KOREA – BRIEF HISTORY

 Independence from Japan 1945 : Limited natural

resources, insufficient domestic market and no
experience of economic development

 Korean War 1950-53 : Prolonged economic instability

and stagnation

 Postwar reconstruction period 1953-60 : Low economic

growth despite massive foreign aid
 THE START OF KOREAN GROWTH IN
1960’S
 Policy shift from import substitution to export promotion

 Promotion of light manufactured goods exports

 Government stress on high interest rates to mobilize domestic savings

 Enactment of the Foreign Capital Promotion Act to encourage the inflow

of foreign investment

 Foreign capital made up 83 % of total Korean investment in 1962

 In order to promote exports, the government also devalued the currency by

nearly 100 %
 HEAVY AND CHEMICAL INDUSTRY IN
1970S

 Damaging effect on Korea’s BOP due to worldwide fluctuation in exchange rates,

worldwide commodity shortage and oil shock

 Korea turned to the heavy and chemical industry (HCI)

 Extensive investment in capital intensive industries like power generation

 Low interest rates reduced savings

 The growing demand for skilled workers pushed up domestic wages

 The government controls also distorted prices and stifled competition

 Between 1972 and 1978 the GNP growth averaged 10.8 % annually. However, this
progress came at the cost of high inflation
KOREA'S LIBERALIZATION IN THE 1980S
 Comprehensive stabilization program designed to control excess
liquidity, realign credit priorities, eliminate price distortions, and
promote competition

 The program entailed reducing the number of firms through mergers

 Concentration of economic power, restrictions on market entry

deepened a monopolistic hold

 Many debt ridden firms bailed out by govt.

 The government restrictions on foreign direct investment (FDI)

were relaxed substantially

 Real GNP growth from 1982 to 1988 averaged 10.5 % annually, and
inflation in both the wholesale and the consumer sectors was well
below 5 % annually after 1982.