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Jovanovic B, Lach S Entry, exit, and diffusion with learning by doing. Despite the industrial restructuring of SMEs in the early s, the Korean economy faced a tremendous economic shock in the late s, which was indicated by the financial crisis in However, Korea completed comprehensive industrial restructuring programs mainly for large conglomerates after the crisis.
These steps will be explained in the next section in detail. Then, the figures started to decrease from the early s, and finally, showed This structural change of an increasing and decreasing pattern was largely the same as in other developed countries during the industrial era. However, the difference from other advanced countries is the speed with which it achieved its structural changes Sakong and Koh, Other advanced countries took longer.
In , textile and garment sectors accounted for Heavy and chemical industries have increased their share since the s with the help of the policy on heavy and chemical industries promotion. Electrical and electronics equipment manufacturing had a growth range of only 4. Transport equipment covered 4. Figure 2. Notes: grey bar means the number of employed person thousand.
Top rank items included iron ore Before the start of the intensive industrial policy, raw materials were the main items of exports in the early s. Those export items were changed to labor-intensive light industry products, such as textile, wigs, and plywood in the mids. However, export items changed drastically to technology-intensive products in the s. Top rank items were garments This development is the results of the heavy and chemical industrial policy in the s, and technology-intensive industrial policy in the s. In , ships and ship components However, with the advent of the financial crisis in , economic, industrial, and social policies and capacities focused on the recovery from the crisis of the public and private sectors.
The financial crisis began in November as international creditors started to withdraw funds from domestic banks, and consequently, the Korean economy entered an unprecedented crisis. Although the crisis was mainly due to the vulnerability of finance and foreign currency, the potential risks have been accumulated for a long period of time having roots in the economic and industrial structures.
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GNI per capita. Employed person thousand. Consumer price inflation. Various reform policies and programs were implemented in several fields. Among these policies, the core of restructuring policy centered on both corporate and finance sectors Cho et al. The former focused on closing down insolvent enterprises in the short run, and strengthening corporate efficiency and market economy in the long run.
Meanwhile, the latter focused on restoring paralyzed financial systems in the short run, and improving financial stability and the soundness of financial institutions in the long run. Meanwhile, in the labor sector, the Korea Tripartite Commission of labor, management, and government was composed in and the layoff system was introduced by a law revision based on a social pact.
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The role of government policy on the restructuring was significant in the short run, but this recovery and extended growth were due to the sustained efforts mostly of the private sector. To support the private sector, the Industrial Development Act was enacted in , which was a substitute for the Industrial Development Act of , to include all kinds of industries in the industrial development.
Although the Act mainly focused on the manufacturing sectors, the new Act contained the provision for targeting both manufacturing and non-manufacturing sectors. This act had the purpose of advancement in industrial structure, enhancement of competitiveness, and the promotion of new industry creation. Notes: ICT industry includes information and communication services broadcasting and communications included , information and communication equipment manufacturing, and software and computer-related service. Beginning in the s, especially after the financial crisis, the government exerted a great deal of effort to promote technology- and knowledge-intensive industries, to open up the country to trade and capital movements, to restructure the economy including the financial sector, and to make the labor market flexible Park and Koo, SMEs with high technology and new ideas, such as venture firms, had a great role in this development.
The support came in the form of reduction of foundation capital, permission of plants in the university and institute, allowance of concurrent position of professors or researcher with venture firm managers and employers, and provision for information related management. Venture firms comprised ICT-related firms and industries. Figure 4presents the increase in the number of firms in the ICT industry.
The figure doubled from 3, in to 7, in In , the growth increased to 16,, and indicated more than two times compared with that of When both public and private sectors recognized the limitation of such growth strategies, especially after the financial crisis, they shifted to innovation-driven economy in the s. Therefore, The Roh Moo-hyun administration to emphasized innovation and balanced national development by promoting regional innovation and cluster policies.
Both projects were interrelated and based on the improvement of local and regional competitiveness as balanced national development. The latter was related to the industrial complexes. Since the early s, the national and regional governments constructed and managed Korean industrial complexes, which have had significant roles in industrial development. However, this physical agglomeration of firms and factories has faced a challenge with the advent of innovative and knowledge-based economy especially since the late s.
Thus, a policy for upgrading industrial complexes into innovative clusters, Industrial Complex Cluster Program ICCP , was launched in with a variety of projects related to industrial clusters Park and Koo, In addition, various kinds of small-scale local-based industries were encouraged and supported with the purpose of constructing regional innovation systems. However, the shock was milder than that during the crisis as output turned to positive growth in the first quarter of Sakong and Koh, The reasons for the mild effect are the previous successful restructuring in the s and the improvement of economic soundness.
After the global financial crisis, many countries —even the developed economies adopting the principle of minimal market intervention— promoted economic stimulus packages actively and established new industrial policies. Particularly, some market-friendly policies were delivered with an active response to external opening, such as the Free Trade Agreement after the crisis. Policies for finding and promoting next-generation growth industries began, especially on green industry, high-tech convergence, and high value-added services MKE, Second, the convergence and integration of technologies and industries became the focus of next-generation growth, and future economic productivity depended more on technology convergence.
