Chapter 19- Korea

Chapter 19- Korea - Power,Money,&Trade 18/03/200922:48:00...

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18/03/2009 22:48:00 Chapter 19: South Korea Opts for Export-Oriented Industrialization The Kennedy Round negotiations, conducted between 1962-67, introduced new bargaining techniques. It marked the real beginning of a wave of tariff reductions By GATT members. The best known of these are South Korea, Taiwan, Hong Kong, and Singapore. This chapter focuses on the decision to pursue a development program based on trade made by South Korea in the early 1960s. Between 1949 and 1960, South Korea’s export earnings grew 3.9%, about the same rate of growth as its GDP. While respectable, these figures are not very different from other industrializing countries, such as those in Latin America. The final mark of successful industrial development came when South Korea was invited to join the Organization for Economic Cooperation and Development (OECD), which is generally considered the economically advanced countries’ club. South Korea’s Initial Trade and Industrialization Strategy: Import-Substitution Industrialization (ISI) South Korea pursued the trade and development program popular with most other economically developing countries: it blocked the import of industrial goods, so that domestic demand would stimulate domestic production South Korea is said to have pursued ISI in the years between 1950 and 1963 “with zeal.” Liberal criticisms of ISI by blocking foreign competition, ISI ensures that domestic manufacturers garner a profit, but this automatically means consumers are hurt by the lack of competition. These prices shifts can create distortions in the ability of other sectors to utilize inputs- distortions introduce greater inefficiencies throughout the economy. Take the example of local steel production, which was supported through ISI; any other producers using steel as an input had to pay more for it, and this made the price of their goods less competitive. Profits could be spent on many other things, including investment in unrelated sectors and conspicuous consumption (buying mansions and Rolls Royce limousines), or they might even be taken out of the country and invested somewhere else. Sometimes ISI meant blocking imports that could not be fully replaced by domestic production in the short run. Other producers who used steel as an input might have to slow down their production. So ISI could lead to bottlenecks. ISI may not work very well if the country lacks the technical know-how or high-tech production facilities necessary for efficient production.
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While 3 rd world countries might possibly achieve production in certain high-tech areas, they may be expanding a tremendous amount of resources, which could be more effectively applied elsewhere.
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This note was uploaded on 04/28/2011 for the course POLI 243 taught by Professor Markbrawley during the Spring '09 term at McGill.

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Chapter 19- Korea - Power,Money,&Trade 18/03/200922:48:00...

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