment and imports. Growth moderated to about 4-5% annually between 2003 and 2007. With the global economic downturn in late 2008, South Korean GDP growth slowed to 2.2% in 2008 and declined 0.8% in 2009. In the third quarter of 2009, the economy began to recover, in large part due to export growth, low interest rates, and an expansionary fiscal policy. The South Korean economy's long term challenges include a rapidly aging population, inflexible labor market, and overdependence on manufacturing exports to drive economic growth .
  • 5. Mexican Economy 2010
    • Mexico per capita income is roughly one-third that of the US; income distribution remains highly unequal. Trade with the US and Canada has nearly tripled since the implementation of NAFTA in 1994. Mexico has 12 free trade agreements with over 40 countries including, Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan, putting more than 90% of trade under free trade agreements. In 2007, during its first year in office, President Calderon was able to garner support from the opposition to successfully pass a pension reform. The administration passed an energy reform measure in 2008, and another small fiscal reform in 2009.
    • Mexico's GDP plunged more than 7% in 2009 as world demand for exports dropped and asset prices tumbled, but GDP is expected to post positive growth late in 2010.
    • The Calderon administration continues to face many economic challenges, including improving the public education system, upgrading infrastructure, modernizing labor laws, and fostering private investment in the energy sector. President Calderon has stated that his top economic priorities remain reducing poverty and unemployment, and creating jobs.
  • 6. Transformation of the Korean Economy (1945-2003)
    • Growth Trend
    Liberation from Japanese Colonial Rule 6 Five-Year-Economic- Development Plans Financial Crisis 2003 P 1980 1962 1970 1995 5,000 10,000 67 87 11,432 7,355 1953 Per Capita (US$) GNI 1990 1945 12,646 OECD Member 100(1964) 1,000(1977) 1998
  • 7. Economic Take-off with Outward-looking Development Strategy (1960-80).
    • Economic Conditions of the early 1960s
    Capital Shortage Weak Technology Base Underdeveloped Private Sector Abundant Labor Strong Economic will High Level of Education ?
  • 8.
    • Working Mechanism of the Outward-looking
    • Development Strategy
    Economic Growth Reproduction Export Promotion Manufacturing Processing Private Enterprises Government Technology Development Financial  Tax Support Well-educated Labor force Foreign Technology Imports Capital Good Imports Raw Material Imports Foreign Capital Inducement (Economic Aids  External Debt )
  • 9.
    • Education & HRD in Korea : Attainments
    • Quantitative profile : impressive, well above the OECD average
      • Education up to the college level almost universalized
        • College Advancement > 80 %
        • Net Enrollment for the aged 18~21 = 41%, (No. 5 in the World)
    • Superb academic performance : global leader ( PISA)
    Size and Composition of Educational Investment (2000) (Unit: %) OECD AVG KOR U.S. JPN UK Germany GDP share 5.5 7.7 7.0 4.6 5.3 5.3 Public-financed 4.8 4.9 4.8 3.5 4.5 4.3 Private-financed 0.6 2.8 2.2 1.2 0.7 1.0 OECD, Education at a Glance 2003. Korean figures are for 2003.
  • 10.
    • Change in Industrial Policies during the 1970s:
    • from Light Industry to Heavy and Chemical Industry
    • Mobilizing Financial Resources
    • Selecting National Champions
    • (“Chaebol”)
    • Accelerating Competition
     Iron and steel  Electronics  Petro-chemical products  Automobile  Ship-building  Machinery Chaebol (en hangul , 재벌 ) es un modelo empresarial basado en grandes conglomerados con presencia en distintos sectores económicos, que se ha desarrollado en Corea del Sur . Las compañías que presentan esta peculiaridad se caracterizan por su fuerte crecimiento, desarrollo tecnológico, diversificación y una fuerte dimensión empresarial. La palabra en coreano significa " negocio de familia ", aunque también se utiliza para referirse a un monopolio .
  • 11.
