Financial reforms in Korea : a critical analysis

Abstract

The Korean government which came into power in the early 1960s recognized the need for the underdeveloped Korean economy to undergo rehabilitation as they foresaw the importance of economic strength in the post-World War II era. This began a series of economic development plans in the 1960s and 1970s which emphasized a growth-first, export-oriented strategy. Allocation of financial resources was actively managed by the government, which channelled low-cost funds to strategic industrial sectors. Despite the McKinnon-Shaw model which postulates that government intervention in the allocation of financial resources would result in a severely-impaired economy, this was not the case in Korea. Highly dependent on external debt to finance its rapidly growing investment opportunities, the Korean economy boomed in the 1960s to the early 1970s.