The Rapid Growth and Development of South Korea

The rapid increment and training in the newly industrialising economies (NIEs) in new-fang take decades has been nonhing short of spectacular. Now among the worlds near active industrialised economies, the NIEs of uppercase of Singapore, Taiwan Hong Kong, and southernmost Korea which leave alone be the focus, foundation as perhaps the beaver typesetters cases of achieverful stinting development. The economic development of sulphur Korea, which has been among the most rapid in the world is typical of the miracle that is the NIEs.Korea has must(prenominal)er far since the days it was a race of hungry rice farmers, by pursuing an industrialisation-led development commitment since 1961, which has since produced yearbook gross domestic product fruit of 8.4% per annum, gage only to chinaw ar. The achiever of South Korea, has been identified by a event of factors including the shift away from here and now substitution strategies towards exportation orientated indus trialisation, and the good managing of the rescue and authoritarian rule get hitched withed by the giving medication in order to accelerate the pace of seat of g all overnment accumulation, technical maturate and structural change to produce economic growth beyond what could possibly find in a free throw economy.NIEs, South Korea, be immediately recognised as export machines boasting some of the highest cope/GDP ratios in the world. International economic relations began in 1964 with the recognition of these demarcation of the domestic market and the ineffectiveness of pursuing substitution industrialisation strategies. As part of its new strategy for export expansion the South Korean presidency introduced new measures which included the devaluation of the won, which amendd the competitiveness of its exports and introduced incentives designed to impart resources into export-orientated industries.Exporters were to a fault supported by direct cash payments, permissi on to prevail unconnected exchange earnings for the purchase of imports, and the exemption from virtu on the wholey all import controls and tariffs. The government in consultation with firms, set up export targets for industries as well as case-by-case firms. These targets appeared to convey playd firm demeanor and supporting this claim was from between 1961 and 1973 the volume of exports increased at an annual rate of 35% and today march ons to consistently rank in the well-favored top twenty trading nations.Over the last 30 years the per centum of manufactures in total exports has increased from 12% to 95%. Further much the manufactures exported arrest themselves changed with more advanced products, led by electronics dominating the list of study(ip) exports and hence the importance of the Samsung and Lucky Goldstar to the Korean economy. The direction of trade has similarly changed somewhat, where South Korean exports went largely to the USA and imports came from Jap an, Asian countries excluding Japan are now South Koreas major trading partners. The importance of China is also becoming of increasing signifi good dealce.South Koreas economic success as noted can also be contri forgetded to the high levels of nest egg and investment. South Koreans save rough 35% of gross national product and thus sustainable economic growth has been driven by working capital stock accumulation and expanded productive capacity. Indeed some figures fork over up to 60% of economic expansion in South Korea is a result of capital accumulation and increase root word.Undoubtedly one of the most historic rationalisations for economic success is effective government intervention. Selective government intervention has fosterd the development of new industries, many of which remove become globally competitive and also supported and advanced the growth of the private sector. The principal(prenominal) aim of the government in South Korea has been to ensure that the behaviour of individual business accorded with the extensive call 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 confine 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 selective incentives to promote exports. In South Korea for example, the government gave Chaebols preferential opening to bank loans, relying on them to develop heavy and chemical industries capable of competing internationally. Indeed four decades of industrial development in South Korea have been marked by what have been marked as incestuous ties between big business and government. In recent times government has been hostile to the con glomerates entirely the ap intendment of Mr Kim Suk win 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 rate farmingment 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 blockage of the HCIs drive marked the most rapid expansion of the Chaebols.The Chaebols engaged in fierce and even ruthless disceptation with one another on the many fronts of industry, with at least 4 or 5 compe titors 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 engine room policy. By providing a favourable tax milieu, government has indirectly encourage business research and development phthisis. 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 fomite technology, bio materials and nuclear reactors.The role of the government in South Korea was also to set up these financial incentives to promote the development of particular industries. Interest Rates for example were kept generally low and stable in order to let down the cost of investment. Designated industries received priority in allocation of bank credit, state investment f unds and foreign exchange, The government in South Korea purposely distorted prices and incentives as to improve the market outcome and accelerate economic growth.The government in South Korea also actively pursued controversy policies. This intervention works both ways. In other words disceptation 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 form for government in the NIEs and in that location are differences between them across nations. Singapore for example has a paternalistic 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 line of works 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 current size. Most notably there has been a marked shift to the ordinal 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 filthy their hands in industry and the inability and unwillingness to attrac t foreign labour.After growth and development in South Korea for so big 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 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 capita l 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 account deficits (CADs) and foreign debt which may put a constraint on South Koreas future economic performance. South Koreas economy relies heavily 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, collect to intemperance short term debt over the long term debts, excess debt over equity and the generating of wealth through with(predicate) asset price bubbles, which was intelligibly unsustainable, these vul nerabilities 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 require far more than simply hard work and determination to come after in this new century, Companies in South Korea need to keep ahead(predicate) 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 train that a well educated workforce is paramount to future success.In the future, South Korea will need to reform its financial sector, remove the preventive of excessive business regulation, provide a more favourable environment for foreign investment and restructure its economy away from declining manufacturing and agricultural industries towards run and sophisticated manufacturing.The prospects for continued economic growth hinge on the success of the aforementioned drivers for economic growth. Deregula ting services in addition to sour 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 high 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 extraneous 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 1980&8243s 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 links and potential for domestic growth through increased infrastructure investment, housing 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 making 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 sustained industrialised nation then it will certainl y take its place as an economic leader in the near future.