South Korean Economy Analyzed

southwestern Korea in recent decades has been one of the most dynamic economies in the world. over the period from 1965 to 1990, the rate of harvest-tide of per capita GNP was greater than that of any other country in the world (Watkins 1999). Major Korean enterprises such as Lucky Goldstar and Samsung are now common household brand name two over the world. As head, Hyundai and Daewoo, the two leading South Korean auto manufacturers, both offer products that are able to compete on the worldwide market along with other major car producers.In analyzing the South Korean economic organisation, it is important to look at the various factors rear end this remarkable success story. The boom and rapid expansion of the Korean economy is due largely in part to the stem turn changes and new policies introduced infra the greenness Chung Hee authorities of 1961-1979. momentous new economic policies included reinforcing the system of chaebol, creating a policy of import substitut ion with an export-led approach, fostering the emergence of industries designed to compete effectively in the worlds industrial export markets, nationalizing the banking concerns, as well as working on to educe Koreas large external debt.It is these policies, introduced end-to-end the 1960s and 70s, which caused a future boom in South Koreas economy and poke out to influence it at the present daylight. One extremely important horizon of the South Korean economy is the concept of chaebol. Fathered by Park Chung Hee in the early 1960s, chaebol are conglomerates of many companies clustered around one prop company. The parent company is usually envisionled by one family.It started off as a few sparely selected large firms encouraged to tailor their process and production targets to meet South Korean political sympathies objectives and were dependant on state-owned banks for the credit they needed to operate and grow. Government-chaebol cooperation was essential to the subse quent economic increase and astounding successes that began in the mid-1960s. The chaebol were able to grow because of two factors foreign bestows and special favors (Song 1997). Access to foreign technology also was critical to its growth throughout the 1970s and 80s.Under the guise of guided capitalism, the government selected companies to undertake projects and channeled cash in hand from foreign loans. The government guaranteed repayment should a company be inefficient to repay its foreign creditors. Additional loans were made available from domestic banks. In the late 1980s, the chaebol dominated the industrial sector and were especially prevalent in maufacturing, trading, and minatory industries. Today, the chaebol remains the backbone of South Koreas economy. Examples of chaebol include Samsung, Daewoo, and Goldstar.To give an base to how successful and powerful this economic concept evolved into, in 1983, the countrys three largest corporations, all under the chaebol system, accounted for over a third of South Koreas entire rough-cut National Product (Ibid, p63). The 1960s saw the reduction of U. S. fear to South Korea, aid which had largely kept the country afloat for the past decade hobby the Korean War. This made feasible the import substitution strategy the Park Chung Hee government had ceremonious.Combining a policy of import substitution with an export-led approach, government policy throwners selected a group of strategic industries to back, including electronics, shipbuilding, and automobiles. New industries were nurtured by do the importation of such goods difficult. When the new industry was on its feet, the government worked to build good conditions for its export. Incentives for exports included a reduction of corporate and private income taxes for exporters, responsibility exemptions for raw materials imported for export production, business tax exemptions, and accelerated disparagement allowances (Kim 1997).This strategy wa s largely responsible for establishing Koreas strong export-led industries that exist today. Favorable conditions squiffy that there will always be a demand for their product, both domestically and overseas. In the latter part of Parks reign as president, he fostered the development of industries designed to compete effectively in the worlds industrial export markets. These major strategic industries consisted of technology-intensive and skilled labor-intensive industries such as machinery, electronics, and shipbuilding.The jut stressed large grievous and chemical industries, such as atomic number 26 and steel, petrochemicals, and nonferrous metal. As a result, heavy and chemical industries grew by an impressive 51. 8 percent in 1981 (Amsden 1992) their exports increased to 45. 3 percent of total outturn (Ibid, p103). These developments can be ascribed to a favorable turn in the export performance of iron, steel, and shipbuilding, which occurred because high-quality, low-cost p roducts could be produced in South Korea. By contrast, the heavy and chemical industries of advanced countries slumped during the late 1970s.This strategy helped to establish South Koreas economic role as a major worldwide industrial exporter, level(p)tide in a time of turmoil created by the OPEC debacle. It was a plan that was carried right through the 1980s and well into the 90s by successive governments, who recognized its radiation diagram for success. When Park took control in 1961, one of his first orders of business was to bear government control over business by nationalizing the banks. As well, he merged the agricultural cooperative movement with the agricultural bank.The governments direct control over all institutional credit further extended Parks education over the business community. The Economic Planning Board was created in 1961 and became the brass center of Parks plan to promote economic development (Kearny 1991). The Board exists to this day it is charged pr imarily with economic planning, as well as organize the economic functions of other government ministries. The Bank of Korea continues to exist as a government-controlled financial institution, operated by the Ministry of Finance.In 1975 South Korea was the fourth largest debtor among developing countries with external debt totaling nearly $47 one million million U. S. (52 percent of GNP) (Kim 1997). The Park government used its substantial current account surpluses between 1976 and 1979 to reduce and even repay its foreign debt. South Korean banking institutions were banned from obtaining long-term bank loans until the end of the year. The government also reduced the availability of foreign property loans. This strategy worked, and as a result, South Koreas gross foreign debt dropped to $29. billion U. S. in 1979 (Ibid, p. 74).The dramatic reduction of the debt by the Park government established a solid groundwork for economic growth and expansion by successive governments in th e 1980s and 90s. Today, South Korea has in place solid debt guidance policies and has graduated from its status as a World Bank loan recipient. In analyzing the South Korean economy, it is not hard to see why it has developed into the worlds 11th largest economic system (Song 1997). The truth is in the numbers.During the 1970s, roughly estimates indicate, Seoul had the worlds most productive economy. The annual industrial production growth rate was about 25 percent (Ibid, p131) there was a quintuple increase in the GNP from 1965 to 1978 (Ibid, p131). In the mid-1970s, exports increased by an amount of 45 percent a year (Ibid, p132). Today, it is a major exporter of electronics, heavy machinery, and automobiles. The remarkable success of this dynamic economy can be attributed to the radical new economic policies and changes brought about by the Park Chung Hee government of 1961-1979.Significant new economic strategies included developing the system of chaebol, creating the import -substitution policy, fostering the development of industries designed to compete in the worlds industrial export markets, nationalizing financial institutions, as well as working on to reduce South Koreas large external debt. Successive governments continued to implement these policies and many are shut away in place today. South Korea is definitely an economic powerhouse to be reckoned with, and the world may still have yet to feel the ire of this Asian Tiger.