South Korean Foreign Trade Patterns   Term Paper ID:27701 Click to get this paper

Essay Subject: Traces economic & trade patterns of Korea from the 1950s through the 1990s. Discusses factors of changes & future outlook for the South Korean economy.... More...

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Paper Abstract: Traces economic & trade patterns of Korea from the 1950s through the 1990s. Discusses factors of changes & future outlook for the South Korean economy. Paper Introduction: Analysis of South Korean Foreign Trade Patterns Introduction After World War II, South Korea was largely agricultural and poor, while the North had most of the industry and mineral wealth, developed largely by Japan in the colonial era (Facts about Korea, 1993). This disparity continued until the 1960s, when the South Korean economy began to industrialize and expand, at the same time the North's began to stagnate. Today, the situation is the reverse of what it was in the 1940s and 1950s; the South is relatively rich and industrialized, and the North poverty-stricken and isolated, no longer subsidized by the former USSR. The story of South Korea's economic development is a textbook case of how an underdeveloped country transforms itself into an Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Electronics makes up thesecond largest export category, followed by machinery, autos, footwear, andiron and steel. (1985). This coincided witheconomic policy to encourage savings, and therefore investment, bydiscouraging consumption through high domestic prices. In addition, marketing channels,particularly in the U.S., were not yet in place. in the number two position,accounting for 22% (1992 figures). Dependent to a great extent on aidfrom the U.S., the country's government set about to rebuild and create aviable economy largely on the Japanese model. and South Korea's other major trading partners because, with the long-term world-wide reduction of tariffs and other trade restrictions as aresult of GATT (General Agreement on Tariffs and Trade), such partners sawSouth Korea as a holdout in the new, international, liberalized traderegime that was emerging. Protective tariffs remained high, which allowedfor high prices and profits domestically (like Japan). The benefits accruingfrom this factor include the attraction of foreign investment, which thecountry sorely needed in the 196 s when it lacked domestic capital andsavings. Also, the county's trading partners were tobe diversified, with less dependence on the U.S. At this point, thecountry began to attract singular criticism because of its importrestrictions and relatively closed internal markets. Crude oil and other raw materials, continue to comprise more than halfof the total imports (Handbook of Korea, 1993). London: Europa.Facts about Korea, (1993). and Japan, the two mainones. The reason for suchexport orientation is that South Korea's internal market was too small tosupport mass production industries. Asia's new industrial world, London: Methuen.Terazono, E. The idea behind thediversification of export markets is to not depend on just two countries,the U.S. As the lower level, blue collar workersbecame highly skilled and productive as a result of their rigorous primaryand secondary educations. || | ||197 |2.7 || | ||1975 |1 .2 || | ||198 |38. Such mechanisms included tariffs,surcharges, and guaranteed deposits for importers. The strategy of diversifying geographic markets for South Korea'sexports was particularly successful (Handbook of Korea, 1993). In addition, export markets are morediversified now, and less targeted at the U.S. Trade patterns shift, Financial Times. Japan was building up its lightindustry with such goods as textiles and toys, after World War II whileunder American occupation, and exporting its wares mainly to the U.S.Similarly, South Korea, though underdeveloped economically, began orientingits main industry, textiles, for eventual exports. Seoul: Korean Overseas Information Service.International financial statistics yearbook of 1995, (1995). Curiously, export sales were not overly profitable, but the governmentused a combination of coercion and financial incentives to increase them(Handbook of Korea, 1993). The main reason for SouthKorea's large import bill is due to OPEC's oil price hikes in the 197 s,and also because South Korea's booming economy requires increasingquantities of fuel.Outlook and Future In the future, South Korea's economy will continue to grow andprosper, led by foreign trade. || | ||1985 |82.1 || | ||199 |18 . Analysis of South Korean Foreign Trade PatternsIntroduction After World War II, South Korea was largely agricultural and poor,while the North had most of the industry and mineral