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Contribution to Korean Economic Growth

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Contribution to Korean Economic Growth06



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Title Contribution to Korean Economic Growth
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Material Type Report
Date 2015
Language Korean
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Subject Industry and Technology < Science/Technology
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Abstract

Sub-Theme 3 | Contribution to Korean Economic Growth



 
1. Major Researches

 


Since its foundation, KDI has done various researches and consultations on almost every aspect of government activities from economic development planning to short- and long-term economic planning to countermeasures to economic crisis, welfare policies, and even to legal policies. The following are major works among them.  


 




(1) The Economic Development Plan

 


After the Military Revolution in 1961, the revolutionary government considered the economic development as their first priority and focused on such issues. In effect, the government implemented the 5-Year Economic Development Plan in 1962, which was the economic development plan dividing the timeline by 5 years. The first plan that went into effect from 1962 to 1966, utilized the plan established by the former government, thus it was not a big deal to implement the plan. However, the Second 5-Year Economic Development Plan had to be established by the Economic Planning Board founded in 1962. Therefore, recruitment of the professional workforce was a crucial issue to achieve a successful establishment of the plan.

 


At that time, the Economic Planning Board solved the above mentioned problem by utilizing the researchers from abroad and few domestic economists. Thus, they were able to establish the Second 5-Year Economic Development Plan to be implemented since the 1967. However, the utilization of the researchers from abroad had many limitations, therefore, they started to focus on recruiting domestic researchers with expertise. It is stated in Chung (2002, pp.16-38) that the Korea Development Institute was established due to these efforts, to recruit human resource and to utilize them.

 


Considering this background of its foundation, we can simply think that the major role of the KDI was to establish the economic development plans. However, interestingly, there is no trace of a comprehensive research paper discussing the planning of the economic development plan by he KDI. Moreover, although it is true that the KDI has greatly contributed to the establishment of the economic development plan itself, when looking at the list of publications, there seems to be many limitations to simply argue that such research was the KDI’s most representative achievement.

 


The reason for this sort of phenomenon mainly accounts for the founding year of the institute. The KDI was officially able to participate in the planning of the economic development plans from the Fourth 5-Year Economic Development Plan which was implemented in 1977. However, at this time, the Economic Planning Board already had the experience of establishing and implementing two sets of economic development plans. Thus, it seems that the planning itself was in fact not that much of a difficulty.

 


The dedication of the KDI, related to the establishment and implementation of the economic development plans, was rather focused on building up the basic research to enable these plans to have substance and practicality, and implying the research outcomes onto the establishment of the economic development plans directly and indirectly. For example, the KDI publishes the research paper titled the “Growth Strategy for the Overall Resource Budget” the next year, in April 1972. This report was requested by the Economic Planning Board to be written by the KDI to “use as a reference to plan the Third 5-Year Economic Development Plan’s Second Year Overall Resource Budget,” and is also which was written to express the opinion on the budget planning method based on the Economic Forecast of the Year 1973. This report of 20-or-more pages was written by a total of 6 Ph.D. holders including President Mahn Je Kim. These researchers also wrote separate reports on major issues on the macroeconomic forecast, financial expenditure, income from tax, and exchange rate around the time they published the above mentioned research paper, of which the contents were used as the basis for the report published in 1972. These reports all presented concrete data through metrical analysis, thus provided quantitative information necessary for the establishment and the implementation of the economic development plans.

 


Along with the publication, a forum to discuss such results were held. The Economic Planning Board held the Economic Policy Conference for the Fourth 5-Year Economic Development Plan and the KDI was in charge of the actual coordination of the conference. The First Conference held on December 26th and 27th, 1974, while many government departments and related persons from the private sector as well as the Economic Planning Board were present, President Mahn Je Kim, Heeyhon Song, and Pal Yong Moon made presentations related to the economic development plans, and discussions were made based on those presentations. Through these discussion sessions, opinions from each government branch were collected and mediated by the KDI, handling the operational part of the conference. This has greatly contributed to the establishment of a more realistic plan.

 


Therefore, the major role the KDI during the early times of its foundation related to the establishment of the economic development plan can be summarized as conducting research on basic analysis needed for the plans established by the Economic Planning Board to be able to be applied to the real economy and providing relevant consultations. Afterwards, the KDI was in charge of supporting the economic development plan establishments of the Economic Planning Board until the last 5-Year Economic Development Plan which was implemented until the 1990s.


