What Happens to Economic Growth when Neo?classical Policy Replaces Keynesian? The Case of South Korea

SUMMARY In January 1979 Korea announced a ‘tight money policy’. This contrasted with 18 years of Keynesian policies which had resulted in high growth and double?digit inflation. This article traces the development of monetarism from its initial inception in Korea to its complete official endorsement in mid?1981. The impact on short term growth and Korea's ability to weather the oil price increases of 1979 are examined. The results so far appear disappointing in that inflation has been higher than in 1974–75, growth negative, and monetary targets consistently revised upwards. The government remains optimistic that the beneficial results are becoming apparent, but the question is posed as to whether the high growth trajectory based on export orientation of the past is consistent with the policies proclaimed. RESUMEN ¿Qué pasa con el crecimiento económico cuando la política neocl´sica sustituye a la keynesiana? El caso de Corea del Sur En enero de 1979 Corea del Sur anunció una ‘estricta política monetaria’, lo que contrastó con los 18 años de política keynesiana que dejaron como resultado un alto crecimiento y una tasa de inflación de dos dígitos. Este artículo examina el desarrollo del monetarismo en Corea del Sur desde sus comienzos hasta su completo afianzamiento a mediados de 1981. Se analizan el impacto de corto plazo en el crecimiento y la habilidad de Corea del Sur para enfrentar los incrementos del precio del petróleo en 1979. Hasta ese momento los resultados parecen decepcionantes ya que la inflacion resultó superior à la de 1974–75, el crecimiento fue negativo y consecuentemente, las metas monetarias fueron incrementadas. El gobierno se mantiene optimista en que los resultados benéficos comienzan a aparecer, pero el problema radica en dilucidar si la trayectoria de alto crecimiento basada el las exportaciones del pasado, es consistente con las políticas actualmente preconizadas. RESUME Qu'arrive?t?il à la croissance économique lorsque la politique néo?classique remplace Keynes? Le cas de la Corée du Sud En janvier 1979, la Corée a annoncé une politique de l'argent stricte’, après 18 ans de politique keynesienne qui avaient débouché sur une forte croissance et une inflation à double chiffre. Cet article retrace le développement du monétarisme depuis son apparition en Corée jusqu'à son officialisation vers le milieu de 1981. Il étudie son incidence sur la croissance à court terme et sur l'aptitude de la Corée à absorber l'augmentation du prix du pétrole de 1979. Jusqu'ici les résultats paraissent décevants: l'inflation est plus élevée qu'en1974–75, la croissance négative, les objectifs monétaristes constamment relevés d'un cran. Le gouvernement espère toujours que les avantages vont apparaître; mais la trajectoire de forte croissance, basée sur l'exportation, du passé est?elle compatible avec la politique adoptée

Debt and development in historical perspective: The external constraints of late industrialisation revisited through South Korea and Brazil

Current debates about the role of external finance in development mostly overlook the insights from early development economics that late industrialisation generates a structural tendency to run trade deficits, thereby exacerbating rather than relieving external foreign exchange constraints. The developmental role of external finance is therefore based on its strategic marginal contribution to relieve such constraints. External debt in particular also allows countries to pursue industrial strategies without reliance on foreign direct investment. These insights are revisited in this paper as a critical input to both mainstream and heterodox contemporary scholarship on debt and development. While the mainstream generally avoids discussion of state-led industrial policy, the heterodox has converged on a view that developing countries should avoid external finance. The contrasting external account histories of South Korea and Brazil are examined to demonstrate the validity of the classic insights and the contemporary fallacies. While the South Korean case speaks much to its geopolitical context, this does not necessarily refute the principle that post-war late development engenders an intensive demand for external finance, which must be met if industrialisation strategies are not to be stymied, as in the case of Brazil, no matter how effectively domestic strategies are conceived and implemented

The Korea discount and chaebols

Finance practitioners frequently claim that stocks of Korean firms are undervalued and trade at a discount relative to foreign firms. This phenomenon is commonly called «the Korea discount». It is based on anecdotal evidence comparing either the price- earnings ratios of different market indexes or those of different individual stocks. This paper provides empirical evidence on the existence of such a discount using a large sample of stocks from 28 countries over the period 2002-2016. We find that Korean stocks have significantly lower price-earnings ratios than their global peers. We also investigate the role of large business groups called chaebols, which are often considered to be the main cause of the discount because of their poor corporate governance. Our findings show that it is not the case