O even cut hair made it into wigs and exported the

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o Even cut hair, made it into wigs and exported the wigs - Public saving campaigns (“ saving was a virtue” campaign).
o Saving was treated as a virtue and consumption was evil at the time; even primary school kids opened their accounts - Chonsei (or Jeonse) housing rental system: quite unique in Korea, o About 40% of the actual house price; put it as a deposit. Then, the lender can receive interest payments on the deposit. And, the renter can rent a house without paying extra prices. o Provision of housing stability for middle income earners o Help to channel savings into loans for development given underdeveloped financial markets. How did they overcome the shortage of “skilled labour”? - Lured back “brains”, esp. scientists and engineers. - Set up KIST (Korea Institute of Science and Technology), key government supported R&D centre - Set up KAIST (Korea Advanced Institute of Science and Technology), to support higher education in science and technology - Set up KDI (Korea Development Institute), key thinktank for development policy. Neoclassical Growth TFP (Total factor productivity) = secondary inputs such as technology other than labour and capital
Saving should be always below the production function as saving is a part of production Replacement investment = ri = (d+n)k (1) dk, to keep k (capital) constant when k depreciates at d% (2) nk, to keep k constant when pop (n) is growing at n% Example: a depreciation rate (d) of 5% and a population growth rate (n) of 2% means that the capital stock would have to grow by 7%, (d+n) to keep k constant Population growth is bad in the view of a neoclassical model, because it leads to a lower steady state growth. On the other hand, saving is good because it leades to a higher investment and capital accumulation and higher income. These are shown below: Endogenous Growth - Allows the growth rate of technology (TFP, A) to be influenced by other variables, e.g. by the amount of investment in Research and Development (R&D).
- Broadens the concept of capital to include human capital or the stock of knowledge . This can give rise to models without diminishing returns. Knowledge has some public good aspects. - Ideas ’ production function matters (Paul Romer) - Self-sustaining growth in output per worker - without requiring exogenous technical progress. - Government policy choices may influence the economy’s long run growth rate. The growth miracle in Korea was achieved mainly by educational attainment (through endogenous growth in TFP) Were Korean firms too protected? - Some industires were highly protected while some others were not. - The degree of protection can be estimated by real exchange rate - Real exchange rate: RER = E P us P o E: exchange rate e.g. 362 won/USD o P US : price level in US (USD) o P: price level in Korea (won) o The higher the RER, the more competitive it is (in exports) In the 1980s, - Another military coup (authoritarian govt) - Technocrats formulated economic policies - Supported particular industries or firms and punished others which did not agree with the govt. policies - Connection between chaebols and political powers more consolidated. Corruption and Cronyism.

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