November 2012

Jae H. Lee, Ph.D

Korea Institute for Development Strategy

Seoul, Korea

Please do not quote without a permission from the author.

The Rise of the Korean Economy: The Business Development Perspective

> Background: The path of economic development in Korea and the developmental strategies

> Development of technology and the manufacturing sector > Doing business in Peru > Implications of the Korean developmental experiences for Peru

Contents

Koreas Growth Trajectory: Change in GDP

Note: Unit in current US$; Source: World Bank (2012) World Development Indicators, On-line

Korea in Yesterday and Today: An Economic Miracle?

?

What are in the black box?

> A typical Agricultural Economy (Share of Agriculture in GDP: 39.1%, 1961 ) (Share of Agriculture in Employment: 63%, 1963) > Categorised as one of the Poorest Countries in the World (GDP per capita in 1961, $92, Ranked the 89th out of 105 countries)

> Dependency on Foreign Aid (Foreign Aid in National Budget: 39.3%, 1961 )

Source: KDI(2010), The Korean Economy: Six decades of growth and development, Korea Development Institute, p.200, 462, 477

The Korean Economy circa 1960s

Some Indicators: Yesterday and Today

1965 2009

29.68% (Manufacturing)

14.32% (Manufacturing)

Sources: World Bank (2011) World Development Indicators, Online

At the Juncture: The Fundamental Question on the Visions and Objectives for the National Development

>Do we want to pursue the agriculture-based economic growth model or the industry-based economic growth model?

>The main problems that Korea faced: the lack of capital and technology

Y=f(A,K,L), where A signifies the quality of human capital, K physical capital, and, L labour.

Y=AK, where A refers to technology, K capital (including human capital)

Promote Export

Industrialisation

Expand Domestic

Capital

SME Develop

ment

Government-

led Develop

ment

The Strategies for National Development

> Comprehensive and integrated national development strategies

A Virtuous Cycle of Technology Development in Korea

R&D Investment on science and technology

Technology transfer

Taxes

Enterprises

Private research institutes, universities, etc

Government funded research institutes,

universities, etc

Enterprises

Producing and profit-yielding

Government

Distribution of GERD in Korea, 2002 and 2007

2002

Enterprises 74.9

Government 13.4

Higher Education 10.4

NGOs 1.3

2007

Enterprises 76.2

Government 11.7

Higher Education 10.7

NGOs 1.5

Source: UNESCO Science Report 2010

Some Korean Global Conglomerates

>Implication The business of government is business. John Calvin Coolidge

Value Added by Industry, Selected Countries (2010)

Source: World Bank (2012) World Development Indicators, On-line

Peru Argentina Brazil Chile Korea

GDP (current US$) 0.154 0.369 2.143 0.216 1.015

Agriculture, value added (% of GDP) 8.49 10.00 5.30 3.45 2.56

Industry, value added (% of GDP) 35.10 30.93 28.07 39.53 39.27

Manufacturing, value added (% of GDP) 16.98 20.53 16.23 11.70 30.56

Services, etc., value added (% of GDP) 56.41 59.06 66.63 57.02 58.17

Social and Economic Indicators, Selected Countries (2011)

Note: * North Korea excluded; Source: CIA World Factbook (2012)

GDP (PPP, in

trillion) GDP per capita

(PPP) Population

Land Size (sq km)

Peru $0.309 $10,200 29,549,517 1,285,216

Brazil $2.324 $11,900 199,321,413 8,514,877

Argentina $0.725 $17,700 42,192,494 2,780,400

Chile $0.304 $17,400 17,067,369 756,102

Korea $1.574 $32,100 48,860,500 99,720*

Some R&D Investment on and Achievement in S&T, Selected Countries (2010)

GERD/GDP

(%)

Total researchers per million

inhabitantsa

Scientific publicationsb

Patents (Triadic Patent

Families)c,d

Peru 0.15 - 453 -

Argentina 0.51 1,495 6,197 -

Brazil 1.07 1,098 26,482 60.225

Chile 0.67 - 3,646 8.8703

Korea 3.21 6,028 32,781 2,182.18

Source: UNESCO Science Report 2010* ; Notes: * All figures are for 2007, unless otherwise indicated a Researchers, in headcount b Figures for 2008. The term publications encompasses articles, notes and reviews. c Figures for 2010 from Country Statistical Profiles 2011 Dataset (OECD.Stat) d Triadic patent families are a set of patents filed at three of these major patent offices: the European Patent Office (EPO), the Japan Patent Office (JPO) and the United States Patent and Trademark Office (USPTO). Triadic patent family counts are attributed to the country of residence of the inventor and to the date when the patent was first registered. Triadic patent families are expressed as numbers and per million inhabitants.