Economic productivity was not limited to only high technologies or industries but expanded to both manufacturing and service sectors. These knowledge-based services were considered the solutions to employment problems in the post-industrial and post-manufacturing society. Therefore, the government has prepared comprehensive measures to improve the competitiveness of service industries since the mids Sakong and Koh, Conversely, the manufacturing sectors, including mining, reached their peak in the late s and the early s, and declined by the late s.
Its portion increased after the crisis and was about This phenomenon is evaluated as the key manufacturing industries and new growth industries having upgraded their capacities and expanded their exports Cho et al.
Therefore, the manufacturing sectors and their knowledge integration still have a great role in the development of the Korean economy, unlike in other advanced economies. Figure 5. Comparison of Manufacturing and Services by Value-added. Thus, in , the National Committee for Corporate Partnership was formed with representatives from both conglomerates and small firms. From the perspective of regional and spatial policies related to industrial development, the ICCP was reformed into the Pan Regional Cluster Program in The government explained the creative economy as the economy that creates new value-added, jobs, and growth engines with the core value of creativity.
It sets out to produce new growth engines and jobs by creating new value-added with the convergence of personal creativity, scientific technology, and ICT. To retain and upgrade competitiveness, a number of key industries, namely, flagship industries such as automobiles, shipbuilding, semiconductors, steel, general machines, textiles, and parts and materials, developed their own strategies with the continuity of the past policies.
Some policies are being developed to create decent and high-quality jobs. Examples of these policies are upgrading existing industries along with the convergence of other industries or technologies, promoting global professional corporations with a cooperative ecosystem, and vitalizing regional economy by upgrading region- and local-based industries. The national government has taken a leading role in managing industrial policies and economic growth.
One of other powerful actors is the chaebols , Korean conglomerates composed of different sectoral companies.
Globalization, Structural Change and Productivity Growth
Specifically, the heavy and chemical industrial policies from the mids contributed to the growth of chaebols and the evolution of their system Park, The government led the drive of confining its role to providing financial and tax incentives but left the actual implementation of production to the private sector Sakong and Koh, Acting as vehicles for the export drive focused on heavy and chemical industries, chaebols further increased their power in the Korean economy.
Accordingly, the automobile, shipbuilding, petrochemical, and electronic industries managed by chaebols became the leading ones and the core exported goods. Moreover, the industrial rationalization program in the s accelerated the concentration of economic power to chaebols , which were the only business enterprises with the financial resources to take over troubled companies Sakong and Koh, Many Korean big-name companies, such as Hyundai, Samsung, and LG, grew and expanded with the support of these policies.
The concentration of the top companies by the number of employees decreased gradually until the mids. The turnover of the top companies began to increase in the early s. However, the concentration by both indexes drastically reduced after the economic shock in the late s. The uncontrolled expansion of these large enterprises was also the cause of the crisis.
According to the report of a local corporate consultant CEO Score, , in the stock market in , the aggregate market value of both groups accounted for Their aggregate market value share increased by Moreover, corporate taxes paid by the two groups accounted for Although the construction of railways started from the s during the colonial period of Japan, railway investment continued after the independence in and at the end of the Korean War in After the establishment of the Park administration in the early s, social overhead capital investment was accelerated with the support of policies, such as the Five-Year Economic Development Plans.
Accordingly, the first toll expressway, the Seoul—Incheon Expressway, opened in The Seoul—Busan Expressway, the major backbone of the country, was completed in and Honam Expressway was opened in Moreover, electric power development projects were carried out from , and the supply of electric power exceeded demand in the mids Sakong and Koh, The government started the construction of industrial parks in the early s, focusing on export-driven industrial parks in major large cities, namely, the Ulsan Industrial Center in Ulsan, which is located in the southeast of Korea, and the Korea Export Industrial Parks in Guro-dong, Seoul.
Large-scale industrial complexes were built and formed the industrial belt in the southeast coastal regions to support the heavy and chemical industries in the s.
Structural Change Definition
In addition, some small and medium-sized local and rural industrial parks were constructed nationwide by national and regional governments. Thus, in the early s, a variety of projects were conducted to improve previous industrial complexes only as physical agglomerations of firms and factories into innovative clusters.
It was first initiated in as one of the balanced national development policies. In the beginning of the program, seven pilot complexes were selected in , and their specialized sectors were as follows: Banwol-Sihwa parts and materials , Ulsan automobiles , Changwon machinery , Gumi electronics , Gwangju photonics , Gunsan machinery and auto parts , and Wonju medical equipment Koo et al. Additional five complexes were designated in , such as Namdong machine parts , Ochang electronics and information , Seongseo mechatronics , Noksan shipbuilding equipment , and Daebul shipbuilding.
In the process of building networks and implementing the ICCP, a mini-cluster project played an important role Park and Koo, A mini-cluster is an industry—university—research institution alliance built according to industrial or technical fields. Such an alliance continuously develops mutual cooperation, joint learning, and information sharing with the participation of innovative actors in the region, such as large firms, SMEs, universities, research institutions, supporting organizations, and local government units MKE and KICOX, The program was based on the hub-and-spoke type regional clusters to spread out the accomplishment of the hub complexes to other industrial parks and locations nationwide Park and Koo,