Rise of South Korea - Essay Example

The paper tells that Heavy and Chemical Industry Drive did not play any positive role in the South Korean growth miracle because in any case, some of the industries were headed towards expansion. Secondly, during the HCI drive, South Korea was still a low protection nation and the aimed industries had to quickly compete in the world market. Instead, the HCI drive harmed the South Korean economy as its growth rate fell by 2.3% between the years 1963-1982. Between 1979-1980, there was a decline in the EOCD manufacturers imports’ share, which was as a result of fall in light manufactures.

Therefore, targeted sectors’ growth was at other sectors’ expense. Actually, South Korea’s economy only grew following the end of HCI in 1979, with more trade as well as financial liberalization following in the eighties. Trade openness policy/Outward orientation was one of the most important factors in South Korea’s growth. During 1961-1980, Korea’s exports grew at 23.7% in real terms. Over the period 1960-1975, export expansion was directly responsible for more than quarter of the growth of manufactured output.

Next was Heavy and Chemical Industry (HCI) Drive (1973-1979), which targeted the development of selective heavy and chemical industries (e.g., steel, automobiles, shipbuilding, etc.). This drive comprised Tax concessions policy and Trade policy reversal. It also comprised policies that directed bank credit at low interest rates – almost 60% of the bank loans and 75% of the manufacturing investment went to targeted industries. In April 17, 1979, Comprehensive Stabilization Program was developed, and it ended HCI drive.

In the short run, there was tighter fiscal and monetary policy and liberalization in the long run. In 1980s, Stabilization and Liberalization policy was developed – import liberalization saw the reduction of average nominal tariff rate 24% (1983) to 19% in 1988 and to 11% in 1990. Due to the liberalization financial sector, there was no more preferential interest rates for export industries and Chaebols, commercial banks were privatized, directed credit was relaxed, and the financial sector was opened up to FDI.

Growth returned to pre-HCI levels of 9.9% 2. What was the role of Chaebols in South Korea’s economic performance before and after the East Asian Crisis? Chaebols were large family-managed business groups that had close relationship with the government of South Korea and depended on Korean government finance heavily. They received preferential allotment of grants, preferences in taxation and benefited from government sale of “enemy property” factories. The Chaebols followed the Confucianism approach to management and they took advantage of quick growth in exports and demand and expanded very quickly in the world market and became producers of major international brands.

In 1950s and 1960s South Korea experienced economic success and Chaebols were major contributor in this – they were able to respond to market signals and outward looking export let strategies. The success factors of the Chaebols can be attributed to the fact that they ssuccessfully responded to such market signals as price, market opportunity and factor cost, outward looking strategies favoring export-led growth and a non-discriminatory government policy towards them. The Chaebols were therefore positive contributors of the amazing economic transformation and industrialization in South Korea, with the annual per capita GDP current prices reaching 79 dollars in 1960.

This was particularly before the East Asian Crisis. However, Chaebols failed during the AFC 1997-1998, which marked the beginning of South Korea’s structural problems. Chaebols debts foreign and Non performing loans were exposed and in 1999, the government, under the pressure to get tougher with them, introduced a policy to rationalize their activities and do away with non-performing choebol affiliates as well as