Economic Growth in Korea

The rapid harvest and developing in the newly industrialising economies (NIEs) in recent decades has been nonhing short of spectacular. Now among the worlds just to the highest degree moral force industrialised economies, the NIEs of working keen of Singapore, Taiwan Hong Kong, and to the south Korea which go forth be the focus, theme as perhaps the topper exercises of advantageful stinting development. The stinting development of sec Korea, which has been among the most rapid in the world is typical of the miracle that is the NIEs.Korea has survey far since the days it was a population of hungry rice farmers, by pursuing an industrialisation- take development commitment since 1961, which has since produced annual gross domestic product harvest-time of 8.4% per annum, second gear only to chinaw atomic number 18. The conquest of second Korea, has been identified by a subimputable of factors including the shift away from signification substitution strategies towa rds export orientated industrialisation, and the hard-hitting managing of the delivery and authoritarian rule followed by the political sympathies in order to accelerate the pace of metropolis accumulation, technical take place and geomorphological change to produce stinting growth beyond what could possibly amount in a free food market preservation.NIEs, South Korea, atomic number 18 presently recognised as export machines boasting some of the highest look at/GDP ratios in the world. Inter commonwealthal economic relations began in 1964 with the recognition of these terminal heighten of the domestic market and the ineffectiveness of pursuing substitution industrialisation strategies. As part of its new strategy for export expansion the South Korean goernment introduced new measures which included the devaluation of the won, which modifyd the competitiveness of its exports and introduced incentives designed to tune resources into export-orientated industries.Export ers were likewise supported by direct cash payments, permission to cover unconnected exchange earnings for the purchase of imports, and the exemption from virtu each(prenominal)y all import controls and tariffs. The governing in consultation with firms, set up export targets for industries as well as individual firms. These targets appe ared to assimilate puzzle outd firm demeanour and supporting this claim was from between 1961 and 1973 the volume of exports increased at an annual rate of 35% and today spread overs to consistently rank in the acme twenty trading nations.Over the last 30 years the destiny of manufactures in total exports has increased from 12% to 95%. Further more than the manufactures exported need themselves changed with more advanced products, led by electronics dominating the list of major(ip) exports and hence the importance of the Samsung and Lucky Goldstar to the Korean economy. The direction of trade has likewise changed somewhat, where South K orean exports went largely to the USA and imports came from Japan, Asian countries excluding Japan are now South Koreas major trading partners. The importance of China is also becoming of increasing significance.South Koreas economic success as noted can also be contri anded to the high levels of nest egg and investment. South Koreans save about 35% of gross national product and thus sustainable economic growth has been driven by capital stock accumulation and expanded productive capacity. Indeed some figures exhibit up to 60% of economic expansion in South Korea is a result of capital accumulation and increase infrastructure.Undoubtedly one of the most heavy rationalisations for economic success is effective government intervention. Selective government intervention has recruitd the development of new industries, many of which stir become internationally competitive and also supported and advanced the growth of the private sector. The master(prenominal) aim of the government in South Korea has been to ensure that the behaviour of individual business accorded with the ache term interest of the business class as a whole, and while applying authoritarian rule recognising when it was time to allow the market to operate on its own. Apart from the macroeconomic management, government in the NIEs mystify also sought to accelerate the pace of capital accumulation, technical progress and structural change beyond what would have resulted from laissez-faire.All NIEs pursued trade policies, supporting industrial deepening and the development of national firms with discriminating incentives to promote exports. In South Korea for example, the government gave Chaebols preferential approach path to bank loans, relying on them to develop heavy and chemical industries capable of competing internationally. Indeed four decades of industrial development inSouth Korea have been marked by what have been marked as incestuous ties between monstrous business and government. In recent times government has been hostile to the conglomerates barely the appointment of Mr Kim Suk won to the ruling party has reopened an old wound over the role of big business and politics in South Korea.The role of the Chaebols in the Korean economy was a substantial reason for Koreas success over the last 40 years. The Chaebols are the large multi-company family owned business entities which are both horizontally and vertically integrated. Examples include Samsung, Hyundai, Lucky Goldstar and Daewoo, which together study for over half the total output. The Chaebols have played a major role in the economic development of Korea. They were given preferential access to bank loans and were relied upon to develop the HCIs (as they had the resources and ability to compete in foreign markets). Indeed, the closure of the HCIs drive marked the most rapid expansion of the Chaebols.The Chaebols engaged in fierce and even ruthless controversy with one another on the many fronts of i ndustry, with at least 4 or 5 competitors in each industry, which all contributed to the economic expansion of the economy.The government in South Korea, as well as other NIEs has supported a applied science policy. By providing a favourable tax surroundings, government has indirectly promote business research and development uptake. The Korean government for example grants a tax credit equal to 10% of capital expenditures. Current policies are aimed at achieving a 5% share of research and development expenditure in total GNP by 2001. The government has also aided fundamental technological development in advanced materials, advanced vehicle technology, bio materials and nuclear reactors.The role of the government in South Korea was also to hand over these financial incentives to promote the development of particular industries. Interest Rates for example were kept generally low and stable in order to lower the cost of investment. Designated industries received priority in all ocation of bank credit, domain investment funds and foreign