Regional Development & Decectralization Policy in South Korea 9789814379526

Citation preview

Regional Development and Decentralization Policy Ill

South Korea

The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the many-faceted problems of stability and security, economic development, and political and social change. The Institute's research programmes are the Regional Economic Studies Programme (RES), Regional Strategic and Political Studies Programme (RSPS), Regional Social and Cultural Studies Programme (RSCS), and the Indochina Programme (ICP). The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer.

Regk>nal '"'Development and Decentralization Policy •

tn

South Korea Ludwig H. Schatzl Karin Wessel Yong-Woo Lee translated by

Ursel Kurz

I5EA5 INSTITUTE OF SOUTHEAST ASIAN STUDIES

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Road Singapore 119596

Internet e-mail: [email protected] World Wide Web: http://www.iseas.ac.sg/pub.html All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 1997 Institute of Southeast Asian Studies, Singapore

Cataloguing in Publication Data Schiitzl, Ludwig. Regional development and decentralization policy in South Korea I Ludwig H. Schiitzl, Karin Wessel, Yong-Woo Lee. 1. Regional planning--Korea (South). 2. Korea (South)--Economic conditions--19603. Korea (South)--Economic policy--1960I. Wessel, Karin. II. Lee, Yong-Woo. III. Title. 1997 sls96-32886 HC467 S31 ISBN 981-3055-48-0 The responsibility for facts and opinions expressed in this publication rests exclusively with the authors and their interpretations do not necessarily reflect the views or the policy of the Institute. Typeset by International Typesetters Printed in Singapore by Prime Packaging Industries Pte Ltd

Contents

List of Tables List of Figures Preface Contributors I

II

III

IV

v

Economic Success of the Newly Industrialized Countries of East and Southeast Asia Ludwig Schdtzl

vii xii XV

xvii 1

The Sectoral and Spatial Economic Transformation Process: A Few Theoretical Remarks Ludwig Schdtzl

14

Basic Features of Economic and Regional Development in South Korea Karin Wessel

34

Basic Features of the Decentralization Policy in South Korea and Its Evaluation Karin Wessel Case Study No.1: National Decentralization of the Manufacturing Industry. Growth Poles of Ulsan and Taejon Karin Wessel

177

226

Contents

vi

VI

Case Study No. II: Decentralization of Research Institutes and Educational Facilities. Taedok Science Town and Local Campuses of Seoul Universities

262

Yang- Woo Lee

VII Conclusion

316

Index

324

List of Tables

1.1

1.2 111.1 111.2 111.3 111.4 111.5 111.6 111.7 111.8 111.9 111.10

Indicators of Industrialization in Market Economies in East and Southeast Asia Industrial Goods Exports of Market Economies in East and Southeast Asia Goals of Plans for Economic Development, 1962-91 Development in the Regional Industrial Structure (Employment), 1963-86 Development in the Regional Industrial Structure (Value Added), 1963-86 Structure of Electrical Industry in the Regional Centers of Seoul, Kyonggi and Kyongnam, 1986 Regional Distribution of High-Tech Industries in South Korea Locational Quotients of City-Size Classes, 1970 Locational Quotients of City-Size Classes, 1982 Locational Quotients of Industrial Locations (Employment), 1970 Locational Quotients of Industrial Locations (Employment), 1982 Population Growth and Distribution, 1960-86

4 5 41 70 72 81 82 92 93 96 97 103

viii

III.11 III.12 III.13 111.14 III.15 111.16 11!.17 III.18 111.19 111.20 111.21 III.22 III.23 111.24

IV.1 IV.2 IV.3

IV.4 IV.5 IV.6

List of Tables

Urban and Rural Net Migration within the Provinces, 1960-87 Share of Urban Population in Total Population, International Comparison, 1930-87 Development in the Urban Population and Number of Towns (Province Level), 1960-86 Primacy Indices (Cities with a Population of >50,000), 1960-86 Difference between Theoretical (Z') and Actual (Z) Population of the Capital, 1960-86 City-Size Classes, 1960-86 Income Distribution, 1965-86 Level of Poverty, 1965-85 Income of Urban and Rural Households, 1965-86 Per Capita Income of Urban and Rural Households, 1970-86 Level of Poverty in Urban and Rural Areas, 1970-85 Per Capita Gross National Product, According to Province, 1965-85 Wage Structure at Province Level, 1972-87 Index of Development in Infrastructure and Public Services at Province Level, 1975 (1970) to 1985 Basic Elements of the Decentralization Policy ofthe 1960s Basic Elements of the Decentralization Policy of the 1970s. Spatial Focus: National Scale Basic Elements of the Decentralization Policy of the 1970s. Spatial Focus: Metropolitan Region of Seoul Basic Elements of the Decentralization Policy of the 1970s. Spatial Focus: Rural Areas Basic Elements of the Decentralization Policy in the 1970s. Sectoral Focus: Industry Basic Elements of the Decentralization Policy of the 1980s. Spatial Focus: National Scale

111 116 118 125 129 130 138 140 142 143 144 147 150

152 179 182

186 188 190 194

L'ist of Tables

IV.7

IV.8 IV.9 V.1 V.2

V.3 V.4 V.5

V.6 V.7 V.8

V.9 V.10 V.ll V.12

V.13

Basic Elements of the Decentralization Policy of the 1980s. Spatial Focus: Metropolitan Region of Seoul Basic Elements of the Decentralization Policy of the 1980s. Spatial Focus: Rural Areas Comparison of Targeted and Actual Population of Seoul Population Increase in Ulsan and Taejon, 1960-88 Industrial Structure of Ulsan. Comparison of the Base Total (1987) with the Sample of the Questionnaire Survey (November 1988) Questionnaire Survey of Ulsan Enterprises: Size Structure Questionnaire Survey of Ulsan Enterprises: Age Structure Industrial Structure in Taejon. Comparison of Base Total (1988) with Sample of Questionnaire Survey (November 1988) Questionnaire Survey of Taejon Enterprises: Size Structure Questionnaire Survey of Taejon Enterprises: Age Structure Questionnaire Survey of Ulsan Enterprises: Evaluation of Location Factors with a View to Locational Decision Questionnaire Survey of Ulsan Enterprises: Current Locational Advantages Questionnaire Survey of Ulsan Enterprises: Locational Satisfaction Questionnaire Survey of Ulsan Enterprises: Evaluation o£ Current Locational Disadvantages Questionnaire Survey of Taejon Enterprises: Evaluation of Location Factors with a View to Locational Decision Questionnaire Survey of Taejon Enterprises: Current Locational Advantages

ix

197 198 206 228

232 232 233

234 235 235

237 238 239 240

241 243

X

V.14 V.15 V.16 V.17 V.18 V.19 V.20 V.21 V.22 V.23 V.24

VI.1 VI.2 VI.3 VI.4 VI.5 VI.6 VI.7 VI.8 VI.9

List of Tables

Questionnaire Survey of Taejon Enterprises: Locational Satisfaction Questionnaire Survey of Taejon Enterprises: Evaluation of Current Locational Disadvantages Questionnaire Survey of Ulsan Enterprises: Linkage Intensity within Industrial Enterprises Questionnaire Survey of Ulsan Enterprises: Regional Linkage Intensity Questionnaire Survey of Taejon Enterprises: Linkage Intensity within Industrial Enterprises Questionnaire Survey of Taejon Enterprises: Regional Linkage Intensity Questionnaire Survey of Ulsan Employees: Regional Mobility Questionnaire Survey of Ulsan Employees: Sectoral Mobility Questionnaire Survey of Taejon Employees: Regional Mobility Questionnaire Survey of Taejon Employees: Sectoral Mobility Questionnaire Survey of Ulsan and Taejon Employees: Comparison of Regional Shopping Behaviour (Medium-Term and Long-Term Demand) Regional Distribution of Research Institutes Major Indices of Higher Educational Institutions in Korea, 1970-88 Inconveniences of the Research Institutes Current Status of Employees, 1988 Site of Educational Institution at Which a Degree Was Obtained Residences of Employees Traffic Destinations of the Employees in Taedok Science Town Inconveniences in Taedok Science Town Reasons for Commuting to Campus: Group S1

243 244 246 247 249 250 252 253 254 255

256 267 270 279 282 284 285 289 291 297

List of Tables

Vl.lO VI.ll VI.12 VI.13 VI.14 VI.15

Reasons for Planning to Move Again: Group S2 Traffic Destination of the Students on Local Campus Dissatisfaction with Campus Appraisal of Local Campus Compared with Main Campus Dissatisfaction with Conditions On and Around Campus Appraisal of Local Campus Site

xi

299 301 303 303 304 305

List of Figures

1.1

11.1 11.2 11.3 11.4 11.5 11.6 111.1 III.2 III.3 III.4 III.5 III.6 III.7 III.8

International Comparison of Volume and Growth Rates of per Capita Gross National Product Phases of the Product Cycle Phases of the Profit Cycle Differences during the Course of the Product Cycle Shift in the Production Location of an Article or a Branch Product Cycle and Foreign Trade Long Waves and Spatial Development Composition of Gross National Product, 1955-92 Investments, Domestic Savings Rate and Foreign Capital Inflow, 1955-92 Employment, by Sector, 1965-91 Sectoral Growth Pattern (Employment), 1963-86 Sectoral Growth Pattern (Value Added), 1963-86 Economic Development and International Trade, 1955-92 Indicators of Industrial Restructuring, 1964-90 Balance of Payments, 1956-92

3 17 18 19 20 21 23 39 40 42 44 45 46 47 49

List of Figures

III.9 III.10 III.11 III.12 III.13 111.14

111.15 III.16 III.17 III.18 III.19 III.20 111.21 III.22 III.23 111.24 111.25 111.26 111.27 111.28 111.29 IV.1

xiii

Contribution of Small and Medium-Size Enterprises to the Manufacturing Sector, 1966-90 Subcontracting Trends of Small and MediumSize Manufacturing Enterprises, 1975-85 Major Export Markets of South Korea, 1968-87 Development in the Manufacturing Industry, by Province (Employment), 1963-86 Development in the Manufacturing Industry, by Province (Value Added), 1963-86 Spatial Dynamics of Industrial Structure in South Korea (Shift Share Analysis/Employees), 1963-86 Spatial Concentration of Industry in South Korea, 1963-86 Spatial Concentration of Major Industries, 1963-86 Level of Industrialization, by Province, 1970 Level of Industrialization, by Province, 1980 Level of Industrialization, by Province, 1986 Industry, by City Size, 1970, 1982 Industrial Locations, 1970, 1982 Population Distribution, by Province, 1960-86 Population Density at City and District Levels, 1985 Net Migration Rate, by Province, 1961-85 Net Migration Rate in Urban and Rural Areas, 1987 Urban Distribution and Urban Growth Pattern in South Korea, 1960-70 Urban Distribution and Urban Growth Pattern in South Korea, 1970-80 Urban Distribution and Urban Growth Pattern in South Korea, 1980-86 Rank-Size Distribution of Settlements in South Korea, 1960-86

128

Spatial Distribution of Industrial Estates, 1988

209

52 53 56 62 64

66 77 79 85 86 87 90 94 102 105 107 113 120 121 122

List of Figures

xiv

IV.2 VI.1 VI.2

VI.3 VI.4 VI.5 VI.6

Industrial Estates, According to Branch Orientation, 1988 Spatial Distribution of Researchers and Their Structure, by Degree, 1987 Spatial Distribution of Higher Educational Institutions and Their Students, 1970, 1980 and 1988 Map of Taedok Science Town and Its Established Institutions, 1988 Grouping of Respondents in Taedok Science Town Spatial Distribution of Local Campuses and Their Students, 1988 Grouping of Respondents on Local Campus

210 269

272 276 287 293 296

Preface

The collection of papers in this volume presents the most important results of a research project undertaken by the Department of Geography of Seoul National University in cooperation with the Department of Economic Geography in the University of Hanover. Involved in the research were Karin Wessel and YongWoo Lee, research officers in the Departments in Hanover and Seoul, respectively, and Woo-Ik Yu and Ludwig Schatzl, who also supervised the project. The investigations lasted two and a half years and field research in South Korea was completed in the summer of 1990. The research was made possible by substantial financial support from the Volkswagen Foundation in Hanover. The main objective of the project was to elaborate the interdependent relationships between economic development, regional development and spatial economic policy, using the newly industrialized country of South Korea as a case study. The analysis focused mainly on three aspects:

• •

long-term economic restructuring starting with labor-intensive production, followed by capital-intensive and, finally, humancapital- and technology-intensive production, the effects of this economic transformation process on regional development and

xvi

•

Preface

the significance of spatial economic policy for sectoral and regional economic restructuring.

This study consists of six individual papers. Chapter I provides an introduction and general outline of the economic development and economic policy of the developing and newly industrialized market economies in East and Southeast Asia. The objective is to point out the position of the case study of South Korea within this group of countries. Chapter II presents some theories dealing with the issue of international and interregional shifts of economic activity; this theoretical basis is essential when trying to explain the sectoral and regional economic transformation processes occurring in South Korea. Chapters III and IV analyze the characteristic features of South Korea's economic and regional development as well as regional policy. Two regional case studies conclude the investigation: Regional decentralization of the manufacturing industry is illustrated by the examples of the growth poles of Ulsan and Taejon (Chapter V); regional decentralization in the field of research is described in Chapter VI using the relocation of universities and research institutes to Taedok Science Town (Taejon) and within the metropolitan region as case studies. This research project would not have been possible without the support of Korean scientists from universities and research institutes and the cooperation of ministries, public authorities and institutions and private enterprises; the authors are most grateful for all this support. We are also much obliged to Mrs Ursel Kurz for translating this volume (except Chapter VI) and to Ms Angela Imhoff for the cartographic work Ludwig Schdtzl

Contributors

Ludwig Schatzl is Professor and Head of the Department of Economic Geography, University of Hanover, Germany. Karin Wessel is Senior Lecturer in Economic Geography in the Department of Geography, Humboldt-University Berlin, Germany. Yong-Woo Lee is Research Fellow at the Institute of Korean Regional Studies and Lecturer at the Seoul National University, South Korea.

II Economic Success of the Newly Industrialized Countries of East and Southeast Asia Ludwig Schatz!

Several developing countries with market economies in East and Southeast Asia have had remarkable economic success. Singapore, Hongkong, Taiwan, South Korea and Malaysia today count among the newly industrialized countries. This contribution presents an outline of the economic development of this growth region and examines which policies were pursued to achieve this economic progress. Economic Development

Figure I.1 shows the volume of per capita gross national product (GNP) in 1992 of over 100 countries with a population of more than one million and the average annual growth rates of their real per capita GNP for the period 1980-92. GNP measures the total domestic and foreign value added available to the population of a country. Per capita GNP is often used as an indicator of prosperity. The weaknesses of national accounting with regard to

2

Ludwig Srhatzl

measuring welfare are obvious and intertemporal as well as interregional and international comparisons are difficult; nevertheless, Figure 1.1 permits the following statements: •

•

•

There is a vast prosperity gap between industrialized and developing countries. The extent of the disparate income distribution is illustrated by the fact that the average per capita income of the 10 richest countries in the world is approximately 160 times as high as that of the 10 poorest countries. During the past decade, many developing countries were unable to reduce the development gap with the industrialized countries; a substantial number of countries suffered absolute income losses. A few countries, mainly in East and Southeast Asia, however, have experienced extraordinarily high growth rates in their per capita GNP. Obviously, these countries, under the existing conditions of the world economic system, have succeeded in clearly reducing the income gap with the industrialized countries. Between 1980 and 1992, the average annual growth rate of real per capita GNP ranged from 5 to 9 per cent in Singapore, Hongkong, Thailand, Taiwan and South Korea. The performance of Malaysia (3.2 per cent) and Indonesia (4.0 per cent) was also above the average growth rate of 2.3 per cent achieved by the industrialized countries. Only the Philippines, shaken by political and economic crises, suffered a decline in per capita income.

