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Table of Contents Preface iii Abbreviations: xi Weights and Measures: xii Chapter 1 Introduction 1 Chapter 2. Economic Development and Structural Change 5 Economic Development Prior to 1945 5 Stages of Economic Development 9 Structual Changes 19 Industry 20 Services 24 Social Overhead Capital 25 Domestic Trade 25 Foreign Trade 26 Agriculture 32 Mining and Others 33 Industrial Structure and Organization 33 Capital and Technological Intensity 33 Scale of Businesses 34 Rise of Jaebeol 36 Urbanization 38 Factors Affecting Economic Growth and Structural Changes 38 Summary and Conclusions 44 Chapter 3 Aggregate and Sectoral Investment 47 Aggregate Investment 48 Nature of Investment 51 Fixed Capital and Inventory Investment 51 Construction, Equipment, and Machinery 52 Replacement and New Investment 53 Public Investment 53 The Nature of Investment 57 Social Overhead Capital 57 Manufacturing 59 Organizational Structure 63 Private Investment 65 Business Investment 66 Manufacturing 66 Other Sectors 69 Nature of Business Investment 70 Capital and Technology Intensities 70 Scale of Investment 71 Overseas Investment 73 Household and Other Investment 76 Estimated Domestic Physical Investment 78 Investment in Human Capital 78 Technology 82 Summary and Conclusions 85 Chapter 4. Industrial and Foreign Exchange Policies 88 The Government Role of Investment 89 Industrial Policies 96 Import Substitution 97 Export Promotion 99 Heavy and Chemical Industry Expansion 102 Liberalization Policy 103 Policies Affecting Private Investment 105 Government Property Divestiture Programs 107 Former Japanese Assets 108 New Public Enterprises 109 Economic Impacts 112 The Formation of Private Capital 112 Property Divestiture Bounties 113 The Inflation Windfalls 115 Combined Bounties and Windfalls 119 Beneficiaries 120 Foreign Exchange Policy 123 Foreign Exchange Rates 124 The Allocation and Sale of Foreign Exchange 127 Beneficiaries 128 Economic Impacts 129 The Foreign Exchange Bounty 129 Costs of Production 130 Sectoral and Aggregate Economies 131 Resource Allocation 132 Summary and Conclusions 135 Chapter 5 Domestic Financing of Investment 139 Domestic Sources of Financing Investment 140 Private Investment 140 Owners¿ Equity 140 Domestic Borrowing 144 Public Investment 144 Domestic Lending Institutions 146 The Organized Financial Institutions 146 Banks 148 Non-bank Financial Intermediaries 157 Government 158 Allocation of Loans 161 Economic Sectors 161 Industrial Sectors 162 Social Overhead Capital 162 Manufacturing 164 Other Sectors 169 Nature of Financing Industrial Investment 171 "Entrepreneurial" Projects 171 Capital and Technology Intensive Industries 172 Large Businesses 173 Subjective and Discretionary Criteria 179 Amount and Terms of Repayment 180 Monitoring of Loans 181 Financial Resources of Lending Institutions 183 Financial Institutions 183 Government 186 Other Sources 187 Other Organized Financial Institutions 187 Unorganized Financial Market 188 Interest Rate Policy 191 Financial Repression 192 Multiple Interest Rates on Loans 195 Freely Fluctuating Interest Rates 199 Summary and Conclusions 200 Chapter 6. Economic Impacts of Industrial and Financial Policies 204 The Interest Subsidy 204 Loans for Divestiture of Government Properties 206 Production Facility Expansion Loans 207 Foreign Exchange Loans 207 Variations of Interest Subsidy Within Programs 208 Beneficiaries 208 Economic Impacts of Industrial and Financial Policies 209 Bounties, Windfalls, and Subsidies 210 Costs of Production and Profits 213 Secotral Investment and Output 214 Nature of Investment 215 Industrial Organization 218 Aggregate Investment and Output 220 Resource Allocation: Inefficiencies 222 Sectoral Misallocation of Resources 222 Economic Rent Seeking Activities 224 Cronyism and Corruption 225 Nonperforming Loans 228 Financial Burdens, Discipline, and Reforms 234 Financial Burdens 234 Financial Discipline 236 Financial and Corporate Reforms 238 Financial Reforms 238 Corporate Reforms 240 Financial Costs of Reforms 244 Personal Saving 247 