Korea's economic development

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Political Economy of Development, Korea and East Asia

Bekmamat Alimzhanov

Korea's economic development

Korea came to World War II as one of the world's poorest countries with a predominantly agricultural economy. The post-war devastation and the Korean War did not contribute to the sustainable development of the economy. The government of Lee Syn Man was based on economic aid to foreign countries, particularly the United States. The national economy was in decline, incomes were very low.

After the division of Korea into two parts - North and South Korea - long-standing relationships collapsed between the agrarian South and industrial North. South Korea was deprived of such industries as metallurgy, chemical, cement. In the south were concentrated industries of light and food.

The Korean War finally undermined the country's economy. After the war, the allies of the South, with the assistance of the government developed a plan to promote the South Korean economy. The United States provided in the 1954-1959 years of about $ 1.5 billion in grants and loans. This money were mainly spent on the purchase of US food and consumer goods, only a small portion went to restore productive infrastructure of industry and agriculture. However, in the early postwar years, US assistance helped the relatively rapid recovery of the economy.

By the beginning of 1958 the number of unemployed and semi-unemployed amounted to about 4.3 million people.

Since the early 60-ies of XX century, the Korean economy was rapidly developing. For three decades, gross domestic product grew by an average of 8% for a year, raised from 2.3 billion dollars in 1962 to 204 billion in 1989.

The most important factor in accelerating development of the economy was the economic policy of the new President Pak Chonhi, who directed the government's efforts to attract foreign investment and increase in the volume of exports and industrialization of the economy. The state played a more prominent role in the economic life of society.

During the development of light industry from 1962 to 1971, foreign investment amounted to $ 2.6 billion, mostly in the form of loans provided by the government and the private sector. Focusing on the industrial sector of the economy and export-oriented development strategy, the government artificially increased the gap between the industrial and agricultural areas in the economy.

By the early 1970s the industrial sector of the country was faced with problems. Prior to this national industry produced cheap products using cheap labor, this increased the competitiveness of South Korean goods, and stimulated a policy of protectionism on the part of other developing countries. The government responded to this by increasing in funding of heavy and chemical industries and the direction of investment in capital-intensive and high-tech industries.

The structural transition to a capital-intensive industry was difficult. The situation is complicated by the fact that in the late 1970s was a global energy crisis, which led to increase oil prices and limits the range of South Korean exports. In 1980, the South Korean economy experienced a temporary crisis: for the first time since 1962 the national economy showed negative growth, inflation was increased.

In the early 1980s the government began large-scale economic reforms. In order to curb inflation were adopted stringent policies. Money supply growth was limited to 30%, but in 1970 to 15%. The budget was frozen for some time. Government intervention in the economy decreased and foreign investors had more liberal conditions. In order to narrow the gap between town and country, the government increased the volume of investment in projects such as road building, networking, communications and mechanization of rural labor.

These measures helped the South Korean economy to its previous level of growth in the second half of the 1980s.

At the end of the 1980s, the domestic market became the basis of economic growth. Growth in demand for cars and other big-ticket items increased strongly as a result of the overall solvency of the population growth. Because of this government's economic policy primarily aimed at the export of Korean goods. It changed the direction of the provision that led to a reduction in dependence on other countries. industrial economic reform restructuring

In the 1990s South Korea gradually came into the world economy. However, by 1990 it became clear that the high growth rates of the 1980s slowed down. Stable economic development of the Korean economy was interrupted in 1997 along with the global economic crisis. In October 1997, it began a sharp depreciation of the won against the dollar. By November 21, 1997 foreign exchange reserves of the country were almost completely exhausted and in order to prevent a complete collapse of the economy the government was forced to make large loans from the International Monetary Fund.

A series of measures taken by the government, including a number of economic reforms that allowed South Korea emerge from the crisis. Restructuring of large companies, the privatization of banks and the overall liberalization of the economy were the main directions of the government. In 2004, the economic outlook did not look as good as a few years before. Active trade with China was a good factor for the development of South Korea.

Currently, the South Korean economy is based on the production of consumer goods, such as electronics, textiles, automobiles, as well as heavy industry sectors: shipbuilding, steel production. The products of these industries are the main export item. The economic crisis of 2008-2010 greatly affected for the economy of South Korea. In 2008, the decline in industrial production in the country amounted to 26%, increased unemployment, and decreased significantly the won against the dollar. During 2009, the economy was gradually recovering, was aided by a government program to combat the crisis and the depreciation of the won in 2008, which created favorable conditions for Korean exporters. Growth accelerated in 2010, after the beginning of the recovery of world markets.

The economy of South Korea as of 2009 was the 14th in the world in gross domestic product and 15th in the world by nominal GDP. Gross national product per capita increased from $ 100 in 1963 to 28 000 US dollars in 2009.

In 1961 General Pak Chonhi overthrew the regime of Prime Minister Chang Men. The main focus of his actions in the economic sphere was the transformation from a backward agrarian country into a modern industrial country. Since his government South Korea's economy had tremendous growth.

Administration of Pak Chonhi agreed that economic development must play a key role centralized management. Established situation as a result of government measures included the structure of the economy as the elements of state capitalism and free trade. It was appeared during the rule of General Pak. In the country a large private companies engaged in various activities. The government retained ownership of the railways, electric power sources, water supply, roads and ports.

There was a large-scale nationalization. The entire banking system came under the control of the state. A number of activities designed to improve the situation in the agricultural sector.

The main economic aims of the Government of Pak Chonhi were to strengthen key industries, reduction of unemployment and the development of more effective management techniques. Measures were aimed in increasing the level of exports, which means strengthening the competitiveness of South Korean products and productivity. Key industries were found as electronics, shipbuilding and automotive industries. The government strongly encouraged the opening of new production facilities in these industries. As a result of these measures, growth in industrial production was 25% per year, and in the mid-1970s, the rate increased to 45% per year.

The main problem faced by the government of Pak Chonhi in the early 1960s was widespread poverty of the population. It was also necessary to increase state reserves in order to stimulate industrial growth. Domestic savings of government were very small. As a result the government began actively to borrow money from other countries, and create tax incentives to attract foreign capital into the country. In 1985, the country's foreign debt amounted to $ 46.8 billion. Foreign investments were mainly from Japan and the United States.

The government was able to mobilize domestic capital of the country with a flexible system for the promotion of investments, which was different for different industries and their export potential. The government also restructured many industries, such as the military-industrial complex and construction.

Since the 1960s South Korea passed the years of incredible growth and global integration to become an industrialized economy based on high technology. Four decades ago, GDP per capita was comparable with that in the poorest countries of Africa and Asia. In 2004, South Korea became a member of the club of countries with GDP of more than one trillion dollars, and is currently among the 20 largest economies in the world. Initially, this success was made possible due to the close connection of the system of government and business, including directed credit and import restrictions. The government stimulated the import of raw materials and technologies for the production of consumer goods and encouraged savings and investment consumption.

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