Journal of the Economic Geographical Society of Korea

Vol.14, No.4, 2011(453~466)

The Korean Development Strategy: Trajectories of the Korean

Economic Development, 1961~2010

Sung-Hoon Jung*

Abstract : The main aim of this paper is to explore the Korean development strategy in
the context of trajectories of the economic development from 1961 to 2010. The fast and
high growth in the period of 1961 and 2010 resulted from the ‘export-oriented
industrialization’ through a combination of ‘mass production-mass exports’ and ‘(relatively)
high productivity-low wages’ up to the late 1980s, a mixture of ‘mass production-mass
exports’ and ‘(relatively) high productivity-high wages’ to the late 1990s, and a combination
of the reformation of public and private sectors for overcoming the Korean financial crisis
and the gradual improvement of the marketization and social safety net since 2000. With
respect to this model of development, the global and national modes of regulation were
established. Along with the formation of endogenous forces (as the national mode of
regulation), that of exogenous forces (as the global mode of regulation) are the important
rules of the game at the global level, which lead and stabilize the process of accumulation
by the export-led industrialization in Korea. In this respect, the establishment of global
modes of regulation is led by exogenous forces such as trade regulations, exchange rates,
global-Korean industrial relations, and global regulations of loans to developing countries.
On the other hand, the national modes of regulation are formed by endogenous forces
such as the triangular relationship of the state, capital and labor.
Keywords : trajectories of the Korean economic development, model of development,
mode of regulation, export-led industrialization, catching up

$20,579 in 2010 with an average annual growth

rate of 11.8%. According to the CIA World fact
book, the GDP per capita in purchasing power
Korea has become one of the fast growing parity was about $30,200 and the total population
countries in the world since the 1960s. The is about 48.7 million. The trade volume was
nominal GDP per capita grew from $79 in 1960 to ranked at 7th in exports and 10th in imports in 2009.

* Associate Professor, Department of Geography Education, College of Eucation, Kangwon National University
454

There were only twice of minus growth in last 50

years: one was in 1980 with oil shock and political 1)

turbulence and the other was in 1998 due to the

Korean and Asian financial crisis.
Along with the economic growth and From 1961 up to 2010, Korea experienced the
development in Korea since 1961, main economic fast and relatively continuous economic growth.
agents such as the government, companies, During this medium-term period, GDP in Korea
research institutes etc. have broken through several increased sharply from US $ 70,000 in 1970 to US $
aspects of crises through catching up strategies 1.2m in 2010, and also GDP per capita increased
while building industrial and technological dramatically from US $ 1.3bn in 1953 to US $
capabilities. Reasons for this successful and rapid 681bn in 2004 while achieving 6.9% of its averaged
catching up are that firstly, the selection and growth rate per annum. In terms of the rank of
concentration of national strategic industries have GDP in 2010 by OECD member states, Korea
been implemented successfully from the light ranked the 7th of 34 member states (Table 1).
industry in the 1960s through the heavy and Throughout the continuous growth, the GDP in
chemical industry in the 1970s and 1980s to the Korea went beyond that in the average of OECD.
high-tech industry since the 1990s. In addition, the Since 1961 the Korean government has sought the
adaptation to new global economic circumstances export-led industrialization, exports as a
is relatively well carried out by both public and percentage of GDP has changed from less than
private sectors by investing in new technologies, 10% in the 1960s throughout around 30~40% in the
industrial capacity and human capital. Main factors, 1980s and the 1990s to about 50 in 2010. In the
which have impacts on the process of catching up context of R&D activity, R&D expenditures as a
and industrial and technological capabilities, are percentage of GDP increased sharply from 1984,
summarized as the export-oriented strategies, and subsequently, went beyond 1% of its GDP in
policies of the promotion of particular industries, 1984. In 2009, they reached up to around 3.6%. In
conglomerates-led industrial policies, the massive terms of R&D expenditures per capita, they
investment in human capital, and the establishment increased dramatically with 10.5% in the annual
of the government-led infrastructure for science growth rate between 1991 and 2008. However, the
and technology. The main aim of this paper is to number of patents was relatively at the low level
explore the Korean development strategy in the with respect to the triad patents (from the USA,
context of trajectories of Korean economic Japan and Europe), even though it has increased
development from 1960 to 2010. This paper is since the mid 1980s.
divided into three sections. Firstly, trajectories of Main factors on this striking catching up of the
the Korean economic development are examined. Korean economy can be characterized by the
Secondly, breaking through crises and realizing the export-oriented and central government-led
economic growth are considered. Finally, roles of industrialization, successful industrial restructuring
the Korean government are explored. from the light industry in the 1960s through the
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heavy industry in the 1980s to the high-tech global and national modes of regulation were
industry since the late 1990s, and the high established. Along with the formation of
investment in human capital and capabilities of endogenous forces (as the national mode of
industry, science and technology. regulation), that of exogenous forces (as the global
Within the context of trajectories of the Korean mode of regulation) are the important rules of the
economic development, the fast and high growth game at the global level, which lead and stabilize
in the period of 1961 and 2010 had resulted from the process of accumulation by the export-led
the ‘export-oriented industrializa-tion’ through a industrialization in Korea. In this respect, the
combination of ‘mass production-mass exports’ establishment of global modes of regulation is led
and ‘(relatively) high productivity-low wages’ up to by exogenous forces such as trade regulations,
the late 1980s, a mixture of ‘mass production-mass exchange rates, global-Korean industrial relations,
exports’ and ‘(relatively) high productivity-high and global regulations of loans to developing
wages’ to the late 1990s, and a combination of the countries. On the other hand, the national modes
reformation of public and private sectors for of regulation are formed by endogenous forces
overcoming the Korean financial crisis and the such as the triangular relationship of the state,
gradual improvement of the marketization and capital and labor.
social safety net since 2000. Up to the mid 1980s, the model of development
With respect to this model of development, the had been successful through the match of global

