Korea s Economic Development and Challenge Ahead

Transcription

1 Korea s Economic Development and Challenge Ahead October 19, 2017 Tai-Hee LEE Center for International Development Korea Development Institute (KDI) Part 1: Introduction Part II: Korea s Economic October Development 19, 2017 for Half a Century Part III: Regent Development and Big Challenges ahead Part IV: Conclusion 1

2 Part I Introduction Korea, the First Aid Recipient Turned to Donor 160 Per capita income ($) 20,000 15,000 Six 5-Year-Economic- Development Plans Financial Crisis 12,197 21,695 Global Financial Crisis 28,600 20,759 17,193 10,000 Military Coup in 1961 OECD Member 5,000 Korean War ( ) First Oil Shock 1,000(1977 ) Second Oil Shock 7,355 Socio-economic Democratization In 1961, per capita income ranking : 101 st out of 125 countries (N. Korea: 3 times larger than S. Korea) Domestic saving/gdp ratio: only 5% 1 2

3 Korea over the Last 5 Decades Per Capita GNI (USD) 82 20,759 Commodity Exports (USD) 41 mil. 433 bil. Employment Share (%) Agriculture, Forestry & Fish. Mining & Manufacturing Service 63.0 (1963) 8.7 (1963) 28.3 (1963) Life Expectancy 55.3 (1960) 80.5 ( 09) Enrollment Rate (%) Senior High Schools Universities/Colleges 29.3 (1970) 9.0 (1970) Changes in Industrial Structure % 20% 40% 60% 80% 100% Agriculture Mining & manufacturing Services 3 3

4 Changing Export Structure: from Agriculture to Light Industry to HCI Wig Textile Automobile Semiconductor 80% HCI Product 50% Semiconductor, Mobile Phone, DTV, Display, Automobile, Shipbuilding, etc % 6% Light Industry Product Agricultural Product 4 Overview: Rapid Growth and Low Income Inequality Korea is often cited as one of the successful countries with relatively low income inequality and rapid growth. Gini coefficient 0.7 Gini coefficient and GDP per capita growth rate : Brazil Mexico Colombia Peru Chile Venezuela Argentina Philippines Malaysia Thailand Indonesia Singapore Hong Kong Korea Taiwan Per capita GDP growth rate (%) World Bank, Asian Miracle,

5 Part II Korea s Economic Development For Half a Century 1. Industrial Development Policies in the 1960s-1970s 2. Socio-economic Adjustment in the 1980s-1990s 3. Knowledge-based Economy Since Industrial Development Policies Export Promotion Policy in the 60s HCI Drives and Distortions in the 70s 5

6 211. EPP: From Poverty to Prosperity Economic Conditions in the early 1960s Capital Shortage Abundant Labor Weak Technology Base Underdeveloped Private Sector? Development Strategy High Level of Education Strong Economic will EPP: Economic Take-Off with Outward-looking Development Strategy Export promotion as a means of obtaining hard currency, pursuing industrialization, and securing economic and political independence Export-promotion policy focusing on labor-intensive industries in view of abundant and well educated labor force 9 6

7 211. EPP: Economic Take-Off with Outward-looking Development Strategy Working Mechanism of Outward-looking Development Strategy Foreign Capital Inducement (Economic Aids External Debt) S Capital Good Imports Raw Material Imports Foreign Technology Imports Manufacturing Processing Private Enterprises Economic Growth S Financial Tax Support Export Promotion Government Technology Development Well-educated Labor force KDI EPP: Economic Take-Off with Outward-looking Development Strategy The Korean government changed its directions to exportpromotion policy, and utilized all available policy tools. l Centralization of Economic Policymaking - Establishing the EPB and Drafting of Five-Year Plans - Export Promotion Meeting - Establishing the Korea Development Institute l Adjustment of Macroeconomic Variables - Devaluation of the Korean Currency - Policy Credit Rationing l Distortion of Microeconomic Incentives - Exemption of Import Tariff on Raw and Intermediate Material - Domestic Tax Exemption for Exporters - [Export Import License] Linkage - Discounted Rate of Public Utility for Manufacturers - State Guarantee on Private Sector Foreign Borrowing * Export Promotion Policy was consistent and contingent on performance. 11 7

8 212. HCIP : Towards Heavy and Chemical Industries Export-driven policy focused on promoting heavy and chemical industries (HCIs) in the 1970s. l To secure national security interests and competitive edge in light industry - Nixon Doctrine (1969): defense of each Asian nation lay in the individual nation itself. - Reduction of US forces stationed in Korea by a third in Policy Shift Toward HCI Development Ÿ Iron and Steel (Pohang) Ÿ Electronics (Kumi) Ÿ Petro-Chem. Products(Yeochun) Ÿ Ship-building (Wulsan) Ÿ Machinery (Changwon) Ÿ Automobile Mobilizing Financial Resources Selecting National Champions (Chaebols) HCIP : Educating Manpower: Skilled Workers Broad acces s to education raised level of manpower. Promoting engineers and skilled workers: l Technical and vocational schools were established. * eg) Kum-Oh Technical High School (1972) - 8 foreign teachers with technical know-how were recruited between In 1976, among 400 new students, more than half were top graduates from middle schools in Korea. l Technical licensing and certification system were introduced. Korea won the International Vocational Training Competition (the Vocational Olympics) nine times consecutively during

