6 May 2014 Shim Ui Sup Myongji University, Korea Delgersambuu Munkhtsetseg Institute of Finance and...
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6 May 2014 Shim Ui Sup Myongji University, Korea Delgersambuu Munkhtsetseg Institute of Finance and Economics Comparative Study of Economic Development
6 May 2014 Shim Ui Sup Myongji University, Korea Delgersambuu
Munkhtsetseg Institute of Finance and Economics Comparative Study
of Economic Development of Korea and Mongolia for the Take Off of
Mongolian Economy: focused on economic miracle and Dutch disease
Mongolian Socio-economic Situation and Emerging Issues
Commemoration International Conference for the 90th Anniversary of
Institute of Finance and Economics, Ulaanbaatar Mongolia, 6-7 May,
2014
Slide 2
C O N T E N T S . Initial conditions for economic development .
Development strategy . Economic miracle and its result . Factors of
economic miracle . Cooperation frontier for mutual prosperity
Slide 3
I. Initial conditions for economic development Korean tragedy
of a nation Demilitarised Zone (DMZ). South Korea describes the war
as a tragedy of a nation, but they are Brothers. Koreans dream
reunification with the belief of "dream comes true". The fog of war
is still exist, their desire to see a unified Korea is
unmistakable. Korea's development accomplished in hard way Economic
conditions of the early 1960s War-torn & divided with $89
in1961(101st out of 125 countries) Vicious Cycle of low savings and
low growth Economic take-off with outward-looking development
strategy(1960~80)
Slide 4
Korean society in pre-developmental stage I. Initial conditions
for economic development
Slide 5
Why Korea? Transition very rare Simultaneous economic and
political development Economists (EPB) Technocrats (military
service) Shared growth (Labor and capital) Catch up Japan(colonial
experience) Security(cold war front line with USA ) I. Initial
conditions for economic development
Slide 6
Turning Initiating the transition, the Start of Growth in the
1960s Heavy and Chemical Industry Promotion in the 1970s
Rationalization and Liberalization in the 1980s Democratization
(1987) Globalization in the 1990s Financial crisis (1997) and
post-crisis reform Global Economic Crisis 2008 New Challenges and
Opportunities (rise or fall) I. Initial conditions for economic
development
Slide 7
Korea as a natural state 1950s: Rhee regime not very different
from most natural states throughout developing world. - Clientelism
and personal exchange - Rents based on connections Economic policy
as an instrument of politics and coalitions - Foreign exchange -
Import licenses - Grain Heavy dependence on American aid Yet
unstable I. Initial conditions for economic development
Slide 8
Initiating Koreas transition, 1961-1979 Park and military
takeover, 1961 Establishes the developmental state Transformation
of policy from personal to impersonal basis - Move toward economic
independence based on export-led growth - Macroeconomic stability -
Shared growth Systematic and simultaneous transformation of polity
and economy (doorstep) New system of coordinated incentives I.
Initial conditions for economic development
Slide 9
SWOT of Mongolian Economy for Korea
Strength/OpportunityWeakness/Threat -abundant natural resources
(cupper 2nd, fl uorspar 3rd, coal 4th, molybdenum 11th etc) - high
dependence on natural resources - neighboring giant market(China,
Russia)- land-locked(no sea line) - good manpower, political
interest- high inflation and wage -abundant demand for SOC and
construction Project - weak transportation infrastructure and l
ower urbanization - 100 tsn Korean understanding Mongolian- Small
population size(less than 3mln) -equidistance diplomacy for
Korea(S-N Korean a nd Mongolia, triangular cooperation)
-neighboring conflict (border dispute with China and Russia)
source: , p.21
Slide 10
1. Koreas economic strategy as a developing country unbalanced
growth dual society, export oriented, Chaebol & SME, urban
& rural, SOC investment, labor and business outward or inward
economic development plan Korea's outward mind dispatched worker,
Vietnam war, construction worker, sailor etc proper investment in
infrastructure development can lead to long-term growth. II.
