The purpose of this study is to elicit policy implications by analyzing the effects of heavy and chemical industry policies, which constitute a significant example of government interference in market distribution.
From the beginning of the 1970s to early 1980s, for almost ten years, the heavy and chemical industry policy was implemented by mobilizing attractive financial, tax, and trade policies to foster industries that were selected by the government. Those industries that received special treatment are defined as HC, whereas those that did not are defined as the Light group. The study looks into the effects that the heavy and chemical industry had on investment and production in these two industries.
On the investment side, the degree of intensity between the two groups showed different growth patterns from the mid-1960s to mid-1980s. In the 1970s, there was extreme distortion in the relative prices of the elemental market. The same trend existed in the heavy and chemical industry, which showed the same effects of resource distribution amongst industries. By analyzing what effects resource distribution amongst industries had on manufacturing industries, the HC group showed lower efficiency than the Light group. The heavy and chemical industry policy put the brakes on market functions, thus lowering the growth of the manufacturing industry.
On the production side, the effects of heavy and chemical industry policy on export competiveness were examined. At the end of the 1970s, Korean exports in the light industry declined while that in the heavy and chemical industry indicated a gradual increase. Thus, the total share of exports decreased in comparison with six other countries competing in the same industry export market, which can also be attributed to the policy on heavy and chemical industry. When comparing manufacturing imports and exports, as well as shares by industry, Korea’s share in the light industry was more than 1% lower than that of Thailand in the early 1970s, which would have also reflected the effects of Korea’s heavy and chemical industry policy. While some parts of heavy industry indicated higher growth than Thailand, overall, Korea was behind. The actual growth rate of Korea’s exports sharply fell from 20% in 1977 to 14% in 1978, followed by an unsurprising further decrease in exports in 1979.
Many people view the export increase in the 1980s or economic growth as results of the strong foundation of the heavy and chemical industry policy in the 1970s. However, the reality is that the increase in exports was caused by external factors – such as a decrease in imports from the U.S. There is little evidence of government intervention as having a positive effect. Discriminatory tax, finance and trade policy between HC and the Light group disappeared around 1983, and laws to foster individual industries were combined as one Industrial Development Act in 1986. These changes attest to a shift in the policy direction from active to passive government intervention.
1970년대 중화학공업정책이 자본효율성과 수출경쟁력에 미친 영향(The effects of the heavy and chemical industry policy of the 1970s on the capital efficiency and export competitiveness of Korean manufacturing industries)
|Journal Title; Vol./Issue||한국개발연구:vol. 13(issue 1)|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade
Industry and Technology < Manufacturing
|Holding||KDI; KDI School|