Table 1. Ranks of GDP in OECD (2010)

Rank Nation GDP(US million$) Rank Nation GDP(US million$)

1 United States 11,681,217 18 Austria 268,387
2 Japan 3,526,459 19 Greece 253,993
3 Germany 2,324,644 20 Czech Republic 210,840
4 United Kingdom 1,764,423 21 Chile 206,239
5 France 1,715,794 22 Israel 201,053
6 Italy 1,494,228 23 Portugal 193,842
7 Korea 1,212,797 24 Norway 188,990
8 Mexico 1,184,711 25 Denmark 164,570
9 Spain 1,053,082 26 Finland 158,788
10 Canada 1,052,447 27 Hungary 149,236
11 Turkey 859,660 28 Ireland 139,691
12 Australia 721,952 29 New Zealand 105,439
13 Poland 592,158 30 Slovak Republic 94,699
14 Netherlands 535,125 31 Slovenia 45,481
15 Belgium 324,624 32 Luxembourg 31,625
16 Sweden 303,412 33 Estonia 19,746
17 Switzerland 268,398 34 Iceland 10,099

Source: elaborated from OECD.

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and national modes of regulation (figure 1). In conglomerates (chaebols) and export industries,
terms of the global modes of regulation, the such as textiles and clothing, electronics,
success of the model of development resulted from automobile, shipbuilding and steel (global loans -
(1) ‘special and differential treatment’ as a mainly long-loans - to Korea).
developing countries (trade regulations) (Daewoo This global mode of regulation influenced the
Economic Research Institute, 1994: 199-235), (2) arrangement of the national modes of regulation:
the implementation of the ‘sterilization’ policy (1) freezing wages, military controls on labor
whereby the state intervenes and controls disputes, the prohibition of collective bargaining,
international flows of capital (exchange rates) the low level of organization of trade unions, the
(OECD, 1996: 87-90), (3) the stabilization of the lack of a social welfare system and a plentiful
existing international productive order through the supply of low-waged labor on the labor market
new international division of labor without (the wage-labor relations); (2) ‘state-led’
challenges from other Southeast Asian countries industrialization through the bringing-up of
such as Thailand, Malaysia, Indonesia and China monopoly capital (such as chaebols) and export-
(global-Korean industrial relations), and (4) the oriented industries (the state-industry-corporate
state-led and uneven financial sourcing to relations). As a result, the Korean economy has

