The Korean Economy; from a miraculous past to a sustainable future

198 Pages·2015·26.046 MB·English

by  Lim, Wonhyuk, Eichengreen, Barry

The Economy
Kore~n
From a Miraculous Past to a Sustainable Future
This volume is part of the multivolume study
Rising to the Challenges ofD emocratization and Globalization in Korea
Harvard East Asian Monographs 375
The Korean Economy
From a Miraculous Past
to a Sustainable Future
Barry Eichengreen,
Wonhyuk Lim,
Yung Chul Park,
and
Dwight H. Perkins
Published by the Harvard University Asia Center
Distributed by Harvard University Press
Cambridge (Massachusetts) and London, 2015
© 2or5 by The President and Fellows of Harvard College
Printed in the United States of America
The Harvard University Asia Center publishes a monograph series and, in coordination with the
Fairbank Center for Chinese Studies, the Korea Institute, the Reischauer Institute of Japanese Contents
Studies, and other facilities and institutes, administers research projects designed to further
scholarly understanding of China, Jap an, Vietnam, Korea, and other Asian countries. The Center
also sponsors projects addressing multidisciplinary and regional issues in Asia.
Library of Congress Cataloging-in-Publication Data
Eichengreen, Barry J.
The Korean economy : from a miraculous past to a sustainable future / Barry Eichengreen,
Wonhyuk Lim, Yung Chul Park, and Dwight Perkins.
pages cm. -(Harvard East Asían monographs ; 375)
Includes bibliographical references and index.
Tables and Figures
ISBN 978-0-674-41718-2 (hardcover: alk. paper) r. Economic development-Korea vii
(South) 2. Korea (South)-Economic conditions. 3. Korea (South)-Economic policy.
