The purpose of this study is to estimate the size of funding for infrastructure until 1992, based on the comprehensive indicators of the 6th National Plan, and examine provisions to provide basic information for policy making.
Until the 1970s, most of the nation’s accumulated funds that were needed for Korea’s rapid economic growth relied on foreign savings. And from the late 1980s, funds were mainly sourced by national savings. It could not be concluded that these funds were the main factor delaying Korea’s continuous growth until 1992, when the 6th National Plan was to be completed. It was estimated that in year 1992, total capital investment would reach 31.5% of GNP, and investment in infrastructure would record 14.5% of GNP, equivalent to about 25 trillion dollars. From the macro perspective, as the national savings rate recorded around 31%, and assuming that this would play a larger role in total capital, funding for infrastructure seemed certain.
The source of funds for supporting infrastructure can be classified as either internal or external funds. Internal funds are composed of depreciation and internal reserves; and external funds are made up of securities and loans including stocks and debt. The ways in which each corporation is financed differ by country. When comparing the corporate finance systems of major developed countries, financing methods can be categorized as either Japanese or Western. In Japan, most of its funds were provided externally, and loans from financial institutions appeared to play a very important role. When viewing the internal source of funds, Japan showed a 30% level while the U.S. showed 70%. The corporate finance system in Korea showed many similarities with the Japanese corporate system. Also, as statistical data from 1987 shows, 42% of infrastructure funding came from an internal source, while the other 42% came from an external source, including loan and debt. The main reason for the similarities between the two countries is due to analogous economic growth patterns. In particular, during the process of major corporate expansions and increasing number of investments, funds for infrastructure mostly came from loans by financial institutions.
These estimates were calculated based on the assumptions made on provisions for infrastructure investment up to 1992. Ratios for internal funds were presumed to be 40% by 1990, and 45% by 1992. Moreover, ratios for external funds, including loans from financial institutions, were assumed to be 42% by 1990, and 40% by 1992. Furthermore, out of 25 trillion dollars in total capital investments, internal funds were estimated at 11 trillion dollars, loans at 10 trillion dollars, and securities at 4 trillion dollars. In view of current trends, the assumptions made on these ratios were most likely accurate. In the future, external funds will constitute a larger portion; therefore, if the nation’s capital market becomes more developed and liberalization of the financial market is realized, it will be easier to procure funds from external sources.
One major concern has to do with the demand side of investment on infrastructure. To increase demand for investment, in addition to support from the financial industry and taxation policies, an increase in the tax burden on the service industry is recommended as the rate of return in manufacturing industries is relatively higher, which will attract more investment.
시설자금의 공급방안(Provisions for funding infrastructure)
[서울] : 한국개발연구원
|Series Title; No||정책연구시리즈 / 89-07|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||KDI; KDI School|