Economic growth has been associated with far-reaching sectoral restructuring. Table 1.1 shows that a dynamic industrialization process has taken place in the East and Southeast Asian countries. Due to high industrial growth rates the share of the manufacturing industry in gross domestic product has reached a level that corresponds to that of the industrialized countries with market economies. A few countries even achieved a horizontal and vertical diversification of their industrial production structure. In addition to consumer goods they increasingly produce investment goods. Already at the end of the seventies, the share of investment goods in value added of the manufacturing indus-

Figure 1.1 International Comparison of Volume and Growth Rates of per Capita Gross National Product 10 'eft

1' I

c

N' (J)

I

(J)

Tha•land

• •8

6

OJ

• • •

(J)

-

lndones1a

~

a. ro

u

a;

a. a._

z

•

....

6

•Malays~a

~~~

............

....

CCJ

0

.,

(ij 0:::

..:: ~

2

CCJ ro

::l

-5

c c ::

., CJ)

ro

a;

> ::

l

0

OECD-Members OPEC-Members

•

Transition Economies in Eastern Europe and Central Asia

...

0

Other Countries in

"

0

-10

I

1000

A

o

5000

10000

I

15000

I

20000

'"'" AmMoo Africa

t

25000

Gross National Product per capita (1992), in US-Dollar

Source: World Bank, World Development Report (1994).

30000

35000

>

4

Ludwig Schcitzl

Table 1.1 Indicators of Industrialization in Market Economies in East and Southeast Asia

Country

Value Added in Manufacturing Industry, 1991 (1 ,000 mill. US$)

Average Annual Growth Rate of Value Added in Manufacturing Industry, 1970-91 (%)

-----------

-------·--

Singapore Hong kong Taiwana South Korea Malaysia Thailand Philippines Indonesia OECD members

Share of Manufacturing Industry, 1992 (%)

11.7 12.2 55.4 77.8 9.1 27.8 11.5 24.1

18.7 13.2 14.0 20.5 15.6 17.4 10.1 17.3

3,466.4

8.2

28 16 42.5 26 29 28 24 21 21

------------------------------

aReference years for Taiwan: value added for manufacturing industry: 1990; value added growth rate: 1980-90; share of manufacturing industry: 1991. Source: World Bank, World Development Report (1994); World Bank, Human Development Report (1994); OECD, The OECD STAN Database for Industrial Analysis (1972-91); UNIDO, Industry and Development: Global Report 1993/94 (1993); Bank Negara Malaysia, Annual Report (1992); United Nations, Industrial Statistics Yearbook (1991 ).

try amounted to nearly 60 per cent in Singapore and had reached 20 to 30 per cent in Hongkong, Taiwan, South Korea and Malaysia (these figures include the total output of the electrical industry; see Ochell984). The countries of East and Southeast Asia achieved impressive success in building up an internationally competitive industry. All of them realized extraordinarily high growth rates in industrial goods exports. This is shown in Table 1.2. In Hongkong, Taiwan and South Korea the share of industrial products in total exports was over 90 per cent. In the eighties, industrial goods exports from Singapore, Hongkong, Taiwan and South Korea alone accounted for approximately 50 per cent of those of all developing and newly industrialized countries combined. These

I. Economic Success of the NICs of East and Southeast As1a

5

Table 1.2 Industrial Goods Exports of Market Economies in East and Southeast Asia

Country

Share of Industrial Goods Exports in Total Exports, 1992 (%)

Average Annual Growth Rate of Industrial Goods Exports, 1970-92 (%)

49.5 28.8 75.6 71.1 24.8 21.8 7.2 16.2

78 95 93 93 61 67 73 48

13.1 7.8 15.7 20.2 20.5 23.9 17.2 29.6

2,001.8

82

5.1

Industrial Goods Exports, 1992 (1 ,000 mill. US$)

Singapore Hong kong Taiwan South Korea Malaysia Thailand Philippines Indonesia OECD members

Source: World Bank, World Development Report (1994); Data for OECD members: World Development Report (1993).

countries are also making progress in selling investment goods on the world market. In the fields of shipbuilding, electronic machinery, communication engineering, office equipment and data processors they were able to penetrate into the markets of the industrialized countries, especially those of the United States and Japan. In the literature, Singapore, Hongkong, Taiwan, South Korea and, with some reservations, Malaysia as well are numbered among the group of newly industrialized countries (NICs) on the basis of 3 criteria: a) the size of GNP per capita achieved, b) persistently dynamic economic growth and sectoral restructuring and c) competitiveness in the manufacturing industry on the world market. This raises the question as to what economic policy contributed to achieving this kind of success. Economic Policy

The essential objective ofthe economic policy of East and Southeast Asian countries with market economies is rapid economic

6

Ludwig Sr:hiitzl

growth; it is to lay the material basis for increasing the prosperity of the population. Most countries expect decisive growth impulses from an internationally competitive economy; exportoriented industrialization serves as the major driving force of economic growth. The mode of integration into the world market and sectoral and regional economic development are not left to market economic coordination mechanisms alone, but are controlled by state economic policy. The following remarks concentrate on the presentation of the industrialization strategy pursued in the past, of the policy instruments hitherto employed in economic policy to manage international economic relations and of the measures implemented for restructuring the domestic economy. Industrialization Strategy

In the market economies of East and Southeast Asia the industrialization process did not begin until after political independence. All these countries - with the exception of Hongkong, which has always pursued an export-oriented industrial policy, - at first adopted a strategy of import substitution. Initial success was followed by the realization that there are limitations to this strategy. Due to the fact that domestic markets were limited, the impetus toward growth generated by industry based on import substitution continued to decrease. This forced most countries to change their industrial policy; they replaced import substitution by a strategy of export-oriented industrialization. South Korea and Taiwan changed their strategy along these lines in the early sixties, followed by Singapore in 1965 and Malaysia and the Philippines in the early seventies. In a first phase of export-oriented industrialization, the countries concentrated on labor-intensive products, such as textiles and clothing and electrical goods; and they had considerable initial success with this policy. The industrialized countries reacted by introducing import restrictions on consumer goods from developing countries and by subsidizing their own industries which were no longer internationally competitive; they also invested in rationalization, for example, in the textiles and clothing industry.

I. Economic

S?~ccrss

of the NICs of' East anri Southeast Asia

7

At the same time, labor-intensive industrialization in Singapore, Hongkong, Taiwan and South Korea created bottlenecks on the labor market, causing wage costs to rise. This worsened their competitive position compared with low-wage countries which started to crowd onto the world market. As was the case with import substitution, market limitations also existed for laborintensive export goods. This induced Singapore, Hongkong, Taiwan and South Korea in the seventies and Malaysia since 1982 to change their strategy again. In a second phase of export-oriented industrialization, the focus of production shifted to capital-intensive goods, and the development of more human-capital-intensive and technologyintensive industries was forced (Donges 1977; Little 1981; Ochel 1984). Although this industrialization strategy aims primarily at the world market, its objective also is to provide the labor-intensive domestic industry with investment goods. In Chapter II, theorybased reasons are given for the necessity of an increased introduction of product and process innovations for the purpose of maintaining the international competitiveness of the industry. Policy Instruments for Managing International Economic Relations

With the help of a wide range of economic policy instruments the governments of the East and Southeast Asian countries are trying to promote the integration of their economies into the world market. In the following, a few policy instruments employed for controlling foreign trade (import, export) and international movement of production factors (e.g., direct investment) are introduced. •

In order to protect the domestic industry against foreign competition, the import of goods is impeded by tariff and nontariff barriers. The most important policy instruments are import tariffs. Nominal tariff protection is particularly high in Taiwan, South Korea, Thailand, the Philippines and Indonesia; only in Singapore and Hongkong are import tariffs no longer of any significance (Ltitkenhorst 1984). In principle,

8

•

•

Ludwig Sr:hdtzl

import tariffs are justified for the purpose of enabling developing countries to build new economic branches. However, as soon as international competitiveness is achieved, barriers must be reduced progressively. This stage has now been reached; in several newly industrialized Asian countries there are first indications of a gradual removal of tariff protection. While there are restrictions on import, export is stimulated by various measures. In all East and Southeast Asian countries goods exports are subsidized, although to a varying extent. Public measures toward stimulating exports range from low-interest export loans, temporary tax exemptions and depreciation privileges to the establishment of exportprocessing zones. The major promotive policy instruments are tax exemptions, tax reductions and export-processing zones. Some governments try to accelerate the pace of restructuring away from import substitution and in the direction of labor-intensive and, later on, human-capital-intensive and technology-intensive export industrialization by granting especially high tax privileges to export-oriented pioneer industries. Finally, enterprises in export-processing zones can import and export goods free of duty, provided they produce for the world market (Spinanger 1983). Skilled labor, capital and technological know-how are needed for developing an internationally competitive industry. Direct foreign investment can contribute to removing bottlenecks in the availability of production factors. All East and Southeast Asian countries use incentives, albeit of varying intensity, in order to encourage foreign enterprises to invest. Among these incentives are tax exemption, depreciation privileges, liberal handling of capital transfer and use of profits. The main target region for foreign investments has so far been Singapore for which they are of extraordinary economic significance. The volume of direct foreign investment in South Korea and Taiwan is small by comparison; these 2 countries began promoting the settlement of foreign enterprises only in the eighties.

I. Econmnic Success qf the NICs of East and Southeast Asia

9

Measures for Restructuring the Domestic Economy

Because of the offensive character of state promotion of exportoriented industrialization some authors nickname the newly industrialized Asian states of Singapore, Hongkong, Taiwan and South Korea the "gang of four", "little dragons" or "baby tigers". In this context, however, it is necessary to point out that the remarkable success with exports was made possible only by consistent restructuring of the domestic economy. Compared with many other developing and newly industrialized countries, the following features deserve special mention: •

•

•

•

•

the well-developed infrastructure and communication system; a considerable share of public development expenditure went to these sectors; the high quality of labor and management personnel due to high public and private investment in education and training; the endowment with human capital enables a number of countries to not only imitate foreign products and production methods but also to adapt them to the needs of the domestic market by means of product and process innovations (see Chapter II); in the eighties, carefully directed public promotion of research and development (R&D) by establishing research institutions and research-related industrial estates and by stimulating R&D activities of the private sector; the efficiency of public administration; by way of example, Kebschull (1984, p. 446) points out the efficient and pragmatic economic policy; in this context, mention is made of the ability of political elites to formulate and carry out development-promoting policies. the relatively successful land reform in South Korea and Taiwan; it is considered to be responsible for the fact that by international comparison the disparities in the distribution of personal income in both countries are small.

The newly industrialized countries in East and Southeast Asia, however, owe their economic success to a number of other fac-

10

Ludwig SchCitzl

tors as well. The location of these countries in the Pacific growth region doubtless plays a role ( cf. Chapter II). The complex relations with Japan are especially noteworthy in this context; Japan as a trading partner, as a provider of capital, but also as the former colonial power from whom these countries want to become economically independent by striving to achieve international competitiveness. Scientists have not been able to provide a clear and unambiguous answer to the question whether Confucianism played an important role in the economic success of Singapore, Hongkong, South Korea and Taiwan. The Confucianist culture - regarded by some as opposed to all modernization efforts - is generally considered to be responsible for the lack of individualism, uniformity of learning and bureaucratic rule. On the other hand, high work morals and frugality ethics, group conformism and hierarchism in all aspects of life are regarded as being conducive to growth (cf. Sautter 1990; Machetzki 1994). Conclusion

The East and Southeast Asian market economies have achieved high economic growth and a dynamic industrialization process. In addition to consumer goods they increasingly produce investment goods. They have succeeded in developing an industry that is competitive on the world market. This was accomplished by consistently pursuing a strategy of export-oriented industrialization. Most countries achieved a change of strategy from labor-intensive to capital-intensive and, increasingly, human-capital-intensive and technology-intensive export-oriented industrialization. The governments of all countries by their economic policy supported the orientation of production toward the world market. The policy measures range from protecting newly developed industrial branches against foreign competition by means of tariffs, subsidizing goods exports and foreign investment to publicly promoted restructuring of the domestic economy. In the discussion of development theories and development policies the economic achievement of the market economies of East and Southeast Asia is taken as empirical proof that a strat-

I. Ecunomir Success of the NICs of East and Southeast Asia

11

egy of world market integration based on market mechanisms, via economic growth and sectoral restructuring can lead to areduction in the income gap between industrial and developing countries. In this context, it is necessary to keep in mind that investigations of regional development in these countries yield less favorable results. For several years, the Department of Economic Geography of the University of Hanover has studied the relationship between economic and regional development. Monographs have been published on Malaysia (Kulke 1986; Koschatzky 1987; Schatzl 1988), Thailand (Schlorke 1991) and the Philippines (Kramer 1992). Spatial disparities in the socio-economic development in Malaysia are relatively small. The city-size distribution corresponds to the "rank-size rule", and first indications of a reversal in the spatial concentration process can be established empirically. In the industrial sector, however, intra- and inter-regional decentralization is confined to the west coast of peninsular Malaysia. Public assistance to the Malay population, a disproportionately high percentage of whom live in rural areas, has no doubt contributed to reducing regional imbalances (Schatzl1988). Contrary to this, Thailand and the Philippines are characterized by a high spatial concentration of the population and economic activity. In Bangkok and Manila, the consequences of excessive urbanization are obvious. The population increase and economic growth exceed the absorbing capacity of these cities. Presently, in both countries there is a controversial debate on whether the state's limited investment capital should be used primarily for restoring the proper functioning of the metropolises or whether metropolitan growth should be slowed down by a policy of decentralization. South Korea also shows a high concentration of population and of economic and settlement potential. 10 out of the country's 42 million inhabitants, for example, live in Seoul and 15 million live in the Seoul metropolitan area. However, efforts to avert the negative effects of extreme agglomeration have been successful. It is the objective of this volume to analyze the regional differentiation process in South Korea and the regional policy practiced in this country.

12

Ludwig Schiitzl

In the following chapter, an attempt is made to identify possible relationships between the economic transformation process and regional development. On this theoretical basis, the necessity of state control of regional development and of a policy of decentralization in the newly industrialized countries will be substantiated. REFERENCES Bank Negara Malaysia. Annual Report 1992. Kuala Lumpur, 1993. Donges, J.R. "The Expansion of Manufactured Exports in Developing Countries: An Empirical Assessment of Supply and Demand Issues". Weltwirtschaftliches Archiv 113 (1977): 58-87. European Center for Applied Economic Research. Prognos Euro Report 89. Vol. B: Emerging Economies. Basel, 1989. Ifo-Institut fur Wirtschaftsforschung. Ifo-Schnelldienst 14192. Munchen, 1992. Kebschull, D. "Auslandische Direktinvestitionen in Sudostasien. Ein internationaler Vergleich des Engagements". In Wachstumsmarkt Siidostasien, edited by H. Laumer, pp. 435-463. Munchen, 1984. Koschatzky, K. Trendwende im soziodkonomischen Entwicklungsprozej5 West-Malaysias? Hanover, 1987. Kramer, M. Raumwirtschaftliche Konzentration und regionalpolitische Steuerung. Eine empirische Analyse der Philippinen. Saarbrucken, 1992. Kulessa, M., ed. The Newly Industrializing Economies of Asia: Prospects of Co-operation. Berlin, 1990. Kulke, E. Hemmnisse und Mdglichkeiten der Industrialisierung peripherer Regionen von Entwicklungsldndern. Das Fallbeispiel Kelantan/ West-Malaysia. Hanover, 1986. Kwang Hwa, ed. Die Republik China. Munchen, 1993. Little, I. M.D. "Experience and Causes of Rapid Labour-Intensive Development in Korea, Taiwan Province, Hongkong and Singapore and the Possibilities of Emulation". In Export-Led Industrialization and

I. Economic Sur:cess of the NICs of East and Sm

~

1st long wave i 2nd long wave i 3rd long wave