Distribution of GERD in Peru, 2002 and 2007

2002*

Enterprises 10.7

Government 31.7

Higher Education 47.7

NGOs 11.4

2007

Enterprises 29.2

Government 25.6

Higher Education 38.1

NGOs 7.1

Note: *Breadown figures do not add to total; Source: UNESCO Science Report 2010

Peru: GDP Components, 1960-2011

Source: World Bank (2012) World Development Indicators, One-line

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.001

96

0

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

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82

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84

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90

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92

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94

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96

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98

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00

20

02

20

04

20

06

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08

20

10

Agriculture, value added (% of GDP) Industry, value added (% of GDP)

Manufacturing, value added (% of GDP) Services, etc., value added (% of GDP)

Peru: The Global Competitiveness Aspect

Source: World Economic Forum (2011) The Global Competitiveness Report 2011-2012: Peru,

0.0

1.0

2.0

3.0

4.0

5.0

6.0Institutions

Infrastructure

Macroeconomicenvironment

Health and primaryeducation

Higher education andtraining

Goods marketefficiency

Labour marketefficiency

Financial marketdevelopment

Technologicalreadiness

Market size

Business sophistication

Innovation

Doing Business in Peru

130

124

97

48

45

43

37

0 185

Brazil

Argentina

Regional Average (Latin America & Caribbean)

Mexico

Colombia

Peru

Chile

The Challenges Enterprises in Peru Face: Why the Enabling Environment?

Source: World Economic Forum (2011) The Global Competitiveness Report 2011-2012: Peru

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

Foreign currency regulations

Inflation

Government instability/coups

Poor public health

Access to financing

Poor work ethic in national labor force

Policy instability

Crime and theft

Tax rates

Inadequately educated workforce

Inadequate supply of infrastructure

Restrictive labor regulations

Tax regulations

Inefficient government bureaucracy

The Challenges Enterprises in Peru Face: Why the Enabling Environment?

Source: World Economic Forum (2011) The Global Competitiveness Report 2011-2012: Peru

Index

(value) Rank

(out of 187 countries) Paraguay 0.665 107 Brazil 0.718 84 Chile 0.805 44 Ecuador 0.720 83 Peru 0.725 80 Norway 0.943 1

Export to Korea: Why not Grabbing a Business Opportunity?

Peru Chile Export to Korea TB* Export to Korea TB

Amount* Growth rate US$ mill Amount Growth rate US$ mill 1990 94 -3.2 84 331 -0.9 187 1995 130 47.4 -64 1,021 44.7 384 1996 181 38.5 -24 1,103 8 462 1997 104 -42.4 -132 1,162 5.4 507 1998 62 -40.5 -198 706 -39.2 139 1999 78 26 -112 815 15.4 360 2000 143 83.1 -70 902 10.6 309 2001 116 -18.6 -71 696 -22.8 124 2002 205 75.8 9 754 8.3 300 2003 194 -5 -10 1,058 40.3 541 2004 283 45.6 38 1,934 82.8 1,225 2005 249 -11.9 -33 2,279 17.9 1,128 2006 676 170.9 317 3,813 67.3 2,247 2007 1,040 53.9 574 4,184 9.7 1,069 2008 904 -13.1 184 4,127 -1.3 1,096 2009 919 1.7 278 3,103 -24.8 874 2010 1,039 13 94 4,221 36 1,274 2011 1,950 87.7 583 4,858 15.1 2,477

Note: *Unit in US$ mill; TB=Trade Balance; Source: Korea Trade Association (2012)

Implications and the things we need to do at the national level

> Set out clear and comprehensive goals and strategies > Selection and concentration: Develop strategic industries (for export markets) > Muster national consensus on the growth model and re-define the roles of

stakeholders accordingly (especially that of the government and universities); The business of the Peruvian people is business.

> Devise action plans to support the strategic-level goals and objectives i.e. the industry-academy co-operation scheme; Continue providing the business enabling environment, etc.

> Encourage manufacturing and start-ups

Muchas gracias por su atencin!