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Comparison of South Korea

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negative growth for the 1st time in 2 decades. unemployment rate ... Military strongman rule from 1960s to 1970s. South Korea. Park Chung Hee (1962-79) Taiwan ... – PowerPoint PPT presentation

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Title: Comparison of South Korea


1
Comparison of South Korea Taiwan
  • NIE development model reconsidered

2
Comparison
  • Population
  • South Korea51 million
  • Taiwan 23.5 million
  • land area
  • South Korea96,920 km2
  • Taiwan 32,260 km2

3
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4
Lowest Fertility Rates in World
Ranking Country Total Fertility Rate
219 South Korea 1.26
220 Puerto Rico 1.22
221 Hong Kong 1.19
222 Taiwan 1.13
223 Macau 0.95
224 Singapore 0.83
5
South Korea and Taiwan
  • Purchasing power parity GDP
  • South Korea US2 trillion (14th)
  • Taiwan US1 trillion (22nd)
  • GDP growth rate 2015-2017
  • South Korea 2.8-3.1
  • Taiwan 0.8-2.8

6
NIE development models
  • Singapore, Hong Kong, Taiwan, and South Korea
  • export-oriented industrialization
  • state guidance
  • state involvement in economic development
  • high investment in human capital formation

7
NIE development model dead?
  • South Korea in 1997
  • negative growth for the 1st time in 2 decades
  • unemployment rate rose from 3 to 7
  • per capita GNP almost shrank by half
  • Taiwan in 1997
  • economic growth slowed down
  • still robust
  • Is the NIE development model in crisis?

8
South Korea and Taiwan
  • development becomes states priority
  • commitment to private property market
  • governments strategic industrial policy
  • state agencies formulate and implement strategic
    policies (e.g. Japans MITI)
  • sound macroeconomic management
  • bureaucratic autonomy from interest groups

9
South Korea and Taiwan
  • Military strongman rule from 1960s to 1970s
  • South Korea
  • Park Chung Hee (1962-79)
  • Taiwan
  • Chiang Kai-Shek (1945-75)

10
Park Chung Hee
  • Experience with Japans wartime economic
    management in Northeast China
  • Economic Planning Board
  • Ministry of Trade and Industry
  • Ministry of Finance
  • import substitution gt export orientation
  • normalization with Japan
  • Vietnam War

11
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12
Financial sector
  • Government owned and controlled
  • all 5 commercial banks
  • including the central bank (Bank of Korea)
  • all 6 special banks
  • 2 of the 3 non-bank financial institutions

13
Financial sector
  • Foreign Capital Inducement Law
  • control private sectors access to foreign
    capital
  • business activities were directed by the state

14
Growth-first goal
  • Low interest rate to induce firms to grow
  • favored large firms
  • firms compliant with state policies and plans
  • excessive demand for capital
  • inflation favored large debtors
  • inflation discouraged domestic savings
  • reliance on foreign debts
  • vulnerable to external shocks

15
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16
Heavy Chemical Industrialization
  • HCI plan in 1970s
  • heavy and capital-intensive industries
  • strengthening of state intervention
  • foundation for the emergence of chaebol
  • combined net sales of the top 10 chaebol
  • 1974 15.1 of GNP
  • 1978 30.1 of GNP
  • 1981 55.7 of GNP

17
South Koreas foreign debts
  • 1962 157 million US
  • 1979 20.5 billion US
  • government preferred foreign borrowing over
    foreign direct investment
  • maintain domestic ownership of industries
  • in 1990s private sector borrowed heavily
  • 1994 56.9 billion US
  • 1997 154.4 billion US

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19
Top chaebol
  • Debt to equity ratio of top chaebol

20
Taiwans financial sector
  • Control inflation and maintain stability
  • Central Bank of China ultra-conservative
  • government controlled financial sector
  • nationalized the banking system
  • private commercial banks were not allowed to
    operate until 1991
  • 71.3 of the assets of all financial institutions
    were in government-owned banks

21
Result of financial control
  • Traditional family networks became the major
    source of capital
  • limited the size of Taiwans companies
  • small and medium-sized firms
  • limited the expansion of firms
  • limited the debt-equity ratio of firms
  • most large, capital-intensive, technology-intensiv
    e industries were state-owned

22
Equity-first versus growth-first
  • Governments anti-inflation policy
  • encouraged savings
  • Government avoided concentration of economic
    power
  • Government promoted equitable distribution of
    income
  • Governments reluctant to use preferential
    financial treatment to large firms

23
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