1800

1850

1900

i 4th long wave

1950

2000

Starting points for important innovations (international) England

England Germany USA

USA Germany England

USA Japan Germany

?

Starting points for important innovations (Germany) Ruhr Saar

Ruhr Baden-Wurttemb Baden-Wurttemb Southern Bavaroa Southern Bavaria

?

plain only the causes of growth, trend reversals and decline in individual long waves; no convincing theory has been developed to explain the pattern of cyclic fluctuations at regular time intervals. Despite these shortcomings, the theory of long waves can be employed to explain international and inter-regional shifts in economic activity. First, a distinction has to be made between spatial processes of differentiation which take place in the course of a single long wave; second, spatial shifts in the emphasis of economic activities take place during the transition from one long wave to the next. According to the present state of our knowledge it can be assumed that with each long wave the economic activities are con-

24

Luciw?g Schiitzl

centrated in one or a small number of spatial centers, but that a characteristic structure of industrial locations also develops all over the world, together with a characteristic linking of the locations through the mobility of goods and production factors. In the course of a single Kondratieff cycle a far-reaching change takes place in the entire global spatial system. The spatial center of a long wave prospers until the innovative power of the new technology is exhausted. Toward the end of the cycle the sales of companies and mergers of companies increase in number, and the setting up of branch plants and subsidiary companies brings about a surge in growth directed toward the periphery. In exactly the same way as the spatial center of crystallization of a long wave passes through the phases of growth, stagnation and shrinking, however, the industrial locations developing outside the central region are also subjected to an economic process of transformation as a result of the basic innovation; they pass through so-called "regional growth cycles". The cities and/or regions which, as a result of location advantages (favorable ability of production factors, advantageous geographical situation etc.), are able to push through on the market basic or radical innovations that have occurred externally develop into growth regions. The dynamics of growth continue for as long as success is achieved in adapting production to technical advances. If there is a decline in the ability and willingness to pursue the restructuring process continually, this will lead to stagnation and, in the long term, the shrinking of the economy in a region (Boventer 1987). Until now every new wave has formed its own spatial center; the spatial center of crystallization of the new wave was generally far removed from that of the old center. In Western Europe, for example, during the first long wave the industrial center was Manchester, and during the second long wave it was the Ruhr. In the course of the third and fourth Kondratieff cycles there was a shift in the focal point in Germany toward the regions of Stuttgart and Munich. Seen from a world-wide point of view, as is shown in Figure 11.6, during the third long wave the United States joins Western European countries as the starting point and first

II. Sectoral and Spatial Ecmwmir Tmnsfurmaticm Process

25

center of crystallization of basic innovations, and during the fourth long wave it is Japan. At the beginning of the fifth long wave it is expected that the Pacific region could develop into the world's leading industrial region. There are many different reasons for the spatial shift of the starting point and of the first focal point of production of a new long wave. One basic reason is certainly the fact that the centers of the old wave do not satisfy the location requirements of the new growth industries, and that static behavior on the part of large-scale enterprises, trade unions and governments hinder the necessary processes of adaptation; the centers of the old wave become inflexible and then turn into so-called "old industrial regions". In summary, in the past, all basic innovations originated in the 3 core regions of the world economy, namely Western Europe, the United States and Japan. However, a shift of focus of economic activity from Europe to the United States and Japan is evident. In the fourth long wave, basic innovations (electronics, petrochemistry) for the first time originated in Japan. There is reason to assume that the basic innovations of a fifth long wave (microelectronics, biotechnology and gene technology) will cohcentrate in the Pacific growth region. As mentioned earlier, a single Kondratieff cycle generates a world-wide cycle-specific location structure and a characteristic linkage of locations through product and factor mobility. The Asian-Pacific NICs with market economies have successfully integrated themselves into this global interaction network in which Japan is the most important economic partner. Spatial Development in Developing and Newly Industrialized Countries

It is the objective of the following remarks to point out the relationship between economic development and spatial development explicitly with a view to Third World countries. The debate on this issue is controversial; in the following, 3 theoretical approaches are presented from which different regional policy strategies can be derived: the argumentation based on dependencia theories, the polarization theory by Lasuen and the pola~·i-

26

Ludwig Schdtzl

zation reversal approach according to Richardson. According to the dependencia theories, income disparities between industrialized and developing countries derive from the developing countries' enforced incorporation into an unequal international division of labor as a result of colonial and neocolonial pressures. The developing countries (periphery) are thereby rendered structurally dependent on the industrialized countries' metropolises. While in the metropolises there evolved a production structure that was adapted to the needs of society, the periphery, as early as the colonial period, was forced to adopt a production structure oriented not to its own requirements but to those of the metropolises. The domestic market was neglected in the interest of the production of primary goods for export. This form of integration of the developing countries into a world economy based on division of labor caused a net outflow of resources as well as deformation and disintegration of their economic, social and spatial system, creating, for example, sectoral disparities, imbalances in personal income distribution, metropolization and intra-regional and inter-regional disparities. 2 strategies are demanded: first, dissociation of the developing countries from the world market in order to overcome the NorthSouth dichotomy; second, selective spatial closure of less developed areas from the national core regions, in order to reduce spatial disparities in developing countries (StOhr and Todtling 1977). The dependencia theories were developed mainly in Latin America and possibly reflect the economic situation in these countries. For East and Southeast Asia's growth economies, whose success is largely due to an effectively practiced, export-oriented industrialization strategy (see Chapter I), dependencia theories hold neither theoretical explanations nor do they allow one to derive conceptual strategies for international or regional economic policy. The polarization theory elaborated by Lasuen (1973) emphasizes the relationship between economic development and urbanization on an international as well as a national scale. Economic development - if looked at as an innovation process creates a temporal sequence of sectoral clusters while urbaniza-

II. Sectoral and Spatial Ec:uncrrmc Transformation Pmc:ess

27

tion creates a sequence of geographical clusters. Between the 2 sequences interactions occur; on the one hand, the existing urban system influences the innovation process and, on the other, the innovation process shapes future spatial development. According to Lasuen, inventions and their innovation are concentrated in a few core regions in highly developed industrialized countries. This spatial concentration causes an acceleration of technological progress. For all other countries innovations constitute a growth determinant which was generated externally. Moreover, Lasuen assumes that there is a positive correlation between the speed and intensity of spatial diffusion of an innovation and the developmental level of an economy. This means that innovations spread more rapidly in industrialized than in developing countries. In the developing countries the centers are the first to accept an innovation. The time innovation takes to spread into the peripheral regions is longer than the time lapse between 2 international innovation phases. Consequently, developing countries have a choice between the following alternatives: The centers can adopt a new innovation before the preceding one has spread all over the country. A dual economy would ensue; that is, increasing spatial polarization in a few technologically advanced centers and a periphery that is lagging behind. As a second alternative the centers of a developing country can put off the adoption of new innovations until all other parts of the country have absorbed the preceding one. This would lead to increasing polarization between developed and developing countries since the latter would have to produce with an older and less efficient technology. Lasuen expects that the majority of developing countries will prefer increasing concentration of economic activity in a few centers to a spatially balanced development on a backward level. Economic development based on innovation processes results in a growing polarization of the urban system on an international as well as a national scale. Richardson's polarization reversal hypothesis (1977, 1980) concentrates on explaining spatial development in developing countries. According to this hypothesis the long-term spatial development process experiences a phase of increasing polariza-

28

Ludwig Schd.tzl

tion and reaches a turning point which he termed "polarization reversal"; subsequently, there is a strengthening of forces producing intra-regional decentralization and inter-regional dispersion. The following phases in the process of spatial differentiation are distinguished: •

•

•

•

The urban-industrial process of national development begins in one or a few favorably located regions because of the scarcity of investment resources. Here, a cumulative growth process is set in motion by internal and external economies and by the in-migration of mobile factors of production from other parts of the country. Agglomeration advantages in the center, in conjunction with the withdrawal of production potential from the remainder of the space economy, result in the creation of a center-periphery spatial structure. As development proceeds, a process of spatial transformation begins which originates in the core region (center and its hinterland). The high rate of growth of economic activity and in-migration of labor in excess of available employment opportunities create agglomeration disadvantages in the center. In the economic sphere, they cause production costs to rise and render profitable the relocation of existing enterprises and the establishment of new enterprises in satellite towns in the hinterland of the center. The result is intra-regional decentralization within the core region. At an advanced stage of development, Richardson expects intra-regional decentralization to be accompanied by interregional dispersion; that is, the emergence of national subcenters. At a few selected locations in the periphery, for the most part in larger towns, conditions emerge which enable self-sustaining growth. The agglomeration advantages in the subcenters associated with increasing agglomeration disadvantages in the core region cause the flow of investment to be diverted from the core region into the subcenters. This in turn stimulates labor migration out of the core region and the remaining periphery into the new subcenters. At a later stage of development there occurs a renewed process of intra-regional decentralization of economic activity

II. Sectoral und Spatial Ecrmomic Transformation Process

29

from the new subcenters into their hinterland. The whole process of intra-regional decentralization and inter-regional dispersion results in a stable hierarchical settlement system distributed throughout the country. As regards his recommendations for regional policy action, Richardson concentrates on the phase of inter-regional dispersion. In order to overcome the development problems resulting from a monocentric spatial structure, Richardson proposes influencing the spatial process by active encouragement of agglomeration advantages in larger subcenters in such a way as to accelerate the process of reaching the turning point. State intervention of this kind, however, is regarded as being likely to succeed only if it occurs when the polarization forces have already weakened; that is, if regional policy measures are implemented near the turning point. Conclusion

From the general theoretical remarks concerning the economic sectoral and spatial transfonnation process, theses on the macroeconomic and regional economic development in the NICs in East and Southeast Asia can be derived. •

According to the argumentation of the product life cycle hypothesis, developing and newly industrialized countries are most likely to achieve international competitiveness with industrial products in their maturity stage (that is, with "old goods"). It is noteworthy that above all the East and Southeast Asian market economies were able to use these comparative advantages. A deciding factor here was the economic policy of these countries as practiced so far. As explained in Chapter I, the essential elements of this policy were a consistent strategy of export-oriented industrialization, a state-promoted change of strategy from labor-intensive via capital-intensive to human-capital- and technology-intensive industrialization, skilful application of a wide range of instruments for managing economic relations with foreign countries (such as protection of the domestic industry against

30

•

Ludwig Schatz/

foreign competition and subsidizing goods exports) and for restructuring the domestic economy. The future economic development of the East and Southeast Asian countries will essentially depend on whether these countries succeed in 2 respects. First, they need to maintain international competitiveness of so-called "old" or "mature" goods (this refers to labor-intensive and capital-intensive as well as human-capital-intensive goods). An increase in international competition is to be expected in the future: for labor-intensive production from the new low-wage countries of Eastern Europe pushing for the world market; for capital- and human-capital-intensive production in consequence of the intensive rationalization efforts of the industry of Western Europe, North America and Japan. Second, they need to develop in market segments "new" products which are at the beginning of their life cycle. The paramount task of the economic policy of the future consists in encouraging process innovations and, increasingly, product innovations. The conditions for product and process innovations are fairly favorable in the Southeast Asian NICs. They already have a considerable potential of technologyoriented enterprises. In 1990, in Singapore, 50 per cent and in Hongkong, South Korea and Taiwan, 20 to 25 per cent of the numbers employed in industry worked in technology-intensive branches. In addition, general conditions conducive to more creativity and flexibility are improving owing to gradually implemented political reforms. The existing theories on regional economy only partially explain the process of spatial differentiation of the economy in the developing and newly industrialized countries. Polarization theories deal with the process of spatial concentration; the regional growth theories of the neoclassical school analyze mechanisms that lead to spatial equilibrium, the polarization reversal hypothesis attempts to link the 2 theories. According to this, as development progresses the national spatial system experiences a change from a state of spatial equilibrium to one of imbalance and, subsequently, back to a spatial equilibrium, though on a higher level of develop-

II Sectoral and Spatial Economic Tl'rmsforrrw.tion Process

•

31

ment. According to the product life cycle hypothesis, in developing and newly industrialized countries, too, in the course of a product's life cycle the optimum location for manufacturing a product changes. The theory of "long waves" and of "regional growth cycles" implies a spatial differentiation process which is characterized by a constant imbalance with changing growth regions; in the long run, the regions experience a dynamic development process with phases of growth, stagnation and decline. Independent of the approach, there is general agreement in the theories described above on the necessity of state intervention for a (more rapid) removal of personal and regional income disparities. There are differences of opinion, however, as to the kind and intensity of state control. In terms of the polarization reversal hypothesis the strategies of spatial economic policy range from concepts of growth poles to development axes, satellite cities, medium-size cities and rural development; in most cases, promotion of manufacturing activities constitutes an essential policy instrument. The theories concerning "regional growth cycles" regard the implementation of basic innovations and the ability to adapt production to technological progress as the prerequisite for regional economic growth. Thus the creation of optimum conditions for utilizing regional innovation potential (for instance, by promotion of research and technology, of education and training, allotment of venture capital) is of paramount importance for a spatial economic policy.

We have explained the basic features of economic development and economic policy of the countries of the Southeast Asian growth region and discussed selected theoretical approaches of economic and regional development. The following chapters take a close look at the regional development and regional policy of South Korea. The investigations are essentially based on empirical research and focus on the following aspects:

•

An analysis of the connection between long-term economic development and regional development. Can a trend reversal

Ludwig Schatz/

32

•

•

in the spatial concentration process (polarization reversal) or evidence of development in "regional cycles" be empirically established to take place in the course of restructuring from labor-intensive and human-capital-intensive to technologyintensive production? An analysis of national decentralization policies. To what extent did national economic and regional policies impact upon the spatial differentiation process? First attempt at evaluating the national decentralization policy using examples from the manufacturing industry and the services sector as case studies.

