Public Disclosure Authorized SWP263 Industrial Policy and Development in Korea World Bank Staff Working Paper No. 263 Public Disclosure Authorized August 1977 Public Disclosure Authorized Public Disclosure Authorized This paper is preparecd for staff use. The views expressed are those of the author(s) and not necessarily those of the World Bank. Prepared by: Larry E.Westphal Economics of Industr( Division Development Econornics Department P X B L : Kwang Suk Kim Korea Development Institute DO N O T The views and interpretations in this document are those of the authors and should not be attributed to the World Bank, to its affiliated organizations, or to any individual acting in their behalf. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Bank Staff Working Paper No. 263 August 1977 INDUSTRIAL POLICY AND DEVELOPMENT IN KOREA This study is an examination in depth of Korea's industrial incentive policies from 1955 to 1975. It begins with a brief history of Korea's industrial policies, followed by a discussion of historical trends in the real effective exchange rates for exports and imports. Estimates of nominal and effective incentive rates for 1968 are then presented and analyzed in detail, after which the changes that have taken place inl the structure of Korea's trade and production are quantified and related to its industrial incentive policies. The essay concludes with a summary of the principal findings in the form of an evaluation of Korea's industrial development performance. The research underlying this essay was largely financed under the auspices of the World Bank's research project. "Development Strategies in Semi-Industrial Countries," directed by Bela Balassa. Research on the study was completed and a full draft prepared while the senior author was a Consultant to the Bank. The revised version includes an updating of the analysis through 1975. It partially overlaps with another Bank Staff Working Paper (No. 249), "Korea's Experience with Export-Led Industrial Development." Prepared by: Larry E. Westphal Economics of Industry Division Development Economics Department Kwang Suk Kim Korea Development Institute Copyright CC 1977 The International Bank for Reconstruction and Development/The World Bank 1818 H Street, N.W., Washington, D.C. 20433 U.S.A. INDUSTR:LAL POLICY ANI) DEVELOPMENT IN KOREA* by Larry E. Westphal Development Economics Department The World Bank and Kwang Suk Kim Korea Development Institute Revised: August 1977 * Forthcoming in: Bela Balassa, editor, Development Strategies in Semi-Industrial Countries. Washington: The W'orld Bank I I I I I i Korea: i ACKNOWLEDGEMENTS This is one of several country studies under the World Bank's research project (No. '570-01) titled "Development Strategies in Semi- Industrial Countries," directed by Bela Balassa. The common methodological framework for estimating effective incentive rates is given in two papers by him -- "Development Strategies in Semi-Industrial Countries: Outline and Methodology" and "Measuring the Nominal Rate of Protection" -- both of which are available from the Development Research Center in mimeograph form. We are grateEul to Thomas Olmsted and other members (as of 1969 through 1972) of the economics staff of the United States Agency for Inter- national Development's mission to Korea for their full support and cooperation. Kim's research into the evolution of incentive policies and his development of the numerical data for 1968 were conducted while on the staff of the mission. Later, a Ford Foundation grant enabled Kim to spend a year at Princeton working on the study. Upon his return, he became a Senior Fellow at the Korea Development Institute, where he worked on the final phases of the study. Additional support was also received for research into the structural changes tha;Z accompanied Korea's growth. The compilation of the 1955 input-output table was financed by grants from the University Committee on Research in the Huminities and Social Sciences and the Council on Inter- national and Regional Studies, Princeton University. Much of the computation was financed by the Re3earch Project in Economic Development, the Woodrow Wilson School, Princeton University. Upon his moving there, Westphal received a research gr;nt in the form of a quarter's paid leave from Korea: ii Northwestern University to permit time for writing and final computations. We owe a special debt of gratitude to all the Korean government officials, too numerous to mention individually, who cooperated with us in our search for understanding and data. Equally, a special acknowledgement is due Alice Anne Navin, without whose valuable assistance the input-output and effective incentive calculations could not have been done so expeditiousl3 Professor Balassa greatly assisted us, by his constant attention to our entirt study and searching conments on our drafts, as did Professors Bhagwati and Krueger, through their direction of the preparation of the monograph cited below. In turn, Charles Frank has been a valuable colleague, whose probing questions and encouragement led us to go deeper in several directions than we might otherwise have gone. Parts of a previous version of this study are summarized in Chapters 6 and 10 of a monograph written jointly by Charles R. Frank, Jr. and the present authors [Frank, Kim, and Westphal (19751 . This monograph contains a more comprehensive history of the evolution of Korea's economic policies and provides details regarding aspects of Korea's economic development that can only be touched on lightly here. In turn, the present study covers the period up to 1975 while the monograph's coverage stops at 1973 and is most extensive for the period through 1970. The authors are alone responsibie for the conclusions reached in this paper as well as for any errors or omissions. Korea: i TABLE OF CONTENTS Title Page Acknowledgements i Table of Contents iii List of Tables iv Introduction 0-1 1 Incentive Policies for Exports and Import Substitution 1-1 1.1 The Evolution of Incentive Policies through 1967 1-2 1.2 Real Effective Exchange Rates for Exports and Imports 1-10 2 Estimates of Nominal Protection 2-1 2.1 The System of Nomninal Protection 2-1 2.2 Design and Scope of the Price Comparison Survey 2-4 2.3 Estimation of Noiminal Protection Rates 2-7 2.4 The Effects of Quantitative Restrictions on Imports 2-17 2.5 An Overview of the Estimates of Nominal Protection 2-20 3 Estimates of Effective Incentives 3-1 3.1 An Overview of Data Sources and Method 3-2 3.2 Average Incentives to Total Sales 3-7 3.3 Incentives in the Domestic Market 3-28 3.4 Incentives in the Export Market 3-38 3.5 Relative Incentives to Export and Domestic Sales 3-50 3.6 Estimates of Net Incentive Rates 3-57 4 ExamInation of Structural Changes 4-1 4.1 Export Performarce 4-1 4.2 Comparison with Average Development Patterns 4-11 4.3 The Changing Stiucture of Production and Trade 4-15 4.4 Factor Allocaticon and Utilization 4-43 4.5 Incentives and Structural Change 4-54 5 Evaluation 5-1 Bibliography B-1 Annex Tables A-1 Annex on Methods of Mleasuring Effective Incentives M-1 Korea: iv LIST OF TABLES-! Table Page A. Major Economic Indicators: 1955 to 1975 0-2 B. Effective Exchange Rates for Exports and Imisports 1-13 B.1 Nominal and Real Effective Exchange Rates for Exports 1-14 B.2 Nominal and Real Effective Exchange Rates for Imports 1-16 C. Frequency Distribution of Nominal Protection Estimates 2-9 1. Nominal Rates of Protection for Selected Products 2-11 D. Average Tariff and Protection Rates from the 1968 Price 2-21 Comparison Survey E. Regressions of Nominal Protection Rates Against Legal 2-22 Tariff Rates 2.A Nominal and Effective Protection: Industry Groups 3-9 2.B Nominal Protection and Effective Subsidy: Industry Groups 3-10 2.C Additional Information for Industry Groups 3-11 3.A Nominal and Effective Protection: Commodity Categories 3-12 3.B Nominal Protection and Effective Subsidy: Commodity Categories 3-13 3.C Additional Information for Commodity Categories 3-14 4. Simple and Rank Correlations Among Indicators of Incentives 3-15 F. Frequency Distributions of Incentive Measures 3-16 5.A Net Nominal and Effective Protection: Industry Groups 3-62 5.B Net Nominal Protection and Effective Subsidy: Industry Groups 3-63 6.A Net Nominal and Effective Protection: Commodity Categories 3-64 6.B Net Nominal Protection and Effective Subsidy: Commodity 3-65 Categories G. Exports of Goods and Services 4-3 H. The Composition of Merchandise Exports 4-5 I. The Destinations of Merchandise Exports 4-6 J. Observed and Average Economic Structure 4-13 K. Structure of Domestic Demand and Production 4-20 L. Trade Shares and Growth Rates by Major Sectors 4-21 M. Composition of Exports and Imports 4-22 N. Direct and Total Growth Contributions: 1955-1968 4-34 0. Direct Contributions to Manufacturing Growth: 1960-1973 4-39 p. Factor Intensity of Trade 4-47 Q. Percent of Employment Due to Exports 4-52 R. Factor Use in Manufacturing 4-54 S. Rank Correlations between Measures of Incentives, Efficiency, 4-58 and Resource Allocation T. Effective Incentives to Major Export Sectors 4-61 U. Effective Incentives to Major Import Substitution Sectors 4-62 Annex Tables 1. Nominal Rates of Protection in 1968; Production, Expor-s A-1 and Imports in 1966 2.A Nominal and Effective Protection: Individual Industries A-24 2.B Nominal Protection and Effective Subsidy: Individual Industries A-32 2.C Additional Information for Individual Industries A-40 1/ Numerically designated tables are numbered according to a common scheme employed in all the country studies under the Development Strategies in Semi-Industrial Countries project. Korea: 0-1 INDUSTRIIL POLICY AND DEVELOPMENT IN KOREA Introduction The Republic of Korea, often referred to as South Korea (and here simply as Korea), was c:reated at the end of World War II by the partition of the Korean peninsula, which had been occupied by the Japanese since the early 1900s. Under Japan's colonial administration, agriculture had been inten- sively developed in the Southern half of the peninsula to promote exports of foodstuffs to Japan. In turn, industrial development had been suppressed until shortly before World War II in order to reserve the Korean market for Japan's manufactured exports. A change in colonial economic policy due to preparation for war led to the establishment of a small "modern" sector to supply war materiel as well as local demand for light consumer goods. Partition left South Korea with a majority of the peninsula's pcrulation, its most productive agricultural land, and the bulk of its light industry. Most of the heavy industry and more than 90 percent of the electricity generating capacity were in the North. Economic activity in the South was dominated until the mid-1950s by adjustments first to partition and then to dislocations caused by the Korean War. The economy's structure in 1955 was thus much ithe same as it had been left at the end of the Japanese occupation. As may be seen in Table A, manufacturing activity accounted for only eight percent of GNP in 1955, while nearly half of GNP originated in the primary sectors. Due to the disrupting effects of the Korean War, exports accounted for only 1.4 percent of GNP, and manufactured exports were virtually non-existent. Korea: 0-2 TABLE A Major Economic Indicators: 1955 to 1975 A. Computation of Per Capita Income 1955 1960 1965 1970 1975 GNP (billion won at 1970 prices) 938.2 1,129.7 1.529.7 2,589.3 4,107.7 Population (million persons) 21.5 24.9 28.3 31.4 34.7 GNP per capita (thousand won at 1970 prices) 43.6 45.3 54.0 82.4 118.4 B. Percentage Shares in GNP at 1970 Prices Value added in: Primary production 47.5% 42.6% 41.0% 29.2% 23.0% Marufacturing 7.9 10.8 13.9 21.6 31.9 Social overheadi/ 4.2 6.0 8.5 13.3 13.7 Services 40.4 40.6 36.6 35.9 31.4 Cross investment 10.0 8.6 1-.9 27.2 26.3 Total exports 1.4 2.4 5.2 14.7 28.3 Total imports 11.2 10.4 9.8 24.8 27.2 C. Percentage Shares in GNP at Current Prices Government revenue 10.5% 19.8% 16.1% 20.1% 19.7% Government savings .6 4.1 5.7 7.5 3.6 Total domestic savings 3.7 1.6 7.7 17.1 17.7 Gross investment 11.9 10.9 15.1 27.2 27.1 Total exports 1.6 3.3 8.5 14.7 30.2 Total imports 9.8 12.6 15.9 24.8 39.6 D. Compound Annual Growth Rates 1955-60 1960-65 1965-70 1970-75 GNP (at 1970 prices) 3.8% 6.2% 11.1% 9.7% GNP per capita (at 1970 prices) .7 3.6 8.8 7.5 Manufacturing value added (at 1970 prices) 10.3 11.8 21.3 18.5 Index of manufacturing output 12.0 9.5 24.2 23.2 Total exports (at 1970 prices) 16.3 24.0 36.5 25.0 Population 14 years and older - 2.5-3/ 2.8 3.6 Economically active population - 2.73/ 2.9 3.9 Employment Total - 2.43/ 3.5 3.9 Manufacturing - 12.2_3/ 10.7 11.4 Real wages Average in mining and manufacturing 5.L-/ 1.1 7.1 8.4 Agricultural labor - -0.1 8.2 1.5 Prices GNP deflator 12.0 19.3 13.7 15.3 W.holesale price index 10.2 17.2 7. iRA.Q 1/ Includes construction; electricity, gas, water, and sanitary services; transportation, storage and communication. 2/ For 1957-1960. 3/ For 1960-1966. Sources: Bank of Korea, Economic Statistics Yearbook, 1967, 1969, 1976; National Income in Korea, 1975; Economic Planning Board, Korea Statistical Yearbook, 1975; and, Hong (1976). Korea: 0-3 Industrial expansion from 1955 through the early 1960s was largely oriented toward the domestic market, with import substitution for light manufactured and non-durable consumer goods playing a major role. Exports in 1956 amounted to less than half their real value in 1950, the year pre- ceding the Korean War, but in the late 1950s they began growing at a gradually accelerating rate. By 1960 the real value of exports surpassed that in 1950 by nearly 16 percent. However, in absolute terms as well as relative to GNP, exports remained small: in current U.S. dollars, total exports (including merchandise and non-factor services) amounted to roughly $100 million in 1960, of which only five percent were manufactured products.l/ The share of total exports in GNP at current prices was only 3.3 percent. Manufactured exports rose rapidly in the early 1960s, albeit from a small base, but the real "turning point" in both export and industrial growth came around 1965, at the end-of a period of trade liberalization and other major policy reforms. In the following decade, manufactured export growth coupled with rising domestic demand fueled industrialization much faster than before. The compound annual rate of growth in the index of manufacturing output was 11 percent from 1955 to 1965; it increased to 24 percent from 1965 to 1975. Underlying the acceleration of manufacturing output growth, the share of exports in manufacturing (gross) output, which was nil in 1955, rose from roughly six percent in 1965 to nearly 25 percent in 1975.2! Within a decade, from 1965 to 1975, the ratio of total exports 1/ Manufactured exports here include SITC categories 5 though 8 except 68. 2/ Bank of Korea, National Income in Korea, 1976. Korea: 0-4 to GNP more than trebled and the share of GNP originating in the manufacturing sector more than doubled. Manufactured products constituted 42 percent of total exports in 1965 and 74 percent in 1975. Nearly every indicator of development performance improved dramatically after the mid-1960s (see Table A). Thus, for example, the annual growth rate of real per capita income increased from 2.1 percent in the decade preceding 1965 to 8.1 percent in the decade that followed. By 1975, Korea's population of over 34 million enjoyed a per capita income in excess of $500 in current U.S. dollars. The economy also performed well with respect to employment and income distribution. Between 1965 and 1975, total employment is estimated to have increased by 3.7 percent per annum while the population aged 14 and older was growing 3.2 percent annually. Real wages in mining and manufacturing rose at an average annual rate of 7.8 r-ercent during this period./ Industrial incentive policies, particulari' those affecting import substitution and export expansion, played a major role in bringing about Korea's economic transformation. This study seeks to quantify that role with as much precision and detail as possible. The numerical expression of the full impact of government incentive policies is limited to estimates for a single year; nominal and effective incentive rates are given for 150 sectors 1/ The slow growth of real agricultural wages between 1970 and 1975 is both inexplicable and a misleading indicator of the change in rural versus urban incomes. Other (reliable) data indicate that, if any- thing, average rural income increased relative to average urban income over this period. Before 1970, however, average rural income grew substantially less rapidly than average urban income. Korea: 0-5 in 1968. However, the more general discussion of industrial policy and development covers from 1955 through 1975. The organization of this essay is as follows. Section 1 gives a brief history of incentive policy changes focused on the reforms under- taken between 1959 and 1967. It also presents estimates of real effective exchange rates for exports and imports that extend through 1975. Sections 2 and 3 respectively discuss in detail the estimates of nominal and effective incentive rates. Section 4 then discusses and quantifies the changes that have taken place in the structure of Korea's trade and production, and attempts to put these changes into perspective using international comparisons. It also examines changes in factor allocation and utilization, and concludes with an analysis of the relationship between incentives and structural change. Section 5 summarizes some of the major findings of the study and attempts to evaluate Korea's industrialization strategy. Korea: 1-1 1. Incentive Policies for Exports and Import Substitution- The history of Korean incentive policy changes is one of continual, if sometimes halting, movement toward an increasingly open economy, marked by a major liberalization episode that occurred in the mid-1960s. During the last half of the 1950s, a multiple exchange rate system and import controls had the effect of heavily protecting the domestic market. The resulting discrimination against exports was partly offset, though to what degree is unknown, bv permit:-irg expcr-ers tc convert their foreign exchange earnings in a free rrket. The most important policy change in the direction of opening the economy was the adoption of a uniform exchange rate at a level near the free trade exchange rate. This took place in'two stages between 1961 and 1964. The adoption of new export incentive instruments started somewhat earlier, ir.1959, and continued through 1967. In turn, as the balance of payments situation improved after 1964, import controls were progressively relaxed, a process that still continues. The following section briefly summarizes the policies in force during the late 1950s and then discusses, in roughly chronological order, the policy changes that took place through 1967. The principal instruments of industrial incentive policy remained unchanged from 1967 to 1973, when several export incentive mechanisms were abolished following an exchange rate adjustment. The changes introduced in 1973 are summarized in Section 1.2, as part of the discussion of trends in the effective exchange rates for exports and imports from 1958 (the first year for which reasonably adequate estimates are available) to 1975. 1/ For a more detailed discussion, see Frank, Kim, and We3tphal (1975), Chapters 3, 4 and 5. Korea: 1-2 l.L The Evolution of Incentive Policies through 1967 Industrial. incentive policies during the last half of the 1950s were those typically associated with an import substitution strategy. Large scale purchases of won (the domestic currency) at the official exchange rate by the resident: UN military establishment provided the major motivation to maintain an overvalued exchange rate, from which a complex structure of multiple exchange rates evolved to deal wi-th recurrent balance of payments problems. Foreign exchange rates varied depending upon the type of import and the source of the foreign exchange, with advance deposits required in some cases. Foreign exchange was allocated by various auction and bidding procedures, by lottery, and by an exchange tax system. High tariifs were imposed on imports for which close substitutes were domestically produced, mostly finished consumer goods, and the gov- ernment increasingly relied upon quantitative import restrictions as an additional measure t:o offset the progressively greater overvaluation of the won. Low tariffs were levied on unfinished goods and high tariffs on finished goods and luxury items, with reduced tariffs being applicable to products not produced in Korea. Food grains and non-competitive equipment and raw material imports entered duty-free. In addition, complete tariff exemptions on import:s of machinery and intermediate gcods were granted to several major imporl: substituting industries. In turn, quotas were the principal means of controlling imports. The import licensing program was revised semi-annual:Ly and changed in fundamental respects several times to reduce pressure on the balance of payments. Among the variety of incentives which were nonetheless given to exports, by far the inost important was the conversion of export earnings into Korea: 1-3 foreign exchange certificates which were traded at a premium in a free market. Mloreover, through the so-called "export-import link" system, holders of foreign exchange certificates were entitled to import certain "popular" items not otherwise approved for import. Furthermore, direct subsidies in the form of won payments were granted at varying rates depending upon the type of export and exporters were given loans at preferential interest rates. The magnitude of the latter subsidy, however, was relatively small. Beginning in 1959, imports of intermediate goods used in the production of exports have been exempt from tariffs. The three years following the Student Revolution which overthrew Syngman Rhee in April 1960 were a period of social, political, and economic instability during which there were a number of attempts at policy reform and economic liIer.1ization. The most notable of these was the initial establishment of a unified exchange rate in 1961. The adoption of the unitary fixed exchange rate of 130 won to the dollar (double the previous official rate) did not appreciably increase export proceeds, however, for the new rate was somewhat lower than the free market rate on export earnings had been, though it did raise the unit cost of imports by more than 40 percent. After having been relaxed somewhat following the devaluation in 1961, import controls were tightened in response to continued domestic in- flation through the use of import licensing under the semi-annual trade programs which included selective import quotas and prohibitions. Variable tariffs had been used as an additional means of controlling imports before the devaluation, but were not as important afterwards. Export incentives were Korea: 1-4 increased; the preferential interest rate on export credit was gradually reduced and the amount that could be borrowed on a given volume of exports was increased. Several new measures were also added, the most important of them in 1962 when the business income tax rate on foreign exchange earnings was set at one half the other- w,-e applicable rate and the full exemption from payment of indirect taxes both on inputs and export sales was formalized. Until a balance of payments crisis in 1963, exporters were con- strained to sell their foreign exchange receipts to the central bank at the legal exchange rate. Then, with the reintroduction of a multiple exchange rate system in 1963, which continued into 1964, exporters were again given the right to sell all of their foreign exchange earnings on the free market. UnEer the operation of the export-import link system during this period, imports of a large number of otherwise prohibited items could only be fi- nanced by export earnings (other imports were financed by official transfers). The liberalization philosophy that had emerged but remained largely ineffective during the early sixties took firm hold after the election of a civilian government under Chung Hee Park in early 1964. (President Park continues in power today.) The ensuing two years brought major and successful policy changes in a number of areas. In addition to changes more directly related to trade policy, there were several key reforms aimed at increasing public and private savings. The administration of government revenue collection was reorganized to insure a high ratio of revenue to GNP, and steps were taken to hold down current government expenditures. An increase in commercial bank deposit and lending rates together with a price stabilization program raised the real interest rate to approximately ten percent Korea: 1-5 per annum. By substantially increasing the domestic savings rate (see Table A), these reforms were instrumental in financing the higher investment rates required for accelerated GNP growth.l/ Simultaneously, policy makers came firmly to accept that rapid economic development depended upon an export oriented industrialization strategy. This view was predicated on the understanding that Korea's natural resource base was very poor and on the realization that further opportunities for import substitution were only to be found in intermediate and durable goods, where the limited domestic market could not justify establishing plants large enough to realize technological economies of scale. A major policy change was the lasting establishment of a uniform exchange rate in 1964, when the won was devalued to 255 to the dollar. As had been the case in the earlier devaluation in 1960, the devaluation in 1964 was aimed primarily at simplifying the exchange regime and offsetting domestic inflation, rather than increasing the level of export incentives. Since 1964, the exchange rate has been increased at discrete intervals, with continued intervention by the Bank of Korea to maintain a relatively stable nominal rate between devaluation episodes. At the same time, the preferential treatment of exports was extended further. Starting in 1965, the full set of export incentives was extended to producers of "indirect exports," i.e. intermediate goods used in the pro- duction of exports.- In the following year, tariff exemptions were granted on imports of machinery and equipment used to produce both direct and indirect exports and accelerated depreciation was permitted in calculating business expenses for income tax purposes. 1/ For comprehensive discussions of these policy reforms, see Cole and Lyman (1971) and Brown (1973). 2/ The purpose of this extension was to encourage the domestic production of raw materials used in exports by offsetting the bias in favor of importing raw materials which had resulted from their being duty-free to exporters. Korea: 1-6 As a result of these measures, exporters operated under a virtual free trade regime. Also, existing incentive schemes were strengthened and a variety of new incentives provided. To begin with, preferential interest rates to exporters remained unchanged while non-preferential commercial bank lending rates were raised in 1965 from 16 to 26 percent. This had the effect of substantially increasing the implicit interest subsidy given to exporters. Moreover, the preferential Korea: 1-7 rate on working capital loans to exporters fell gradually, from 14 percent per annum in 1960 to 6.0 percent in 1967, and the amount that could be borrowed -- proportional to the gross foreign exchanged earned -- was progres- sively increased as the exchange rate became increasingly overvalued in the late sixties. Credit incentives also included a series of arrangements to give exporters preferential access to foreign exchange loans. Furthermore, exporters were provided generous wastage allowances for imported inputs in export production, as discussed in the next section. And, starting in 1967, they paid reduced rates on public utilities, including electricity and rail transport. Of somewhat lesser importance was the reintroduction in 1966 of a limited export-import link system, with the purpose of increasing exports with low profit margins and developing new export markets, whereby the exporter was given the temporary right to duty-free imports of certain restricted, popular items. The subsidy involved was relatively small in the aggregate, however, Also of neglible importance was the granting of monopoly rights to certain exporters in new export markets or in the export of new commodities. Korea: 1-8 Various non-price, institutional incentives were also intro- duced during the 1960s. An export performance criterion was established in 1962 as the basis for granting importers' licences; these were given only to those traders and firms which had exported beyond a stated limit in the previous year. Jhis limit was increased annually, and by 1970 had reached $300,000 in current U.S. dollars. The government-subsidized Korea Trade Promotion Corporation (KOTRA) was founded in 1964 to promote Korea's exports and do market research. Moreover, the government also sent special trade missions to a number of foreign countries and authorized the Korean Traders' Association to collect one percent of the value of total c.i.f. imports as an export promotion fund. A system of export targets for individual firms in particular markets (broken down by product and destination) was initiated in 1962 and quickly became an important means of publicizing the government's export protaotion efforts and monitoring progress, the latter as a basis for adjusting export incentives to changing circumstances. Section 3.5 and the conclusion discus3 the role of the target system in greater detail. As regards incentives to production for domestic,sale since the mid-1960s, a small number of import substitution industries have benefited from promotional activities (project identification, feasibility studies, etc.) under the aegis of successive Five Year Plans."/ Some of these industries have been granted price incentives, including tariff exemptions on imported raw materials and capital goods, access to preferential credit, and reduced direct tax rates plus accelerated depreciation. But in most 1/ A system of short and medium term indicative planning was instituted with the First Five Year Plan running from 1962 to 1967. For a description and evaluation of Korean planning, see Adelman (1969) and Westphal and Adelman (1972). Korea: 1-9 sectors the only price incentive to domestic sales has been the protection potentially afforded by import controls and tariffs.-/ At the same time, trade controls were gradually relaxed following the 1964 devaluation as the number of items eligible for unrestricted import increased. The system was further liberalized in 1967 when a switch was made from the so-called "positive" list sytem, under which only those commodities listed in the trade program could be imported, to the "negative" list system, under which all commodities not listed were automatically approved for imports.- Section 2.4 below examines the effects of restrictions in 1968. The tariff structure that had been created in 1949 remained essentially unchanged until 1967, except for a minor revision in 1957 to protect recently emerged domestic industries. The tariff reform undertaker in the latter part of 1967 ultimately led to very few changes. Tariffs were in general raised somewhat, though the highest rate was reduced to 150 percent. And, while the new law also allowed for much greater admini- strative flexibility, permitting changes in the original legal rates by as much as 50 percent (of those rates) by simple administrative decree, the rapid growth of imports that were exempt from customs duties left the average tariff on total imports practically unchanged. 1/ Here we should note that advance deposits, or prepayment requirements, on imports were introduced for a brief period during the exchar.ge crisis in 1964 and have been used on a continuing basis since the second half of 1968, when they were reintroduced in response to the rapid growth of import demand. Advance deposit requirements have depended upon the source of the foreign exchange used, the country of origin, and the specific commodity being imported. Moreover, they have been changed frequently over time, as the balance of payments situation has fluctuated. During most of the period since 1968 there has been no deposit requirement on most imports. Since the protection afforded is insignificant, we have neglected the protection equivalent of the advance deposit system in estimating both the effective exchange rate for imports (Section 1.2) and nominal protection rates in 1968 (Section 2). 2/ The Ministry of Commerce and Industry administers the controls, designating "prohibited" and "restricted" commodities in a trade program that continues to be revised every six months. A license is required to import any of the restricted commodities, but not all such commodities are subject to strictly enforced quotas. Korea: 1-10 1.2 Real Effective Exchange Rates for Exports and Imports The net result of the policy changes described above was the establishment of an incentive system that generally favored exports over import substitution. In this section a quantitative assessment of the impact of these policy changes is made using time series estimates of real effective exchange rates. But first it is well to summarize the principal export incentives existing as of 1967 and to clarify which may be considered as true subsidies. The most important price incentives to exporters by 1967 included: unrestricted access to and tariff exemptions on imported intermediate and capital goods; exemption from payment of indirect taxes both on major inter- mediate inputs, whether imported or purchased domestically, and on export sales; generous wastag,e allowances in determining duty and indirect tax free raw material imports, which permitted the use of some of these imports in in production for the domestic market;L/ reduced prices for several over- head inputs including electricity and railroad transport, which were in- tended at least in part to compensate for payment of indirect taxes included in the normal charges for these inputs;!" a 50 percent reduction in direct taxes on income earned in exporting, along with accelerated depreciation; and, immediate access to subsidized short and medium term credit to finance working capital and fixed investment respectively. In addition, the export- import link system entitled selected exporters to import certain popular items that were not otherwise approved for import. As we have already noted, this system was used to subsidize exports during the late 1950s and much of the 1960s. It has sirce been used only intermittently on a more or less ad hoc basis to offset exporters' temporary losses due to market fluctuations or entry into new markets. 1/ These incentive mechanisms are further described at the beginning of Section 3.4 below. Korea: 1-11 Some of these incentives are not genuine subsidies. Except where there is over-rebating, the exemption of export sales from indirect taxes on the same products sold domestically merely establishes tax neutrality under the destination principle that exempts exports from indirect taxes while such taxes ire imposed on imports. In turn, exemption from tariffs on imported inputs and from indirect taxes on all inputs regardless of the source of the purchase does favor exports vis-a-vis production for domestic sale; so too does permitting exporters to have free access to imported inputs, while access is restricted in the case of production for domestic sale. Vis-a`-N-s world market prices, however, the effect of these measures is that exporters operate under a free trade regime: they purchase their (tradeable) inputs and sell their output at world market prices. While indirect tax and tariff exemptions do not add to exporters' revenues, they do reduce production costs below those to produce for the domestic market. Thus, an increase in indirect tax or tariff rates paid to produce a given product for domestic sale makes its production for export using existing capacity more attractive, even though it does not increase the profit rate earned on export sales. In this sense, combining these exemptions with "genuine" export subsidies yields an index of the incentive to exporting vis-a-vis selling domestically, but not of export incentives compared to the free trade situation, Two effective exchange rates for exports should thus be distinguished: a "gross" rate, which includes indirect tax and tariff exemptions per dollar of exports; and, a "net" rate, which does not include them. In turn, profits from exporting will be affected if such exemptions are granted or withdrawn over time, which makes the gross rate the only meaningful measure of incentives when there are changes in the scope of exemptions. Korea: 1-12 For lack of consistent time series data, our estimates do not incorporate the subsidies due to the export-import link system, the excess of wastage allowances over actual wastage in production for export, or price reductions on overhead inputs. Very little is known about the precise magnitude over time of the first of these subsidies. More is known about the subsidy due to wastage allowances, which has been estimated to have been equal to 2.4 percent oi' the total value of merchandise exports in 1968 1/ There is also evidence that this subsidy has fluctuated over time, generally rising and falling in relative value with the degree of the won's over- valuation. In turn, the value of overhead price reductions has always been quite small in relative terms; it equalled only 0.4 percent of exports in 1968 a Table B shows the total value per dollar of exports of those incentives for which consistent time series information is available. For convenience, the value of incentives is shown as a percentage of the official exchange rate; nominal effective exchange rates have been derived by adding the values of these incentives to the official exchange rate (see Table B.1). The figures include incentives to both direct and indirect exports, whereas the export figures include direct exports only. They have been expressed in 1968 prices and relate to the 1958 to 1975 period. The total subsidy owing to the 50 percent reduction in direct taxes has been calculaited as the difference between tax liabilities in the absence of any such preference and actual direct tax payments. Correspondingly, the magnitude of this subsidy depends on the profit rate per dollar of exports and it may fluctuate without there having been a change in the tax rate if profits v.ary over time. 1/ See Section 3.4 below. TABLE B Effective Exchange Rates for Exports and Imports (Annual averages; won per U.S. dollar) As a Percent of the Official Exchange Rate Purchasing Power Parity Adjusted Per Dollar (Real) Effective Exchange Rates-/ Per Dollar of Exports: of Imports: For Exports Exchange Excluding Including Premia Direct Indirect Actual Indirect Indirect Official Plus Tax Tax Tariffs Including Tax and Tax and Exchange Direct Plus and and Only Tariff Tariff Rate Cash Interest Tariff Tariff Revenue Exemptions Exemptions For (Nominal) Subsidies Subsidies Exemptions Equivalents Incentives (net) (gross)- Imports 1958 50.0 128.0% 2.4% .0% 28.8% 276.7 279.6 279.6 156.6 1959 50.0 169.4 2.6 - 65.6 321.8 324.9 - 197.9 1960 62.5 134.2 2.0 - 60.3 317.5 320.1 - 217.4 1961 127.5 17.3 .8 - 15.3 287.4 289.3 - 282.2 1962 130.0 7.9 1.1 7.6 12.6 244.7 247.1 264.2 255.5 1963 130.0 33.8 2.8 9.1 13.9 253.5 258.8 276.1 215.9 1964 214.3 19.9 3.2 8.2 15.3 278.7 286.1 305.3 268.0 1965 265.4 .0 3.7 11.1 10.4 265.4 275.3 304.6 293.1 1966 271.3 .0 4.6 14.4 9.3 256.4 268.2 305.1 280.4 1967 270.7 .0 7.4 15.7 9.4 242.8 260.7 298.8 265.4 1968 276.6 .0 6.6 21.5 9.4 233.2 248.5 298.7 255.0 1969 288.2 .0 5.1 22.7 8.5 234.3 249.3 299.4 254.5 1970 310.7 .0 6.7 21.7 8.3 239.9 255.9 307.9 260.0 1971 347.7 .0 6.5 23.1 6.3 253.5 270.1 328.6 269.7 1972 391.8 .0 3.2 23.7 6.0 275.0 283.8 348.9 290.2 1973 398.3 .0 2.2 21.5 4.9 320.6 327.6 396.5 332.5 1974 407.0 .0 2.1 19.1 4.5 279.2 285.1 338.4 288.1 1975 485.0 .0 2.7 14.0 5.1 275.0 282.3 320.9 286.6 1/ At 1965 prices. Source: Tables B.1 and B.2. TABLmI B.1 Nominal and Real 8ff&tt.ve EphanM &atesfor Exports (Annual Averages) 195B In5 160 1961 1962 196t A. Merchandise exports (million U.S. dollars at current prices) 1 t9u* 3i* 40 9 gC*5 54 B. Official exchange rate (won per U.S. dollar) 50.0 50.0 62.5 127.5 130.0 130.0 C. Revenue incentives (von per U.S. dollar of exports)-' 1. Avarage export dollar premi^4 64.0 84.7 83.9 14.6 .0 39.8 2. Direct cash payments .0 .0 .0 7 10 3 4 1 3 Total (C1 plus C2) 64 039 D. Cost incentives (won per U.S. dollar of exports)2J 1. Direct tax reduction .0 .0 .0 .0 .6 .8 2. Interest rate preference 1.2 1 1.2 1.A z 3. Sub-total (Dl plus D2) 1.2 1.3 1.2 1.0 114 3 6 4. Indirect tax exemption .0 .0 .0 .0 5.1 5.3 5. Tariff exemption .0 - - - 4.7 6.6 6. Total (D3 through D5) 1.2 - - - 11 3 E. Nominal effective exchange rate for exports (won per U.S. dollar)2/ 1. Including only revenue incentives (B plus C3) 114.0 134.7 146.4 149.6 140.3 173.9 2. Ecluding indirect tax and tariff exemptions (El plus D3) 115.2 136.0 147.6 150.6 1l-ii7 177.5 3. Including indirect tax and tariff exemptions (El plus D6) 115 .2 - - - 151.5 189.4 F. Price and exchange rate indexes (1965 - 100) 1. U.S. wholesale price index 97.9 98.1 98.2 97.8 98.1 97.8 2. Japanese wholesale price index 95.9 96.9 97.9 98.9 97.3 99.0 3. Index of yen per U.S. dollar exchange rate 100.0 100.0 100.0 100.0 100.0 100.0 4. Index of prices in major overseas markets2/ 96.8 97.5 98.0 96.4 97.7 98.4 5. Korean wholesale price index 39.9 40.8 45.2 51.2 56.0 67.5 6. Purchasing-power-parity index (F4/F5) 242.7 238.9 216.9 192.1 174.4 145.8 G. Purchasing-power-parity (real) effective exchange rate for exports 1. Including only revenue incentives (El times F6) 276.7 321.8 317.5 287.4 244.7 253.5 2. Excluding indirect tax and tariff exemptions (E2 times F6) 279.6 324.9 320.1 289.3 247.1 258.8 3. Including indirect tax and tariff exemptions (E3 times F6) 279.6 - - - 264.2 276.1 lJ Includes exports not cleared through customs, such as sales of goods to military forces overseas and offshore sales of fish. 2/ Totals may not reconcile due to round-off error. / Equal to 0.4771 times Fl plus 0.5229 times (F2/F3). The weights are respectively equal to the average shares (1958 to 1975) of the U.S. and Japan in Korea's total exwports to these two countries. Over this period, an average of 32.3 percent of Korea's exports went to other destinations. Source Bank of Korea, Ministry of Finance, Hission to Korea of the U.S. Agency for International Developemnt. Note "-" indicates data are not available. TABLE B.1 (Cont.) 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 A. 119.1 171 20.3 3347.8 4-7T f,58.3 882.2 1132.2 1675.9 3270.8 4515.1 5003.0 B. 214.3 265.4 271.3 270.7 276.6 288.2 310.7 347.7 391.8 398.3 407.0 485.0 C. 1. 39.7 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 2. 2.9 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 3. 42. .0 .0 .0 .0 .0 .0 .0 .0 D. 1. .7 2.3 2.3 5.2 3.0 3.7 3.5 4.8 1.9 1.4 .0 .0 2. 6.0 7.6 10.3 14.7 15.2 14.7 17.3 18.1 10.5 7.4 8.6 12.9 3. -6T8 9.9 12.5 20.0 18.2 18.h 20.8- 22.8 12.5 8.7 8 12.9 li 7.6 13.9 17.8 17.8 19.9 27.4 27.0 32.2 26.4 21.0 22.5 33.8 5. 10.1 15.4 21.3 24.6 39.6 34.3 40.4 _48.0 66.3 64.4 55.1 34.3 6. 24.4 39.2 51.6 62.4 77.7 80.1 88.1 103.0 105.2 9IT.2 863 81.0 E. 1. 256.9 265.4 271.3 270.7 276.6 288.2 310.7 347.7 391.8 398.3 407.0 485.0 2. 263.7 275.3 283.8 290.7 294.8 306.6 331.5 370.5 404.3 407.0 415.6 497.9 3. 281.4 304.6 322.9 333.1 354.3 368.3 398.8 450.7 497.0 492.5 493.3 566.0 F. 1. 98.0 100.0 103.3 103.5 106.1 110.2 114.3 117.9 123.3 139.4 165.7 181.1 2. 99.2 100.0 102.4 104.3 105.1 107.4 111.3 110.4 111.3 129.0 169.4 174.5 3. 100.0 100.0 100.0 100.1 100.1 100.1 100.1 97.5 85.6 75.7 81.0 82.5 4. 98.6 100.0 102.8 103.9 105.5 108.7 112.7 115.5 126.8 155.6 188.4 197.0 5. 90.9 100.0 108.8 115.8 125.2 133.7 145.9 158.5 180.7 193.3 274.7 347.4 6. 108.5 100.0 94.5 89.7 84.3 81.3 77.2 72.9 70.2 80.5 68.6 56.7 G. 0 1. 278.7 265.4 256.4 242.8 233.2 234.3 239.9 253.5 275.0 320.6 279.2 275.0 2. 286.1 275.3 268.2 260.7 248.5 249.3 255.9 270.1 283.8 327.6 285.1 282.3 3. 305.3 304.6 305.1 298.8 298.7 299.4 307.9 328.6 348.9 396.5 338.4 320.9 TABLE B.2 Nominal and Real Effective Exchange Rates for DePorts (Annual Averages) 1958 1959 1960 1961 1962 1963 A. Merchandise Imports (million U.S. dollars at current, prices) 3757! 3U.T 3T.7 3IrT 4=In 5:7 B. Official exchange rate (won per U.S. dollar) 50.0 50.0 62.5 127.5 130.0 130.0 C. Tariffs and tariff equivalents (won per U.S. doIlar of imports)!/ 1. Actual tariffs 7.9 11.7 15.0 16.8 16.2 12.0 2. Fure-iga echangea tax ' 8RA 14e.C lJ.7 .8 .2 .0 3. Erport dollar premia 2.8 5.5 8.0 1.9 .0 6.2 4. Sub-total (Cl through C3) -44 37"T -m -I I5-! 