Challenges for Future Financial Policies 249 Summary and Conclusions 253 Chapter 7 Domestic Saving and Income Distribution 258 Domestic Saving 259 Private Saving 260 . Personal/Household Saving 262 . Landlords 269 . Farmers 271 . Wage Earners 275 . High Income Earners 280 . Channels of Personal Savings 283 . Business Profits and Saving 286 . Business Profits 287 . Business Saving 301 Government Revenues and Saving 304 . Contribution of Domestic Saving to Investment 308 . Summary and Conclusions 311 Chapter 8. Foreign Savings and Direct Investment 315 Imported Foreign Savings 315 Volume 315 Economic Impacts of Net Import Surplus 318 Supplement to Consumption 318 Contribution to Domestic Saving 319 Foreign Direct Investment 322 Policy Evolution and Volume 322 Opening for FDI, 1953-1965 323 FDI Promotion Policy, 1966-1972 324 Target Industrial Policy, 1973-1983 325 Liberalization Policy, 1984-1987 327 Freer and More Open Policy, 1988-1997 329 The Open Market Policy, 1998-2004 332 The Fields and Nature 335 Economic Sectors 335 Type of Output 337 New Industries 338 Capital and Technology Intensive Industries 339 Size and Ownership 342 FDI Countries and Differences 344 Economic Impact 345 Effectiveness of FDI Policies 349 Challenges for FDI Policy 353 Summary and Conclusions 359 Chapter 9 Foreign Aids, Loans, and Other Sources of Savings 363 Foreign Aids 363 Relief Aid: 1945-1952 364 Reconstruction Aid: 1953-1963 365 Development Aid: 1963-1971 366 Contributions of Foreign Aids 368 Aggregate Impacts 369 Relief and Economic and Political Stability 370 Foreign Aids for Investment 373 Volume 373 Counterpart Fund 375 Orientation of Aids for Investments 376 The Impact on Output and Korean Investment 380 Efficacy of Foreign Aid as an Instrument of Investment 382 Japanese Reparations and Aid 387 Foreign Borrowings 388 Foreign Loans and Debts 388 Term-Loans 390 Long-term Loans 390 Public Loans 391 Commercial Loans 397 Short-term Loans 406 Impacts on Capital Formation and Output 406 Other Sources of Foreign Savings 409 Loan Repayment Guarantees 411 Contribution of Foreign Savings to Capital Formation 413 Summary and Conclusions 415 Chapter 10 Capital Formation 419 Investment 419 Savings 420 Sectoral Balance between Investment and Savings 421 Deficit Savings Sectors 421 Surplus Savings Sectors 422 Financing of Investment 422 Summary and Conclusions 424 Chapter 11 Summary and Conclusion 426 Appendices 514 Appendix 2.1 Five-year Economic Development Plans 514 Appendix 3.1 Jaebeol 515 Appendix 4.1 Personal Connections 518 Appendix 5.1 Indebtedness and the Scale of Business 524 Appendix 5.2 Samsung Jaebeol 527 Appendix 6.1 The Indebtedness of Shipbuilding Companies 527 Appendix 6.2 Corruptions 528 Appendix 7.1 Jaebeol Problems 529 Appendix 8.1 FDI of the United States and Japanese 533 Appendix 9.1 The Value of Foreign Aid 536 Appendix 9.2 Conflict over Foreign Aid Programs 539 Bibliography 542 Index 573 Abbreviations: BOK Bank of Korea ESY Economic Statistical Yearbook EU European Union FDI foreign direct investment GDP gross domestic product GNBFI public nonbank financial institution GNP gross national product HCI heavy and chemical industry ICA International Cooperation Administration IMF International Monetary Fund KFDI Korean foreign direct investment NBFI nonbank financial institution NYT New York Times OFM organized financial market PL Public Law PNBFI private nonbank financial institution POSCO Pohang Iron and Steel Company ROK Republic of Korea SERI Samsung Economic Research Institute SME small- and medium-sized enterprises SOC social overhead capital TFP total factor productivity UNCTD United Nations Conference on Trade and Development UOFM unorganized financial market WSJ Wall Street Journal Weights and Measures: jeong or jeongbo = 2.45 acres pyeong = 35.6 square feet or 3.3 square meters. seok = 5.1 US bushels.
Library of Congress Subject Headings for this publication:
Korea (South) -- Economic conditions -- 1948-1960.
Korea (South) -- Economic conditions -- 1960-.
Korea (South) -- Economic policy.
Saving and investment -- Korea (South) -- History.