9 212. HCIP : Financing for HCI l Nationwide contributions to national defense (1974) l Establishment of the National Investment Fund to mobilize public employee pension funds and a substantial portion of private savings in regular banking institutes. l Introduction of a new Defense Tax(1975) l Earnings from construction services in the Middle East Socio-economic Adjustment Policies Stabilization and Liberalization - the 1980s and 1990s The Financial Crisis and Post-crisis Restructuring Efforts 9

10 SLP: Changes in the Development Strategy Pitfalls of the Government-led Economic Development Financial repression due to prolonged government intervention Over-investment in HCIs High inflation and large fiscal deficits Inefficient resource allocation Macroeconomic instability Rising inequality Negative economic growth (-3.9%) and political crisis in 1980 Change in policy stance: Liberalization and Stabilization SLP: Policy Measures in 1980s Liberalizing external economic policies : l Increased the degree of market openness; 20 l Adopted negative list system of foreign investment approval. Promoting competition: l Installed the Monopoly Regulation and Fare Trade Act Price stability: l Tight monetary and fiscal policies l Real estate speculation control (All land ownership records were computerized). l Liberalized agricultural import when necessary to avoid price jump 17 10

11 SLP: Policy Measures in 1980s Economic balance between big businesses and SMEs: l supported SMEs by increasing the availability of loans and by promoting technology transfers and research ; encouraged small firms to be parts suppliers to larger firms. As a result, SMEs have taken an important role in the economy, generated jobs, and strengthened the country s competitiveness Real-name Financial Transaction System l To eliminate corruption and boost economic growth, the implementation of the real-name financial transaction system was announced (1993). l The president announced this action in a Presidential Emergency Order. The system was essential for breaking the close tie between politics and business, which had caused not only social injustice but also the economic inefficiency. l Before this system, it had been possible to open accounts and conduct business transactions under false names. It was responsible directly and indirectly for institutionalized corruption and illegal financial dealings

12 FCR : Delayed Economic Reforms and the Financial Crisis Korean manufacturing (except high-tech) sector experienced a decreasing trend in profitability since the late 1980s. 12 Operating profits / total assets (unit: %) Medium-low technology Low technology FCR : Delayed Economic Reforms and the Financial Crisis The Korean economy had a severe setback in due to insufficient structural adjustment, neglecting to face accelerating globalization and steeper global competition. The Financial Crisis of 1997 Widespread moral hazard High corporate leverage High banks NPLs High vulnerability to external shocks Extensive government regulatory interventions/ No prudential regulatory financial infrastructure in place South-East Asian financial crisis IMF rescue package Massive capital outflow Denied short-term external debt rollover Currency Crisis!! 21 12

13 FCR : Overview of Post-crisis Restructuring Scheme of Economic Reform after the Financial Crisis Market Market Opening Opening and and FDI FDI Public Public sector sector restructuring restructuring and and fiscal fiscal support support Establishing Establishing market market disciplines disciplines Financial Financial Corporate Corporate sector sector sector sector restructuring restructuring restructuring restructuring Labor Labor market market restructuring restructuring Source: Government of the Republic of Korea 1999, p. 46. Expanding Expanding social social safety safety net net FCR : Overview of Post-crisis Restructuring The crisis was painful, but a blessing in disguise for restructuring, and a sea of change took place. Cleaning up NPLs Accelerating liberalization Improving corporate governance Installing prudential financial supervision Expanding social safety net Rapid economic recovery Improved external positions Stronger corporate and financial sector - GDP growth: - 6.7% (1998) à 10.7% (1999) - Unemployment: 6.8% (1998) à 3.7% (2005) - Early graduation from the IMF program - Foreign reserves of more than US$ 200bn in Debt-equity ratio: 396% (1997) à 182% (2002) - Profitability of banks: 0.69% (1998) à 2.83% (2001) 23 13

14 2.3. Knowledge-based Economy (KBE) ICT Development Strategy Green Growth Strategy Since KE Framework: Four Pillars HRD (Education & Training) ICT Infrastructure KE Framework R&D Innovation Socio-economic Incentives Chen & Dalman,

