Intro: according to American magazine, Foreign policy 2009, Korea is ranked as 29th of

Globalization Index. And on another globalization index by kof, Korea ranked to 59th, this
article shows that korea is not so globalized as other developed countries. However, what
does it practically mean? In order to understand this, it is important to pre-comprehend
economic history of korea in that it has unique cultural, historical and geographical
background. And then based on this, checking the globalization index of Korean
economy, we will figure it out korea’s economic trade is consistent with trade theory.

1.Korea : Economical History since 1950.

*1950s: right after Korean war
After the Korean War, Korean government get aid from the united states during 1950s to
build an infrastructure that included a nationwide network of primary and secondary
schools, modern roads, and a modern communications network. The result was that by
1961, South Korea had a well-educated young work force and a modern infrastructure
that provided a solid foundation for economic growth. South Korea signed in 1965 to
Treaty on Basic Relations between Japan and the Republic of Korea. Hereby, South Korea
received $800 million in grants and soft loans from Japan. The South Korea government
spent most of its money establishing social infrastructures and corporation, investing
social fundamental industry : POSCO(still mill), Gyeongbu Expressway and the Soyang
River Dam.

*Rapid growth from 1960s to 1980s

As we can check with diagram, South Korea's real GDP expanded by an average of
around 8.7% per year, which is from US$30.3 billion in 1960 to US$340.7 billion in 1989.
GDP per capita grew from US$1,226 in 1960 to US$8,027 in 1989.[20] this rapid growth is
mainly due to adapting of an "outward-looking strategy" in 1960s. As south korea had
poor natural resource condition, high-savings rate, and small- domestic market, it has
been a good strategy for korea and worked in efficiency.
this strategy mainly focused on labor-intensive manufactured exports ,which had lead
korean economic growth during 1960s-1970s, which was because south korea could have
a competitive advantage. During this rapid growth, Korea government has played
important role to support its industry. The inflow of foreign capital was greatly
encouraged to supplement the shortage of domestic savings. These efforts enabled
South Korea to achieve rapid growth in exports and subsequent increases in income.
In the early 1980s, in order to control inflation, a conservative monetary policy and tight
fiscal measures were adopted. Growth of the money supply was reduced from the 30
percent level of the 1970s to 15 percent. Seoul even froze its budget for a short while.
Government intervention in the economy was greatly reduced and policies on imports
and foreign investment were liberalized to promote competition.
These measures, coupled with significant improvements in the world economy, helped
the South Korean economy regain its lost momentum in the late 1980s. South Korea
achieved an average of 9.2 percent real growth between 1982 and 1987 and 12.5
percent between 1986 and 1988. The double digit inflation of the 1970s was brought
under control. Wholesale price inflation averaged 2.1 percent per year from 1980 through
1988. Korea achieved its first significant surplus in its balance of payments in 1986 and
recorded a US$7.7 billion and a US$11.4 billion surplus in 1987 and 1988 respectively.
This development permitted South Korea to begin reducing its level of foreign debt. The
trade surplus for 1989, however, was only US$4.6 billion dollars, and a small negative
balance was projected for 1990.
*1990s : Asia Financial Crisis
South korean economy has kept stable and strong growth until Asian Financial Crisis,
1997 ,which made it changed quickly. It was caused by speculators that several other
asian currencies were attacked , lead the heavy depreciation of the Korean Won in
October 1997 and the non-performing loans of korea's merchant bank's problem made
the situation worse. Finally, the IMF had approved an aid which is amount of $21 billion
loan to South Korea Goverment in December , 1997.
Upcoming-goverment of which president is Kim Dea Jung had shut down a third of Korea's
banks. During 1988, Korea's eocnomy had continued to shrink. Daewoo, One of the
Famous Korean Auto moboile company had to be victim of Financial economic crisis due
toe dept problems and was purchased by Generala Motors, American automobile
company.
Due to Asian Financial Crisis, Korea Economy has beccome much dependent with
International Lenders while sweeping korean dept, and while recovering from crisis, labor
in south korea had to go through hard times by the labor adjustment like dynamic and
poductive labor market with flexible wage rates. Korean government declared the Crisis
which is called as "IMF CRISIS" has been over at the end of 1999.
*21c : More dependent Korean Economy, More Globalized.
While recovering from the crisis, Korean economy continued strong gowth in 2000 : GDP
growth : 9.1%. However, Growth fell back to 3.8% since 2001 due to the slowing global
economy, falling exports, and the perception that corporate and financial reforms had
stalled. More recently the economy stabilized and maintain a growth rate between 4-5%
from 2003onwards.
After 2000, Opening Korean market-boom has been appeared in South Korea. South
Korea relies largely upon exports to fuel the growth of its economy, with finished
products such as electronics, textiles, ships, automobiles, and steel being some of its
most important exports. Although the import market has liberalized in recent years, the
agricultural market has remained largely protectionist due to serious disparities in the
price of domestic agricultural products such as rice with the international market. In late
2004, Despite of objection of local agriculture labor in south korea, an agreement was
reached with the WTO in which South Korean rice imports will gradually increase from 4%
to 8% of consumption by 2014.

