Analysis of the Success of Export Promotion in Korea from 1960 To1979
Background
Throughout the 1950s, the Korean government maintained an overvalued exchange rate, regulated interest rates and bank lending, and undermined central bank independence. The overvaluation of the Korean won under these rates either reduced the government’s burden or increased its revenues. The government reluctantly adjusted exchange rates from time to time when it could no longer withstand pressure from America.
An overvalued exchange rate discouraged imports. Imports were further discouraged by quantitative restrictions that the Korean government employed to promote import-substitution industrialization. Trade Programs, which were published semi-annually by the Ministry of Commerce and Industry, listed three types of goods: (1) freely-imported items, (2) restricted items whose import required prior approval from relevant ministries, and (3) banned items.
The tariff system was also geared to protecting domestic industry. From 1945-1949, a single tariff of 10 percent was levied on all items except for foreign aid goods. In 1950, the government enacted the Tariff Act that imposed different rates depending on whether the item was produced domestically or not, and whether the item was a finished good or not. Tariff rates were generally high, ranging between 27.4 and 66.5 percent in the latter half of the 1950s.
Export promotion was also pursued, but the focus was not on actively promoting exports but on mitigating the impediments to exports. An example is the Foreign Exchange Deposit System, which allowed exporters to deposit foreign currencies earned from exports at the Bank of Korea (BOK) and to use them to pay for imports or sell the foreign currencies to other importers at market rates. However, direct subsidies for exports were minimal.
Park Chung-hee, who came into power in 1961 through a military coup, adopted a government-led growth strategy to build an industrial base for Korea. The