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Korean Economic Growth Research Paper
Korea is remarkably successful in turning from a recipient to a high-income country. According to The World Bank, Korean GNI per capita rises US$22603 from 1950s to 2012. As the world’s 15th largest economy, Korea’s key of success, in having a stable economic growth each year, is the promotion of physical capital and human capital in long-term perspective. For short-term recovery from the global financial crisis, correct policies are the main factors.
Since 1970s, Korean economy fueled by greatly improved physical and human capital. In order to improve physical capital, Korean government highly encouraged investment and business. In 1976, Korea passed the law of changing indirect tax system to value added tax (VAT). VAT not only emerged eight typed of taxes out of eleven, but also excluded investment from the tax base in a consumption-type VAT. This decision obviously promotes domestic investment. Besides that, Korea also helps people to start their business. In The 2018 Distance to Frontier (DFT) of starting a business, measurement of the average distance to the frontier, Korea scores 95.83 which rank at 9th in 190 economies for component indicators is. This measurement includes scoring on the complication of the procedure, average time consuming, and average cost for registering a business. Ranking 9th means starting a business in Korea requires relatively fewer procedures, time and cost than OCED high income countries. The Korean government also provides great support on business’s warehouse, especially on providing electricity. Korea Electric Corporation (KEPCO) designs, sucres, make contract with electricity for free for those companies to get permanent electricity connection for a newly constructed warehouse. This service ranks as 2nd out of 190 economic bases on the DFT graph from The World Bank. In summary, all the supports above push private investment in Korea that definitely shifts the aggregate demand of Korea positively, and increases the money supply.
Except promoting domestic investment, Korea also attracts foreign investor. According to The World Bank, Korean government really focusses on having reliablility. Its transparency of tariff and reliability of supply index scores 8 out of 8. Plus, Korea supports on resolving insolvency rank 5th in the 190 economics of 1.5 years average recovery rate. Both domestic and foreign investors feel secure from the high reliability and short resolving insolvency. This leads to enormous inflow of money, from 60 billion USD in 2001 to 130 billion USD in 2007. Even after the global financial crisis in 2007, Korea still had 110 billion foreign inflow.
In order to have sustainable healthy economy in long-term, Korea advocates improving human capital as one of the priority areas. Education expenditure increases from 5.7% of GDP in 1993 to 7.7% in 2005. In addition, since 1980s, Korean government promotes R and private research. According to The World Bank, government share of research project reduce from 90% in 1964 to 30% in 2004. This allows a lot of private research groups to perform educational investment. Moreover, in 2000, Korean government spent 322.39 million U.S. dollars for Science and technical education project to implement the policies and provision of specialized equipment. It provides 16800 equipment to 123 Ministry of Education institutions, reported by the OED ICR Review Operations Evaluation Department.
In short-term, the most obvious economic growth is the two-year recovery from 2010 to 2013. In order to recover from the global financial crisis from 2007 to 2009, Korean government firs t accelerated the reduction program of corporate income tax, shortening it from 5 years to 3 years in 2010. This policy promotes investment and consumption by taking less money from business and individual. Aggregate demand starts to shift right. Meanwhile, Korean government also eliminated the minimum capital requirement for starting a business to further encourage investment. Subsequently, in 2013, Korea kept reducing the profit tax rate. This expansionary fiscal policy greatly increases aggregate demand by increasing saving and consumption, which finally expand the money supply and GDP.

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