Early evolution of international economic policy

After the liberation from Japan in 1945, Korea experienced major economic chaos as Japanese businessmen, managers and technicians returned home. In 1950, the Korean War broke out, destroying roughly 42-44 percent of production facilities in South Korea (Kim and Roemer, 1979). Aid from the UN and the U.S. was crucial in the reconstruction of the South Korean economy. During 1945-1950, a total of 585 million dollars in aid was provided by the U.S. (Government and Relief in Occupied Areas, or GARIOA, and the Economic Cooperation Administration, or ECA) and the UN (Civil Relief in Korea, or CRIK, and the United Nations Korean Reconstruction Agency, or UNKRA). Aid from the U.S. and UN kept Korea supplied with daily necessities, construction materials and fertilizer.

In the second half of the 1950s, Korea’s exports averaged 20 million dollars per year and imports 370 million dollars. The trade deficits were financed by foreign aid, mostly from the U.S. as shown in Table 4-1, and the economy suffered from a severe shortage of foreign exchange. It was against this backdrop that Korea’s foreign exchange rate and trade policy evolved. In the 1950s, Korea’s trade policy was highly protectionist. Beginning in the mid-1960s, the Korean government focused on export promotion and this has been a top priority in economic policy since then. At the same time, Korea began to liberalize its import regime, although it suffered some setbacks in the 1970s. From the early 1980s, the government’s promotion of import liberalization began in earnest and tariffs were reduced unilaterally.

Table 4-1. Foreign aid (1953-1960)

This section discusses the foreign exchange and trade policies in the 1950s, how rapid export expansion began in the early 1960s, and how trade policy evolved in the 1960s and 1970s. It also attempts to assess the effects of these policies and interpret what happened in Korea during these two decades, to determine if indeed the experience may be characterized as “export-led” and “government-led."

Source : SaKong, Il and Koh, Youngsun, 2010. The Korean Economy Six Decades of Growth and Development. Seoul: Korea Development Institute.

References

· Kim, Kwang Suk and Michael Roemer, Growth and Structural Transformation, Studies in the Modernization of the Republic of Korea: 1945-1975, Harvard University Press, 1979.