REFERENCES Boventer, E.v. "Stadtische Agglomeration und regionale Wachstumszyklen: Vertikale und quer verlaufende Wellen". In Stadtentwicklung und Strukturwandel, edited by E.v. Boventer, pp. 9-40. Schriften des Vereins fiir Socialpolitik, Neue Folge Bd. 168. Berlin, 1987. Delbeke, J. "Recent Long-Wave Theories". In Long Waves in the World Economy, edited by Ch. Freeman, pp. 1-12. London, 1984. Dicken, 0. Global Shift: Industrial Change in a Turbulent World. London, 1986. Duijn, J.J. van "Fluctuations in Innovations over Time". In Long Waves in the World Economy, edited by Ch. Freeman, pp. 19-30. London, 1984. Eklund, K. "Long Waves in the Development of Capitalism?" Kyklos 33 (1980): 383-419. Ernst, D. and D. O'Connor. Technology and Global Competition: The Challenge for Newly Industrialising Economies. Paris, 1989. Van Gelderen, J. "Springvloed. Beschouwingen over industriele ontwikkeling". De Nieuwe Tijd 18 (1913). Hampe, J. and R. Koll. "Regionale Entwicklung und langfristiger Wandel der Arbeitsteilung: Theoretische Zusammenhange und empirische Analyse am Beispiel der langfristigen Entwicklung ausgewahlter Sektoren in Bayern". In Regionale Beschaftigung und Technolo-

II. Sectoral and Spotiol Economic

Tran~formotimt

Fmcess

33

gieentwicklung, edited by E.v. Bi:iventer, pp. 30-40. Berlin, 1989. Hirsch, S. Location of Industry and International Competitiveness. Oxford, 1967. Kondratieff, N.D. "Die lang en Wellen der Konjunktur". Archiv fur Sozialwissenschaften und Sozialpolitik 56 (1926): 573-609. Lasuen, J.R. "Urbanisation and Development- The Temporal Interaction between Geographical and Sectoral Clusters". Urban Studies 10 (1973): 163-188. Markusen, A. Profit Cycles, Oligopoly, and Regional Development. Cambridge, 1985. Mensch, G. Das technologische Patt. Frankfurt, 1975. Richardson, H.W. City Size and National Spatial Strategies in Developing Countries. World Bank Staff Working Paper no. 252. Washington, D.C., 1977. _ _ _ ."Polarization Reversal in Developing Countries". Papers of the Regional Science Association 45 (1980): 67-85. Schatzl, L. Wirtschaftsgeographie, 1. Theorie. 5th ed. Paderborn, 1994. Schumpeter, J.A. Business Cycles. 2 vols. New York, 1939. Soest, D.v. Basisinnovation Biotechnologie- RegionalwirtschajUiche Analyse, dargestellt am Beispiel der Bundesrepublik Deutschland (Diplomarbeit). Hanover, 1990. Stohr, W. and F. Ti:idtling. "Spatial Equity: Some Anti-Theses to Current Regional Development Doctrine". Papers of the Regional Science Association 38 (1977): 33-53. Vernon, R. "International Investment and International Trade in the Product Cycle". Quarterly Journal of Economics 80 (1966): 190-207. _ _ _ . "The Product Cycle Hyphothesis in a New International Environment". In Oxford Bulletin of Economics and Statistics 41 (1979): 255-267.

IIIIII ------------

--------~------------

Basic Features of Economic and Regional Development in South Korea Karin We.ssel

Outline of Economic Development and Economic Policy

Until the 1960s, the question of spatial implications of national development strategies received little attention in the discussion on underdevelopment and approaches to overcoming it. As a consequence of the rapid population growth in the developing countries in the 1970s and 1980s and the resulting urbanization trend - spatial concentration of population and economic activities - spatial differentiation processes became more and more important to regional scientists and economists and, likewise, to politicians and planning authorities. It was mostly economic and political considerations that induced politicians and planners to start thinking about strategies to overcome the monocentric spatial structure. Metropolization is associated with agglomeration disadvantages and rising production costs in the center. At the same time, there is the risk that the poor utilization of regional development potentials in the rest of the country will turn into a long-term bottleneck factor for

III. Economic and Reqionul !Jel'eiopment in South Korea

national economic growth. In addition, the urban-rural disparities in the living standard and income situation hold a political conflict potential whose consequences are hard to predict. Increasing economic and political problems caused by spatial disparities stimulate the interest in spatial economic policies or decentralization policies. In this study, decentralization policies are defined as government action aimed at influencing the regional and local distribution of human and financial resources of the non-government sector (i.e., economic decentralization). In order to implement efficient strategies which will lead to spatial equilibrium, a systematic analysis of the inter-relations between economic development, regional development and decentralization policies is necessary. Such an analysis should consider the following aspects: • • •

•

course and causes of long-term economic restructuring (Chapter I and III); evaluation of the impact of the economic transformation process on regional development (Chapter III); value and effectiveness of the present decentralization policy in terms of the removal of spatial disparities (Chapters IV to VI); development of alternative strategies for future control of regional development (Chapter VII).

There are distinct differences between individual developing countries in terms of the extent of spatial concentration. Due to their high socio-economic development dynamics based on export- and specifically industry-oriented development strategies, the majority of economically successful newly industrialized countries (NICs) show large disparities in their social, economic and spatial structure. The unparalleled intensity of spatial concentration processes in these countries required political action in general and a more determined decentralization policy in particular. In this volume, South Korea was selected as a case study because it successfully practices the development strategy of world market integration leading to a dynamic economic development

Karin Wessel

36

which is accompanied by a high degree of spatial concentration of population and economic potential. On the other hand, the South Korean government has more than two decades of experience with state decentralization strategies aiming at reducing intra- and inter-regional disparities. The present empirical analysis of South Korea's economic and regional development was done with the following objectives in mind ( cf. also theses evolved in Chapter II): •

•

The analysis of the macro-economic development is to help evaluate South Korea's international competitiveness. Also, the impact of the economic transformation process on regional development is examined. The results of the regional analysis serve a) to empirically test theoretical models for explaining the spatial differentiation process in developing and newly industrialized countries and b) as a basis for the evaluation of the implemented decentralization policies.

The Early Phase of Economic Development

At the end of the nineteenth century, Korea's modern economic history begins with the opening of the major ports to international shipping. Since the middle of the seventeenth century, Korea had pursued a policy of total isolation in order to protect itself against its neighbors China, Russia and Japan; they all were interested in Korea because of its favorable geopolitical (strategic) location. As a consequence of its self-imposed isolation Korea lacked international economic relations. Therefore, its economy stagnated on the developmental level of the feudally organized agricultural society. 1 After the opening of the country fighting for predominance in Korea flared up again (ChineseJapanese War 1894-95; Russian-Japanese War 1904-5). As a result of these power struggles, Korea in 1905 was declared a Japanese protectorate and in 1910 was annexed by Japan. Korea's economic structure as it developed under Japanese influence shows typical colonial traits: •

In order to meet the demand for food in their own country, the Japanese colonists started modernization processes in

III. Eccmomir: and Regional Deuelopment in South Koren

•

37

Korean agriculture. Improvements in the system of wet rice irrigation, new land development along the coasts and the development of new areas for cultivation in the hilly regions caused rice production to increase tenfold between 1912 and 1938. 2 The system of tenure by lease, which was characterized by a small number of big land owners and a multitude of small tenant farmers, remained unchanged, but considerable parts of the country passed into Japanese possession. The establishment of the first modern industrial plants in conjunction with the development of an adequate infrastructure was originally intended for processing the foodstuff earmarked for export to Japan. In the late thirties, after the outbreak of World War II, the main focus was shifted to the development of heavy industry. During the period from 1910 to 1944, the share of the manufacturing industry in net output increased from 6. 7 to 29 per cent, the ratio between light and heavy industry changing from 1:0.16 to 1:1.36.3 Industrial production almost entirely depended on the Japanese economy; capital, technology, primary products, spare parts and skilled labor were provided by Japan. The industrial structure of small holdings with labor-intensive production, having predominated before the Japanese colonization, was gradually replaced by large Japanese enterprises. 1

Korea's extreme economic dependence on Japan caused the collapse of the economy after the Japanese withdrawal from the country in 1945. In the aftermath of the Korean War (1950-53), which led to the division of the country along the 38th parallel, entirely different situations arose for the 2 newly formed states. In South Korea, the phase of industrial reconstruction already started during the armistice negotiations from 1951 to 1953, the United States and various international organizations exerting a strong influence on the economic system. In 1953, following the recommendation of the United Nations Korean Reconstruction Agency (UNKRA, the Nathan Plan), the South Korean government converted the economic system, which had been incorporated in the constitution and was strongly socialist in orientation, to a free market economy. Despite substantial financial aid from

38

Karin Wessel

foreign countries, especially from the United States, 5 the economy stagnated on a low level of development. From 1955 to 1960, the average per capita income was US$74, gross national product (GNP) increasing by 3.5 per cent annually. 6 The economic situation in the late 1950s can be characterized as follows: •

•

•

Predominance of agriculture; the primary sector contributed 45 per cent of GNP whereas the share of the manufacturing industry amounted to merely 12.6 per cent (Figure III.1). Dependence on foreign capital: the majority of investments, barely reaching 10 per cent of GNP, were financed by development aid, in particular by the United States' program of development aid to South Korea (Figure II1.2); the domestic savings quota during that period was 4 per cent. 7 The level of productivity was low due to lack of experience with industrial production methods.

Since the early 1960s when state economic planning was introduced- in 1962 the First Five-Year Plan for Economic Development in South Korea came into force (Table III.1) -the Korean economy has shown disproportionately high growth rates by international comparison. By the mid-sixties, the annual growth rate of GNP had reached 6.5 per cent rising to 10.4 per cent between 1965 and 1970 and falling to 8. 7 per cent from 1971 to 1975 and to 7.5 per cent between 1976 and 1980. In the period from 1980 to 1990 it rose again to 9. 7 per cent. During the same period, there was a progressive rise in the per capita income from US$79 in 1960 to US$252 in 1970, US$1,589 in 1980 and US$3,845 in 1990; therefore, since the mid-seventies, according to the World Bank, South Korea has belonged to the upper category of middle-income countries. Owing to this developmental dynamism the South Korean economic structure experienced a considerable transformation process: following the road of an imbalanced development strategy, government measures were focused on the manufacturing industry, all the while grossly neglecting the agricultural sector. From 1965 to 1992, the share of industry in GNP increased from 19.8 to 45.0 per cent (Figure III.l). The share of employment in industry in total employment increa_ed from 8.6 per cent in 1965 to 26.9 per cent in 1991 (Figure III.:3).

Figure 111.1 Composition of Gross National Product, 1955-92 %100

100%

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

1955

1965

CJ D

-

1975

1985

GNP in Mio. US$

1992

agriculture industries services

Source: Bank of Korea, Principal Economic and Social Indicators (1988a); Bank of Korea, Economic Statistics Yearbook (various years); World Bank, World Development Report (1994).

0 *"'

Figure 111.2 Investments, Domestic Savings Rate and Foreign Capital Inflow, 1955-92 %of GNP

50 Net ;oreign depts

..··············'\

40

1\ /_./

Investment rate

30

r, ..-.

I I

'\

.

20

' \

.

/

v

.\

II ,_...

r-I

1\

·--

\,_ /'y, / 1- J \ '

I

;~'"'

'-, I \! •

1\ I \

I

\_ .-· --.

\,

I'/'~/ ,.., /1

\ ,...-

·..

/ ·. .··.. ' ··...

-v

Dom"t~ ~""'' m"

·..

...

·..····

10

"........ 1955

1960

USA, UN aid program --·-·- . ._ (finished in 1983) _____ ...:.:::-..:..-=:::_-:.:=:=-...:.~:.:-::..:::.:=::.-=.:..-::....-=.·..=...

1965

1970

1975

1980

Direct foreign investment

-------------1985

1990

Year

Source: Bank of Korea, Principal Economic and Social Indicators (1988a); Korea Foreign Trade Association, Major Statistics of Korean Economy (1988); World Bank, World Tables (1994).

2 ~·

~

OJ: OJ:

~

...... ::::::

Table 111.1 Goals of Plans for Economic Development, 1962-91

~

(')

0

1962-66

1967-71

1972-76

1977-81

1982-86

1987-91

""0"' ::2

~-

Primary goals Development of a selfsufficient economic structure

Forcing the pace of economic development

Consolidation of economic development

Consolidation of economic development

Modernization of industrial structure

Removal of social and regional imbalances

Regionally balanced process of development

Stability, efficiency and balance

Stability, efficiency and balance

Promotion of national welfare, including balanced regional development

Promotion of national welfare, including balanced regional development

Development strategies Development of basic industries Securing energy supply Integration of not fully utilized production factors

Promotion of exports and consolidation of import substitution Development of heavy industry Increase in the rate of employment and reduction of the population growth rate

"' ;::0

P.. ~ '~

CQ

c·

"' ~

2._

:::::, ~

~

Q

'b

Promotion of heavy industry Promotion of research and development; improvement of level of technical education Improvement of the rural living standard

Promotion of domestic investment activity Increased investment in research and development Increased activities of Seamaul movement to improve rural living standard

Elimination of direct state intervention in favor of indirect measures Liberalization of commodity and capital markets for foreign countries Promotion of fair competitive conditions on the domestic market

Further removal of state intervention in the economic process Continued liberalization Forcing the pace of industrial structural change by encouraging research and development and promoting small and medium-size enterprises

Source: Government of the Republic of Korea (1976, 1981 and 1986); Economic Planning Board (1986); Federation of Korean Industries (1987).

::2 C'C

;:S

S?" :::,.; Q

:::: :;:,.

2 "'"' ";

,_. *""

Karin Wessel

42

Industry became the motor of the South Korean economy. In the course of industrial development, the focus of government economic planning repeatedly shifted. In the process, industries focusing on import substitution and those directed toward export complemented each other. Measured in terms of the respective key industry with regard to value added, share of employment, share of exports and development dynamics, 3 phases can be defined (Figures III.4, III.5 and III. 7): •

the sixties: labor-intensive consumer goods of light industry (textiles and clothing); Figure 111.3 Employment, by Sector, 1965-91

1985 1980 1975 1970 1965

r.

0

10

20

30

40

50

60

70

80

90

100%

Agriculture, forestry and fishery

~

Manufacturing, mining and quarrying

VM

Services (incl. construction)

!IIJJ

Unemployed

t

* No data for unemployed available.

t Unemployed- All persons who during the reference week worked less than one hour for pay and profit. Source: Economic Planning Board, Social indicators in Korea (1988); Bank of Korea, Economic Statistics Yearbook (various years).

III. Economic and Regional Del'eiopmellt ·in South Koreo

•

•

43

the seventies: capital-intensive, semifinished goods of heavy industry (chemical industry, steel production and shipbuilding); the eighties and early nineties: capital- and human-capitalintensive investments and durable goods (electronics and transport equipment industries).

This phase sequence characterizes an industrialization process which - in contrast to the situation in the majority of industrialized countries - took its course via so-called backward linkage effects. Diversification and consolidation of the industrial structure started with the development of consumer goods manufacturing directly for ultimate consumption and proceeded by successively developing the preceding production stages. 8 Since the early 1960s, South Korea's economic situation has mainly been characterized by industrial development (Figure .. 111.6). Therefore, the economic development and state intervention taking place during this period are interpreted on the basis of the phase sequence of industrialization described above. Phase of Labor-Intensive Consumer Goods

Starting in the early sixties, import substitution of mainly lightindustry consumer goods practiced since the end of the Korean War generated a continued weakening of growth impulses; this was partly due to the limited domestic market. Therefore, with the implementation of the First Five-Year Plan for Economic Development (1962-66) South Korea introduced an industrialization strategy directed toward export. The industrial policy pursued for this purpose both by means of tax, interest and customs exemptions or privileges and by means of a concerted effort of government and business representatives targeted at increasing export activity without specifically supporting individual branches. 9 In the sixties, the development of the export sector was promoted by high growth rates in the world economy and world trade and by favorable exchange rates, low international interest rates and low raw material prices. This development was based on the consumer goods industFies - mainly the sectors of textiles and clothing- that had already been established during the

Figure 111.4 Sectoral Growth Pattern (Employment), 1963-86 Average annual growth rate in %

1963- 1970 20

Wood

15

Metal Non-met.

Text.

- x

·'lAA•··~••AA-

•••'•••'•••'•'•!••••'••••••'••••l-10

Paper Chern.

5

0

10

20

30

Average annual growth rate in %

100% Employees in % 19 70

1970- 1980

15

15

Electr. Metal

10