 




(2) Economic Trends Analysis and Economic Forecasts

 


The KDI, since its foundation, was in charge of tasks such as figuring out the economic trend and presenting the forecast by systematically analyzing the major macroeconomic variables - such as the GDP, price fluctuation, and the unemployment rate - related to the overall national economy’s movement. Such tasks were executed along with the in-depth analysis of the macro-economy, and the development of the models necessary for the forecast. Soon after the foundation of the KDI, Dr. Heeyhon Song created the first ever macroeconomic model in 1971 and utilized it for the economic forecast. During the same period, Dr. Mahn Je Kim, Dr. Heeyhon Song, and Dr. Kwang Suk Kim estimated the money demand function. Afterwards, until today, the macroeconomic analysis and forecasting continued to be the main functions of the KDI, and research reports published by the KDI related to these are so many that it is nearly impossible to cite all of the publications one by one. 

 


Based on these analyses, the KDI regularly and officially announced the macroeconomic analysis results, in order to provide important information necessary for the economic activities of the private firms and the citizens, not to mention the government. In May 1982, the first 「KDI Quarterly Economic Forecast」was published, and this publication continues until today. Also, the KDI publishes the economic trend report listing the major economic indices, thus investigates the tendency of economic change and provides the information to the citizens. Whenever a macroeconomic trend should be figured out by the government or the media, they contact the KDI for consultation.


 




(3) Long Term Forecase and Plans

 


If a macroeconomic forecast is a prediction of the economic trend for a short term, or a 6-month to 1-year period, the long-term economic forecast is a prediction of a 10-year or a longer period of time to design the future path of the economic growth and related policies. One of the most important roles of think tanks is to suggest a long-term forecast and also suggest a policy solution on currently facing issues based on the forecast. When the government department of the policy authority or the National Assembly is bound with an urgent issue and is unable to look at the big picture, or look through the policy’s overall direction, a think tank will not only have to support the short term issues the government is currently facing, but also stand back and evaluate the problems and make suggestions from a long-term macroeconomic point of view. Through this, the think tanks must be in charge of their original function of leading the policy to a correct direction.

 


Indeed, the long-term forecast should all be blended in all reports and research papers published by the institute even though it may not be a special report of that topic. Nevertheless, apart from this appropriateness, each research institute must publish reports including the overall forecasts so that they can enlighten the related persons by providing information on the trend of the specific field. In the case of comprehensive research institutes, such as the KDI, there are greater obligations to fulfill this function than any other research institutes. Furthermore, the KDI must suggest the direction and come up with strategies of long-term development in the overall society and the economy of Korea, not specific to a certain field. 

 


For the KDI, long-term forecasts were made since its foundation. In April 1973, president Mahn Je Kim made a presentation in Washington, in the U.S., about the future of the Korean economy. Also, in October of the same year, he made another presentation titled “The Korean Economy of the year 2000” at an international conference held in Seoul. Although both presentations were made as if he is making an individual presentation, but these research projects can be considered as the inaugural long-term forecast which consists of the growth potential of the Korean economy and the direction for development suggested by the KDI. Also, these presentations are meaningful in the sense that these became the starting point of various long-term forecast research projects onwards. 


 




(4) The Economic Policy and the Open-door Policy

 


During the 1960s and the 1970s, the government-led economic development policy has greatly contributed to the increase of the national income. However, many side-effects followed. Among those side-effects were the monopolistic and oligopolistic market structure which induced many socioeconomic problems. While the government pursued the export-oriented economic development, the government supported the private firms through various measures such as the monetary policy, the subsidy packages, and regulatory policies on market entry, as well as protecting the domestic industry from the competition with foreign goods. Through this procedure, the large conglomerate groups, and the monopolistic and oligopolistic market structure was introduced. This made the consumers to unwillingly accept to buy products at a higher price, and also allowed the firms to not do their bests for enhancing the quality of the products, thus hindering the consumer welfare as a side-effect.

 


The Economic Planning Board tried to solve this problem by various measures such as controlling the price of main products. Nonetheless, as the economy grew, direct government intervention by regulating the activities of private firms, such as controlling the commodity price, has more to lose than what was to be earned. Under these situations, the government legislated the “Act on Market Price Stability and Fair Trade” in 1976 to create the basis for transition of the legislative base or the policy direction from the previous competition policy or the market friendly economic management. 

 


The KDI put much effort for this transition of policy to be successful. In 1975, Dr. Kyu Uck Lee analyzed the current state of the firm concentration ratio by industry, and published in 1977 the policy report mentioning a large-scale positive research on the monopolistic market structure and the direction for the fair trade policy. Through these series of research, Dr. Kyu Uck Lee argued that Korea has an extremely monopolistic market structure, which greatly decreases the welfare of the consumers, thus a policy to solve this problem is needed. Nevertheless, during the 1970s when the government lead the export-oriented rapid growth for the basic direction of the economic policy, and when industry protection and price control was widely practiced by the government, it was very difficult for these suggestions to be fully accepted or change the policy direction. 

