Naura Nafisha Korean Economy Class

Korean IS policy Comparison with other developing countries

Import substitution was one of the key policies that contributed to South Korea's success story. This essay
would address the relation between import substitution policies in South Korea and other developing countries. The
essay would illustrate the significant factor that led Korea to the success of import substitution policies and the
factors that decide the failure of other developed countries. First, it describes the import substitution policy of South
Korea, and then contrasts it with other developed countries.
South Korea had applied the import substitution policy since 1950s. As stated in the Korean economy class,
Korea has adopted an import substitution strategy at the same time as an export promotion strategy. It was also
mentioned in Yilmaz (2002) that Korea applied for import substitution and export promotion at the same time as
these policies were closely interlinked.
In regard to John Weiss and Jalilian (2004), the enforcement of an export promotion policy during the IS
period was a key difference between South Korea and other developed countries. Korea was known to be following
an ambitious strategy by opening up some markets to export competition in the very early stages of the policy.
During the lesson, Professor Kim also told us that the goal of these industries was to export them. They fulfilled
domestic demand, however by concentrating on exports, their production will seek to match the global quality
specifications. They will also face global competition to reduce the inefficiency that could result from protection. It
was in line with the observation of Weiss and Jalilian (2004) that, under the import substation policy, sectors
covered by tariffs and quotations continue to be inefficient due to lack of competition. As far as the export
promotion strategy is concerned, companies have faced global competition and seem to be more effective.
Correspondingly, Yilmaz (2002) also highlighted the outward-looking approach that Korea introduced
during import substitution. Yilmaz said that an outward-looking approach was the key to success. More than that,
Korea has persisted in this outward-looking growth. Growth in these exports will produce attractive multipliers in
other sectors. It stimulated the growth of investment, consumption and imports. Yilmaz explained that this was
believed to have led to a major expansion of Korea's exports and an increase in the trade balance, as well as national
incomes and domestic savings. Given the close relationship between export growth and gross domestic savings, an
increase in exports allowed Korea to achieve higher rates of investment, especially in export-oriented sectors. This
evidence indicates that Korea has successfully increased its production primarily in manufacturing (Yilmaz, 2002;
Dornbusch and Park, 1987).
Korea's labor force and intellectual resources were other considerations deciding the effectiveness of this
program. Korea had an abundant, well-qualified labor with relatively low salaries at that period. They have had a
highly educated generation of human capital. Thus, Korea believed that it had effectively expanded employment in
the manufacturing industry. This was one of the \ cornerstones of Korea's economic development, driven by a high
rate of investment and capacity expansion. This was also a factor that made fast export growth possible in Korea.
And though, at the same time, the bliss of export growth has resulted in higher rates of imports. Fortunately, Korea
may fund this current account deficit through assistance and foreign investments, such as foreign loans and foreign
direct investment. It was also reported that export revenues were one of the sources of deficit financing. This has

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shown that Korea has a solid financial intermediation, a decent investment climate, and a conceptual financing
shortfall.
Furthermore, the Korean government has evaluated its stable, long-term macro-and micro-policies. The
primary objective of these policies was to promote investment, as Korea's investment were low. This also supports
spending in both physical and human resources. The high quality of the workforce was one of the reasons behind the
ability of technology transfer or spillover in Korea. In terms of production, Korea had a high productivity and even a
2.4 TFP increase from 1963 to 1990, which relied on advances in knowledge and other factors (Yilmaz, 2002; Pilat,
1993). As Korea focused on expanding the labor-intensive industry in the early stages of policy, this also resulted in
better and high job creation during that time.
Compared to developing countries, certain developing countries did not have the features or determinants
of the performance factor of Korea. Some developing countries have however not been able to implement import
substitution in their economies. John Weiss and Jalilian addressed the relation between East Asia (including South
Korea) and Latin America. The paper stated that Latin America has not been able to keep up with efficiency. This
inefficiency has contributed to a lack of global competitiveness. As a result, they experienced less growth in their
export results.
Latin America's bad performance has also related to its weak investment climate. While technological
improvements and acquisitions in manufacturing industries take a lot of capital, strong investment is required. As
the nation struggled to attract the money, there was also a issue with the expansion of the industries. The poor
financial intermediation in Latin America has exacerbated the situation. It has culminated in a high cost and poor
supply of credit for the industrial industry. This was also far from the approach of South Korea. Whereas Korea has
its share of investment in the manufacturing sector (NIF). Moreover, Latin America still had weak physical
infrastructure. While Korea is already conscious of the value of infrastructure, so they constructed it. Specifically,
Korea had built many high ways to improve its infrastructure.
Referring to Latin America's labor force, they have encountered difficulties in this regard. Since they have
a poor educational and technological base, it has become a constraint on their labor force. Even when they have a
high level of enrolment and literacy, they have also witnessed a high drop-out rate at the primary and secondary
rates. Low human resource efficiency has led to a lower capacity to improve and a technology spillover. They have
also struggled to create employment in the manufacturing sector during the policy cycle. Competing with other
Asian nations, Latin America still had weak labor productivity.
They could not cope with the low wages of Indonesia, Malaysia, Thailand, the Philippines. At the same
time, they were still unable to contend in technical scope with Korea, Hong Kong, Singapore, etc. They were in a
position as if they were stuck or had no strategic edge over other countries. Moreover, unlike South Korea, Latin
America had a poor, unreformed institution. Statistically speaking, the efficiency of an institution is one of the
variables that has a major impact on the growth of the economy. This can be seen that much of Korea's growth
drivers have not occurred in Latin America.
Looking at other developing countries, such as Malaysia, Indonesia and Thailand, substantial liberalization
of imports started only in the 1980s. Evidence has demonstrated the pattern of anti-export prejudice in incentives in

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those countries since that decade. Indonesia's import substitution strategy has also shown that protection itself has
created another problem. It has generated excessive rents for a few domestic producers and reduced global
competitiveness. Unlike Korea, Indonesia has received less strong support for the industries. It has been argued that
the Indonesian government needs to reduce the costs of investment and input production. They have had to contend
with the emergence of market failure problems.
In conclusion, the explanation for the inability of many developed countries to adopt import substitution
strategies is attributed to the absence of other success factors. They continue to protect industry at a high level and
result in inefficiency. Few countries often seldom implement export promotion or outward policy at the same time
as import substitution policies. Other problems that may occur in developed countries, such as lack of global
competition, lower export production, low human resources, uncompetitive labor market, poor job creation, and low
technical development. Additionally, they might be facing a bad investment climate, weak financial intermediaries,
weak macro or micro policies, and weak institutions.

References
Cali, Massimiliano. (n.d). Trade Protectionism and Indonesian Policy for Intermediate Industry. World Bank Jakarta

Chen, T. J., & Tang, D. P. (1987). Comparing technical efficiency between import-substitution-oriented and export-
oriented foreign firms in a developing economy. Journal of Development Economics, 26(2), 277-289.

Weiss*, J., & Jalilian, H. (2004). Industrialization in an age of globalization: some comparisons between East and
South East Asia and Latin America. Oxford Development Studies, 32(2), 283-307.

Yilmaz, B. (2002). The Role of Trade Strategies for Economic Development: a comparison of foreign trade between
Turkey and South Korea. Russian & East European finance and trade, 38(2), 59-78.