5. Tariff exemptions (for exporters and others) - - 6.9 9.7 6. Total - - - -1 D. Nominal effective exchange rate for imports (won per U.S. dollar)-/ 1. Using actual tariffs and tariff equivalents (B plus C4) 64.4 82.8 100.2 147.o 1i6.4 1 48.1 2. Using legal tariffs and tariff equivalents (B plus 06) - _ - - 153.3 157.9 E. Price indexes (1965-100) 1. Index of prices in major overseas suppliers2/ 97.0 97.5 98.1 98.3 97.7 98.4 2. Korean wholesale price index 39.9 W0A8 45.2 51.2 56.0 67.5 3. Purchasing-power-parity index ( E-/2) 243.1 239.0 217.0 192.0 174.5 145.8 F. Purchasing-power-parity (real) effective exchange rate for imports 1. Using actual tariffs and tariff equivalents (Dl times E3) 156.5 197.9 217.4 282.2 255.5 215.9 2. Using legal tariffs and tariff equivalents (D2 times E3) - - - - 267.5 230.2 Totals may not reconcile due to round-off error. / Using the indexes given in Table B.1, equal to 0.5323 times Fl plus 0.4677 times (F2/F3). The weights are respectively equal to the average shares (1958 to 1975) of the U.S. and Japan in Korea's total imports from these two countries. Over this period, an average of 30.3 percent of Korea's imports came from other 0 destinations. Source: Bank of Korea, Ministry of Finance, Mission to Korea of the U.S. Agency for International Development. Note: "-" indicates data are not available. TABLE B.2 (Cont.) 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 A. 41047 463.4 7T1Th 9=9 142.9 1823. 19BT-W 2394.3 2522.0 4240.3 6851.8 7274.4 B. 214.3 265.4 271.3 270.7 276.6 288.2 310.7 347.7 391.8 398.3 407.0 485.0 C. 1. 21,0 27.7 25.1. 25.5 25.9 24.5 25.7 21.8 23.4 19.4 18.5 24.9 2. .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 3. 11.7 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 4.* -7T.71 -- 7.7 5 -2. 24.5 75.7 2. -- rj52.4 19.4 1W.5 4. 5. 17.9 20.9 28.3 32.5 45.4 47.3 54.1 59.7 85.1 75.4 44.2 30.6 6. 50.6 4W.T 53.5 56.3 71.3 71A 79.8 717. 94d -62.T 315T. 55-5 D. 1. 247.0 293.1 296.4 296.2 302.5 312.7 336.4 369.5 4.5.2 417.7 425.5 509.9 2. 264.9 314.0 324.8 328.7 347.9 360.0 390.5 429.2 500.3 493.1 469.7 540.5 E. 1. 98.6 100.0 102.9 103.8 105.6 108.8 112.8 115.7 126.4 153.9 186.0 195.3 2. 90.9 100.0 108.8 115.8 125.2 133.7 145.9 158.5 180.7 193.3 274.7 347.4 3. 108.5 100.0 94.6 89.6 84.3 81.4 77.3 73.0 69.9 79.6 67.7 56.2 F. 1. 268.0 293.1 280.4 265.4 255.0 254.5 260.0 269.7 290.2 332.5 288.1 286.6 2. 287.4 314.0 307.3 294.5 293.3 293.0 301.9 313.3 349.7 392.5 318.0 303.8 Korea: 1-18 In turn, the total interest subsidy has been computed as the difference between t:he interest that would have been paid on outstanding credit of various types, including both short and medium term loans, at the non-preferential commercial bank lending rate and the interest actually paid. The resulting estimate understates credit subsidies because it does not reflect the fact that exporters benefit from immediate access to credit within very generous; limits, while credit from formal-sector financial institutions has been subject, depending upon the period, to more or less stringent rationing for all other borrowers. Moreover, the non-preferential commerical bank lending rate is neither an equilibrium rate nor a robust proxy for the average rate on alL producers' outstanding debt, the latter because of general recourse among those frustrated by credit rationing to an active informal money market on which interest rates have been as high as 40 to 50 percent per annum in real terms. Because of the way in which the interest subsidy is measured, a change in its value per dollar of exports does not necessarily imply a change in the cost of borrowed capital to exporters, it may sometimes simply reflect a change in the non-preferential commercial bank lending rate. Equally, as noted above, the direct tax subsidy per dollar of exports may vary even if the preferentialL tax rate on exports remains constant. Thus the net Korea: 1-19 effective exchange rate, which includes exchange premia and direct cash subsidies as well as direct tax plus interest subsidies, is an imperfect index of export incentives as they affect profits from exporting, because the latter subsidy component may fluctuate without there having been any change in either the interest rates paid by exporters or the direct tax rate on income earned from exporting. Only real effective exchange rates are shown in Table B. These have been obtained from the corresponding nominal rates in the following manner.i' Assuming that the prices of a country's exports move in parallel with foreign price movements, multiplying a nominal effective exchange rate by an index of prices in overseas markets yields the number of won in current prices received per dollar of exports, the latter in constant prices. Then, deflating the figure so obtained by an index of domestic prices gives the number of won in constant prices received per dollar of exports, also in constant prices; i.e., a purchasing power parity adjusted, or real, effective exchange rate for exports. Table B also allows the gross and net rates to be com- pared with the rate including only those incentives which directly affect revenues, i.e. exchange premia and direct cash subsidies. Exporters first obtained tariff exemptions on imported intermediate inputs in 1959; indirect tax exemptions, in 1962; and, tariff exemptions on imported capital goods, in 1966. Thus for appraising trends in export incentives before 1966, as well as for comparisons of incentives before 1966 1/ See Table B.1. Korea: 1-20 with those after 1966, the gross real effective exchange rate for exports is the only relevant indicator, since its value alone reflects the granting of exemptions. The niet rate is the superior index for examining trends after 1965, since there were no subsequent major changes in the scope of exemptions. That is, after 1965, variations in the relative value of exemptions, which affect the gross but not the net rate, reflect only changes in tariff and indirect tax rates from which exports were already exempted, including the effect of shifts in the composition of exports. The gross real effective exchange rate for exports was 279.6 in 1958, 264.2 in 1962, and 276.1 in 1963; it could not be calculated for 1959 through 1961 for lack of information on the value of tariff exemptions. In turn, the gross real effective exchange rate fluctuated between 298.7 and 307.9 in the 1964 to 1970 period. But, for various reasons, the rise in the overall inducemetnt to export resulting from the incentive policies adapted over the first half of the 1960s was certainly greater than in- dicated by this comparison. To begin with, the gross real effective exchange rate for exports exhibits wider fluctuations before 1965 than for the following five years. Thus, its average v.alue in 1962 and 1963, prior to the devaluation upon the return to a unified exchange rate, was only 270.1. In addition, our estimates neglect two incentive mechanisms that became important in the mid-sixties, namely wastage allowances and the export-import link system, though the latter was 1/ Automatic tariff exemptions on imported capital goods were withdrawn in 1973. However, many, if not most, exporters continued to benefit from administratively determined exemptions. Korea: 1-21 unimportant after about 1967. Also, our estimates fail to indicate adequately the increase in credit subsidies arising from the relaxation of credit ceilings for exporters that took place in the early and mid-sixties. But most important, the comparison neglects the simultaneous reduction in incentives given to import competing production, including the gradual relaxation of import controls. For, it is of course not the level of export incentives per se that should concern us, but rather their level in relation to the incentives to produce for domestic sale. Table B also gives estimates of the real effective exchange rate for imports, the nominal value of which equals the official exchange rate plus average customs duties and tariff equivalents (e.g., premia paid to purchase foreign exchange certificates from exporters) paid per dollar of imports.11 Unfortunately, though, the effective exchange rate for imports is a virtually meaningless indicator of protection from imports due to its failure to reflect the effect of import controls. Excepting estimates for 1968 (discussed in the next section), there is no solid evidence concerning the impact of import controls. Nevertheless, as noted earlier, it is clear that import controls have been progressively liberalized since 1964. Owing first to the sale of exporters' foreign exchange receipts in a free market, and then to the devaluation in 1961, export incentives were by no 1/ See Table B.2 for details. The real effective exchange rate for imports given here does not include the tariff equivalent of advance deposit requirements when these were in effect. In turn, the almost continuous fall in the actual tariff rate paid on imports is due to the rising share of tariff exempt imports for use in export production and not to a general lowering of legal tariff rate. Korea: 1-22 means lacking in the late fifties and early sixties. In fact, it will be recalled that exports began growing at a modestly rapid pace in 1957. While the growth of exports up to sometime around 1960 may be interpreted simply'as a return to the situation prevailing before the Korean War, it is notable that this did not take place in the absence of incentives. Exports increased more rapidly between 1960 and 1965, at a compound annual rate of 24 percent in real terms (see Table A). Then, owing to the increase in export incentives and particularly their stability, the real growth of exports further accel- erated in the five years following 1965, reaching 37 percent per annum. Relative to its average over the preceding five or six years, the net real effective exchange rate for exports increased nearly 30 percent between 1970 and 1973, principally as a result of the appreciation of the Japanese yen, contributing to a two and a half fold increase in the real value of exports during this period. In response to these and other, less transitory indications that export incentives were perhaps yielding excessive profits, the government abolished a number of incentive mechanisms starting in 1973. Most importantly, the benefits of lower direct tax rates and automatic tariff exemptions on imported capital goods were withdrawn, while wastage allowances declined as did interest subsidies.- Nonetheless, the net real effective exchange rate in 1974 and 1975 remained higher than its average over th,e latter half of the 1960s. Due not as much to the change in incentives, but to the world recession, the value of real exports increased by only 2.9 percent in 1974. In turn, real export growth was 23 percent in 1975 and regained its rapid pace in 1976., when exports in constant dollars increased by 36 percent. 1/ Until mid-1975, tariff exemptions were granted as imports for export production c]eared customs. A switch was then made to a tariff rebate or drawback system under which tariffs on imports for export production are paid at t:he time of importation and then rebated at the time of export. However, the impact of the change-over will not be fully realized until 1979, since i:he introduction of the drawback system was coupled with def'erred payments of customs duties; the deferment period, four months in 1975, is to be shortened by one month each year until it disappears. Korea: 1-23 The real effective exchange rates for exports shown in Table B are of course only very crude indicators. It would increase the precision'of the estimates as indicators of profitability if the nominal exchange rate were multiplied by an index of export unit values or export prices abroad rather than by an index of the general price level abroad. Equally, the overall domestic wholesale price index should ideally be replaced by an index of wholesale prices weighted by export volumes (to gauge the profitability of exports relative to domestic sales) or by an index of export production costs. Finally, the estimates would indicate the competitiveness of Korea's exports more precisely if indices of domestic and foreign production costs were used in place of price indices. Refinements by Bela Balassa of the estimates using production cost indices confirm that Korea's exports were slightly more competitive in 1974 and 1975 than in the late 1960s, while they had achieved an extremely high level of competitiveness between 1971 and 1973.1' There clearly appears to be a relationship in the Korean experience between export incentives and the growth of exports. While efforts to estab- lish the relationship statistically have not yielded notably robust results,2/ 1/ Balassa (1977), Chapter 8. 2/ Most of these are crude efforts focussee or the correlation between real exports and the real effective exchange rate for exports. The time-series correlation may be nil even though the two variables are significantly related, for the implicit model is not correctly specified. Thus, for an economy in dynamic equilibrium, with the real exchange rate maintained at its appropriate level, real exports would continue growing even were the appropriate real exchange rate constant over time. This factor is partially reflected in the test by Frank, Kim, and Westphal (see the text below), since they include real non- agricultural output in the regression. In turn, one would expect lagged responses to the removal of trade distortions to undermine the efficacy of even this formulation, particularly if the real exchange rate remains constant after the removal of trade distortions. Korea: 1-24 based on regressions of real exports against the gross real effective exchange rate and real nonagricultural output, Frank, Kim, and Westphal (1975, pp. 85-36) conclude that "...the responsiveness of fmanufacture~ exports changed sharply after 1963... Before 1963, sensitivity to [ffective exchange rate policy was lacking..." This change appears to be due to several factors: the government's intention to stabilize exporters' profits at relatively high rates was probably only clearly perceived in 1963 or shortly thereafter, while the general productive capacity of the economy did not begin expanding rapidly until after that year. The achievement of political stability undoubtedly contributed as well. As to the overall effectiveness of Korean exchange rate and incentive policies, Frank, Kim, and Westphal (1975, Chapters 8 and 9) develop and estimate a simultaneous equation model to demonstrate that the historical values of the official exchange rate, import tariffs, and export incentives, taken together, resulted in nearly achieving the maximum potential GNP growth rate. Thus, assuming that incentives to exports and tariffs on imports had remained unchanged at their historical levels, the optimal official exchange rate was found to be about equal to the historical rate. To conclude: the changes in export policies that accompanied the adopt:ion of an export-led industrialization strategy clearly increased the incentive to export. Furthermore, the new measures led to the gradual replacement of a complicated, largEly ad hoc system of incentives based on multiple exchange Korea: 1-25 rates (including the linking of certain imports to exports) and direct cash subsidies, requiring frequent adjustments, with a simplified and more stable system. The export policy reforms may thus be credited with having laid the foundations for continued rapid export growth once a larger base had been established. They provided assurance of stable profits on exports. In response, export growth accelerated for several years after 1965 and has continued to be quite rapid despite a continually expanding base. The growth of exports, in turn, has contributed to output growth, leading to a very substantial increase in the share of exports in GNP and that of manufactured exports in output. At the same time, sustaining this performance has required periodic devaluations-l/ and changes in export incentive rates (principally wastage allowances and credit preferences) between devaluations in order to maintain the real effective exchange rate for exports at a relatively constant level in the face of more rapid inflation domestically than abroad. 1/ By giving annual averages of the official exchange rate, Table B makes it appear that devaluations occurred more frequently than they in fact did. Korea: 2-1 2. Estimates of Nominal Protection A fully adequate assessment of Korea's incentive policies entails the quantification of their joint impact. The mass of data required has been assembled only for 1968, so that this and the following section focus on incentive measures in that single year. The measurement of nominal protection, to which we now turn, is the first step toward measuring effective incentive rates, which are discussed in the next section. 2.1 The System of Nominal Protection Legislatively established tariff rates are only a part of Korea's tariff system. There are also several programs under which tariff rates are set administratively, by far the most important of which in 1968 was the special tariff system. It came into prominence in the mid-1960s, but was first used in 1961 and then ag&Lin in 1964 to smooth the transition to the unitary fixed exchange rate.-/ Special tariffs were imposed on top of the so-called regular tariffs. While regular tariff' rates were legislatively fixed on an ad valorem basis, special. tariffs were administratively set at fixed intervals to mop up the scarcity premium on commodities sold domestically at prices which were appreciably above the domestic currency equivalent of the c.i.f. import price plus regular tarifi' and indirect: taxes. Special tariff rates varied over time as scarcity margins changed and were established on the basis of comparing domestic and world prices.2/ In the remainder of this study we shall lump all 1/ The special tariff system was abolished in 1973, when the'so-called flexible tariff system was adopted, under which tariff rates can be administratively altered within the range of the legislated rate plus or minus 50 percentage points. 2/ The price comparisons available from the administrative setting of special tariff rates could not be used extensively in our own work because for many commodities they did not satisfy the criteria we used in making price com- parisons. Korea: 2-2 administrative levies together and refer to the composite as the special tariff. We shall also refer to the compound tariff rate made up of the regular plus special tariff rates as the "legal" tariff rate. Exemptions from customs duties have been automatically granted for export related activity and reduced tariff rates have applied for several "strategic" import substituting sectors as well. Preferential treatment to the latter has been limited to specific activities identified (usually in the Five Year Plan documents) and approved by the government. Neither have tariffs been levied on capital goods imported by enterprises having foreign equity financing, nor, when specific petitions for exemptions are granted, on capital goods imports financed by foreign loans. Exemptions (including partial reductions) were widespread throughout the sixties, resulting in substantial revenue losses to the government. In proportion to potential customs duties, the value of exemptions gradually rose and from 1966 onwards it exceeded that of collections (see Table B.2). Thus, the average actual tariff rate (i.e., tariff collections divided by the won value of imports) on all imports has fallen steadily since the mid-sixties. Taking 1968 as an illustrative year, tariff exemptions amounted to 66.4 billion won whereas tariff collections were only 37.8 billion won. Tariff exemptions on intermediate inputs into (direct and indirect) exports accounted for 29 percent and those on machinery and transport equipment for 51 percent of all exemptions.-1 Of the remainder, 8.7 percent was due to duty-free imports of rice and barley, and the rest to imports of intermediate goods related to production for sale on the domestic market, imports of "popular" items linked to 1/ The latter figure includes exemptions for both export and import substi- tuting production. It is not possible to separate these. Korea: 2-3 exports, and imports under other miscellaneous duty-exempt activities. The average actual tariif rate in that year was 9.4 percent; by 1975 it had fallen to 5.1 percent. Exemptions fron, customs duties on all imports of some commodities make the legal tariff irrelevant in these cases. Rice and wheat, for example, are both imported wholly duty-free though they are subject to legal tariff rates of 25 and 10 percent respectively; aLmong manufactured goods, cotton yarr and petroleum products are also imported wholly duty-free. Furthermore, the government's policy of selectively granting partial or complete tariff exemptions to privileged importers creates segmented markets: a "protect:ed" market in which domestic output competes with imports subject to the full or partial tariff, and an "unprotected" market in which domestic output competes with duty-exempt imports. Thus, in the markets for intermediate goods required both by exporters and by non-exporters, the former purchase their input:s in the unprotected market, while the latter purchase in the protected market:. Among such intermediate goods that are also domestically produced, one often finds that there is but one producer or that the com- petition among a few producers is imperfect, making possible differential or discriminatory pricing between the two segments of the market. At the samie time, exporters can sell some of their duty free imports in the pro- tected market as wastage allowance regulations permit them to undertake duty- free purchases in excess of their needs. There is evidence that in a number of cases this "spill-over" is sufficiently large to affect the 1! The wastage allowarce system is discussed in greater detail in Section 3.4. Korea: 2-4 price in the protected market, to the extent of driving nominal pro- tection for non-competitive imports below the legal tariff. There are two additional reasons why legal tariff rates are inadequate measures of nominal protection in a number of instances. First, for more than one-half of domestic output, quantitative restrictions on imports have the potential effect of raising nominal protection above the legal tariff rate. Second, tariffs on a number of commodities are prohibitive in the sense that imports are nil or negligible; in these cases the legal tariff rate indicates potential rather than realized protection. By and large, one may consider prohibitive tariffs to apply to the commodities classified as non-import competing (imports accounting for less than ten percent of domestic supply); these commodities accounted for seven-tenths of domestic sales in 1968.1/ 2.2 Design and Scope of the Price Comparison Survey Because legal tariffs are so often unlikely to be an adequate index of nominal protection in the protected segment of the market, we commissioned a survey of domestic and world prices-for comparable commodities.l/ With various adjustments, this survey serves as the basis for estimating price differences between domestic and foreign markets. The choice of the commodity groups included in the survey started with the identification of 150 commodity producing sectors for which effective incentive estimates were to be calculated. The basis for this aggregation is 1/ Throughout this essay, "domestic sales" refers to domestic sales of home production. 2/ Lee (1971). This survey was jointly financed by the Korea Mission of the United States Agency for International Development and the Economic Planning Board, Republic of Korea, to whom we are grateful. Korea: 2-5 discussed at the beginning of Section 3.1 below. In connection with the estimation of the input-output table which has been used to calculate effective incentive rates, the Bank of Korea provides data on outputs, exports, and imports at the Level of 2,000 commodity groups. These data were used to select several commodity groups within each sector, the principal criterion being the share of the commodity group in sectoral output.l/ Priority was further given to nonl-import competing commodity groups, to products subject to quantitative import restrictions, and to export commodities. Price observations were ultimately secured for 365 commodity groups, accounting for 70.8 percent of domestic sales and 78.2 percent of exports. 2 / Engineers and industry specialists familiar with each commodity group were employed to select the individual commodities for which price comparisons were made. The selection was based on the importance of-the indi- vidual commodities in the output of the commodity group. Single price comparisons were obtained for a majority of the commodity groups; however, in a number of cases, comparative price information for several commodities within a commodity group was available. In the latter instance, observations were aggregated to the commodity group level using weights that reflect the experts' judgement concerning the relative importance of the specific commodities within the group's domestic production. In all, price comparisons were made for 823 commodities. 1/ Data for 1966 were used because similar detailed data for 1968 were not available. 2/ We had hoped to secure price comparisons for a number of additional commodity groups, however this proved not to be possible. Most of these commodity groups are excluded from the estimation of sectoral averages of nominal protection. However, if the commodity group for which price com- parisons are lacking is exported in significant quantity and its imports are not restricted, this is considered sufficient presumptive evidence to set the nominal protection rate at zero. If there are significant imports and there are no indications of effective import restrictions, then this is considered sufficient evidence to use the legal tariff rate as an estimate of nominal protection. Korea: 2-6 The major sources of domestic price information are individual producers, producers' associations such as the Korean Chamber of Commerce or the more narrowly focused Korea Cannery Association, and government agencies including the Ministry of Finance, the Economic Planning Board, the Bank of Korea, and the Korea Development Bank. Export prices for commodities actually exported and import prices for those actually imported have been obtained from domestic records of the trade transactions. For commodities not actually imported in 1968, import prices have been estimatedfrom wholesale prices in Japan and, less frequently, in the United States, or from the Korean export price. Price comparisons are stated in terms of the "implicit tariff," which is equal to the percentage excess of the actual domestic price over th7e domestic currency equivalent of the world price at the official exchange rate in 1968.1/ A complete set of the comparative price data aggregated to the commodity group 1/ Note that this convention implies that nominal protection is equivalent, from a resource allocation point of view, to an actual tariff rate, were it imposed at the same level. As Bhagwati (1965) has shown, this is not always true where markets are imperfect. The nominal rate tends to be greater than the equivalent tariff when domestic production or quotas are monopolized, which means that nominal protection rates in the Korean context may over- estimate the protective effects of import controls in an equivalent tariff sense. Korea: 2-7 level is given in Annex Table 1. This table also gives information on tariffs, the type of import control, and data for the sampled commodity groups on imports, exports, and domestic production in world prices. 2.3 Estimation of Nominal Protection Rates Rules had to be established to interpret the results of the price comparison survey. In the first place, in a significant number of the cases in which both an import and an export price are available, the import price exceeds the export price by a substantial margin. This result prevails for a number of Korea's major textile exports, as well as for several other exports (e.g., plate glass). The possibility of differential pricing which is implicit in these observations suggests that export prices may haive been set below average production costs and thus may not represent a world price at which sustained supplies would be forthcoming to the domestic market. We thus infer that a more accurate estimate of the price differential on protected domestic sales is the implicit tariff derived from the import price, which is hereafter referred to simply as the implicit tariff. A set of rules was next drawn up for selecting nominal rates of protection. The choice of the appropriate protection rate form the relevant data is based on theoretical considerations, "informed" judgement, and the nature of the investigation. For export sales as well as for sales of domestically produced inputs used in export production, the nominal rate of protection is taken to be nil../ Table C indicates the rate selected for domestic sales in protected markets in each of a number of standard cases as well as the fre- quency of the various cases among the total sample of commodity groups. The l/ The single exception where there is an export tax is discussed below. Also see Sections 3.1 and 3.4 for further discussion. Korea: 2-8 cases are distinguished by 1) the relationship between the implicit tariff and the legal and actual tariff rates;V' 2) the relative importance of exports and imports of commodities within the group (i.e., classification by trade category);2/ and, 3) where relevant, the type of import control imposed on the commodity. Table 1 gives the pertinent information for a number of selected commodity groups which are used to illustrate the following discussion of how the survey results were translated into estimates of nominal protection. In fewer than 20 percent of the observations is the implicit tariff higher than the legal tariff. Where imports are also restricted, as for example on transformers, wheat, and steel sheet, the implicit tariff is used to estimate nominal protection.-/ Where imports are not restricted and exceed one-tenth of domestic supply, the nominal rate of protection is set equal to the legal tariff rate, which is the expected result under competition. The implicit tariff identically equals the legal tariff in only a negligible number of cases. Where there is tariff redundancy (the realization of less than available protection), the presence cr absence of quantitative restrictions on imports is irrelevant except for a few commodities produced in monopolistic or publicly controlled industries. However, the case of tariff redundancy does divide into two sub-cases depending on whether the implicit tariff is positive or negative. Major interest attaches to these sub-cases and 1/ The actual tariff rate is defined as tariff collections on imports of the commodity group divided by the domestic currency equivalent of the value of total c.i.f. imports in the commodity group. A comparison of the actual and legal tariff rates indicates the extent of tariff exemptions (including reductions) on imports falling within the group. 2/ The same trade category classifications are employed here as in thecompanion country studies. The basis of the classification is indicated in a footnote to Table C. 3/ There are two exceptions, cotton jeans and photo-sensitive paper, where the implicit tariff does not appear to be a valid measure. Korea: 2-9 TABLE C Frequency Distribution of Nominal Protection Estimates Relation of Implicit to Legal Tariff Trade Category Estimate Selected X NIC IC XIC ALL Implicit Exceeds Legal Tariff Imports Restricted Implicit Tariff 2 28 11 2 43 Legal Tariff 1 1 0 0 2 Imports Unrestricted Legal Tariff 2 11 5 0 18 Implicit Equals Legal Tariff Implicit = Legal Tariff 0 3 0 0 3 Implicit less than Legal Tariff Implicit Tariff 18 85 17 4 124 Legal Tariff 0 0 2 0 2 Actual Tariff 1 4 2 1 8 Implicit Tariff less than Zero Zero 19 92 8 5 124 Implicit Tariff 4 1 1 1 7 Legal Tariff 0 0 3 0 3 Actual Tariff 1 19 9 2 31 Total Observations 48 244 58 15 365 Source: Annex Table 1. Notes: The implicit tariff equals the ratio of the domestic ex-factory, producer's price to the c.i.f. world price in domestic currency equivalent at the 1968 legal exchange rate, minus one and multiplied by 100.0. The actual tariff rate was applied only in the case of machinery and equals tariff collections divided by the c.i.f. value of imports in domestic currency equivalent. The following definitions of trade categories are used throughout: export commodity (X) -- export share in domestic output exceeds 10%; import competing (IC) -- import: share in total domestic supply exeeeds 10%; non-import competing (NIC) -- not an export commodity and the import share in total domestic supply is less than 10%; export and import-competing (XIC) -- both the export share and the import share exceed 10%. Both import and export shares pertain to values at world prices. Korea: 2-10 to the price comparisons for export commodities. We discuss the former first and illustrate our findings with the data in Table 1. The import competing commodity groups included there have the largest share of production in the five sectors with the highest domestic sales among import competing sectors. The non-import competing groups shown in the table were chosen on the basis of their importance either in total exports (fresh fish, cement, and diesel oil) and/or in total domestic sales. In the case of import competing commodities for which the excess of domestic over foreign prices is less than the legal tariff, the latter will be the appropriate measure of nominal protection if it is levied or. all imports and there is perfect competition and approximate uniformity among all buyers; the difference between the legal and implicit tariffs then measures the extent of quality variation, product differentiation, and/or brand preference. However, even if the legal tariff is levied on a high proportion of imports, it is the appropriate measure of protection only under the assumption that imports are close substitutes for domestically-produced items in the same category. Correspondingly, the choice has been made on the basis of an appropriate consid- eration of the particular circumstances of the situation. Active carbon (see Annex Table 1) illustrates a case in which the legal tariff appears relevant. The legal tariff rate is 136 percent; the actual rate, 90 percent; and the implicit tariff, 8 percent. Imports are 53 percent of domestic supply and there is good reason to suspect quality differences between the imported and domestically produced items for which comparative prices were secured. The implicit tariff has been chosen as the most appropriate measure for most imported commodities where it is positive but less than the legal tariff. For several commodities, including newsprint, mixed fodder, and cement, TABLE 1 Nominal Rates of Protection for Selected Products Sector Industrial Tariff Price Nominal Import Trade Share in Derived Sector Tndx. product Group Iega. Actual Comparison Protectinn Control Share 1966 Weight Export EYP Tmp -T= LZ; Exp D.Sq in 1968 Shargf ' (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Export Goods rR> pd 8. Ginseng I 25% 0% -35.4% -35.4% -35.4% R .1%. 39.1% .80% .0% .03. 1.75% 18. Dried Sea Weed (Laver) II 25 2 -66.4 -66.4 -66.4 R .0 40.7 3.54 .38 .59 3.03 19. Dried Fish]/ II 35 0 -20.4 -20.4 .0 R .0 50.1 1.19 .09 .11 2.79 54. Veneer Sheet (Plywood) VI-A 50 5 n.a. -31.2 .0 AA .7 73.8 12.15 .32 .39 13.63 116. Wias (XIC in 1966) VTT 70 0 -42.7 - i2.7 . AA ; 00.0 ;U.V 3.09 .0O .00 5.72 pe = Dd 19. Frozen Seafoods-/ II 35 29 -4.9 -4.9 .0 R .0 24.5 1.36 .31 .26 2.79 31. Hematite Iron Ore IV 0 0 -2.6 -2.6 .0 AA .0 85.0 3.88 .05 .05 2.07 32. Tungsten IV 0 0 n.a. n.a. .0 AA 1.7 58.5 .25 .01 .00+ 1.35 48. Silk Yarn VI-A 60 0 -2.9 -2.9 .0 AA .0 77.2 4.59 .10 .07 4.18 69. Rayon Fabrics VI-B 100 0 7.0 3.3 3.3 R .0 27.1 1.85 .37 .26 1.05 pe < pd 65. Cotton Sheeting- VI-B 100 0 23.0 2.2 2.2 PR 9.8 19.5 2.24 .69 .86 2.53 65. Cotton Shirtinga/ VI-B 100 0 103.7 103.7 103.7 PR .0 32.5 .73 .11 .17 2.53 67. Wodlen Fabrics VI-B 100 16 186.0 69.4 69.4 R .0 10.2 .32 .21 .24 .95 98. Knit Underwear VII 150 42 11.5 11.5 11.5 PR .2 38.4 3.35 .40 .55 11.18 99. Men's Suits VII 155 4 76.0 -10.2 .0 PR .1 11.1 1.82 1.09 2.32 13.03 Export and import Competing Goods 70. Nylon Fabrics (X in 1966) VI-B 100 0 130.5 28.0 28.0 R .0 15.0 .75 .31 .29 3.25 102. Cotton Napkins (X in 1966)1/ VII 100 14 -6.7 -6.7 .0 PR 1.9 42.5 1.32 .13 .12 1.77 122. Stainless Forks VIII 100 5 -.6 -.6 .0 R 82.5 48.9 .20 .01 .03 .44 123. Radios VIII 100 2 n.a. 74.2 74.2 R 46.0 61.6 1.30 .06 .18 .97 141. Transformers (NIC in 1966) IX 70 1 n.a. 90.9 90.9 R .0 .0 .00 .05 .15 .91 Tmport Competing Goods 2. Wheat I 10 0 n.a. 38.7 38.7 R 68.1 .0 .00 .55 .55 .08 25. Mixed Fodder II 21 2 6.2 .9 .9 R 10.6 4.9 .09 .13 .25 .14 74. Newsprint VI-B 30 5 n.a. 9.0 9.0 AA 14.7 1.1 .05 .33 .41 .02 87. Steel Sheet VI-B 35 8 n.a. 81.3 81.3 R 78.1 .0 .00 .12 .18 .29 149. Automobile Sedan X 151 30 n.a. 99.8 99.8 R 37.1 .1 .00+ .16 .76 .27 5 5 flDn-Tmport ('omneting Goode 1. Polishea Rice I 25 0 n.a. 14.2 14.2 R .6 1.3 2.79 15.52 12.90 .00 13. Fresh Fish (X in 1966) I 35 1 -11.5 -11.5 .0 R .0 18.4 3.97 1.31 3.03 2.14 30. Anthracite Coal IV 10 10 25.7 25.7 10.0 AA .0 2.9 .61 1.51 1.45 .37 2 44. Portland Cement~ V 15 11 27.0 3.1 3.1 AA 10.2 11.8 1.52 .85 1.18 1.15. 57. Diesel Oil (X in 1966) VI-A 50 0 n.a. -25.1 -25.1 AA 4.7 10.4 1.19 .76 1.16 1.51 Totat1 Shares r..A-S;L 2i-n2 29 &4 76 -52 Source: Annex Table I Notes: Commodity groups are classified according to the 1968 trade category of the sector in which they fall, not by the commodity group's classification in 1966. The former is the relevant classification to ascertain an observation's effect on the aggregate results for 1968. Data for 1966 were employed at the commodity group level because such detailed data are not available for 1968. All figures are percentages rather than proportions. The number to the left of each commodity group's name is its sector index at the 150 sector level. pd = domestic ex factory, producer's price; pe = f.o.b. export price in domestic currency equivalent. Column (1): See Section 3.1 and Table 2 for the definition of Industrial Groups. Column (2): The total legal tariff is equal to /Tl+tr)(l+ts)-17x 100.0, where tr is the regular tariff rate and ts is the special tariff rate (both rates expressed as proportions). Column (3): The actual tariff rate is equal to tariff collections divided by the 1968 c.i.f. value of imports. A zero may indicate that there were no imports of the item in 1968. (See Annex Table 1 for further details). Columns (4) Price comparisons between domestic and world prices are expressed in terms of the implied nominal rate of protection. & (5): Entries for the Exp (export) price comparison are Tpd/pe)-17x 100.0 where pd is the domestic ex facto7, producer's price and pe is the c.i.f. export price. Entries for the Imp (import) price comparison are ,pd/pm)-y/x 100.0 where pd is as before and pm is the c.i.f. import price. Column (6): Authors' estimate of the rate of nominal protection to protected domestic sales. See the text for the basis of estimation. Column (7): The symbolic entries under this column are defined as, follows: PR, imports prohibited; R, imports restricted; and AA, imports automatically approved. Column (8): The share of imports in total domestic supply (domestic production less expats plus imports) in 1966, using wrld market price values. Column (9): The share of exports in total domestic production in 1966, using world market price values. Column (10): Exports of the commodity' group as a share of total commodity exports in 1966, using world market price values. Column (11): Domestic sales (i.e.,of domestic production) of the commodity group as a share of total commodity domestic sales in 1966, using world market price values. Column (12): Weight of the commodity group's nominal protection rate in the weighted average nominal protection rate over total 0 commodity domestic sales for 1968. Equal to: (Sector's share in total commodity domestic sales in 1968) times (Com- a modity group's share in 1966 in-the total domestic sales of commodity groups within the sector for which price com- parisons were made), using world market price values. Note that the last term in this expression is equal to the commodity group's weight given in Annex Table 1. Column (13): Sector's exports as a share of total commodity exports in 1968, using world market price values. 1/ The only price comparison available for sector 102, Other Textile Products. 2/ Mis-classified as an Export good elsewhere in the presentation of the results. Was an XIC good in 1966. 3/ Another commodity within this sector appears elsewhere in the table. Korea: 2-13 which appear in Table 1, this choice has been made because of widespread tariff reductions granted to importers. The actual tariff on newsprint, for example, is very low compared to the legal tariff as almost all major users of newsprint are automatically exempted from the tariff. In this as in similar cases, the implicit tariff is generally quite close to the actual tariff and appears to give the appropriate estimate of nominal protection. The same conclusion applies in regard to standardized commodities such as cement, where quality differences between domestic and imported products are unlikely. A number of commodities have domestic prices below their world prices, yielding negative implicit tariffs. With various exceptions, the usual estimate selected in such cases is that of zero nominal protection. This procedure is fcllowed because, in the absence of effective market restric- tions such a result could only be ascribed to quality differences between domestic and imported products. Petroleum products (represented in Table 1 by diesel oil) present a special case because they are standardized commodities where quality is unlikely to differ between domestic products and imports. Moreover, there appear to be market restrictions, as all crude petroleum is imported and refined domestically in an oligopolistic and government-controlled industry while export sales are made under U.S. military procurement. With domestic prices below (potential) import prices, we assume protection is negative for this group, In turn, the nominal rate of protection has been equated to the legal tariff in instances where there is a very high import share in the domestic supply of the commodity and the actual tariff is close to the legal tariff. Imports of asbestos, for example, constitute 95 percent of the total domestic supply and both the legal and actual tariff rates are 15 percent (see Annex Korea: 2-14 Table 1); these facts cannot be reconciled with the domestic price being 25 percent below the world price unless the domestic variety is of substantially lower quality than the imported asbestos. l/ Machinery and equipment2/ present a special problem because it is known that there are significant quality differences between the domestic and imported items for which comparative prices were obtained, and because it has not been possible to estimate the division of domestic machinery sales between the protected and unprotected markets. The domestic prices of many types of machinery are less than tariff-inclusive import prices, and much of the machinery produced domestically in a significant volume and over a long period of time has negative implicit tariffs. Thus metal working and processing machinery3/ have an average legal tariff rate of 19.9 percent and an average implicit tariff rate of -53.3; for textile machinery, including sewing machines, these figures are respectively 33.7 and -38.7; and, for special and general industrial machinery,4/ 41.7 and -22.0 (the source for these averages is Annex Table 1). On the other hand, prime movers, farm machinery, office machines, and most electrical and transport equipment, items whose domestic production in significant volume began only shortly before 1968, exhibit positive implicit tariff rates, often in excess of the legal tariff rate due to quantitative restrictions on competing imports. 1/ The other such cases are synthetic dyes and rubber sulphuration agent. 2/ Machinery and equipment embraces non-electrical machinery, electrical machinery and equipment, and transport equipment. A number of items falling outside industrial groups TX and X (see Section 3) are included, for example electrical consumer durables such as appliances and radios. 3/ The averages exclude welders. 4/ The averages exclude band saws. Korea: 2-15 An informal and limited survey of some 20 plants conducted by one of the authors, principally covering textile machinery, machine tools, and electrical equipment, indicated that differences between the total purchase prices of imported and domestically produced machinery were generally offset by quality differences.!/ Quality differences can be measured rather objec- tively in terms of shorter lifetimes, higher maintenance and operating costs, differences in the quality and sale price of the output produced, and so forth. In view of this finding, the appropriate nominal protection estimate would be the legal tariff rate if there were not widespread exemptions. However, tariff exemptions and reductions are widespread. As we have been unable to obtain independent information regarding the division between the protected and unprotected markets in total domestic sales of machinery, it has been necessary to rely uponl actual tariff rates in some cases.!