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Continent of Asia



East and Southeast Asia

Newly industrialized countries – NICs Japan

Asian tigers – South Korea, Hong Kong,Singapore and TaiwanLittle tigers – Thailand, Indonesia, Malaysia,

Vietnam and others

China and India



Economic Developmentof South Korea and North

Korea

Tomáš Dudáš



History of the Korean Peninsula

China, Russia and Japan were fighting over thepower in Korea, the result was a destruction of Korea and poor conditions for developmentChina was superior to Korea and represented animportant source for culture, technology andknowledge. Also China protected Korea andclaimed to be it's older brother



History of the Korean Peninsula

Periods of relative peace were filled by internal conflictsbetween local noble families fighting for more influenceand greater power

Poor conditions for farmers- high payments to thegovernment, corrupt administrationIsolation

Korea has been annexed by Japan in 1910 and itregained its independence only in 1948

Dark period of Korean history – strong suppression of thenational culture by the Japanese occupants



Thus begins the story of two Koreasthe story of two economic and political systemsthe story of prosperity and poverty the story of human development and suffering



The Korean miracle:

60's

GDP p.c.: 85 USD

Export: 30 mil. USD

Unemployment: 20%Population below poverty

line: 40 %

huge inflationsocial tensions

Today

GDP p.c.: 27,600 USD

Export: 433.5 billion USD Unemployment: 3.3 %Population below poverty line: 15%

Slovakia’s GDP: 21,900 USD



Miracle on River Han

South Korean development went through 6 phases:Classical import substitution (1963-1966)Labor-intensive export-led growth (1967-1972)Heavy industry promotion (1973-1978)Stabilization, liberalization and economicmaturity( 1979-1996)

Financial crisis (1997 – 1999)Reform, restoration of growth (1999-present)



Park Chung Hee – the man of the change

In 1961 an peaceful military coup led by Park Chung He was carried out. At the beginning of his rule evenPark could enjoy the assistance and generosity of theUSA - 70% of the military spending was financed by USAPark managed the country through a group of military officers

He removed the corrupt civil servants and military officersSoon the Parliament was dissolved and any political activity

was banned.Censorship and press constrains were introduced



Park Chung Hee - – the man of the changePolitical technocrats were largely involved in managing the country Private businesses largely supported Park. These wereimplementing Parks export-oriented policy and were

rewarded by tax forgiveness, cheap credits, governmentguarantees on foreign credits, investment incentives

An important momentum in gaining support from USA was the war in VietnamSouth Korea was the main ally and biggest supporter of USA (sending 300.000 soldiers)



Chaebol – the Key of the Korean Success

Park nationalized all the Korean banksReinforced the system of chaebol

a few specially selected large companiesencouraged to tailor their growth and productiontargets to meet government objectives

dependent on those state-owned banks for the creditthey needed to operate and grow



Chaebols - the Key of the Korean Success

A conglomerate of many companiescompanies hold shares in each other

concentration of national economy does not have own financial institutionspreads across industries

has centralized structure and controltends to be family-based



Park’s Legacy - A Strong State

state controlled virtually all economic activitiesin South Korea

government approved all bank loansgranted licenses for virtually all businessescontrolled many prices

copied much of the Japanese model with a heavier emphasis on political and military influence in running the economy



Export promotion

The administration made exporting into anational campaign, almost a patriotic duty.export producers were given priority ininvestment decisions, credit allocations, andother benefitsstrategy of forcing domestic consumers tosubsidize exportsKorea Traders Association (KOTRA)



Regime change – democracy andfree market economy

DemocratizationDeregulation

land use (1990)import liberalization (1992)open stock market to foreigners (1992)open domestic capital market (1994)deregulate loan financing in foreign market (1994)



Crisis in South Korea 1997

Chaebol crisis (bankruptcies)Financial crisis

credit rating downgradedexchange rate of wonstock market

Economic crisiseconomic growth rate and GNP per capitaunemployment rate



GDP growth in South Korea between 1995-2008 (%)

-8

-6

-4

-2

0

2

4

6

8

10

12

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008f



Unemployment in South Korea 1995-2007

0

1

2

3

4

5

6

7

8

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007



Democratic People'sRepublic of Korea (North

Korea)



Basic Facts

One of the most secretive, paranoid and isolatedregimes in the worldData from North Korea are inaccurate andsuspicious

Population – approx. 23 millionGDP/C - 1,800 USD in 2008 (PPP)GDP growth - 3,7 % in 2007Population below the poverty line - ????



Economic development

At the end of World War II, the DPRK represented theindustrialized part of the Korean peninsula. Under

Japanese colonialism, heavy industry, water power, and

manufacturing were concentrated in the North,contrasted with the more agrarian South

The new country adopted a classic communisteconomic regime

After the Korean war the first three year plan was adopted



Economic development

Similar to other communist countries due toheavy industrialization the economy grew rapidly in the 50s and the 60s

Juche policy - "spirit of self-reliance" The growth rates began to decline in the 70s,but still in 1976 the GDP p.c. equaled the GDP

p.c. in South Koreabut from that year South Korea gained groundrapidly



Songun - “Military First” policy

Was introduced by Kim-Jong-Il after the death of hisfather in 1995

“a revolutionary idea of attaching great importance to thearmy”

Songun emphasizes the military over all other aspectsof state and society In line with this policy North Korea spends $5 billionout of a gross domestic product (GDP) of $20.9 billionon the military (estimate) and maintains the 5th largeststanding army in the world“What good is this world without North Korea?”

Kim Jong-Il



Famines in the 90s

Main factorsunsuitable terrain (80 % of the land is not suitable for agriculture)economic mismanagement (bad crops selection – rice and maize andover-fertilization)serious fertilizer shortagescollapse of the eastern blocseries of natural disasters (due to deforestation and soil erosion)

Resultsestimated 1-3 million deaths between 1995-1999

in 2006 studies said that 7 percent of children were severely malnourishedand 37 percent were chronically malnourishedrecent study of the Peterson Institute for International Economics showsthat a new famine is highly probable



Reforms announced in 2002

Establishment of special economic zones(Kaesong - near the border with China and closeto South Korea)

increases in prices and wageschanges in foreign investment lawssteep currency devaluation

limited increases in flexibility and responsibility for economic enterprises



The Two Koreas - Comparison

South KoreaIndex of economicfreedom – 41st position(moderately free)Human developmentindex – 26th position

Global CompetitivenessIndex – 13th

North KoreaIndex of economicfreedom – 157th position(repressed)Human developmentindex – not included (nodata)Global CompetitivenessIndex – not included

Ni h I f h T K



Night Image of the Two KoreasAfter Five Decades

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