Foreword
I. Title. xiii
HC467.756.E43 2015
Acknowledgments
XV
2014onroo
lntroduction
Index by Amron Graven
2 The Political Context 16
§ Printed on acid-free paper
3 Perspectives on Growth 61
Last figure below indicares year of this printing
4 Financia! Development and Liberalization
25 24 23 22 21 20 19 18 I7 16 15
5 Government and Business Groups
142
6 Population, Employment, Education, and Welfare
177
7 Developing and Maintaining Expon Competitiveness
227
8 Challenges of Reunification
9 Conclusion
Appendix: On the Romanization ofK orean
References
321
Index
339
Tables and Figures
Tables
2.1 Presidents of the Republic of Korea, 1948-Present 20
2.2 Comparative Political Development, Korea and
Other Countries 22
2.3 Presidential Election Results by Region, 1963-1971 24
2.4 Presidential Election Results by Region, 1987-1997 30
2.5 Presidential Election Results by Region, 2002-2012 44
2.6 Presidential Election Results by Age Group, Based on
Exit Polls, 2012 versus 2002 48
3-I Comparative Growth Experience: Gross National Income
(GNI) Per Capita, 1962-2007 63
3.2 Savings and Investment in Korea, 1962-1981 64
3.3 Composition of Foreign Capital Flows into Korea,
1945-1992 65
3.4 Growth Accounting Decomposition of Aggregate GDP,
Excluding Agriculture and Mining, 1971-2005 68
3.5 Growth Accounting Decomposition of Aggregate GDP,
Including Agriculture and Mining, 1964-1979 69
3.6 Saving and Investment Regressions, Time Fixed Effects 71
3.7 Determinants of Growth Slowdowns 76
3.8 Central Government Programs to Support SMEs in 2~12 82
4.1 Consumer Loans by Financia! Institutions in Korea 101
4.2 Foreign Reserves of the Bank of Korea 109
viii Tables and Figures
Tables and Figures ix
4.3 Restructuring of Financia! Institutions, November
7.3 R&D Spending and Number of Researchers Each Year,
1997-2001 II2
2001-20II 244
4.4 Public Funds Injected for Purposes of Financia!
7.4 R&D Spending by Industry 245
Restructuring, November 1997-June 2001 n3
7.5 Allocation of Researchers and R&D Expenditures
4.5 Credit Card Market in Korea n5
among Sectors of Performance, 2on 248
5-1 Chaebol's Value Added as Share of GDP 159
7.6 Number and Status ofVenture Companies,
5.2 In-Group Ownership Share for the Top Chaebol 160
1998-July 20II 250
5.3 Interest Rate Differential between Export Loans and
8.1 Major Economic Indicators for South Korea and
General Loans, 1961-1991 161
N orth Korea, 2on 260
5.4 Number of Financia! Institutions, Selected Years 165
8.2 Two Divergent Paths: South Korea and North Korea,
6.1 Speed of Population Aging in the World 181
1960-2010 261
6.2 School Enrollment Rates (ER) and Advancement Rates
8.3 Comparative Factor Prices in Kaesong, China, and
(AR), 1953-2012 186
South Korea, 2002 273
6.3 Expenditures on Higher Education per Student,
8.4 Inter-Korean Transactions at the Kaesong Industrial
Korea versus OECD Average and Selected Other
Complex, 2004-2012 274
Countries, 2009 189
8.5 Inter-Korean Trade by Transaction Type, 2012 275
6.4 Weekly Hours Secondary Students Spent Studying:
8.6 Inter-Korean Commercial and Noncommercial
Korea, OECD Average, and Selected Other Countries 193
Transactions, 2004-2012 277
6.5 Alternative Estimates of Gini Coefficient of Inequality,
8.7 South Korea's Bilateral Food and Fertilizer Aid to
1965-1993 196
North Korea, Selected Years 1995-2010 278
6.6 Income Shares by Income Deciles, 1979-2012 197
8.8 South Korea's Multilateral Aid to North Korea,
6.7 Comparisons of Inequality and Relative Poverty:
1996-2012 278
Korea, Taiwan, and the United States 199
8.9 Composition of Commercial Transactions, 2004-2012 279
6.8 Incidence of Absolute and Relative Poverty by
8.10 Inter-Korean Trade by Product Category, 2012 280
Household Type: 1996, 2000, and 2006 205
8.n North Korea's Exports and Imports, 2007-2012 284
6.9 Average Annual Hours Worked, All Employed Persons,
8.12 N orth Korea's Revenue from the Mount Kumgang
1980-2008, and Average Annual Hours Worked per
Tourism Project 286
15- to 64-year-old in 2008 209
6.10 Public Social Expenditures as Percent of GDP: Korea Figures
and OECD Average, 1990-2009 212
2.1 Corruption Perceptions Index for South Korea 47
6.n General Government Expenditures by Function as
3-1 Gross Investment and Savings, 1982-2010 70
Percent of Central Government Budget, 2on 219
3.2 Frequency Distribution of Growth Slowdowns
6.12 Change in General Government Expenditures by
(Oil Exporters Excluded) 74
Function as Percent of Central Government Budget,
3.3 Return to Capital in Korea 77
2001 to 20II 220
4.1 Additional Financia! Liberalization Indices,
7.1 Top Ten Korean Exports, Various Years 232
1991-2007 88
7.2 Horizontal and Vertical Intraindustry Trade between
4-2 Financia! Stability Index 89
Korea and Other Countries 240
4.3 Financia! Interrelation Ratio (FIR) 95
Tables and Figures Tables and Figures xi
X
4.4 Concentration Ratios 99 7.2 Expon Composition by Technology Content,
4.5 Ratio of Short-term Foreign Liabilities to Foreign Various Periods 234
Exchange Reserves, 1990-2010 108 7.3 Similarity Index for Chinese Expons Compared with
4.6 Loan-Deposit Ratio of the Korean Banking Sector 119 Korean Exports, Based on 1991 Weights 235
4.7 Korea's Ponfolio Investments in Foreign Securities 120 7.4 Shares of Korea and China in the Total Impons of
4.8 Changes in the Nom inal Exchange Rate 122 Countries to Which Korea Expons 236
4.9 Foreign Exchange Reserves 125 7.5 Korean and Chinese Market Shares in World Expons
4.10 Foreign Exchange Rates, Won versus U.S. Dollar 125 for Korea's Ten Most Imponant Expon Products,
4.11 Gross Domestic Product 126 Selected Years: 1990, 1995,_ 2005 237
4.12 Expons 127 7.6 Increase in Korea's R&D Spending over Time 246
p Debt/Equity Ratio (DIE) and lnterest Coverage Ratio 7.7 Increase in Number of Korean R&D Researchers
(ICR) in Korea's Manufacturing Sector 154 over Time 247
6.1 Youth and Aged Dependency Ratios, 1970-2030 179 8.1 Economic Trends in Nonh Korea, 1990-2011 264
6.2 Employment Shares by Industry 182 8.2 Inter-Korean Trade, 1989-2012 269
6.3 Gender Shares in Employment 183 8.3 Nonh Korea's lnternational and lnter-Korean Trade,
6.4 Proponion of Age Group Enrolled in College or 2000-2012 272
U niversity versus Income Per Capi ta 187 8.4 Outward Foreign Direct Investment by South Korea's
6.5 Alternative Measures of Income Inequality: Large Firms and SME s, 1990-2012 283
Total Household Income, 1985-2008 200 9.1 Expected Convergence of Per Capita GDP of South Korea
6.6 Earnings Differentials by Level of Educational and the United States under Alternative Korean Growth
Attainment 203 Scenarios: U.S. Growth at r.5 Percent 305
6.7 How Satisfied Are Workers in Their Jobs? Korea and 9.2 Expected Convergence of Per Capita GDP of South
Other Countries in the lnternational Social Science Korea and the United States under Alternative Korean
Programme 207 Growth Scenarios: U.S. Growth at 2.5 Percent 306
6.8 lnternational Comparison of Heath Care Expenditures,
2006 215
6.9 Fiscal Revenue, Expenditure, and Surplus as Percent
ofGDP 217
6.10 Fiscal Expenditure by Function as Percent of GDP 221
6.11 Fiscal Expenditure by Function as Percent of Central
Government Budget 221
6.12 Trajectory for Public Social Spending as Percent of GDP 222
6.13 Trends in Forest Area and Growing Stock per Hectare
in Korea, 1952-2010 224
6.14 Age-Class Structure of Korea's Forest Area and
Growing Stock, 1980-2010 225
7.1 Korea's Exports, Impons, and Investment 231
Foreword
Economic development and political development go hand in hand. Ei
ther the egg comes first or the chicken: economic development has often
been preceded by political development and often followed by it. Many
have taken a similar path to development, where economic prosperity
fueled citizens' demand for enhanced protection of their political rights
and wealth, which eventually led to a promotion of democracy. Korea is
no exception in this regard, with economic development leading to po
litical development, furthering the maturation of its economy.