    • Changing Industrial Structure:
    • from Agriculture to Manufacturing /
    • from Light Industry to Heavy and Chemical Industry
    Changes in Export Commodity Profile 1960 1970 1990 1999 1980 HCI Product Agricultural Product Light Industry Product 50% Wig Automobile Semiconductor Textile 2003 Semiconductor, Mobile Phone, DTV, Display, Automobile, Ship-building, etc. 84.8% 12.4% 2.8% (ICT, 27.6%)
  • 12. Changes in Development Strategy (1980-2000)
    • Pitfalls of the Government-led Economic Development
    • Inefficient Resource Allocation
    • Macroeconomic Instability
    • Rising Inequality
    Financial Suppression due to Prolonged Government Intervention High Large Fiscal Deficits Over-investment in Inflation
    • 1979 : Negative Export Growth for the first time since 1960
    • 1980 : Negative Economic Growth (-3.9%)
  • 13.
    • Stabilization Policies in the Early 1980s
    Budget Freeze/Cut Zero-Based Budgeting Phasing-out of Policy Loans and Interest Rate Deregulation Investment Adjustment Inflation at around 3% Disinflation Current Account Surpluses Strong Exports GDP Growth of 8% per annum High Economic Growth
  • 14. Delayed Economic Reform and Financial Crisis of 1997 Increased Vulnerability to External Shocks IMF Rescue Package
    • Massive Capital Outflow
    • Denied Rollover of
    • Short-term External Debt
    Continued Government Intervention / Weak Prudential Regulation Problems in the Financial Sector South-east Asian Crisis High Corporate Debt Leverage Widespread Moral Hazard
  • 15.
    • Firm Failures and Unemployment, 1996-99
    0 5 10 15 20 25 30 1996 01 1996 04 1996 07 1996 10 1997 01 1997 04 1997 07 1997 10 1998 01 1998 04 1998 07 1998 10 1999 01 1999 04 1999 07 1999 10 2000 01 2000 04 (%) 0 5,00 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Overnight inter-bank call rate Unemployment rate No. of firm failures Source: Choi(2001), Bank of Korea, and National Statistical Office.
  • 16. Swift Crisis Resolution and Economic Recovery Cleaning up Non-performing Loans Accelerating Liberalization Improving Corporate Governance Expanding Social Safety Net - Early Graduation from the IMF Program - Foreign Reserves of more than USD 200bn in 2004 Improved External Positions - GDP Growth: -6.7% (1998)  10.7% (1999) - Unemployment: 6.8% (1998)  3.5% (2004) Rapid Economic Recovery - Debt-equity Ratio: 396% (1997)  182 (2002) - No. of Banks: 33 (1997)  20 (2001) Stronger Corporate and Financial Sector
  • 17. Five-year Economic Development Plans
    • State-led Planning (1962-76); 1st, 2nd, and 3rd Five-year Economic Development Plans
      • Suitable for an under-developed, small-sized economy with a relatively simple structure
      • Focused on setting up sectoral investment plans and mobilizing and allocating domestic and external resources to support the implementation of the plans
      • Supplemented by annual Economic Management Plans
  • 18.
    • Indicative Planning (1977-91); 4th, 5th, and 6th Five-year Economic Development Plans
      • To cope with the growing size and sophistication of the economy
      • Giving a greater role to private initiatives
      • Reflecting a growing concern on equity issues
      • Medium-term Fiscal Plan introduced in the early 1980s to bridge the gap between EDPs and annual budgeting
        • Not published to the public
        • Not tightly linked to annual budgeting
  • 19.
    • Strategic Planning (1992-96); 7th Five-year Economic and Social Development Plan
      • Addressing strategic issues to be tackled through a concerted effort by the government and the private sector
      • Replaced by the Five-year Plan for New Economy in 1993
        • Setting out various reform agenda -- fiscal, financial, and regulatory reforms, accelerated external liberalization, improved social equity
        • “ Planning” effectively abandoned
  • 20. Organizational Structure of the Planning Function
    • Economic Planning Board (1961-94)
      • “ Super ministry” in charge of both planning and budgeting
      • Preparing Five-year EDPs and annual EMPs
      • Coordinating economic polices
        • Head of EPB holding the post of Deputy Prime Minister and chairing Economic Ministerial Meetings
      • Allocating domestic and external resources for economic development
  • 21.
