The Rise of the Korean Economy:

The Business Development Perspective

November 2012
Jae H. Lee, Ph.D
Korea Institute for Development Strategy
Seoul, Korea
Please do not quote without a permission from the author.

Contents

> Background: The path of economic development in Korea and

the developmental strategies
> Development of technology and the manufacturing sector
> Doing business in Peru
> Implications of the Korean developmental experiences for Peru

Koreas Growth Trajectory: Change in GDP

Note: Unit in current US$; Source: World Bank (2012) World Development Indicators, Online

Korea in Yesterday and Today: An Economic Miracle?

What are in the black box?

The Korean Economy circa 1960s

> A typical Agricultural Economy

(Share of Agriculture in GDP: 39.1%, 1961 )
(Share of Agriculture in Employment: 63%, 1963)
> Categorised as one of the Poorest Countries in the World
(GDP per capita in 1961, $92, Ranked the 89th out of
105 countries)
> Dependency on Foreign Aid
(Foreign Aid in National Budget: 39.3%, 1961 )

Source: KDI(2010), The Korean Economy: Six decades of growth and development, Korea Development Institute, p.200,
462, 477

Some Indicators: Yesterday and Today

1965

2009

14.32%
(Manufacturing)

Sources: World Bank (2011) World Development Indicators, Online

29.68%
(Manufacturing)

At the Juncture: The Fundamental Question on the Visions and

Objectives for the National Development

>Do we want to pursue the agriculture-based economic growth model

or the industry-based economic growth model?
>The main problems that Korea faced: the lack of capital and
technology
Y=f(A,K,L), where A signifies the quality of human capital, K
physical capital, and, L labour.
Y=AK, where A refers to technology, K capital (including
human capital)

The Strategies for National Development

> Comprehensive and integrated national development strategies

Industriali
sation

Expand
Domestic
Capital

SME
Develop
ment
Govern
mentled
Develop
ment

Promote
Export

A Virtuous Cycle of Technology Development in Korea

Government

Enterprises

Taxes

Producing and
profit-yielding

R&D Investment on
science and technology
Government funded
research institutes,
universities, etc

Private research institutes,

universities, etc
Technology transfer

Enter
prises

Distribution of GERD in Korea, 2002 and 2007

2002

Enterprises

74.9

Government

13.4

Higher Education

10.4

NGOs

2007

1.3

Enterprises

76.2

Government

11.7

Higher Education

10.7

NGOs
Source: UNESCO Science Report 2010

1.5

Some Korean Global Conglomerates

>Implication
The business of government is business. John Calvin Coolidge

Value Added by Industry, Selected Countries (2010)

GDP (current US$)

Agriculture, value added
(% of GDP)
Industry, value added
(% of GDP)
Manufacturing, value
added (% of GDP)
Services, etc., value added
(% of GDP)

Peru
Argentina
0.154
0.369

Brazil
2.143

Chile
Korea
0.216 1.015

8.49

10.00

5.30

3.45

2.56

35.10

30.93

28.07

39.53

39.27

16.98

20.53

16.23

11.70

30.56

56.41

59.06

66.63

57.02

58.17

Source: World Bank (2012) World Development Indicators, On-line

Social and Economic Indicators, Selected Countries (2011)

GDP (PPP, in
trillion)

GDP per capita

(PPP)

Population

Land Size
(sq km)

Peru

$0.309

$10,200

29,549,517

1,285,216

Brazil

$2.324

$11,900

199,321,413

8,514,877

Argentina

$0.725

$17,700

42,192,494

2,780,400

Chile

$0.304

$17,400

17,067,369

756,102

Korea

$1.574

$32,100

48,860,500

99,720*

Note: * North Korea excluded; Source: CIA World Factbook (2012)

Some R&D Investment on and Achievement in S&T,

Selected Countries (2010)
GERD/GDP
(%)
Peru
Argentina
Brazil
Chile
Korea

0.15
0.51
1.07
0.67
3.21

Total researchers
per million
inhabitantsa
1,495
1,098
6,028

Scientific
publicationsb
453
6,197
26,482
3,646
32,781

Patents
(Triadic Patent
Families)c,d
60.225
8.8703
2,182.18

Source: UNESCO Science Report 2010* ; Notes: * All figures are for 2007, unless otherwise indicated
a Researchers, in headcount
b Figures for 2008. The term publications encompasses articles, notes and reviews.
c Figures for 2010 from Country Statistical Profiles 2011 Dataset (OECD.Stat)
d Triadic patent families are a set of patents filed at three of these major patent offices: the European Patent Office (EPO), the Japan
Patent Office (JPO) and the United States Patent and Trademark Office (USPTO). Triadic patent family counts are attributed to the
country of residence of the inventor and to the date when the patent was first registered. Triadic patent families are expressed as
numbers and per million inhabitants.