/ The actual tariff rate reflects the degree to which tariff reductions are granted and serves as an estimate of average nominal protection on both markets together. To summarize, the rule applied in the case of machinery and equip- ment is as follows: if the implicit tariff does not exceed the legal tariff, the nominal rate of protection is taken to be the higher of the actual tariff rate and the implicit tariff rate (thus the nominal rate of protection is not negative in any case). If the implicit tariff rate exceeds the legal tariff rate, then the same rules apply as in the case of other products. 1/ For textile weaving machinery, this has since been confirmed by a formal investigation; see Rhee and Westphal (forthcoming). 2/ Sales on the unprotected market are intermediate deliveries in all other sectors, and thus an input-output matrix can be used to estimate the division of sales between the two markets. This method cannot be used for deliveries to final demand. Korea: 2-16 We next turn our attention to the price comparisons for exported commodities. The export and export and import competing (XIC) commodity groups included in Table 1 fall in the sectors with the largest weight in total merchandise exports in 1968.1/ World prices for a number of exported primary products (e.g., sea- weed, dried and fresh fish) exceed domestic prices by more than transport margins. In most cases markets are competitive and we have taken the nominal rate of protection on domestic sales to be zero under the assumption that the difference is due to the inferior quality or packaging of the domestically consumed products. Exports of ginseng2/ and dried seaweed (laver) are, however, controlled by the government and the price difference can be assumed to reflect the nominal rate of protection. A government monopoly buys up the entire ginseng crop at harvest and sells at the same price in the domestic and international markets. There is an implicit export tax on ginseng as the farmer receives less than this price. In contrast, there is no export tax on laver where the government acts only as a sales agent. Almost all exports of laver go to Japan, and the price is set in bilateral negotiations between the Korean and Japanese governments. 1/ The only sectors not represented in the table with more than one percent of total merchandise exports in 1968 include slaughtered and processed meat, rubber shoes (includes canvas footwear), and electronic components. Exports of meat are largely processed sea urchins shipped to Japan. These exports should really have been classified elsewhere; the mis-classifica- tion is present in the original input-output data. We did not obtain export prices for commodities within the latter two sectors which explains their omission from Table 1. 2/ Ginseng is an herb prized in the Far East for its medicinal and aphrodisiac properties. Korea: 2-17 Among manufactured products there are only a few cases where the export price exceeds the domestic price, the principal ones being veneer and wigs. In such instances this is assumed to be the result of quality differences and the nominal rate of protection on domestic sales is taken to be zero. Though there are some manufactured export commodities whose export prices approximate respective domestic prices, domestic prices for most exceed world prices by a substantial margin. Because there is evidence of differential pricing in these cases, the nominal protection rate on domestic sales is set equal to the implicit: tariff. The excess of domestic over world prices for these export commodities may be explained by differences in the costs of producing for the export and domestic markets which result from the levying of tariffs and indirect taxes on intermediate inputs for domestic sales but not for exports. Whether thlis explanation suffices, and whether there may not also be other factors causing differential pricing is discussed in Section 3.5 in light of the effective incentive rates on exports versus those on domestic sales. Among the export and import competing (XIC) commodities, nylon fabrics have a much lower export than domestic or import price, and the implicit tariff serves as the estimal:e of nominal protection. In some other cases, e.g., cotton napkins and si:ainlesssteel forks, the export price is close to the domestic price. In yet other cases, for exampleradios and transformers, it was not possible to obtain both export and import prices, so that the implicit tariff serves as the estimate of nominal protection. 2.4 The Effects of Quantitative Restrictions on Imports It: has been noted that quantitative import restrictions have been widespread in Korea. To evaluate their effects, it is necessary to separate the special from the legal tariff,for the former is in many instances used to capture the scarcity premium resulting from quantitative restrictions. The Korea: 2-18 special tariff is levied on the excess of the implicit tariff (as estimated by the Customs Office) over the sum of the regular tariff plus 30 percent, with normal trade and wholesale margins being allowed. Special tariffs were imposed on 123 commodity groups accounting for 14 percent of total domestic sales within the sample. The weighted average of special tariff rates on the seven primary commodities subject to such tariffs is 207 percent, while the legal (regular plus special) tariff rate is 263 percent. These averages are, however, dominated by red pepper, which is the single most important vegetable in the Korean diet, if judged by total sales volume.l/ The regular tariff on red pepper is 19 percent whereas the special tariff is 217 percent; it is a restricted item imported only when domestic supplies fall short due to a poor harvest. By contrast, the weighted average of special tariffs on manufactures subject to such tariffs is only 10 percent compared to a compound legal tariff rate of 84 percent. In the 43 cases where estimates of nominal protection exceed the legal tariff rate, the special tariff did not completely eliminate the scarcity premium. Only in the case of eleven commodity groups, however, did the implicit tariff exceed the legal tariff by substantially more than 30 percent. Among these are wild sesame, gold, two types of fertilizer, three different metal products, duplicating machines, freight cars, and tape. The excess is largest in the case of tape, being 276 percentage points. 1/ Red pepper is a major ingredient of "kimchi," a cabbage-like preparation which is a staple in the Korean diet' it is also a generously applied spice in almost all Korean cooking. Excluding red pepper, the weighted averages are 80.2 and 81.1 percent respectively. Korea: 2-19 With special tariffs beirLg levied to capture the scarcity premium resulting from the imposition of cquantitative restrictions, final judgement on the importance of quantitative restrictions must rest with a comparison of nominal protection with the regular tariff rate. There are altogether 77 commodity groups where nominal protection exceeds the regular tariff rate. However, these groups account for only 11 percent of the total domestic sales in our sample. The figures shown below are weighted averages over these groups, which have been further classified by trade category. Number of Nominal Regular Trade Commodity Protection Tariff Category Groups Rate Rate X 5 64.9 56.5 NIC 46 66.2 26.9 IC 22 41.5 18.0 XIC 4 98.6 38.7 All 77 62.6 26.6 Quantitative restrictions afford additional protection for these commodity groups, which include barley and wlheat, red pepper, chickens, worsted yarn, steel sheet and wire rod, wire and cable, cotton shirting, several chemical products suc:h as synthetic staple fiber, and several metal products including tools. But since these groups account for such a small proportion of the value of domiestic sa]es, in overall terms it must be concluded that quanti- tative restrictions are in fact relatively unimportant. In the fincl analysis, quantitative restrictions play an important role only for import competing primary products (also see Table D below). This result, however, can be traced to import restrictions on a single product, wheat. For climatic reasons, very little wheat is produced in Korea. All of the wheat imported oil concessional terms from the United States (under PL480) is sold by the government, so in this case the restrictions principally serve the purpose of taxation rather than that of fostering domestic production. Korea: 2-20 2.5 An Overview of the Estimates of Nominal Protection Tables D and E summarize the results for legal and actual tariffs and the nominal rates of protection on the protected domestic markets for the various commodities sampled. We will not extensively discuss these estimates, for the structure of nominal protection will be examined together with that of effective incentives in the next section. Table D shows that there is substantial tariff redundancy, parti- cularly for manufactured export commodities which have the highest legal tariffs but nearly the lowest nominal protection. Given the rules whereby nominal protection rates have been estimated, it is also not surprising to find that the degree of tariff redundancy is greater for non-import competing production than for import competing production, though the average legal tariff rate on the former is substantially higher. The rate of nominal protection for primary products (17 percent) exceeds that for manufactured prdducts (11 percent). This is in striking contrast to the fact that the average legal tariff rate on primary products is nearly half of that on manufactured products, indicating the relative importance of exemptions for the latter. Relatively high protection to primary production can be ascribed to the protection afforded the agricultural sector, for mining activity in most instances received no protection at all. Korea is exceptional in this respect as in practically all developing countries nominal rates of protection on manufactures exceed those on agricultural products. Korea's pattern of protection is also virtually unique among develop- ing countries in that the overall average rate of nominal protection, 14 percent, is relatively low. Nominal rates of protection on sales in the protected domestic market are highest on import-competing goods (18 percent), followed by Korea: 2-21 TABLE D Avpi-ae arij.and prQtection RL±t.g from the 1968 Price Comparison SurveyY 2/ A. Wegh-] Averaaes- Commodity Number of LAgal Actual Nominal Type obsery tme Z=Uif Irariff PrQtection X: Primary :L1 :30.50 1.09 -1.93 Mfg. 4t0 136.37 8.88 4.44 Total 51 '76.53 7.51 3.32 IC: Primary 3 1L0.02 3.48 27.31 Mfg. G1 :36.75 5.97 15.70 Total 64 :32.42 5.57 17.58 NIC: Primary :34 :37.84 7.47 17.89 Mfg. 2:10 '74.30 13.17 11.72 Total 244 54.48 10.07 15.07 XIC: Primary 2 .00 .00 .00 Mfg. :13 27.11 10.90 10.77 Total 1i5 27.11 10.90 10.77 All: Primary 50 :36.86 7.09 17.20 Mfg. 3:24 '71.11 11.55 10.76 Total 374 55.19 9.48 13.75 B. Simple kverages and Coefficients of Variation LeIa2rariff . htal Tariff Nom - Protect ion~ Aver. _v Avpr_ _V AvteFr -CV All: X 67.82 .68 18.39 1.95 15.31 2.13 IC 46.51 .87 16.86 1.50 34.27 1.02 NIC 63.45 .65 20.57 1.48 26.25 1.41 XIC 51.60 .62 17.73 1.23 30.08 1-.36 All: Primary 28.69 1.63 10.54 3.00 15.48 2.27 Mfg. 65.61 .59 20.91 1.42 27.95 1.31 Total 60.67 .69 19.52 1.54 26.29 1.39 Source: Annex Table 1. Notes: 1/ Estimates pertain to the protected domestic market only. v/ Weights are world price values of domestic sales (both protected and unprotected) in 1966. TABLE E Korea: 2-22. egaressions of NoMinal Protection Rates against Legal 'Pariff Rates Coimmodity 2 Rank Significan e od Tntertet Slope 2Crrglation Level of R X: Primary -0.08 -0.17 .05 .27 - (4.74) (0.24) Mfg. -4.08 0.29 .11 .33 .05 (12.43) (0.13) Total -4.50 0.29 .17 .49 .01 (7.57) (0.09) IC: Primary 36.60 -1.44 .06 .13 (68.03) (5.71) Mfg. 8.12 0.56 .41 .60 .01 (5.47) (0.09) Total 8.62 0.55 .41 .58 .01 (5.15) (0.08) NIC: Primary 6.24 0.43 .34 .51 .01 (6.92) (0.11) Mfg. 15.27 0.17 .03 .17 .10 (5.25) (0.07) Total 11.37 0.23 .07 .25 .01 (4.24) (0.06) XIC: Primary Insufficient no. of observations Mfg. 11.31 0.41 .09 .27 (25.78) (0.40) Total 4.74 0.49 .15 .42 (19.89) (0.33) All: Primary 2.95 0.44 .34 .45 .01 (4.84) (0.09) Mfg. 12.64 0.23 .06 .21 .01 (3.87) (0.05) Total 9.51 0.28 .10 .30 .01 (3.17) (0.04) Source: Annex Table 1. Notes: Protection estimates pertain to the protected domestic market only. Standard errors of the estimates are given in parentheses. Korea: 2-23 non-import-competing commodities (15 percent) and the XIC group (11 percent). By contrast, nominal rates on domestic sales of export goods average only 3.3 percent. The observed large difference between legal and actual tariff rates is consistent with the known magnitude of tariff exemptions. In turn, nominal protecticn in the case of primary products generally exceeds the actual tariff rate by a relatively large margin, while for manufact'nrdd goods, the averages of the two are nearly the same. Finally, both actual tariff rates and nominal protection rates show greater dispersion than the legal tariff rates. Nominal protection rates are most varied among the export commodities and among primary products. Table E gives the results of regressions of nominal protection estimates against legal tariff rates. Though most of the simple and rank correlation coefficients indicate a significantly positive association between legal tariffs and nominal protection, the correlation over the entire sample is very low, so that legal tariffs do not serve as good predictors of nominal protection in Korea. In turn, the high degree of association between legal and nominal rates for import competing manufactures can be explained by the application of our rules, for the legal tariff is most relevant fcr import competing commodities. At the same time, there is a closer relationship between legal and nominal rates among primary commodities than among manu- factured conmodities, Korea: 3-1 3. Estimates of Effective Incentives An analysis of industrial incentives in Korea must assess the net impact of numerous interrelated policies. Tariffs and quantitative restrictions on imports affect the prices received on outputs produced and sold locally, as do differential indirect tax rates on imports competing with domestic production. Tariffs, quotas, and indirect taxes also influence the prices paid for intermediate inputs. Moreover, exemptions from the application of these policy instruments are granted to all export activities and to selected import substitution activities. Policies affecting domestic prices were discussed in the preceding section and given quantitative expression in estimates of nominal protection. In this section we discuss estimates of effective incentives which quantify these policies' net impact on both gross receipts and input costs by expressing them in relation to value added or tho returns to primary factors of production. The effects of other policy instruments -- particularly direct tax and credit preferences -- are also in- corporated into the effective incentives estimates. Exporters receive incentives quite unlike those confronting producers selling in the domestic market, making it necessary to estimate effective incentives separately for exports and domestic sales. In 1968, exporters were exempt from import quotas, tariffs, and indirect taxes on their inter- mediate inputs and paid no domestic indirect taxes on their sales abroad. They were exempt from paying tariffs or indirect taxes on imported capital goods, received additional subsidies through the wastage allowance system and rebates on overhead charges, and were the prime beneficiaries of direct tax preferences aid subsidized credit. Most producers selling on the domestic Korea: 3-2 market have not received these incentives, though they have benefited from protection due to tariffs and trade controls. A limited number of "strategic" import substituting industries, such as petrochemicals and steel, have received partial or complete exemptions from legislated norms for selected inputs; however, the total subsidy involved is quite small relative to aggregatie production for the domestic market. Our discuIsSion of the effective incentive estimates begins with a brief commentary on data sources and estimation procedure in Section 3.1. Effective incentive rates to total sales measure the average incentives received by a sector for its sales in all markets and are indicative of com- parative efficiency.. These estimates are examined in Section 3.2. Sections 3.3 and 3.4 respectively discuss effective incentives to domestic sales and to exports. Perhaps the most interesting results of our study are those presented in Section 3.5, on the relative incentives to domestic versus export sales in the various industries. Section 3.6 presents estimates of net effective incentive rates, and.also summarizes our principal findings.l/ 3.1 An Overview of Data Sources and Method 2 / Data obtained for 1968 from published and government sources are the basis of our estimates. Only those details regarding the basic sources and estimation procedures that are relevant to interpreting the results are discussed here. Data on production inputs were obtained from the Bank of 3/ Korea's input-output table which contains 232 tradeables producing sectors.3 These were aggregated into 150 sectors by keeping separate those sectors for 1/ An additional section examining the sectors at the extremes of the dis- tributions by effective incentive rates has not been included due to length. It is available from the authors on request. 2/ Also see the Annex on Methods of Measuring Effective Incentives. 3/ The 1966 input-output matrix was used to estimate inputs on the basis of 1968 production levels. Korea: 3-3 which either exports or competing imports in 1968 exceeded US $500,000 and those machinery and miscellaneous goods producing sectors whose production and/or exports were anticipated to grow rapidly in the near future; remaining sectors whose output was relatively small were aggregated on the basis of their output composition. Estimation of effective incentives started from the assumption that the same set of sectoral input coefficients in world prices pertained to all sales regardless of destination.-/ As the original domestic producer price input-output coefficients are in effect weighted averages of those pertaining to production for each sales destination, detailed data on the incentives granted to each sector's sales by destination have permitted us to estimate world price input-output coefficientsand to "construct" separate domestic producer price input-output coefficients for each sales destination. We were able to quantify all of the various incentive policies in operation in 1968 (see Section 1) except for the export-import link subsidy and import pre- payment deposits / Both of these incentives are known, however, to have been relatively insignificant in 1968. The estimates of nominal protection on protected domestic sales in each of the 150 sectors are weighted averages of the results obtained for individual commodity groups that were discussed in Section 2. Nominal protection on direct and indirect exports is taken to be zero, except in a few special cases.3/ 1/ This doubtless results in an overestimate of the use of imported inputs in production for the domestic market and an offsetting underestimate of their use in production for export. 2/ On the latter, see the footnote at the end of Section 1.1. 3/ Nominal protection on ginseng exports is negative due to an implicit export tax, and indirect exports were assumed to receive negative nominal protection if nominal protection on other domestic sales was negative. Korea: 3-4 Effective protection estimates express the impact of pro- tection measures on value added per unit of production instead of the gross price. Formally, the effective rate of protection is defined as the percentage excess of domestic over world market value added, where the latter equals the difference between the world price of the product and the cost of its inputs at world prices. Value added is here measured net of depreciatioIl. E:Efective subsidy estimates further include the impact of credit and direct tax preferences. These incentive mechanisms do not change unit value added in world prices, though they do affect the composition of value added as well as profits after taxes. To incorporate these sub- sidies, the actual total direct tax liabilities of all firms were re- apportioned to each sector on the basis of its share in the total tax base; i.e., it was assumed that each firm would have used uniform depreciation guidelines and would have paid an identical average tax rate on its net income under a neutral tax policy.-/ The difference between the re- apportioned tax liabiLity and a sector's actual tax liability is the es- timated tax subsidy, which could thus be negative as well as positive depending upon whether the sector actually paid a higher or lower tax rate than the average. 1/ The'average tax rate, 9.7 percent, is the total tax payments of all commodity producing sectors (only) divided by their total gross business income. Note that it is the current price value of tax receipts that is held constant to define the norm, rather than a constant price value that would reflect the change in prices of goods and services purchased by the government which would occur upon a shift to the free trade regime presumed in using world prices as the norm with respect to a neutral trade policy. Korea: 3-5 Interest subsidies were determined in an analogous fashion, assuming that under a neutral policy all sectors would have paid an identical average interest rate on outstanding loans, that rate being determined as the ratio of total interest payments by all sectors to total loans outstanding. Total direct tax and interest subsidies were then added to each sector's value added in domestic prices.- The effective subsidy rate is the percentage by which this adjusted value added exceeds value added at world market prices. Since the sum of all direct tax and credit subsidies over all sectors is zero, the weighted (by value added at world market prices) average of all effective subsidy rates is equal to the weighted average of all effective protection rates. It is convenient in analyzing the results to group the 150 sectors in two ways: 1) by industrial type, incorporating both the stage of processing and demand destination; and 2) by trade (or commodity) category, including both market orientation and the degree of competition from imports. We have used the 11 industrial group and four trade category classifications employed in the companion country studies. The 150 sectors are grouped by type of industry i,n Annex Table 2, where disaggregated sector by sector estimates of effective incentives are shown. 1/ Again, the average is computed for the commodity producing sectors only. The average rate, omitting the implicit negative subsidies due to borrowing at very high rates on the unorganized money market, is 13.6 percent. 2/ Value added so adjusted is an estimate of what value added in the sector would have been if there were no tax and credit preferences and net factor returns were unaltered from their actual values under the incentive policies followed. Korea: 3-6 That table also indicates the trade category to which each sector has been assigned on the basis of trade and production data in world prices for 1968. Tables 2 and 3 show weighted averages of nominal and effective incentive rates for industry groups and commodity categories respectively; tables with the suffi:ces A and B give estimates excluding the effects of tax and credit preferences and under the full set of incentive measures respectively. These tables provide effective incentive rates cal- culated under both the Balassa and Corden conventions respecting the treat- ment of non-tradeables. However, the discussion in the text below relies on the Balassa measures unless the contrary is explicitly noted. Infor- mation on the magnitude of sales, value added, and input protection is provided in tables with the suffix C. Nominal protection rates and legal tariffs have been averaged using sales at world prices, and effective incentives rates using world price value added as weights. Measures of incentives have been calculated separately for three distinct markets: the protected domestic market, the unprotected domestic market, and the export market. Incentives on the unprotected market, defined as the production of inputs for exports (i.e., indirect exports), are nearly identical to those for direct exports. Separate estimates for the two domestic markets are therefore not shown in the tables; estimates for both are averaged and presented under the heading "domestic." Estimates of incentives to exports are given separately, as are estimates of average incentives for the three markets combined (i.e., to total sales), the latter under the heading "average." Table 4 shows simple and rank correlations among the various indicators of incentives. Korea: 3-7 3.2 Average Incentives to Total Sales We begin our discussion with the estimates of average incentives to sales on all three markets. Average legal protection to total sales is 49 percent as against average nominal protection of 13 percent.- The rank correlation between average legal and nominal protection rates is statistically significant at the .01 level, but the coefficient is only .45. Average nominal protection on intermediate inputs, weighted by the value of intermediate input use in world prices, is 17 percent (see Tables 2.C and 3.C). Since protection is higher on inputs than on total sales, the average effective protection rate, 10 percent, is less than the 2/ average nominal protection rate by roughly 20 percent.- Thus, whether measured in nominal or effective terms, protection in Korea is quite low by international standards. The Spearman rank correlation between average nominal and effective protec- tion rates at the sectoral level is .87. But, due to extreme observations, the simple correlation coefficient is only -.17. Aggregate effective protection and subsidy rates are equal, as they must be by the definition of the latter. They are also highly correlated at the sectoral level; the rank and simple correlation coefficients are both greater than .95. 1/ Recall that average legal and nominal protection rates on each sector's total sales include, with equal weight, zero protection (except for ginseng) on direct and indirect (except where nominal protection was negative) export sales. 2/ Recall that, unless otherwise indicated, the effective incentive estimates discussed in the text are those computed under the Balassa convention. Korea: 3-8 However, it: is important to note that this results from the close association between effective protection and effective subsidy on domestic sales -- for reasons noted below., there is virtually no correlation between these rates on export sales. Table F shows the frequency distributions of various incentive measures, as well as their simp:Le averages and coefficients of variation. l/ The dispersion of legal protection rates is the least, with that of nominal protection rates beLng slightly greater. Effective incentive rates vary much more widely, with sectors having world price value added coefficielits nearly equal to zero falling at the extremes. The distribution of effective subsidy rates ranges from -13101 to +2201 percent, while the range from -20 to -10 percent contains the greatest number of cases (the median of the dis- tribution is between 2.5 and 3.0 percent). 1/ Negative value added in world prices gives rise to a negative effec- tive incentive rate that is algebraically less than -100.0 percent. We consider that a sector having negative world price value added receives more protection than a sector receiving any positive rate of protection on a positive world price value added. For effective protect:ion rates of less than -100.0 percent, the proper ranking from greatest to least protection is according to algebraic value. For example, the following hypothetical effective incentive rates are ranked from greatest to least protection; -100.1, -1000.0, 1000.0, and -99.9. It can 'be shown that this method of ranking is such that the rank of the weighted average of any two independent effective protection rates tmust lie 'between the ranks of these rates. Furthermore, it yields the inverse of a ranking by "benefit-cost" ratios, where benefits are measured by world price value added and costs by value added in market factor prices. 2/ Extreme observations have a negligible effect on the weighted averages shown in the other tables, for the weighting is by value added in world prices. In addition to having very low value added coefficients, nearly all of t'he sectors at the extremes had relatively small sales volumes when measured in wor'ld prices. TABLE 2.A Nomi-nl and Effective Protections Inustrs Groups Nonminal Protection Effective an Industry Group Tariff Nominal Ralasga Corden pom r Ave r\Dm Aver M 2D m Ae Dom X E2D- -2 Me I Agriculture, Forestry, & Fishing 36.5 36.0 17.0 16.6 -16.1 18.5 18.1 -15.3 17.9 17.5 IV Mining & Energy 19 2 9.6 8.9 6. -1.- 4.0 2.9 Q. -3-5 2- Primary Production, Total 35.1 34.1 16.5 15.9 -7.6 17.8 17.1 -7.0 17.1 16.4 II Processed Food 61.5 56.7 2.9 2.7 -2.7 -18.2 -17.0 -2.2 -14.2 -13.3 III Beverages & Tobacco 140.7 135.4 2.2 2.1 -1.9 -19.3 -18.6 -1.7 -15.5 -15.0 V Construction Materials 32.2 30.5 3.9 3.7 -5.2 -11.5 -11.3 -3.9 -8.8 -8.6 VI-A Intermediate Products I 36.6 31.0 2.8 2.4 31.0 -25.5 -19.5 18.6 -18.8 -14.0 VI-B Intermediate Products II 58.7 53.4 21.0 19.1 -0.2 26.1 24.2 -0.2 17.4 16.1 VII Nondurable Consumer Goods 92.3 67.9 11.7 8.6 -1.9 -10.5 -8.5 -1.4 -8.0 -6.5 VIII Consumer Durables 98.3 78.4 38.5 30.7 -4.7 64.4 51.0 -3.0 39.8 31.8 IX Machinery 52.6 49.1 29.9 27.9 -12.7 44.2 42.9 -4.6 29.5- 28.0 X Transport Equipment 62.- 1 81 54 - .5.4 3 -5_LL* 1631- I 63.9 -13.1 QL,2 82.7 Manufacturing, Total 67.6 58.8 12.2 10.7 3.1 -1.4 -0.9 2.2 -1.1 -0.7 All Industries 54.3 49.4 14.0 12.6 0.4 10.5 9.9 0.3 9.0 8.4 Manufacturing, Excl. Bev. & Tob. 60.6 52.2 13.2 11.4 3.2 0.5 0.8 2.3 0.3 0.6 All Industries, Excl. Bev. & Tob. 49.6 44.9 14.6 13.2 0.4 11.7 11.0 0.3 10.0 9.4 Primary Production Plus Processed Food 40.7 39.1 13.6 13.0 -6.2 13.8 13.2 -5.5 13.0 12.3 Manufacturing, Excl. Bev. & Tob. and Processed Food 60.4 51.1 15.9 13.5 4.1 5.9 5.7 2.9 4.1 4-0 Source: Annex Table 2.A. Units: In percent. *:Estimated value added in exports at producer's prices is negative; the algebraic sign of the effective protection rate has thus been reversed from that given by the conventional formula. See the discussion in Section 3.4. 0 .1w '0I TABLE 2.B Nominal Protection and Effective Subaidy: Industry Groups Nominal Proteotion yffPcHrVS uhna _ Industry Group Tariff Nominal Balassa Corden Olm Aver Dm Aver Exp nm Aver XRp Dn Aver I Agriculture, Forestry, & Fishing 36.5 36.0 17.0 16.6 -9.9 22.5 22.1 -9.4 21.7 21.3 IV Mining & Energy 12,2 9.6 8.9 6.9 .01 5.1 4.7 2.7 4.5 4.1 Primary Production, Total 35.1 34.1 16.5 15.9 -2.7 21.6 20.9 -2.4 20.7 20.1 II Processed Food 61.5 56.7 2.9 2.7 2.3 -25.2 -23.0 1.8 -19.6 -18.0 III Beverages & Tobacco 140.7 135.4 2.2 2.1 14.5 -25.8 -24.2 12.6 -20.8 -19.5 V Construction Materials 32.2 30.5 3.9 3.7 5.9 -16.9 -15.9 4.4 -12.9 -12.1 VI-A Intermediate Products I 36.6 31.0 2.8 2.4 43.4 -29.7 -21.9 26.0 -21.9 -15.7 VI-B Intermediate Products II 58.7 53.4 21.0 19.1 17.5 19.6 i9.5 12.6 13.1 13.0 VII Nondurable Consumer Goods 92.3 67.9 11.7 8.6 5.4 -20.6 -14.7 4.1 -15.7 -11.2 VIII Consumer Durables 98.3 78.4 38.5 30.7 2.4 38.2 31.3 1.5 23.6 19.5 IX Machinery 52.6 49.1 29.9 27.9 5.2 31.5 30.9 1.9 21.0 20.2 X Transport Equipment 62 1.S 54.9- 543-.3 -22- * J5L 159.1 --. 80.8 80.3 Manufacturing, Total 67.6 58.8 12.2 10.7 .12.4 -8.9 -6.5 8.9 -6.5 -4.7 All Industries 54.3 49.4 14.0 12.6 8.6 10.1 10.0 6.5 8.6 8.5 Manufacturing, Excl. Bev. & Tob. 60.6 52.2 13.2 11.4 12.3 -7.1 -4.8 8.8 -5.2' -3.4 All Industries, Excl. Bev. & Tob. 49.6 44.9 14.6 13.2 8.4 11.4 11.2 6.4 9.8 9.6 Primary Production Plus Processed Food 40.7 39.1 13.6 13.0 -1.3 16.5 15.8 -1.1 15.4 14.9 Manufacturing, Excl. Bev. & Tob. and Processed Food 60.4 51.1 15.9 13.5 13.9 -1.8 .3 9.8 -1.4 .1 Source: Annex Table 2.B. Units: In percent. *:Table 2.A. r 0 TABLE 2.C Additional Information for Industry Oroups Industrv Valie in Worlh Market Prires Total Value Added Tntal Value Added in World Prices Nominal Input Import Export Export Domestic Tn nomestic Prices gal asP Cor.ten Protection SSh re Scales Sles g. RxP r Z2xtC E xrt oetic noei Exmgts (1) (2) (3 W ~ (~ 67) ( 9) 1 I Agriculture, Forestry & Fishing 6.1 1.3 7128.1 525640.5 3883.7 444526.5 4628.7 374977.8 4877.0 388534.3 -3.4 14.3 IV Mining & Energy 7 7 216 9012*1 32615 1 523 21247.5 5886 2 20434- 4 SR63 23084 4 21.8 Primary Production, Total 6.2 2.8 16140.2 558255.2 9710.4 465773.6 10514.9 395411.8 11463.3 411618.3 -0.1 14.8 II Processed Food 6.3 7.8 12886.6 151334.1 4011.0 39882.6 4123.6 48775.9 5113.7 62468.7 1.6 14.9 III Beverages & Tobacco 0.3 3.8 2759.4 70814.3 963.8 18705.9 982.6 23173.5 1134.4 28756.4 1.3 14.4 V Construction Materials 4.9 5.2 1812.3 32880.5 607.5 11888.5 640.6 13439.6 859.2 17624.5 3.8 18.6 VI-A Intermediate Products I 19.5 15.4 28872 0 159035.7 6351.5 30178.5 4847.4 40535.2 8099.3 55111.7 -7.7 14.3 VI-B Intermediate Products II 20.7 9.0 17062.4 172146.9 3252.3 52207.1 3259.8 41390.1 4927.5 62198.5 0.1 23.0 VII Nondurable Consumer Goods 5.2 26.4 50190.8 140060.2 15462.4 47848.7 15756.2 53439.1 20619.5 69845.6 1.1 31.4 VIII Consumer Durables 23.0 20.2 4423.6 17448.7 1041.9 7490.4 1093.6 4556.4 1696.9 7364.6 2.1 37.4 IX Machinery 62.9 6.7 2023.3 28088.4 182.0 12137.0 208.4 8414.0 568.2 12613.2 2.0 30.3 X Transport Equipment 53.2 1 372!7 35224.7 - 5 16017-8 _16-7 60n77.R 677 1 1944-A6 .IJ1 40-3 Manufacturing, Total 19.6 13.0 120400.3 807031.9 31846.8 236353.4 30895.3 239798.6 43086.4 327925.4 -1.3 21.3 All Industries 14.6 9.1 136538.7 1365255.0 41557.2 702126.4 41410.2 635209.9 54549.7 739543.4 -1.2 19.8 Source: Annex Table 2.C. Notes: Column (1): The percentage share of imports in domestic supply in 1968. Column (2): The percentage share of exports in domestic production in 1968. Column (3): Measured in c.i.f. prices, in million won. Column (14): In million won. Columns (5) & (6): In million won, under the Balassa conventionj taken from the calculation of effective protection rates. Columns (7) to (10): In million won; taken from the calculation of effective protection rates. Columns (11) & (12): In percent, taken from the calculation of effective protection rates under the Corden onovention. Value added figures are net of depreciation. TABLE 3.A Nominal and Effective Protection: Commodity Categories Nominal Protection Effective Proteq1tion Commodity Category Tariff Nominal Balassa Corden -DQM Aver Dom AveEr Ex om Ave E- Dom Aver A. Export Industries Primary Activities 5.7 1.4 -3.5 -7.6 -12.6 -13.6 -12.9 -11.6 -12.0 -11.7 Manufacturing 83.4 53.7 8.1 5.2 A-. -. 180 -10.2 7 L4 -J14 0 -81 Total- 81.9 51.2 7.8 4.6 0.9 -17.8 -10.9 0.7 -13.9 -8.5 B. Import Competing Industries Primary Activities 22.9 22.8 46.4 46.3 -0.2 68.2 68.1 -0.2 66.6 66.5 Manufacturing 56. 55.4A 32.2 31. -L 6 931 .917 -3-9 51.2 50.2 Total 48.2 47.5 35.7 35.2 -7.4 79.6 79.0 -3.6 57.3 56.7 C. Non-Import Competing Industries Primary Activities 36.6 36.2 13.4 13.3 0.6 13.3 13.2 0.6 12.7 12.6 Manufacturing 65. 64. _l 5--0 - 8 -6 16 1 -. -07 - 62. 12.4 -- Total 50.3 49.5 9.5 9.3 -0.1 4.3 4.2 -0.1 3.8 3.8 D. Export & Import Competing Industries Primary Activities 2.1 1.2 13.5 7.6 -1.5 13.4 6.1 -1.3 10.6 5.0 Manufacturing 75-7 46-3 378 23. -2.1 728 45.2 -L A 46. 2.8- Total 72.7 44.3 36.8 22.5 -2.0 67.7 41.1 -1.3 43.6 26.8 E. All Industries Primary Activities 35.1 34.1 16.5 15.9 -7.6 17.8 17.1 -7.0 17.1 16.4 Manufacturing 67_ 6 8 12.2 1073 -L- 4 0 2.2 -.- 0 Total 54.3 49.4 14.0 12.6 0.4 10.5 9.9 0.3 9.0 8.4 Source: Annex Table 2.A Units: In percent. p.; 0 *1 a m. TABLE 3.B Nominal Protection and Effective Subsidy: Commodity Categories STominal Prntection Effective _ubiidy Commodity Category Tariff Nominal Balassa Corden Dolm Aver Dom Aver Euxr Dom ver Exp nom Ave A. Export Industries Primary Activities 5.7 1.4 -3.5 -7.6 -9.3 -21.4 -12.3 -8.5 -19.0 -11.2 Manufacturing f2_ 53. 8.1 5.2 13.5 -26.2 -J3LA 9.8 -2.QA -1C.2 Total 81.9 51.2 7.8 4.6 8.6 -26.0 -13.3 6.5 -20.3 -10.3 B. Import Competing Industries Primary Activities 22.9 22.8 46.4 46.3 4.7 76.0 75.8 4.6 74.2 74.0 Manufacturing 56.4 55.4 32.2 '31. 35.3 91.4 90.7 15.8 50.2 49. Total 48.2 47.5 35.7 35.2 30.7 83.1 82.7 15.0 59.8 59.3 C. Non-Import Competing Industries Primary Activities 36.6 36.2 13.4 13.3 8.9 16.7 16.7 8.2 16.1 16.0 Manufacturing 65.5 64.1 5.1 5.0 6.1 -24-3 -23.7 5.0 -18_1 -18.2 Total 50.3 49.5 9.5 9.3 7.5 4.3 4.4 6.5 3.9 3.9 D. Export & Import Competing Industries Primary Activities 2.1 1.2 13.5 7.6 3.0 17.3 10.2 2.6 13.7 8.5 Manufacturing 75.7 46.3 37. 23.1 8.7 5-5. 37,9 5.6 34.8 24.1 Total 72.7 44.3 36.8 22.5 8.0 51.8 35.1 5.3 33.4 22.8 E. All Industries Primary Activities 35.1 34.1 16.5 15.9 -2.7 21.6 20.9 -2.4 20.7 20.1 Manufacturing 67. 58. 12.2 10.7 12..4 -8.92 -6.5 .92 -6.5 -A-7 Total 54.3 49.4 14.0 12.6 8.6 10.1 10.0 6.5 8.6 8.5 Source: Annex Table 2.B. Units: In percent. 0 PS* TABLE 3.C Additinnal Tnformation for commodity Catecories Category Value in World Market Pxices-_ Total Val-^ AiAo.A -r. inrL :.. ' - Nominal input Import Export Export Domestic Tn Domestic Pricer Ralassa Corden Protection Sharp Share Salesq Salesq EXpQrt Dnnestic za"Mrt_ DomestiL Exrort Dngmestic Exports Domestic A. Export Industries Primary Activities 1.1 74.9 9512.7 \3194.5 5663.1 1855.8 6480.8 2147.4 7054.5 2425.0 0.4 23.4 Manufacturing .2.8 35.7 91064- lA4930.2 24606.7 405147 23516. 49416. 32418.7 635L27.0 -2-L 22.0 Total 2.7 37.5 100577.6 167424.6 30269.8 42370.4 29997.4 51564.0 39473.2 65951.9 -1.9 22.0 B. Import-Competing Industries Primary Activities 27.3 0.2 115.5 53571.3 66.8 56520.3 66.9 33593.1 68.7 34413.3 0.4 10.2' Manufacturing 46 8 _a 3057.8 1617R89 35Cn4 54895.3 33.6. 224a11 855- 9 1783.1_ 1_6 23.4 Total 43.0 1.4 3173.3 217354.9 417.2 111414.7 450.5 62024.8 924.6 86195.8 1.6 21.5 C. Non-Import Competing Industries Primary Activities 2.7 1.1 5651.0 500396.4 3426.2 406741.4 3404.6 359092.5 3693.6 374051.6 -1.3 15.4 Manufacturing _3 i_2l 9891 9 453172.9 3323L1 130169 6 33513 15'i15.67 5 412f0 202761.9 .5 19.4 Total 3.0 1.6 15542.9 953569.2 6749.3 536910.5 6755.9 514807.6 7813.5 576813.1 0.1 18.1 D. Export & Import-Competing Industries Primary Activities 71.1 44.1 861.0 1093.2 554.3 656.5 562.5 579.0 646.6 728.8 4.8 19.3 Manufacturing 553 .3P8 163RR.3 25845 3566- 10776- 364Z40 6236 5691 9 9855S 38 32.7 Total 56.2 39.0 17249.3 26939.0 4121.1 11432.4 4206.5 6815.9 6338.4 10583.8 0.9 32.4 E. All Industries Primary Activities 6.2 2.8 16140.2 558255.2 9710.4 465773.6 10514.9 395411.8 11463.3 411618.3 -0.1 14.8 Manufacturing 19.6 IAL.0 J3.l9S_ 807031 - 3IR46.R 236353-4 UR95 -3 239798.6 43Q86_4 3279254 -L.3 21.3 Total 14.6 9.1 136538.7 1365255.0 41557.2 702126.4 41410.2 635209.9 54549.7 739543.4 -1.2 19.8 Source: Annex Table 2.A. Notes: See Table 2.C TABLE 4 Simple and R_ank CorrelationsL Among Indicators of Incentives. Nominal Protection Efective PrntotetionnEfcie us Triff Noinal Corden . alassa Corden _Dsw Aver D ADAz Exp DQm Ave t .DQa A ar Is2..DAvQer (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) HT1O (1) -T61 1. -- .947 .Suv .354 -.035 -.120 -.114 -.053 .120 .i15 -.306 -. 374 -.1i1 .050 .150 *iut 2. .949 -- .388 .411 -.029 -.137 -.129 -.040 .117 .119 -. 019 -.091 - .133 .045 .145 .105 3. .408 .431 -- .985 -.047 -.171 -.154 - .039 .092 .100 -.012 -.135 -. 152 .229 .100 .097 4. T399 .455 .985 -- -.038 -.190 -.172 - .002 .070 .082 -.020 - .152 - .169 .223 .081 .079 5. -.090 - .114 -.155 -172 -- .035 .092 .201 .068 -116 .022 .011 .081 .026 .048 .100 6. .215 .246 .886 .872 - .154 -- .689 .088 .968 .702 - .052 .961 .683 .038 .979 .700 7. -222 .240 .875 .870 -.118 .974 _-- .254 .832 .988 -.112 .474 .975 .069 .744 .966 8. -.051 -.079 -.221 -.244 .775 -.239 -.206 -- .130 .214 -.025 .031 .229 .130 .095 .190 9. .220 .247 .894 .877 -.146 .997 .974 -.228 -.- .853 -.055 .867 .819 .070 .978 -842 10. .223 .242 .880 .876 -.115 .973 .997 -.201 .978 -- -.081 .491 .963 .094 .764 .976 11. .032 -.017 .120 -089 .155 .115 .141 .030 .124 .143 -- - .020 -.094 .072 -.041 - .069 12. .090 .125 .814 .800 -.138 .952 .926 -.229 .951 .926 .193 -- .484 .035 .921 .504 13. .111 .113 .813 .799 -. 098 .933 .958 -.192 .935 .956 .258 .957 -- .115 .758 .987 14. .053 .012 .167 .140 .178 .183 .211 .160 .189 .208 .839 .264 .332 -- .088 .153 15. .087 .123 .817 .803 -.131 .946 .922 -.219 .951 -926 .203 .996 .953 .269 _- .782 16. .106 .111 .814 .801 -.091 .931 .956 -.183 .937 .957 .263 .955 .997 3333 .957 -- Sources: Annex Tables 2.A and 2.B. Notes: Simple correlation coefficients appear above the diagonal and rank correlation coefficients below the diagonal. Row titles are omitted; each row title is the same as that of the column having the same numerical designation. Correlations of greater than .16 and .21 in absolute value are significant at the .05 and 401 levels respectively, *- w TABLE F VAyIniip.L - Legal Tariff Nominal PrLtetion fEffective Protection Eftective Suhsidv Greatqr, Less D o c Aver.ae mesti £Žanfta2 Averag_ Ralassa Corden _ alassa Corden --thaxDl tan aExport Domesta Averag Average ExpQrt DmetLijc Average AyVeage -°° -100 1 6 6 1 2 7 6 1 1000 oa 3 3 2 3 3 2 500 1000 5 4 1 1 4 5 200 500 1 1 5 5 3 2 6 5 5 150 200 1 3 4 4 4 4 4 100 150 19 12 3 2 8 8 8 1 6 5 9 90 100 15 9 2 2 2 2 6 1 2 1 80 90 8 10 2 1 1 2 4 1 3 1 2 70 80 6 10 3 3 1 1 1 2 1 3 4 1 60 70 11 9 6 1 4 5 5 2 3 3 3 50 60 12 12 3 8 4 3 2 1 1 1 4 40 50 14 16 9 8 2 2 2 4 5 4 30 40 14 13 6 7 1 4 4 5 2 2 2 2 20 30 17 21 21 19 2 6 4 7 12 5 5 7 10 20 a 6 28 25 2 11 13 14 16 10 11 14 1 10 11 18 24 31 16 13 15 19 41 16 17 20 -1 1 13 13 39 39 17 1 2 3 13 1 3 3 -10 -1 87 21 23 29 26 9 13 21 -20 -10 1 1 13 20 19 24 13 21 20 23 -30 -20 1 1 2 14 15 6 4 16 16 15 -40 -30 1 1 2 5 4 5 1 11 11 4 -50 -40 1 4 6 5 2 2 6 4 2 -60 -50 3 1 3 1 1 -70 -60 1 1 1 2 2 3 2 2 -80 -70 1 1 1 -90 -80 -100 -90 1 1 1 Over Entire Set: Simpl Average: 55.8 49.2 19.8 18.1 -3.5 -66.1 -31.1 23.7 10.5 -115.4 -29.6 21.8 c.v.A7 .7 .8 1.3 1.4 5.2 23.2 36.7 13.3 9.1 13.9 37.5 13.4 over Reduced Set,/ Simp e Average: 54.7 48.0 14.5 13.1 -3.5 20.8 20.2 10.3 11.4 14.1 15.9 7.7 C.V.2 .8 .8 1.4 1.4 3.2 3.3 3,2 3.7 3.5 4.7 4.0 5.1 Source: Annex Tables 2.A and 2.B. Units: In percent. Notes, 1/ I.e., greater than or equal to . . . 2/ Coefficient of variation, standard deviation divided by the simple average. ,/ Excludes those 16 sectors for which one or more measures of effective incentives exceeds 500 percent or for which value added in world prices is negative under at least one measure. Korea: 3-17 To remove the effect of extreme observations, Table F also presents simple averages and coefficients of variation for a reduced set of sectors, including only those which on every measurement had both a positive world price value added coefficient and an incentive rate of less than 500 percent. The cul:-off at 500 percent is admittedly arbitrary; however, there were no measured rat:es within a wide band at the upper end of the range from 200 to 500 percent for most measures. Even with the extreme observations excluded, effective incentive rates are appreciably more dispersed than nominal or legal protection rates. Finally, effective subsidy rates exhibit somewhat greater relative variance than do effective protection rates. Measurement according to the Corden convention, wherein value added includes that indirectly generated in the production of non-tradeables, yields results that are slightly lower than those obtained under the Balassa convention and show less dispersion over the entire set of sectors. There is only one sector with negative value added at world prices under the Corden definition; there are six according to the Balassa measure. The rank correlation between Corden and Balassa average effective protection rates is .99; it is the same between Corden and Balassa effective subsidy rates. Relative Incentives to Primary Production and Manufacturing Because differences in incentives to primary and manufacturing activity affect all compar:isons of group weighted averages, we shall begin our examination of the disaggregated estimates by discussing these. In Korea, unlike most developing countries, primary production, particularly agriculture, receives higher effective protection (17 percent) than does manufacturing (-0.9 percent). This occurs in part, as noted Korea. - in Section 2.5, because nominal, though not legal, protection in the domestic market is higher on agricultural products than on manufactured goods, and in part because nominal input protection for agriculture is lower than for manufacturing. In turn, Korea's business income tax system, which levies no direct taxes on farmers and imposes low tax rates on mining, "transfers" additional real income to the primary sectors, and this is only slightly offset by less favorable treatment of primary producers in regard to credit preferences.l As a result, the effective subsidy rate on manufacturing is -6.5 percent as against the effective protection rate of -0.9 percent, while for the primary sectors the corresponding averages are 21 and 17 percent. Tables 2.A and 2.B also give averages for manufacturing excluding Beverages & Tobacco, as protection on the latter is often a tax on consumption rather than a vehicle conceived to protect domestic producers. Beverages & Tobacco have the highest legal tariff rates of any industrial group, but almost none of this protection is realized. In consequence, these products have negative effective subsidy, and their exclusion from the average for manufacturing raises, rather than lowers, the effective subsidy rate on manufacturing production as a whole. In addition, several processed food sectors, particularly sea- weed and other processed seafood, could be considered primary sectors because much, if not all, of the processing is done by the primary pro- ducers. To test the sensitivity of our aggregate results to the classification 1/ The ratio of total interest subsidies to value added in world prices may be used to express the relative magnitude of these; the average figures are 2.2 percent for primary production and 7.9 percent for manufacturing. Within the primary sectors, the corresponding averages for agriculture & forestry, fishing, and mining are 1.3, 7.9, and 6.7 percent respectively. Korea: 3-19 of these sectors, we also provide in Tables 2.A and 2.B averages for the primary sectors including processed FRood and for manufacturing excluding both Beverages & Tobacco and Processed Food. The inclusion of Processed Food within t:he primary sector reduces effective incentive rates; on the other hand, its exclusion from manufacturing raises effective incentive rates, particularly to domestic sales where the average effective subsidy rate is increased fromi -7.1 to -1.8 percent. The conclusion that primary production receives higher effective incentives nonetheless remains un- changed. The high effective incentives to agriculture stem from two factors. First, Korea appears to lack a comparative advantage in its major food 1/ grain crops.