POLI 243 Chapter Notes - Chapter 19: Kotra, Import Substitution Industrialization, Kennedy Round
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4 Apr 2012
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CHAPTER 19: SOUTH KOREA OPTS FOR EXPORT ORIENTED
INDUSTRIALIZATION
The Kennedy Round negotiations marked the real beginning of a wave
of tariff reductions by GATT members. The lower tariffs, plus the
resulting expansion of trade, created the systemic environment in
which countries had enormous opportunities to exploit trade.
South Korea’s Initial Trade and Industrialization Strategy: Import-
Substitution Industrialization
• ISI ensures that domestic manufactures make profit but hurts
domestic consumers
• ISI was supposed to be a temp. policy
• The private business was not very well developed
• The community was not powerful next to the state
• ISI did set the foundation for success in South Koreas EOI
policy
Export Oriented Industrialization
• With EOI, a country builds industrial plants for efficiency then
produces international demand
• EOI means entering a very competitive market system
• Strategic Trade Policy ! choosing what items are completely
open for trade and what items do have some sort of
protectionism
• The strategy of EOI assumes free trade
• The EOI strategy that South Korea adopted was not blanket
liberalization
The Shift to EOI
• 1. Exchange rate policy was changed ! single exchange rate
• 2. Devalued currency ! exports seemed cheaper
• 3. The government enacted a set of domestic investment
policies intended to adi the expansion of exports
o invested in education and infrastructure
o interest rates were raised
• 4. Trade relations were liberalized- not completely ! cheaper
to produce than before
• 5. A number of incentives were structured to entice
businesses to engage in exporting
o subsidizing
o mix of EOI and ISI
The Regional and System Level Forces Conducive to EOI
• Systemic Level Factors: the expansion of opportunities to
export
• South Korea exported basic models of what Japan was
producing ! bird analogy
• Neither ISI or EOI would have hurt Korea due to the U.S.
relationship of aid
• System Level Factors may have been important for the
success of EOI but does not explain the switch
• In 1961, there was a coup d’etat and the military took over
the government
Domestic Level Theories: Strong State- Weak State
• Economic Planning Board was created
o Given authority over the setting of tariffs, administering
direct subsidies to industries and setting economic
targets
o Also had power over the government
• KOTRA AND KDI
• The institutions were able to eliminate some of the risk and
uncertainty in the market
• Public/private ownership was blurred
• “policy loans” ! special loans targeted for special parts of the
economy
• States role in finance was pivotal
• Firms were very sensitive to small changed in interest rates
• The state was relatively free from outside domestic forces
• The state and bureaucracy are isolated from particularity
interest groups
• Centralized Society ! policies could be implemented and
decided upon quickly
Bureaucratic Politics: The Power of the Ministry of Technology and the
EPB
• South Korea lacked an independent, autonomous, central
bank ! monetary policy could be easily coordinated with
other economic plans
• Ministry of Trade and Industry
• EPB
• Policy Making powers were centralized in the EPB and the
Ministry of Trade and Finance
Individuals and Ideas: The Role of Military Officers
• Took economic advise from the U.S and the IMF
• South Korean elite shared an ideological commitment to unity
Consequences: South Korea’s Trade Led Economic Success
• System level factors were critical for EOI success
• Exports became SK engine for industrialization ! the
domestic market did not grow
• Downside: economic power remains in the hands of a select
few
Labour has been excluded from decision making