Distribution of GERD in Peru, 2002 and 2007

2002*

2007

Enterprises

10.7

Government

31.7

Higher Education

47.7

NGOs

11.4

Enterprises

29.2

Government

25.6

Higher Education

38.1

NGOs
Note: *Breadown figures do not add to total; Source: UNESCO Science Report 2010

7.1

Peru: GDP Components, 1960-2011

70.00
60.00
50.00
40.00
30.00
20.00

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

1962

0.00

1960

10.00

Agriculture, value added (% of GDP)

Industry, value added (% of GDP)

Manufacturing, value added (% of GDP)

Services, etc., value added (% of GDP)

Source: World Bank (2012) World Development Indicators, One-line

Peru: The Global Competitiveness Aspect

Innovation

Institutions
6.0
5.0

Infrastructure

4.0
Business sophistication

Macroeconomic
environment

3.0

2.0
1.0
Market size

Health and primary

education

0.0

Technological
readiness

Higher education and

training

Financial market
development

Goods market
efficiency
Labour market
efficiency

Source: World Economic Forum (2011) The Global Competitiveness Report 2011-2012: Peru,

Doing Business in Peru

Chile

37

Peru

43

Colombia

45

Mexico

48

Regional Average (Latin America & Caribbean)

97

Argentina

124

Brazil

130
0

185

The Challenges Enterprises in Peru Face: Why the Enabling

Environment?
Inefficient government bureaucracy
Tax regulations
Restrictive labor regulations
Inadequate supply of infrastructure
Inadequately educated workforce
Tax rates
Crime and theft
Policy instability
Poor work ethic in national labor force
Access to financing
Poor public health
Government instability/coups
Inflation

Foreign currency regulations

0.0

2.0

4.0

6.0

8.0

Source: World Economic Forum (2011) The Global Competitiveness Report 2011-2012: Peru

10.0

12.0

14.0

16.0

18.0

The Challenges Enterprises in Peru Face: Why the Enabling

Environment?

Paraguay
Brazil
Chile
Ecuador
Peru
Norway

Index
(value)
0.665
0.718
0.805
0.720
0.725
0.943

Rank
(out of 187 countries)
107
84
44
83
80
1

Source: World Economic Forum (2011) The Global Competitiveness Report 2011-2012: Peru

Export to Korea: Why not Grabbing a Business Opportunity?

1990
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

Export
Amount*
94
130
181
104
62
78
143
116
205
194
283
249
676
1,040
904
919
1,039
1,950

Peru
Chile
to Korea
TB*
Export to Korea
TB
Growth rate US$ mill Amount Growth rate US$ mill
-3.2
84
331
-0.9
187
47.4
-64
1,021
44.7
384
38.5
-24
1,103
8
462
-42.4
-132
1,162
5.4
507
-40.5
-198
706
-39.2
139
26
-112
815
15.4
360
83.1
-70
902
10.6
309
-18.6
-71
696
-22.8
124
75.8
9
754
8.3
300
-5
-10
1,058
40.3
541
45.6
38
1,934
82.8
1,225
-11.9
-33
2,279
17.9
1,128
170.9
317
3,813
67.3
2,247
53.9
574
4,184
9.7
1,069
-13.1
184
4,127
-1.3
1,096
1.7
278
3,103
-24.8
874
13
94
4,221
36
1,274
87.7
583
4,858
15.1
2,477

Note: *Unit in US$ mill; TB=Trade Balance; Source: Korea Trade Association (2012)

Implications and the things we need to do

at the national level
> Set out clear and comprehensive goals and strategies
> Selection and concentration: Develop strategic industries (for export markets)
> Muster national consensus on the growth model and re-define the roles of
stakeholders accordingly (especially that of the government and
universities); The business of the Peruvian people is business.
> Devise action plans to support the strategic-level goals and objectives
i.e. the industry-academy co-operation scheme;
Continue providing the business enabling environment, etc.
> Encourage manufacturing and start-ups

Muchas gracias por su atencin!