- Judging by effective subsidy rates, its comparative advantage within agriculture appears to lie in pulses and miscellaneous 2/ cereals, potatoes, tobacco, medical crops, fruit, and livestock.- Second, the government's policy of striving for self-sufficiency in food production, most often expressed in terms of food grains, along with the desire to in- crease farmers' incomes, gives rise to measures to subsidize agriculture. Through import restrictions, for example, the price of rice was maintained at more than :L3 percent above the world price in 1968. Forestry, fishing, and mining receive effective incentives well below those to agriculture, though somewhat in excess of those to manu- 1/ On this point, see the discussion below in Section 3.6. 2/ The high effective subsidy rate on vegetables is due to the exceptionally high nominal protection rate on red pepper and undoubtedly mis-states Korea's comparative efficiency in the production of most vegetables. Korea: 3-20 facturing. Forestry is underdeveloped in Korea, for firewood was the major source of fuel for centuries and the forests were gradually depleted.11 In comparison, Korea appears to have a modest comparative advantage in fishing and most minerals, where effective subsidy rates are comparatively low. Within mining, only gold, silver, & copper ores and raw salt have very high effective incentive rates, while coal, representing nearly 50 percent of total minerals production, has an effective subsidy rate of 8.7 percent. Korea's advantage in producing many minerals may soon dis- -Iaar, however, as most of the readily exploitable reserves have been xnhausted and rapidly diminishing returns to further extraction appear to have been reached, notably in coal mining. Incentive Rates by Trade Classification Table 3 shows the averages of incentive rates according to trade classification. Among the primary groups, legal tariffs are highest on non-import competing commodities (37 percent) and lowest on export (5.7 percent) and export and import-competing (XIC) goods (2.1 percent). The ranking changes somewhat when nominal protection rates are compared: import competing commodities have the highest protection (46 percent) and export commodities the lowest (-3.5 percent). This results from there being only a single import competing primary sector -- baFXey and wheat; import controls make its nominal protection more than mnca the legal rate. Two mineral sectors, including gold, silver, & copper ores, comprise the primary XIC group. All of the export products fmc dica' crops (including ginseng) are also minerals. Fishing 1/ Forest ,pzcducts is elassified as a non-import competing sector in Annex Table k. 1i7owever, only those types of forest products produced in Korea are included within the sector's definition. Most roundwood imports do n6t compete with domestic production and are thus separately classified a.s no-:ncompat:itive imports in the underlying inpu_-output data. Korea: 3-21 and nine out of the eleven agricultural sectors are non-import competing, as are several of the mining sectors including coal and salt. Thus, it is nearly correct to say that the primary export products are minerals whereas the 'primary non-import competing products are agricultural commodities and fish. Primary non-import competing commodities have higher nominal incentives than primary export commodities, which is consistent with agricultural products having higher legal and nominal protection rates than minerals. Corresponding to ehe higher effective incentive rates on agricultural products than on m 4Inerals, primary export products also receive lower effective incentives on all measures than do primary non-import competing products. For example, the average effective subsidy rate for export commodities is-12 percent, while for non-import competing goods it is 17 percent. Barley & wheat, the only import competing sector, has nearly the highest effective incentive rates in the primary group. Largely because of restrictions on gold imports, average effective in- centive rates for XIC production are nearly the same as those for non- import competing production, though non-metallic minerals, the other XIC commodity group, receiLve negative effective incentives. Rankings of average incentives to primary production for all sales destinations are the same whether one employs the Balassa or Corden conven- tions. If employed as indicators of comparative advantage, they all suggest that Korea's comparative advantage within primary products lies in the products which are largely exported, chiefly minerals, and that Korea does not have a comparative advantage in many non-import competing agricultural products. Within manufacturing, the weighted average legal tariff rate is Korea: 3-22 highest on export commodities (83 percent) and lowest on import competing products (56 percent). The pattern of nominal protection is nearly the opposite: XIC and import competing products receive the greatest average nominal protection (38 and 32 percent respectively), with export and non- importing competing commodities getting the least (8.1 and 5.1 percent respectively). Nominal protection within each trade category is sub- stantially less than legal protection; the difference is largest for export and non-import competing commodities, where the average nominal protection rate is less than a tenth of the average legal tariff rate. The pattern of nominal protection for manufacturing carries over to the effective incentive rates. Import competing commodities followed by XIC products, receive the highest effective incentives; non-import competing commodities, followed by export products, receive the lowest effective incentives. Average effective incentive rates are positive for the former categories and negative for the latter, as is illustrated below. Effective Subsidy Rates Within Manufacturing Trade Category Export Domestic Average Export 13.5 -26.2 -13.4 Import Competing 35.3 91.4 90.7 Non-import Competing 6.1 -24.3 -23.7 Export and Import Competing 8.7 55.0 37.9 Source: Table 3.B. Korea: 3-4- Import competing commodities have appreciably higher effective subsidy rates in both the domestic and export markets than do XIC commodities. In the domestic market, export products have somewnat lower effective incentives than non-import competing products; however, export products get larger effective incentives in the export markets, the result being higher overall effective incentives for export products than for non-import competing commodities. IE the estimates of effective incentives are indicative of com- parative advantage, it would appear that Koreas major manufactured exports are efficiently produced as are those manufactures that do not compete with imports. However, this generalization is not equally valid for all commodities so classified. Out of 19 export commodities, five have effective subsidy rates greater than 10 percent: cotton fabrics, other manufacturing, plywood, ribbon, tape & string, and optical instruments. Two others have rates greater than zero (but less than 10 percent): knitted products, and other leather products. Seventeen of 51 non-import competing manufactures have positive effective rates of subsidy, eleven of which exceed 20 percent -- worsted & woolen yarns, paint & printing ink, measuring instruments, hemp & flax yarns, bakery products, jewelry & lacquerware, pesticides, straw products, charcoal briquettes (a prime source of heat), other electrical equipment, and electrical motors. In contrast, only 10 out of the 53 import competing and XIC products have negative effective subsidy rates: soap & surfactants, house- hold metal products, medical & sanitary instruments, other textile products, non-ferrous (metal) products, toys & sporting goods, textile machinery, metal working machinery, glass products, and general industrial machinery. Korea: 3-24 On average, as between XIC and import competing commodities, relative inefficiency appears least in the XIC commodities, i.e. where there are signJe.cant exports of products that are also competing with imports. Among the XIC commodities are several textile products, non-ferrous metal products, metal implements, electric and electronic products, and several other miscellaneous products. Most prominent of the inefficiently produced import competing products are pulp and paper, a number of chemicals, pig iron, a number of steel products, and Machinery and Transport Equipment. One contrast between the patterns within the primary and manufac- turing sectors deserves note. The average effective subsidy rate on non-import competing primary commodities is 17 percent; it is -24 percent on non-import competing manufactures. Domestic production of non-import competing commodi- ties is thus more highly protected and appears comparatively less efficient than domestic production of export commodities within the primary sectors, but the reverse is true in manufacturing. The government's policy toward the agricultural sector largely explains this difference, since non-import competing primary production can virtually be identified with agriculture. For primary and manufacturing sectors together, the table below shows the dispersion of effective subsidies to total sales within each of the commodity categories. Over the entire set of observations, including the extreme ones, XIC and non-import competing commodities have the lowest coefficients of variation, with export commodities having the highest. However, the simple average of effective subsidy rates for the latter category is substantially below those of the former categories, so that the standard deviation (average times coefficient of variation) for export products is roughly one-third those for XIC and non-import competing goods. In terms Korea: 3-25 of the standard deviation, therefore, export commodities show the least variation in effective subsidy rates. The standard deviation for import competing comamodities is more than ten times those for XIC and non-import competing coimnodities. Simple Averages and Coefficients of Variation for Commodity Categories Over Entire Set Over Reduced Set Commodity Category No. Average C.V. No. Average C.V. Export 27 5-9 10.8 26 6.2 10.5 Import Competing 38 -218.2 -10.0 28 45.1 1.5 Non-Import Competing 67 37.8 5.7 65 5.1 11.4 XIC 18 64.4 2.8 15 24.8 1.7 Source: Annex Table 2.B. Notes: Based on effective subsidy rates to total sales computed under the Balassa convention. The "Entire Set" refers to the full set of 150 sectors; the "Reduced Set" excludes those sixteen sectors for which one or more measures of effective incentives exceeds 500 percent or for which value added in world prices is negative under at least one measure (see the discussion in the text of Table F). No.: Number of sectors that are included. Average: Simple average, in percent. C.V.: Coefficient of variation, standard deviation divided by the simple average. Extreme observations are highly sensitive to small errors in the estimation o:E value added coefficients at world prices, so that interest also attaches to the dispersion of effective subsidy rates excluding these. Extreme obse.rvations (conversely, the reduced set of observations) are defined here as in Table F. A disproportionate number of these fall in the Korea: 3-26 import competing category, so that their exclusion reduces the absolute magnitude of the coefficient of variation for this category from 10.0 to 1.5. In turn, the standard deviation for export products becomes somewhat higher than those for XIC and non-import competing commodities. But the furthw exclusion of just one observation (cotton fabrics, having an effective subsidy rate of 298 percent) reduces the coefficient of variation for export products to 5.7, the corresponding standard deviation being 31 percent Dispersion indices over the reduced set of observations for XIC and non- import competing commodities are not similarly sensitive to the further exclusion of one or two outlying observations. The Structure of Incentive Rates within Manufacturing Table 2 gives the averages of incentive rates by industrial group, which will be discussed below. Processed Food and Beverages & Tobacco both receive negative average effective subsidy rates (respectively -23 and -24 percent), though the individual sectors producing dairy products, canned seafoods, bakery products, other food preparations (mostly seasonings and cooking oils), and alcoholic beverages other than beer receive positive effective subsidy rates. All Construction Materials, here defined to include cement and clay & stone products, have negative effective subsidy rates, the weighted average of which is -16 percent. The average effective, subsidy rates for Intermediate Products I and II, which are respectively negative (-22 percent) and positive (19 percent), conceal a wide dispersion of rates, both positive and negative, at the sectoral level. That the average effective subsidy rate for higher level intermediate products is positive can in part be explained by the larger Korea: 3-2, share of import competing and XIC commodities in the latter. Within both categories, the sectors that receive positive average effective subsidy rates include some textile yarns and fabrics, plywood, charcoal briquettes, pulp, paper products, a number of chemicals including fertilizer and pesticides, and a number of metal products. The average effective subsidy rate on Nondurable Consumer Goods is -15 percent, but bere again the average conceals a great deal of dispersion among sectoral figures. Slightly more than half of the products classified under this heading (two thirds cif which were export or non-import competing) receive positive effective subsidy rates. Four out of the six products in the Consumer Durables group, only one of which is neither import competing nor XIC, have positive effective subsidy rates, giving an average figure (31 percemt) for this industry that is well above that for manufacturing as a whole.-I Machinery, which has an average effective subsidy rate nearly identical to that of Consumer Durables, can be subdivided into three groups by the type of the machinery and the degree of effective incentives received. Negative effective subsidy rates are observed for non-electrical machinery products that have been produced in some volume over a relatively long period of time: for example, metal working machinery, mining & construction machinery, and textile machinery. Other non-electrical machinery products have positive effective subsidy rates, as do electrical machinery products. 1/ As throughout t:he text, we here include sectors having negative effective subsidy rates algebraically less than -100 percent in the number of those having positive! protection. Korea: 3-28 Transport Equipment has the highest average effective subsidy rate, in excess of 150 percent. Among the sectors classified here, automotive repairs is the only non-import competing sector, and it alone receives negative effective subsidies. Ships, railroad equipment, and motor vehicles all receive above average nominal protection, with the rate on motor vehicles being 90 percent. In 1968, the domestic production of motor vehicles was almost exclusively concerned with the assembly of imported components. 3.3 Incentives in the Domestic Market To gain a clearer understanding of Korean incentive policies it is necessary to look separately at measures affecting sales in the domestic and export markets. In this section we consider incentives to domestic sales, starting with a detailed examination of the structure of nominal protection, which is the principal determinant of incentives on the protected domestic market. The Structure of Nominal Incentivesl/ From an overall perspective, the Korean legal tariff structure is similar to that in a number of other developing countries. It is character- ized by tariff rate escalation: the lowest tariffs are on raw materials; somewhat higher tariffs are levied on intermediate outputs; and the highest tariffs are on finished products, although tariffs on capital goods are lower than those on finished consumer goods. Thus, the average legal tariff 1/ Throughout this discussion, legal and nominal protection refer to that on domestic sales (or on the inputs used to produce for the domestic market). Korea: 3-29 on agricultural products is substantially less than that on Processed Food or on Beverages & Tobacco. Similarly, the average legal tariff on Mining and Energy products is less than that on lower level Intermediate Products, and the latter in turn is less than the average legal tariff on higher level Inter- mediate Products. Tle highest average legal tariff rates, excluding those on Beverages & Tobacco, are on finished consumer products, both durable and non-durable. The average legal tariff rates on Machinery and on Transportation Equipment are approximately equal to the average rate on higher level Intermediate Products. The escalation observed in legal tariff rates does not characterize the structure of nominal protection rates. Rather, the structure of nominal protection rates is perhaps best described as one of "reverse" escalation, i.e., nominal protection on inputs is higher than that on outputs. Among the various industrial groups, average nominal protection on inputs into the Processed Food and Beverage & Tobacco industries exceeds that on their outputs by a rather wide margin. Average nominal input protection also exceeds average nominal protection on domestic sales in those industries pro- ducing Intermediate Goods, Nondurable Consumer Goods, and Machinery; the difference between average input and output protection is negligible in the cases of Intermediate Goods II and Machinery, however. Average nominal pro- tection on outputs and inputs is nearly equal for Consumer Durables. At this level of aggregation, the onLy industry in which there is marked escalatiaa 1/ "Nomina:L input protection" refers to the weighted average of the nominal protection rates on a sector's inputs, the weights being pro- portional to the value (at world prices) of the inputs used. The estimates shown in Tables 2.C and 3.C employ the Corden convention regarding non- tradeables. Korea: 3-30 of nominal protection is Transportation Equipment, though a modest positive difference between output and input protection also exists for Agriculture, Forestry and Fishery. At the sectoral level, escalation occurs most frequently where nominal protection on the output exceeds 35 percent, for nominal input protection rates at this level are densely clustered between 15 and 35 percent. The highest rate of nominal input protection among the 150 sectors is 66 percent, and very few sectors experience nominal input protection rates in excess of 40 percent. For reverse escalation to yield negative effective protection, the ratio of nominal protection on the output to nominal input protection must be less than the sum of the input coefficients per unit of output at world prices. The weighted average (using domestic sales weights) of the value added coefficients (Corden convention) in manufacturing is .41. Thus, on average, negative effective protection rates are observed where nominal input pro- tection exceeds nominal output protection by more than roughly 68 percent. Of course, the degree of reverse escalation sufficient to yield negative effective protection differs by sector; a lower degree of reverse escalation suffices in sectors with lower value added coefficients. Reverse escalation prevails in the more than 75 sectors whose effective protection rates are negative. Reverse escalation also characterizes a number of sectors for which effective protection is positive. As a particular case, we will consider nominal protection on textile products. Reverse escalation is found for cotton, silk, and other yarns. Output protection exceeds input protection, however, in the cases of worsted & woolen yarns, hemp and flax yarns, and synthetic resins & fibers. There Korea: o,-- is escalation of nominal protection for cotton and silk fabrics and reverse escalation for worsted & woolen, hemp, rayon, and other fabrics. Thus, for worsted & woolen and hemp textiles, high nominal protection on yarn leads to tariff escalation for yarn and reverse escalation for fabric. Zero nominal protection on yarn 'Leads to the opposite result for cotton and silk textiles. Tariff escalation oll finished textiles is found only for knit products. We are unable to explain why similar products at the same process- ing stage (e.g., al'L yarns, all fabrics) are apparently treated dissimilarly as regards the escaLation of protection. One presumes it is because there were significant diEferences in the comparative efficiency of production at the same stage of processing, but it may also result from differences in marketstructure leading to monopoly profits on some products but not others. Observation errors may equally be responsible, but the dissimilarities would remain even were the errors relatively large. The producl: chain leading from iron ore to semi-finished steel products is'also int:eresting. While protection escalates for pig iron, there is reverse escalation for steel ingots. The latter is to be attributed not to the protection aifforded pig iron but to the tariff on imported scrap iron and steel, from which most of Korea's steel was produced in 1968. There is strong tariff escalation for most: steel products, though there is equally strong reverse escal.ation for iron bar and frame, cast & forged steel, and metal construction products. The three products just mentioned can be efficiently produced on a small scale. Steel sheet, bars, pipe, etc. are efficiently produced only in large scale integrat:ed steel mills, yet plants in Korea producing these products Korea: 3-32 1/ were of quite small scale; correspondingly, nominal protection on these is well above the average for manufacturing. A similar pattern is shown for non-ferrous semi- finished (metal) products, though copper and other non-ferrous metals are more highly protected than are the refinery inputs. Insulated wire and cable, a rather sophisticated product most efficiently produced at reasonably large scale, benefits from tariff escalation, while non-ferrous (metal) primary products (mostly castings) are subject to reverse escalation. Additional Incentives to Domestic Sales Nominal protection arising from tariffs and import controls is not the only incentive operating in the domestic market. Additionally, indirect tax rates on domestically produced andimported varieties of the same product are often not the same. However, the incentive effects of indirect tax rate differentials by origin of the product appear to be minimal. Indirect taxes on domestic production are in many instances levied on the raw material rather than the finished product; in these instances, finished or semi-finished imports are subject to indirect taxes whereas comparable domestically-pro- duced varieties are not, these having been paid on the raw material. Pro- ceeding from the raw material through the various semi-finished £tages to the finished product, indirect tax rates on imports become progressively smaller in comparison to those on the raw material. The differentials in indirect tax rates on domestically produced and imported varieties thus appear to have 1/ A very large integrated iron and steel mill has come into operation since 1968. Korea: 3-33 been set so as to remove the potential bias against domestic processing that would result from levying all indirect taxes on raw materials alone. Put in a dif:Eerent vein, the incidence of indirect taxes at the stage of final purchase appears to have 'been equalized with respect to the stage at which imports enter. While most production for sale in the protected domestic market is subject to indirect taxes on output and inputs and in addition pays the protected domestic price for domestically produced inputs and the full legal tariff on imported inputs, there are some exceptions.-/ Certain favored industries receive complete or partial exemptions from indirect taxes and tariffs on selected intermediate inputs. Some of the sectors receiving such discounts and the inputs involved are as follows: fishing nets, complete exemption from commodity taxes on fiber inputs; drugs, pesticides, and fertilizers, complete exemption from the petroleum products tax; cotton yarn, 50 percent tariff reduction on fiber; synthetic resins, more than 50 percent tariff reductions on non-competitive chemicals and plastic materials; pig iron, steel, and semi-finished steel products, 50 percent tariff reductions on principal ferrous inputs; and, motor vehicles, complete exemption from tariffs on components. The industries involved, as this partial list suggests, are largely heavy industry, import substituting sectors that have been singled out for rapidl development in the Second and Third Five Year Plans. Complete tariff exemptions on imported capital goods are also granted to some of these industries ELS well as to others. Such exemptions granted to specific 1/ "Inputs" refers to both intermediate and capital goods. 2/ A complete listing of incentives for import substituting production is given in Kim (1971). Korea: 3-34 industries have been taken into account in estimating producer price input costs to calculate effective incentive rates. On the other hand, customs duties exemptions on imported capital goods and granted solely on the basis of the type of financing have been neglected for lack of sufficiently detailed information on the sectors receiving such preferences. In addition, several industries receive preferential direct tax treatment, including investment tax credits, on income derived through domestic sales. Lastly, the virtual control of the banking system by the government makes possible the use of interest rate differentials and credit rationing as incentive measures. The latter is particularly important as there is a continual excess demand for funds at the commercial bank lending rates. A small number of industries have further benefited from the formal establishment of special funds for preferential loans. For example, a special fund for low interest loans to machinery producers was set up in 1968.1/ The government also restricts access to foreign capital funds in order to direct resource allocation and grant implicit subsidies, for the effective real interest rate on foreign borrowing is much less than that on non-preferential domestic 2/ loans. Incentives granted through preferential direct tax and credit treat- ment are incorporated in our estimates of effective subsidy rates, in the manner outlined in Section 3.1. 1/ In this case it was argued that preferential interest rates were required to offset the competitive advantage of imported machinery financed through low interest suppliers' credits. 2/ Interest subsidies on foreign loans are 43 percent of total interest subsidies, while those on domestic loans not explicitly related to export activity are 34 percent. Korea: 3-35 Above we have discussed incentives on the protected market. It should be recalled that: there are also unprotected domestic sales. The volume of these sales has been estimated through an input-output calculation as being equal to deliveries of intermediate inputs to exporters (i.e., indirect exports). In world prices, our estimate of total commodity sales on unprotected markets amounts to 3.1 percent of total domestic commodity sales. For some commodities, though, the proportion sold on the unprotected market is much higher: for example, it is .42 percent for cotton yarn and 23 percent for worsted and woolen fabrics.- It has not been possible however to estimate the total volume of sales on the unprotected market in the case of machinery, for we were unable to estimate the magnitude of domestic machinery sales competing with imports of capital goods that for various reasons were exempted from customs duties.-/ Two other types of sales in the unprotected market have also been omitted from consideration. We have neglected sales of intermediate inputs to producers of indirect exports, though these sales are also unprotected, as indirect exporters receive the same tariff and indirect tax exemptions given to direct exporters. Likewise, we have neglected sales of intermediate inputs to those import substituting industries which receive tariff reductions 1/ These estimnates have been taken from the computations underlying the calculation of effective incentive rates; they do not appear in any of the tables. 2/ Recall (see Section 2.3) that our inability to obtain estimates of the volume of these sales led to the selection of the actual tariff rate as the nominal protection rate on machinery in some cases. Korea: 3-36 (and sometimes exemptions) on their imported intermediate inputs. Though these omissions have led us to underestimate sales on the unprotected market, it is likely that we have overestimated the volume of indirect exports by assuming that the division between imported and domestically-produced intermediate inputs going into exports was the average division for the sector. Use of input-output statistics entails this assumption, but there is evidence suggesting that exporters rely more heavily upon imported intermediate inputs in producing an identical product specification than do producers for the domestic market.- Indirect exports receive incentives identical to those granted to exports. Separate estimates of incentive rates for indirect exports are therefore not shown and, as noted in Section 3.1, incentive rates for the domestic market are averaged over protected and unprotected sales. Effective Incentives to Domestic Sales Given the high proportion of domestic in total sales, the level and structure of effective incentives on the domestic market are quite close to those pertaining to total sales, though effective incentive rates to domestic sales of primary products are in general somewhat higher while those for manufactured products are lower. The rank correlations between 1/ See Cole and Westphal (1975). 2/ Effective incentive rates on the protected domestic market are of course somewhat higher than those on total domestic sales, for the latter are, as previously noted, weighted averages of the effective incentive rates on indirect exports and on protected domestic sales. Korea: 3-37 effective protection and subsidy rates on domestic and total sales are respectively .97 and:.96. In view of these similarities, we confine our discussion to the most imqportant result which concerns the role of direct tax and credit subsidies. A comparison of effective protection and subsidy rates on domestic sales shows that. direct tax and credit: preferences together result in a relative disincentive to domestic sales for manufacturing as a whole. These preferences lead to increased effective incentive rates in only 22 out of the 123 manufacturirLg sectorsi, including cement, pig iron, pulp, several chemical products, fertilizer, several steel products, electronics, and several types of transport equipment. Most of these sectors also receive high effective protection, but in severaLl cases -- for example, pulp and fertilizers -- tax and credit -preferences are suffic:ient to transform negative effective protection rates into positive effect:ive subsidy rates. Moreover, the high rank correlation (.95) between effective protection and subsidy rates on domestic sales demonstrates that direct tax and credit subsidies are of only limited significance in determining relative incentives within the domestic market. -They do however add to the effective incentives-given to the most important,,as determined by goverrment preferences, import substituting industries. We may conclude that the major incentive policy with respect to production for the protected domestic market is the structure of nominal protection rates, so that estimates of effective protection give reasonably good predictors of the net effect of all policy instruments-operating within this market. This conclusion must, however, be qualified to the extent that Korea: 3-38 we have been unable satisfactorily to quantify some incentive measures, for example credit rationing. Nonetheless, what is known about the operation of the credit-rationing system as it affects production for the domestic market suggests that it largely favors those industries receiving high effective incentives on the domestic market. 3.4 Incentives in the Export Market As we have discussed in Section 1 above, exports benefit from a number of incentive measures. Two of these in particular require further explanation. The so-called "wastage allowance subsidy" derives from the auto- matic right to duty-free imports of intermediate products up to stated limits. The limits administratively established for each input are based on technical input-output relationships and include an allowance for wastage of the input. This wastage allowancqe exceeds "normal" wastage through loss, damage, and other causes, and that portion of the allowance not used up in export production can legally be sold domestically, often at a high profit since the imports involved are either limited by controls or subject to high duties. We estimate, for example, that the implicit subsidy per dollar's worth of imported woolen and worsted yarn was 12.3¢; for imported roundwood used to produce plywood, it was 17.4¢. 1/ Note that up until mid-1975 the Korean system employed outright tariff exemptions (for imports declared upon arrival as being for use to pro- duce exports) rather than rebates (granted upon or after shipment of the exports). The subsidy involved is greater in the former case since the carrying cost of goods in process does not include interest on tariff charges. Korea: 3-39 Subsidies are also provided to some exporters through reductions in overhead (or utility) charges. Though relatively unimportant overall, they are of some consequence to the benefiting industries. For example, exported minerals receive a 30 percent discount on railway freight charges, and an equal discount on electricity charges is granted to exporters for whom power costs are a Large share of total manufacturing costs. Our estimate of the magnitude of each export incentive in relation 1/ to the total market value of commodity exports in 1968 is shown below: Total Incentive as a Percent of Form of Incentive2/ Total Commodity Exports Tariff exemptions 14.4% Indirect tax exemptions 7.0 Wastage allowance'. 2.4 Overhead rate reductions .4 Direct tax reductions 1.1 Interest subsidies 4.5 Total 29.8 1/ Korea has derived a substantial amount of foreign exchange by "exporting" non-tradeables through US military procurement (see Section 4.1). In addition, there are some service exports. With the single exception of tourism (a very small sector in 1968), no preferences are given to producers of non-tradeables for "export." 2/ Because informatiorn concerning it is closely held, we were unable to obtain estimates of the eaport-import link subsidy, though it is known to have been small in 1968. 3/ The wastage allowarnce subsidy on each imported intermediate input has been estimated by takirLg the "excess" wastage rate times the difference between the domestic price of the import (inclusive of nominal protection) and the domestic currency equivalent at the market exchange rate of its c.i.f. import price (exclusive of tariff). "Excess" wastage rates were estimated on the basis of an informal sunrey by the authors and then checked against other estimates. Korea: 3-40 More than two-thirds of total export incentives are in the form of tariff and in- direct tax exemptions. As noted previously in Section 1.2, these merely insure that exporters can purchase material inputs at world prices just as they sell at world prices. In this sense, they are not subsidies vis-a-vis the world market. They do, however, affect the relative profitability of exports versus domestic sales. Of the remaining incentives, interest preferences followed by wastage subsidies and direct tax reductions are the most important. These figures indicate that the total export subsidy vis-a-vis the world market is 8.4 percent of the value of exports. Effective Protection to Exports The effective protection estimates for exports incorporate the effects of tariff and indirect tax exemptions, wastage allowance subsidies, and overhead rate reductions.7 Apart from the subsidies explicit in the wastage allowance system and implicit in the domestic purchase of inputs whose domestic prices are below world prices, producers of direct (as well as indirect) exports pay world prices for commodity inputs and receive the world price for their output. Some exporters also receive overhead subsidies. 1/ A procedure analogous to that employed for direct tax and credit preferences was used to estimate the incentive effects of overhead rate reductions. The "norm" for calculating world price value added assumes that all sectors pay the same average rates on inputs of each overhead service, the average rates being calculated to hold each overhead sector's total receipts con- stant. In the case of electricity, we estimated that total rate reductions amounted to 1.81 percent of total actual charges. The comparable figure for transportation is 0.66 percent. 2/ The prices paid by exporters for domestically produced intermediate inputs (i.e., indirect exports) could not exceed c.i.f. world prices,for exporters have the option of importing their tradeable intermediate inputs free of indirect taxes and tariffs. Exporters would pay domestic, as distinct from world, prices for intermediate inputs only where these were below world prices. For ease of exposition, we will refer to the purchase of domestically pro- duced inputs at domestic prices less than world prices as a subsidy element, though it need not be an explicitly conceived subsidy to exports. Korea: 3-41 However, all exporters pay indirect taxes on non-tradeable inputs, whose prices are further inflated by nominal protection on the inputs used to produce them.- In the! aggregate, negative incentives from the purchase of non-tradeable intermediate inputs are more than offset by wastage allowance subsidies, overhead rate reductions, and purchases of domestically produced inputs whose prices are below world market prices. Thus, all told, exporters receive a subsidy on input purchases equal to 1.2 percent of the total value of the inputs used, resulting in eff.ective protection on value added of 0.4 percent. Upon closer examination, however, one finds that the rate of nominal protection on inputs to export production is negative, denoting a subsidy, in only a limited number of sectors. Among selected "major" exporting sectors,2/ comprising all of those sectors which separately accounted for more than one percent of total merchandise exports in 1968, only medical crops, fishing, petroleum products, plywood, rayon fabrics, other fabrics, and rubber shoes receive negative nominal input protection. For the first three of these, a single major input purchased at the domestic, less than world, price is responsible; respectively, the input is ginseng seeds and seedlings, petroleum products to power fishing vessels, and petroleun products that require further refining. For the remaining commodities, the wastage allowance on a principal non-com- petitively imported intermediate input results in negative input protection. 1/ There are no tariff and indirect tax exemptions on intermediate inputs used to produce non-tradeables sold to exporters. While overhead rate reductions may be rationalized as a rebate of tariffs and indirect taxes incurred :in producing the corresponding non-tradeables, such reductions are not given uniformly to all exporters. 2/ Included among these sectors are the eighteen whose sector indexes appear in the listing of export and XIC goods in Table 1, plus slaughtered and processed meat (sector number 14), rubber shoes (106), and electronic components (124). Korea: 3-42 The largest subsidy went to plywood exports, with a nominal input protection rate of -11.8 percent. In fact, negative nominal protection on inputs for aggregate manu- factured exports, and therefore positive effective protection on manufactured exports as well, may be traced directly to the wastage allowance on im- ported roundwood used in plywood production. Our estimates indicate that plywood exports accounted for 13.6 percent of total and 15.5 percent of manu- factured exports, while imports of roundwood accounted for 46.6 percent of the total wastage allowance subsidy on exports. Nominal protection on imported roundwood is high because imports are controlled. Moreover, Korea produces no large-dimensioned timber and much of the lumber used domestically is processed from the excess wastage of roundwood allowed to plywood exporters. The fourteen principal exports which have positive nominal input protection fall into one of three categories: primary products or processed primary products (e.g., iron ore and processed seafood); products (e.g., cement and silk yarn) produced ordinarily for the domestic market or based on in- digenous raw materials; and, products based on domestically produced intermediate inputs (e.g., cotton and worsted & woolen yarns), the production of which in turn requires imports of principal inputs (e.g., raw cotton and raw wool). Products in either of the first two categories receive little or no wastage subsidy, for this subsidy is premised on imports of principal 1/ intermediate inputs by established export sectors.- 1/ This is not to imply that wastage allowance subsidies are not granted auto- matically or across the board. However, it takes some time for the admin- istrative machinery to establish a wastage rate that will yield the appropriate subsidy; the system operates most completely where export activ- ity is well established. One therefore finds that average nominal input protection for manufactured export sales is negative only in the case of export commodities. Korea: 3-4i It is however probable that we have understated the wastage allowance subsidy to products in the third category, for we have assigned the subsidy to the production of indiriect exports where the imported input is required at a stage in the production process prior to the manufacture of direct exports.