15 ICT Development Strategy National Strategy for Transiting into Knowledge Economy(1999) (Knowledge Economy as a New Growth Engine) ICT-based Development Strategy(IDS, ) Policy Directions ICT s Application & Good ICT Infrastructure & Commercialization Informatization Society e-government, Global ICT Top level of global ICT indices Leader in Service and (UN-EGDI, ITU-IDI) Manufacturing Industries Regional Development Capacity Enhancement IT-based Techno Park Development (University- Research-Industry Linkage) ICT Development Strategy ICT s Application & Commercialization l Grafting ICT onto Public Services to increase efficiency and promote transparency in government sector e-government, e-procurement, UNI-PASS, GIS, etc. l Take-off of ICT Industry as a Global Leader - Service Sector : super-speed wireless internet, mobile service, etc. - Manufacturing sector: semi-conductor, digital equipment, etc. Convergence of Service and manufacturing industries 26 15

16 Green Growth Strategy The Basic Law on Low Carbon Dioxide Green Growth(2009) (Green Technology and Green Industry as a new growth engine) Green Growth Strategy (GGS) Policy Directions Internal : Carbon Reduction in Society and Industry Alternative energy development, Process Automation, Green Technology Development g International : Korea Initiative for Enhancing International Green Growth Institution-building & development experience-sharing Green Growth Strategy Carbon Reduction & Efficiency Promotion in Society and Industry l Development of alternative energy sources solar energy, Bio-energy, etc. l Application of existing green technology into existing socioeconomic systems (Convergence of Service and Manufacturing Industries) Process Automation, SMART Grid, etc. l Development of new green technology applicable to production of new items to increase economic efficiency 28 16

17 Green Growth Strategy Korea Initiative for Enhancing International Green Growth Green Technology Center (GTC) (GT Development & Sharing) Korean Government (Support & Cooperation) Global Green Growth Institute (GG Research Consultation) Green Climate Fund (GCF) (Funding for GG) 29 Part III : Current Development and Big Challenges Ahead 3.1. Policy Stance of Present Government 3.2. Current Development and Prospect 3.3. Big Challenges Ahead 17

18 3.1. Policy Stance of Present Government People-centered Economy: The economy that increases the income of households through l Creating jobs, l Innovating SMEs, and l Eradicating unfair trade practices, l Consequently overcoming low growth and polarization, l Finally building a fair and just socio-economic society Policy Stance of Present Government Economic Policy Management Framework Goal Policy Direction Job-centered Economy Fair and Just Economy People-centered Economy Innovative Reform of Social Safety and Incentive Schemes Income-leading Growth Innovation-oriented Growth Execution Economic Stabilization + Policy infrastructure Reform 31 18

19 3.2. Current Economic Development and Prospects IMF World Economic Outlook.. World growth is expected to rise from 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 percent in Stronger activity, expectations of more robust global demand, reduced deflationary pressures, and optimistic financial markets are all upside developments. But structural impediments to a stronger recovery and a balance of risks that remains tilted to the downside, especially over the medium term, remain important challenges. Source : IMF World Economic Outlook Current Economic Development and Prospects IMF World Economic Outlook 33 19

20 3.2. Current Economic Development and Prospects Korean Economy : Income & GDP Growth Rate Real Per Capita GDP (USD) 3.4 Real GDP Growth Rate (%) Potential Real GDPGrowth Rate(%) p 2018p p source : Current Economic Development and Prospects Korean Economy : Exchange Rate & Trade Exchange Rate (won) Trade Volume (Trillion USD) Current Balance (billion USD) p p p 87 source :

21 3.2. Current Economic Development and Prospects Korean Economy : Investment & Consumption Construction Investment Rate (%) Capital Investment Rate (%) Private Consumption Growth Rate(%) p p p source : Current Economic Development and Prospects Korean Economy : Inflation & Unemployment Inflation Rate(%) p Unemployment Rate(%) p 3.8 source :

22 3.3. Big Challenges Ahead Big challenges that Korean Economy is facing now are as follows: Developing Sustainable Growth Engines Enhancing Inclusive Growth Institutions Collaborating on Global Development to get on this Fourth Industrial Revolution Board to reduce bi-gaps of wealth, development, jobs betw stakeholders to help partner countries make socio-economic advancement What/How to do to become the welfare and advanced industrial state under the Fourth Industrial Revolution Era All Socioeconomic A&D(absorption) Regulation-free Building on Sharing R&D&B(internal) Flexible & Consensus Policy/Practice Structural Capacity Innovative National Global Reforms Development Ecosystem Agendas Platform 38 Part-04 Conclusion 22

23 Conclusion Today Koreans are more competitive than ever. l Automobiles, shipbuilding, electrics & electronics all ranked between 1st-6th in the world. l Digital TV, display, next generation semiconductors, mobile communication, bio-tech will lead the Korean economy. 68 Export goods with the world's largest market share (22 Chemical goods, 12 steel, 9 fashion, non-electronic machinery ones, etc., as of 2017) l And we have outstanding infra and human resources. 40 Conclusion We feel that we have to make another miracle, by l Carrying out the Fourth Industrial Revolution, l Further upgrading national competitiveness, l Enhancing sustainable inclusive growth, and l Participating in global development & cooperation

24 Thank You. 24