~~~-

Paper Chern. Wood

Text.

-

Food 5 1-----

r1.0

20

30

Average annual growth rate in %

x~Average

annual growth rate all industries

40

-

!

If. 50

60

io

10

-x

5

ab

100 % 90 Employees in % 1980

1980- 1986

Food Text. Wood Paper Chern. Non-met. Metal Electr. Other

-

Manufacture of food, beverages and tobacco Textiles, wearing apparel and leather industry Manufacture of wood products, incl. furniture Manufacture of paper and paper products Manufacture of chemicals, petroleum coal, rubbe Manufacture of non-metallic mineral products Basic metal industry Manufacture of fabricated metal products, electr. machinery, equipment - Other manufacturing industries

Source: Economic Planning Board, Survey on Mining and Manufacturing (1960, 1970, 1980, 1986).

Figure 111.5 Sectoral Growth Pattern (Value Added), 1963-86 Average annual growth rate in %

1963- 1970 50 40

-x

30 20 10 % Value added in % 19 70 Average annual growth rate in %

1970- 1980

Text.

g

50

Metal Paper Wood

Electr.

40

Chern.

-.x

Food

30 20 10

0

50

0

60

Average annual growth rate in %

80

so 100% Value added in % 19 80

1980- 1986

x~Average annual

growth rate all industries

Food Text. Wood Paper Chern. Non-met. Metal Electr. Other

Value added in % 19 86 Manufacture of food, beverages and tobacco Textiles, wearing apparel and leather industry Manufacture of wood products, incl. furniture Manufacture of paper and paper products Manufacture of chemicals, petroleum coal, rubber Manufacture of non-metallic mineral products Basic metal industry Manufacture of fabricated metal products, electr. machinery, equipment - Other manufacturing industries -

Source: Economic Planning Board, Survey on Mining and Manufacturing (1960, 1970, 1980, 1986).

Figure 111.6 Economic Development and International Trade, 1955-92 Growth rate in%

-10

1960

1965

1970

1975

1980

1985

1990

Year

Imports/Expon In M10

US$

80 000

70 000

60 000 Export surplus ____._._._._._

50 000

-

Imports

C:=J

Exports

40 000

30 000

Growth rate in%

20 000

60 40

10 000 20

-20

1970

Source: Bank of Korea, Principal Economic and Social Indicators (1988a); Bank of Korea, National Accounts (1988b); Bundesanstalt fUr AuBenhandelsinformationen (various years).

III. Ecmwm'ic and Regiouol De1·clopmont in South Korea

47

Figure 111.7 Indicators of Industrial Restructuring, 1964-90

Value Added

Export I)

1990

70497 bn W

1990

0

50

0

20

1986

34,7 bn US$

0

20

1983

24,4 bn US$

0

20

1986

32000bn W

50

0

1983

0

100%

100%

15000bn W

50

1972

100%

9000bn W

65,0bn US$

40

40

40

%

%

%

1,6 bn US$

1972

r 0

50

1964

0

100%

0

600bnW

50

20

0

%

0,1 bn US$

1964

100%

40

20

40

Electronics, machinery Chemical and metal Textile, garments 1) W = Korean cunency unit (Won)

Source: Wessel (1990); World Bank, World Development Report (1994).

%

48

Karin Wessel

phase of import substitution. In 1972, these industries achieved a share of 38.1 per cent in total exports (Figure III. 7). This expansion of production increasingly induced imports of semifinished goods of the heavy industry. In order to avoid a further strain on the balance of trade, import substitution of essential basic materials and production goods from the chemistry and petrochemistry sectors already began in the late sixties. 10 However, the protectionist measures necessary for this did not only affect the heavy industry. In 1968, nearly 40 per cent of all industrial goods were subject to import bans or restrictions; the tariff rate on the remaining goods increased from 17 per cent in 1963 to 26 per cent in 1968. 11 Phase of Capital-Intensive Semifinished Goods of Heavy Industry

In 1972, the Third Five-Year Plan for Economic Development (1972-76) took effect and planners of the South Korean economy began to concentrate mainly on promoting heavy industry (Table III.1 ). 12 Industrial restructuring became necessary due to the following national and international changes in the economic system:1:3 •

• • •

The balance of trade was increasingly strained by rising imports of heavy industrial basic materials and production goods for the expanding consumer goods industry (Figure III.8). Protectionism of Korean trading partners increased, especially with regard to labor-intensive manufactured products. There was growing competitive pressure from low-wage countries such as Thailand, Indonesia and the Philippines. The development of the armaments industry was intensified as a consequence of the withdrawal of approximately one third of the U.S. armed forces and the declared intention to withdraw the remaining troops as well.

Starting in 1972, import substitution included not only the chemical and petrochemical industries but also the sectors of steel production and shipbuilding. In 1978, the share of goods subject to import prohibition or restriction reached 65 per cent in heavy

Figure 111.8 Balance of Payments, 1956-92 Mio. US$

15000 14 000 13000

Overall balance

12000

Current balance

11 000

Capital balance

10000

l

9000 8000

Trade balance Invisible balance

and unrequired transfers

7000 6000 5000 4000 3000 2000 1000

-1000 -2000 -3000 -4000 -5000 -6000 -7000 -8000 -9000 -J

1956

1958

-~

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

year

Source: Bank of Korea, Balance of Payments Statistics (1987); Bank of Korea, Monthly Bulletin 6 (1989); Bundesanstalt fUr AuBenhandelsinformationen (various years).

50

Karin Wessel

industry; the average tariff rate rose to 37 per cent. Simultaneously with these measures the South Korean government organized a qualitative, selective procedure for direct foreign investment; this channelled the limited volume of direct foreign investment into key industries of the heavy industry sector. 14 Domestic financing conditions improved, thus enabling a restrictive procedure for admitting foreign investors, although international aid was decreasing. The 1965 tax reform effected a continued rise of the domestic savings quota so that from 1965 to 1976 domestic financing in conjunction with a strongly increased total volume of investments was above the level of capital inflow from abroad (Figure III.2). The concentration of state promotion on heavy industry was evident in the disproportionately high share of enterprises of that sector among the beneficiaries of reduced interest on loans. In the 1970s, an average of 70 per cent of the total of granted loans went to heavy industry. 15 In addition, state assistance programs to help develop the heavy industry included the following: 16 •

•

•

infrastructural measures, such as the establishment of industrial estates, the development of the transportation network infrastructure (port facilities, roads), ensuring the supply of energy and water etc.; tax relieffor all enterprises of the iron, steel, shipbuilding and petrochemistry sectors in the form of 100 per cent reductions in corporation profits tax for a period of 3 years and 50 per cent for the subsequent 2 years; duty-free import of machinery and primary products for newly founded and expanding companies.

The industrial restructuring described above shifted the ratio between light and heavy industry from 1:0.6 in 1970 to 1:1 in 1980 and 1:3.3 in 1990. In the mid-seventies, this expansion of production in the heavy industry sector led to a buildup of capacity that by far surpassed domestic demand. This stimulated the export of steel, ships and chemical products and, starting in the early 1980s, made heavy industry the leading export sector (Figure III.7).

51

III. Ecunmmc arui Reg7ono/ Dm·elopment in South Korea

Phase of Capital- and Human-Capital-Intensive Investment Goods and Durable Goods

In the early 1980s, South Korea was simultaneously confronted with several structural problems of the economy: 17 •

•

•

•

Excess capacities in the heavy industry sector were encouraged by continued government investment incentives while world trade was declining. 18 The competitiveness of the export industries continued to decline because industrial enterprises in general and those of the light industry in particular neglected the development of new technologies. Foreign debts rose, reaching a maximum of US$46 billion in 1985 (Figure 11!.2). In 1987, among developing and newly industrialized countries, South Korea was the fourth largest debtor country after Brazil, Mexico and Argentina. 19 Ever since the beginning of industrialization, there has been an imbalance between the dominant industrial conglomerates and small and medium-size enterprises, the latter becoming increasingly dependent on large enterprises (Figures 11!.9 and III.10); 20 likewise, there has been an imbalance between growth regions in the northwest and southeast and regions with a weak economic structure; this was caused and/or aggravated by the fact that investments were preferably channelled into the heavy industry tied to specific locations.

Besides, changes in the international economic structure bring mounting pressure to bear on the South Korean economy to adjust to new conditions. The United States especially- other countries as well - contemplates counteracting Korean protectionism and its aggressive export strategies by introducing trade obstacles in the form of tariffs or other ways; this necessitates more and more the opening of capital and goods markets. Moreover, the "3 highs" - revaluation of the won, rising wage costs and raw material prices - increasingly prevail on the domestic market. The Fifth Five-Year Plan, which was adopted in 1982, marked an essential turning point in South Korea's economic policy.~ The 1

Figure 111.9 Contribution of Small and Medium-Size Enterprises to the Manufacturing Sector, 1966-90

Ol ~

Contribution of small and medium-sized enterprises to the manufacturing sector

%

100 90

------------------------------------------------------

Enterprises

80 70 60

....... ........

'-......,

50

................................

.........

---·--------------------____ _ -----------

40

Employees

*

---------------

30 20 10

*no new data available

1966

1970

1973

1976

1979

1982

19851986

1988

1990 Year

Source: Economic Planning Board, Survey on Mining and Manufacturing (various years); Gabriel (1992).

2 --: ""·

;::l

~

i;l

~

III Economic and Regional De1'elopment in South Korea

Figure 111.10 Subcontracting Trends of Small and Medium-Size Manufacturing Enterprises, 1975-85 Share of subcontractors in small and medium-sized manufacturing enterprises

~~ 1

Electr. machinery Transport equipment

70

Mechanical engineering

60

Textiles

50 All industries

40

30

20 Source,

/

10

Mwistry of Trade and Industry,

/

Report on the State of Small and Medium Enterpnses,

/

dtfferent years

1975

1978

1980

1982

1985

Year

Source: Ministry of Trade and Industry, Report on the State of Small and Medium Enterprises (various years).

54

Karin Wessel

definition by the state of individual key industries and, in conjunction with it, the policy of promoting specific branches were almost entirely abandoned. Fiscal-political measures in favor of technology-intensive, export-oriented and small and medium-size enterprises took their place. Special importance was attributed to technological contributions made by Korean research and industry; on the basis of an improved infrastructure they were to serve as the motor for future economic development. By lifting protectionist measures step by step, South Korea is hoping to accelerate the process of catching up to the technological level of the industrialized countries and to conduce toward a more rapid reduction of debts. In 1987, only 5 per cent of all goods were still subject to import bans and/or restrictions. 22 In over 79 per cent of all sectors of the economy there were no longer any restrictions on direct foreign investments and the average tariff rate had dropped to 20 per cent. 23 However, this liberalization did not include the machinery and electronics industry, which, since the beginning of the 1980s, have been protected by a high tariff rate (50 per cent in 1988) and import tax (16 to 40 per cent in 1988). 24 A strategy of import substitution is, therefore, still being pursued in order to promote the sector of durable and technology-intensive investment goods. Beginning in the mid-eighties, the export volume of products from the electronics and machinery industry exceeded the value of all other heavy-industry exports (Figure Ill. 7). At a share of 34 per cent in 1986, the growth industries, aside from helping consolidate the export structure, contributed considerably to South Korea's achieving a positive balance of payments (Figures 111.6 and 111.8). In 1988, the major part (44 per cent) of export products from machinery, electronic components and transport equipment manufacturing - in statistics subsumed under investment goods - belonged to the less human-capital-intensive products of household and entertainment electronics, as there are television sets, radios, record players, video recorders etc. By comparison, automobiles had a share in exports of 24 per cent, followed by semiconductors with 20 per cent and personal computers with 9 per cent. 2 "

III Econonn:c and Regional Dcnelopment in South Korea

55

While the development of the external sector, measured in terms of export volume and export structure, took a course that corresponds to the national goals, the policy of import substitution, especially with a view to classic investment goods manufacturing, as, e.g., the production of industrial machinery, 26 calls for a critical assessment. In 1985, in spite of high import duty and import taxes 27.4 per cent of the demand for industrial machinery was met by foreign products. This means that next to petrochemical products - approximately two thirds of which were imported because of the lack of oil fields in the country - the import dependency in the sector of machinery products took second place among all goods. 27 Vertical foreign dependency, that is, the share of imported raw materials and primary products in the total demand, was relatively high both in the machinery and the electronics sector (34 per cent and 48 per cent, respectively, in 1985) compared with the average of all branches (13 per cent in 1985). 28 In this sector more so than in others, an essential share of imports came from only one foreign country, namely Japan. Therefore, Japanese suppliers of intermediate goods received 40 per cent of the export value of the Korean electronics industry. 29 For this reason, the South Korean government, since 1986, has subsidized these branches with the aim of developing small and medium-size enterprises and widening the range of countries supplying intermediate goods to Korean export industries. Increasing protectionism, especially on the part of the United States, the main importing country, forced South Korea to strive for more diversification even as regards export markets. In 1970, 78 per cent of exports went to the United States and Japan (50 per cent and 28 per cent, respectively); this figure dropped to 68 per cent in 1986 (United States: 40 per cent; Japan: 18 per cent). The flow of products has increasingly shifted in the direction of Asia (not including Japan) and Europe. In both regions, the share of Korean exports rose from 9 per cent in 1970 to 15 per cent in 1986 (Figure III.11). 30 Since the early 1980s, in order to reduce the high surpluses in the balance of payments at that time, South Korea has been promoting direct foreign investments of Korean enterprises; before, they had been handled highly restrictively. In

56

Karin Wessel

order to maintain overseas markets, Korean foreign investments were concentrated on the United States (48 per cent in 1987). The rise in the amount of Korean investments in Southeast Asia (16 per cent in 1987) indicates that wage cost advantages in these countries were utilized to maintain international competitiveness.31 In the early 1990s, South Korea boasted a per capita GNP of US$6, 790. Industrial restructuring towards human-capital- and technology-intensive products had begun in the 1980s and continued into the 1990s. Already in 1990, human-capital- and technology-intensive industries produced more than 60 per cent of Figure 111.11 Major Export Markets of South Korea, 1968-87

~es ~ -~~nia

,~·: (?