wealth, developedlargely by Japan in the colonial era (Facts about Korea, 1993). The big changefor imports occurred in the 197 s with the OPEC oil price hikes, increasingoil's import bill considerably.Factors in Changes and Patterns A major reason for the long-term switch to higher-value-added productsis competition from other emerging economies, like those of East Asia,Mexico, and Brazil (Smith, 1985). This means that the country is no longer such a low-wageproducer as in the past. and Japan, for such a large percentage of total exports. The trend toward higher-tech and higher-value-added manufacturing will continue, especially since wages have risenby some 18 percent per year on average for the last few years (Handbook ofKorea, 1993). The U.S. (1989). Japan had ruled Korea(including the North) in the first half of this century, and its influencelingered after independence in 1945. However, South Korea's work force is well-educated, highlyskilled, tends to work very hard and have strong self-discipline. Finally, South Korea's nascentdevelopment policy included investment in education and accumulation ofdomestic capital, through such measures as keeping wages down. Thisdisparity continued until the 196 s, when the South Korean economy began toindustrialize and expand, at the same time the North's began to stagnate.Today, the situation is the reverse of what it was in the 194 s and 195 s;the South is relatively rich and industrialized, and the North poverty-stricken and isolated, no longer subsidized by the former USSR. Simultaneously,wages were kept down by weak labor unions, also a product of intentionalgovernment policy. In addition, the U.S. Today, exports are generally higher-value-added itemslike steel, autos, and electronics, which are more complex and lessdependent on low labor costs. Also, a policy of import substitution and tariff protection helpednurture industries like textiles. The most significant event in the 197 s regarding South Korean tradewere the multiple oil price increases by OPEC (Handbook of Korea, 1993).Because the country imports nearly all of its oil, there was a need toincrease exports, and/or decrease some imports, to pay for fuel. Similarly,imports have risen from $1 million to $97 billion in that period. The overall aim herewas to encourage exports and discourage imports, where feasible anddesired, in order to create trade surpluses with which to accumulateforeign reserves and investment capital, and also to pay for raw materials,which the country generally lacked and had no choice but to import. Crude oil constitutedabout 8 percent of the total, and other raw materials about 48 percent.Other major items acquired from overseas include ships, aircraft,machinery, and electric and electronic products. and Japan. Thus, by the 197 s, most government policies to promoteeconomic development in general and exports in particular began to bearfruit. In addition, the vaunted South Korean 'workethic' took hold, with most people putting in fifty-to-sixty-hour workweeks. Inaddition, most importantly, exports and industry in general in South Koreabegan diversifying (Handbook of Korea, 1993). Asia's next giant, NY: Oxford University Press.Europa world yearbook, (1995). Japan remains the number one source ofsuch imports, accounting for 24%, with the U.S. These countries generally have lowerwages than South Korea, enabling them to produce cheaper low-techmanufactures. While the country nowproduces much of its own machinery, it must still generally import thehigher-tech line of such products. This educationis likely one of the most crucial reasons for South Korea's economictransformation in the past three decades -- it has created a highlyproductive, relatively cheap force of workers that is highly competitive inthe global economy that has emerged in recent times. Other key foreign suppliers include theMiddle East and Southeast Asia for oil, Australia mainly for grain andcoal, and the European Union for manufactured goods (about 1 %). Seoul: Korean Overseas Information Service.Handbook of Korea, (1993). Like Japan, government plays a key role in theeconomy as guide, facilitator, financier, enforcer of social and laborpeace, and most importantly as educator of the work force. At that time, the government in Seoul, the capital city, set up arelatively elaborate system of subsidies and other policies in order toencourage exports (Amsden, 1989). Electronics, autos, steel,and similar products became targets of development by the government,particularly for export. The most important ingredient has be theeducated, productive work force, which illustrates that human resources aremore important than natural resources. mainly supplies Korea with raw materials,like