    • Ministry of Finance (1948-94)
      • Financial market, monetary policy, tax policy, treasury
    • Ministry of Finance and Economy (1995-)
      • EPB and MOF merged to produce MOFE
      • “ Planning” effectively abandoned
      • In 1998, transferred budgeting, prudential regulation, and monetary policy to MPB, FSC, and BoK, respectively.
      • Still in charge of coordinating economic policies
  • 22.
    • Ministry of Planning and Budget (1998-)
      • Responsible for central government budgeting
      • Increasing its role in long-term planning and policy coordination with the introduction of MTEF
  • 23.
    • Economic Growth and Poverty Reduction in Korea
      • Before 1997
    Poverty Reduction Government-led development strategies Export-driven industrialization Successful birth control Economic growth Decrease in absolute poverty rate
  • 24.
      • Since 1997
    Emerging Issues
    • Relative poverty
    • Inequality
    • Bi-polarization in
    • Income distribution
    After the Financial Crisis Financial Crisis (1997)
  • 25.
    • Economic Growth and Reduction in Absolute Poverty
      • Rapid economic growth contributed to the decrease in absolute poverty rates: “Floating Effect”
    IEconomic Growth, Poverty and Inequality in Korea Economic Growth and Absolute Poverty 710 (1965) 14,162 (2004) 41.4 (1965) under 1~2 (2004) GNP per capita (US$) Absolute poverty Rate (%)
  • 26. Economic Growth, Poverty and Inequality in Korea Economic Growth and Absolute Poverty in Korea
  • 27.
    • Key Factors for Reducing Absolute Poverty
      • Active and heavy investment in human and physical capital by the public and the private sectors
      • Effective family-planning policies
    Economic Growth, Poverty and Inequality in Korea Strong family planning programs 4.53 (1970) 2.83 (1980) 1.59 (1990) Trend in Total Fertility Rate
  • 28. Trend in the Relative Poverty Rates Economic Growth and Relative Poverty
    • Increase in the Relative Poverty Rates
      • 8.6% in 1996  10.0% in 2000  11.7% in 2004 .
      • (poverty line: 50% of medium income)
    Economic Growth, Poverty and Inequality in Korea
  • 29.
    • Factors for the Increase in Relative Poverty
      • Globalization, and industrial and job insecurity
      •  increase in the working poor
      • Low fertility and population ageing
      •  increase in the poor aged
      • Changes in family structure and the break-up of families  Increase in the poor female householders
    Economic Growth, Poverty and Inequality in Korea
  • 30.
    • The importance of the strategies is increasingly recognized :
      • To tackle relative poverty issues
      • To enhance equal income distribution
      • To promote social integration
    Economic Growth, Poverty and Inequality in Korea
  • 31.
    • Economic Growth Rate and the Gini Indicator
    Sources: Raw data from the Korea National Statistical Office's 『 Survey of Urban Households 』 (published annually), for each year The Bank of Korea's website data, for each year Economic Growth, Poverty and Inequality in Korea
  • 32.  
  • 33. Changes in Poverty Reduction Strategies in Korea Changes in Principle
      • National development strategy before 1997
      • Concentrating on economic growth
      • Welfare as residual measures for the poor
      • Development strategy since 2003
      • Harmonized approach between growth and welfare
      • focusing on sustainable development
    “ Growth First, Welfare Later” “ Growth Together with Welfare”
  • 34. III. Changes in Poverty Reduction Strategies in Korea Changes in Target Beneficiaries Changes in Poverty Reduction Strategies in Korea
    • The poor
    • unable
    • to work
    • The poor
    • able to work
    • unable to work
    • The poor
    • and the near poor
    • able to work
    • unable to work
    Financial Crisis “ Participation Government” 1948~1997 1998~2002 2003~
  • 35. Composition of Korean Overseas Direct Invesment 2004
  • 36. Composition of Korean ODI in Manufacturing in LAC, 2004
  • 37. Samsung Tijuana Park Case Brief Introduction - Samsung Tijuana Park: Three Plants 1) Samsung Mexicana (Samex): Television sets, computer monitors, cellular phones and computers. 2) Samsung Display Interface Mexicana (SDIM): Cathode-ray tube (CRT) monitors. In 1997, the plant began to produce Liquid Crystal Display (LCD) monitors. 3) Samsung Electro-Mecánicos Mexicana (SEMSA) Electronic Components for televisions, monitors.
