Dominance of the primary sector

The Korean economy was dominated by the primary industries of agriculture, forestry and fisheries until the early 1960s, when Korea embarked on full-scale industrialization. Just prior to the 1960s, the primary sector accounted for nearly 40 percent of gross domestic product, while manufacturing accounted for only around 10 percent, and accounted for about aquarter of total exports.

The dominance of the primary sector was not unusual given the underdeveloped nature of the Korean economy at the time. Moreover, Japanese colonial policy had created acomplementary economic structure between the northern and southern parts of the Korean peninsula to support its military expansion into China in the 1930s. While most manufacturing factories built by the Japanese in Korea were located in the north, close to similar facilities in the Japanese puppet state of Manchukuo, the south was designated as the prime source of food supplies. In addition, the manufacturing facilities that the south did possess were largely destroyed during the Korean War (1950-1953).

The most important policy change during this period was the land reform that started in 1950. The redistribution of land ownership to small farmers accelerated productivity growth in agriculture by boosting their work incentive. The newly-created farming class had more money to spend on educating their children, which created ahighly-skilled population that was necessary to support industrialization. Landlords who sold their farms often used the money to reinvest it in industrial enterprises, which provided an important source of capital for the initial stage of manufacturing development.

The fishing industry played as important arole as agriculture in the primary sector during this period, although it made up asmaller percentage of the economy. It was an important foreign currency earner, accounting for the single largest source of foreign revenue after foreign aid during the late 1940s (Table 3-7). Fish exports, for example, made up 93 percent of Korea’s total exports in 1949. Unlike agriculture, where tenant farming was prohibited and aceiling was placed on the amount of landholding per farmer as aresult of the land reform, the fishing industry became increasingly commercialized, while providing an important source of protein for apopulation that was suffering nutritional deficiencies.

Table 3-7. Fish exports in the second half of the 1940s

The construction sector also played an important role in the 1940s and 1950s in rehabilitating the physical infrastructure that had been neglected or destroyed in the late 1940s or during the Korean War. Infrastructure reconstruction contributed to economic growth and laid the base for the development of other industries.

The development of the manufacturing sector was slow during this period, and depended heavily on foreign aid. The few industries that produced consumer goods, including sugar, flour and cotton (the so-called“three white industries”), grew because foreign aid helped provide the raw materials and supported domestic demand. The rapid rise of the consumer goods industry, however, created an imbalance in the development of the industrial structure. It also increased adependence on the import of raw materials and production machinery, which resulted in adeterioration in the balance of payments. Nonetheless, the sector’s growth laid the ground for subsequent industrialization in the 1960s and after.

Foreign aid was used by the Korean government to buy fertilizer to increase food production; develop energy industries, such as electricity and coal; and build the infrastructure and facilities needed for the country’s post-war restoration. This led, however, to the establishment of alarge number of state-run enterprises under the direct control of government. While these public enterprises greatly contributed to advancing Korea’s industrial structure in the early stages, they later became an economic burden due to reckless management and growing debts.

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