POLI 243 Lecture Notes - Investment, Economic Planning, Korean War

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Lecture 11 March South Korea chooses Export. oriented Industrialization (trade and
eco. development)
trade and eco. development : tariff policies, monetary policies, trying to
generate industrialization in developing countries
this contrast sharp in third-world countries : all looked similar
economically
but despite starting similarly in 1945, several countries have attained
different results
east asian countries quite successful; Latin American countries had
struggled : end of 1980s, east asian countries graduated (moved in
tech. categories of a developing country to developed) e.g. S.Korea
joining OECD
differences exposed in 1980s debt crisis : in 70s, due to inflation in US, it
was easy to get loans, developing countries chose to get loans, had
to repay debts later and had trouble doing so due to the changing
eco. situation.
trade policy played an imp. role
popular trade strategy
all developing countries tried off the same things initially
ISI (import-substition industrialization) : stop imports, put tariffs to slow
down their volume, would allow local producers to survive better
and supply their products.
based on historical experience (during world wars) : Brazil, Argentina
(traditional trade relationships couldn't go on due to the world
wars). They start producing for themselves due to this.
Implementation of policies with tariffs, domestic policies so that
they don't rely on developed countries.
ISI widely adopted after WW 2
Linked to nationalism (India, S.Korea) , security concerns (prominent in
Asia, to be major power you need to have your own weapons)
Problems with ISI
shortages develop, causing bottlenecks in production : production from
scratch increases price of finished goods to very high levels or you
can't produce it at all
profits are not always reinvested
home markets can't always support production
does not generate foreign exchange
A rival trade strategy
export oriented industrialization (EOI) : exports as the root to industrialize
your country (emphasis on exports)
achieves economies of scale in production
products must be competitive
profits more likely to be reinvested to maintain competitiveness
S.Korea switches from ISI to EOI
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