Import-Export Ratio (

1m! ~ ~

LJ r----1 L:_j

:200 }

~~~:

X 100)

Import surplus

100-199

d'~

Share of South Korean exports in % 50 40 30 20 10

5 50-99

} Export surplus

~50

1 0,1

Source: Economic Planning Board, Major Statistics of Korean Economy (1988b).

III. Economic and Regional Denelopment in South Korea

57

industrial value added and contributed more than 50 per cent of South Korea's exports. Thus, exports of the electrical industry, machinery and transport equipment manufacturing not only exceeded the value of all other heavy industry exports, but, for the first time, also that of light industry export goods (Figure III. 7). This development is accompanied by an extremely high investment rate (39.1 per cent of GNP in 1992; Figure III.2) and a remarkable decrease of the share of debts in gross domestic product (GDP) from 43 per cent in 1986 (highest level) to 14.5 per cent in 1992 (Figure III.2). Despite this positive development the South Korean economy in the 1990s is facing a number of problems: • •

•

•

extremely low growth rates of GNP by Korean standards (since 1990 only one-digit; in 1993 4.5 per cent); a negative balance of trade (Figure III.6) due to a) low increase in exports into the major markets of the United States, Japan and the European Union (EU) because of • weak economic activity in these countries, • growing competition from other developing and newly industrialized countries in terms of labor-intensive products, • as yet insufficient competitiveness of capital- and technology-intensive products; b) a domestic investment goods industry which is still weak so that the increasing demand for investment goods has to be met by imports; c) a marked trend toward increasing wage costs while productivity increases are low; the rise in unit costs resulting from this reduces international competitiveness; increase in Korean foreign investments in the neighboring countries of China, the Philippines and Vietnam (where low wage costs are taken advantage of) and in the United States and the EU (to safeguard markets); continuing decrease in direct foreign investments (Figure III.2) and increasing withdrawal of foreign enterprises espe-

Karin Wessel

58

cially from labor-intensive production. Contrary to this trend, direct foreign investments in capital- and technology-intensive industries are increasing. This development is positive with a view to the necessary industrial restructuring in the direction of technology-intensive industries. All these development trends show that the South Korean economy is presently in a transitional phase: South Korea, on the one hand, no longer has the wage cost advantages of the developing countries; on the other hand, it does not yet possess industrialized countries' comparative cost advantages promoting the development of human-capital-intensive and technology-intensive industries. South Korea's further economic development depends on how successful the country will be in catching up with the industrialized countries in terms of technology. The new technologies needed to achieve this goal- both in terms of new products and in terms of new production processes- are generally not available through international technology transfer. With regard to the technologies of labor-intensive and capital-intensive production - old to the industrialized countries, new to South Korea - international transfer of technology was successful into the 1980s. In terms of human-capital- and technology-intensive industries, the industrialized countries are not willing to jeopardize their technological lead by granting licences or selling patents. In the future, if South Korea wants to promote the further establishment and expansion of human-capital- and technologyintensive industries it will be forced to make an increased effort to develop technologies of its own. Results

Within a period of only 30 years, South Korea developed from one of the poorest countries in the world into a country with a dynamic national economy. It is about to become a modem industrialized country. Its development so far has been characterized by a high degree of state influence and state intervention. The strategy of strong government control of the economy has successfully promoted the international competitiveness of South

III. P"'mnomir and Regional Drn:elopment in South Korea

59

Korean industry. Increasing exports and substantial export diversification are evidence of this. The successful development of international competitiveness is based on far-reaching industrial restructuring which was initiated and supported by state measures. As a result, there was a shift of growth industries in the South Korean economy: labor-intensive industries were gradually replaced by capital-intensive industries and, eventually, technology-intensive industries became the motor of South Korea's economy. So far, however, industrial restructuring has not caused the emergence of "new" products at the beginning of their life cycle. Even the product range of the growth industries of the 1980s and 1990s (electrical industry, machinery) consists mainly of "old" products which in terms of product life cycle are in their mature stage. Therefore, the South Korean economy in its present development stage is confronted with a double challenge, namely: •

•

increasing competition from the NICs of the next generation for standardized products. In these countries wage costs are still lower than in South Korea. In order to maintain their competitiveness, Korean enterprises have started relocating labor-intensive manufacturing into these low-wage countries. Another possibility for maintaining their competitiveness in terms of "old" products is automation of manufacturing processes. This aspect has so far been widely neglected in South Korea; obtaining access to the market sector of new products, which until now has been divided up among the leading industrialized countries.

Further economic development will depend on whether South Korea will be successful in producing process and product innovations. Since the late 1980s, the South Korean government has focused on introducing technology policy measures into its economic policy. The following sections concentrate on the influence that economic development and the far-reaching industrial restructuring have on the spatial differentiation process of the industry.

60

Karin Wessel

Spatial Dynamics of the Industrial Structure Differentiation Processes at the Province Level

Until1930, Korea's industrial basis was rather weak, consisting only of an insignificant number of scattered small and mediumsize enterprises. A first industrialization surge occurred at the beginning of the 1930s, initiated by the colonial power of Japan. A dual industrial system developed because Korea's raw material deposits were concentrated almost exclusively in the northern part of the country. Around Pyongyang, in the north, large-scale Japanese enterprises were established to form a region of heavy industry covering an extensive area, whereas in the south small and medium-size enterprises, especially of textiles and food manufacturing, predominated; the latter in correspondence with the agricultural orientation of the south. Owing to agglomeration and infrastructural advantages, these industries were located in the capital of Seoul and the ports along the south coast with their orientation toward the colonial power of Japan. Consequently, the division of the country along the 38th parallel at the end of World War II separated the heavy industry in the north, organized on a large-scale basis, and the light industry in the south, characterized by small and medium-size enterprises. During the Korean War from 1950 to 1953, all production facilities in Seoul were destroyed. Pusan and the surrounding province of Kyongnam, the second industrial center of South Korea, were not occupied by North Korea and, therefore, became the only regional center of industrial production both during the War and during the initial phase of reconstruction afterwards. 32 By 1963, one year after the First Five-Year Plan for Economic Development had come into effect, a bipolar industrial system had again developed. As before, the capital of Seoul (or rather the Seoul metropolitan area with the province of Kyonggi) took the lead with a share of 30 per cent and 40 per cent, respectively, in numbers employed in industry and 36 per cent and 35 per cent, respectively, in industrial value added. The second industrial core region was Pusan, where 18 per cent of employment in industry and 16 per cent of value added were concentrated; together with the province of Kyong-

111. Economic unci Regional De'i'eloprnent in South Korea

61

nam these shares were 23 per cent and 20 per cent, respectively.:33 Figure III.12 illustrates industrial development in the individual provinces from 1963 to 1986 on the basis of the indicator "employment". The time intervals defined for this part of the study correspond to the following 3 phases of industrialization typified for South Korea's economic development: • • •

1963-70 for the labor-intensive phase of light industry; 1970-80 for the capital-intensive, heavy-industrial orientation; 1980-86 for the phase of beginning restructuring in the direction of human-capital-intensive sectors of production.

Each of the 3 phases was accompanied by specific differentiation processes in the regional industrial structure. During the first time interval from 1963 to 1970, the process of concentration in the 2 industrial regions around Seoul and Pusan continued to intensify, measured in terms of the aboveaverage annual growth rates in industrial employment in Seoul, Kyonggi and Kyongnam, compared with the country as a whole: the share of the 2 regions in industrial employment rose to 69 per cent, the region of Seoul taking the lead with 46 per cent. 34 In both regions the surrounding provinces achieved higher growth rates than the core cities. With the exception of the province of Kangwon, all provinces showed a below-average growth rate. The fact that official statistics of industrial employment in South Korea included those employed in mining explains why the growth rate of industrial employment in Kangwon was above the national average. In this province, South Korea's only mining region, the Taebaek region, is located, which, in the sixties, was granted special state assistance with a view to supporting efforts aiming at South Korea's economic self-sufficiency. The intensification of the polarization process continued in the seventies so that, toward the end of the second phase, 73 per cent of industrial employment was concentrated in the 2 leading industrial regions; Seoul and Kyonggi possessed a share of 46 per cent while Pusan and Kyongnam together reached 27 per cent. 35 Intra-regional decentralization, though, of which there had been initial indications in the preceding decade, increasingly prevailed

62

Karin Wessel

Figure 111.12 Development in the Manufacturing Industry, by Province (Employment), 1963-86 Average annual growth rate in °/o

1963- 19 70

Average

0

% Employees in % 19 70 Average annual growth rate in %

1970- 1980

20

20

15

10

Employees in % 1980 Average annual growth rate in %

0

1980-1986

10

% won

Employees in % 1 9 86

Source: Economic Planning Board, Survey on Mining and Manufacturing (various years).

III Economic and Regional Development in South Koreo

63

in favor of the surrounding provinces: the annual employment increase was below average in the 2 core cities of Seoul and Pusan. At the same time, Seoul's share in employment decreased by more than 10 per cent while the share of Kyonggi nearly doubled. Thus, the province surrounding Seoul had the highest regional concentration of industrial employment. With the exception of the province of Kyongbuk, located north of the southeastern industrial region, all provinces showed a development that was far below the national average; their share dropped from 20 per cent in 1970 to 13 per cent in 1980. The growing concentration in the 2 leading industrial regions, the intra-regional redistribution in the direction of the surrounding provinces and the stagnating - as in Kyongbuk - and decreasing share, respectively, of the remaining 7 provinces, as described above for the 1970s, continued into the 1980s, albeit more slowly. Figure III.13 illustrates that the regional distribution pattern of industrial value added roughly corresponded to the spatial distribution of industrial employment. However, there were differences on 2 scores:

•

•

While in terms of industrial employment the predominance of the region of Seoul (including Kyonggi) remains unchanged until 1980 and then decreased until 1986, its predominance in terms of industrial value added decreased at first from 45 per cent in 1970 to 42 per cent in 1980 but by 1986 had increased again to 45 per cent. This development is an indication of industrial restructuring in the Seoul metropolitan region in the direction of less labor-intensive sectors of production. This means that the industrial significance of the metropolitan area continued to grow despite the slacking development of employment. The lead relative to growth rates went to the province of Kyonggi. Contrary to the regional development of numbers employed in industry, above-average growth rates were registered in industrial value added not only for the agglomerations of Seoul (including Kyonggi) and Pusan (including Kyongnam) but

Karin Wessel

64

Figure 111.13 Development in the Manufacturing Industry, by Province (Value Added), 1963-86 Average annual growth rate in o~

1963- 1970

70

60

50 Seoul -------

40

Pusan

-Average

30 20 10

% Value added in % 19 70 Average annual growth rate in ~-o

1970-1980 50 40 -Average 30 Cheju

20 10

% Value added rn °'o 1980

1980- 1986 3

Kangwon Chungbuk Chungnam 1 Chonbuk Chonnam

I

II

1 % Value added in % 19 86

Source: Economic Planning Board, Survey on Mining and Manufacturing (various years).

Ill. Economic ond Regional Dei•elopnwnt 'ill South Kon'u

65

also in 5 of the remaining 7 provinces. However, there are no indications of the development of a new growth region because the disproportionately high growth dynamics did not persist in any of the provinces.

The shift share analysis provides initial indications of the causes of growth disparities at the province level. With the help of this method a differentiation can be made between developmental disparities caused by structural effects (net proportionality shift) and those due to locational effects (net differential shift).:36 Figure 111.14 shows the results of the shift share analysis relative to the development in employment, subdivided into the 3 time periods described above. The total net shift corresponds to the regional differences in growth compared with the total area of South Korea as was already discussed in connection with Figures III.12 and III.13. A total net shift greater (smaller) than one characterizes those provinces whose development, compared with the national average, is disproportionately rapid (slow). The importance of the basic conditions specific to individual provinces as variables explaining regional disparities is expressed by the locational and the net proportionality shift. The net proportionality shift calculated for each province indicates to what extent the regional industrial structure, 87 measured in terms of the indicator "industrial employment", deviates from the national branch structure. Values greater than one (smaller than one) point to a development-promoting (development-impeding) industrial structure as compared with the entire region; this means that the representation of growth-intensive branches is disproportionately high (low) and/or that of stagnating or declining industrial branches is disproportionately low (high). On the other hand, the net differential shift quantifies the influence which all other locational conditions relating to total net shifts have on the industrial development. A net differential shift greater (smaller) than one is indicative of locational advantages (disadvantages) of the region in comparison with the national average.:Js Consequently, the disproportionately high increase in numbers employed in the capital region and the surrounding province

Figure 111.14 Spatial Dynamics of Industrial Structure in South Korea (Shift Share Analysis/Employees), 1963-86 Kyongnam

Factor 1,3 Kyonggi

1963- 1970

0,8

0,7

Kyonggi

1,96~ ~

1,99

Kyongnam

1970-1980

1,64ifll

1,2

~ 1,63

Kyongbuk

1,1

0,9 0,8

0,7 0,6 0,5 0,34 0,42

Factor Kyonggi

1980- 1986

1,2 Kyongnam

1,1 Chon- Kyongnam buk

0,9 0,8

0,7

I

Total net shift ..- Net proportionality shift Net differential shift

Source: Economic Planning Board, Report on Mining and Manufacturing Survey, different years

Source: Economic Planning Board, Survey on Mining and Manufacturing (various years).

III. Economic and Regiona/LJemlupnwnt in South Korea

67