  • 38. Samsung Tijuana Park Case Major Features - Investment amount: Over US$ 200 million. Samsung Group owns 100% of stocks. - Employment: 6,000 full-time employees. - Operation rate: 96.2%. - Sales: 2,059 million US$ - Production: Monitor, 4 million sets (CDT models: 5, LCD models: 9); TV production, 3 million sets (TV models: 90); Assembled PCs, 100 thousand; HHP production, 900 thousand.
  • 39. Samsung Tijuana Park Case Electronics initiated its SAMEX as a Maquiladora to assemble television sets in 1988. Aimed entirely at the North American Market. First Investment Capital: U$3,700 million 2) After NAFTA, its target market from North America to Mexico. 3) In 1994, Samsung Group inaugurated Samsung Tijuana Park 4) Integrate components and finished goods vertically. 5) Over 200 million US$ was invested. Until 2001, five new plants and renovation continued. How Successful? 1) 30 % to Mexico Market in 2003. 2) Turnover rates only 3% in 2003 3) No labor union yet.
  • 40.  
  • 41. World Trade 2009
    • The World Trade Organization (WTO) expect a decline in world merchandise trade volume by 10 percent in 2009, according to World Trade Report 2009: Trade Policy Commitments and Contingency Measures which examines various trade agreement measures used by governments in times of economic crisis.
    • While annualized quarterly growth rates of world trade was dropping at a rate of more than 20%.
  • 42.  
  • 43.  
  • 44.  
  • 45. Free Trade Negotiations
    • Both countries are committed to enhance the Mexico-Korea Strategic Partnership by increasing economic, social and cultural exchanges, and through cooperation projects in various areas of common interest.
    • Mexico is Korea’s first trading partner in Latin America [and 10th globally] while Korea is Mexico’s 6th most important partner.
    • There is still hard work and lobbying to be done by both sides in order to convince important sectors of our economies of the benefits of an FTA, which will expand investment and business opportunities between both countries.
  • 46. 2006 GDP per capita* $6,621 $3,308 $27,992 $20,572 $8,065 $ $8,862 Economic Growth in Asia *2006 GDP per capita is shown as PPP (purchasing power parity in constant 2000 international $) Source: World Bank WDI
  • 47. 2006 GDP per capita* Economic Growth in Latin America, Mexico, & the Caribbean $13,652 $7,826 $10,939 $6,886 $9,967 $5,725 $6,485 $8,862 *2006 GDP per capita is shown as PPP (purchasing power parity in constant 2000 international $) Source: World Bank WDI
  • 48. Economic Growth in the U.S. and Canada 2006 GDP per capita* $30,278 $38,165 $8,862 *2006 GDP per capita is shown as PPP (purchasing power parity in constant 2000 international $) Source: World Bank WDI
  • 49. (Var. % anual) Fuente: INEGI y Us Federal Reserve. ¿ Podemos ver en la recesión, la caída de la producción industrial en México y los Estados Unidos?
  • 50. The World Economic Forum
    • The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape the global, regional and industry agendas.
    • Established in 1971, the Forum has its headquarters in Geneva, Switzerland, with offices in New York and Beijing.
  • 51. The World Economic Forum Member Communities
    • Strategic Partners
    • Industry Partners
    • Forum Members
    • Global Growth Companies
    • Technology Pioneers
    • Thought Leaders (religion, culture, science)
    • Media Leaders
    • Women Leaders
    • Young Global Leaders
    • Social Entrepreneurs
    • Governments and International Organisations
    • Civil Society
  • 52. The Global Competitiveness Report Data sources
    • Use of hard data (publicly available information) and survey data (from the Executive Opinion Survey)
    • The Executive Opinion Survey records the perspectives of business leaders around the world; survey data is indispensable, particularly for dimensions where no reliable hard data sources exist
  • 53. The Global Competitiveness Index Definition
    • The set of institutions, policies, and factors that determine the level of productivity of an economy .
    • The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy.
