Industrial Policy in an Export-Propelled Economy: Lessons from South Korea's Experience

Kr orea provides an illuminating case of state intervention to promote economic development. Like many other third world governments, Korea's government has selectively intervened to affect the allocation of resources among industrial activities. It has also used similar policies: taxes and subsidies, credit rationing, various kinds of licensing, and the creation of public enterprises, for example. But these policies have been applied in the context of a radically different development strategy, one of export-led industrialization. Moreover, Korea's economy has experienced exceptionally rapid development with relatively equitable distribution of the gains. This paper argues that the government's selective industrial policies have contributed importantly to Korea's rapid achievement of international competitiveness in a number of industries.' Though accepted by many knowledgeable observers, the conclusion is controversial. It is inherently so owing to insufficient historical information and lack of agreement about the required counterfactual. Reasons for believing that the benefits of selective intervention must have outweighed the costs also are considered. The discussion flags the policy implications of a Schumpeterian approach that views industrialization as a cascade of interlinked technological changes. The implications are no less controversial than is the interpretation of Korean experience.