of Pusan, established for the period 1963-70, is mainly due to locational advantages. Although the branch structure of all 3 provinces was more favorable than the national average, net proportionality shifts insignificantly greater than one indicate that the sectoral structure generates only a weak stimulus for growth. The metropolitan area offers locational advantages especially for the employment-intensive light industry. This is substantiated by the below-average development of value added in Seoul and by the concentration of branches of the food, beverages and tobacco industry and textiles and clothing manufacturing in the capital (Tables JII.2 and III.3). A locational advantage of Kyongnam, the province surrounding Pusan, is its proximity to the coast; in the 1960s and 1970s, growth-intensive heavy industry was established here. At the same time, a branch structure developed, which was oriented solely toward the chemical industry: between 1963 and 1970, measured in terms of value added, the share of the chemical industry soared from 6 to 57 per cent. Although Pusan, a coastal city, offers the same locational advantages as Kyongnam, the relative locational disadvantages prevail, the net differential shift being 0.9215. Pusan competes with the capital for consumer goods manufacturing, although it does not possess equally distinct agglomeration advantages. As regards heavy industry, Pusan, compared with Kyongnam, is at a relative locational disadvantage on account of higher land prices and a greater scarcity of land. The positive structural effects (net proportionality shift) do not suffice to compensate the unfavorable influences of the location; therefore, the industrial development of Pusan in terms of numbers employed in industry and industrial value added is progressing at a below-average rate. In the other 7 provinces as well, the net differential shift determined the dynamism of the industrial development in terms of both industrial employment and industrial value added. The only exception was the province of Chungbuk where - despite slight locational advantages (net differential shift: 1.0092) there was a below-average development of employment because, at a net proportionality shift of 0.9330, the branch structure was

68

Karin Wessel

clearly less favorable than the national average. The causative factor here was the increasing prevalence of pottery manufacturing that was declining everywhere else in the country; in 1970 the share of employment and of value added in the ceramics industry amounted to 6 per cent each at the national level; in Chungbuk, however, shares of 17 per cent and 32 per cent, respectively, were reached, compared with 10 per cent and 3 per cent, respectively, in 1963. In the province of Chungnam - where the development of branches stagnated and even declined- value added developed at a disproportionately rapid pace whereas numbers employed in industry increased at a below-average rate. This was clearly attributable to rationalization processes in food, beverages and tobacco manufacturing prevailing in the industrial structure. While in 1970, the share of employment increased insignificantly from 14 to 16 per cent, 61 per cent of value added were concentrated in this industrial branch, compared with 24 per cent in 1963. In the provinces of Chonbuk, Chonnam, Kyongbuk and Cheju, the total net shift, the net proportionality shift and the net differential shift revealed below-average growth. The decisive factors in this development were extremely poor locational qualities- the net differential shift being between 0.5788 and 0.8191 - whereas growth in terms of branches was approximately at the national average. In 1970, the degree of dependence on individual branches of the light industry, such as food, beverages and tobacco and/or textiles and clothing manufacturing, was almost as high as it had been in 1963 (Tables III.2 and III.3). This is not true, however, of Chonnam where a beginning branch diversification was oriented toward the chemical industry. During the period from 1970 to 1980, the following changes in growth rates and their causative factors are of interest in relation to the spatial differentiation process: •

In spite of a below-average industrial development in terms of employment and value added owing to locational disadvantages (net differential shift), the branch structure in Seoul and Pusan as compared with the national average continued

III. Eccmomic cn1ci Regional DcTelopment in Sovt11 Korea

•

•

•

G9

to develop in the direction of the national growth industries, especially the chemical industry (Tables III.2 and III.3). In Kyonggi, above-average locational qualities continued to be causative of the growth process of both the above indicators. However, the growth of the branches varied. By national standards, the textiles and clothing industry was not prospering whereas in Kyonggi its share in regional employment and value added was increasing; the number of enterprises in this sector grew disproportionately rapidly at an average rate of 7.3 per cent per annum as against 1.6 per cent in South Korea.3() In Seoul, by contrast, this sector developed at a belowaverage rate, an indication of relocations of enterprises within the metropolitan area. These findings are confirmed by a special investigation of relocations of enterprises away from Seoul carried out in 1980 by the Economic Planning Board: 21 per cent of a total of 2,286 enterprises relocated in Kyonggi belonged to the textiles and clothing industiy. 40 The intra-regional decentralization process as observed during the seventies, therefore, affected industrial employment rather than industrial value added. In the provinces of Kangwon, Chonnam and Kyongbuk, advantages due to location led to above-average growth of value added. In Kangwon, decisive factors in this development were the increasing concentration in the mining industry (processing of non-metallic mineral products) -which is naturally tied to a location - and its rationalization (Table III.3). In the 2 other provinces, by contrast, this development was due to the establishment of individual industrial estates. Their orientation toward heavy industry explains the belowaverage growth in employment in combination with a disproportionately rapid development of value added and the declining predominance of food, beverages and tobacco manufacturing as well as textiles and clothing industries. In all other provinces structural and locational disadvantages increased.

Between 1980 and 1986, when the electronics industry, machin-

Table 111.2 Development in the Regional Industrial Structure (Employment), 1963-86 Province Total

- - - - -

Seoul

Pusan

Kyonggi (+Inchon)

Kangwon

Chung b.

Chungn. (+ Taejon)

Chon b.

Chonn. (+ Kwang.)

Kyongb. (+ Taegu)

Kyongn.

Cheju

%

'000

-----

1963 branches 9.6 25.7 3.2 11.9 18.9 4.6 3.7 17.9 4.4

9.8 31.7 4.0 3.6 21.5 4.0 4.3 17.2 3.8

11.2 36.2 7.3 3.7 8.8 8.7 8.0 15.4 0.9

28.9 19.2 8.6 4.7 14.0 10.1 1.5 12.4 0.7

41.8 16.1 4.4 3.7 18.3 9.9 0.9 4.7 0.3

13.7 42.1 3.0 7.7 9.3 6.8 3.9 9.8 3.8

23.1 28.8 5.7 11.1 16.7 3.4 1.6 6.5 3.1

26.3 27.6 5.1 4.0 15.3 7.0 0.6 13.6 0.5

16.4 48.5 3.5 3.2 6.9 5.3 0.9 13.5 1.9

20.3 28.1 5.8 4.7 6.7 13.1 1.2 16.2 3.9

66.1 5.5 3.5 4.4 7.5 2.3 0.5 8.1 2.1

15.1 32.0 4.3 6.8 14.8 5.9 3.3 14.9 3.0

Total

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

In 1,000

119.1

68.8

40.8

8.1

9.9

23.6

23.9

24.8

58.1

21.3

3.1

11.8 27.6 2.1 9.0 12.7 4.1 3.8 21.0 8.0

6.0 30.4 8.8 2.6 21.4 2.7 6.4 19.4 2.2

9.4 24.5 10.4 5.1 6.7 10.2 5.7 19.3 8.8

18.7 29.2 7.0 3.4 9.0 14.8 0.7 12.0 5.1

27.0 23.9 3.5 3.1 13.1 17.5 0.7 5.1 6.0

15.5 39.0 2.8 8.0 7.1 6.1 2.8 11.2 7.5

24.3 20.7 16.4 7.8 11.7 4.9 0.7 7.1 6.2

32.1 22.4 5.3 3.4 8.9 7.9 0.6 17.6 1.8

15.0 51.4 2.3 3.3 6.3 4.3 1.2 13.8 2.4

14.0 38.3 3.8 2.9 10.2 8.9 4.0 15.3 2.6

63.9 8.0 4.3 4.0 4.1 3.5 0.0 10.8 1.5

13.6 31.1 5.3 5.7 11.8 5.9 3.7 17.4 5.6

100.0 291.2

100.0 137.3

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

104.3

19.0

20.0

45.4

36.3

42.1

99.1

60.3

5.1

31 32 33 34 35 36 37 38 39

60.5 128.4 17.4 23.4 59.5 23.6 13.2 59.8 12.0

401.9

1970 branches 31 32 33 34 35 36 37 38 39 Total In 1,000

117.3 267.5 45.2 49.3 101.6 50.4 31.5 150.0 48.2 861.0

1980 branches

31 32 33 34 35 36 37 38 39

9.1 31.8 1.4 8.9 11.4 3.0 2.2 26.7 5.5

5.1 31.7 3.7 1.9 32.7 1.7 5.1 15.9 2.1

6.4 23.9 5.8 3.6 9.5 6.2 4.2 35.2 5.3

22.5 21.3 4.5 6.8 7.0 24.0 2.4 9.9 1.6

18.6 26.0 1.1 4.7 7.5 15.4 0.8 24.3 1.6

10.7 47.1 1.2 7.3 9.2 7.9 2.6 11.9 2.0

17.2 36.0 12.8 6.5 9.2 4.6 0.9 7.9 4.8

36.5 17.9 2.1 2.8 17.8 8.7 1.0 12.6 0.6

6.2 51.1 1 .1 2.7 3.7 3.5 9.2 20.3 2.2

7.9 18.1 2.7 2.2 10.7 4.3 6.5 46.6 1.0

68.7 9.1 3.5 5.4 4.7 4.1 0.0 3.7 0.9

9.0 30.9 3.3 4.5 13.2 4.7 4.5 26.5 3.5 100.0

Total

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

In 1,000

445.2

319.1

478.7

23.0

40.2

87.6

55.1

67.3

263.3

231.1

4.1

5.7 37.6 1.0 9.9 8.0 1.6 1.4 27.3 7.6

4.7 26.7 2.0 1.6 39.2 1.4 4.7 17.2 2.6

5.9 18.7 5.0 3.3 11.0 5.3 3.4 41.6 6.0

30.7 13.2 3.9 3.8 8.1 21.3 2.1 14.0 3.1

15.7 21.2 1.4 2.7 9.8 15.2 0.4 32.0 1.6

11.2 41.2 1.3 7.2 9.5 7.8 2.9 16.7 2.2

14.7 38.6 6.6 7.0 8.8 7.3 1.4 8.4 7.2

39.3 13.1 2.2 2.0 16.8 10.4 0.7 15.0 0.6

5.3 45.5 1.0 2.1 3.7 3.8 9.7 26.3 2.6

7.4 11.9 1.1 1.9 10.2 3.5 4.8 58.7 0.7

67.6 2.0 2.1 7.4 3.4 14.0 0.0 3.4 0.1

7.7 27.2 2.5 4.2 13.6 4.2 3.9 32.4 4.4

Total

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

In 1,000

539.2

410.8

783.7

22.7

54.8

104.8

68.7

76.8

333.8

338.8

4.2

181.3 622.4 65.8 90.5 265.3 94.5 89.9 534.5 70.5 2,014.8

1986 branches 31 32 33 34 35 36 37 38 39

Source: Economic Planning Board, Survey on Mining and Manufacturing (various years).

209.4 745.4 68.6 115.3 372.8 114.9 106.8 885.9 119.1 2,738.4

Table 111.3 Development in the Regional Industrial Structure (Value Added), 1963-86 --------------·-------

Province

Total

·---·-

Seoul

Pusan

Kyonggi (+Inchon)

Kangwon

Chung b.

Chungn. (+ Taejon)

Chon b.

Chonn. (+ Kwang.)

Kyongb. (+ Taegu)

Kyongn.

Cheju

%

Mill. Won

1963 branches 27.6 16.5 2.6 11.8 18.5 4.8 3.6 12.4 2.2

24.0 18.6 6.9 4.6 21.7 1.9 6.8 13.2 2.4

15.8 26.6 9.5 6.1 10.8 11.1 8.5 11.0 0.5

26.3 7.0 3.9 3.0 9.1 42.8 1.3 5.8 0.5

59.1 2.2 0.9 0.7 31.6 3.5 0.3 1.5 0.2

23.6 29.0 2.0 18.1 8.5 5.0 2.5 7.5 3.8

60.6 9.3 5.1 12.8 6.0 1.4 0.9 3.1 0.9

36.6 29.5 5.2 2.7 13.2 4.1 0.6 8.3 0.2

37.6 33.4 2.2 2.5 4.7 9.3 0.7 8.6 1.0

31.7 27.0 3.9 4.5 6.3 8.6 1.4 14.3 2.3

81.3 2.1 2.3 5.6 2.3 1.0 0.3 4.4 0.8

31.6 20.0 4.1 7.8 15.0 6.1 3.5 10.2 1.7

100.0 22.1

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

9.5

5.8

1.1

3.2

2.4

3.8

2.9

8.0

2.2

0.4

25.5 14.7 1.4 7.5 22.4 4.3 5.4 14.6 4.2

15.4 16.4 11.2 1.9 21.6 3.2 7.4 21.9 1.1

10.9 15.9 3.5 7.4 14.0 10.8 4.3 25.8 7.5

31.5 16.1 7.3 3.2 14.1 5.1 0.6 17.3 4.8

47.2 6.1 1.0 0.7 10.5 32.4 0.2 1.4 0.5

61.1 13.5 1.7 8.0 4.8 3.0 1.7 4.5 1.7

57.4 9.4 10.7 8.8 8.0 1.1 0.2 3.1 1.3

29.5 11.3 3.0 2.3 14.2 25.4 0.2 13.4 0.6

28.5 43.5 1.5 3.2 9.9 3.7 0.6 7.7 1.5

9.3 17.2 0.8 0.6 57.3 2.3 3.4 8.4 0.6

70.4 3.4 3.6 3.1 4.5 1.2 0.0 13.0 0.9

25.7 17.1 3.5 5.1 22.0 6.0 4.0 13.8 2.9

100.0 183.1

100.0 82.3

100.0 61.1

100.0 5.8

100.0 19.5

100.0 41.0

100.0 23.6

100.0 16.3

100.0 45.4

100.0 70.0

100.0 1.7

100.0

31 32 33 34 35 36 37 38 39 Total In mill. won

19.5 12.3 2.5 4.8 9.2 3.7 2.2 6.3 1.0 61.5

1970 branches 31 32 33 34 35 36 37 38 39 Total In mill. won

141.1 93.8 19.5 27.8 121.0 32.7 22.0 76.1 15.8 549.8

1980 branches

31 32 33 34 35 36 37 38 39

15.0 22.8 0.9 11.5 18.3 3.8 2.7 21.2 3.9

8.9 24.5 1.7 1.8 34.6 2.8 8.7 15.4 1.7

17.2 15.6 3.8 4.0 17.4 5.7 5.0 28.5 3.0

12.8 5.6 1.3 2.8 4.1 66.0 3.4 3.7 0.3

23.1 17.0 0.5 1.6 10.2 29.6 0.4 17.3 0.3

42.6 22.8 0.6 5.6 10.8 6.4 5.3 5.2 0.8

41.4 21.9 5.4 9.2 11.7 4.6 0.7 3.4 1.8

28.6 6.2 0.5 0.6 53.2 4.4 0.3 6.2 0.1

13.8 31.6 0.6 2.1 4.3 3.7 24.5 18.5 0.9

7.4 12.8 1.2 1.9 25.9 3.6 9.2 37.7 0.3

72.8 3.9 2.5 5.0 8.8 2.7 0.0 3.7 0.6

16.6 19.5 1.7 4.4 20.5 5.8 7.8 21.8 1.9

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

2,193.1

1,317.6

2,770.8

173.1

271.1

555.1

313.4

781.5

1,656.9

1,811.1

12.8

11.5 26.9 0.7 14.2 11.6 2.4 2.5 24.9 5.4

8.3 21.8 1.5 2.0 32.0 2.0 10.4 20.2 1.9

10.8 11.9 2.9 3.7 15.7 5.1 3.9 42.6 3.4

55.1 2.4 0.7 1.2 2.8 32.4 0.6 4.4 0.5

32.1 13.7 0.5 1.4 16.1 17.5 0.1 18.2 0.4

33.1 21.6 0.5 8.0 16.5 5.9 2.1 11.2 1.2

30.5 25.9 2.4 9.3 13.3 10.7 0.9 3.6 3.4

29.1 6.2 0.5 0.7 47.6 5.4 0.5 9.6 0.3

6.8 28.2 0.4 1.5 4.6 3.8 26.7 26.3 1.7

4.9 7.5 0.4 2.0 22.6 2.2 6.2 53.9 0.3

64.5 1.6 1.2 5.6 4.5 19.9 0.0 2.7 0.0

12.7 16.7 1.4 4.6 17.5 4.7 7.2 32.8 2.4

100.0

100.0 2,935.6

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

9,842.2

572.9

869.9

1,335.2

832.5

1,491.9

4,346.6

5,866.0

29.7

Total In mill. won

1,968.3 2,311.2 205.9 526.6 2,427.4 682.6 924.1 2,587.7 222.8 11,856.6

1986 branches 31 32 33 34 35 36 37 38 39 Total In mill. won

4,759.3

~~

------·-·-·

Source: Economic Planning Board, Survey on Mining and Manufacturing (various years).

4,184.6 5,478.2 447.3 1,498.2 5,762.9 1,553.7 2,381.9 10,784.1 790.6 32,881.9

74

Karin Wessel

ery and transport equipment were the growth-intensive branches, a further consolidation of the industrial basis in conjunction with a generally slackening development dynamism was noticeable in the provinces around Seoul and Pusan. Their predominance was based on structural and locational advantages. Thus, Kyonggi and Kyongnam were the only provinces with an above-average percentage share of growing industries. In Kyongnam the significance of positive structural effects (net proportionality shift) was greater than that of locational advantages (net differential shift). Consequently, the former played a decisive role in forcing the pace of development. The strength of the 2 provinces, owing to structural conditions, lies in the prevailing electronics industry in Kyonggi and the automobile industry in Kyongnam. The growth industries achieved 43 per cent and 54 per cent, respectively, of value added and 42 per cent and 52 per cent, respectively, of those regionally employed in industry (Tables III.2 and III.3). Locational disadvantages continued to exist in the agglomerations of Seoul and Pusan, but the development of the industrial branches corresponded to the national average. In the capital, structural weaknesses were caused by the relative predominance of the textiles industry with 38 per cent of employment and 27 per cent of value added, and in Pusan by the prevalence of the chemical industry with 39 per cent of employment and 32 per cent of value added. In the remaining 7 provinces, between 1980 and 1986, measured in terms of the national average, unfavorable development trends due to negative locational effects and unfavorable structural influences persisted. The structural weaknesses hampered the pace of development almost as much as they did in the seventies; but although there was a relative decrease in disadvantages due to location, they still outweighed the advantages. The findings of this study so far can be summarized as follows: between 1963 and 1986, a relocation of industrial growth centers away from the Seoul metropolitan region and into the provinces of Kyonggi and Kyongnam surrounding Seoul and Pusan, respectively, took place. This differentiation process was

Ill. Economic and Regional Derelopment in South Korea

75

mainly due to favorable locational characteristics, the net differential shift being greater than one and greater than the net proportionality shift. Only in the case of Kyongnam did the aboveaverage growth of the branches occurring between 1980 and 1986 essentially contribute to generating industrial dynamism; the net proportionality shift being greater than one and greater than the net differential shift. The below-average industrial development in the other provinces was mainly due to unfavorable locational conditions. The results of this analysis, however, show a decrease in locational disadvantages between 1980 and 1986 owing to the improvement in infrastructure. The analysis of the structure and causative factors in the industrial development yielded initial indications of the spatial differentiation process at the province level. The weighted coefficient of variation is used to quantify the extent and the development of regional concentration and/or decentralization. 41 The advantage of this measure for determining concentration lies in the fact that proportional factors are used as a basis of calculation. Thus, beyond the information gained from a single dimension of the indicators - as, for instance, the absolute figure of industrial employment or industrial value added, the relative correlation of the variables with each other or with other indices determining regional economic power (for example, the development of the population in a region, of the number of enterprises or of wages and salaries) - can be included in the inter-regional comparison of industrial structures. The variation coefficient expresses the degree of concentration, at a given point in time, for the statistical distribution of the proportional factors chosen. A variation coefficient equal to zero describes an even distribution of an indicator throughout all spatial units. As the concentration rises, the value of the coefficient also increases. 42 In Figure 111.15, the development of the variation coefficient of 4 selected industrialization indices from the period between 1963 and 1986 are compared: per capita industrial value added, industrial value added per person employed in industry, numbers employed in industry per capita of the population and numbers employed per enterprise.

76

Karin Wessel

Obviously, the development took a similar course with regard to all 4 indicators. In the sixties, the polarization forces continued to increase, the heaviest concentrations occurring around 1970. The variable "value added per industrial employee" was an exception: its variation coefficient dropped slightly during the same period of time indicating a trend toward decentralization of value-added-intensive industries. During the period from 1970 to 1980, overall industrial concentration at the province level reduced and- excepting the indicator "numbers employed in industry per inhabitant" - a lower degree of concentration was achieved than in 1963. This trend toward reducing regional disparities was reversed again in the 1980s. In 1986, all indicators showed an increase in spatial concentration to an extent which was barely under the level of 1970. With the exception of the year 1980, the value-added figure per industrial employee as compared with the other indices, for each point in time during the period of analysis reveals the highest concentration whereas regional deviations from the average value-added figure per inhabitant are lowest. This discrepancy illustrates that in South Korea especially the establishment of value-added-intensive branches of heavy industry generated increasing urbanization. A similar relationship can be found concerning regional distribution of employment. While the large enterprises, in terms of numbers employed, were localized in only a few provinces, a corresponding polarization of industrial employees per inhabitant did not exist here either; since 1970 the variation coefficient has shown a concentration level that is as high as that of value-added-intensive enterprises. The degree of concentration is comparable to that of value added per capita of the population. Figure III.l6 illustrates the importance of individual industrial branches for the spatial differentiation process. It shows the regional concentration of the indicators "industrial employment", "industrial value added" and "number of enterprises" for the 4 branches which in the process of South Korean industrialization temporarily took the lead among growth industries. The concentration coefficient according to Herfindahl, 4:3 which was used for