Development strategy
Slide 11
2. Basic philosophy of the 5-year plan: five principles! Korean
economic development should be achieved through industrialization
Economic development should be achieved under government control
and leadership. Although firms should be owned and managed
privately, the government could implement private decisions in the
case of major investments (a variant of authoritarian capitalism)
To finance investments, foreign capital inflows should be induced
Growth should have a higher priority than redressing imbalances in
income distribution and unevenness in industrial development across
geographical regions
Slide 12
3. Strategic vision of the government for economic development
Poverty was regarded as the seed bed of social conflict &
instability Korean government faced challenging tasks of meeting
BHN and maintaining national security
Slide 13
4. Outward-looking Development Strategy Policy shift from
"Import Substitution" to "Export Promotion" in the early 1960s
Export-promotion policy focused on labor-intensive industries in
view of abundant and well educated labor force Strong export
promotion led to rapid export growth of 40% per year between
1964-80 In particular, focus on labor-intensive exports in the
1960s led to large employment opportunities Unemployment rate
continued to decline steadily as employment opportunities outgrew
the labor force
Slide 14
5. Working mechanism of outward-looking development
strategy
Slide 15
6. Koreas comprehensive and concrete industrial development
strategy since 1960s
Slide 16
7. Incentives for firms Economic policy making in service of
economic growth - Cooperation of business and government. Exports -
Loans, credit, licenses, refund import taxes - Profit opportunities
- Tournaments - Impersonality General trade company, Absence of
SBC, , - Several restructurings
Slide 17
8. Incentives for Bureaucrats Meritocratic/impersonal vs
natural states/personal But not independent of politics Rewards for
performance Minister shuffling Monthly meetings Relative absence of
bureaucratic corruption? Most natural states, such as India, Mexico
EPB polices budgets Pensions Deliberative councils
Slide 18
10. Citizen Incentives Repressive regime Absence of political
rights (e.g. association) No democracy Yet a range of impersonal
benefits Education Infrastructure (e.g., rural roads to markets)
Security. Shared growth Open access to jobs in an expanding economy
and the bureaucracy. Rising wages (8%/year from 1970-1988) Contrast
with natural state
Slide 19
11. Government / coalition incentives To make this system work,
government (and coalition leaders) had to have incentives to
support system of impersonal exchange. What prevented reneging,
especially in crises (e.g., early modern Europe, Latin America,
Africa)? The security dilemma: threat of communism. Perceptions in
1950s and 60s On-going threat from North Korea and China. Credible
commitment: [Differentiates from other natural states] Reneging
would destroy system creating independence and security Maintain
incentives for firms, meritocractic bureaucracy, and citizens.
Slide 20
12 Changing industrial structure: from agriculture to
manufacturing / from light industry to heavy and chemical industry
Changes in Export Commodity Profile
Slide 21
III. Economic miracle and its result Koreas Economy 1. Economic
miracle A period of rapid economic growth that exceeds
expectations. Economic miracles 2. Positive effects South Korea;
transformed from an aid recipient into a donor country within the
span of a single generation. National growth rates, East Asia,
1960~2002
Slide 22
(1) Growth trend III. Economic miracle and its result
Slide 23
(2) Economic performance in Korea III. Economic miracle and its
result
Slide 24
(3) Macroeconomic and structural patterns of Korea 1963-86 III.
Economic miracle and its result Measure1963-731974-801981-86 Annual
inflation rate a Annual real GNP growth rate Manufacturing product
Share in GNP Agriculture b Manufacturing c Other Share in
employment Agriculture b Manufacturing c Other Exports as share of
GNP Taxes as share of GNP Investment as share of GNP Foreign saving
as share of GNP 16.6 9.7 19.7 35.2 15.7 49.1 54.5 12.6 32.8 14.5
11.8 22.0 8.3 21.9 7.2 14.1 20.9 28.0 51.1 41.2 21.5 37.2 30.6 16.8
30.4 7.2 6.0 8.7 10.0 15.6 33.1 51.3 28.6 23.5 47.9 38.6 19.2 30.2
4.3 Source: Bank of Korea, Economic Statistics Yearbook, various
issues. a. GDP deflator. b. Includes forestry and fishing. c.
