The Legacy of the HCI: An Empirical Analysis of Korean Industrial Policy

Abstract

While much has been written on the successes and failures of industrial policies, systematic evaluation of their effects remains difficult. This paper presents an approach based on a combination of cluster and discriminant analysis, applied to time-series of the rate of change of average wages by industry. We apply this approach to a Korean data set that may be one of the most comprehensive national archives of industrial and occupational wage data in the world. Our approach permits quantitative assessment of the legacy of Korean industrial policy, and helps to show how Korean development has depended both on government and the market. Governments and markets both exist. And while enthusiasts of markets have contested the role of government in development, and vice versa, it seems more realistic to accept that both play roles in the development process. The important questions are therefore: what roles? and through what channels? and to what extent? A sensible way to advance this discussion is to present an empirical indicator that can show the legacy of policies and other factors that have contributed to industrial and economic growth, and thereby approach the issue of the role of the government and the market. This article will present a combination of cluster and discriminant analysis applied to time-series of average wage change by industrial category, in order to assess the balance of government and market forces in Korea, with the Korean Heavy and Chemical Industrialization as the prime example. From 1971 to 1991, the Korean economy changed dramatically, in part because of a massive industrial policy. Our goal is contribute something to the literature assessing this experience. We will first present a brief overview of the literature on the role of government in industrialization, highlighting the government/market dialectic. Second, we will review the history of the Heavy and Chemical Industrialization (HCI) policy, which was surely one of the grandest efforts at national industrial transformation, relative to the size of the underlying economy, ever undertaken. Third, we will introduce the methodology and data employed in this research, followed by a discussion of the results.