~

Figure 111.15 Spatial Concentration of Industry in South Korea, 1963-86

trJ

"'0::0

vw1l

0

1,6

;:!

....

1,7

~­

········

1

p ;;:; ~

1,5 ~

1,4

./·

1,3

_

.....-·

1,2

_...,.·

.....-· ...--·

/

/

-- '· '

-

::tJ

'

...........

..............

,.-~

Industrial employees per capita

">:-

'

1,1

Value added per industrial employee Industrial employees per establishment

Value added per capita

~-0 ;:0

R

\::)

s ""Q

"" ::0 CiS

1,0

;3

'

0,9

""· ;:::; (/)

~"

0,8

-~

1963

1970

1975

1980

1986

Year

2 ""' R

1)

L:n ( y ~ 'f ,,2. £l i =1 I I p y Source: Economic Planning Board, Population and Housing Census (various years); Economic Planning Board, Survey on Mining and Manufacturing (various years).

--J --J

78

Karin Wessel

the calculations, would equal one at an absolute concentration; that is, if all units of an indicator (for instance, 100 per cent of all persons employed in a sector) went to only one spatial unit (for example, a province). The value representing even distribution varies with the number of spatial units. In the case of South Korea's 11 provinces it equals 0.0909. As regards employment and value added, the textiles and clothing industry, whose foundations were laid in pre-colonial times, during the whole period of reference showed a degree of concentration that was more or less constant and fluctuating around the national average. The degree of polarization in the other 3 growth industries, whose large-scale development did not begin until after 1960, was considerably higher in most cases. In addition, their graphs show a clearly broader variation range, which leads to the conclusion that the location pattern of these 3 branches has a decisive impact on the spatial differentiation process. The relatively high spatial concentration of the basic metal industry along the coast is typical of a country like South Korea with scant raw material resources. In the 1960s, the concentration of the iron and steel-processing industry in the agglomerations of Seoul and Pusan, measured in terms of numbers employed, progressively increased- the share of both provinces reaching 63 per cent in 1970 as compared with 55 per cent in 196344 - whereas, in the 1970s, stronger trends toward inter-regional decentralization became evident in consequence of the establishment of large-scale steel mills along the southeast coast; that is, in the provinces of Kyongnam .and Kyongbuk. In the 1980s, the above-average growth dynamism along the southeast coast continued while in Seoul, at the same time, the number of enterprises, value added and employment dropped. This again led to an increase in concentration. As opposed to the former industrial center in the north, the new one in the south is characterized by a relatively small number of large and extremely value-addedintensive enterprises. The process of spatial expansion of the chemical industry took place almost analogously with that of the iron and steel

Figure 111.16 Spatial Concentration of Major Industries, 1963-86 Variable: Employees

0.25

0.20

~-

--

----::-:::-::::-:::-::-:=-=-"----......--.;;-=..;;-;;;.,:-;::..;::-:.;·;::-:..::::::...::::-

0.15

1980

1970

1963

Textiles and apparel A II industries

1986

Year

Variable: Value Added

----

Basic metal/ industry Mechanical engi neering/Eiectronics

0.251

0.20!

i

~

0.15

1963

1970

1986

1980

Year

Variable: Enterprises

/

0.25

/ /

Textiles and apparel

- Bas1c metal industry

/- ..-- ..--

0 20

,

------------------------------------_..,. _..,.

L ------ _ / /

~

1

0 15

,..,.......

~:._:::_::

-

-

_ ..-- :;,,,,,,,,,

_________________ ,,,/-'' _,..,.., -~

- - - - - - -

_,.,...-"~

T

1963

---..,..-;;;_;;;__ :;:__-

Mechanical

..-- .r ---,,,,,,,,,,,, engineering/Electronics

-

,..,~~

Chem industry All Industries

~----~-~~~~

T

1970

---,----..--~-,-------.--

1980

--,------..--~--

1986

Year

1I Herfindahl coefficient H-

P; \2 Ln ( fp-! jo1

p~regional 1~

value of vanable (province)

province

'

Source: Economic Planning Board, Survey on Mining and Manufacturing (various years).

80

Karin Wessel

manufacturing industries. Particularly in the 1970s, in Kyongnam and Chonnam modern, capital-intensive capacities were developed, Kyongnam's share of national value added rising from 2 to 33 per cent and that of Chonnam from 2 to 17 per cent while the shares of employment rose only insignificantly from 3 to 9 per cent and 3 to 5 per cent, respectively. During the same period, the concentration of the older, smaller and, therefore, relatively employment-intensive enterprises in the former industrial centers - that is, mainly in Pusan and Kyonggi - remained unchanged. This explains the fact that during the whole period polarization of the number of enterprises and numbers employed increased, coupled since 1970 with a decentralization of value added. Both the electronics industry (including machinery) and transport equipment manufacturing, whose growth dynamics presently benefit the South Korean industrial development most, in terms of all 3 indicators almost consistently achieved the second-highest degree of concentration in -' >-'

w

114

Knri:n Wessel

within the provinces (Table III.ll) and, simultaneously, experienced net out-migration aimed at the agglomerations of Seoul and Pusan and the regional cities (Figure III.25), leads to the conclusion that migration here takes place progressively (from country to small town, to medium-size town, to large city). This type of progressive migration is of small consequence in the northeastern and southwestern provinces. Emigrants from these rural areas move directly to the agglomerations outside the provinces so that the urban system within the province does not benefit from rural-urban migration. In fact, there is a negative migration balance even for the provincial towns because even city dwellers move to the national centers. Migration from rural areas into the city is continuing to this day. It forces above all the pace of the process of urbanization of the national agglomerations (Seoul with Kyonggi, Pusan) and of the regional centers of Taegu, Inchon, Kwangju and Taejon. On the remainder of the urban settlement system it has a varying impact. While the urban centers in the central provinces of Chungnam and Chungbuk and in the southeast province of Kyongbuk show an overall positive development, there are migration losses in the northeast and southwest. In the following chapter, the analysis will be continued under 3 aspects: • • •

the role of city types in the urbanization process, differentiated by size and function, regional location patterns, effects of decentralization trends.

Development Dynamics of the Urban System from 1960 to 1986

Relative to size and function of towns and rural areas there is no clear differentiation in South Korea (shi ==town: >50,000 population; eup =rural area: 20,000 to 100,000 population). The following analysis takes account of all settlements possessing the administrative status of a town (shi). This procedure excludes certain rural areas, which on grounds of size and/or function have town character; but it provides a high degree of comparability since only those urban centers are investigated that do in fact

III. Economic and Regional Dere/upment in South Korea

115

reach urban standards with respect to administration, economic and social functions and services. The development of the urban population is determined by 2 components: population growth in the towns already existing and the increasing number of urban centers; the latter is due to new foundations and changes of status from rural to urban community. The growth of towns is influenced by natural demographic shifts, migration processes and administrative changes of territory. In South Korea at the beginning of the sixties, there was a "wave" of incorporations of communities into larger administrative units; the municipal area of Seoul expanded from 268 sq. km. to 613 sq. km. and that of Pusan from 241 sq. km. to 373 sq. km. Thus, 9.3 per cent of urban population growth during this time was owing to incorporations. Until1980, the municipal areas of Seoul and Pusan and 3 of the 5 regional centers remained constant; 77 this means that the share which territorial changes contributed to the growth of the urban population amounts to an average of only 3 per cent. Between 1980 and 1986 this figure rose again insignificantly because in 1981 and 1985 changes in the municipal boundaries increased the city territories of Taegu and Taejon, respectively. 78 In the following, territorial rearrangements will be omitted, given that their contribution to city growth has become negligible since the mid-sixties. Table III.12 shows the degree of urbanization in South Korea between 1930 and 1987, compared with the developing and industrialized countries during the same period. Obviously, urbanization processes in Korea are a relatively new phenomenon. Until 1930, the number of towns besides Seoul was limited to a few minor administrative centers and the free ports of Inchon, Kunsan, Mogpo, Masan and Pusan, which were built after the opening of the country at the end of the nineteenth century. After 1930, the colonial power of Japan concentrated not only on agricultural production but also on the establishment of an industrial basis. This generated an urbanization process that created the typical colonial system of towns. The ports along the south coast with their orientation toward Japan prevailed, complemented by centers of commerce at the traffic junctions further

Karin Wessel

116 Table 111.12 Share of Urban Population in Total Population, International Comparison, 1930-87 Country/Group of Countries

1930

Low-wage or medium-wage countries High-wage countries Japan South Koreaa a

24 5

1950

1975

1987

17 52

28 67

37 77

38 18

72 51

77 69

1930 and 1950, together with North Korea.

Source: Mills and Song (1979, pp. 8 f.); World Bank, World Development Report (1989, pp. 254 f).

inland; for example, Taejon. The percentage of urban population was still relatively low so that at that time Korea was a typical agricultural country. In 1950, the level of urbanization on the Korean peninsula was slightly higher than that of the developing countries. Although the urbanization process in the developing countries was already highly dynamic, the growth rate of the urban population in South Korea during the following years surpassed corresponding figures in developing countries. In 1975, South Korea reached the degree of urbanization of an average industrialized country shortly after World War II. Thus it clearly prevailed over the developing countries in this respect and achieved one of the highest urbanization rates in the world. By 1987, South Korea had caught up with the industrialized countries, whose urbanization rate varies between 60 and 85 per cent. 79 Experience with the industrialized countries tells that the pace of the urbanization process decreases drastically as soon as the share of urban inhabitants in the total population reaches 70 to 75 per cent. 80 The remaining rural population plays only a marginal role in the further urbanization process. Indications of this kind of development also exist in South Korea. The mobility processes are decreasing steadily, which is why natural demographic shifts increasingly determine its spatial distribution. From these facts the conclusion may be drawn that even in the

Ill. Economic and Regional Dm•elopmen/ in Sovth Kmn1

117

future there will be relatively little change in the present state of the urban system. Since the early 1960s, the rapid pace of the process of urbanization in South Korea has led to a regionally imbalanced location pattern of urban settlements. In all provinces, in terms of regional total population, an absolute and relative increase in city population was registered (Table III.13). However, at the same time, the gap between the highest and the lowest provincial value relative to the number of towns and the degree of urbanization widened. The provinces of Kyonggi, Kyongbuk and Kyongnam count among those with the highest degree of urbanization. They include over 50 per cent of all South Korean towns and possess the highest density of urban centers. Among the provinces with the lowest urbanization rate are the northeast province of Kangwon and the southwest provinces of Chonnam and Chonbuk and also Chungbuk in the center of the country. Since during the reference period the population declined in these provinces, the relatively high percentage figure of urban population determined for 1986 must be taken with reserve. Figures III.26 to III.28 show the developmental dynamism of the urban system at the locationallevel between 1960 and 1986 (urban centers: >50,000 inhabitants). Until the beginning of the sixties, the city type of administrative and commercial town predominated. The urban settlement system consisted of the metropolis of Seoul and 9 provincial capitals (Figure III.26). In addition, each province, excepting Kyongbuk and Kyongnam, included at most 2 other, clearly smaller urban centers. The spatial arrangement of the towns in Kyongbuk and Kyongnam reveals a distinct orientation toward the south coast. Apart from the provincial capital of Taegu and 2 small towns there are no other urban settlements in the interior of either province. Between 1960 and 1970, Seoul together with its 2 satellite cities realized the highest growth rates. With the exception of Chunchon in the northeastern province of Kangwon and Cheju City on the island of Cheju, the values of all provincial capitals Were above average while the development of the other urban

ex; Table 111.13 Development in the Urban Population and Number of Towns (Province Level), 1960-86 - - - -

Number of Towns

Urban Population ('000)

Share of Urban Population (%) -----

Province Seoul Pusan Kyonggi (+Inchon) Kangwon Chungbuk Chungnam (+ Taejon) Chonbuk Chonnam (+ Kwangju) Kyongbuk (+ Taegu) Kyongnam Cheju Total

1960

1970

1980

1986

1960

1970

1980

1986

1960

1970

1980

1986

1 1

1 1

1 1

1 1

2,445 1,163

5,525 1,876

8,364 3,160

9,799 3,579

100.0 100.0

100.0 100.0

100.0 100.0

100.0 100.0

3 3 2

3 4 2

7 5 3

13 7 3

544 219 161

907 381 231

2,599 579 400

4,171 796 583

19.8 13.4 11.8

27.1 20.4 15.6

52.7 32.3 28.1

64.0 45.5 41.8

1 3

2 3

2 3

5 5

299 345

492 460

773 677

1,239 966

11.8 14.4

17.2 18.9

26.2 29.6

41.2 44.1

4

4

4

6

601

885

1,225

1,586

16.9

22.1

32.4

42.0

5 4 1

5 6 1

7 7 1

10 8 2

916 362 68

1,390 674 106

2,285 1,372 168

3,106 1,792 294

23.8 12.9 23.1

30.4 21.6 29.0

46.1 41.3 36.3

60.6 51.0 59.3

28

32

41

61

7,123

12,929

21,654

27,912

28.5

41.1

57.8

67.8

------

Source: Economic Planning Board, Population and Housing Census (various years).

2 ~·

~

Cr. Cr.

~

JII Eronum'ir and Regiurwl Dereluprne11t 'in South Kul'eo

119

centers - all of them small - stagnated. By 1980 the dual spatial structure had become established (Figure III.27). On the one hand, there is Seoul, whose number of satellite towns had meanwhile increased to 5; on the other hand, there is the increasingly dense belt of towns along the southeast coast around Pusan. The industrial cities in this region - some of them newly founded- especially Pohang, Ulsan and Masan, displayed the highest developmental dynamism nationwide, followed by the satellite cities of Seoul. By contrast, the number of inhabitants in the urban centers in the mountainous northeastern part of the country, consisting of the northern parts of the provinces of Chungbuk and Kyongbuk as well as Kangwon, had hardly changed at all. It seems, however, that the network of settlements was becoming denser due to the fact that 3 former rural communities had changed status. This development continued in the 1980s when another 4 settlements were granted city status (Figure III.28). On the map, this creates the impression that the northeast is covered by a regional location pattern evenly covering most of the area with small centers; however, the 7 towns that were granted city status within the past 15 years must be viewed critically as regards their urban functions. There are other towns whose number of inhabitants has hardly changed since 1960 -none of the centers succeeded in moving up into the group of medium-size towns; this characterizes the northeast of the country as a stagnation area. The urbanization process is concentrated in the provincial capitals, the industrial locations along the southeast coast around Pusan, 81 the satellite cities of Seoul and a few smaller (industrial) centers situated along the traffic axis Seoul-Pusan. In the actual agglomeration cores, the cities of Seoul and Pusan, the population growth rate is decreasing. The urban system southwest of the agglomeration axis SeoulPusan, in particular in Chonbuk and Chonnam, has changed, albeit insignificantly, since 1960. The provincial capitals dominate, supported by the old ports and trading cities of Kunsan, Mogpo and Iri (free export-processing zone). Since there are hardly any

Figure 111.26 Urban Distribution and Urban Growth Pattern in South Korea, 1960-70

r

j

·'

25

0

50

75

100 km

Sokcho

Kangnung 0

Isan

!?

0

7 500 Urban population in thousand Average annual growth rate 1960- 1970

9,0

~5000 2 500

6,0-8,9 3,0-5,9 0-2,9