-/ Through competition between producers of indirect exports and bargaining between these and direct exporters, it is likely that some of the wastage subsidy to indirect exports is passed on to direct exporters; otherwiXe, there is an inducement to backward integration. In fact, the wastage allowance system favors backward integration not only because the direct exporter can t:hen capture the subsidy, but also because the compounding of wastage allowance rates is permitted only for integrated operations. For example, suppose the wastage allowance rate from raw wool to yarn were 10 percent while that from yarn to fabric were 20 percent. Then the direct exporter of woolen fabrics who imports raw wool would be permitted 2/ a wastage allowance irate of 32 percent. He need not actually produce the woolen yarn, for subcontracting is permitted. Only large scale direct exporters can apparently take advantage of wastage allowance compounding, for small scale direct: exporters do not haves integrated operations (either under one firm or through backward sub-contracting) and thus purchase their intermediate inputs on the domestic market. Lacking disaggregated data pertaining to these phenomena, however, we have made the standard assumptions that there is no compounding and that 1/ For examnple, wastage subsidies on imported-raw cotton and raw wool are respectively reflected in negative nominal input protection estimates for (direct and indirect) exports of cotton and woolen & worsted yarns; nominal input protection. for exports of cotton and worsted & woolen fabrics is positive. Rayon. and other synthetic yarns, on the other hand, were not produced in any volume in 1968; nominal input protection for rayon and synthetic fabrics is therefore negative, reflecting imports of these yarns. 2/ The latter figure is equal to 100.0 x (1.1 x 1.2 - 1.0). Korea: 3-44 the sector requiring the input receives the wastage allowance subsidy on the import, for this appears to be the typical case l/ Effective Subsidy to Exports The importance of direct tax and credit preferences to exports can be seen from the fact that they account for 8.2 percentage points of the 8.6 percent effective subsidy rate to total export sales. Furthermore, these preferences have a significant impact on the inter-industrial structure of export incentives: the rank correlation between effective protection and subsidy rates on exports is only .15, which is barely significant at the .05 level. The frequency distributions shown in Table F make it apparent why there is so little correlation between effective protection and subsidy rates on exports. The distribution of effective protection rates is densely clustered about the mode interval, -1.0 to -10 percent, in which 87 out of 150 esti- mated rates fall. The distribution of effective subsidy rates is quite diffuse in comparison; only 41 of the estimated rates fall within the mode interval. With the exception of wastage allowance subsidies, which are important br only a relatively small number of commodities, and overhead rate reductions, which are given to only a few sectors and are comparatively small in total value, the remaining instruments of protection do not dis- criminate among export activities to a very large extent, since their major 1/ Estimation procedures become substantially more complicated if one wishes to distinguish various forms of market organization with respect to the ultimate recipient of the subsidy, since it is then necessary to distinguish additional sales destinations for the output of each sector producing indirect exports. Korea: 3-45 thrust is to-permit exporters to purchase inputs at world prices. By contrast, direct tax preferences discriminate between export activities which make a profit and those which do not. Relating tax preferences to value added, they further discriminate among export activities since there is not a unaiform relationship between gross profits and value added across export activities. Short term credit preferences also discrim- inate among export activities since their implicit subsidy value is nearly proportional to the gross value of exports and thus varies inversely with the ratio of value added to sales. Long term credit preferences may also discriminate; at least they'are not formally linked to value added in world prices. The observed discrimination and the resulting low correlation between effective protection and subsidy rates should not, however, be taken to imply purposive and selective intervention through the use of tax and credit instruments, for these are "neutrally" applied, albeit with respect to criteria which are poorly correlated with value added in world prices. The Structure of Export Incentives The overall average effective subsidy rate on export sales is 8.6 percent, which happens to be the same as the average effective export subsidy rate for export commodities. However, primary export industries receive lower and manufacturing export industries higher than average incentives to exports. Only export commodities among the primary group have negative effective subsidies. In turn, the effective subsidy rate for manufactured export commodities is 13 percent, which is,55 percent above that for XIC commodities and 121 percent above that for non-import competing commodities. Import com- peting commodities have the highest: effective subsidy rate on exports within manufacturing. Korea: 3-46 Within the structure of export incentives by industrial group, manufactured exports are favored over primary exports, the average subsidy rates being respectively 12 and -2.7 percent. Direct tax exemptions provide only a minor subsidy to primary exports since direct taxes are not levied on most primary production. Credit preferences and the wastage allowance subsidy are likewise largely directed to manufactured exports. Mineral exports, which benefit from reduced transport rates, have an effective sub- sidy rate of 3.0 percent compared with that of -9.9 percent on agricultural and fishing exports. The highest effective subsidy rates to exports in manufacturing are found in Intermediate Products I (43 percent), Intermediate Products II (17 percent), and Beverages & Tobacco (15 percent). Excepting exports of Transport Equipment, which have an effective subsidy rate of -23 percent, export sales from the remaining manufacturing industries have effective subsidy rates of between two and six percent. At the sectoral level, most of the sectors that receive high effective subsidies on export sales are either import competing or XIC, and they also benefit from high effective subsidies on domestic sales. Moreover, in a number of cases, value added in exports at the prices paid and received by the producer (i.e., exporters' producer prices) is estimated to have been negative, the exact number of cases depending upon the corresponding measure of the effective incentive rate. This is indicated in the table below.1/ 1/ Because of non-tradeable inputs and export incentives, value added in exports measured in producers' prices may be positive or negative irrespective of its algebraic sign when measured in world prices. Likewise, producer price value added in exports may be positive or negative regardless of the algebraic sign of world price value added in total sales. Under the Balassa convention, the latter is positive for three of the sectors listed -- 80, 87, and 89. In turn, world price value added coefficients for exports and for domestic sales are not equal because of the differential between c.i.f. and f.o.b. prices. Under the Balassa convention, the former is negative and the latter positive for sectors 49, 80, 87, and 89. Korea: 3-47 Sectors Having Negative Value Added at Prices Paid and Received by Exporters Negative Value Added at Exporters' Producer Prices Effective Effective Negative Value Protection Subsidy Added in Exports Sector Calculation Calcuation at World Pricesl- Balassa Corden Balassa Corden Balassa Corden 80. Synthetic Dyes x x x 87. Steel Sheet & Bars x x x 88. Steel Pipes x x x x x x 89. Galvanized & Plated Steel x x 96 Insulated Wire & Cable x x x x x x 114. Photographic Materials x x x x 125. Electric Appliances x x 148. Railroad Equipment x x x 149. Motor Vehicles x x x Notes: An "x" opposite a sector indicates that the corresponding estimate of value added is negative. 1/ Recall that value added at world prices is the same under both the effective protection and subsidy calculations. Most Transport Equipment exports in 1968 consisted of motor vehicles (that is, parts and components thereof), which appears in the list above. As a consequence, in the calculation of both effective protection and subsidy rates, producer and world price value added in exports under the Balassa convention is estimated to have been negative for Transport Equipment. This is the only aggregate industry group or commodity category for which negative producer price estimates were obtained. With a single exception, all of the sectors shown in the table above were import completing in 1968, with exports accounting for less than four percent of the output of each (see Annex Table 2.C). The share of Korea: 3-48 exports in the single XIC sector, photographic materials, was 21 percent. Particularly with respect to the latter, we doubt that producer price value added in exports was actually zero in these sectors. Rather it was probably very small, so that even slight errors of measurement or aggregation would result in negative estimates.l/ If both producers' and world price value added are negative, then, as conventionally calculated, a positive effective incentive rate indicates that value added at producers' prices is algebraically less than that at world prices and a negative rate indicates the opposite.- Thus, to give the correct indication of the effect of incentives on the algebraic magnitude of value added, the sign of the effective incentive rate must be reversed when both value added estimates are negative. We have therefore reversed the sign of the effective incentive rate under the Balassa convention on Transport Equip- ment exports in Tables 2.A and 2.B (also in Tables 5.A and 5.B in Section 3.6 below). Equally, in conducting correlation analyses using effective incentive rates (see Table 4 and Section 4.5), we have first reversed the signs where both producer and world price value added are negative.-/ However, in Annex 1/ In the case of photographic materials, aggregation errors appear to be responsible for the result obtained, as this sector is comprised of a particularly heterogeneous mix of products. Korea was exporting substantial quantities of film and photo-sensitive paper; our comparative price ob- servations are for two commodities in the latter group alone. To our know- ledge, there were no special incentives given to the export of either product. 2/ In the conventional calculation, the effective incentive rate is equal to producer price value added minus world price value added, the result ex- pressed as a percentage of the latter. 3/ There is one case -- photographic materials, in the calculation of effective protection under the Corden convention -- in which producer price value added in exports is negative while world price value added is positive. Having only one such case, one could rank it as having the highest protection, but we have chosen instead to omit the corresponding pair of observations in computing the relevant correlation coefficients. Korea: 3-49 Tables 2.A and 2.B, the signs of the effective incentive rates have been left unchanged from those given by the conventional calculation. This is because the computation of proper weighted averages requires that the signs of effective incentive rates remain unaltered. In turn, no adjustments have been required to effective incentive rates on domestic or total sales, since the corresponding producer price value added estimates are positive in every sector. In addition to the sectors listed above, we estimate that before-tax business income from export sales was negative in two export sectors (cotton fabrics and other manufacturing) and in eight out of the eighteen XIC sectors, including silk fabric:s, office & service machines, and household electronic equipment.-Y For some of these sectors our estimates may be in error. However, exports may in fact be sold by private producers at prices below average costs if overall profits are thereby increased. Thus, export prices may more than cover marginal costs and yet be below average costs. Alternatively, the incentive system may link sales OnI a highly profitable domestic market to export performance, :or example by restricting access to vital raw material imports to exporters. Indeed, the ten additional sectors for which before-tax business income is estimated to have been negative are also those that received the highest effective protection on both domestic and total sales out of the entire set of export and XIC sectors. But, before any conclusion is reached, it is ne,-essary to examine relative incentives to exports and domestic sales across all of the export and XIC categories, a task to which we now turn. 1/ Before-tax business income is equal to sales receipts less intermediate input costs, wages, rent, depreciation, and interest, all at producers' prices. Korea: 3-50 3.5 Relative Incentives to Export and Domestic Sales By far the most interesting issues regarding Korea's incentive policies concern the relative incentives given to exports vis-i-vis domestic sales. The instruments of protection favor domestic sales over export sales in the aggregate. Correspondingly, domestic sales on average receive higher effective protection both in primary activities and in manufacturing excluding Beverages & Tobacco and Processed Food. However, the converse is true for many important sectors. To begin with, there is a slight bias in favor of exports in the primary export sectors. With the exception of medical crops, all of these are mining activities and all except talc experience negative pro- tection for domestic sales. Exports are also favored over domestic sales in every manufacturing industry except Intermediate Products II, Consumer Durables, Ma- chinery, and Transport Equipment, which are in turn the only industrial groups to receive positive effective protection on domestic as well as total sales. The last three mentioned industries contribute only 5.7 percent of manufactured exports and should by all accounts be considered to include many high cost import substituting activities, most of which were firmly established only after 1960. Protection generally benefits exports where effective protection on domestic sales is negative due to nominal protection being higher on inputs than on domestic sales. Subsidies in the form of direct tax and credit preferences incease relative incentives to exports. As a result, the overall bias against export sales is reduced to nearly zero when these incentives are incorporated into the analysis.-/ Tax and credit policies do not change the 1/ The effective protection rates on aggregate domestic sales and exports are respectively 10.5 and 0.4 percent. The corresponding effective subsidy rates are 10.1 and 8.6 percent. Recall that the weighted average of the effective incentive rates on aggregate exports plus domestic sales must remain constart in the change-over from the protection to the subsidy definition. The rather small change in the effective incentive rate on domestic sales is explained by the relatively small weight on exports. Furthermore, it conceals two offsetting changes: the effective incentive rate on indirect exports rises while that on sales to the protected domestic market falls upon the inclusion of credit and income tax preferences. Korea: 3-51 direction of bias in the averages by industrial group or trade category from that under protection measures a:Lone, they either reduce the protection bias against exports or intensify the bias in favor of exports. Lf measuresd by the spread between effective subsidy rates on exports and domestic sales, then the bias in favor of exports is greatest among the manufacturing export sectors (40 percentage points), followed by the manu- facturing non-import competing sesctors and the primary export sectors. These are the only trade categories that experience a bias in favor of exports, and they alone have negative effective subsidies to total sales, suggesting that -- at least oni average -- production of these commodities is comparatively efficient. lWithin manufacturing, tax and credit preferences strongly favor the production of import competing commodities. Indeed, these even have the highest avesrage effective export subsidy rate, though they experience the lowest effiective protection rate among manufactured exports. Producers of these commodities receive a disproportionate share of preferential credit, which in their case is long term credit aimed at stimulating domestic production regardless of sales destination. Two sectors, fertilizers and other (i.e., synthetic) yarns, illustrate the point. Together these sectors account for 40 percent of the exports of import competing commodities. Our estimates indicate' that fertilizer production receives 10 percent of total interest subsidies; the corresponding figure for other yarns is 4.3 percent. Given the magnitude of credit subsidies to these sectors, coupled with tax preferences on exports, it is not surprising to find that the effective export subsidy rates on fer- tilizer and other y'arn are 61 and 56 percent respectively, while the effective protection rates are -11 and 7.4 percent. In these cases, as in several others, large scale credit subsidies benefit exports as well as domestic sales. Korea: 3-52 The overall rank correlation coefficient between effective subsidy rates on exports and domestic sales is .19. The correlation is low as well among sectors classified in the same industrial group or trade category. This finding is of considerable interest and will be analyzed with respect to Korea's major exports. Excluding Processed Food, where there is no export sector for which domestic sales have the higher effective subsidy rate, the table below lists all of the export sectors within manufacturing according to whether the effective subsidy rate is greater on domestic sales or on exports. Also shown are three XIC sectors which fall under the category of "major export ,1/ sectors.' Higher Effective Subsidy Given to: Export Sales (Type E) Domestic Sales (Type D) VI-A Silk yarn VI-B *Worsted & woolen fabrics Rope & Fishing nets *Other fabrics (XIC) Plywood VII *Knit products VI-B *Cotton fabrics *Ribbon, tape, & string Rayon fabrics *Processed bristles (wigs) VII Apparel & Accessories *Other manufacturing Other textile products (XIC) VIII *Electronic components (XIC) *Other leather products Rubber shoes Optical instruments * Indicates higher effective protection given to domestic sales. To simplify the following discussion, we will refer to the sectors in which export sales receive the higher effective subsidy rate as type E sectors and to those in which there is a subsidy bias in favor of domestic 1/ Recall that the major export sectors are all of those accounting for more than one percent of total merchandise exports. Among the major export sectors within manufacturing, the table excludes cement and petroleum pro- ducts where effective subsidy rates are higher on export sales. Korea: 3-53 sales as type ])sectors. The type E sectors listed above together accounted for 46 percent of total manufactured exports in 1968; the share of the type D sectors was 27 percent. In absolute magnitude, the spread between effective subsidy rates on exports and on domestic sales ranges from 0.3 (other fabrics) to 164 (plywood) percentage points. With two exceptions, type E products have zero or low nominal pro- tection on domestic sales and receive negative effective protection in the domestic market. Only in the case of the exceptions -- cotton fabrics and other leather products -- are. tax and credit preferences responsible for the subsidy bias on export sales. Only four of the type E products receive positive effective protection tci exports due to the wastage allowance on principal imported inputs: plywood, rayon fabrics, rubber shoes, and optical instruments (exports of eyeglass frames and lenses). Plywood, optical instruments, and the two exceptions noted previously are the only type E sectors having an effective subsidy rate to total sales that exceeds the overall average for manufacturing. Thus, of the ten type E sectors, six appear to be relatively efficient export producers in which the domestic resource cost of earning foreign exchange is coraparatively low. Wigs (processed bristles) are an exception among the type D products.l/ There are no input subsidies to wig exports; a wastage allowance subsidy ona imported hair would be valueless since there are virtually no wig sales on the domestic market, which in any event is not protected. The slight bias in favor 1/ The effective subsidy rate on domestic sales for wigs is -7392 percent, which can be trace-d to the very small difference between the coefficients for world and produ.cer price vaLue added and the absence of any credit preferences. Given that there ;are virtually no domestic sales, this estimate should be disregarded and effective protection rates used instead. Korea: 3-54 of sales on the domestic market results from using the f.o.b. sales price when computing effective incentives on exports and the c.i.f. price in the case of domestic sales. In contrast to the type E products, the remaining type D products receive higher than average nominal protection on domestic sales-/ and have effective subsidy rates to total sales higher than the overall average for manufacturing. Thus the type D sectors appear to be relatively inefficient exporting sectors in which the cost of earning foreign exchange is comparatively high. Two of these sectors, other fabrics and other manufacturing, use enough imported inputs for input subsidies via the wastage allowance system to raise the effective protection rate on exports above zero. Nonetheless, domestic sales experience higher effective protection than do exports in all of these sectors. One generalization suggested by the foregoing analysis is that exports are favored in those export industries in which Korea has a compara- tive advantage. This generalization is equally valid for primary and Processed Food export commodities and those XIC commodities not considered in detail.- 1/ It is interesting to observe that legal tariffs on type E products are generally as high as those on type D products. The difference is that very little of the potential protection on type E products is realized. 2/ There is probably aggregation bias with respect to electronic components. The types of components that were being exported -- sophisticated elements of microcircuitry assembled from imported subcomponents -- have a very small share in domestic sales. Our nominal protection estimates pertain to those types having a larger share in the domestic market. 3/ Production appears to be comparatively efficient in nearly all of Korea's primary export commodity producing sectors, chiefly minerals, and in all of the sectors producing Processed Food export products. The XIC sectors that appear to be low cost export sectors include non-ferrous (metal) primary products, household metal products, toys and sporting goods, and personal accessories. The high cost export sectors were, for the most part, recently established as import substituting sectors; they include silk fabrics, office & service machines, transformers, household electronic equipment (radios and the like) and prime movers. Korea: 3-55 The bias of incentives towards exports in the efficient sectors results not from high input subsidies or tax and credit preferences on exports, but rather from very low, mnost often negative, effective protection in the domestic market. There are however several exceptions-where either high input subsidies (plywood) or tax and credit preferences (cotton fabrics and other leather products) favor exports. A s(econd generalization is that there appears to be differential pricing of inefficiently produced export commodities, involving cross- subsidization of exports by sales in the domestic market. Differential pricing could reflect no more than the lower financial cost of producing for the export market, which in turn is the result of government incentives. However, the differential is clearly greater than can be explained thereby, since neither effective protection nor subsidy rates are equal in both markets. In turn, as suggested at the conclusion of the preceding section, differential pricing can be explained in terms of discriminating monopoly without implying that government policy has played a role. Nonetheless, there is evidence, albeit indirect, that the government has subsidized these exports through high nominal protection on the domestic market by fostering institutional mechanisms which link incentives given on the domestic market to satisfactory export performance. In Section 1.1 it was noted that a system of export targets has been in operation since 1962. Export targets are apportioned among firms through negotiations between the government and exporters' associations.2/ 1/ For evidence from a highly detailed investigation of the cotton weaving industry, see Rhee and WestphaL (forthcoming). 2/ Moreover, in some! of the industries for which competing imports are restricted, exporters, acting through manufactures' associations in the domestic market, appear to act as a cartel in restricting domestic sales. Korea: 3-56 In turn, import licenses, credit allocations, and income tax assessments are often preconditioned on satisfactory export performance. As previously noted, in certain cases, where production is dependent upon imported raw materials, this takes an extreme form in that domestic sales are not possible without exporting to obtain the necessary imports. The elements described here characterize many of those instances where differential pricing appears to be practiced. In these cases, high effective incentives to domestic sales must be interpreted, at least in part, as a subsidy to exports. Quantitative estimates of how much of the effective subsidy to domestic sales is to be considered an export incentive are beyond the scope of this study. Our estimates of effective incentives to exports in these cases understate the true subsidy, but one can compare the relative effective subsidy on total sales with the share of exports in total sales to gain an impression of the importance of this phenomenon in particular sectors. Plywood is an interesting exception to the second generalization, in that it suggests there is a purposive mechanism for establishing export incentives. The domestic market for plywood is very small in comparison with exports -- exports are 43 times the volume of sales on the protected domestic market -/- and thus plywood exports cannot be subsidized through 1/ See Annex Table 2.C. It is interesting to note that the ratio of exports to protected domestic sales tends to be much higher among the type E products than among the type D products. The exceptions are other fabrics, knit products, wigs, and electronic components. With these exceptions, every type D product has a significantly lower ratio of exports to protected domestic sales than does every type E product. Korea: 3-57 protection to domestic sales. The only alternative is to subsidize these exports through the purchase of inputs, by allowing some of these to be sold to other wood processing industries producing for the domestic market. In fact, plywood exports have both the lowest rate of nominal input pro- tection and nearly the highest rate of effective protection of any commodity's exports, due to the wastage allowance subsidy on imported roundwood. 3.6 Estimates of Net Incentive Rates The measures of incentives presented and discussed so far are gross estimates; that is, no adjustment has been made for the over-valuation of the Korean won. Such an adjustment is necessary as the actual exchange rate is affected by protective measures against imports and by export in- centives. We first describe the estimation of the free trade exchange rate and then present estimates of net incentives. Estimation of the Free Trade Exchanye Rate The degree o0E over-valuation is the percentage difference between the prevailing market and "free tracle" exchange rates, where the latter is the exchange rate that would leave the balance of trade unchanged if pro- tective measures and export incentives were removed. Estimates of the elastici- ties of supply of foreign exchange (i.e., though exporting) and demand for imports with respect tc the exchange rate are required to derive the free trade exchange rate. We assume that the supply elasticity of imports is infinite (i.e., imports are supplied at constant costs). Based on our regression analysis, the demand elasticity for consumer goods Korea: 3-58 imports falls between 1.0 and 2.5.- The demand elasticities for intermediate and capital goods imports are much lower: estimates of the former range between 0.6 and 0.3; of the latter between 0.1 and 0.4. Estimates of the demand elasticity for total imports obtained by weighting the individual elasticities range from 0.3 to 0.7. These estimates are taken from time series regressions of imports (in constant prices) against an appropriate national income accounts aggregate and the real effective exchange rate on imports; they require adjustment due to the prevalence of import restrictions which are not accounted for in the estimation procedure. Our adjustment method is admittedly somewhat crude, but failure to make any adjustment would seriously understate the elasticity of import demand. On average over the sample period, roughly 70 percent of actual imports were of commodities subject to either quantitative controls or prohibitive tariffs. If we assume that these imports were not responsive to modest changes in the exchange rate, then the estimated elasticity is a weighted average of a zero elasticity on roughly 70 percent of imports and an unknown elasticity on the remainder.- It is the latter elasticity that we require, for the move to free trade would mean abandoning import 1/ A detailed discussion of elasticity estimates for Korea is given in Frank, Kim, and Westphal (1975), Chapters 6 and 8. Our data base is identical, but we have used slightly different estimating equations. The estimates in Frank, Kim and Westphal are in general lower than those used here. 2/ The application of this approach to the individual import categories prior to aggregation led to an unreasonably high estimate of the demand elasticity for total imports due to the very low share of unrestricted consumer goods imports. Adjustment of the aggregate elasticity makes the final estimate less sensitive to errors at the disaggregated level. Korea: 3-59 restrictions and prohibitive tariffs. Adjusted import demand elasticity estimates range from 1.1 to 2.7. Multicollinearity makes it impossible to obtain robust estimates of the supply elasticity of foreign exchange. The best estimates appear to come from time series regressions of total commodity exports against GNP and the gross real effective exchange rate for exports (see Section 1.2). Estimates range from 2.0 to 7.0 with the most plausible estimate being 4.5, the mid-point of the range. Again an adjustment is required, to take account of quantitative restrictions on imports from Korea. From the mid-1960s onward, Korea's exports of ginseng, seaweed, textile yarns and fabrics, clothing, plywood, and wigs, which accounted for about 45 percent of the total, faced gradually increasing market restrictions abroad. An appropriate weighted average elasticity for these exports is approximately 2.25, which is one half the estimate for the period when restrictions were unimportant. The weighted average of the elasticities for restricted and unrestricted exports is thus 3.5. Estimates of average nominal protection on domestic sales and the average subsidy rate on exports are also required. The former is taken from Table 2.A and equals 14.0 percent. The latter may be derived as the difference between total producer and world price value added (Balassa convention) on exports divided by the value of exports: this figure, excluding direct tax and credit subsidies, is 0.1 percent. Derived estimates of the degree of over-valuation range from 6.1 to 9.1 percent.-/ The preferred estimate is the latter, which results from 1/ For the relevant formula and a discussion of its application see Balassa and Associates (1971), Appendix A. Korea: 3-60 accepting the high estimate of the demand elasticity for imports. Use of either a higher export elasticity or a lower import elasticity would yield a lower estimate of the free trade exchange rate. The Structure of Net Incentives: A Summary Tables 5 and 6 present estimates of net effective incentive rates in aformat identical to that employed in Tables 2 and 3 respectively. Adjust- ment for over-valuation may affect the ranking of sectors according to effective incentive rates under the Balassa (but not the Corden) convention with respect to the treatment of value added in the non-tradeables producing sectors. However, in our case there is virtually no difference between sector rankings under the net and gross effective incentive rates. For example, the rank correlation between net and gross effective subsidy rates on total sales is .99. The weighted average of net effective subsidy rates across all sectors and markets is -0.7 percent, with ninety out of the 150 sectors having negative rates on total sales. Agriculture, which benefits from protection on the domestic market and pays no direct taxes, has a net effective subsidy rate to total sales of 11 percent, and thus receives a positive incentive even when allowance is made for the won's over-valuation. With rates of -5.1 and -17 percent respectively, Mining & Energy and Manufacturing, on the other hand, are discriminated against in absolute terms, for value added in these industries would have been higher on average had there been free trade with no import restrictions, tariffs or direct tax and credit preferences. 1/ See Balassa and Associates (1971), Appendix A. Korea: 3-61 Net effective subsidy rates on total sales are indicative of static comparative efficiency under the assumptions that there are no factor price distortions across sectors and that market factor prices are close to their shadow values. The net effective subsidy measure adjusts for direct tax and credit preferences, but there is little available information to investigate the possible existence of other factor market distortions. However, most observers would argue that market factor prices are close to shadow values, cr efficiency prices, in Korea. Particularly important in the argument is the fact that labor markets are free and relatively undis- torted. Labor organizat.ions include only a small fraction of the labor force and are barred from strilkes and using other instruments of collective bargaining. There is also no effective minimum wage legislation.2 Our owm conclus3ion is that net effective subsidy rates on total sales do reflect static comparative efficiency in most cases. The principal qualifications that we would note are not so much concerned with possible differences between market and shadow factor prices as they are with possible errors of measurement and aggregation. Moreover, pertaining to only a single year, our estimates for some sectors may also unduly reflect the peculiar circumstances of one poinlt in time. The relatively high net effective subsidy rate for agriculture is consistent with the jludgement of most observers that Korea lacks a com- parative advantage in its major foodcrops. This is not withstanding the 1/ See Cole and Lyman (1971), Brown (1973), Frank, Kim and Westphal (1975). 2/ See McDiarmid (1977), Chapter 5 for a sketch of labor market conditions in Korea. TABIE 5.A Net Nominal and Effective Protection: Indlstry Groups Nominal Protection Effective Protection Industry Group Tariff Nominal Ralamsa Corden Dom Aver Dom Aver E2cp Dom Aver E5Cp Dom Aver I Agriculture, Forestry, & Fishing 25.1 24.6 7.2 6.8 -23.5 8.3 7.9 -22.4 8.0 7.6 IV Mining & Energy 2.8 0.4 -0.3 -2.0 --. I2 -5.8. -68 -9.2 -5.2 -6s.1 Primary Production, Total 23.8 22.9 6.7 6.2 -16.0 7.6 6.9 -14.8 7.3 6.7 II Processed Food 48.0 43.6 -5.7 -6.0 -12.6 -26.8 -25.7 -10.4 -21.4 -20.6 III Beverages & Tobacco 120.5 115.7 -6.3 -6.4 -11.3 -27.5 -26.9 -9.9 -22.6 -22.1 V Construction Materials 21.1 19.5 -4.8 -5.0 -15.5 -21.0 -20.8 -11.9 -16.4 -16.2 VI-A Intermediate Products I 25.1 20.0 -5.8 -6.2 13.7 -33.8 -28.6 8.6 -25.6 -21.2 VI-B Intermediate Products II 45.4 40.6 10.9 9.1 -12.4 10.9 9.2 -8.5 7.5 6.4 VII Nondurable Consumer Goods 76.2 53.9 2.4 -0.5 -12.4 -20.0 -18.3 -9.7 -15.7 -14.3 VIII Consumer Durables 81.6 63.4 26.8 19.7 -16.6 43.2 31.7 '-11.2 28.1 20.8 IX Machinery 39.8 36.6 19.0 17.2 -30.1 26.8 25.3 -12.6 18.7 17.3 X Transport Equipment 48. 48.2 41.9 41. _143.7* 123.2 123i 4 -2.4A 67.9 67. Manufacturing, Total 53.6 45.5 2.8 1.4 -8.6 -12.4 -12.0 -6.4 -9.3 -9.0 All Industries 41.4 36.9 4.4 3.2 -10.4 -0.1 -0.7 -8.1 -0.1 -0.6 Manufacturing, Excl. Bev. & Tob. 47.1 39.5 3.7 2.0 -8.5 -10.8 -10.5 -6.3 -8.1 -7.8 All Industries, Excl. Bev. & Tob. 37.0 32.8 5.0 3.7 -10.4 0.9 0.2 -8.1 0.8 0.2 Source: Based on figures given in Annex Table 2.A. Units: In p^:rcent. *: See Table 2.A. .. TAkBLE 5.B Not Nominal Protection and Effective Subsidy: Industry Groups Nominal Protection Effective Slubsidy Industry Group Tariff Nominal- Ralassa Corden Dom Aver Dom Ave Exp Dom Aver EXp Dom Aver I Agriculture, Forestry, & Fishing 25.1 24.6 7.2 6.8 -17.8 11.9 11.5 -17.0 11.5 11.1 IV Mining & Energy 2. 0.4 -0.3 -2,0 -6.6 - 4 .7 _-5_.1 5.9 -4.2 -4. Primary Production, Total 23.8 22.9 6.7 6.2 -11.5 11.0 10.4 -10.6 10.6 10.0 II Processed Food 48.0 43.6 -5.7 -6.0 -8.2 -33.0 -31.1 -6.7 -26.4 -24.9 III Beverages & Tobacco 120.5 115,.7 -6.3 -6.4 3.6 -33.4 -31.9 3.2 -27.4 -26.3 V Construction Materials 21.1 19.5 -4.8 -5.0 -5.7 -25.8 -24.9 -4.4 -20.2 -19.5 VI-A Intermediate Products I 25.1 20.0 -5.8 -6.2 24.4 -37.5 -30.7 15.4 -28.4 -22.8 VI-B Intermediate Products II 45.4 40.6 10.9 9.1 3.2 5.2 5.0 2.2 3.6 3.5 VII Nondurable Consumer Goods 76.2 53.9 2.4 -0.5 -5.9 -29.1 -23.8 -4.6 -22.8 -18.7 VIII Consumer Durables 81.6 63.4 26.8 19.7 -10.4 20.4 14.5 -7.0 13.3 9.5 Ix Machinery 39.8 36.6 19.0 17.2 -15.8 15.6 14.8 -6.6 10.9 10.1 X Transport Equipment 48.8 48.2 A41.9 4LA 1195* 1 2 119.4 -13,5 65.6 65,2 Manufacturing, Total 53.6 45.5 2.8 1.4 -0.3 -19.1 -16.9 -0.2 -14.4 -12.7 All Industries 41.4 36.9 4.4 3.2 -3.1 -0.5 -0.7 -2.4 -0.5 -0.6 Manufacturing, Excl. Bev. & Tob. 47.1 39.5 3.7 2.0 -0.4 -17.5 -15.5 -0.3 -13.1 -11.5 All Industries, Excl. Bev. & Tob. 37.0 32.8 5.0 3.7 -3.3 0.7 0.5 -2.5 0.6 0.4 Source: Based on figures given in Annex Table 2.B. Units: In percent. *: Se Table 2.A. C' TABLE 6.A Net Nominal and Effective Protection: Commodity Categories Nominal Protection Effective Protection Commodity Category Tariff Nominal Balassa Corden Dom Aver Dom Ave Exp Dom Ave Exp Dom Ave A. Export Industries Primary Activities -3.1 -7.1 -11.6 -15.3 -20.5 -21.7 -20.8 -19.0 -19.4 -19.1 Manufacturing 68 0 40. 1.0 - - 26. -2.0.3 - L3 -a2.2 - Total 66.7 38.5 -1.2 -4.2 -9.9 -26.4 -20.4 -7.8 -21.2 -16.1 B. Import Competing Industries Primary Activities 12.6 12.5 34.2 34.1 -8.8 53.8 53.7 -8.6 52.7 52.5 Manufacturing 43-3 42.4 21.1 20.5 24.1 65.5 64.3 337. Total 35.7 35.1 24.3 23.8 -22.0 59.4 58.8 -11.7 44.1 43.5 C. Non-Import Competing Industries Primary Activities 25.2 24.8 3.9 3.8 -8.5 3.4 3.3 -7.9 3.3 3.2 Manufacturing 51. 50.3 -317 -3.8 -10.9 -25.3 -25.0 -9.0 -99 1. Total 37.7 37.0 0.3 0.1 -9.7 -5.4 -5.5 -8.5 -4.9 -4.9 D. Export & Import Competing Industries Primary Activities -6.5 -7.3 4.0 -1.5 -10.8 1.7 -4.5 -9.5 1.4 -3.8 Manufacturing 60.9 34.0 26.3 128 -14. 51. 26.9 -9.6 33.8 17. Total 58.2 32.2 25.4 12.2 -13.9 46.9 23.7 -9.6 31.6 16.1 E. All Industries Primary Activities 23.8 22.9 6.7 6.2 -16.0 7.6 6.9 -14.8 7.3 6.7 Manufacturing 53.6 45.5 2.8 _LA4 -. 6 -12.4 -12.0 -. 4A -9.3 -9.0 Total 41.4 36.9 4.4 3.2 -10.4 -0.1 -0.7 -8.1 -0.1 -0.6 Source: Based on figures given in Annex Table 2.A. Units: In percent. o C,. TABLE 6.B N-t Nominal Protection and Effuctive Subsidy: Commodity Categories Nominal Protection Effectiv,? Subsidy Commodity Category Tariff Nominal Balassa Corden Dom Aver Dom Aver Exp Dom Aver Exp Dom Aver A.R,-nExpo TnAiiftriee -3.1 -7.1 -11.6 -15.3 -17.5 -28.8 -20.3 -16.2 -25.8 -18.7 Primary Activities Manufacturing 68. 40 -1. -3.6 0.8 -33.9 -22.7 0-. -221-0 --1- 66.7 38.5 -1.2 -4.2 -3.1 -33.7 -22.4 -2.4 -27.0 -17.8 Total B. Import Competing Industries 12.6 12.5 34.2 34.1 -4.3 60.9 60.8 -4.2 59.6 59.5 Primary Activities 433 42.4 21.- 20.5 12.4 64.1 63. 6.J1 376 37.1 Manufacturing 35.7 35.1 24.3 23.8 10.1 62.4 62.0 5.3 46.4 45.9 Total C. Non-Import Competing Industries Primary Activities 25.2 24.8 3.9 3.8 -1.0 6.6 6.5 -0.9 6.3 6A3 Manufacturing 51. 50.3 -3.72 -3.8 -4.6 -32.4 -31.8 -3.B -25.-5 -25 37.7 37.0 0.3 0.1 -2.8 -5.4 -5.4 -2.4 -4.9 -4.8 Total D. Export & Import Competing Industries -6.5 -7.3 4.0 -1.5 -6.8 5.1 -0.7 -6.0 4.2 -0.6 Primary Activities 34. 26.3 i0 128 -A.9 35.4 20.6 -,3 '23.5 13.7 Manufacturing 58.2 32.2 25.4 12.2 -5.1 32.9 18.4 -3.6 22.2 12.5 Total E. All Industries 23.8 22.9 6.7 6.2 -11.5 11.0 10.4 -10.6 '10.6 10.0 Primary Activities Manufacturing 53. 45.5 2.8 -. 