International Economic - Essay Example

This period of years also showed a significant economic strategy shift with a new approach to industrialization and more intervention on the part of the government. In this period there was a major program by the government about investments and it was labeled “Big Push” and it was launched in year 1973 to ensure that Korea had a comparative advantage. This program was characterized by an escalation in inflation levels as well as a slump in export growth. There was also the rise in the ratios of capital to output and dismal performance of the income distribution.

During this period the rate of exchange was set at a fixed point such that it could improve in real terms. Despite being viewed as a mistake in policy making, some of the investments set had been seen to appreciate reasonably. Over the period starting from 1979 to 1982, the characteristic of the Korean economy was that of crisis subsequent to the assassination that was done to their then president as well as the decline in the agricultural produce. Besides these negative factors were the oil shocks.

After the assassination of Park (the president) in 1979, the military took over the control of the economy in 1980 led by General Chun Hwan and he was later, in 1981, elected as the country’s president. He ruled up to year 1988. . During the years 1980 and 1981 the rates of exchange were devalued, but the fiscal and monetary policies’ direction alternated. Korea continued to borrow huge amounts to ensure investments were stable. In year 1982, exports had stagnated, and inflation had fallen resulting to a small decline in the accumulation of deficits of the current account.

Over the period of 1983 to 1986, there was some recovery. In years 1983 and 1984 there was a significant recovery in the economy and towards the year 1986, the growth stagnated due to a fall in the global demand levels. (Collins and Park, 1989) For over two decades, South Korea had almost the entire of its focus on raising its levels of the export profits but it did not manage to get above the deficit levels. In 1986, the economy saw its first break through when the trade balance levels reflected a positive figure of USD 4.2 billion. Current account balance continued to reflect a rise for the following three years and the highest point was reached in 1988- the year of Seoul Olympics.

Surplus of trade was 11.5 billion USD during that year. From the year 1990 through 1996, there were deficits recorded as they came back to haunt the economy. This was with the exception of a minute surplus of 1993. The deficit in year 1996 was USD 15.3 billion. The reason for this was many with the inclusion of the currency of South Korea’s behavior towards foreign currencies. There were constant raises in wage levels setting in from 1987 and this led to a negative impact on the terms of trade.

Exports returns were based on few specific items like steel, semiconductors, and for which market was too sensitive and volatility was high. (Kleiner, 2001 p259) In year 2009, the current account of the economy of South