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Development Overview

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Overview of Korea’s development experience

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Market opening

The launch of the WTO system, Korea’s entry into the OECD and the 1997 Asian financial crisis led to the wider opening of the Korean market, which posed new challenges for Korean businesses. The market opening provided new opportunities for Korean manufacturers that had already been exposed to international competition but it caused difficulties for the primary sector industries, such as agriculture and fishing, which were forced to restructure (DoHoon Kim et al., 2005).

Globalization trends in the world economy had earlier encouraged Korean manufacturers to focus on export markets rather than depend on adomestic market with limited demand. Now Korean manufacturers are taking the next step in “industrial globalization” by establishing production facilities overseas. This has contributed to the increased competitiveness of Korean industry in their respective sectors. Korea now ranks among the top five countries when it comes to automobiles, shipbuilding, electronics and steel. In turn, this resulted in management improvements of Korean companies that made them first-class organizations. Korea’s success in embracing the globalization process is borne out by the fact that the number of Korean companies reaching global status continues to increase.

The rapid globalization of Korean business, however, has also produced adverse side effects. The relationship between domestic-oriented businesses and those focused on exports weakened, leading to a “bipolarization of industries.” The result was that even if exports were booming, some companies relying on domestic demand did not benefit. It also contributed to the “jobless growth” that first appeared in advanced countries in the 1980s, but then emerged in Korea in the 1990s. The number of jobs in Korea that exporting industries previously created dwindled as more production facilities went overseas. The market opening had its most severe impact on the agriculture and fishery sectors.

Pessimistic predictions about the future of these sectors in the wake of increased foreign competition accelerated the reallocation of resources to industrial sectors. The import of cheap agricultural and fishery products also caused changes in demand patterns, while reducing domestic self-sufficiency in food production. The foreign competition forced afall in the price of domestic agricultural and fishery products, adding to the sectors’ disruption. Farmers and fishermen often responded to new market-opening measures by holding street protests, with no real gains to themselves and the country.

The Asian financial crisis in the late 1990s increased pressure on the Korean industry to restructure. Some industries, such as ICT, emerged stronger from the crisis and were better able to compete internationally. But the of agriculture and fishing industries, along with the labor-intensive light industries in textiles and footwear, faced aharsh and difficult future.

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

References


· Kim, DoHoon et al., Market Opening and Industrial Restructuring, Korea Institute for Industrial Economics and Trade, 2005 (in Korean).