2. Globalization of Korean Economy

According to the KOF, Economic research institute Konjunkturforschungsstelle at
ETH Zurich, Korea is ranked to 59th on Globalization index which is combined to
economically, socially and politically. On the Economic Globalization index, Korea is
ranked as 87th. Among the countries which belong to OECD, Korea was second -lowest
ranked next to Japan, of which economic globalization point is 53.23.
In order to define what those mean, it is necessary to confirm the variables of Economic
index in advance : Followings
Indices and Variables Weights

Economic Globalization [38%]

i) Actual Flows (50%)
Trade (percent of GDP) (19%)
Foreign Direct Investment, flows (percent of GDP) (20%)
Foreign Direct Investment, stocks (percent of GDP) (23%)

Portfolio Investment (percent of GDP) (17%)

Income Payments to Foreign Nationals (percent of GDP) (21%)

ii) Restrictions (50%)

Hidden Import Barriers (21%)
Mean Tariff Rate (29%)
Taxes on International Trade (percent of current revenue) (25%)

Capital Account Restrictions (25%)

As we see above, Actual flows and Restriction are main variables which decide to
Economic Globalization. Actual Flows is consist of Trade, FDI and Income payment to
Foreign Nationals, and Restrictions is consist of Hidden Import, Tariff Rate, Taxes on
International trade and Capital account restriction. It means the more actual flows, less
restrictions One’s economy has, the more economic globalized it is according to KOF.
Checking the diagram below which show Korean economy’s, compared World
economy’s, Korean economic globalization is below to the mean of world economic
globalization. Korea’s economic actual flow has been rapidly increased since 1993 with
the boom of Globalization: Uruguay Round(1989) and WTO(1995). And when 1997, due
to Asian economy crisis, as FDI rising, Korea’s actual flow has more steeply increased,

which affected on governmental policy which has lead to make restriction rise also. Even
with circumstance, However, Korea’s restriction which is 63.03pts in 2006 far below to
USA’s restriction which is 85.34pts in 2006.

Then, Can we say there is any correlation between Economy Globalization and
it’s Wealth? The more economically globalized one nation is, the more developed it is? Or
reverse? In order to find this correlation, the data of the GDP per Capita in OECD and
Economic Globalization index in OECD are used: the reason I choose OECD is because it’s
known as the group of well developed countries around the world. As we can see the
diagram from below, there is not obvious correlation between GDP per capita and
Economic Globalization, which means “the more globalized its economy is, the much
richer it is” is not truth or same in reverse case. However, it is obvious that Average of
Economic Globalization among Countries from OECD(79.59pts) is much high above from
that from World which is 56pts in 2006, and Korea is much less globalized economically,
with Japan, Mexico, than any other countries from OECD. It might be assumed that it’s
due to its’ own unique cultural and geographical backgrounds. Even it is, checking the
mean of Economic Globalization among developed countries, it is apparent that
Globalization is main-stream around the developed countries.

3. Consistence of the theory of Trade with Korea’s Case

 As mentioned before, Korea prospered economic strategy which is focused on
export by government. While growing economy, the size of export has rapidly increased.
During 1960s-1970s, Export of Korea was mainly about light industries (e.g fiber, veneer
board and shoes). At that time, It was lacked of physical capital, skilled labor force and
natural resource in Korea. Therefore government had to rely on its low-price, unskilled
labor market. This fact is consistent with the Trade theory in that Korea has specialized
light industry as there were much abundant product -factor of labor force than others.
During late 1970s and 1980s, Korea has specialized heavy industry like still, vessel and
electronic product while growing its economy. It could be enabled with the Fund from
Foreign investors and special effect of Vietnam war. Late 1990s , Up-to-date industry like
Semiconductor, LCD-Tv has appeared as Korea’s main export product. It is mainly
consistent with the Trade theory in that those industry is based on the abundance of
Human and physical capital which has developed during inderstralization.
Now, More specifically, let’s look up 2009 Korean trade record : 10 main items of
export and import

Export Import
2009
Item Price Item Price
1 Flat Display sensor 13,173 semiconductor 4,634
2 Semiconductor 9,189 computer 4,313
3 Cellphone 6,212 flat display sensor 3,445
4 Synthetic resin 5,704 still plate 3,021
5 Petroleum Products 4,657 clothes 2,224
6 Synthetic petrochemical materials 3,005 cellphone 1,714
7 still plate 3,004 Fine Chemical Materials 1,459
Rails and steel
8 Auto Parts 2,662 1,421
structures
9 computer 2,482 Equipment parts 1,312
Intermediate petrochemical
10 2,156 Coal 1,136
materials

As we see above, Korea has imported mainly law material for re-production and export ,
such as Coal, Equipment parts, Steel structures, Fine chemical Materials. It shows the fact
of lack in natural resources in Korea. And with those raw materials and Comparative
Abundant Skilled labor and physical capital, Korea re-produce the item like auto part,
intermediate petrochemical materials for export. Therefore, it is partially consistent of
the Heckscher Ohlin trade theory. However, checking cell phone, semiconductor and flat
display sensor, there are certain amount of Export and Import. It is partially due to patent
–knowledge e right. As Hi-tech knowledge which has patents has become important in
High-tech industry, there are some item which should be purchased because of patent
for making a new product. Therefore, not only export but also import has proceeded
together, which can conclude it is not consistent with Heckscher Ohlin trade theory.

Reference
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