Chapter 19

Chapter 19 - Chapter 19 South Korea Opts for Export-Oriented

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Chapter 19 South Korea Opts for Export-Oriented Industrialization South Korea concentrated on exports and let exporting sectors lead the country’s growth. South Korea’s merchandise exports grew by an average of 23% per year South Korea was invited to join the Organization for Economic Cooperation and Development (OECD), which is considered the economically advanced countries’ club. South Korea’s Initial Trade and Industrialization Strategy: Import-Substitution Industrialization (ISI) o Post WWII South Korea: blocked the import of industrial goods, so that domestic demand would stimulate domestic production—ISI o S. Korea pursued ISI 1950-1963 o By blocking foreign competition, ISI ensures that domestic manufacturers garner a profit, but this automatically means consumers are hurt by the lack of competition o ISI is a way of forcing a transfer of income from consumers to the industrial sector, which works through distorting prices in the mkt by eliminating cheaper priced competition o Distortion introduce greater inefficiencies throughout the ecnomy o Steel Production: any other producers using steel as an input had to pay more for it, and this made the price of their goods less competitive o Profits might not be reinvested in the same industry, but to unrelated sectors o The industry might get comfortable behind the protective tariffs and manage its captive mkt without improving productivity or levels of production but still receive a steady profit o Sometimes ISI meant blocking imports that could not be fully replaced by domestic production in the short run ISI Bottlenecks o In other areas, technology is a barrier ISI may not work very well if the country lacks the technical know- how or high-tech production facilities necessary for efficient production o In most cases, ISI was supposed to be a temporary policy, to be dropped after the local industry got on its feet. However, this rarely happens because the local industry has no incentive to increase its competitiveness slowdown in the pace of industrialization over time o Difficult to sustain industrial growth because The domestic mkt in many economically developing countries is not very big, nor do consumers have much purchasing power. o The larger the mkt, the more likely ISI will last longer and perform better o If a country bases its dvpment strategy on ISI, but the level of domestic demand does not meet the production level of a modern efficient plant, it makes little sense to build the plant and then utilize it at less than full capacity
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o ISI also causes social losses associated with rent seeking: Individuals and groups will expend resources in the pursuit of the right to participate in the ISI-protected sectors o Society as a whole loses because the individuals seeking the special privileges accruing to the protected firms are burning up the country’s resources without adding to the country’s ability to produce anything extra drain the economy
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This note was uploaded on 02/08/2012 for the course POLI 243 taught by Professor Markbrawley during the Winter '09 term at McGill.

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Chapter 19 - Chapter 19 South Korea Opts for Export-Oriented

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