Figure 1. Global and national modes of regulation in the context of the Korean economy
Source: elaborated from Jung, S.-H., 2001, p.44
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been highly sensitive to exogenous forces, due in divided into three periods such as the 1st period
the main to the strategy of export-led (1960~1979), the 2nd one (1981~1997) and the 3rd
industrialization. In addition, in order to improve one (1998~). Main characteristics of each period
export-competitiveness, the state has adopted, can be summarized as follows (Figure 2).
established and implemented particular economic In terms of the 1st period (1960~1979), under
and industrial policies, and simultaneously, has the developmental dictatorship (namely, military
fostered individual companies as main economic dictatorship) the export-oriented industrialization
actors in response to the structural changes of was implemented strongly and the ‘Five Year
global capitalism. Economic Development Plan’ was started. In
However, since 1987, the mode of development addition, there were two types of industrial
has broken up due to structural crisis and restructuring from the agricultural industry to the
consequently, outward Koran foreign direct manufacturing industry on the one hand, and from
investment has emerged as an alternative to the the light one to the heavy and chemical one on the
contemporary cul-de-sac. In addition, in order to other. In reality, the basis of industrial and
overcome the cul-de sac, since then the state has technological capabilities such as the selection of
tried to support to high-tech industries with a national key industries and subsequently, the
pathways to the industrial restructuring towards creation of market for those industries by the
information and communication technology-based central government (market failure), the
industrialization. In 1998, Korea faced the Korean establishment of industrial complexes and
financial crisis and subsequently, only one year transport infrastructure, and the making national
later overcame it. Since the early 2000s, the science park (eg. Daedeok science park) were
industrial structure in Korea has been focused formed. In this period, a crisis was caused by the
upon the 6T-based (IT, BT, NT, ET, CT, ST) high- 2nd oil shock at the global level and the political
tech industry and green growth-related industries. turbulence owing to the death of President Park at
the national level.
With respect to the 2nd period (1980~1997),
developmental dictatorship was continued by 1992,
even though the characteristic of such dictatorship
was more or less different from the 1st period. By
1987 prices and wages were strictly controlled by
From 1961 to 2010, the Korean economy the central government, and there was a strong
underwent one major crisis in 1998 due to the industrial restructuring within both light and heavy
Korean financial crisis within the context of the & chemical industries which was led by the
change of GDP per capita, even though there were government. In addition, there was a short-term
many cyclical fluctuations like a roller coaster with boom (namely, ‘three low prosperous times’ in the
regard to that of the growth rate of GDP. In terms Korean term) due to low exchange rates, low oil
of the growth of the Korean economy, it can be prices and low interest rates on the global scale.
 458

Figure 2. Changing GDP per capita and the growth rate of GDP in Korea
Source: elaborated from The Bank of Korea (data of each year).
 459

After this period, the Korean economy was on the normalization of the financial system throughout
decline compared with the previous period, while financial restructuring for a short term and the
increasing sharply the level of prices and wages. In improvement of the financial safety net for a
1993 civilian President Y. S. Kim was elected and medium and long term. The fourth factor is related
the market economy was encouraged due to the to the broad privatization of the public sector. The
globalization (mainly, focused upon the economic fifth factor is on the establishment of the ‘Korea
openness in market and trade). However, the Tripartite Commission of Labor, Management and
government faced with the Korean financial crisis Government.’ The final factor is on the stabilization
in the end of 1997, and consequently, its economy of the employment. The financial crisis gave rise to
underwent a rapid decline and major crisis. a high unemployment rate and poverty due to
With regard to the 3rd period (1998~), civilian massive job loss. To overcome the crisis of this
presidents were continuously elected along with employment-side, the government stabilized the
the hard time of the economic recovery. Since the employment throughout the use of the existing
late 1990s there has been massive industrial policy on employment insurance and the
restructuring from the heavy and chemical industry enlargement of vocational training policy. Since the
to the information and telecommunication early 2000s, the industrial structure in Korea has
technology-based industries. In 1998, Korea faced been focused upon the 6T-based (IT, BT, NT, ET,
the Korean financial crisis and subsequently, only CT, ST) high-tech industry and green growth-
one year later overcame it. In 1998, the Korean related industries.
economy was in the financial crisis along with the
Asian financial crisis, and subsequently, only one
year after Korea overcame the crisis with a mix of
a combination of the reformation of public and
private sectors for overcoming the Korean financial
crisis and the gradual improvement of the Since 1962 up to 1996 the Korean government
marketization and social safety net. There are six had established ‘Five Year Economic Development
dynamic factors for overcoming the crisis with Plan’ for seven terms in order to improve industrial
respect to the macro-economic arrangement and structure towards the manufacturing industry and
the wage-labor relation (The Committee on ‘The to strengthen key industries within the
Korean Economy: Six Decades of Growth and manufacturing industry (Table 2). During the early
Development,’ 2011). The first factor is the tight 1960s import substitution and export-oriented
financing and monetary policy by the government. policies were carried out side by side, and since
The second factor is on the reformation of the then the government focused upon the export-
corporate sector. It is focused upon liquidating oriented policy. In addition, during the 1st and 2nd
insolvent corporate for a short terms and terms, the government established policies on the
strengthening market disciplines for a medium and induction of foreign capital, the protection for
long term. The third factor is based upon the domestic industries throughout the restriction of
460