Includes mining.
Slide 25
(4) Gross domestic product by industrial origin (factor cost,
1970 prices) III. Economic miracle and its result Share of
GDP(%)Annual average growth rate(%) 1953- 55 1960- 62 1973- 75
1953/55 to 1960/62 1960/62 to 1973/75 1953/55 to 1973/75 Primary
Total Manufacturing Total Services Total Gross domestic
product.513.081.405 1.000.452.127.405 1.000.258.346.396 1.000 2.5
10.8 3.9 17.9 9.0 9.1 3.6 15.3 7.1 7.3 Sources: BOK, National
Income in Korea. 1975, pp. 144-145; and BOK, Final Estimate of
Gross National Product for 1975, Sept. 1976, p.15.
Slide 26
(5) Export and import trend in Korea III. Economic miracle and
its result
Slide 27
(6) Reducing poverty Absolute poverty declined steeply from 48%
in 1961 to less than 10% entering 1980s. III. Economic miracle and
its result
Slide 28
3. Swift crisis resolution and economic recovery III. Economic
miracle and its result
Slide 29
1) Pitfalls of the Government-led Economic Development III.
Economic miracle and its result 4. Negative effects
Slide 30
2) Economic Reform and Financial Crisis of 1997 III. Economic
miracle and its result Isn it a miracle?
Slide 31
3) Side effects of economic growth Happiness index According to
UN's the world happiness report 2013, Korea's happiness index rated
number 41 in the world. Received low score in social unification
like fairness, social solidarity. Suicide rate It's the Korea that
records suicide rate number one position among the OECD members.
Our nation's suicide rate is 33.3 people per 100 thousand people.
Mental problems, physical problems and economic issues are main
causes of suicide Estimated population Our nation's birthrate is
1.3 children per woman. It ranked 225th in the world which is very
low level. (In Korea, it spends 262 million and 44 thousand Won to
raise one kid.) Also, entering an aging society makes rapid
progress. In 2026, it's going to enter super high aged society. As
a result, potential of growth is getting lower because of
decreasing the number of economically active people. III. Economic
miracle and its result
Slide 32
Social inequality Korea has been cited as one of successful
countries with relatively low income inequality and rapid growth It
seems that all people are wealthy as the economy develops, but the
most wealth is biased to the super rich. But the concentration of
wealth in several levels of society. The income gap has further
widened. Bipolarization; present Occupy Wall Street 1 : 99 past
golden rule/Pareto Distribution 78:22 8 : 2 The degree of
dependence upon foreign trade Korea's degree of dependence upon
foreign trade is very high. If the degree of dependence upon
foreign trade is extremely high, it's impacted easily to the
international economy. Korea's degree of dependence upon foreign
trade is 94.5%, ranked 36th in the world. when the world economy
crisis occurs, contagion effect blows Korea easily. III. Economic
miracle and its result
Slide 33
.. income differential Korea is the country which exacerbated
income bipolarization. Working poor, house poor, land poor,
Consequentialism, Mammonism, Lookism, Workholics Concentrationism,
Balibalism, I-can-do-ism * It appears several side effects by rapid
economic development. * The number of plastic surgery ranked number
one in the world.