grain, and high-tech capital goods.Major Changes in Trade Patterns Many changes have occurred in South Korea's trade in recent decades(Terazono, 1995). In addition, with the advent of greaterdemocracy, government controls of the economy are gradually yielding to thefree market, which means fewer barriers to imports and less subsidizationof exports. South Korea's autarkic and mercantilistic tradepolicies, with their roots in the impoverished country of the past, hadbecome anachronistic in the global economy of the 198 s. Thus, SouthKorea's economic policies provide a textbook case for the Third World onhow to achieve economic 'takeoff' out of the poverty of underdevelopment.Trade Patterns: 195 s In the aftermath of the Korean war of 195 -1953, the South Koreaneconomy lay in ruins (Amsden, 1989). The textile industry in South Korea in the 195 s was a cartel of 15oligopolistic companies that fixed prices and dominated their markets(Amsden, 1989). Finally, with the economic growth of China and the end ofcommunism in Russia, those two countries will take on greater importance intrade with South Korea.Conclusion South Korea exemplifies how a country that is poor in naturalresources can help create a dynamic economy, much like Japan in the presentand Britain in the past. The MiddleEast and Europe increased their imports from the country markedly,resulting in Europe's increase from 11.8 percent of South Korea's totalexports in 1973 to 17.5 percent, and the Middle East moving from 1.8percent to 11.7 percent. In the 196 s, when foreign trade essentially began forthe country, textiles and other light manufactures based on low wages werethe prime exports. Washington, D.C.: IMF.Smith, M. Consequently,foreign trade in general was minimal for the decade, with attention paidmostly to domestic reconstruction and immediate consumer needs.Trade Patterns: 196 s By the start of the 196 s, the textile industry, which still dominatedthe manufacturing sector in South Korea as it had since the days ofJapanese colonialization, was overexpanded because of the subsidized loansand lack of exports (Amsden, 1989). Nevertheless,exports were minimal, as the aim of government policy was to satisfydomestic demand first, and then aim for overseas markets. || | ||1994 |3 5. Thesecharacteristics give it an advantage internationally in electronics, steel,autos, and other relatively sophisticated products. Thereasons Japan leads the way in imports are the historical economic tiesbetween the two countries dating back to when Korea was a Japanese colony,and geographic proximity. Like Japan, SouthKorea had benefitted enormously from the opening up of markets in theindustrialized nations of the U.S. Many universitygraduates from American schools became mangers in businesses andtechnocrats in the government. By1991, textiles topped the list of export products, continuing its decades-long leadership in the manufacturing field. Thus,starting in the latter half of the 195 s, South Korea formulated severalsuccessful economic policies, some of which have expanded and continued tothe present day, if in different form or degrees. Finally, the country's use of government in managing trade, and theeconomy in general, shows that government can play a positive role inpromoting economic strength in the modern nation state.Breakdown of South Korean Trade 1994(Excludes services. In terms of lessening imports, more emphasis was placed on domesticproduction of grains, in order to lower the level of such imports. First, its plant and equipment were old, much of it ofpre-World War II Japanese origin. The latter occurred because of anumber of reasons. Known as one of the 'Tiger' nations of EastAsia (along with Taiwan, Hong Kong, China, Singapore, Thailand, andMalaysia), the country has ironically modeled itself largely after Japan,its previous colonizer -- like Japan, Korea now has relatively autarkic,neomercantilistic, and protectionist policies. By avid promotion ofmanufactured exports (mainly to the U.S.) and simultaneously minimizingimports, except for raw materials that are scarce in the country, SouthKorea has aimed at Maintaining a positive balance of trade and accumulatinga cache of foreign reserves (such as currency like dollars, yen, and D-marks, and also gold). Manufactures |13.5 |8.2 || | | ||Crude Materials | |9.4 ||(Includes Ore, Excludes | | ||Fuel) | | || | | ||Fuel (Products) |3.9 |15.4 || | | ||Other | |1.4 || | | ||Total |96. and Japan, or want todiversify their national sources for imports. continues as the number one export market, at 4 %of the total, followed by Japan, at 15%, the European Community, and HongKong, at 8% (1992 figures). Rounding employed)$ Billions| | | || |Exports |Imports || | | ||Food & Livestock |2.3 |4.8 || | | ||Chemicals |6.3 |9.8 || | | ||Basic Manufactures |22.9 |15.9 || | | ||Machinery/Transport |47.1 |37.4 || | | ||Misc. In addition, high-tech industrieswere targeted for development. In addition, South Korean sales in the 199 shave been significant in Canada, Australia, Latin America, and the MiddleEast. These reforms came also as a result of external pressure from theU.S. Ye simultaneously, considerable enmity andmistrust characterize their relationship, particularly regarding World WarII, and South Korea has tried minimize its trade relationship with Japan incertain instances -- an instance of this is Korea's complete ban onJapanese car imports. The construction industry led the way in theMiddle East, totaling some $15 billion in 1978, along with 122, SouthKoreans employed on such projects.Trade Patterns: 198 s With the recession in 1979, economic and trade reforms were set inmotion to correct various problems that had arisen, and to conform to thenew reality that South Korea was no longer an underdeveloped country but anewly industrialized one (Handbook of Korea, 1993). Also, the government's investment in education,particularly at the university level, began to pay off. Additional policies to promote exports includedloan subsidies to exporters, tax and tariff exemptions, wastage allowances,and general government support through means including schools, roads, andutilities.Trade Patterns: 197 s The above policies turned out to be highly successful in the main. The story of South Korea's economic development is a textbook case ofhow an underdeveloped country transforms itself into an economic powerhouse(Facts about Korea, 1993). Inaddition, the government encouraged the formation of large, diversifiedconglomerates called chaebols, which were modeled after Japan's keiretsus.Through close cooperation with a relatively few big companies, it was felt,the government was better able to implement its program and influence thenational economy overall. In termsof exports, the government devised policies to favor higher-value-addeditems, like steel and ship building. In addition, South Korea's successshows how foreign trade, particularly exports, can promote economic growth. | Source: Financial Times, October 2 , 1995 ReferencesAmsden, Alice. (2 October 1995). Using Japan as a model, the South Koreangovernment manipulated its foreign exchange rate so that it tended towardundervaluation for exports and for imported products that it wanted to keepout (various manufactured goods), and overvaluation for imported items thatit needed (like raw materials). Such astrategy would be too risky; also, various other parts of the world, likeEast Asia, are growing more rapidly that the U.S. In addition, therequirement of a government license to import from abroad applied to 32percent of all products in 1979, but by 1989, the figure was only 5percent. Complete 'import substitution' was achieved by 1957through a government ban on textile imports. and Western Europe, so that pressure wasbrought to bear on South Korea by these nations to liberalize Korea's traderegime, which is gradually happening.Trade Patterns: 199 s Between 1961 and 1994, the level of exports from South Korea rose from$6 million to $94 billion, reflecting the 8 percent annual growth rate ofthe overall economy in those years (Handbook of Korea, 1993). Also, such an efficient work force helps make exports attractive,which enabled South Korea to exploit foreign markets like the U.S., becauseSouth Korean markets were still poor three decades ago. Efficiency was high, as waslabor productivity, approximately doubling in the decade. |1 2.3 |Source: Financial Times, October 2 ,1995Comparison of Trade/GNP = Exports + Payments/GNP (1981-1985 Avg.)| | ||South Korea |69% || | ||United Kingdom |43% || | ||France |4 % || | ||Germany |51% || | ||Italy |46% || | ||Sweeden |58% || | ||United States |15% || | ||Japan |24% | Source: Amsden, 1989GDP of South Korea (Unadjusted for Inflation)| | ||1966 |1. In addition, wages were very low inthe country, and unions were weak or non-existent because of governmentpolicy. The U.S. hadimposed restrictions on South Korean textile (and other) exports as acondition of foreign aid, in which the aim of such aid was to be fordomestic purposes entirely, and not for export competition with producersin the U.S. Thus, through 1962, South Korea's exports continued to beminimal, as typified by the situation in the textile industry. As a result, tariffswere cut in general and on manufactured goods in particular -- from anaverage 31.8 percent in 198 to 12.1 percent in 1989. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

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