Term Paper Final

Term Paper Final - Balloga,1 Abram Balloga ECON 4450 Term...

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Balloga,1 Abram Balloga ECON 4450 Term Paper 5/5/2009 American National Champions Economic recessions leave common citizens and big business alike screaming for immediate government action . However in these instances the correct policy choice is not always easy to decide upon, or even to implement when chosen . It is politicians, not economists, who make these decisions, and their job less cut and dry . Economists can make impartial suggestions, having no emotional or business associations with the interest groups who stand to either lose or gain from recovery initiatives . Politicians on the other hand must answer to each and every one of their constituents as well as, if not more so, to the many donors and campaign financiers constituted of organized stakeholders . In light of the Korean economic crisis of 1997 we will observe these effects on industrial policy, allowing us to untangle the situation in search of these questions – why such a policy is necessary? What economies need such a policy? How has such a policy been implemented, either to success or not? After observing and assessing the Korean scenario, we can apply what has been learned in evaluation of a more recent event, the American financial crisis . On Korea Korea prefers a nationalist style of industry launching, with government protecting and providing for firms throughout their pre-competitive stage . The government put into place industrial parks with such institutions as government research institutes in information technology . With regard the size and distribution of firms the policy in Korea is for promoting national champions, where they receive the comparative advantage by pre-competitive industrial
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Balloga,2 policy . It is important to continually upgrade industries to fend off competition from low wage economies . Here it is necessary to accumulate human capital and establish brand names linked to high value-added industry . This developing economy is led by mammoth oligarch firms who outpace the rest of the country, and have become very intertwined with government officials and their actions . Korean Crisis In 1997 the thriving newly industrialized economies (NIEs) of southeast Asia fell into an economic crisis, for many it was the most severe in the past 50 years . 1 In Korea, this recession may be attributed to a liquidity crisis resulting from massive amounts of debt accumulated from its national champion firms who heavily invested in industrial upgrading in sectors like semiconductor and automobile production . Low returns and constant borrowing led to unusually high debt to equity ratios in chaebol firms like Samsung and Hyundai, making them extremely vulnerable in the event of recall of those debts . 2
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Term Paper Final - Balloga,1 Abram Balloga ECON 4450 Term...

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