Slide 34
(1) Total effects(2) Direct effects (3) B.P. (4) Income (5)
Employment (6) B.P. (7) Income (8) Employment 1975 77
29.963.610.7825.872.140.20 1978 82 53.526.633.0845.873.920.94 1983
8628.622.901.8023.091.690.76 III. Economic miracle and its result
5. Koreas DD of overseas construction in the Middle East Effects of
overseas construction on national economy Boom period (1978 82),
Before boom(1975 77) post boom(1983 86) 1) Positive effects :
Balance of payments, national income, employment
Mongolia economy, Bogdkgairkhan economic miracle 1. Growth of
Mongolia: mid-term projection 2011 Mongolia can do, building on
reform steps it has already taken, to avoid a resource trap. It
argues that (i)cash transfers to the general population should be
linked directly to the performance of (ii)the underlying mining
assets to create a domestic constituency for good governance in the
mining sector; (ii) social spending should be de-linked from
resource revenues, better targeted and fully incorporated into the
budget; (iii) macroeconomic volatility could be reduced by
operationalising the fiscal stabilisation fund, issuing GDP-indexed
debt instruments, and through financial sector reforms; and (iv)
major infrastructure and industrial development projects should
seek private sector co- investments to ensure that public money is
well spent. III. Economic miracle and its result
2011*2012*2013*2014* GROWTH OF REAL GDP /PERCENT, YOY/ AGRICULTURE
INDUSTRY SERVICE 19.4 7.8 11.3 8.9 19.9 5.0 36.6 9.3 14.8 3.6 21.6
13.5 15.4 3.7 23.0 12.7. Estimations as of October 2011. For next
decade: annual average growth rate to be approximately 14% pa
Slide 37
2. Features of Dutch disease. Large real appreciation in the
currency,. an increase in spending,. an increase in the price of
non-traded goods, relative to traded goods, such as services and
real estate. a resulting shift of labor and other resources out of
non-export sector. a decrease in the non-mining export industry
III. Economic miracle and its result
Slide 38
Part III quoted largely from Ch. Khashchuluun, The Challenge of
Dutch Disease, Structural Change, and Economic Diversification
National Development and innovation committee Government Agency of
Mongolia, 2011.10.21
Slide 39
III. Economic miracle and its result
Slide 40
Slide 41
Slide 42
Slide 43
Slide 44
Slide 45
Slide 46
Policies and actions for economic diversification Good
practices of mining revenue management and successful economic
diversification Success countries - Chile, Finland, Australia,
Canada and others Actions for economic diversification - Creating
resources revenue funds, - Financing education, - Innovation,
R&D, - Industry, Agriculture.