4 -0.f3 -19-.1 _16.9 -14.4 -12 41.4 36.9 4.4 3.2 -3.1 -0.5 -0.7 -2.4 -0.5 -0.6 Total Source: Based on figures given in Annex Table 2.B. Units: In percent. Korea: 3-66 comparatively good performance of Korea's agricultural sector, for which the trend rate of growth of real output over the past 20 years has been around four percent. The point is rather that massive investment in land improvement, irrigation, and mechanization would be required to increase I/I agricultural output at a more rapid pace. Korea's lack of comparative advantage in grain production is explained by its limited and rather poor arable land base and adverse climatic conditions which preclude the double cropping of rice. (In those parts of the country where double cropping is practiced, the winter crop is typically barley and the summer crop rice.) As regards the mining sector, where Korea appears to have a modest comparative advantage, we have previously noted that its advantage in a number of minerals is disappearing through the exhaustion of higher grade ore bodies. Within manufacturing, Korea's static comparative advantage appears to lie in Beverages and Tobacco, Processed Food, low level Intermediate Products, Construction Materials, and Nondurable Consumer Goods, all of which have average net effective subsidy rates between -32 and -23 percent. Export and non-import competing sectors predominate in these industrial groups, whereas 1/ The performance of Korea's agricultural sector is analyzed in Cole and Lyman (1971), Part 2; Kuznets (1977), Chapter 5; and Ranis (1971). The latter takes a strong dissenting position that the sector's performance has been seriously retarded by a sub-optimal balance in the government's allocation of resources between industry and agriculture. He argues, for example, that agricultural price policies have in the past been aimed at ex post income redistribution rather than toward providing incentives for increased output, and that, by comparison with Taiwan and Japan, insufficieit resources have been directed to improving rural infrastructure (including marketing and credit facilities) and to the development and diffusion of new technologies. However, Ranis fails to provide hard evidence that the rate of return to further investment in agriculture and its supporting infra- structure is higher than the marginal rate of return to investment in industry. Other observers would agree that the government's agricultural policies could have been improved, but would dispute that large gains in national income would have resulted from such improvements as should have been made. Korea: 3-67 import competing sectors predominate in the remaining manufacturing groups where the domestic resource cost of producing a dollar's worth of value added (at world prices) exceeds the free trade exchange rate. Korea's com- parative disadvantage is apparently greatest in Transport Equipment, which has a net effective subsidy rate of 119 percent. The average resource cost of a dollar in the export industries is 22 percent less than the free trade exchange rate. Primary export commodities, chiefly minerals, and manufactured export commodities appear to be produced with equal comparative efficiency. Viewed from a static perspective, the cbmestic resource cost of import substitution for import competing products is quite high, 'being more than 60 percent above the free trade exchange rate. This is however an average figure, and domestic resource cost appears to be less than the free trade exchange rate for a number of import competing commodities, including various types of machinery, glass products, paper & paperboard, and metal. constructiorn products, while it is only marginally higher for pulp, dairy products, and other chemical products. Moreover, Korea's comparative disadvanl:age appears to be substantially less in those import c ompeting industries which are also exporters. Most non-imaport 'competing primary products are agricultural goods in which Korea has an apparent comparative disadvantage. Manufactured non- import competing products, on the other hand, appear on average to be produced with even greater coimparative efficiency than are exports. Among these products, Korea's static comparative advantage appears to be quite high in cotton yarn;, wood products, printing & publishing, leather shoes, tires & tubes, drugs, clay & concrete products, and synthetic resin products, among others. Korea: 3-68 As might be expected, Korea's exports of the products listed have grown substantially since 1968. Turning now to the structure of incentives in the domestic market, ore finds that it corresponds closely to that of incentives to total sales. This is of course to be expected given the large share of domestic in total sales. Absolute incentives in the domestic market are somewhat higher than those to total sales in the case of primary commodities anid manufactured products in which Korea lacks an apparent comparative advantage, though on balance domestic sales of manufactures receive less incentive than do total sales. The structure of incentives on the domestic market is largely determined by nominal protection, though low tax rates on primary producers' income substantially increase the relative disincentive to domestic sales in all manufacturing industries. Credit preferences to manufacturing fail to offset this. Exports are on balance slightly discriminated against in absolute terms, for the net effective subsidy rate on total exports is -3.1 percent. There is however an important difference between primary and manufactured exports in this regard. Subsidies to primary exports are relatively unimpor- tant and primary exports are further discriminated against by currency over- valuation, hence they receive a substantial negative net effective subsidy. For manufactured exports, however, subsidies are on average just sufficient to offset the over-valuation of the won, leaving the net effective subsidy rate virtually nil. Furthermore, in relative terms, exports rather than domestic sales are favored in manufacturing as a whole, while the obverse result holds for primary production: average net effective subsidy rates on exports and on domestic sales are respectively -0.3 and -19 percent in manufacturing and -11 Korea: 3-69 and 11 percent in primary production. The export incentive bias within manufacturing results from direct tax and credit preferences to exporters. The extent cf absolute discrimination against mineral exports (-6.6 percent) is less than against agricultural exports (-17 percent), in part because the former benefit from rebates on transportation charges while an export tax is levied on ginseng, an important agricultural export. The degree of relative discrimination against agricultural exports is further magnified by nominal protection on the domestic market. Within manufacturing, there is an absolute preference for exports in the case of Beverages & Tobacco and Intermediate Products, but protection on domestic sales leads to a slight relative preference for these in the case of higher order Intermediate Products. Exports within the other manufactured groups receive average net effective subsidy rates of between -5 .7 and -95 percent, with an incentive bias toward domestic sales in Consumer Durables, Machinery, and Transport Equipment. Among trade categories, both primary and manufactured export commodities receive a relative incentive to export sales, even though the former receive an absolute disincentive and the latter obtain almost no absolute preference. All other primary trade categories receive a relative incentive to domestic sales, while (excepting export products) only non- import competing commodities within manufacturing demonstates an export in- centive bias. In general, an export incentive bias exists only where the domestic resource cost: of production is less than the free trade exchange rate and results not from explicit export subsidies but from low i.ncentives to domestic sales. The relative incentive to exports in which Korea has a static comparative advantage may thus be traced to the low degree of currency over- Korea: 3-70 1/ valuation. Had these products had higher nominal protection on the domestic market, with the won being more highly over-valued, their export would have benefited rather less from the incentive system unless explicit export subsidies were increased. Explicit export subsidies in the form of wastage allowances and direct tax and credit preferences, on the other hand, are important only with respect to exports in which Korea does not appear to have a static comparative advantage; and, though they often result in an absolute export incentive, the incentive bias generally remains in the direction of domestic sales due to high nominal protection. However, because of institutional factors within the operation of the Korean incentive policy system, high incentives to domestic sales must in many cases be regarded, 2/ at least in part, as an incentive to exports. l/ One must also add that inputs to export activity may be imported tariff and tax free and that there are no indirect taxes on export sales. 2/ See Section 3.5 for the details of this argument. Korea: 4-1 4. Examination of Structural Changes The objective of this study is not merely to describe the Korean incentive system but. to assess its impact on the direction and efficiency of resource allocation. Thus the present section analyzes the structural changes that have accompanied Korea's development. In doing so, we will carry the study forwrard to 1975. T'he chapter begins by reviewing the salient features of Korea's export perf'ormance. Next the relationship between the expansion of trade and industrial growth is examined, first by comparing Korea's overall economic structure with the average for countries of comparable size and level of development, and then by examining changes in the structures of Korean trade and production. The latter invo:Lves presenting estimates of the contributions of export expansion and import substitution to Korea's industrial development. There then follows an examination of the evidence that the allocation of resources resulting.from Korea's having followed an export-led strategy has been generally efficient. This evidence pertains to the relative factor intensities of exports and imports and the rapid increase over time in the intensity of factor utilization. The section concludes by analyzing the relationship between incentives and the observed structural changes. 4.1 Export Performance Korea's export performance has been remarkable not simply for the rapid growth of exports. Other dimensions touched on in the following include the diversification of exports, by composition and destination, and the possible importance of unique factors in explaining the rapid growth of Korea's exports. Korea: 4-2 Extort Composition As showvn in Table G, more than half of Korea's foreign exchange receipts from current transactions in 1960 were earned on government transactions, of which military procurement was the single largest item. Military procurement consists largely of services, with construction being particularly important. Sales of won (for personal use) to resident UN military personnel are also classified under government transactions and make up the second largest item under this heading. Mterchandise exports, which accounted for only 44 percent of total exports in 1960, were dominated by primary products. By 1975, government transactions were the source of less than three percent of foreign exchange earnings. In turn, the share of merchandise in total exports had reached 91 percent, while that of manufactured products grew to 74 percent. Though foreign exchange earnings in current dollars expanded more than 50 times over these 15 years, manufactured exports expanded over 900 times; a rate of growth averaging more than 55 percent per annum.- Admittedly, the growth of manufactured exports started from a very small base, but it continued at a rapid pace after manufactured exports had reached a substantial percentage of output. Thus exports accounted for more than 25 percent of the increase in manufactured output between 1970 and 1975, whereas 2/ the share of exports in manufacturing output in 1970 had been only 13 percent. 1/ The expansion of manufactured exports is calculated from data in Table H. 2/ These estimates are made on the basis of the data underlying Table A. Korea: L-3 TABLE G Exports of Goods and Services 1960 1965 1970 1975 A. In Billion Won at Current Prices Exports of Goods and Non-Factor Services 8.2 68.6 381.2 2,730.3 (Gross) Factor Income from Rest of World 1.9 8.3 47.1 99.2 B. Percentage Shares in Exports of Goods and Non-Factor Services at Current Prices MIerchandise 4h.0% 69.7% 75.2% 90.5% Primary Eroducts 38.0 27.3 17.0 16.7 Manufactured Products 6.o 42.4 5C.2 73.8 Services 56.o 30.3 24.8 9.5 C. In Million Dollars at Current Prices Foreign Exchange Receipts from Current Transactions 111.8 298.0 1,306.7 5,909.7 D. Percentage Shares in Foreign Exchange Receipts from Current Transactions, at Current Prices Visible Exports 29.0 57.8% 62.4% 83.2% Invisible exports 71.0 42.2 37.6 16.8 Receipts from Government Transactions-/ 56.3 25.3 20.0 2.7 1M1i'litary Procurement2/ 36.9 13.h 10.6 - Won Sales to UN Military Personnel 19.1 11.5 h.0 - 1/ Includes nonmilitary transactions as well as military procurement and won sales to UN mi:Litary personnel. 2/ Includes U.S. offshore procuremnent related to the Vietnam War; also includes sales of electricity, water, and transport and communication services to the UN military command. Source: A and B are 'based on national income accounting data found in Bank of Korea, National Income in Korea, 1975, and Economic Statistics Yearbook, 1976. C and D are based on foreign exchange settlements data found in various issuss of Bank of Korea, Economic Statistics Yearbook. Note: There are differences in statistical sources, coverage, and the times at which various transactions are recorded between the national income and foreign exchange settlements data; also, the former are in domestic currency values while tiae latter are in U.S. dollar values. Thus, at the official exchange rate, merchandise exports do not exactly correspond in current prices to visible exports, nor does the sum of non-factor service exports plus i'actor income from abroad equal invisible exports. Korea: 4-4 The increasing diversification of Korea's merchandise exports over time may be seen in Table H, while the following discussion is based on somewhat more detailed statistics. The most important items in Korea's merchandise exports in 1960 were primary products, including (in order of their importance) metallic ores, rice, crude animal and vegetable materials, fish, and dried seaweed. Woven cotton fabrics constituted more than half of exported manufactures, which in turn accounted for less than lh percent of total commodity exports. The share of manufactures reached slightly more than 50 percent by 1965. Clothing, plywood, woven cotton fabrics, and plates and sheets of iron and steel each accounted for more than five percent of commodity exports in that year. By 1970, clothing had grown to more than a quarter of Korea's exports of goods, plywood and textile fabrics were each more than than ten percent, and electronics were approaching five percent. In turn, the ability of Korean entrepreneurs to respond aggressively to world market trends is exemplified in the rapid rise of wig exports from nil in 1960 to about 12 percent of commodity exports in 1970. These exports declined in importance, falling to one and a half percent of exports in 1975, as the spotlight of fashion turned away from wigs and false eyelashes and new Korean exports developed. Korea's exports in 1975 were well diversified in comparison with those of other developing economies. Exports exceeded one hundred million U.S. dollars for each of the following items in that year (listed in order of importance): woven textile fabrics (of which cotton fabrics were less than ten percent), electrical machinery and appliances (including electronics), miscellaneous manu- factures, fish, plates and sheets of iron and steel, veneer sheets and plywood, footwear, transport equipment (largely shipbuilding, plus rolling stock) clothing, manufactures of metal, and nonmetallic mineral manufactures. Together, exports TABUE H The Cocmosition of Merchandise Exports 1960 1965 1970 1975 Value fercent Value Percent Value Percent Value Percent Pood and Live Animals (0) 9.7 29.6 28.2 16.1 65.6 7.9 602.3 11.9 Beverages and Tobacco (1) .5 1.5 .9 .5 14.2 1.7 67.6 1.3 Inedible Crude Materials (2) 15.8 48.2 37.0 21.1 100.0 12.0 150.5 3.0 Mineral Fuels (3) 1.1 3.3 1.9 1.1 8.7 1.0 104.5 2.1 Animal and Vegetable Oils and Fats (4) .2 .6 .1 .1 .1 .0+ .9 .0+ Chemicals (5) .4 1.2 .4 .2 11.4 1.4 74.8 i-5 X=-actureU Couu by M.aerial (6) 3.9 31.9 66.4 37.9 220.9 26.4 1,484.6 29.2 Wood and Cork Products (63) - - 18.2 10.4 93.5 11.2 227.6 4.5 Textiles (65) - - 10.5 6.o 84.9 10.2 648.9 12.8 Nonmetallic Mineral Manufactures (66) - - 2.8 1.6 6.5 .8 106.8 2.1 Iron and Steel (67) - - 12.7 7.3 13.4 1.6 231.5 4.6 Manufactures of Metal (69) - - 2.2 1.3 12.2 __5 124.1 2.- Machinery and Transport Equipment (7) .1 .3 5.5 3.1 61.5 7.4 702.1 13.8 Electrical Machinery and Appliances (72) - - 1.9 1.1 43.9 5.3 441.6 8.7 Transport Equipment (73) - - 1.1 .6 9.2 1.1 183.7 3.6 Miscellaneous Manufactured Articles (8) .1 .3 34.5 19.7 352.5 42.2 1,882.6 37.1 Clothing (84) - - 20.7 11.8 213.6 25.6 1,148.2 22.6 Footwear (85) - - 4.1 2.3 17.3 2.1 191.2 3.8 Miscellaneous (89) - - 8.9 5.1 1l4.l 13.7 383.6 7.5 Human Hair and Wigs (89995) - - 6.8 3.9 101.1 12.1 75.3 1.5 Unclassified (9) 1.0 3.0 .2 .1 .4 °+ 11.1 .2 TOTAL 32.8 100.0 175.1 100.0 835.2 100.0 5,081.0 100.0 Source: Bank of Korea, Economic Statistics Yearbook, various issues. w 0 Notes: The figures shown here are based on customs clearance data and thus exclude exports not cleared through b customs, such as sales of goods to military forces overseas and offshore sales of fish. Values are in millions of current U.S. dollars. Totals may not reconcile due to round-off error. Numbers in parentheses are SITC Codes. Korea: 4-6 of primary products included in SITC categories 0 through 3, which had represented more than 80 percent of commodity exports in 1960, accounted for only 18 percent of total exports. Nonetheless, the value of these exports increased from less than $30 million in 1960 to $925 million in 1975. As is shown in Table I, the destinations of Korea's exports broadened as manufactured exports grew. Japan's share fell from nearly two thirds in 1960 to one fourth in 1975, while the share of the United States rose from nearly seven percent in 1960 to almost 50 percent in 1970 before falling to 30 percent in 1975. In turn, Korea's exports to Europe and the rest of the world increased faster than the overall total, with those to the Middle East rising particularly fast after 1973. TABLE I The Destination of Merchandise Exports 1960 1965 1970 1975 Value Percent Value Percent Value Percent Value Percent United States 2.2 6.7 61.6 35.2 395.0 47.3 1,536.3 30.2 Japan 20.8 63.4 43.9 25.1 233.9 28.0 1,292.9 25.4 Europe 4.6 14.1 21.4 12.2 76.o 9.1 936.7 18.4 Other Asia 3.8 11.6 h.8 23.9 81.8 9.8 760.0 14.9 Rest of World 1.4 4.3 6.3 3.6 47.6 5.7 555.2 10.9 TOTAL 32.8 100.0 175.1 100.0 835.2 100.0 5,081.0 100.0 Source: Bank of Korea, Economic Statistics Yearbook, various issues. Notes: See notes to Table H. Korea: 4-7 Unique Factors Possibly Explaining Export Growth The decline in the combined shares of the United States and Japan from 70 percent in 1960 to 56 percent in 1975 conflicts with the oft-observed tendency among those unfamiliar with its details to ascribe Korea's success as an exporter to its special relationship with the United States and Japan. At any rate, the rapi.d expansion of exports to these countries cannot be ascribed to preferent:ial treatment.. Korea's relationship wit.h the United States obviously increased its foreign exchange earnings through expenditures stemming from the stationing of UN forces in Korea and, during the war in Vietnam, from offshore procurement by the United States. While militarily related expenditures (shown under "receipts from goverrment transactions" in Table G) in the past accounted for a sizable fraction oi- Korea's foreign exchange earnings, the share of these expenditures in total. earnings has fallen steadily over time, and was less than three percent br 1975.. Thus, only a small fraction of the growth in total export earnings between 1960 and 1975 was contributed by militarily 1/ related expenditures. Furthermore, the merchandise component of these expenditures, which :Lncluded U.S. offshore military procurement for the war in Vietnam for which Korean exporters were granted eligibility, has always been well below one half of the total. With the exception just noted, neither the United States nor Japan have granted special preferences unavailable to other developing countries' exporters. 1/ Receipts from goverrnment transactions peaked in 1969, at slightly over $275 million, when militarilyr related expenditures were nearly $210 million, the largest figure they ever reached. Offshore procurement in Korea for the Vietnai- War achieved its highest level, $6L million, in 1971. Korea: 4-8 And, while Korean exporters may have benefited from more subtle forms of pre- ferential treatment, for example in the allocation of import quotas on textiles by the Unites States, it is not known whether this is so. In any event, Korea's rapid diversification away from textile exports reduces the relevance of this possibility in explaining the growth of its exports. It has also been suggested that Korea's exports have benefitted from commercial relationships (e.g., direct foreign investment, subcontracting) fostered by its close ties to the United States and Japan. But, while Korea 1/ has relied extensively on foreign savings to finance investment, most of the private capital inflow has been in the form of commercial loans, 1/ Legislation controlling nongrant foreign capital inflows was first passed in 1960, making all foreign loans and investment proposals subject to government approval by a committee chaired by the Minister of the Economic Planning Board. (A similar mechanism had operated earlier in the alloca- tion of grant assistance; however, it was not as directly tied to formal planning activity.) Preferences, including a rather standard package of tax concessions for direct foreign investment, were simultaneously estab- lished to stimulate the inflow of foreign capital and technology, while limits on equity investment and profit remittances by foreign investors were completely removed in 1966. The relatively low volume of direct foreign investment in Korea during the 1960s is commonly explained either by the uncertainties of its political situation or, more plausibly, by purposeful administrative tactics that were apparently relaxed in the early 1970s; it was not due to the lack of legislated inducements. Korea: 4-9 a varying but substantial share of which have been short-term credits of one to three years' maturity.-/ Between 1966 and 1971, direct foreign investment averaged less than :our percent of total foreign capital inflows. Cumulative direct foreign investment in Korea prior to 1970 was appreciably less than $100 million in current prices. Assuming that all of this investment went into the nanufactur:ing sector and combining this figure with the capital stock data given in Table R below indicates that no more than five percent of the capital stock in manufacturing in 1970 was financed by direct foreign investment. In turn, Cohen (1973) estimates that "foreign" firms (i.e., those with any foreign equity participation) were responsible for only a small fractibn of Korea's exports: 11 percent in 1970 and 14 percent in 1971. T'his situation has changed somewhat since 1971, as the share of direct foreign investment in total foreign capital inflows rose to an average of nearly 20 percent in the following four years. This was largely due to Japanese investment permitted by the relaxation of the Japanese government's control over foreign capital outflows and stimulated by rising wages and environmental contrDls at home. The cumulative direct foreign capital inflow from 1970 to 1975 totals'in the neighborhood of $700 million, or roughly 1/ The ratio of imports minus exports to investment averaged 56.4 percent between 10.55 and 1975; the ratio of this difference to GNP averaged 9.6 percen-t. During the 1950s and early 1960s, Korea's continuing trade deficit was almost wholly financed by grant aid from the UTNiand the United States. It was not until the mid-sixties that foreign borrowing became important, but once started it assumed large proportions. In 1966, on an arrivals basis, official grants were roughly equal in volume to foreign loans- by 1970, the volume of the latter was more than five times the size of the former, while less than half of the loan arrivals were from government and multilateral sources. Most of the private foreign loans flowing into Korea have come from Japan, the United States, and Western Europe; many, but by no means all, have been suppliers' credits of one form or another. For further information, see Frank, Kim, and Westphal (1975), Chapter 7. Korea: 4-10 17 percent of total manufacturing investment over this period. We were unfortunately unable to obtain estimates of the share of foreign firms in Korea's total exports for more recent years. It was not until 1970 that Korea established its first free trade zone explicitly designed to attract direct foreign participation in exports. Up to mid-1973, total exports from firms located in this zone cumulated to only $20 million.-/ More than two thirds of t-hese exports came from electrical machinery and appliance producers, most of whom were involved in offshore electronics assembly. In fact, foreign firms have dominated Korea's electronics exports from the start. In 1972, for example, wiholly owned foreign subsidiaries accounted for 34 percent of total electronics production in Korea and 54 percent of the industry's exports; the respective figures for joint ventures were 20 and 13 percent.3/ However, electronics is an atypical case in respect to the degree of foreign participation in Korea's 4/ exports. There has been very little research into the marketing channels employed or the entrepreneurial activity involved in developing Korea's exports. Thus, for example, one cannot say what proportion of Korea's exports has taken place through international subcontracting arrangements not 1/ The foregoing information on direct foreign capital inflows is based on Frank, Kim, and Westphal (1975) and Hasan (1976), as well as various statistical publications of the Bank of Korea and the Economic Planning Board. 2/ Figures in 1973 dollars from Choe (1975). 3/ S. C. Suh (1975). 4/ Cohen (1973) gives an interesting statistic in this regard. He surveyed exporters of transistors, radios, cotton cloth, cotton yarn, baseball gloves, and wigs and found that Korean companies had initiated exports prior to the arrival of foreign firms in five out of these six products. Korea: 14-11 linled to direct fore'gn investment. Nor can one do more than speculate whether Koreans derived unique benefits from their extensive contact with foreigners during and after the Korean War. In some cases this seems likely. For example, an explanati,wn of the current success of Korean construction firms being awarded major construction contracts in the Middle East would be incomplete without reference to the learning-by-doing gained through earlier contracts under military procurement in both Korea and Vietnam. But such factors should not detract from what is evident to anyone who has come into contact with Korean exporters,. that they are both aggressive and successful in seeking and exploiting opportu- nities for profitable export. In this respect, one certainly cannot explain Koreats success as an exporter of manufactures without reference to the efforts of its entrepreneurs or the incentive policies under which they operate. 4.2 Comparison with Average Development Patterns Before turning to a detailed examination of how the changing magnitude and composition of trade has affected Korea's industrialization, it is instructive to compare its experience as reflected in aggregate magnitudes with that of other deveLoping countries. The atypically low share of exports in Korea's GNP observed in the 1950s suggests that the growth of its exports may be interpreted quite simply in terms of catching up to the international "norm." If true, this would make the Korean case somewhat less interesting, as it could not then be claimed to typify an export-led industrialization strategy. What is needed is a comparison of Korea's economic structure with those of other countries of similar size and level of overall development. It is not very useful to do this directly, however, for there are very few countries in the world that are similar to Korea in these respects. A more Korea: 4-12 useful, albeit indirect, comparison can be made using the results of cross- country regression analysis aimed at determining the average, or "norm," economic structure at different levels of development and according to country size. The most recent comparative study of changes in economic structure is that of Chenery and Syrquin (1975), where pooled cross section and time series data are used to estimate regressions from which average structural shares nay be inferred. Based on this study, Table J compares structural norms applicable to Korea for 1955, 1966, and 1972 with the historically observed structural shares. (Nineteen seventy-two is used rather than a later year to avoid the possibly distorting effects of the world boom in 1973 and the subsequent effects of the increase in oil prices). Two sets of norm estimates are given: the first uses Korean values of per capita income, population, and the ratio of the current account balance of payments deficit to total domestic resources to calculate the norms from cross-country regressions in which these variables appear as explanatory factors;L/ the second also uses Korean values of per capita income and population but arbitrarily assumes that the capital inflow ratio is zero. Differences between these sets of norms reflect the effects of the unusually high foreign capital inflows observed in Korea. With its population of 32.4 million 1/ The explanatory variables in the estimating regressions include: the log of per capita income and its value squared, the log of population and its value squared, the ratio of the foreign capital inflow to total domestic resources, and three dummy variables corresponding to three different time periods. Total domestic resources is equal to GNP plus imports minus exports. Under the classification employed by Chenery and Syrquin, "industry" equals what we classify below as manufacturing plus construction plus other, and "utilities" equals social overhead less construction. The data given in Table J for Korea are consistent with the Chenery and Syrquin definitions; they are taken from the current price national income accounts. Korea: 4-13 TABLE J Observed and Average Economic Structure A. Observed Structural Shares in Koreal/ 1955 1968 1972 1. Per Capita Income $79 $13319 2. Capital Inflow Ratio 7.7r. i1.8% 4.9% 3. Share of Investment in GDP 12.0 27.1 20.8 4. Share of Exports Ln GDP 1.7 13.3 21.0 5. Share of Mfg. Exports in CDP .4 9.3 17.6 6. Imports as Percent: of GDP 10.0 26.5 26.1 7. Primary Share of GDP 48.0 33.2 32.0 8. Industry Share of GDP 13.0 2h.1 26.0 9. Utilities Share oi.CDP 3.5 7.7 7.5 10. Services Share of GDP 35.5 35.0 34.5 B. Structural Norms-/ Actual Capital Inflow Zero Capital Inflow Per Capita [ncome $79 $133 $179 $79 $133 $179 Large Countries Share of Investment in GDP 14.4% 19.9% 20.2% 12.8% 17.5% 19.2% Share of Exports in GDP 9.8 5.7 10.8 16.0 15.3 14.8 Share of Mfg. Exports in GDP 1.4 3.1 2.9 .5 1.7 2.3 Imports as Percent of GDP 17.6 17.7 15.8 16.1 15.3 14.8 Primary Share of GDI' 52.8 35.1 33.5 55.4 39.2 35.3 Industry Share of GDP 14.4 23.5 24.9 11.7 19.3 23.1 Utilities Share of GOP 5.2 6.2 7.1 5.6 6.8 7.4 Large Manufacturing Countries Share of Investment in GDP 10.3% 18.1% 23,1% 12.2% 21.1% 24.3% Share of Exports in GDP 8.1 9.0 10.9 9.9 11.8 12.0 Imports as Percent of GDP 15.3 20.8 15.8 9.9 11.8 12.0 Primary Share of CDI' 51.7 39.8 33.5 51.1 38.9 33.1 Industry Share of GDP 17.0 19.2 24.4 19.2 22.6 25.8 Utilities Share of CDP 2.9 6.5 8.2 3.4 7.3 8.5 1/ Sources: Line 1: For 1955 through 1968, GNP in 1965 prices from Bank of Korea, National Income Statistics Yearbook, 1971; divided by mid-year pop- ulation estimates from Bank of Korea, Economic Statistics Yearbook, 1971, to get per capita GNP in 1965 won. An exchange rate of 278.7 won per dollar was used, equal to the legal exchange rate times our estimate of average nominal protection in 1965. The estimate for 1972 was derived from that for 1968, the ratio of 1972 GNP to 1968 GNP (both in 1970 prices), and the ratio of mid-year population in 1972 to that in 1968. The sources for the latter were respectively the August, 1973 Monthly Economic Statistics published by the Bank of Korea and the Economic Statistics Yearbook for 1973. Lines 2-4, 6: Bank of Korea, Monthly Economic Statistics, August, 1973 Table 91 (at current market prices). The capital inflow ratio equals imports minus exports di-vided by aNP plus imports minus exports. Line 5: For 1955 through 1968, current price input-output data. For 1972, derivod fron trade statistics. Lines 7-10: Bank of Korea, Economic Statistics'Yearbook, 1973, Table 144 (Industrial nrigin.of GDP at current factor cost). 2/See the discussion in the text for the source of these estimates. Note that Chenery and Syrquin. do not provide a regression equation for the share of manufactured exports in GDP for large manufactuiring countries. Korea: 4-14 in 1972, Korea falls in the large country (LC) and large manufacturing country (1nC) samples identified by Chenery and Syrquin; thus estimates from the regressions over both samples are given. Korea's economic structure in 1955 differed significantly from both the large country and large manufacturing ccuntry averages. The most striking difference is the very low share of exports in gross domestic product (GDP), though the share of imports was also relatively low. By 1968 these structural differences had been reversed, and export and import shares were significantly above the averages for a country with Korea's capital inflow. The economy grew increasingly open through 1972, when Korea's export share was 21 percent, compared with the LC and NIC averages of about 11 percent. Particularly striking is the growth of manufactured exports, which rose from 0.4 to 18 percent of GDP, wqhereas the average variation for large countries would be from 1.4 to 2.9 percent. Furthermore, exports were clearly not retarded by the relatively large supply of foreign exchange coming from capital inflows. While part of the rapid growth of Korea's trade can be explained in terms of "catching up" to more nearly normal magnitudes after the dislocations caused first by the partition and then by the Korean War, the relative magnitude of trade in the late 1960s and early 1970s stands out as being far larger than that typically experienced. While this may in part be explained by the fact that Korea's limited natural resource base requires it to export processed goods in order to import the raw materials required for sustained and rapid growth, the policies followed undoubtedly played a major role. Korea: 4-15 Korea-'s investment rate in 1955 was close to the average, but by 1968 it had climbed to 27 percent while the normal figure would have been around 20 percent. Nineteen sevrenty-two was, in relative terms, a recession year in Korea, which explains the investment rate's proximity in that year to the average for comparable countries; the investrment rate had averaged more than 2L percent from 1969 to 1971. Nor was Korea's abnormally high investment rate in the latter part of the period due solely to large foreign capital inflows, as domestic savings increased to a considerable extent. The share of primary production in Korea's total value added was less than average throughout the period, and declined somewhat faster than average. Nonetheless, agricultural output valued in world prices grew at a relatively high rate of 5.2 percent per annum between 1955 and 1966, when weather conditions were the same.-/ The share of industry in 1955 was somewhat below the average for both samples but it exceeded the averages in both 1968 and 1972. Here it should be noted that Korea's atypically rapid industrializa- tion occurred without ap-parent discrimination against agriculture in the structure of incentives policies (see Section 3.2 above). 4.3 The Changing Structure of Production and Trade The more detailed investigation of structural change that follows employs input-output analysis. It was completed prior to the publication of the input-output tables for 1970 and 1973, and so it is confined to the period from 1955 to 1963. However, summary figures through 1973 are presented for the contributions of export expansion an' :.mport substitution to growth. 1/ The figure comes from the data underlying Table L below. Korea: 4-16 The Input-Output Data Base Five input-output tables spanning the period 1955 through 1960 are available for Korea. That for 1955 was prepared especially for this study and gives information at a 29 sector level of detail.L/ Those for the remaining years -- 1960, 1963, 1966, and 1968 -- provide the information in a 117 sector breakdown..2/ Because of this difference, it is not possible to present the same information for all five years. In particular, aggregate statistics by industrial group and by trade category could not be tabulated for 1955. A study of structural change is most meaningfully conducted in terms of real, i.e. constant price, magnitudes; thus the current price input- output statistics were deflated to constant 1965 prices. A procedure often followed in other studies of this type is to deflate all magnitudes for a given year by the same index, say the GDP deflator. While this procedure does insure that, on average, changes over time are not misstated due to price level changes, it fails to take account of relative price changes.-/ 1/ The compilation of the 1955 input-output table was conducted under the supervision of lMr. Se Min Oh, Chief, Input-Output Research Section, Bank of Korea, and was financed by grants from the University Committee on Research in the Humanities and Social Sciences and the Council on International and Regional Studies, Princeton University. 2/ These were published in 1970 in mimeograph by the Bank of Korea in its Working Report on the 1968 Input-Output Table. The published tables dis- tinguish between competitive and noncompetitive imports, where the former are defined as imports of items that are produced domestically and the latter, as imports of items not produced in Korea in the year for which the table has been compiled. The list of items classed as noncompetitive changes from table to table. Failure to adjust the statistics for each year to a common list of non-competitive imports leads to a severe understatement of the amount of import substitution that has taken place, for much of Korea's import sub- stitution has come through introducing the production of formerly non-competitive imports (e.g., petroleum products). We have adjusted the data so that virtually all imports are treated as competitive. See Westphal and Kim (1977), Annex 3 -- "Reclassification of Noncompetitive Imports." 3/ The first half of the sentence is subject to qualification depending upon how intermediate inputs are handled. Korea: 4-17 Accompanying the pronounced shift in the structure of monetary magnitudes in Korea was an equally marked change in the relative price structure. To capture relative price changes, the current price statistics were deflated on the basi.s of a set of output deflators at the 117 sector level along with independent timle-series on the general wholesale price level, the wholesale price leveL of imported commodities, the price level of exports, and the relevant effective exchange rates on imports and exports. The resulting figures at constant domestic market prices incorporate -- insofar as possible given the limitations of the price indices -- changes over time both in the average price level and in the structure of relative prices.l/ The figures below show the effects of deflation to constant prices in terms of the shares of exports in total commodity production and imports in total commodity (doirestic) supply. Trade SIhares in Current and Constant 1965 Domestic Prices and in Constant 1965 World Prices 'Share of Exports in Total Commodity Output (%) 1955 1960 1963 1966 1968 Current Domestic Prices .7 -2*7 2.7 6.3 7T. Constant Domestic Prices 1.0 3.0 2.9 6.6 7.9 Constant World Prices 1.0 3.2 3.1 6.9 8.3 Share of Ilmports in Total Commodity (Domestic) Demand (%) 1955 1960 1963 1966 1968 Current Domestic Prices 11.3 15.5 15.0 1T6 20.1 Constant Domestic Prices 19.0 17.0 17.4 17.1 21.7 Constant World Drices 18.0 15.9 16.7 16.4 20.5 Nlote: The figures exclude scrap and unclassifiables. 1/ Westphal and Kimr.. (1977), Annex 5 -- "Deflation of Input-Output Accounts to Constant Domestic and World Market Prices," describes the deflation procecure in detail. It also indicates how a number of independent statistical series ( eg. , national income accounts, various price indices, the index of manufacturing output) can be systematically "filtered" through a time series of input-output statistics to check the consistency of a large body of economic data fcr a particular country. It further provides an extrapolation back in time of an index of nominal protection based on the 1968 nominal pro- tection rates arnd observed changes in domestic prices relative to export and import prices. Korea: 4-18 r.easurenent in current domestic prices yields lower t-;ade shares than those observed in constant 1965 pr.ces because the prices of imports and exports relative to the domestic price level were higher in 1965 than in any of the observation years. In this respect, the structure of prices was particularly distorted in 1955, a result of the high degree of currency over-valuation in the mid-1950s. Further deflation to constant world prices, to adjust for nominal urotection on domestic sales and tariffs on imports, raises the share of exports in output; its effect on the share of imports in demand depends upon which is higher on average, nominal protection on domestic sales or actual tariff rates on imports.i/ At constant world prices, the compound annual growth rates between 1955 and 1968 for primary, manufactured, and total commodity output were respectively 5.5, 14.0, and 9.8 percent. These growth rates are almost identical to those obtained using data in constant domestic prices, indicating that Korea's high growth rate as conventionally measured is not a statistical aberration to be explained by very high protection to the most rapidly growing sectors.2/ Moreover, since protection for primary activity has exceeded that for manufacturing (both nominal and effective), valuation in world prices 1/ Nominal rates of protection for 1965 were estimated by extrapolating those for 1968 back to 1965 using domestic and world price indices. See the reference cited in the previous footnote. 2/ Little, Scott, and Scitov-sky (1970), pp. 70-76, and Balassa and Associates (1971), pp. 32-34, found that measuring aggregate growth at constant world rather than domestic prices substantially lowers growth rates for a number of countries. This results from a positive correlation across sectors between protection and growth rates. These authors examine GDP growth rates rather than total commodity output growth rates and use effective protection measures for a single year to deflate value added to constant world prices rather than nominal protection measures for a single year to deflate output; otherwise the calculations are quite similar. Korea: 4-19 increases (but only slightly) the relative dontribution of manufacturing to overall growth.- The Composition of Doriestic Demand. Production, and Trade We now turn to examine the structure of production and trade at the beginning and end of the period. Our discussion-centers around Tables K, L, and 11, which provide data on the composition of domestic demand and production, and imports-and exports at the industry group and trade category level. The bottom third of each table also gives shares in economy-wide aggregates. The latter are in constant domestic prices because we do not have estimates corres- pondirng to constant world price data for production in the non-tradables sectors. The rest of the data are in cdnstant world prices. Nineteen fifty-five and 1966 were good crop years: weather conditions were exce'Llent in both years and they fall on the peak-to-peak logarithmic trend line of agricultural output from 1953 to 1975.-.. Thus, a comparison of the proportions of output contributed by the primary and the manufacturing sectors in 1955 and 1966 can be taken to reflect underlying secular trends. In turn, the share of the primary sectors in total output, imports, and consumption (the last due to quantitative import controls) in 1960 and 1968 is affected by the poor climatic conditions in these years. 1/ The contribution of the primary sectors to the growth of total commodity output between 1955 and 1960 was 26.3 percent in constant domestic prices and 25.c percent in constant world prices. Korea: 4-20 Structure of Domestic nemand and Producftion 1955 1960 1966 1968 Shares in total commodity domestic demand & production; e-nngtant- wnrld pri_Pes By Industrial Group: I. Agriculture, Forestry, & Fishing - - 43.1 46.8 40.0 41.8 31.5 32.8 IV. Mining & Energy - 1.8 2.72 2.0 2.7 1.8 2.4 Primary, Total 50.0 59.7 44.9 49.5 42.0 44.6 33.3 35.2 II. Processed Food - - 12.0 12.5 9.3 10.0 10.1 11.4 III. Beverages & Tobacco - - 5.4 6.1 5.1 5.9 5.4 6.4 V. Construction Materials - - .8 .9 1.5 1.7 1.9 2.2 VI-A. Intermediate Products I - - 10.2 8.9 12.3 12.6 14.5 15.0 VI-B. Intermediate Products II - - 14.3 11.9 13.7 11.7 15.8 13.6 VII. Nondurable Consumer Goods - - 9.0 8.0 7.6 9.8 7.4 10.8 VIII. Consumer Durables - - .8 .5 1.2 .9 1.7 1.4 IX. Machinery - - 1.8 1.0 4.2 .1.3 5.6 1.7 X. Transport Equipment - - 6 6 3.0 1 4 42 2.4A Manufacturing, Total 50.0 40.3 55.0 50.5 58.0 55.4 66.7 64.8 By Trade Category: X: Primary - - .2 1.0 .2 .7 .2 .6 Manufacturing - - 1Z 2 2. O 2.4 9 11.9 R.3 14i7 Total - - 10.9 12.9 9.6 14.6 8.5 15.3 IC: Primary - - 7.4 8.4 6.5 7.1 4.4 4.5 Manufacturing - - 12-S 6.9 17.5 92 0 23.3 12.7 Total 19.8 15.3 24.0 16.1 27.7 17.2 NIC: Primary - - 37.2 39.9 35.1 36.5 28.5 29.8 Manufacturing - - 281 29.n 27.9 29.5 31.3 34.5 Total - - 65.9 68.9 63.0 66.1 59.8 64.2 XIC: Primary - - .2 .3 .2 .3 .2 .2 Manufacturing - - 3.1 2.6 3.2 130 3.7 3.O Total - - 3.3 2.9 3.4 3.2 4.0 3.2 Shares in total domestic demand & production; constant dnme.tic~ prices Primary 34.0 38.1 29.6 32.2 28.0 28.1 22.6 22.4 Manufacturing& Other 36.8 28.2 40.0 35.0 41.5 38.6 49.6 46.0 Social Overhead 6.9 8.0 8.2 9.1 12.1 13.5 11.8 13.8 Services 22.3 25.6 22.2 23.6 18.3 19.8 16.1 17.8 Source: See Section 4.3 in the text. Notes: Totals may not reconcile due to round-off error. D, = domestic demand. Q = production. Korea: 4-21 TABLE L Mr>!de Shares and Growth Rates Ry Major Sectors 1955 1960 1966 196, Growth x .a _M X M m X X M RatgŽ At constant world p By Industrial Group: I. Agriculture, Forestry & Fishing - - 2.2 7.9 1.5 7.3 1.1 10.6 7.9 IV. Mining & Energy - - 29.1 S. 21.5 5..Q 2127 11.8 1f0. Primary, Total 1.1 2.1 3.7 7.9 2.7 7.2 2.5 10.7 8.1 II. Processed Food - - 2.6 12.4 6.4 9.0 5.6 7.8 11.6 III. Beverages & Tobacco - - 1.1 3.1 4.1 .2 2.9 .2 13.4 V. Construction Materials - - 3.1 8.5 5.7 7.5 5.2 4.1 26.4 VI-A. Intermediate Products I - - 1.7 25.2 12.0 19.0 13.6 22.6 20.4 VI-B. intermediate Products II - - 3.3 30.4 10.4 31.4 8.1 31.5 14.8 VII. Nondurable Consumer Goods - - 2.8 24.5 17.6 4.7 26.8 7.6 17.1 VIII. Consumer Durables - - .6 43.4 13.0 36.7 19.9 44.2 27.1 IX. Machinery - - 5.3 55.5 9.0 74.7 7.4 75.7 20.6 X. Transport Equipment - - Rl 6 2.5 59.E 1.1 51.7 33.0 Manufacturing, Totcal 1.0 33.9 2.6 22.4 10.3 23.0 11.4 25.3 16.4 All Commoditie!s 1.0 1.8.0 3.2 15.9 6.9 16.4 8.3 20.5 12.8 By Trade Category: X: Primary - - 79.3 10.6 76.9 10.5 77.8 24.8 7.4 Manufacturing - - 5.9 8. 27L7 4.4 32.7 4. L5.82 Total - - 11.4 8.6 30.1 4.5 39.4 5.1 15.3 IC: Primary - - 3.0 4.3 2.5 5.1 .2 11.6 4.4 Manufacturing - - L 3 53 3 .2 . 5 1.8 53 21.7 Total - - 3.1 35.1 4.3 42.3 1.4 46.9 14.5 NIC: Primary - - 1.9 8.7 1.2 7.6 1.1 10.4 8.8 Manufacturing - - 1.1j 13.3 2.S 7 1.8 6. 15.3 Total - - 1.6 10.7 1.7 7.4 1.5 8.2 11.9 XIC: Primary - - 19.5 2.5 19.3 8.1 20.7 23.1 10.9 Manufacturing - - 2.7 30.0 21.8 34.Q 33.5 54. 14.7 Total - - 4.3 28.3 21.6 32.4 32.5 52.6 14.4 At canstant damsttin prices Primary 1.0 2.1 3.4 7.9 2.5 7.3 2.3 10.5 5.6 Manufacturing & Other 1.4 33.4 2.4 23.1 12.2 24.3 12.9 27.5 .13.7 Social Overhead 3.0 .0+ 5.1 .0 5.7 .4 7.7 .4 13.9 Services 1.2 .0 2.0 1.1 2.8 .6 3.3 .9 6.3 A11 Sectors 1.3 ]..0 2.9 12.0 6.7 12.3 8.0 16.3 9.5 Source: See Section 4.3 in the text. Notes: X: Percent of exports in domestic production-. M: Percent of imports in domestic supply. 