import, the control of financial market and so on. the balanced development of different industrial
In the 3rd and 4th terms, the government tried to sectors and companies. However, this plan did not
establish policies on industrial restructuring implement very well due to a strong labor disputes
towards the heavy and chemical industry and to and bankruptcies of large companies.
build a base for technological capabilities. Such
industrial restructuring was conducted for around 1) The Export-Oriented Industrialization
12 years alongside the growth of conglomerates and Industrial Restructuring
(chaebols).
The 5 th term was mainly focused upon the In the early 1960s, the Korean government
stabilization of political and economic system, the abolished a base for the import-substituted
control of prices and interest rates, while industrialization due to limits to domestic market
improving economic competitiveness. The 6th term (namely, no formation of high demands on the
was concentrated on regulatory and deregulatory national market), and risks on insolvent investment
reforms, and the improvement of sensitive or enterprises owing to the high dependence of
industries. However, owing to a sharp increase of foreign loans. After the mid 1960s, it focused upon
labor disputes and economic recession, the plan the export-oriented industrialization throughout the
did not have the security of the effectiveness. establishment of supportive system such as the
The 7th term was based upon the revitalization of reform of exchange rates (namely, the introduction
the economy and the establishment of a base for of the unitary fluctuation foreign exchange

Table 2. ‘Five Year Economic Development Plan’ and its objectives

Five Year Economic Development Plan Objectives

Building the light industry such as the textile industry, etc
1st term (1962~1966)
Building infrastructure: power plants
Building key industries: steel, machinery, chemicals, etc
2nd term (1967~1972)
Building infrastructure (Gyeongbu Express Way)
Building heavy & chemical Industries
3rd term (1972~1976)
Building industrial complexes
Building heavy & chemical industries
4th term (1977~1981)
Building technological capabilities
Stabilizing political and economic system
5th term (1982~1986)
Opening the economy
Regulatory and deregulatory reforms, Improving sensitive industries
6th term (1987~1991)
and Building hi-tech & innovative capabilities
Revitalizing the economy and Establishing a base for the balanced
7th term (1992~1996)
development of industrial sectors and companies

Source: The Ministry of strategy and finance, 2010

 461

system), prime financial institutions for export mid 1990s, according to the emergence of WTO
companies, to name but a few. On the basis of the the government has transformed into the free trade
laws and regulations for the improvement of regime.
exports, exports increased sharply and Whereas the 1960s was the period of the light
consequently, a base for the export-led industrialization through the import-substituted and
industrialization was firmly settled down. In export-oriented policy, the 1970s and the mid
addition to this policy, the government built up 1980s were that of the heavy and chemical
free export zones (namely, tax-free industrial zone) industrialization with more competitive export-led
and established and government-led agency such industrialization and conglomerates-led
as Korea Trade-Investment Promotion Corporation industrialization. This goal for the heavy and
(KOTRA). chemical industrialization was achieved by the
Alongside this policy, policies on the restriction government policy such as the formation of the
of import were established for the protection of the capital market, financial prime and tax reduction
domestic market. The government tried to keep a for conglomerates, nurturing trading companies
percentage of the liberalization of imports low (namely, general wholesale & retailing companies),
such as 55% during 1968 and 1977 compared with vertical (quasi-)integration of small and medium-
90% in the mid 1970 in Taiwan. However, since sized firms and so on. At this stage, the
the 1980s this policy has abolished due to a cause government fostered and concentrated on
of a trade conflict on a global market. Since the petrochemical, steel, non-metal, machinery,

