What have been the sources of Korean economic growth and how would you explain the recent crisis of the Korean economy?

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Rajiv Sheth

What have been the sources of Korean economic growth and how would you explain the recent crisis of the Korean economy?

The Collins Dictionary of economics defines economic growth as the growth of real output over time. Growth is desirable as it implies that households will consume more private goods and services, therefore also improve the standard of living of that particular country. In order to achieve economic growth three factor inputs are necessary to increase the ‘supply side’ of an economy: an increase of resources e.g. labour and capital, an increase of efficiency and productivity of all resources employed and technological advancement.  It is my intention to examine the specific sources that have aided the rapid growth of South Korea and discuss of how the process of rapid industrialisation and growth had lead to the fall of the ‘Asian Miracle’.

It is evident that the state has played a major role in the development of South Korea. This level of control and guidance is evident from the industrial polices implemented throughout the 1960’s till the 1990’s, to the methods the state employed to disciple businesses and creation of the Chaebol (large conglomerates). The industrial policies were implemented and adapted during three different stages. The first was during the 1960’s and 1970’s where the six key industries were developed, hence the increase the ‘supply side’ of the economy to foster subsequent growth. The second was applied during the 1980’s where indirect assistance was given to companies through tax incentives to support the funding of research and development.  The final policy was the liberalisation stage that was put into effect during the 1990’s in order for the economy to grow alone and operate under the market mechanism, thus no interference from the government on market entry or exit. The Chaebol was created to rebuild the economy after the Korean War through the stimulation of competition and investment through imports and exports.

Furthermore the state also constructed 5-year plans to organise the economic development. In support of these plans the state subsidised on inputs in order to create an industrial base and shielded the domestic market against international competition, through the protection of infant industries. Export orientated activity was later encouraged through incentives such as tariff exception during the late 1950’s, this lead to the level of exports increasing from 0 to 30% by the 1980’s. The export method of acquiring capital was further reinforced by the state through the export targets and price controls.

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Moreover, the establishment of political economies provided a structure that encouraged an environment of an efficient flow of investment and production for businesses. South Korea is merited for its level of efficiency achieved through incentives, despite its high levels of corruption. The drive for efficiency is another factor which aides economic growth.

Additionally, the provision of an educational and technical infrastructure implies the emphasis of growth. The importance of education is that it equips the labour force with skills to adapt to their economy. According to the definition of growth aiding the increase in living standards is implicit. Conversely ...

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