 


The transition to a market-friendly policy has been achieved in the 1980s after the demise of president KDI Report-Hee Park. The 5th republic has set the market price stabilization as their first priority for the economic policy, and rather than the direct price control for the overall macroeconomic policies such as the fiscal policy or the financial policy, more focused on the systematic approach, such as the open-door policy and competitive market order, to reach their goal. The “Act on Regulation on Monopoly and Fair Trade” legislated in 1981 and the establishment of the Fair Trade Commission have acted as the milestones for the development of the economic policies.

 


Such changes in the policy trend brought a new transition point for the KDI. Research on industrial structure and competition policy, which the KDI accumulated a vast amount of research since the 1970s, were expanded to a great degree. Dr. Kyu Uck Lee who led the research on competition policies expanded in-depth the research through the accumulated series of research during the 1970s, and in 1982, he suggested a concrete policy analysis and suggestions on the market structure enhancement on 12 industries, such as the animal feed, bottle caps, Cheongju (a type of alcohol), cosmetics, plate glass, machinery, textiles, electronics, etc. through the ‘Research Series for Competition Promotion Policy Enhancement Methods’


 




(5) Dealing with and Overcoming the Crisis

 


The first report published after the official establishment of the KDI was the “Comments on Company Layoff,” published on June 1st, 1971. The fact that the report on dealing with company layoffs to be the inaugural report of the KDI, quite irrelevant to the establishment of the economic development plan which is the original purpose of its foundation, has a very symbolic meaning in connection with the future path the KDI has walked through ever since.

 


The Korean economy in the 1970s was targeting a high economic growth, it had many related structural instability. Under this condition, it can be said that it was an obvious mission for the think tanks to acknowledge these economic problems and to suggest solutions. After the report of company layoffs, in the next year, in June 1972, president Mahn Je Kim published a 15-page report titled the “Resolution for Decision of a New Policy.” 

 


The early reports were mostly published as ‘restricted documents’. Therefore, these reports emphasizing the economic stability were not directly released to the public like any other reports of that time. However, within the government offices, many high ranked government officials as well as the president were able to have access to this document. As such, the KDI publishing reports that might even oppose to the government policies is said to be an important part of the work the KDI has performed over the past 40 years. 

 


While policy suggestions were made in order to prevent the crisis, in fact when actual crisis situations occurred, the KDI or the researchers of KDI took care of the important roles in the process related to overcoming the crisis. It was the same for the Economic Crisis in 1997 which can be considered to be the biggest crisis in the overall history of the Republic of Korea, and the recent 2008 global financial crisis. In order to overcome the crises, the KDI conducted research and consultations for various related issues such as the direction of the economic policy, layoffs of insolvent companies, economic structural reform, etc, thus contributing greatly to the policy establishment. Also, even after overcoming the crisis, the KDI have conducted in-depth research on the process of overcoming the crisis as well as the change of economic structural change to prevent such crises in the future and to settle the basis for economic growth. 




 


2. Scope of Researches

 


After the KDI and the Korea Institute for Health and Social Affairs opened in 1971, each government branches continued to create government-sponsored think tanks which conducts research related to their tasks. As a result, among the currently existing think tanks in Korea, 17 were established until 1990, and even during the 1990s, many research institutes were founded. As a result, a comprehensive insight in order to recognize and make decisions of the national economy as a whole is extremely important. 

 


Comprehensive insight cannot be created merely by arithmetically adding up all research outcomes of many other departments. Combining the research outcomes from each research institute and transforming it into a comprehensive overview is, by itself, a task which must be achieved through comprehensive efforts by high level human resource with expertise.

 


There can be many opinions on who should be responsible for being in charge of such function, to achieve the greatest efficiency. However, in Korea, the KDI has been in charge of this function for the past 40 years. Also, The reason for the KDI to have been fulfilled this function in a relatively successful manner originates from combining the historical background of starting off as a comprehensive economics research institute, and th internal environment that the fellows of the KDI who conduct research on a variety of professional areas all closely interacted within the organization, and the conscious endeavor to maintain and further develop such environment. Moreover, fundamentally, as the KDI continuously recruited human resource apt for realizing the comprehensive insight through conducting their research, – by recruiting the intelligent human resource capable of having their own expertise and at the same time able to consider the economy as a whole, nurtured such workforce to be able to achieve that goal, and by having more human resource to join the KDI to enjoy such benefit altogether – it was possible for them to generate the virtuous cycle of development.

 


The success of the KDI was able to be achieved thanks to the will and endeavor of the members of the KDI and the government authorities during the historical process of the past 40 years. It is indeed impossible to make such an organization in a day. This is the very reason for countries that wish to have government-sponsored think tanks contributing to the economic development why they must ruminate on and contemplate not only the current state of the KDI but also its historical path.