Revisiting the Miracle: South Korea's Industrial Upgrading from a Global Value Chain Perspective

Abstract

Introduction South Korea has been known for its successful economic development in the post-World War II world economy. In 1960, the country's gross domestic production (GDP) per capita was just US$156, lower than Ghana's. However, it has rapidly grown since then, reaching $25,977 in 2013. In 1996, South Korea joined the Organisation for Economic Cooperation and Development (OECD) and become only the second Asian member of this rich countries’ club, after Japan. South Korea's economic development was mainly driven by exporting manufacturing goods. The country's exports rose from $122 million in 1960 to $703 billion in 2013, with manufacturing accounting for more than 80 per cent of the exports. It has become one of the ten largest trading economies in the world. The rapid expansion of exports was largely attributable to the constant upgrading of export product composition to higher value-added, more technologically sophisticated products, which coincided with upgrading the country's industry structure to focus on high-tech sectors, such as electronics and information technology (IT). In this regard, South Korea is an example of successful ‘economic upgrading’, defined as moving up to higher value-added activities with improved technology, knowledge and skills (Gereffi, 2005). In explaining South Korea's economic growth, two opposite explanations have been presented. A market-based perspective highlights export-push strategies, openness to foreign investment and technology transfer as the key factors of the growth (World Bank, 1993). In contrast, state-centred views emphasize the key role of the state's active industrial policy in prodding local firms to upgrade and compete in global markets (Amsden, 1989; Chang, 1993; Evans, 1995). The debate following the economic crisis of the late 1990s centred on the development state was eclipsed by a ‘neoliberal turn’, or its strength was maintained with newly mandated roles (Chu, 2009; Kalinowski, 2008; Pirie, 2008). Missing in these explanations, however, is the role of global–local linkages in economic development (Hamilton and Gereffi, 2009). Economic development and industrial upgrading take place in a global economic context and through the interaction of global and local actors. Furthermore, just focusing on macro-economic settings or the role of the state fails to explain commonalities and differences in the patterns and trajectories of upgrading across different sectors and time periods.