A little less than 40 years ago, when the Korea Development Institute
(KDI), in collaboration with the Harvard Institute for International De
velopment (HIID), published a ten-volume monograph series on Korea's
economic and social transformation from 1945 to 1975, Korea's economy
was highly intervened in, if not absolutely controlled, by its government.
A second KDI series of three books, also published by Harvard, high
lighted the Heavy and Chemical Industry Drive from 1973 to 1979,
macroeconomic adjustment in the late l97os and early l98os, and labor
management relations during the l98os. This third series focuses on
Korea's economic and political development during the era of globalization
and democratization.
During the course of Korea's development the global perception of
the Korean economy has drastically changed. When it joined the Orga
nization for Economic Cooperation and Development (OECD) in 1996,
Korea substantiated that it was no longer one of the poorest nations that
relied heavily on foreign aid. Despite a severe hit by the Asian financial
xiv Foreword
crisis of 1997, the Korean economy quickly rebounded and learned to
respond wisely when swept up in the global financia! crisis of 2008. Not
only does Korea stand as the world's fifteenth largest economy, but it
also plays a pivotal role as a middle power, working as a bridge and an
honest broker between the developed and developing countries, as evi
denced by its successful hosting of the G20 Summit in Seoul in 2010. Acknowledgments
We therefore saw the need to share with the world, through analysis
from multifaceted perspectives, how Korea achieved such a transforma
tion in a period of less than half a century.
Throughout the new KDI series, consisting of seven titles, we look at
the challenges faced during the course of Korea's democratization and
globalization since the l98os. In addition to this overview volume, the
individual studies provide insights from different perspectives: growth,
political economy, finance, industrial organization and corporate gover
Projects like this, not unlike the emergence of mature economies such as
nance, human resource development, and income inequality and social
South Korea's, have long gestation periods. During the years of this vol
welfare. This series calls for urgency in finding a new development path
ume's development we have accumulated a correspondingly lengthy list
for the Korean economy, one with a major focus on human resources,
of debts. Our most important debt is to the Korea Development lnsti
capital, and technology. The government-driven growth strategy is no
tute (KDI) and its current and past presidents: Joon-Kyung Kim, Oh-Seok
longer efficient or effective. Both externa! and interna! factors that influ
Hyun, and Jung Taik Hyun. Without their commitment, leadership,
ence the Korean economy today are much different from the factors that
and continuous support, and that of KDI generally, the series of which
shaped Korea decades ago. lt is high time that Korea embraces the ever
this volume is a part never would have been initiated, much less seen the
changing dynamics of the world's economy and politics, and quickly
light of day. We would also like to thank an additional past president of
seeks new ways to ensure future growth.
KDI, Yung Chul Park, who would not allow our enthusiasm to wane or
our energy to diminish when the project encountered difficulties, as long
Joon-Kyung Kim
and complicated endeavors do.
President
Others at KDI too numerous to mention provided intellectual input,
Korea Development lnstitute
logistical support, and financia! assistance along the way. They answered
our questions, pointed us to sources, helped us organize our analysis,
and critiqued our conclusions, for all of which we are thankful. In par
ticular, we are especially grateful to Sookyeong Hwang, Hisam Kim,
Kiwan Kim, and Gyeongjoon Yoo.
We also gratefully acknowledge the input and advice of our academic
collaborators in the KDI project, most importantly the authors of the six
published and forthcoming companion volumes in this serie~, Rising to
the Challenges ofDemocratization and Globalization in Korea, 1987-2007:
Chong-Bum An, Barry Bosworth, Kyungsoo Choi, Richard Freeman,
Joon-Kyung Kim, Sunwoong Kim, Jongryn Mo, Randall Morck, Jungsoo