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South Korea and OEI.docx

4 Pages

Political Science
Course Code
POLI 243
Mark Brawley

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South Korea and OEI  Kennedy Round ‟62-‟67 marked tariff reductions among GATT members  Lowered tariffs + expansion of trade = opportunity to exploit trade  Developing countries chose to use trade in order to develop their economies (Taiwan, south Korea, Hong Kong, Singapore)  Manufacturing in GDP of S. Korea went 14% 1960 t0 30% 1983.  Exports important, export earnings grew 3.9%, exporting sectors lead the country‟s growth  S. Korea invited to join OECD Import-Substitution Industrialization  Immediate post-WWII years S. Korea blocked all imports on industrial goods, domestic demand to stimulate domestic production  Import substitution industrialization (ISI) (1950-1963)  ISI criticisms = consumers are hurt by lack of competition, o Forces transfer of income from consumers to industrial sector, distorts prices in market by eliminating cheaper priced competition. o Ex: local steel supported through ISI – producers using steel as an input must pay more, and thus must raise price of their own goods o No guarantee that profits will return to the same sector, could be spent among other sectors or on conspicuous consumption. Also could be taken out of the country entirely.  Possible to get comfortable with a steady profit without any increase of production or improved productivity  Some blocked imports could not be fully replaced by domestic counterparts  ISI takes time to develop… domestic levels of production are rarely at a high enough productivity to meet import-level demands. While these domestic productions catch up, there is a scarcity, which takes effect on all products that use it as an input  bottlenecking  Technology… needs high levels of technology and know-how in order to produce at efficient rates  Labor-intensive production may be costly and inefficient for a country that is primarily abundant in land and agricultural resources.  ISI supposed to be temporary, but local industries have not been compelled to increase competitiveness – leads to a slowing of industrialization (even where ISI helped to kick it off)  Developing countries that use ISI often have a small domestic market and low consumer purchasing power  Efficient factories produce a high amount of output in a year in order to make profit = economies of scale. Countries based on ISI may not have the domestic demand to support a fully efficient plant, but build them anyway and run them at a smaller capacity than would be efficient.  Rent-seeking? Drained resources without producing any product or profit for the country.  S. Korea  political and economic competition with N. Korea  S. Korean production was slowed due to ISI o Private business sector not very well developed nor was it very powerful vis-à-vis the state  However ISI allowed Korea to build up its industries and pinpointed its basic needs. Export-Oriented Industrialization  Embraces international trade!  Builds industrial plants for efficiency in order to meet international demand  Avoids many problems associated with ISI and doesn‟t even need to be big!  Production is supported by consumption  Risks: tied to international economy and subject to its changes, since domestic markets are presumably small, a fall in international market can mean trouble, thus, timing is everything.  Very competitive market system, too much competition results in a fall of profit so sector selectivity is crucial when entering EOI  US and European producers respond to increased imports by asking for protection – would affect itn‟l market.  EOI strategy assumes free trade  Developing EOI countries therefore lead the GATT to become the WTO  ISI is a way to raise capital, EOI is a way to pay off foreign investments  EOI creates broader changes – leading to increased industrial efficiency that can built competitiveness in certain sectors which in turn stimulates local producers without causing distortions in the domestic market. Also produces a surplus in investment in the long run.  EOI = gains while I
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