1/ At constant world prices: compound annual growth rate of domestic production, 1960 to 1968. At constant domestic prices: compound annual growth rate of domestic production, 1955 to 1968. Korea: 4-22 TABLE M CoMposit-inn of E-xports and Tmportg 1 kL L_M~ - L M 1955 1960 1966 l 968 I m x ~M _< M x M Shares in total commodity exports and imports: rLrrnnant wnrld prices By Industrial Group: I. Agriculture, Forestry, & Fishing - - 32.9 21.4 8.9 17.8 4.5 16.3 IV. Mining & Energy - - 25.5 .jQ 8.5 6 6-2 1.1 Primary, Total 61.2 6.0 58.4 22.4 17.4 18.4 10.7 17.4 II. Processed Food - - 10.4 9.4 9.3 5.1 7.7 3.8 III. Beverages & Tobacco - - 2.2 1.1 3.5 .1 2.3 .0+ V. Construction Materials - - .9 .4 1.4 .7 1.4 .4 VI-A. Intermediate Products I - - 4.9 16.1 21.8 14.2 24.6 16.1 VI-B. Intermediate Products II - - 12.5 27.3 17.7 26.4 13.2 24.3 VII. Nondurable Consumer Goods - - 7.3 13.8 25.1 2.2 34.9 2.7 VIII. Consumer Durables - - .1 2.2 1.8 2.6 3.3 3.7 IX. Machinery - - 1.7 6.4 1.7 19.2 1.5 20.8 X. Transport Equipment - - 1. 7 _B .5 11.3 10.7 Manufacturing, Total 38.8 94.0 41.6 77.6 82.6 81.5 89.3 82.6 By Trade Category: X: Primary - - 24.3 .1 8.0 .1 6.1 .2 Manufacturing - - 72_5 5.7 55 5 2.5 66. 1. Total - - 46.8 5.9 63.4 2.6 72.9 2.1 IC: Primary - - 7.9 2.0 2.6 2.0 .1 2.5 Manufacturing - - _._2 41.8. 7.3 60.1 2_. 61.1 Total - - 15.1 43.8 9.9 62.1 2.8 63.6 NIC: Primary - - 24.4 20.3 6.1 16.2 3.9 14.4 Manufacturing - - 9.7 24.1 1Q-. 12-4 7.6 926 Total - - 34.1 44.3 16.5 28.6 11.6 24.0 XIC: Primary - - 1.8 .0+ .7 .1 .6 .3 Manufacturing - - 2. 2 5.9 9.3 6 6 12- 01Q_Q Total 4.0 6.0 10.1 6.7 12.7 10.2 Shares in total exports and imports; constant domestic pric es Primary 28.9 5.6 38.0 20.1 11.1 17.4 6.9 15.0 Manufacturing & Other 29.4 94.3 29.4 78.0 69.7 81.3 73.0 83.8 Social Overhead 18.5 .0+ 15.9 .0 11.2 .4 12.9 .3 services 23.2 .0 16.6 1.9 8.0 .9 7.1 .9 Source: See Section 4.3 in the text. Notes: Totals may not reconcile due to round-off error. x = exports. M = imports. Korea: 4-23 Table K shows the composition of domestic demand (D) and produc- tion (Q) in each of the observation yrears excluding l963.1!/ The share of primary production in aggregate output fell from 38 to 22 percent from 1955 to 1968, with the direciAon of net trade in primary products having been toward exports in the early part of the period and slightly toward imports in the later part. Correspondingly, the share of manufacturing / in total production almost doubled, the direction of net trade in manufacturing prod- ucts being toward imporlrs throughout, though to a lesser degree toward the end of the period. In turn, the share of social overhead (construction, utilities, and transport) in total output rose while that of services fell. The middle of Table K gives the shares of the four trade categories in total commoclity dome:3tic demand and production. The share of export commodities in domestic demand fell between 1960 and 1968, while their share in production rose. The bulk of Korea's exports in 1968 were Nondurable Consumer Goods; at the same time tha1; these were expanding in importance as export commodities, they were declining in relative importance on the domestic market. Import competinig manufactures experienced the most rapid domestic demand growth over the period; production of these commodities also exhibited the highest production growth rate (see Table L). Non-import competing 1/ Total domestic demand exceeded total domestic production throughout the period. Thus, for a particular sector, equal shares in both implies net imports of the corresponding product group. 2/ The residual "other" includes unclassifiable (i.e., not elsewhere classified) manufactured goods ancd scrap; its share in various aggregates fluctuates due, in large part, to changes in the input-output classifica- tion scheme over time. "Other" is included with manufacturing in the domestic price statis;tics,, but it is excluded from the world price statis- tics due to the absernce of nominal protection estimates for these commodities. Korea: 4-24 commodities had the largest share of both domestic demand and production. In turn, the demand and output shares of manufactured export and import com- peting (xIC) cowmodities rose somewhat over the period as these commodities ined in importance. The trends in shares by trade category reflect several factors: first, tid -ralling share of primary demand and output and the assignment of most primary goods to the non-import competing category; second, the increas- ing openness of the Korean economy as reflected in rising aggregate trade shares (see Table L); and third, the classification of commodities (and therefore sectors) according to their status in 1968. With respect to the latter, one would normally expect the shares in production and demand of commodities which currently compete with imports to have been smaller in the past since these are typically products for which significant demand has only recently emerged, and in which import substitution had not progressed very far in the past. This certainly characterizes manufactured import com- peting commodities, the only group to increase its share either of demand or production within total manufacturin&. Nonetheless, domestic production did not keep up with the growth of demand, leading to increased import shares for these products. In turn, given the dynamics of the product cycle in exports, one would also expect currently important exports to have been relatively less important in the past, certainly as a component of total exports. Table M confirms this. But even so, it is somewhat surprising to observe the pronounced increase in the production share of manufactured export commodities in the face of the equally pronounced fall in their demand share. The difference reflects just how rapidly Korean exports grew in the period 1960 to 1968. Tables L and H respectively give sectoral trade shares ard the co - positions of total exports and imports according to the same scheme utilized Korea: 4-25 in Table K. With the exception of the primary sectors and Transportation Equipment, the ratio of exports to production rose between 1960 and 1968 in every industrial group.- Overall, the share of exports in manufactured output rose ten fold from a low base in 1955. By trade category, as would be expected, export shares in the production of manufactured export and XIC commodities rose most rapidly. Most of the manufactures classified as export or XIC commodities in 1968 would have been classified either as import or non-import competing only 8 years earlier. The sectors with the highest export shares in 1968 were consumer and low level Intermediate Goods, with Nondurable Consumer G(ods having the largest share of total exports in 1968. The share of imports in aggregate domestic supply increased from 1960 to 1968, with the highest im)ort shares in 1968 appearing in the invest- ment, consumer durables, and intermediate goods producing sectors. Most of the rise in the aggregate import share can be traced to primary products and to investmernt goods. Imports of primary commodities grew in relative impor- tance over the period1 (compare 19'5 and 1966), as agricultural output, though rising at a reasonab:Ly fast rate, failed to keep pace with the very rapid growth of disposable income that was fueled by the growth of industry. In turn, the rapid growth of investment, coupled with policies that discriminated against domestic capital goods producers (see Section 5), caused imports of investment goods to increase at a rate far exceeding the growth of their domestic production. The import share for import competing manufactures 1 Nonetheless, a significantly greater proportion of primary production was exported in 1968 than in 1955. Korea: 4-26 remained fairly stable at about 54 percent, while that for non-import competing manufactures fell. The only significant rise in the share of imports among manufactures classified by trade category was in the XIC category. The structure of exports and imports underwent substantial change, as is evident from Table M. Exports of manufactured commodities accounted for 73 percent of total exports in 1968 as against only 29 percent in 1955. The growth of manufactured exports was led by low level Intermediate Products and Nondurable Consumer Goods, with Construction Materials and Consumer Durables also growing more rapidly than the total. The social overhead and services sectors accounted for 20 percent of total export receipts even in 1968. Due to differences in statistical sources and particularly in defini- tions, input-output figures for social overhead and service exports cannot be directly compared with the figures for non-merchandise exports given in Section 4.1. For one thing, input-output data are in producers' prices, so that internal trade and transport margins on exports appear as exports of trade services and transportation. For another, input-output data are based on the "domestic" concept as opposed to the "national" concept of a country's boundaries. Trade clearly made an important contribution to Korea's development. A substantial part of the growth of many sectors appears to be due to the expansion of exports and there is evidence of import substitution in several sectors. The changing composition of trade along with its rising share in aggregate activity permitted the exploitation of Korea's comparative advan- tage and accomodation to the fast growth of investment demand. The rapid expansion of manufactured exports helped to finance the rising share of imports in GNP which, along with the foreign exchange savings from Korea: 4-27 import substitution in the production of several commodities, allowed the imports of primary products, intermediate goods, consumer durables, and investment goods to increase very rapidly in absolute terms. Trade thus permitted the structure of output to shift more in the direction of manu- factures, away from primary production, than did the structure of domestic demand, while within manufacturing, trade allowed the structure of domestic demand to change more rapidly than that of of production. A more detailed account of just what, type and how much of a contribution was made by trade is the subject of the next section. Contributions of EXport Expansion and Import Substitution To further' examine the role of trade in Korea's development, it is instructive to decompose the growth of total output between 1955 and 1968 into three parts: 1) that due to the growth of domestic demand; 2) that due to the growth of exports; and 3) that due to import substitution. Even staying within the simple accounting approach developed by Chenery (1960) and Chenery, &ishido and Watanabe (1962), there are a number of ways to accomplish such a decomposition, depending upon whether one examines first differences or deviations from proportional growth and upon how one relates imports to other elements in the system. Here we provide one set of estimates based on a particular mode of decomposition.i/ We have, however, experimented with a / The average absolute percentage change in the shares of groups II through X in the total domnestic demand for manufactures between 1960 and 1968 was 3.5 percent. The comparable figure for production shares was 2.7. These figures are derived from Table K. / Our approach is cLoser to that employed by Lewis and Soligo (1965) than to those developedl by Chenery. Lewis and Soligo define import substitution in relat:Lon to tol;a]L demand, including exports. Their specification is appro- priate if the levtl of aggregation is such that the same sector includes both imports of intermediate inputs and the associated exports of higher stage pro- ducts . However, since we are working with highly disaggregated data, their specification is incorrect. Korea: 4-28 variety of decomposition approaches; they all lead to the same general conclusions reported here. The decomposition starts from the fundamental supply-demand balance equation of input-output analysis: Q j,t m j,t cj,t + Zj t + xj t - Mj,t' 'here Q; t = gross output in sector j in period t; W t = intermediate demand for the output of sector j in J't period t; C 2t = private plus government consumption demand for the output of sector j in period t; Z t = investment demand (including net stock accumulation) for the output of sector j in period t; X t = export demand for the output of sector j in period J't t; and M.jt = imports of items classified in sector j in period t. We define import substitution as a change in the ratio of imports to domes- tic demand. Let m t be defined as M It/D; tl where Dj t (= Wi t + C t+ Zj ) is total domestic demand for the output of sector j in period t. Letting t = S denote the first period, we have Q ,S = (1 - m .) j,S For the second period (T) we write, j,T= (1 - mj,S) Dj,T + XjKT + mj S DjT - MjT where we have both added and subtracted the term mi S Dj.t on the right hand side of the equation. Subtracting the expression for Q; s from that for Qj,T yields AQ T = t(l - mj S) ADj TJ+ 4xj,T + j TS j,- MiT where "Q " is the first difference operator. The first term on the right Korea: 4-29 (in square brackets) of: the equals sign is the contribution of domestic demand expansion; the second i.s the contribution of export expansion; and the last (in square brackets) is the contribution of import substitution. Import substi- tutioni is measured as t.he difference between actual imports and the imports that would have been ob,served had the first period's import ratio been realized in the second period.-/ It is import:ant to recognize that this decomposition yields biased estimates, for the choice of the first period as the base period for defining the import ratio is arb,itrary. Use of the second period's import ratio -- an equally arbitrary choic:e -- for the reference point yields Mj,S - mj,T Dj S as the measure of import substitution.2/ The bias in either case results from using values for t:wo discrete points in time, which essentially means that we are confronted with an index number problem.3/ The approach taken here to circumvent this problem is the use of "chained" measures. Rather than' apply the decomposition simply to the data for 1955 (or 1960) and 1968, we have separately decomposed the change in output over each interval for which we have input-output data; the estimates for each interval are then summed to give the growth contributions between 1955 (or 1960) and 1968. i 1 It may also be expressed as minus the change in the import coefficient times domestic demand in period T. ?/ Both measures of im)ort substitution will be positive if the import ratio declined over time, but that based on the first period's import ratio will be greater if domesltic demand has grown. / See Fane (1971). 4/ Note that this means the contribution of import substitution may be positive over the entire period even though the terminal import share slightly exceeds that in the initial period. An example is given by Grain Milling in Table U. Korea: 4-30 Measures of import substitution are also sensitive to the level of aggregation employed. Estimates based on highly aggregated data reflect changes both in the conditions of supply within well-defined individual sec- tors and in the composition of domestic demand. With respect to our investi- gation of incentive policies,we are primarily interested in the import substi- tution stemming from changes in the conditions confronting suppliers. The aggregate estimates that are presented below are thus aggregates of the growth contributions for individual sectors rather than growth contributions calculated from data aggregated over the sectors. The method of decomposition outlined above yields only the direct contributions of export expansion and import substitution to aggregate growth. The full contribution of either includes part of what is attributed to the growth of domestic demand. The additional, indirect contributions of export expansion and import substitution include: a backward linkage effect due to increased derived demand for domestically produced intermediate inputs; a multiplier effect due to expenditure out of the additional income generated by the rise in production; and, a foreign exchange effect due to increased pro- duction made possible by the foreign exchange earned or saved. These effects are most dramatic where factors of production would otherwise have been unem- ployed, but they also operate by increasing allocative efficiency whenever the domestic resource cost, at shadow prices, of exporting or import substituting is less than the shadow priced value of the corresponding foreign exchange earnings or savings. Moreover, either current or future consumption may be increased, the latter through a rise in the investment rate. Of these indirect contributions, we have estimated only that due to the backward linkage effect. To incorporate this effect, the growth of inter- mediate demand for each sector's output must be traced back to domestic final Korea: l4-31 demand growth, export expansion, and import substitution in the industries demanding the sector's output on intermediate account. In addition, a new source of demand change must be distinguished, namely that due to changes in input-output coefficients. This source is typically labelled as being due to technological change, but it includes as well the effect of intra-sectoral corposition shifts on intermediate input usage. The "itotal" -- direct plus indirect through backlard linkages -- contributions of domestic final demand growth, export expansion, import substitution, and technological change can be calculated using the inverse Leontief matrix. Below we give estimates of both the direct and the total growth contributions. Only the former are relevant to assessing how producers within respective sectors have responded to incentive policies. The latter, however, are relevant to measuring the contributions of export expansion aind import substitution to the economy's growth. The calculation of backward linkage effects requires an assumption regarding which intermediate input demands are met through domestic production and through imports. Korea: 4-32 Backward linkage effects have been calculated here on the assumption that the proportion of imports in the total supply of intermediate inputs of type i is mi, S (see the definition above, and recall that S refers to the initial period). That is, each coefficient, Ai., of the input-output matrix is multiplied by (1 - min ) to obtain the input-output coefficient pertaining to the use of domestically produced intemnediate inputs In addition to the fact that average rather than marginal coeffilients are being used, two further underlying assumptions should be made explicit. Firstly, the division between imported and domestically supplied intermediate 1/ inputs is assumed to be the same regardless of the producing sector (j). Secondly, for each producing sector (j), the division between imported and domestically produced inputs is assumed to be the same regardless of the destination of the final output. The bias introduced by this assumption is likely to be quite large, due to intra-sectoral differences in the composition of deliveries to different destinations. Moreover, even for the same narrowly defined type of output, production for export is likely to embody a higher direct import content. Data to rectify this particular bias are not available, and in this respect the estimated total contribution of export expansion should be viewed as an upper bound. i/ Separate input-output matrices for imported and domestically produced inputs are available. However, to use them would have required reaggregation to obtain a consistent time series, and this was judged not to be worth the effort. 2/ Further discussion of measurement problems concerning the direct import content of exports may be found in Cole and Westphal (1975). Korea: 4-33 The growth contribution estimates are given in Table N, which employs a format comaparable to that of the previous tables. The figures in the table state the proportion of each sector's output change that is attributable to each source. We start our discussion with the estimates of contributions to aggregate growth. In aggregate terms, the expansion of exports contributed-far more to the Korean economyts development than did import substitution. The total contribution of exports to the change in aggregate output between 1955 and 1968 was 20 percent. Most of this is attributable to the growth of manufactured exports, which accounted for 75 percent of the change in total exports and 93 percent of the change in commodity exports.!/ The overall contribution of import substitution was negative, though nearly zero; import substitution did contribute a modest amount to the growth of manufacturing, but this was more than offset by rising import shares in other sectors of the economy. Backward linkages from exports were responsible for nearly a tenth of the growth of manufactured output and more than fifteen percent of the growth of primary output. In contrast, the total contribution of import substitution to the change in aggregate output was less than its direct contribution, indicating that the import substitution that did occur in some sectors raised the cdemand for intermediate products that were imported and thus had negative backward linkage effects in the aggregate.-Y As is to bei expected, the growth of domestic final denand was the 1/ These estimates are taken fromt data underlying the computation of the growth contributions and do not appear in the tables. / That is, import substitution generated indirect demands on sectors which had higher than average requirements for imported intermediate goods. Korea: 4-34 TABLK N Direct and Total Growth Contributionsa 1955-1968 Share of Sector's Output Fxpansion nLue Tow _n-ometic nemand Expansion Export Import Tntermediate Consumption Tnvestment Expansinn Substitution 1960-1968 By Industrial Group: I. Agriculture, Forestry, & Fishing 50.4 -. 5 57.6 89.4 .1 6.0 -. 1 15.9 -7.9 -10.8 IV. Mining & Energy 94z7 3.1 4 47.6 -7.0 19 . 15.9 28.2 .L.2 -3.9 Primary 54.0 -.2 53.0 86.0 -.5 7.1 1.2 16.9 -7.6 -9.8 II. Processed Food 28.5 7.3 61.9 77.8 .0 2.7 7.8 11.7 1.8 .5 III. Beverages & Tobacco 29.8 5 1 59.5 69.5 4.5 14.3 4.0 9.9 2.2 1.1 V. Construction Materials 106.9 60.2 .1 5.1 -20.6 19.5 5.6 7.4 8.0 7.8 VI-A. Intermediate Products I 54.8 8.4 8.2 23.1 5.2 22.5 17.0 32.3 14.8 13.6 VI-B. Intermediate Products II 67.4 6.4 6.7 31.2 10.5 34.5 10.4 25.6 5.0 2.4 VII. Nondurable Consumer Goods 16.7 .5 38.4 47.1 2.0 5.4 36.2 40.2 6.8 6.8 VIII. Consumer Durables 34.9 13.0 37.0 46.4 9.3 18.7 23.2 27.2 -4.4 -5.3 IX. Machinery 43.5 22.2 7.3 11.9 90.3 105.4 8.0 12.2 -49.0 -51.8 X. Transport Equipment 387 18 0 _ 7L3 102.3 1193 .2 A42 -A_19 -AaL8 Manufacturing 45.3 9.3 25.4 39.7 11.0 25.0 15.1 24.3 3.2 1.7 By Trade Category: X: Primary 37.0 5.6 -.3 3.1 -3.7 4.3 76.0 92.3 -9.0 -5.4 Manufacturing 22.0 .8 21.9 29.7 1.9 8.8 52.0 58.5 2.2 2.2 Total 22.4 1.1 21.3 28.3 1.7 8.5 52.7 60.4 1.9 1.8 IC: Primary 75.8 14.0 64.9 66.7 -10.5 -4.5 -6.6 43.7 -23.5 -19.8 Manufacturing 64.8 23.2 11.7 27.9 30.1 50.6 1.4 10.7 -8.0 -12.4 Total 66.1 21.7 17.8 34.2 25.4 41.6 .5 16.1 -9.8 -13.6 NIC: Primary 51.7 -3.0 53.5 93.2 .5 8.6 .2 9.6 -5.9 -8.4 Manufacturing 46.0 6.9 34.5 50.6 5.3 19.8 2.2 11.6 12.0 11.0 Total 48.2 3.3 41.8 66.3 3.5 15.7 1.4 10.9 5.1 3.9 XIC: Primary 116.0 54.6 -.3 13.8 -10.0 31.9 21.7 33.6 -27.4 -34.0 Manufacturing 57.5 9.4 5.9 24.7 26.2 41.2 49.0 63.6 -38.6 -38.8 Total 61.4 12.1 5.5 24.0 23.8 40.6 47.2 61.8 -37.9 -38.5 All Commodities 47.6 6.8 32.7 51.9 7.9 20.3 11.4 22.4 .3 - 1.4 J99a_lqfi821 Primary 63.1 6.1 50.9 86.0 -4.7 2.6 4.0 19.4 -13.2 -14.2 Manufacturing &Other 46.5 10.5 24. 4 39.4 9.4 22.4 15.7 24. 2 4.1 3.4 Social Overhead 23.1 5.6 18.4 26.2 49.9 54.9 8.8 12.3 -. 2 .9 Services 44.3 1.9 43.2 62.7 8.9 22.1 5.0 14.9 -1.4 -1.6 Total 45.1 7.8 30.4 48.1 13.5 24.4 11.2 20.2 - 3 -.6 Source: See Sections 4.3 and 4.5 in tbe text. Note: Aggregated from 117 sector estimates, except for the 1955-60 contributions which were aggregated from 29 sector estimates. Totals may not reconcile due to round-off error. G Gives the contribution of technological change to the growth of the secto.'s output. 2/ Based on constant domestic market price data. Korea: 4-35 most important factor, accounting for more than 70 percent of aggregate outpujt growth between 1955 and 1968, although this was importantly influenced by the rapid expansion of exports. Both consumption and investment demand had strong backward lLnkages; almost half of the growth in output can be traced to consumption growth, and nearly a quarter to the growth of invest- ment. The residual attributable to changes in input-output coefficients appears as the "total't contribution of intermediate demand growth. The general rise in intermediate input requirements was responsible for nearly ten percent of the growth output. It is of interest to compare the relative importance of export expansion and import 3ubstitution over time. The figures below show the total contribution of each to the gtrowth of aggregate output for each sub-interval: 1955-60 1960-63 1963-66 1966-68 Export Expansion 12.9% 6.3% 31.4% 21.3% Import Substitution :L.2 -6.9 8.9 -6.6 Export expansion contributed more to the growth of commodity output in each sub-period than did import substitution. The greatest contribution of export expansion and import substitution together was realized between 1963 and 1966, the period of major policy reforms in which Korea began its rapid growth (see the Introduction and Section 1). Primary export growth and import substitution in manufacturing characterized the earlier period. Manufactures dominated the growth of exports after 1960, and in relative terms there was much less import substitution in the sixties than there had been in the late fifties. The direct contributions of export expansion and import substitution to the growth of manufactured output in each sub-period are also revealing. Korea: 4-!.36 1955-60 1960-63 1963-66 1966-68 Export Expansion 5.1% 6.2% 29.4% 13.0% Import Substitution 24.2 .9 14.4 -0.1 The late fifties was a period of major import substitution for consumer nondurables and light industry intermediate products during which exports played a relatively minor role in Korea's industrialization. Export growth made its most important contribution to industrialization in 1963-66 and continued to be of considerable consequence afterwards. We next turn to estimates of direct contributions for individual industrial groups. These can be analyzed only for the period 1960 to 1968. The table below gives a ranked list of the industrial groups according to our esti- mate of the contribution of trade (i.e., export expansion plus import substitution) to the change in the output of each. Absolute Value of:* Period of Highest Contribution Trade Export Import to Sector's Own Growth Contribution Expan- Substi- Export Expansion Import Substitution Group (1960-8) sion tution Period Contribution Period Contribution VII 43.0% 39.3 7.3 63-6 96.o% 60-3 27.9% VI-A 31.8 27.7 24.1 63-6 23.2 63-6 49.8 VIII 18.8 3.8 - .7 63-6 27.0 60-3 5o.4 VI-B 15.4 13.3 6.3 63-6 23.9 66-8 7.1 V 13.6 1.4 2.1 63-6 10.9 63-6 20.1 IV 12.0 2.9 - .7 63-6 24.1 63-6 12.4 II 9.6 7.3 1.7 63-6 37.1 66-8 2.9 III 6.2 2.2 1.2 63-6 11.4 60-3 26.4 I - 8.o - .3 -16.7 63-6 2.8 63-6 17.0 IX -41.0 1.5 - 9.1 63-6 47.4 63-6 -16.9 X -41.7 .1 -12.5 63-6 1.8 66-8 -11.8 * In billions of won at constant 1965 world prices. Korea: 4-37 Trade effects were the greatest for intermediate products and consumer gocods, which were also the major sources of the growth of total domestic demand and output (see Table K). There was negative import subs- titution in the production of investment goods. In line with our earlier findings, export expxLnsion contributed more to the growth of evvry group (except V, Construction Materials) than d.id import substitution. It is also notable that 1963-66i again stands out as the period in which exports contributed pro- portionately the most to growth. Dien at the most disaggregated level, import substitution played a relatively modest role in the growth of most industries over the whole eight year period. Thus, in only 12 out of the 80 manufacturing sectors was import substitution responsible for more than 20 percent of the sector's growth. Among these 12 were sectors producing fertilizers, petroleum prod- ucts, sewing machines, electrical equipment and products, drugs, steel ingots, paper and paperboard, basic inorganic chemicals, and cast and forged steel (listed in order of the relative contribution of import substitution).?/ Sectoral import shares actually increased, leading to negative import subs- titution, in 39 of the manufacturing sectors and eight of the 12 primary sectors. Export expansion, on the other hand, was the source of more than 20 percent of the growth of 20 manufacturing sectors. Included among these were sectors producing various textile products at different levels of fabrication, misceLlaneous manufactured products, lumber and plywood, apparel 1/ There are 80 manufacturing sectors and 12 primary sectors in the 117 sector ordering. 2/ See Table U in Section 4.5 below for further details. Korea: 4-38 and accessories, electronics and electrical equipment.i In turn, domestic demand expansion caused more than 80 percent of the individual sector's growth in well over half of the manufacturing sectors (53 out of 80, to be exact); thus, the importance of domestic demand growth observed in the aggre- gate carries through for the individual sectors as well. The pattern of manufacturing growth from 1960 to 1968 is clearly one of widespread export expansion, concentrated in the labor intensive sectors (see the following section), coupled with selective import substitu- tion, primarily in sectors producing basic intermediate products. A recent study, S. T. Suh (1975), analyzes direct growth contributions through 1973. The results of this study are unfortunately not comparable with the estimates presented above for the period through 1968, partly because a different sector classification and level of aggregation are used, but more importantly because the estimates are all based on data in current prices. They nonethe- less document the considerable increase in the contribution of exports to economic growth and the continued unimportance of import substitution in the aggregate. Suh's results equally indicate an increase since 1968 in the relative importance of the heavy industrial sectors in the growth of manu- 2/ facturing, both with respect to the domestic market and exports. This is brought out in Table 0, where contributions to the growth of aggregate in- dustrial output are decomposed to show the relative contributions of light and heavy industry. / See Table T in Section 4.5 below for further details. 2/ In Korean parlance, the heavy industrial sectors comprise nonelectrical and electrical machinery as well as transport equipment and basic inter- mediate products. They thus include such products as precision instruments and electronics. Korea: 4-39 TABLE Q Direct; Contributions to Manufacturing Growth: 1960-1973 Domestic Demnand Export Import Expansion EXpansion Substitution Total 1960-1968 Light Industry 56.9% 10.8% -1.0% 66.7% Heavy Industry 25.8 1.2 6. 33.3 Total Manufacturing 12.0 5.3 100.0 1968-1973 Light Industry 40.1 21.8 - .8 61.1 Heavy Industry 30 9.1 - .6 38.9 Total Manuf acturing 70 30.9 -1.4 100.0 1960-1973 Total Manufacturing 73.1 26.8 0.1 100.0 Source: S. T. Suh (1975), Table 5.5. Note: Based on data at current prices. Totals may not reconcile due to round-.off error. Among the sectors classified as heavy industry, those contributing most to the expansion of exports over 1968 to 1973 were chemicals, steel products, finished metal products, and electrical machinery and appliances. In turn, the sectors experiencing relatively substantial import substitution between 1968 and 1973 included fiber spinning and textile fabrics, rubber products, chemicals, iron and steel, finished metal products, and nonelectrical machinery. WIith the exception of the last twc industries, import substitution was concentrated in the production of intermediate goods and took pJace largely between 1968 and 1970. Much of this import substitution was due to the pro- duction of basic steel products and petrochemical derivatives in medium scale plants. Korea: 4-40 Import Substitution and Export Backward Linkages The role of import substitution in Korea's industrial development deserves further comment. A useful starting point is the observed relationship between the shares of manufactured exports and industrial output in GDP. Returning to Table J, one finds that Korea's share of manu- factured exports in GDP in 1972 exceeded the norm by a far greater spread than did the share of industry in GDP; the difference is about 15 percentage points in the first case and only two or three percentage points in the second. This is largely explained by the absence of large scale import subs- titution, which in turn is partly related to the pattern of realized backward linkages from exports to the domestic production of intermediate inputs. The share of domestic value added (direct and indirect) in Korea's manufactured exports has been roughly 50 percent over most of the past decade. This is not a consequence of the export incentive system, for the system does not discriminate between the use of imported and domestically produced intermediate inputs (of the same quality) in the production of ex- ports, except insofar as wastage allowances on imported inputs provide a bias in favor of the latter (see Section 1). By avoiding excessive susbidies to backward integration from exports, this system appears to have induced only those backward linkages that permitted efficient production.-/ The high import content of Korea's exports stems in the first instance from the types of products being exported. There are a few manufactured / See Frank, Kim, and Westphal (1975), page 81 ff. Data limitations make it virtually impossible to assess trends in the domestic value added content of exports; on this point, see Cole and Westphal (1975). / Here it is important to recall that additional import substitution incentives have been granted to those sectors, for example, petrochemicals, maere a case can be made that inefficient production has been established in part to supply exporters. Korea: 4-41 exports, including silk textiles, cement, and ceramics, for which Korea does have the requisite natural resource base. Most others, such as cotton and wool textile products, plywood, and steel products, require raw materials -- cotton, wool, roundwood, iron ore, anthracite coal -- local supplies of which are either insufficient or prohibitively expensive. In several of these cases, import substitution for intermediate inputs has been carried back to the stage where only the unprocessed natural resource product is imported. Thus, for example, natural-fiber yarns are produced domestically, as is steel. However, many exports, such as petrochemical based products (until recently) or electronic assembly (even now), require intermediate inputs for which the Korean market has been too small for efficient scale production or for which sophisticated and costly technological know-how is needed. Overall, for most export products, Korea has exported the output of the labor intensive pro- cessing stages. However, as noted above, there has also been a considerable degree of backward integration in a number of product lines, with import substitution for intermediate products having been, by and large, carried back as far as economical given Korea's poor natural resource endowment. Taken together, the large contribution made by export growth to Korea's industrialization and the selective exploitation of backward linkages from exports help explain why import substitution has played such a subordinate part. 'While some backward linkages from exports have been exploited through import substitution, the rapid change in the composition of exportss has offset the import substitution that has occurred, with the result that the share of domestic value added in aggregate exports has remained roughly constant. Government policy with respect to imports of consumer durables and otzxer "luxury" consumption goods has also been a contributing factor to the Korea: 4-42 miniscule contribution of import substitution to overall growth. Imports of such goods -- notable examples being automobiles, refrigerators, television sets, and the like -- have been for the most part prohibited, so that nearly all o' the latent domestic demand for these goods has been satisfied only after the start of domestic production. Thus, the government has managed to delay their purchase in significant quantities until they are produced locally, which gives rise to a pattern to which the term "import substi- tution't does not, strictly speaking, apply. The mathematics of calculating growth contributions implicitly recognizes this distinction by assigning a very low weight to these sectors in the aggregate import substitution estimates as a result of their initially small share in domestic demand. The rapid growth of foreign exchange receipts from exports has also been a key factor that has allowed import substitution to be selective, which in turn is reflected in its relatively small contribution to aggregate growth. Also not to be overlooked is the fact that the pursuit of an economy's comparative advantage is a matter not only of the composition of exports and imports but also of their size relative to domestic production and consumption. The shares of both exports and imports in GDP were abnor- mally low at the end of the Korean War, and to pursue its comparative advantage has required that Korea increase the shares of both to atypically high levels. In turn, selective import substitution has permitted scarce investment resources to be concentrated in one or a few sectors at a time and thereby enabled greater exploitation of economies of scale and of the 1/ linkages among closely interrelated activities.- 1/ In the context of a planning model, Westphal (1971) documents the potential gains from following such as investment pattern. Korea: 4-43 This is not t:o deny, however, that import substitution in other areas, most notably petrochemicals, was probabLy premature. h.h Factor Allocation and Utilization Simply to demonstrate that exports contributed substantially to Korea's industrializat,;ion does not establish that its strategy has been efficient in terms of factor use. Though the immediately foregoing discus- sion suggests that th:is conclusion would be generally valid, it is obviously desirable to seek further evidence.. The issue of paramount concern is how Korea's industrial stc7ategy has affected the growth of GNP and the attainment of other development objectives in comparison to alternative strategies that might have been pursued. To examine this fully would require conducting counter-factual exper:iments using a sophisticated general equilibrium model that has been validated against the observed history, something which has not yet been attempted for Korea. Furthermore, there are undoubtedly additional indirect effects from exporting that would be hard to capture in such a model, for example, the exploitation of economies of scale through increased market size and the motivation that competition in foreign markets provides for technological change. Additional research would be required to gauge whether Korea has benefited in these ways as a result of following an export-led strategy. On the other hand, though it is presumptive rather than conclusive, there is amp'Le evidence to indicate that emphasis on exports has resulted in Korea: 4-44 a generally efficient allocation of resources. This is discussed below in terms of the factor intensity of Korea's exports and imports and the increase in its factor utilization over time. Factor Intensity of Trade The determinants of comparative advantage are many and complex. They include elements such as natural resource endowment, labor skills, and learning-by-doing and other dynamic phenomena, which are either difficult to quantify or have not been quantified with sufficient precision in Korea's case. Nonetheless, to the degree that Korea's comparative advantage during the 1960s may be said to have been in labor intensive as opposed to capital intensive acti-vT'A.es, a partial assessme.I is possibie. Our analysis of the factor intensity of Korea's trade follows Leontief's (1954) approach. Using labor and capital input coefficients based on Korean data, we have calculated the average direct as well as total -- direct plus indirect through backward linkages -- factor input coefficients associated with Korea's exports and imports. The underlying factor input coefficients by sector are averages obtained by dividing each sector's output into the estimated magnitude of factor employment in the sector. These coefficientis are thus weighted averages in which the weights correspond to the intra-sectoral compositicn of production. As noted below, this introduces Korea: 4-45 a bias in the estimates of the factor intensity of trade. However, this bias is partia:Lly mitigated by using data disaggregated to the 117 sector level. Interpretation 'of the average input coefficient for a bundle of exports is relatively straightforward. It gives the average direct (or total) input requirement per unit; of exports, where the composition of a unit of exports is proportional to that of the bundle. In view of the nature of the underlying factor input coefficients by sector, it is implicitly assumed either that the internal composition of each sectorts production for export is identical to the internal composition of its output or that the respective input coefficients for each item produced in a sector are identical. The average input coefficient for a bundle of imports is to be interpreted as that which would pertain had the bundle been produced domesticallly. Here one must assume that the observed sectoral input coefficients are those that would obtain were these impcorts produced domestically. To the extent that imported goods are also -roduced domestically, the question again hinges on the appropriateness of the implicit production weights. However, many imported products are not also domestically produced, so that information on input requirements could rnot even in principle be obtained from disaggregated data on domestic production. But, the imports that were considered to be non-com- petitive changed from year to year in the compilation of the input-output tablels. Thus, in order to insure consistency across years, the results reported here include non-competitive imports, except for a few primary products not found 1/ in Korea, in the bundle of imports that is considered to be replaced. 1' We experimented with several other ways of handling non-competitive imports as well; the fundamental conclusions were not found to be sensitive to the procedure employed. Korea: 4 -46 The intermediate input coefficients used in the calcula- tion of total factor requirements includes imported inputs. Thus, in computing the average total input coefficient for a bundle of imports, it is assumed that intermediate imports would also be replaced. To obtain consistent total factor input coefficients for imports and exports requires use of the same input-output coefficients in both cases. The total factor input coefficient relating to exports has therefore been calculated on the assumption that all intermediate input requirements would be produced domestically. This consideration, along with other arbitrary elements in the calculation of total factor inputs, strongly suggests that the direct factor input estimates are the most relevant.l/ For those years for which detailed input-output statistics were available, Table P gives the average direct and total factor input coeffi- cients for exports and imports of primary and manufactured products separately as well as for total (including services and social overhead) exports and imports. The comparable average input coefficients for total domestic production are also shown. Entries in the "L" columns give labor input coefficients in man-years per million won of output at 1965 prices; entries in the "K" columns, the capital-input coefficients or capital-output ratios; and, entries in the "L/K" columns, the derived labor-capital ratios in man-years of employment per million won of capital (inclusive of inventories) at the domestic currency equivalent of 1965 world prices. 