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Policy Brief - How they did it Vol. 1 Issue 3 - Financing Industrial Development in Korea and Implications for Africa
In the 1950s, the initial conditions of Korea were quite similar to those of several African countries today: several years of civil war, continual external imbalances with persistent trade deficits, reliance on foreign financial and food aid. Since the early 1960s, the country has successfully launched a series of five-year economic plans that enabled it to make remarkable economic catch-up progress. This paper studies the experience of Korea and, in light of this experience, analyzes how the implementation of diverse cases of industrial policy and financing may have some policy implications for economies in Africa that are trying to build their industrial bases. The paper considers the essence of industrial policy to be building the capabilities of private firms generally to sustain long-term economic growth, rather than picking winners or providing protection for only some firms or sectors. In this regard, policy and financing tools can be different, depending upon the nature of the sectors and projects. Furthermore, for an effective industrial policy, state ability to control financial resources in a national economy is often critical. In the Korean experience, the banking sector had been intended to “serve” the goods and services sector by providing a stable supply of so-called “growth money” at affordable rates, whereas only the manufacturing or production sectors had always been given priority.
Keywords: Industrial policy, Development Banks, Financial control, capability building.