Slide 47
International practice: Desired outcomes (developed
resource-producing countries as an example ) Transparency, advanced
institution development, High level of human development, Strong
linkages between the resource sector and the rest of the economy,
Property rights are well defined, the rule of law prevails, and the
judiciary system is independent, Policies are usually underpinned
by a broad social consensus, long-term perspectives, and prudent
economic management III. Economic miracle and its result
Slide 48
Strengths and Weakness of Mongolia Strengths Proper age
structure of the population; Abundant mineral resources; Rich
historical heritage and traditional; Unique natural ecosystems and
vast lands; Unique nomadic lifestyle, Weakness Small population,
limited labor forces, particularly shortage of highly qualified
engineers, technical workers, Low level of scientific and
technological development, Limited and unreliable energy supply,
poor development of infrastructure, Land locked location, Limited
financial resources, Lower index of business environment and
institution Policies and actions for economic diversification
Slide 49
III. Economic miracle and its result Macroeconomic stability.
Managing the revenue: Stabilization fund. Controlling inflation and
improving productivity. Fight property boom through expansion of
housing (particularly affordable housing). Reduction of government
budget deficit, balanced budget policy. Political stability Human
development. Training of young professionals: engineers, skilled
labor. Reform of education (pre-school, school, vocational
training, higher education). Improving national healthcare system,
services and supply of services
Slide 50
III. Economic miracle and its result Policies for
diversification. Heavy and chemical industry:. industry for basic
metal and non-ferrous metals,. Industry for coal, chemical and oil
Competitive light industry:. Industry for meat, sea buckthorn,
wheat. Industry for wool, cashmere, and leather products, Tourism,
crop, small and medium sized enterprises etc. Infrastructure to
support those industries
Slide 51
III. Economic miracle and its result Actions. To develop
infrastructure to reduce transportation/energy costs. To improve
business environment to reduce business costs. To develop financial
market /to reduce investment/transaction cost. To create funds for
entrepreneurs. To facilitate trade and transit transportation. To
support coordination of university and industry, R&D,. To
promote education, health
Slide 52
Macroeconomic conditions for sustainable growth: better
management of resources. Monetary policy to continue combat
inflation. Gradual decrease in government budget deficit and move
to balanced budget in future starting from now. Financial
stabilization fund from 2010, now equal to 3% of GDP. Human
Development fund restructuring: dealing seriously with pension
funds and national health insurance, gradually move to SWF
structure. End of direct cash distribution program from mid 2012.
Legal measure to stop more money promises beginning from next
Parliament elections of 2012. Development bank set up to sponsor
improvement in competitiveness and diversification. Expected
increase of public investment into infrastructure. Much stringent
ecological control III. Economic miracle and its result
Slide 53
Growth key: Political stability. creation of unique political
system, flexible to withstand growth conflicts. Parliamentary
system adopted in 1992, first in Central Asia.. Social consensus on
main development issues through decentralized balance of power III.
Economic miracle and its result
Slide 54
Koreas Economy 1. Macroeconomic Performance Korea and LDCs,
Selected Periods, 1967-85 Percent per year IV. Factors of economic
miracle MeasureAfricaAsiaEurope a Middle East Latin America Korea
Inflation 1967-76 1977-85 Real GDP growth 1967-76 1977-85 8.5 17.2
5.0 1.9 9.4 7.9 5.2 6.5 9.0 25.1 6.0 3.1 8.7 14.1 9.3 0.7 24.5 77.6
5.9 2.6 7.2 11.1 10.3 6.4 Sources: International Monetary Fund,
World Economic Outlook, various issues, and EPB, Major Statistics
of Korean Economy, various issues. Averages of country growth rates
are weighted by the average U.S. dollar value of GDPs over the
preceding three years. a. Developing countries in Europe, that is,
Southern Europe including Portugal, Spain, Greece, and
Yugoslavia.
Slide 55
2. Baumol's catching-up hypothesis IV. Factors of economic
miracle 1960 per capita income (000 of 1970 "int'l" dollars ) Per
capita real GDP growth rate, 1960-81 (%)
Slide 56
3. Sources of Economic Growth in Korea, 1963-82 Percent per
year IV. Factors of economic miracle Measure1963-721972-82 Real GDP
Total factor input Labor Capital Output per unit of input 8.2 4.2
3.1 1.1 4.0 8.0 5.6 3.5 2.1 2.4 Sources: Korea Development
Institute, Quarterly Economic Review (Seoul: KDI, 1986), p. 33; and
K. S. Kim and J. K. Park, Sources of Economic Growth in Korea:
1963-1982 (Seoul: KDI, 1985), pp. 61-62.
Slide 57
4. Main factors for economic development of Korea IV. Factors
of economic miracle
Slide 58
5. 10 Tips for Economic Development based on Korean Experiences
IV. Factors of economic miracle
Slide 59
6. Case : Construction Boom Factors of Middle East success
Lower wage: The wage level in Korea is only about 25 percent of
that in Japan and about 10 percent of those in Western countries
like Sweden. Higher productivity: Korean companies gained a
competitive edge by employing an all Korean labor force, in
contrast to western companies that imported managers and cadres of
skilled workers and hired the rest locally. Government support: To
encourage Korean contractors, the Korean government provides them
with low-cost loans, loan guarantees, and five-year tax exemptions
on earnings from exports of construction materials and equipments.
