EffectsofGlobalizationon EffectsofGlobalizationon

thePoorinSouthKorea
EffectsofGlobalizationon
thePoorinSouthKorea
Since the Korean War, South Korea has grown from an
impoverished country to one of the richest 20 countries
i th ld in the world
EffectsofGlobalizationon EffectsofGlobalizationon
thePoorinSouthKorea
Despite being nearly identical to South Korea before the
Korean War, North Korea has grown at a substantially
lower rate
North Korea South Korea
EffectsofGlobalizationon EffectsofGlobalizationon
thePoorinSouthKorea
Hypothesis: Globalization has played
a significantly positive role in increasing the welfare of g y p g
South Korea and its poor citizens.
Aspects of Globalization that affect South Korea: p
-Trade
-Foreign Direct Investment Foreign Direct Investment
-Politics
-Technology Spillover
SouthKoreaTheAuthoritarianYears
South Korea was part of the J apanese Empire until 1945,
when WWII ended
Between 1948 and 1988 South Korea was governed by a
series of authoritarian regimes.
application to the Lee Thesis pp
These governments largely pursued anti-communist and
pro-growth policies
the Park Chung Hee government began in 1961 with a g g g
military led coup
creation of the favored few: the chabol, Koreas titanic
business conglomerates. business conglomerates.
The industrialization experienced during these years
contributed to laying the foundation for popular discontent
with the military regime. with the military regime.
democracy took hold in 1988
SouthKorea TheDemocraticYears SouthKoreaTheDemocraticYears
1988sawtheelectionofademocraticgovernmentfollowingamajorrevision
oftheconstitutionin1987
ThedemocratizationofKoreawascoupledwithmajormovetowardsaless
nationalisticapproachtogovernment.
inparticular,in1990sgovernmentpursuedagreaterliberationofthe
K Koreaneconomy.
Koreasgovernmenthasoptedformembershipinavarietyofglobal
organizations g
WTO,IMF,OECD,APEC,ASEAN
TRADE:Efforts,PoliciesandProgress
from1960 late1980s
Overview:AftertheKoreanwar SouthKoreawasoneofthepoorestcountriesinthe Overview:AftertheKoreanwar,SouthKoreawasoneofthepoorestcountriesinthe
world.
1962 exportsvalue=$55million
1989 exportsvalue=$61.4billion
RheeSyngmans Era(1948 60):
Rheesmaininterest/prioritywaspoliciesanddirectingtheattentionofKorean
peopletoissuessuchasunificationofthetwoKoreas.
Mostindustriesproducedconsumergoodssuchasfoodandtextiles import Mostindustriesproducedconsumergoodssuchasfoodandtextiles,import
substitutiontookplacemainlyinthoseareas.
After1960,GeneralParkChungHees Regime:
BasicphilosophyofPresidentParkChungHees:EXPORTFIRSTorNATION
BUILDINGTHROUGHEXPORTPROMOTION
By1961SouthKoreacompleteditsimportsubstitutionprogramfornondurable
consumergoodsandtheintermediategoodsusedintheirmanufacture.
By1962 emphasiswasshiftedontothedevelopmentofexport oriented By1962 emphasiswasshiftedontothedevelopmentofexport oriented
developmentandexportexpansionandwaseffectivelyledbygovernment.
Large,cohesiveandwellmotivatedlaborforcewithhigheducationallevel.
TRADE:Efforts,PoliciesandProgress
from1960 late1980s
Largefirmswereassignedannualexporttargets receivedbenefitsincluding Largefirmswereassignedannualexporttargets,receivedbenefitsincluding
preferentialcreditandloans,administrativesupport,taxconcessionsetc.
ManyKoreanIndustriesmarketedtheirproductsoverseasratherthandomestically.
TheParkGovernmentwasinapositiontoenlistthesupportofandheldcontrolover
businessmenduringtherapidexpansionoftradeandindustrialgrowth.
Sincethesuccessofthefirmsduring196266wasmeasuredbytheirexportfigures,
thefirmstendedtoincreaseproductionasmuchaspossible.