Table 3. Industries on the new growth engine in the 21st century

Short tem (building growth Medium term (building growth Long term (building growth
engines within 3~5 years) engines within 5~8 years) engines within 10 years)
• new regeneration energy • high-tech-based green city • new regeneration enegy
• communications technology • new regeneration energy • CO2 reduced energy
• IT-convergence system • advanced water treatment • green transportation system
• global healthcare • CO2 reduced energy • robotics and its applicable
• MICE • high value-added food industry technology
• LED and its applicable technology • new materials and nano
• global education services technology
• green financial system • bio-tech and medical instrument
• contents and other softwares and apparatus
• development of applied • preoccupancy of core • development of basic and
technologies technologies fundamental technologies
• improvement of related • improvement of market • training of high-skilled human
institutions and establishment of accessibility resources
investments’ circumstances
Source: see Table 2
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shipbuilding and electronic and chemical for a short, medium and long term (Table 3). It is
industries. In parallel with them, the development another catching-up strategy of global high-end
of research institutes for those industries, the industries in the 21st century compared with that in
establishment of industrial complexes as the the 1960s. To achieve the development of these
location policy, and the training of technological industries on the new growth engine, private and
manpower were implemented. public sectors will focus on the development of
However, during the late 1980s and 1990s applied technologies, the improvement of related
problems with this rapid industrialization were institutions, and the establishment of investments’
presented such as conflicts with the developmental circumstances for a short term (building growth
dictatorship, a sharp increase of labor wages, the engines within 3~5 years). At the second stage as a
decline of labor intensive industries such as the medium term (building growth engines within 5~8
clothing and textile industry. Simultaneously, in years), they will concentrate on the preoccupancy
terms of the supply side, there were serious of core technologies and the improvement of
problems with over-investments in production market accessibility. For a long term (building
facility, a lack of high-technology (relatively higher growth engines within 10 years), they will develop
value-added technology than before) and the basic and fundamental technologies and focus
market saturation on a global market for Korean upon the training high-skilled human resources.
products against other developing countries such
as China. At his stage, Korean companies invested 2) Building Industrial and Technological
in the southeastern Asia and China for seeking for Capabilities by the Government
lower waged labor, on the one hand, and in the
USA and western Europe for the avoidance of In the early 1960s, the first incentive system for
trade conflicts such as anti-dumping tariffs on the the promotion of technology transfer was
other. This caused a kind of hollowing out of the introduced and the attraction of FDI (inward
Korean manufacturing industry. Within this investment) focused on technological needs was
context, the Korean economy underwent the Asian implemented along with the reduction of corporate
financial crisis in 1998. Since the crisis, the Korean tax (The Ministry of Strategy and Finance, 2010).
economy has transformed into the knowledge- This system was continued until the 1970s. Since
based industry which is based upon information the 1980s, as R&D activities have been activated in
and communication technology. Since the late the public and private sector, policies on the
1990s up until now, the industrial structure in industrial technology have been transformed from
Korea has been focused upon the 6T-based (IT, the introduction of technology to the investment in
BT, NT, ET, CT, ST) high-tech industry and green R&D. This was more concrete in ‘The Law of the
growth-related industries under the government’s Industrial Development’ and also, was a turning
supports. point of the government’s support from a sectoral
The group of industries on the new growth based to a functional based approach. Since then,
engine has been implemented by the private sector the incentive policy has been changed to indirect
 463

supportive policy such as main focuses upon the of R&D activities in private companies (Table 4). In
establishment of the infrastructure of science and terms of policy instruments, national R&D
technology, and the improvement of human capital programs are implemented by related ministries of
(Ibid.) (Figure 3). the central government, and the establishment of
Along with these trends and tendencies, the infrastructure for the development of the
institutions on the industrial technology have been industrial technology is mainly based upon the
changed towards the establishment of national and training of researchers, the management of
regional innovation system since the 1990s. The technology information, the support for
main goal of the government’s policy is focused collaborative R&D, and so on. With respect to the
upon the development of core industrial incentive system, incentives such as the tax
technologies in national R&D programs, the reduction and financial supports are provided.
intensification of networks of innovative actors, the
improvement of the innovation capacity of
government-led research institutes, and the support