  • 54. The Global Competitiveness Index 2009-2010 Top 20 and selected economies
  • 55. Korean Competitiveness
    • South Korea ranked eighth among the G-20 countries in terms of national competitiveness, according to a report by the International Institute for Management Development (IMD) in 2010. The United States topped the list, followed by Australia, Canada, Germany, Japan, China and Britain. The report is based not only on economic activity but also other categories covering competitiveness in science, infrastructure, business and government efficiency. Korea, the host for the G-20 summit in November, was strong in science and infrastructure, but had poor showings in government efficiency and economic activity. The G-20 rankings are compiled from IMD's global survey with Saudi Arabia and the European Union excluded. Korea drew a high grade in basic research activities, a subcategory of the science environment field, sitting second to Germany. Japan and Britain were tied for third. In overall infrastructure, Korea placed eighth with the United States at the top of the list, and fourth in infrastructure competitiveness in science following the United States, Germany and Canada. However, its economic activity placed 14th, with the United States leading the countries, and its overall government efficiency was 10th.
  • 56. Korean Competitiveness
    • The report gave a high score to Korea, when it was placed fourth behind Indonesia, South Africa and Canada in fiscal policy management. Korea ranked ninth and 10th, respectively, in business efficiency and labor market conditions. "Above-average national competitiveness and national power contributed to Korea winning the bid to host the G-20 summit for the first time as an emerging nation“.
    • The G-20 comprises the economies of Argentina, Australia, Brazil, Britain, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Turkey and the United States as well as South Korea. A variety of top level conferences are scheduled in the lead-up to the November summit in Seoul. The G-20 summit was created at the height of the financial crisis last year in order to bring concerted power to fighting what was labeled the "Great Recession," after concluding that the existing G-7 was not encompassing enough to deal with the crisis.
  • 57. Mexican Competitiveness
    • Ranked 60th in the Global Competitiveness Index 2008-2009, Mexico presents important strengths in its market size, sophisticated business sector and diversified production structure as well as its sound macroeconomics fundamentals. However, a number of weaknesses remain in the quality of institutions, goods and labour markets, education standards, energy and innovation potential.
  • 58. Korea and the 2009 Crisis
    • The Korean won fell precipitously in U.S. dollar terms relative to the Japanese yen and Chinese yuan early in the downturn, helping to preserve the competitiveness of Korean exports. Korean consumers rallied to the cause, shifting purchases from imports to local products in behavior evocative of the "IMF sales" of the 1997 financial crisis.
    • As Korea emerges from the global recession, its biggest companies should revisit their strategies of international competitiveness. The era in which Korea can rely on labor market flexibility and exchange rate advantages is waning. Korea's historically successful globalization model will come under increasing pressure due to unsettled financial markets, a weakened U.S. dollar, increased protectionism, and stronger competitors.
  • 59. Economic Growth in Mexico 2010
    • Mexico’s Finance Ministry raised its forecast for economic growth this year to 4.1 percent in 2010, which would be the fastest pace in a decade, as U.S. shoppers increase demand for the country’s exports.
    • Consumer demand will also pick up in Mexico and spending on infrastructure will further stimulate the economy in 2010.
    • The expected recovery process in 2010 will be supported by greater growth in internal demand, thanks to a recovery in employment and lending, as well as infrastructure investment and expected growth in exterior demand.
    • Investment may increase 5.3 percent while consumption rises 4.2 percent. Mexico will generate 9.2 billion pesos ($745 million) of oil revenue above the budgeted amount because of rising crude prices.
  • 60. “ Competitiveness and Economic Growth. An Analysis of Mexico and Korea.” “ Crecimiento Económico y Competitividad. Un Análisis de México y Corea.” Dr. Alejandro Díaz-Bautista Professor of Economics and Researcher at El Colegio de la Frontera Norte (COLEF) Profesor Investigador del Colef. Miembro del SNI Conacyt. adiazbau@hotmail.com Prepared for the Conference at the Faculty of Economics, University of Colima, April 29-30, 2010. Colima, Colima, Mexico. Preparado para la Conferencia en la Facultad de Economía de la Universidad de Colima, para los estudios en Cuenca del Pacífico en la Universidad de Colima, los días 29 y 30 de abril de 2010.