Before1960s exportcontributedtoGDP=10%
Early1970s exportcontributedtoGDP=25%
Late1970s exportcontributedtoGDP=33% Late1970s exportcontributedtoGDP 33%
Staticefficiencygains.
TRADE:Efforts,PoliciesandProgress
from1960 late1980s
1975 1975
TospeedupexportexpansionthelegalframeworkneededtoestablishGeneral
TradingCompanies(GTCs)wasintroducedin1975.
TradingcompaniesweredesignatedasGTCs:
ominimumpaidincapital=$2.1million
oannualexports=$50million
o10overseasbranchoffices
opublicstockofferingsetc opublicstockofferingsetc.
oExamples:1975 Samsung,Daewoo
1978 Hyundai
ThegovernmentpressuredGTCstoincreaseexportsbyregularlyraisingthe
l d ll ll minimumexportvaluerequired$50millionin1975to$301millionin1979
BenefitsfortheGTCs:
CashSubsidiestiedtoexportvolumes.
Couldobtainloansatnegligibleinterestratesandhadtoaccesstogovernment Couldobtainloansatnegligibleinterestratesandhadtoaccesstogovernment
backedloans.
MoralPersuasionbackedParksmaximloyaltytothecountrythroughexports
TRADE:Efforts,PoliciesandProgress
from1960 late1980s
Changingexportstructure: Changingexportstructure:
1962:silk,tungsten,fish,fishproducts,animaloil,animalfat,plywood,
miscellaneousproducts,textiles,machinery,clothingandchemicalproducts.
1989:Electronicproducts,Cars,GeneralMachinery,footwear,ships,steal
products.Textilesandgarments,chemicalproducts,fishandfishproducts,plastic
products.
TRADE:Efforts,PoliciesandProgress
from1960 late1980s
ExportExpansionMeasures: ExportExpansionMeasures:
incentives CommandProcedures
Nondiscretionary Specialtaxmeasures
Financial subsidies and export credit
Administrativesupport,includingnew
laws and acts Financialsubsidiesandexportcredit
Costofborrowing,includinginterestrate
subsidies
Tariffreductions
lawsandacts
Pricecontrolsonelectricityandwaterfor
industrialuse
Controlofunionsandwagesofindustrial
workers
Development of industrial estates Developmentofindustrialestates
Provisionofinfrastructuralfacilities
Taxinspections(automaticaudits)
Exportimportlink(permittingtheuseof
exportearningsforimports)
Discretionary CreditRationing,includingforeignloans
(amount,interestrate,loanperiod,time
ofrenewal,etc)
Decisionsconcerningsubsidies
Governmentpersuasionandguidanceof
varioustypes
Upwardadjustmentofcontrolledprices
Allocationofexporttargets
Tax inspections (selective audits) Taxinspections(selectiveaudits)
Coordinationofinvestmentinplantand
equipment
Encouragementofmergerstopromote
economiesofscaleandefficiency.
TRADE:Efforts,PoliciesandProgress
from1980sonwards
TradeThetransition
SouthKoreacontinueditspursuitofexportorientedindustrialization,butthe SouthKoreacontinueditspursuitofexportorientedindustrialization,butthe
fundamentalsofthesituationwerealtered.
Therewasachangefromprimarymanufacturingtomorehighervaluedadded
d kill i t i d t andskillintensiveproducts.
Majorindustries:electronics,telecommunications,automobileproduction,
chemicals,shipbuilding,steel. , p g,
thisreflectsthattherewasashiftawayfromchemicals,petroleumand
steeltoautomobiles,shipbuildingandelectronics
Majorexportmarkets:China21.5%,US10.9%,Japan6.6%,HongKong4.6%
(2008) (2008)
TRADE:Efforts,PoliciesandProgress
from1980sonwards
ExportpromotionremainedacenterpieceofindustrializingKorea
companiesperformingwellreceivedsubsidiesandothergovernment
graces graces
Koreansawexportsriseinimportancetoitseconomywiththeaverage
growthinexportsbetween1950sand1990sbeingapproximately25%
By1995exportsaccountedfor36%ofGDP
Still i l id f t ti i t b tit ti Stillrunningalongsideofexportpromotionwasimportsubstitution
however,theforcesofliberalizationsawasubstantialdeclineinsuch
policies
thisentailedagreaterlevelofimportsthanpreviouslyseen g p p y
Ingeneral,traderemainedamajorcontributingfactortotheKoreaneconomy,
butgovernmentwastakenalesserroleastheeconomicbureaucracywas
jettisoned.
