The Growth of the Korean Economy and the Foreign Capital
The Korean economy has grown very rapidly during the last two decades. The GNP increased by a factor of seven between 1970 and 1989. From 1970 to 1978, the average annual growth rate was 9.9 percent. Although the Korean economy had suffered a set back after the second energy crisis, the growth rate recovered in the late 1980’s. Throughout the period, exports increased faster than GNP. As a result, the share of exports in GNP increased from 15 per cent in 1970 to 42 percent in 1987. At the same time, imports also increased very rapidly, resulting in a perpetual trade deficit for most of the period. The deficits in the current account were covered by surplus in the capital account. Import of foreign capital helped the development of manufacturing industry, but it also resulted in a relatively large foreign debt. The burden of servicing this debt became a problem during the negative growth period after the second energy crisis. In this paper we will evaluate the role of foreign capital in the development of the Korean economy after 1970. We will also analyze the effects of direct foreign investment (DFI) on the Korean economy. The amount of DFI was relatively small compared to the volume of foreign loans. DFI, however, has larger impacts on the receiving economy. Its direct effects are obvious: New employments, new production activities, increase in exports imports, etc.
KeywordsDirect Foreign Investment Production Function Capital Stock Foreign Capital Foreign Debt
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