Lessons from Korea's Experience Equal opportunity (dissolution of
traditional hierarchical social status system ) Competition,
performance-based government support Broad access to education and
raising technical know-how Growth with job-creation, initially led
by labor intensive export promotion Promoting spirit of self-help:
Saemael movement IV. Factors of economic miracle
Slide 60
Mongolia's economy Growth factors Natural resources boom Mining
as a primary pillar of economic growth - 30% of GDP, 80% of exports
- Multi-billion projects starting in 2009 - Just 2 projects (OT,
TT) include investment of 10 billion dollars, large than size of
GDP - Many more private investment projects - Largest world
companies coming to cooperate: Rio Tinto, Goldman Sachs, Deutsche
Bank, Peabody, Xstrata, Vale, Temasek, CIC, etc IV. Factors of
economic miracle
Slide 61
1. Mongol-Solongos Partnership... Dreams come true! Mongol
empire stretched from... to.., Area covering 33,000,000 sq
km(12,741,000 sq mi), (22% of Earth's land), Population 100 million
people V. Cooperation frontier for mutual prosperity
Slide 62
2. Mongolias Agenda 21 (Mongolian Government Report for UNDP,
2012) Grand Blue Print for Mongolia Development Mongolias Agenda 21
does not only represent the nations will for freedom and a wealthy
life in the coming century, it also commits to the goal for the
Government and people to work together for a better life
environmental disadvantages for economic development in Mongolia
five factors such as climate, desert, scare population, nomadic
life and colonial experiences were discussed in this paper V.
Cooperation frontier for mutual prosperity
Slide 63
3. Why Korea? Traditional Sadon country Cultural DNA Neutral
for the Solongos reunification 3rd neighbor policy Mongolia's
'Third Neighbor' Foreign Policy Russia and China, third neighbor
countries play a crucial role in Mongolia development gate way to
ocean and Eurasia, Beyond Manpower, marriage relatives, anti-China
in Africa, GCC V. Cooperation frontier for mutual prosperity
Slide 64
4. What Korea? Resource cooperation Technology cooperation
Sharing economic development experiences Market cooperation for
bilateral cooperation Mongolian infra for Korea's land bridge/inner
Asia and East European market Korean infra cooperation for Mongolia
Ocean V. Cooperation frontier for mutual prosperity
Slide 65
5. How Korea? Strategic FTA Silk road/Eurasia railway/TMGR,
Tuman River development, reunification Capability building,
KSP(Knowledge Sharing Program ) Tourism FTA Korea's ODA and EDCF
Accumulation of knowledge and capabilities Effective transformation
relies on specific capabilities ranging from skills and policies to
effectively deploy domestic and external resources, policies, and
programmes to transform natural resources, as well as strategies to
harness the opportunitities in a globalized knowledge economy. V.
Cooperation frontier for mutual prosperity
Slide 66
6. Beginning of Korea's FTA talk
Slide 67
7. Economic grand bloc with FTA V. Cooperation frontier for
mutual prosperity
Slide 68
8. Foreign trade of Mongolia Unit: mln. USD
Slide 69
9. The share of the Korea in Mongolia's foreign trade V.
Cooperation frontier for mutual prosperity
Slide 70
10. Mongolia and Korea FTA Strategic, vertical and long-run As
for Mongolia, it is significant to establish the FTA with South
Korea. In particular, South Korea is geographically the close and
is one of the countries that consume the largest amount of natural
resources such as copper and coal in the world market among the
developed countries. Our competence in export can be improved and
the transport cost can be reduced through a strategy to attract
Korean investments and latest technology to Mongolia. If we assume
that there will not appear major change in the structure of the
Mongolian export, in other words, there would be slight benefits
from mineral products and the raw materials. So, it is important to
negotiate on an agreement to reduce the customs tariff of a product
with value added that is feasible to be exported to Korea. One of
the main difficulties from expanding the trade with Korea is
definitely the transport costs, and it is crucial to collaborate
with Korea on solving this problem. Especially, we have to work on
the support of Korea and its trade partners in regard to the
proposal of group of landlocked countries to include application of
national treatment in a transit transport in the WTO. V.
Cooperation frontier for mutual prosperity