FDIInKorea FDIInKorea
Pre1980s 9
SouthKoreawasforallintentsandpurposeslargelyrestrictive
towardsforeigninvestment,especiallyinthepre1980sera.
OutoftherapidlydevelopingAsianeconomies,SouthKoreasawthe
lowestlevelofforeigndirectinvestment lowestlevelofforeigndirectinvestment.
Theemphasiswasplacedondevelopingasextremelystrong
domesticsector.
Outwardinvestmentoccurredwithmoneyflowingtoanarrowgroup
ofotherAsiancountries
Post1980s
Reflectingthegeneralliberalizationoccurring,therewasanincrease
inFDItoandfromKoreainthisperiod inFDItoandfromKoreainthisperiod.
MuchofthishasbeenreflectedinKoreaninvestmentabroad;a
greaterlevelofoutwardinvestmenthasoccurred
omuchofthishasstayedinAsian,withaparticularconcentration
ofKoreanFDIfindingitswaytoChina.
Inbothperiods,FDIhashadarelativelymodestimpactonKoreangrowth.
TechnologicalExpansioninSouthKorea TechnologicalExpansioninSouthKorea
Growthintheindustrialsectorwasoneoftheprincipalstimulitoeconomicgrowth. p p g
Experiencedeconomicgrowthduetoshipping,automotive,weapon/armamentsand
constructionindustries.
Shipping Worldleaderinshipsandotherseavesselsmanufacturing Shipping:Worldleaderinshipsandotherseavesselsmanufacturing.
In2008,SouthKoreahadabout50.6%ofmarketshareinshipbuilding.
Hasresourcesandcapacitytobuildavesselinassoonas4days!
Automotive: SouthKoreahasbecomeoneofthelargestautomotiveproducersinthe
world.
Hyundai KiaautomotivegroupisKoreaslargest.
Capacitytoproducecarshadincreasedtoalmostfivefoldsince1984,however
recentlyhasexperiencedadeclineduetorecenteconomicconditions recentlyhasexperiencedadeclineduetorecenteconomicconditions.
Weapons/Armaments: SouthKoreabecameaweaponsproducerpostVietnamWar
era.PriortothatreliedmainlyonUnitedStatesforweapons.
BecameaweaponssupplierforcountriessuchasAustralia,Bangladesh,New
Zealand,Indonesia,Venezuelaetc.
Outsourcespartsofweaponsproductiontoothercountries(jointproduction
dealwithBoeing).
TechnologicalExpansioninSouthKorea g p
DefenseexportsofUS$1.03billionin2008,US$1.17billionin2009and p 3 , 7 9
expectedtoreachUS$1.5billionthisyear.
Construction: MostconstructionprojectstakenonbyKoreancompanieshas
beenforMiddleEast beenforMiddleEast
About60%oftheconstructiondoneintheMiddleEasthasbeen
creditedtoSouthKoreanconstructioncompanies.
SouthKoreasinvestmentinresearchfordevelopingrobotstohelpindaily
life.
Planonhavingarobotineveryhomeby2020.
AgricultureinSouthKorea AgricultureinSouthKorea
SouthKoreahastransformedfromaneconomywhichreliedheavilyonits
agriculturetobeinganeconomicgiantthathasmovedawayfromits
agriculturebasedeconomy.
Priorto1950smostoflandwasownedbyasmallgroupoflandownerswho Priorto1950smostoflandwasownedbyasmallgroupoflandownerswho
rentedittofarmers.
Rentamounteduptoabout50%ofrevenue.
Tenantfarmersweredominatedbytheirlandlords.
L dR f P LandReformProgram
Farmlandssoldtothegovernmentandthendistributedtofarmers
whowishedtocontinuefarming.
Governmentcompensatedlandownersfortheirfarmland. p
Farmershad5yearstopaybackthegovernmentforthefarmland.