before the 1970s 1980s 1990s

1970s 73 74 76 77 78 79 81 82 84 86 91 92
institution of reserve funds for the technological development
tax deduction and special reduction for facility investment in technological
development and human capital
lowering a tariff on research equipment
promotion of tax deduction for R&D and the development of
investments in human capital
R&D exemption from taxation for the real estate
for corporates’ research institutes
tax deduction for research equipment
Lowering deduction
for R&D equipment
deduction of a corporate tax for FDI (inward investment) focused upon technological needs
Promotion of
tax deduction for incomes of technology transfers
technology
transfers exemption of foreign researchers and
technicians from an income tax
provisional tax rate of a special consumption tax
promotion of for new commercial goods with new technologies
technological tax deduction for venture
commercialization business and small and medium-
sized comapnies

Figure 3. The change of technology policies

Source: see Table 2
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Table 4. Institutions of industrial technology

establishment and
national R&D program institutional supports incentives
diffusion of infrastructure

• development of core • intensification of • intensification of the • supports for R&D

industrial technologies network of innovative innovation capacity of activities in companies
goal
actors government-led
research institutes
• programs by ministries • training of researchers, • financial supports for • tax reduction, financial
management of tech- current operating supports, etc.
Instruments
nological information, expenses and basic
collaborative R&D, etc. research
• applicable knowledge • supports for • fostering a partner with • improvement of
effects on and technology by technological diffusion companies in the innovative capabilities
industry companies and applicability of technological of companies
companies development
Source: see Table 2

for science and technology. Obviously, these

factors are strengths and simultaneously,
The social consensus and strong leadership weaknesses as well for the development and
would be the most important factor of efficient and growth of the Korean economy. In reality, up until
fast growth from poverty to prosperity. An 2010 the successful catching up of the Korean
educational fever, high quality but low-cost labor economy was due in the main to the enlargement
force, eagerness of private sector, citizens’ effort to and intensification of industrial and technological
work, and the government-led and export-oriented capabilities through the government’s supports and
industrialization are crucial factors for the growth the activation of the private sector.
and development of the Korean economy.
Nonetheless, future tasks of different kinds of
unevenness (such as sectoral, regional and inter-
corporates) remain unchanged. Note
Main factors, which have impacts on the process 1) This chapter is partly revised and supplemented from
of catching up and industrial and technological Jung, S.-H., 2001, The Global-Local Interplay: Korean
capabilities, are summarized as the export-oriented Foreign Direct Investment in the European Union,
strategies, policies of the promotion of particular Unpublished D.Phil. Thesis, University of Sussex, UK,

industries, conglomerates-led industrial policies, 39-58 and Jung, S.-H., 2004, Sociological Education in
the Era of Globalization and Localization: The Global-
the massive investment in human capital, and the
Local Interplay and Korea and the European Union,
establishment of the government-led infrastructure
 465

Seoul: Bumsinsa, 39-58. ecos.bok.or.kr

The Committee on ‘The Korean Economy: Six Decades
of Growth and Development’, 2011.
The Ministry of Strategy and Finance, 2010, Internal
References Reports.

Daewoo Economic Research Institute, 1994, Uruguay

Correspondencd: Sung-Hoon Jung, Department of
Roundwa hankuk kyungje(UR and the Korean
Geography Education, College of Education,
Economy), Seoul: The Korean Economic Daily.
Kangwon National University, 1 Kangwon
Jung, S.-H., 2001, The Global-Local Interplay: Korean
University Road, Chuncheon City, Gangwon-
Foreign Direct Investment in the EU, Unpublished
Province, 200-701, Korea, Tel: +82-33-250-6691, e-
D.Phil. Thesis, the University of Sussex, UK.
mail: [email protected]
Jung, S.-H., 2004, Sociological Education in the Era of
Globalization and Localization: The Global-Local
200-701 1
Interplay and Korea and the European Union,
033-250-6691
Seoul: Bumsinsa.
[email protected]
Korean Statistical Information Service, http://www.kosis.kr
OECD statistics, http://stats.oecd.org
OECD, 1996, Economic Survey: Korea.
The Bank of Korea Economic Statistics System, http://
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