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Export-led Industrialization of South Korea

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Export–led Industrialization in Korea

1960 2014 remarks
Korea’s export 32.8 million dollars 572.7 billion dollars
Weight in the world export 0.029% 3.06% over a hunredfold increase

Just fifty years ago, South Korea’s economy was no different from that of poor African countries.
Only 50 years ago
Korean economy was no different from some of the poorest countries in Africa.
What was going on with the Korean economy for the past 50 years?
Time to look back over the history of Korea’s economic rise.



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1. Creation of a free market economy

15th August 1948
The government of the Republic of Korea was established.

After the Second World War, the majority of newly independent states
are communist states
or states that choose economic models where the state is dominant.

Because South Korea chose the free market system,
it was able to enjoy the benefits
of easy access to advanced Western
civilization and technology.
The choice of free markets
also encouraged a spirit of self-help.
Koreans worked hard
for themselves and their families’ living.

But it all began with South Korea being so poor that
it could not be self-sufficient.

In the 1945-61 period, the United States provided a colossal $3.1 billion of aid
which was used to rebuild facilities destroyed in war
and reconstruct the economy.
However, South Korea could not rely on aid forever.
In order to create the basis for self-sufficiency,
the government of Syngman Rhee formulated a Three Year Economic Plan,
while the Jang Myeon government formulated their own Five Year Plan.
Both were to go unimplemented.



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2. The Park Chung-hee government creates a Five Year Plan

Park Chung-hee’s first inaugural address
“Our enemies are poverty, corruption and communism. I believe these to be our three common enemies.”

The new military government that had seized power in a coup d’état
rushed to draw up an economic plan.

January 1962,
First Five-year plan unveiled.
Annual growth target of 7.1%!

However, given the 2.3% annual growth rates of the previous 3 years,
such plans appeared rather overly ambitious.

It would be necessary to provide large amounts of investment capital
in order to achieve such ambitious growth targets,
but neither domestic nor foreign capital were available in suitable amounts.

Korea should find a new way.



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3. Adoption of an export-led industrialization strategy

The government reduced the scale of their ambitions
and released a revised First Five-year plan
in February 1964, with the growth target cut from 7% to 5%.

However a new way had already begun to open.

From 1962, exports of industrial goods, principally tinned iron, plywood and apparel,
began to rise.

The business world had taken the lead,
moving to increase exports ahead of the government.

The government also became interested in exports.
In May 1964, a new economic team under Jang Gi-yeong,
Deputy Prime Minister, was assembled.
The team pushed for an export-first economic policy.

Finally, in late 1964,
the country achieved exports of $100 million.
The government designated 30th November
‘Export day’ to celebrate the achievement.

(January 1965, President’s Annual Address)
‘Thanks to the efforts of the government and industry over a considerable number of years, exports have begun to increase rapidly.’

January 1965, the President Park
in his annual address, sets three national priorities:
increase production, exports and construction.

From then on, the government mobilized
all its energies to promote exports.
From February 1965,
the Enlarged Conference for Export Promotion,
under the President’s direct oversight
met monthly.

Park Chung-hee,
from the first meeting until his death in 1979,
attended nearly every meeting.

Export-led industrialization was strategy without precedent
in the industrialization of other undeveloped countries.
Up until then, in developmental economics,
underdeveloped states were urged to substitute domestically produced goods
for imports.
It was a new idea for a developing country to export
while industrializing.

Later on,
economists called Korea’s strategy
‘export-led industrialization’ or ‘export-orientated industrialization’.



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4. The global economic boom and growth in global trade

The rapid rise in South Korean exports of industrial goods
was the result of riding the waves of
rapid global economic growth.

Until the first oil shock of 1973,
the global economy,
grew at unprecedented speed,
an annual rate of 4.9%.

As incomes and wages grew in developed countries,
it became difficult to maintain labour-intensive
light industries like apparel, toy production, wigs, and domestic appliances.
Developing nations nurtured these light industry,
seizing the opportunity to export industrial goods
to the developed world.
South Korea, a country where the majority had received an education,
was just such a country.

Amid such global currents,
South Korea’s decision
to adopt a light industry export-led growth model
turned out to be the right one.



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5. Rapid increase in the export of light industrial goods

Exports rose rapidly every year
at a staggering rate of 40% on average.

1) Apparel
At first, it was unprocessed textiles and apparel
that were exported, but soon finished clothes
became the major export.

In 1970, apparel formed 40% of total exports, a major
export product.

2) Plywood
Plywood, another founding member of the export club!
The lumber industry learnt from Japanese plywood makers
and energized the industry.

3) Wigs
The production of wigs utilized the abundant supply of skilled female labour,
as well as all the hair to be found domestically.
It was exactly the right kind of industry for South Korea in the 1960s.

In 1970, the top three exports were
apparel followed by plywood and wigs.
Thus, to start with, South Korean exports
were not all that impressive.
But beginning with simple, light industrial goods,
and gradually moving up the value chain
proved to be the right way to industrialize.

4) South Vietnamese freight. Entry into the construction market
In the late 1960s,
with the mobilization of South Korean soldiers to fight in Vietnam
South Korean companies entered
the freight and construction markets there.

