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Globalization in south korea

Globalization in south korea

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Published by kaykiminkorea
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i didnt like to upload this file but had to

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Published by: kaykiminkorea on Feb 23, 2010
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05/23/2013

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Intro: according to American magazine, Foreign policy 2009, Korea is ranked as 29
th
of Globalization Index. And on another globalization index by kof, Korea ranked to 59
th,
thisarticle shows that korea is not so globalized as other developed countries. However, whatdoes it practically mean? In order to understand this, it is important to pre-comprehendeconomic history of korea in that it has unique cultural, historical and geographicalbackground. And then based on this, checking the globalization index of Koreaneconomy, we will figure it out korea’s economic trade is consistent with trade theory.
1.Korea : Economical History since 1950.
*1950s: right after Korean war
After the Korean War, Korean government get aid from the united states during 1950s tobuild an infrastructure that included a nationwide network of primary and secondaryschools, modern roads, and a modern communications network. The result was that by1961, South Korea had a well-educated young work force and a modern infrastructurethat provided a solid foundation for economic growth. South Korea signed in 1965 to Treaty on Basic Relations between Japan and the Republic of Korea. Hereby, South Koreareceived $800 million in grants and soft loans from Japan. The South Korea governmentspent most of its money establishing social infrastructures and corporation, investingsocial fundamental industry : POSCO(still mill), Gyeongbu Expressway and the SoyangRiver Dam.
*Rapid growth from 1960s to 1980s
As we can check with diagram, South Korea's real GDP expanded by an average of around 8.7% per year, which is from US$30.3 billion in 1960 to US$340.7 billion in 1989.GDP per capita grew from US$1,226 in 1960 to US$8,027 in 1989.[20] this rapid growth ismainly due to adapting of an "outward-looking strategy" in 1960s. As south korea hadpoor natural resource condition, high-savings rate, and small- domestic market, it hasbeen a good strategy for korea and worked in efficiency.this strategy mainly focused on labor-intensive manufactured exports ,which had leadkorean economic growth during 1960s-1970s, which was because south korea could havea competitive advantage. During this rapid growth, Korea government has playedimportant role to support its industry. The inflow of foreign capital was greatlyencouraged to supplement the shortage of domestic savings. These efforts enabledSouth Korea to achieve rapid growth in exports and subsequent increases in income.In the early 1980s, in order to control inflation, a conservative monetary policy and tightfiscal measures were adopted. Growth of the money supply was reduced from the 30
 
percent level of the 1970s to 15 percent. Seoul even froze its budget for a short while.Government intervention in the economy was greatly reduced and policies on importsand foreign investment were liberalized to promote competition. These measures, coupled with significant improvements in the world economy, helpedthe South Korean economy regain its lost momentum in the late 1980s. South Koreaachieved an average of 9.2 percent real growth between 1982 and 1987 and 12.5percent between 1986 and 1988. The double digit inflation of the 1970s was broughtunder control. Wholesale price inflation averaged 2.1 percent per year from 1980 through1988. Korea achieved its first significant surplus in its balance of payments in 1986 andrecorded a US$7.7 billion and a US$11.4 billion surplus in 1987 and 1988 respectively. This development permitted South Korea to begin reducing its level of foreign debt. Thetrade surplus for 1989, however, was only US$4.6 billion dollars, and a small negativebalance was projected for 1990.
*1990s : Asia Financial Crisis
South korean economy has kept stable and strong growth until Asian Financial Crisis,1997 ,which made it changed quickly. It was caused by speculators that several otherasian currencies were attacked , lead the heavy depreciation of the Korean Won inOctober 1997 and the non-performing loans of korea's merchant bank's problem madethe situation worse. Finally, the IMF had approved an aid which is amount of $21 billionloan to South Korea Goverment in December , 1997.Upcoming-goverment of which president is Kim Dea Jung had shut down a third of Korea'sbanks. During 1988, Korea's eocnomy had continued to shrink. Daewoo, One of theFamous Korean Auto moboile company had to be victim of Financial economic crisis duetoe dept problems and was purchased by Generala Motors, American automobilecompany.Due to Asian Financial Crisis, Korea Economy has beccome much dependent withInternational Lenders while sweeping korean dept, and while recovering from crisis, laborin south korea had to go through hard times by the labor adjustment like dynamic andpoductive labor market with flexible wage rates. Korean government declared the Crisiswhich is called as "IMF CRISIS" has been over at the end of 1999.
*21c : More dependent Korean Economy, More Globalized.
While recovering from the crisis, Korean economy continued strong gowth in 2000 : GDPgrowth : 9.1%. However, Growth fell back to 3.8% since 2001 due to the slowing globaleconomy, falling exports, and the perception that corporate and financial reforms hadstalled. More recently the economy stabilized and maintain a growth rate between 4-5%from 2003onwards.
 
After 2000, Opening Korean market-boom has been appeared in South Korea. SouthKorea relies largely upon exports to fuel the growth of its economy, with finishedproducts such as electronics, textiles, ships, automobiles, and steel being some of itsmost important exports. Although the import market has liberalized in recent years, theagricultural market has remained largely protectionist due to serious disparities in theprice of domestic agricultural products such as rice with the international market. In late2004, Despite of objection of local agriculture labor in south korea, an agreement wasreached with the WTO in which South Korean rice imports will gradually increase from 4%to 8% of consumption by 2014.
2. Globalization of Korean Economy
According to the KOF, Economic research institute Konjunkturforschungsstelle atETH Zurich, Korea is ranked to 59th on Globalization index which is combined toeconomically, socially and politically. On the Economic Globalization index, Korea isranked as 87th. Among the countries which belong to OECD, Korea was second -lowestranked next to Japan, of which economic globalization point is 53.23.In order to define what those mean, it is necessary to confirm the variables of Economicindex in advance : Followings
Indices and VariablesWeightsEconomic Globalization[38%]i) Actual Flows(50%) Trade (percent of GDP)(19%)Foreign Direct Investment, flows (percent of GDP)(20%)Foreign Direct Investment, stocks (percent of GDP)(23%)Portfolio Investment (percent of GDP)(17%)Income Payments to Foreign Nationals (percent of GDP)(21%)ii) Restrictions(50%)Hidden Import Barriers(21%)Mean Tariff Rate(29%) Taxes on International Trade (percent of current revenue)(25%)Capital Account Restrictions(25%)
As we see above, Actual flows and Restriction are main variables which decide toEconomic Globalization. Actual Flows is consist of Trade, FDI and Income payment toForeign Nationals, and Restrictions is consist of Hidden Import, Tariff Rate, Taxes onInternational trade and Capital account restriction. It means the more actual flows, lessrestrictions One’s economy has, the more economic globalized it is according to KOF.Checking the diagram below which show Korean economy’s, compared Worldeconomy’s, Korean economic globalization is below to the mean of world economicglobalization. Korea’s economic actual flow has been rapidly increased since 1993 withthe boom of Globalization: Uruguay Round(1989) and WTO(1995). And when 1997, due

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