LandHoldingperfarmhousehold.
PoliciesforStructuralAdjustmentofAgriculture
Newfinancesystemforfarmland Newfinancesystemforfarmland.
AgricultureinSouthKorea AgricultureinSouthKorea
SouthKoreahasrecentlyalsoinvestedheavilyintodevelopingbetter
equipmentforfarmingandalsoutilizingfarmwasteasaresourcefor
alternativeenergy.
Upgradingfarmingtechnologybecameno.1agenda Upgradingfarmingtechnologybecameno.1agenda
Developmentofconvergencetechnologiesthatcapitalizeonbiological
resources
Nurturefuturegrowthindustriessuchasbiologicaldrugs,organ
d l d l f i developmentandplantfactories.
WorldsfirstplantfactoryandadoptionofITconvergencetechnology
Neutralizedconstraintsbroughtonbyglobalwarming.
SeedIndustryregulatedbygovernmentandprivatesector,planstogrowby y g y g p , p g y
developingandexportingvegetable,fruitandgrassseeds.
Asofnow,10%ofadvancedtechnologiescultivate90%ofagricultural
productsinKoreaandthereishopethatitwillcontributetotakingglobal
farmingindustrytonewheights farmingindustrytonewheights.
GlobalizationandCapitalflow GlobalizationandCapitalflow
Liberalization of capital flow p
Allow to invest in the capital markets aboard and
domestically
All f i i t t b f th l l it d Allow foreign investors to buy from the local equity and
bond markets
CapitalFlowandPoverty CapitalFlowandPoverty
F i I t
CapitalInflow CapitalInflow
ForeignInvestors
Capital Capital
Accumulation
Increaseindebt GDPgrowth
andequitymarkets (povertyreduction)
C it lFl Lib li ti CapitalFlowLiberalization
Increasecreditavailability
Benefits
Volatilityofinternational
Risk
Diversifyincomesources
andbecomeindependentto
donors
flow
PromotesAssetBubble
ff f
donors
Increasecompetitiveness
inthefinancialmarket
Dominoeffectsfrom
globalcrisis
SouthKorea
Liberalizationofcapitalflow
Asian1997FinancialCrisis
Liberalizationofcapitalflow
Asian1997FinancialCrisis
Domesticbanksoweoverseaborrowingfrom
otherEastAsianRegion otherEastAsianRegion
Openedupcapitalmarketsforequityandbond
Res ltedincapitalflo &o tflo Resultedincapitalflow&outflow
Restrictednegativeeffectsfromexternalshocks
Effectsondomesticmarkets
Equity and bond DepositMarket q y
Increased in stock
market transactions
p
Residents foreign
portfolio has increased
Market capitalization
increased
p
sharply
Increase in deposits in
asset management
Increased shareholdings
of foreigners
Provide liquidity in the
asset management
companies
Provide liquidity in the
market
PolicyResponsestoLiberalization
Ensure price stability and sustainable economic Ensure price stability and sustainable economic
growth
1. Promote capital outflow o o e cap a ou o
2. Effective implementation of monetary policy
3 Strengthening of regulations to ensure financial 3. Strengthening of regulations to ensure financial
stability
PovertyinSouthKorea y
Globalization has had a large positive effect on S. Korea's g p
GDP, but how has it affected the poor within the country?
Increases in income have been distributed fairly
The Korean government has implemented several policies
to ensure development in human capital across all income
groups groups
PovertyinSouthKorea PovertyinSouthKorea
Since 1990, Poverty has declined in every year that the Korean economy has grown (19
Asian Financial Crisis caused a short term increase in poverty)
Kakwani, Khandker, and Son
PovertyinSouthKorea
As income grows, the marginal effect of income growth on inequality is initially negative, the
approaches zero around $9200 USD. After that, the effect is slightly positive.
Sato and Fukushige
"As for economic globalization the opening of goods markets reduces income "As for economic globalization, the opening of goods markets reduces income
inequality both in the short run (the Gini coefficient for income) and in the long run
(the Gini coefficient for expenditure). On the other hand, the opening of capital
markets increases income inequality in both the short and the long run, although
the latter is not statistically significant."
Sato and Fukushige