From 1965-73,
the provision of military supplies, construction services,
as well as the remittances of technicians and soldiers
proved to be a huge opportunity to earn foreign currency.

5) The causes of the export boom
he smooth export of light industrial produce
was possible thanks to cheap and abundant labour.

In the mid-1960s, Korean workers were paid only half of workers in
the Philippines, Thailand and Taiwan.
But they worked the longest hours.

Low labour costs were the weapon
that enabled Korean light industrial products
to rapidly gain market share.

But poor labour conditions
were to become a big social issue.

On 13th November 1970,
a 22 year old garment cutter named Jeon Tae-il
who worked at the Peace Market in Dongdaemun,
set himself on fire and demanded that the Labour
Laws be respected.

However, with industrialization, wages were
rapidly rising.
The textiles factories of the 1960s and 1970s
were the first steps out of poverty.
From here on, Korea’s assent
out of poverty became more rapid.



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6. Development of assembly processing industries

1) Chemical fibre industry
The expansion of light industry products brought
development in other related industries.
Chemical fibre industry was typical in this regard.

From the late 1950s, stretch processing import companies
processed nylon to make socks and other textiles,
becoming popular.

Seeing an opportunity,
a businessman built a nylon factory.
Soon, acrylic and polyester factories were also built.

These companies were given loan guarantees
by banks and government for foreign loans
and domestic capital, such as it was.

Later, these companies developed into large industrial conglomerates, chaebol.

2) Electrical industry
The success of Korean labour intensive industries
can be seen in the manual assembly of parts
in electronic industry

At first the Korean electronic industry
assembled foreign-produced electronic parts.

As private companies, like Gold Star,
began to produce electronics domestically,
the government moved to give its active support
in the creation of new industry.

US and Japanese electron companies,
seeking to take advantage of cheap, quality Korean labour
flooded in, setting up companies and creating joint ventures
to produce parts.

In 1969, the large conglomerate Samsung
began to produce
TVs and vacuum tubes exclusively for export.

In the early stages, production centred on parts like
condensers and transistors,
later, production transitioned to
finished goods like black-and-white TVs and video recording equipment.



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7. Heavy chemical industry exports

From the 1970s onward,
exports increased dramatically.

The major driving force behind export growth
at this point was the heavy chemical industrialization policy
set out by the government.

From the 1970s,
heavy industrial exports increased.
Electronics, steel products and ships
were the no. 2 and no. 3 exports.

In the latter half of the 1980s,
automobiles became the third largest export.

In the 1990s
electronics became the no. 1 export.
Chemical engineering goods and other general equipment
newly became the principal export.
In a short time, South Korea has quickly progressed up
the export value chain, with higher value-added products.



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8. Entering the Middle Eastern Construction market

With the first oil shock in late 1973,
the price of importing oil increased rapidly.
As the balance of trade deteriorated
the government sought alleviate the problem
by entering the Middle Eastern construction market.

Following the example set by Samhwan,
a number of companies entered the market
winning contracts in road and port construction.

Hyundai Construction Co. secured a contract to build
the Saudi Jubail Seaport. A project costing $945 million,
this was the largest construction project in the world at the time.
It took 3 years 6 months to complete.

The total value of contracts won by Korean companies
continued to rise, and in 1982
South Korea was second to the United States
in the world construction market.

The hard work and sweat of Korean workers
and businessmen in the hot, sandy winds of
the Arabian Desert, became a powerful
motive force in the rise of the Korean economy
in the 1970s.



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8. Entering the Middle Eastern Construction market

With the first oil shock in late 1973,
the price of importing oil increased rapidly.
As the balance of trade deteriorated
the government sought alleviate the problem
by entering the Middle Eastern construction market.

Following the example set by Samhwan,
a number of companies entered the market
winning contracts in road and port construction.

Hyundai Construction Co. secured a contract to build
the Saudi Jubail Seaport. A project costing $945 million,
this was the largest construction project in the world at the time.
It took 3 years 6 months to complete.

The total value of contracts won by Korean companies
continued to rise, and in 1982
South Korea was second to the United States
in the world construction market.

The hard work and sweat of Korean workers
and businessmen in the hot, sandy winds of
the Arabian Desert, became a powerful
motive force in the rise of the Korean economy
in the 1970s.



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9. Achieving external balance

With the beginning of economic development in the early 1960s,
both exports and imports rose.

However, the South Korean economy finally achieved external balance.

The ratio of exports to imports rose from the early 1960s
as economic development spend up.

The three lows of the late 1980s
confirmed the self-sufficiency of the Korean economy.

As the global economy began to experience low dollar exchange rates,
low interest rates and low oil prices,
the export of Korean heavy and chemical industrial products rose rapidly.
Thus began what became known as the ‘Boom of the Three Lows’.

From by the late 1980s,
the country became economically
self-relying.



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10. Epilogue: the significance of export-led industrialization

The Republic of Korea
had nothing to offer but people.
If it had had natural resources,
there would have been no need to
export plywood, textiles and wigs.

In the early stages, the country
developed expertise in producing simple, processed goods.
Later, it was able to make goods
that required more skilled labour and sophisticated technology.

The Export-led industrialization strategy resulted in
South Korea becoming part of the global economic system.

Korean business, by continuing to improve
the quality of their operations,
can continue to modernize the Korean economy.