POLI 243 Chapter Notes - Chapter 19: Kotra, Import Substitution Industrialization, Kennedy Round

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4 Apr 2012
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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
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
The strategy of EOI assumes free trade
The EOI strategy that South Korea adopted was not blanket
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
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
o Also had power over the government
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
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
South Korea lacked an independent, autonomous, central
bank ! monetary policy could be easily coordinated with
other economic plans
Ministry of Trade and Industry
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
Labour has been excluded from decision making