exchange, The government in South Korea by choice distorted prices and incentives as to improve the market outcome and accelerate economic growth.The government in South Korea also actively pursued contestation policies. This intervention works both ways. In other words argument policy restricted the competition or promoted competition policy in the areas depending on the circumstances. In South Korea the government granted exemptions to conglomerates from laws governing monopolistic practices. Competition policy has been married with industry policy. In this the role of government has been limited with government policy interacting with the competitive strategies of private firms.Governments in the NIEs have been remarkably stable. This has had obvious benefits on the economy. There is no standard normal for government in the NIEs and there are differences between them across nations. Singapore for example has a pate rnalistic government whilst Hong Kong is essentially laissez-faire perceptual constancy is the only real link between governments of the NIEs.As the South Korean economy reached a more mature stage of economic growth fusss regarding the structural change in the economy began to surface. The agricultural sector in South Korea for example is now only a third of its passe-partout size. Most notably there has been a marked shift to the tertiary sector. There has been obvious problems and challenges resulting from this.Most notably rapid growth has brought about labour shortages in key sectors such as electronics, heavy machinery and shipbuilding. such shortage of labour in which employers have noone to fill vacancies made by expanded productive capacity will threaten South Koreas booming exports, which is seen as the vehicle for growth in South Korea. The problem is further compounded by an increasing reluctance among school leavers to mirky their hands in industry and the inabili ty and unwillingness to attract foreign labour.After growth and development in South Korea for so keen-sighted was driven by government intervention one of the most important challenges facing the matured economy was for the government to relinquish much of its influence over the economy and to allow market forces to operate effectively. If South Korea is to continue to growing as a truly advanced industrialised nation then obviously the market mechanism will have to be let to operate freely. This will take time and cause and also cause relative social unrest.As the South Korean economy has reached a mature stage, it has recognised the old regulatory environment that led to high levels of inputs especially in manufacturing sectors but low levels of productivity must(prenominal) change. In manufacturing, Korea has massively invested in the best available technology but because of protectionism and poor corporate governance in banks and companies, it was not forced to adopt the best managerial practices. As a result labour and capital productivity are in most manufacturing sectors less that 50% of US levels and thus must be one of the challenges for future success of the Korean economy.Other challenges that Korea has had to face, continues to face, and must overcome are the consistent current forecast deficits (CADs) and foreign debt which may put a constraint on South Koreas future economic performance. South Koreas economy relies to a great extent on high exports and thus is susceptible to global fluctuations. Secondly there is a pressing need in South Korea to use imports more efficiently.Furthermore, the greatest of the challenges Korea has had to face to date was the Asian Financial Crisis of 1997. Up to this point in time many economists looked favorably upon the economic fundamentals of Korea. However, due to supernumerary short term debt over the long term debts, excess debt over equity and the generating of wealth through asset price bubbles, which was all the way unsustainable, these vulnerabilities only required a small shock which was initiated by the devaluation of the Siamese baht in July 1997.As an advanced economy, South Korea now needs far more than simply hard work and determination to break through in this new century, Companies in South Korea need to keep leading of the profound social, economic and political transition. It is the inherent need for human capital that drives much of South Koreas business and government spending. Many would tote up that a well educated workforce is paramount to future success.In the future, South Korea will need to reform its financial sector, remove the incubus of excessive business regulation, turn in a more favourable environment for foreign investment and restructure its economy away from declining manufacturing and agricultural industries towards work and sophisticated manufacturing.The prospects for continued economic growth hinge on the success of the aforementioned d rivers for economic growth. Deregulating services in addition to dark barriers to imports, allowing FDI (which can reduce the risks of future financial crisis in the medium and long term) and improving corporate governance would be the key to restoring strong growth in Korea. This reduction would come mainly because fair competition with best practice together with more careful bankers and demanding shareholders would force Korean manufacturers to improve their return their return on investments. In an increasingly globalised economy higher(prenominal) productivity in manufacturing and low import barriers would allow domestic competition to increase due to lower prices. Opening the domestic market would not lead to an increase in the trade deficit or outdoor(a) debt as higher capital productivity would reduce the need to import capital.In overall terms, prospects for South Koreas economy are favourable, but the high rate of success from the growth performance in the 1980s will be difficult to replicate. The next phase of the Asian miracle that will involve China emerging as the worlds largest economy within 10 years and the re-emerging Japanese economy will provide substantial benefits for the Korean economy. Some important strengths of the economy include a well educated and motivated workforce, a growing level of R&D, continued rates of high savings, greater regional trade cogitate and potential for domestic growth through increased infrastructure investment, lodgement and personal consumption.In summation, South Korea is an economy which initially through selective government intervention and now through domestic and international reforms, sped to economic might. Although there are many challenges in the longer term launch South Koreas future uncertain, (including the reunification with the ailing, unstable North) the fact South Korea has come so far argues well for the future. If South Korea can make the necessary changes to its economy to become a s ustained industrialised nation then it will certainly take its place as an economic leader in the near future.