1/ Calculations of the factor intensity of exports based on the input-output coefficient matrix for domestically produced inputs alone are given in Hong (1976), who in addition assumes that sectoral factor input coeffi- cients taken from U.S. data are relevant to the production of non- competitive imports. His results concerning the relative factor intensi- ties of exports and imports are briefly discussed in the text below. Korea: 4-47 TABLE P Factor Tntenaity of Trade 196 1963 196 968 L K IK L K ,/ L/K L K L/K Direct Factor Requirements Primiary Domestic Output 10.86 .65 16.60 17.20 17.08 10.74 .63 17.16 Exports 7.54 .92 8.19 6.89 6.15 6.21 1.10 5.69 Imports 11.06 .67 16.58 15 91 16.13 11.28 .73 15.48 Manufactur inq Domestic Output 1.63 .55 2.97 2.89 2.67 1.53 .58 2.64 Exports 1.87 .69 2.72 3.02 3.24 1.89 .53 3.55 Tota ports 1.29 .62 2.09 1.93 1.98 1.54 .66 2.33 Domestic Output 5.44 1.24 4.39 4.59 4.46 4.48 1.09 4.12 Exports 4.83 1.49 3.25 2.52 2.41 2.56 1.22 2.10 Imports 3.37 .74 4.53 4.87 4.05 2.96 .70 4.29 Total Factor Requirements Primary Final Demand less Imports 12.86 1.12 11.46 11.79 12.10 13.36 1.06 12.6 Exports 9.84 1.49 6.55 5.75 5.13 8.29 1.73 4.81 imports 12.99 1.08 11.99 11.50 11.90 13.06 1.16 11.30 Manufacturing Final Demand less Imparts 8.92 1.64 5.43 5.41 5.03 8.53 1.66 5.14 Exports 7.89 2.11 3.74 3.71 4.09 7.91 1.83 4.29 Ttports 5.06 1.84 2.77 2.40 2.40 5.56 2.03 2.74 Total-I Final Demand less Imports 9.50 2.16 4.39 4.59 4.46 9.32 2.26 4.12 Exports 8.12 2.38 3.42 3.05 3.25 7.53 2.38 3.15 Imports 6.74 1.79 3.78 3.66 3.26 6.62 1.89 3.48 .:ources: For estimates o:C the sectoral labor coefficients, we have relied upon the labor input coefficient estimates provided along with the Banlk of Korea's 1966 input-output table (Bank of Korea, Economic Statistics Yearbook, 1969, p. 333, Labor Coefficients Based on Workers). These data are given at the 43 sector level only; we have assumed that the sane labor input coefficient pertains to all of the sectors at the 117 level that comprise a single sector at the 43 sector level. For estimates of the capital-output ratios, we have relied upon Han Kee Chun's exhaustive re-tabulation of the 1968 National Wealth Survey [Han (1970), Tables 7.1 and 7.3J. By virtue of the estimation method, Han's capital-output ratios for the manufacturing sectors give marginal rather than average input coefficients. Nonetheless, for estimates of average capital-output ratios in 1963, they are considered superior to the average ratios obtained from the National Wealth Survey. Me experimented with several other sets of capital-output ratio estimates; the basic conclusions are not sensitive to the sot of estimates employed. Constant 1965 domestic price input-output data on production, exports, and imports were used to calculate factor input requirements. The factor input coefficients were deflated to obtain the proper input coefficients per billion won of output in 1965 prices. The 1966 117 sector input-output matrix, deflated to 1965 prices, was used to obtain total factor input requirements. We have omitted real estatc and ownership of dwellings, iron scrap, and other scrap from the calculation of input requirements. dlotes: L: Man-years per million won (1965 domestic prices) of production. K: Capital-output ratio: carital includes inverntories and is measured in world prices; output measured in 1965 domestic prices. 1/ Also includes social overhead and services. Korea: 4-48 There were no reliable time series data on factor input coeffi- cients at the 117 sector level at the time this investigation was under- taken. Factor input coefficients estimated for 1968 were thus applied to trade data for 1960, 1963, and 1966, as well as for 1968. As a result, the intra-sectoral composition of production and the underlying factor input coefficients by sector are held fixed over time. Thus inter-temporal changes in the estimated factor intensity of exports and imports result solely from changes in inter-sectoral composition, just as the difference between the estimated labor-capital ratios for comparable export and import bundles results from the different composition of these bundles. The estimates in Table P indicate that Korea's manufactured exports were more labor intensive than its imports throughout the period 1960 to 196&. The labor-capital ratio for manufactured exports in 1968 was 3.5 as compared with 2.3 for manufactured imports. Furthermore, within manufacturing, exports were substantially more labor intensive than domestic production, for the latter had an average labor-capital ratio of 2.6. In turn, prinary and total exports were more capital intensive than the res- pective import bundles. The contrast between the factor intensity of trade in manufactures and that in other products is to be explained by the complementarity of capital and natural resources, where the latter are ex- cluded as a factor of production in the analysis. The effect of Korea's natural resource endowment on its composition of trade in primary products has led it to export relatively capital intensive minerals and to import 1/ highly labor intensive agricultural products. 1/ The average direct labor input coefficient for agriculture is more than five times the (unweighted) average direct labor input coefficient in manufacturing. It is also true that a significant share of Korea's foreign exchange earnings were derived from capital intensive social overhead services; however, non-merchandise exports were slightly more labor intensive than non-merchandise imports. Korea: 4-49 It is also significant that Korea's manufactured exports became incrc asingly more labor intensive over time, both in absolute terms and relative to manufactured imports.!/ The composition of Korea's manufactured exports shifted from 1960 to 1968 so as to increase the direct labor-capital ratio in manufactured exports by approximately 30 percent, even though composition changes led, to a steady fall in the direct labor intensity of manufacturing production. Thus, whereas Korea's manufactured exports were less labor intensive than its average manufacturing in 1960, they were more labor intensive by 1968. The direct labor intensity of manufactured imports was less than that of manufacturing production throughout the period. The capital intensity of Korea's manufactured imports increased somewhat between 1960 and 1966 but then declined in 1968, suggesting that until 1966 import substitution replaced relatively labor intensive imports. The shifts oveir time in the composition of manufactured exports and imports, when translated into changes in direct labor-capital ratios, thus suggest that Korea followed its comparative advantage within the expansion of the manufacturing sector. However, largely because of the growth of agri- cultural imports, total exports did not become increasingly labor intensive in comparison to total imports. This need not imply that resources were being allocated inefficiently within the primary sector, for one must also consider Korea's natural resource endownent. The relative 1/ In 1960, the direct labor-capital ratio for manufactured exports was 30 percent higher than that for manufactured imports; by 1968 the former was more than 5() percent higher than the latter. Korea: 4-50 abundance of some minerals led to the export of these, and it was doubtless efficient to import at least some foodgrains given Korea's poor climate and land. Most of the conclusions drawn above on the basis of direct factor intensities also hold with respect to the total factor intensity estimates shown in Table P. The total labor-capital ratio for manufactured exports was substantially higher than that for manufactured imports throughout the period, the difference being more than fifty percent of the latter figure in 1968. Furthermore, the total labor-capital ratio for manufactured exports increased in every observation interval except 1960-63; the total labor- capital ratio for manufactured imports fell except between 1966 and 1968. On balance, therefore, the estimates of total input coefficients also show that the composition of Korea's manufactured exports was shifting toward labor intensive commodities, while import substitution coupled with changing demand patterns caused the composition of manufactured imports to shift toward more capital intensive commodities. Hong (1976), referred to in a footnote above, investigates the factor intensity of trade up to 1973. Once allowance is made for differences in estimation methods and in the presentation of results, Hong's estimates for manufactured products over the period 1960 to 1968 are consistent with those given above. However, his investigation indicates an increase in the capital intensity of manufactured exports since 1968, both in absolute terms and relative to factor proportions in manufacturing as a whole, and equally with respect to the direct and total factor intensity measures. In part, this is due to capital deepening in the manufacturing sector and the rapid increase in labor productivity, as Hong documents by using capital-labor Korea: 4-51 ratios, by sector, specific to each year. Particularly after 1970, this trend may also be traced to increased exports of cement, steel, fertilizer, and textiles and various items based on petrochemical- derivatives. Either directly or indirectly, all of these products require capital intensive pro- duction methods in plants subject to severe economies of scale. In the latter connection, given a decision to meet the domestic demand for these commodities through domestic production, temporary exports can be efficient as they permit the construction of large plants without experiencing initial excess capacity and thereby reduces the cost of realizing greater economies of scale. Even without such a decision, exports of cement, steel, and fertilizer during the first half of the 1970s may well have been in Korea's dynamic comparative advantage. It is far from obvious, however, that it was in Korea's comparative advantage to establish the production of petrochemicals to supply its textiles and plastics industries. Trends in Factor Utilization Among the outstanding features of Korea's overall development performance is the increase that has taken place in the rate of factor utilization. As noted at the outset of this study, Korea has been relatively successful in finding employment for its labor force, which has grown at an average rate of 3.2 percent per annum since 1960. This is broadly indicated by the fall in the unemployment rate from a peak of 8.3 percent in 1962 to a level of 4.1 percent in 1975. It is very likely that there would have been serious unermployment, certainly in urban areas, had not exports of light, labor-intensive manufactures grown so rapidly. At least, this can reasonably be inferred from estimates of the share of employment due to exports. Table Q presents estimates taken from a recent study based on input-output data.! Korea: 4-52 TABLE Q Percent of Employnent Due to Exnorts 1960 1966 1970 M4anufacturing Sectors Direct Employment in Production for Export 2.9 13.6 18.9 Total Employment Due to A11 Exports 5.8 19.0 25.9 All Sectors Direct Employment in Production for Export 2.4 3.h 5.1 Total Employment in Exports 3.7 6.7 9.1 Source: Cole and Westphal (1975), Table 1. Note: The "A" employment estimates given by Cole and Westphal for 1960 have been converted to correspond to the "B" estimates for 1966 and 1970 by applying the ratio of the "B" to the "A" estimate for 1966 to the corresponding figure for 1960. The indirect employment included in the "total" estimates accounts only for that induced by backward linkages, so that multiplier and foreign exchange effects on employment are neglected. Even so, exports are seen to have accounted for more than one auarter of manufacturing employment and close to ten percent of total employment in 1970. The contribution of export expansion to increased employment is even more impressive. The same study estimates that between 1960 and 1970, the growth of exports was responsible for 38.3 percent of the growth of employment in manufacturing and 32.7 percent of the growth of total employment. / Korea has also been successful in increasing the degree of capacity utilization within the manufacturing sector. The most reliable available statistics showing the trend of capacity utilization rates are based on electricity usage data and define 100 percent capacity utilization to be equal l/ Both estimates are inclusive of indirect employment generated by exports. Korea: 4-53 to plant operation 24 hours a day, 365 days a year. On this basis, the unweighted average capacity utilization rate within manufacturing as a whole is estimated to have increased at an annual compound rate of 7.2 percent, from 17.7 percent in 1962 to 31.9 percent in 1971 (the survey from which these results are taken does not extend beyond 1971).-/ In terms of the measure used, 31.9 percent capacity utilization (on average, roughly the same as single shift operation throughout all of industry) is quite high by in-ternational standards, even including developed economies in the comparison. While it is not possible to state whether and by how much the expansion of exports contributed to the increase in capacity utilization, there is little doubt that it played a significant role. The trends in the aggregate labor-capital ratio and factor pro- ductivities within manufacturing are also noteworthy. Using data from Hong's (1976) study, these trends are summarized in Table R. The labor- capital ratio in manufacturing rose almost continuously during the first half of the 1960s, and then fell almost continuously through 1972, again rising in L973. By 1973 the labor-capital ratio exceeded that in 1960 by more than 15 percent. Both the output-capital and output-labor ratios were rising continuously during this entire period: the output-capital ratio rose by 1973 to more than twice its value in 1960, while the output-labor ratio increased by nearly 100 percent. (Output is here measured by value added.) Total factor productivity thus roughly doubled over 13 years, giving an annual increase of more than five percent. The estimated changes in total factor productivity reflect both changes in industrial composition 1/ See Kim and Kwon (1976), Table 2, U1 series. Korea: h-5L and increased factor productivity at the firm level. The former constitutes increased economic efficiency through changes in the alloca- tion of resources while the latter reflects increased factor utilization as well as "rure" productivity change, which in turn may be due to changes in technique and the scale of production, or to technological progress at the micro level. There have unfortunately been no sufficiently detailed investigations to distinguish between these sources in the Korean case. TABLE R Factor Use in Manufacturing 1960 1966 1970 1973 Value Added (million 1970 US$) 392.8 80h.5 1,803.0 3,215.6 Employment (thousand persons) h77 958 1,448 2,020 Capital Stock (million 1970 US$) 772.0 1,273.2 2,137.8 2,080.5 Labor-Capital Ratio .62 .75 .68 .72 Value Added-Capital Ratio .51 .63 .84 l.lL Value Added-Labor Ratio .82 .84 1.25 1.59 Source: Hong (1976), capital stock, Table A.22; employment, Table 7.6; value added, Table A.27. 4.5 Incentives and Structural Change Additional evidence regarding the efficiency of Korea's industrialization may be found in the estimates of effective incentive rates. While the protection of infant industries, the need to raise revenues from tariffs, and the ability to achieve social and political goals through manipulation of the price mechanism argue in favor of some divergence between Korea: 4-55 world and domestic prices, world prices provide a standard against which the effects of incentive policies can be appraised. Large divergencies from world prices suggest the possibility that resource allocation is inefficient. In Section 3 we observed that nominal and effective incentive rates in 1968 were very low in comparison to those observed in many other developing economies. Equally important, effective incentive rates exhibit a relatively small dispersion among sectors in Korea, with those on export sales being somewhat less variable than those on domestic sales. As is widely known, effective incentive rates reflect both differential factor remuneration rates and comparatives efficiency differences across sectors, so that it cannot be ascertainecl without further evidence whether, for example, a high effective incentive rate is associated on the margin with higher than average profits or inefficient production. But low and relatively uniform rates obviously leavel very little room for much of either excess profits or inefficiency. A comrlete analysis of the relationship between incentives and resource al:Location would require effective incentive rates measured ex ante, Korea: 4-56 as well as knowledge regarding how the economy's structure would have evolved under alternative policy regimes. Unfortunately, we have neither. However, we can examine correlations between effective incentive rates and corresponding measures of resource allocation to obtain some insight into the proper 1/ interpretation of the former. Because they are based on nominal rates of protection from price comparisons, our estimates of effective incentive rates are ex post rather than ex ante measures. That is, given the apparent stability of incentive policies over at least the four years 1965 through 1968, our estimates reflect changes in the direction and efficiency of resource allocation that were induced by the system of incentives. As noted in Section 3.6, effective incentive estimates appear to be indicative of relative efficiency in Korea, for there is little evidence of factor market distortions. This proposition receives further support if we consider the speed of structural change in Korea's economy, reflecting the mobility and adaptability of its labor force and the fast pace of capital accumulation. Estimates of effective incentives to sales in the domestic and export markets may also reflect the relative profitability of selling in these markets. Indeed, the rank correlation between the estimates of effective subsidy rates on export sales and those on total sales is only .26 and the simple correlation only -.09, which suggests that incentives strongly affected effective subsidies to exports. By contrast, comparative efficiency would appear to dominate the estimates of effective subsidy rates on domestic sales, for the rank correlation between these and effective subsidy rates on total sales is .96 while the simple correlation is .48. 1/ For a detailed discussion of the issues involved in making such compari- sons, see Guisinger (1970). Korea: 4-57 Table S gives the rank correlation coefficients between effective incentive rates and measures of observed resource allocation. We begin our discussion with exports. Neither the shares of exports in domestic production nor the growth contributions of export expansion are significantly related to effective protection rates on export sales. However, both are significantly (at the .O5 level or better) and positively associated with effective subsidy rates on exports. The results are striking, for they demonstrate the importance of tax and credit preforences within the package of export incentives and suggest that export incentives had a positive impact on the expansion of exports. Neither moasure of resource allocation is correlated with the effective subsidy to total sales; however, this is consistent with the finding in Section 3.5 that they production of some of Korea's exports, including several major product groupl3 such as plyw0ood, appears to have been inefficient. The relationship between incentives and imports prompts a different set of conclusions. Shares Of imports in domestic supply are inversely related to legal tariff rates. However, legal protection tends to be redundant where domestic production is well established, while it is sometimes re- inforced by quantitative restrictions where domestic production does not yet constitute a reLatively high share of supply. Indeed, the relationship between nominal protection and import shares is just the reverse, and the corre-, lation is significant at the .01 level. The correlations between effective incentive rates on domestic sales and import shares are also significantly positive at the same confidence level, indicating that import substitution g These were obtained at the 117 sector level using the input-output data discussed in Secltion 4.3. There are 92 commodity producing sectors at this level. TABLE S Korea: 4-58 Rank Correlations between Measures of Incentives, Efficiency, and Resource Allocation A. Export Expansion Export SWre Growth Contributir7 of in 1968- Export Expansion 2 Measures of Incentives Effective Protection to Exports + Balassa -.16 -.15 Corden -.13 -.06 Effective Subsidy to Exports ** * Balassa .29** .26** Corden .28 .32 Possible Measures of Efficiency Effective Subsidy to Total Sales Balassa .01 .04 Corden .01 .04 B. Import Substitution Import Share Growth Contribution in 1968.3/ Import Substitution 2 Measures of Incentives ** Legal Tariffs -.27** .03+ Nominal Protection .30 .19 Effective Protection to Domestic Sales ** Balassa .32** -.14 Corden .32 -.15 Effective Subsidy to Domestic Sales ** Balassa .40 -.14 Corden .39 -.15 Possible Measures of Efficiency Effective Subsidy to Total Sales **+ Balassa .38** -.16+ Corden .38 -.16 Notes: +: Correlation is significant at the .10 level. N+:Correlation is significant at the .05 level. *: Correlation is significant at the .01 level. 1/ Share of exports in domestic production 2/ Refers to the proportional contribution of the respective source to the sector's own output growth beteen 1960 and 1968. 3/ Share of imports in domestic supply ISorea: 4-59 had progressed least in those sectors where the level of effective incen- tives was highest. Moreover, though insignificant, the correlations between effective incentive rates on domestic sales and the growth contributions of import substitution are negative, which is what one would expect if import substitution had progressed least in sectors where incentives were greatest. The results suLggest that import substitution was carried furthest in the more efficient sectors. Indeed, there is a significant positive relation- ship between effective subsidy rates on total sales and import shares, while the relationship between the former and growth contributions of import substitution is negative. However, these results are equally consistent with the alternative hypothesis that higher protection was given to the less efficient sectors, for high import shares and the absence of import sub- stitution may constitute presumptive evidence of comparative inefficiency. To provide more detailed insights, Tables T and U respectively present data at; the 117 sector level for selected, "major" export and import substitution sectors. Within manufacturing, the major export sectors listed in Table T are t]hose which contributed more than one percent to the growth of manufactured exports between 1960 and 1968. Within the primary group, the major export sectors are those which contributed the most to the growth of primary exports. Major import substitution sectors have been identified onl;r within manufacturing; those listed in Table U each contributed separately more than ons percent of the total contribution of import sub- stitution to manufacturing output growth. Sectors which are thus classified as both major export and major import substitution sectors have been designated by an asterisk in the tables. Sectors are ranked in Table T accord- ing to the contribution of exports to the growth of each (see column 5, Table T), and in Table U accarding to the contribution of import substitution to the, Korea: 4-60 growth of each (see column 5, Table U). Between 1960 and 1968, the major primary export sectors grew at 13 percent per annum, which substantially exceeded the 8.1 percent growth rate of the primary sector as a whole. In contrast, the major export sectors within manufacturing that were not also major import substitution sectors grew at an annual rate of 12 percent, which was considerably less than the aggregate growth rate of manufactured output, 16 percent. This has been explained by the slow growth of domestic demand for the output of these sectors. The major import substitution sectors that were not also major export sectors grew at 16 percent, while those classified under both headings grew at a compound annual rate of 24 percent. The major export sectors were together responsible for 96 percent of the total change in exports between 1960 and 1968. The growth of exports in the four primary export sectors offset declining exports of other primary production; thus, these four sectors contributed more to the growth of total exports than did all of the primary sectors together. The principal manufacturing export sectors included lumber and plywood, knit products, apparel and accessories, and other manufactured products (mostly wigs); these four sectors accounted for 53 percent of the growth of total exports. In a majority of the major manufacturing export sectors, export growth accounted for more than a third of the sector's expansion. In turn, most of the major export sectors received positive effective subsidies to exports; a number received higher than average effective subsidies on these sales. Moreover, the effective subsidy on exports was higher than that on domestic sales in 13 out of the 19 major manufacturing export sectors. In the other 6 sectors, however, there appears to have been a bias in favor TABLE T Effective Incentives to -Major Export Sectors Sector Share in Total Growth Contribution Effeccive Labor- Export Output Export Share of Export Subsidy Rate Capital Growth Growth 1960 i968 Expansion Export Average Ratio (1) (2) (3) (4) (5) (6) (7) (8) Primary Sectors -- Total 2.7 M i 4 j 2 1t32.7% -26 of thich: Metallic Ores 1.7 .3 6o7.4 70.5 78.0 2.3 . 4.16 Non-Metallic Minerals 1.0 .9 23.8 15.9 13.6 2.3 -4.2 6.02 Industrial Crops 1.0 1.7 4.8 6.1 6.8 -39.3 3.5 17.71 Fishing .9 2.7 11.0 6.3 3.7 11i9 1.8 3.02 Manufacturing Sectors -- Tot 214 73.6 2.6 U1 1. 15.1 12.k 6 2.6k of- ..- h.h Silk Yarn 4.4 .6 48.4 83.7 90.1 -5.2 -7.4 1.17 Knit Products 13.0 1.9 .0 57.8 78.7 3.1 9.8 5.56 Misc. Metal Products 1.4 .2 .8 25.7 74.3 8.4 -1.8 2.76 Other Fabrics 5.1 .3 .0 36.2 72.8 20.0 1.1 2.11 *Other Manufactured Products 8.9 1.5 13.0 59.0 69.0 3.8 21.8 5.22 *Lumber and Plywood 19.3 3.8 .7 42.6 57.6 94.7 -6.6 2.64 Processed Seafoods 5.1 1.4 17.4 33.6 42.0 -,7 -57.2 2.54 Worsted and Woolen Fabrics 1.1 .3 .2 10.6 39.7 -9.0 -2.3 2.91 *Apparel and Accessories 11.3 3.3 1.1 29.7 39.4 7.9 -24.7 9.18 Electronics 3.4 1.0 3.9 37.5 37.6 .3 62.8 5.63 Rubber Products 3.7 1.2 5.5 22.5 34.0 .6 -44.6 1.85 *Misc. Textile Products 2.0 .7 8.5 24.8 32.0 1.8 24.8 4.38 *Rope and Fishing Nets 1.3 .5 6.6 22.7 25.9 21.1 -11.8 4.59 Slaughtering, Neat & Dairy Products 2.1 1.1 .5 10.0 22.2 28.2 -8.3 10.44 Cotton Fabrics 2.1 1.1 9.2 15.7 21.7 350.4 298.4 2.78 *Electrical Equipment 1.2 .7 6.4 19.9 20.8 22.9 155.5 2.69 *Cement 1.4 1.7 1.2 8.2 9.2 7.1 -13.4 1.19 *Processed Tobacco 2.3 4.5 .1 4.5 5.9 18.5 -38.8 .68 *PprPrnlpi,m Prnducts 1.9 6.1 .0 3.7 3 7 2.1 -69.8 .11 Sources: Columns (1) to (5): Derived from input-output estimates at constant world prices, see Section 4.3 for the source of these estimates. Columns (6) & (7): Annex Table 2.B. Column (B); See the sources listed for Table P. Notes: Column (1): The formula for estimating the magnitude of export growth is given in Section 4,5. Columns (1) & (2): "Shares in Total" are for the period 1960 to 1968; "rtotal" refers to that for all commodity producing sectors combined, excluding scrap and unclassifiables (i.e., "other"). Columns (3) & (4): The export share equals exports as a percent of domestic production. Column (5): The contribution of export growth to the sectorts output growth, expressed as a percent of the change in output; for the period 1960 to 1968. Columns (6) & (7): Measured according to the Balassa convention. /Theshare Of all primary sectors in total export growth is less than that of the four sectors listed due to a fall in exports froe other primary sector.. * Donotes a sector classified as both exporting and import substituting; see the text for the basis of this classification. TABLE U Effective Incentives to Hlajor Import Substitution Sectors Sector Share in Total Growth Contribution Effective Labor- Import Output Import Share of Import Subsidy Rate Capital Substitution Growth 1960 196C Substitution Domestic Average Ratio () 3 () (5) (6) (7) Manufacturing Sectors -- Total 100.0% 100.0% 22.h% 3 3.2% -5.9% -L 5 2.64 Of which: Fertilizers 58.3 2.4 96.5 41.7 76.3 46.5 47.0 .71 *Petroleum Products 133.1 8.2 100.0 6.0 51.5 -73.1 -69.8 .11 Sewing Machines 3.2 .3 59.4 31.7 41.0 4.9 4.2 2.16 Misc. Electrical Equipment 8.1 .7 58.0 7.2 34.9 -822.6 -802.9 3.54 Hemp and Flax Yarns 1.3 .1 47.5 .6 32.9 181.0 179.1 1.53 Electric Products 5.2 .5 64.9 13.4 31.6 82.6 78.4 3.19 Drugs 18.5 2.0 36.9 14.3 28.8 -36.4 -36.3 2.32 Steel Ingots 11.0 1.3 28.8 7.4 26.5 -29.1 -29.1 .49 Paper and Paperboard 9.7 1.2 34.5 9.1 25.0 4.2 4.2 .85 Basic Inorganic Chemicals 3.1 .5 51.3 42.1 21.8 32.8 32.3 .66 Costmetics and Tooth Paste 2.8 .4 60.0 1.8 21.8 3.0 3.0 3.39 Cast and Forged Steel 4.2 .6 26.0 4.0 20.5 -17.3 *Other Manufactured Products -17.2 .97 12.4 2.0 78.3 21.4 19.7 47.4 21.8 5.22 Refined Sugar 7.4 1.4 38.6 19.9 17 0 -50.6 -49.3 2.63 *Electrical Equipment 4.3 .9 82.5 61.4 15.7 160.8 155.5 2.69 *Cement 8.6 2.3 9.8 3.8 11.6 -15.1 -13.4 1.19 Grain Milling 8.6 2.5 5.9 6.0 11.2 -13.3 -13.3 7.61 Steel Sheet and Bars 6.8 2.1 48.3 48.7 10.3 1451.6 1592.8 .86 *Rope and Fishing Nets 2.2 .7 12.7 6.4 9.3 -20.2 -11.8 4 59 Glass Products 1.6 .7 29.0 10.9 6.6 -16.4 -15.9 3.52 *Misc. Textile Products 2.0 1.0 11.7 2.9 6.4 31.7 24 8 4.38 *Apparel and Accessories 8.3 4.5 9.0 1.2 5.9 -37.5 -24.7 9.18 Other Paper Products 2.1 1.2 14.3 5.5 5.6 -10.7 -10.4 2.97 Other Clay and Stone Products 1.2 .7 11.7 3.2 5.5 -21.8 -21.2 5.94 *Processed Tobacco 5.7 6.1 7.3 .1 3.0 -42.4 -38.8 .68 Coal Products 1.3 1.9 1.3 .0 2.2 45.4 45.4 2.13 *Lumber and Plywood 1.7 5.2 2.6 .4 1.0 -46.6 -6.6 2.64 Sources: Columns (1) - (5):Derived from input-output estimates at constant world prices, see Section 4.3 for the source of these estimates. Columns (6) & (7): Annex Table 2.B Column (8): See sources listed for Table P. Notes: Column (1): The formula for estimating the magnitude of import substitution is given in Section L.5. 0 Columns (1) & (?): "Shares in Total" are for the period 1960 to 1968; "total" refers to that for all manufacturing sectors combined, excluding scrap and unclassifiables (i.e., "other"). 0 Columns (3) & (4): The import share equals imDorts as a Dercent of domestic sunnly (domestic nroduction plus imports minus exports). 4s Column (5): The contribution of import substitution to the sector's output growth, expressed as a percent , of the change in output; for the period 1960 to 1968. Columns (6) & (7): Measured according to the Balassa convention. * Denotes a sector classified as both exporting and import substituting; see the text for the basis of this classification. Korea: 4-63 of domestic sales. The subsidy rate on exports in these cases undoubtedly understates the incentive to export, for we have seen (Section 3.5) that exports appear sometinies to have been subsidized by linking profits on sales in a highly remunerative domestic market to export perfonmance. The 27 major Lmport substitution sectors together accounted for more than three times the total import substitution that took place within manufacturing between 1960 and 1968: two sectors alone -- fertilizers and petroleum products -- accounted for 191 percent of the total. There was obviously a good deal of negative import substitution elsewhere within manufacturing, particularly in machinery production. Most of the sectors in which import substitution made a relatively large contribution to growth are shown in Table U, though import substitution also made a substantial contribution to the growth of the relatively small pesticide and pulp sectors. Effective sutbsidy rates on domestic and total sales for the major import substitution sectors are less than the average for manufacturing in 14 out of 27 cases. And the sectors experiencing higher than average effec- tive subsidies to donmestic and total sales tend to have larger import shares in 1968 than do the other sectors.. To sumiarize the details shown in Tables T and U, the patterns discerned in the overall correlation analysis do not hold uniformly for the major export and import substitution sectors; but neither are the overall correlations perfect,, while regularity conforming to the overall relationships is evident. Our reswlts do not "prove" that the allocation of resources to export expansion was affected by export incentives, any more than they "prove" J This consideration, no doubt, also explains why we were unable to discover any significant relationship between various possible measures of the in- centive bias toward or against exports on the one hand and export shares or export growth :ontributions on the other. Korea: 4-64 that import substitution has been generally efficient. They merely demonstrate that the available information is reasonably consistent with these contentions. Korea: 5-1 5. Evaluation UJntil the early 1960s, Korea followed a protectionist strategy of import: substitution for non--durable consumer goods. Once import substitution could go no further in these areas, the government faced the choice of continuing with an "inward-looking" strategy but shifting to import substitution for intermediate and durable goods, or adopting an "outward--looking" strategy providing equal incentives to exports and to import substitution.- On the whole, it opted for the latter. Exporters have benefitted from unrestricted access to imported inputs and have paid neither tariffs nor indirect taxes on inputs. But, through increasing the relative price of competing imports and hence reducing the demand for them, protection of domestic sales has led to an over-valued exchange rate, the degree of over-valuation in 1968 having been around nine percent. To offset the consequent bias against exports, the government has provided several explicit export subsidies, including, among others, direct tax (unt:il 1973) and credit subsidies and excessive wastage allowanc-es on imported inputs. As a result, the average effective subsidy rates on domestic sales and exports were nearly equal in 1968. Effective incentives to exporting were more uniform across in- dustries than were effective incentives to selling in the domestic market (see Table F). Nonetheless, there were differences in effective subsidy rates oln exports across industries. There was some discrimination against 1/ See Balassa (1971). Korea: 5-2 primary exports, which was further magnified by an export tax on ginseng, one of Korea's principal primary exports, for which foreign demand is inelastic. In turn, within manufacturing, the variation benefitted less efficient exports, as explicit export subsidies were important only with respect to these (see Section 3.5). But, even though the less efficient sectors received higher than average effective subsidies to exports, effective subsidies to domestic sales in these industries were still higher, giving rise to an apparent bias of incentives against exporting. In contrast, low nominal protection in the domestic market, leading to negative effective subsidies to domestic sales, gave rise to an incentive bias in favor of exports in the more efficient industries. As we note in our concluding remarks with respect to the role of export targets, there is justification in some instances for inter- preting high effective incentives to domestic sales, at least in part, as a subsidy to exports. Linking the ability to sell in a profitable domestic market to satisfactory export performance appears to have been the means whereby many non-traditional industries whose initiation was fostered by the government were encouraged to produce for export rather than sell exclusively in the domestic market. Thus newly established import substituting industries have been generally encouraged to begin exporting almost at once. Incentives were given to import substitution in those industries that received positive net effective subsidies on total sales. Though overall import restrictions were gradually liberalized, quotas along with high tariffs continued in force to protect a number of small and Korea: 5-3 inefficient industries. Moreover, through the instruments of its planning apparatus, the government selectively promoted import sub- stitution in a few non-traditional areas, most importantly producers goods and, of late, consumer durables and automobiles. Thus many of the explicit subsidy mechanisms used to promote exports, particularly preferential credit allocations, have also been applied to engender import substitution. In short, though outward-looking, the government's strategy has not been one of purely neutral free trade. Incentive policies, particularly the instruments of protection, have discriminated in favor of agriculture and, within manufacturing, in favor of those sectors where there rpmained opportunities for substantial import substitution. But, with only a few exceptions, protection in the domestic market has been quite low by international standards. And, by maintaining the exchange rate near the free trade level and granting exporters free access to imported inputs, the government has been able overall to pro- vide, on the average, roughly equal incentives to production for domestic sale and for export. Moreover, though subsidies are not provided on a completely uniform basis with respect to value added at world prices, traditional and more efficiently produced exports have not been dis- criminated against. Incentive policies have contributed to the rapid expansion of exports, with annual increases averaging nearly 30 percent a year Korea: 5-4 between 1960 and 1975 in terms of constant prices. Korean entre- preneurs have shown themselves to be highly responsive to opportunities to export, with notable examples being the rapid rise of wig exports in the early 1960s and later the fast expansion of electronics and footwear exports. Also, miscellaneous manufactures, the composition of which is continually changing, have long been a dynamic export sector. Manufactured exports, which accounted for only 14 percent of commodity exports in 1960, reached 82 percent of the total by 1975. Furthermore, manufactured exports have become increasingly more di- versified, so that in 1975 Korea was a major exporter of electrical machinery and applicances, electronics, transport equipment, various manufactures of metal and nonmetallic minerals, and footwear, in addition to wigs, textiles, clothing, and plywood, which had led the initial growth of exports. But iprimary exports too rose at a rapid rate, averaging 22 percent per annum between 1960 and 1975. There is little evidence to suggest that Korea's special relationship with Japan and the U.S. has been responsible for this phenomenal performance. In fact, the combined share of these countries in Korea's exports declined from 70 percent in 1960 to 56 percent in 1975. Also, direct foreign investment has played a very small part in Korea's industrial growth; it accounted for less than five percent of the capital stock in the manufacturing sector in 1970 and only about 11 percent of exports. Largely because of the growth of manufactured exports, Korea has experienced very rapid industrialization. Since 1960, manufacturing Korea: 5-5 output has grown at an annual rate of 19 percent, while manufacturing value added has increased at a rate of 17 percent per annurm. With real GNP growing at nine percent annually, the share of manufacturing in GNP has risen from 11 percent in 1960 to 32 percent in 1975. Real per capita income over this period increased at 6.6 percent per annum, and by 1975 Korea's population of over 34 million had a per capita income of over $500, as compared to less than $200 in 1960 (in 1975 prices). The growth of manufactured exports over the past 15 years has contributed to Korea's industrial development in various ways. Export expansion was directly responsible for more than one quarter of the growth of manufactured output and for an even larger fraction of the increase in manufacturing employment. In turn, the manufacturing sector has accounted for nearly 40 percent of both GNP and employment growth. But these figures understate the contribution of export growth; among other factors, they do not reflect the backward linkage to domestically produced intermediate inputs, the multiplier effect due to increased consumption and investment out of the additional income earned, or the increase in economic efficiency that results from exporting in line with a country's comparative advantage. All of the available evidence points tc increased factor utilization and allocative efficiency as a result of export growth. One indicator, albeit crude, is the fall in the open unemployment rate from 8.3 percent Korea: 5-6 in 1962 to 4.1 percent in 1975. Another is the increase in the aggregate capacity utilization rate within manufacturing, which by one set of estimates rose by more than seven percent per annum between 1962 and 1971. Korea has exploited its comparative advantage in labor intensive activities: over the 1960s, for which the evidence has been most carefully analyzed, manufactured exports were more labor intensive than manufactured imports, and they became increasingly more labor intensive over time even as shifts in the composition of output caused manufacturing production for the domestic market to become some- what more capital intensive. The aggregate labor-capital ratio in the manufacturing sector actually increased-between 1960 and 1973; at the same time, total factor productivity about doubled. In Korea's case, resource allocation along the lines of com- parative advantage has meant not only that labor intensive exports pay for capital intensive imports, but also that there has been an increase in the share of trade in total economic activity. This can in part be traced to its very poor natural resource endowment, which has led to an increasing dependence upon imports to supply foodgrains and especially energy sources. But the rise in the share of imports in GNP from 10 percent in 1960 to 27 percent in 1975 also reflects the fact that the growth of export earnings permitted increased imports of producer goods which were not available from domestic sources. Another con- tributing factor has been the continued high import content of exports (around 50 percent, including indirect imports), which in turn has resulted Korea: 5-7 from Korea's export specialization in labor intensive processing. The high import content of Korea's exports is not a consequence of the export incentive system, for it is neutral as between the use of imported and domestically produced intermediate inputs (of the same quality) in the production of exports, except insofar as wastage allowances on imported inputs provide a bias in favor of their use. With protection in the domestic market and currency over-valuation, it is of course true that free access to imported inputs leads to a bias in favor of using them unless somehow offset. However, protection and currency over-valuation are both low in Korea. Moreover, the government has usecl the device of the "domestic L/C," which gives the full range of export incentives to producers of intermediate goods supplied to exporters, to negate the remaining bias. Suppliers of exporters have thus been permitted free access to intermediate inputs at world prices, the same as exporters. By avoiding excessive subsidies to backward integration from exports, this system appears to have induced only those backward linkages that permitted efficient production. In turn, additional import substitution incentives have been granted to those industries, for example petrochemicals, where a case can be made that inefficient production has been established at government initiative and in part to supply exporters. Until recently, however, incentives granted to export and import substituting activities alike have discriminated against purchases of domestically produced machinery and equipment through tariff exemptions Korea: 5-8 and easy access to low interest rate credits tied to the purchase of imported capital goods.- Frank, Kim, and Westphal (1975, Chapter 7) estimate that in the late 1960s the difference between the high interest rate on domestic commercial credit and the interest rate charged on suppliers' credits to purchase imported capital goods increased the real purchase cost (i.e., including the discounted value of interest payments) of indigenous capital goods by roughly 20 percent. This discrimination against the domestic capital goods sector has not been captured in 2/ the estimates given above in Section 3. Within the last several years, having recognized the retarding effects of its policies on the domestic capital goods sector, the government has abolished automatic tariff exemptions for exporters on their capital goods imports and has estab- lished a relatively large fund to provide medium term domestic credit at an interest rate near the world market level. The import substitution that has taken place has been selective, and its structure has undergone continual change. After 1960, import substituting investment concentrated first on fertilizer and cement, then on petrochemical derivatives and electrical products, and more recently on basic petrochemicals, iron and steel, and transport equipment. 1/ This has been thoroughlv documented by Rhee and Westphal (forth- coming) for textile weaving machinery. 2/ The relatively high net effective subsidy rate on total machinery sales in 1968, 15 percent, does not characterize all types of machinery. In particular, negative rates are observed for non- electrical machinery products that had been produced in some volume over a relatively long time, including metal working, mining & construction, and textile machinery. Korea: 5-9 Korea's industrial. structure cannot be characterized as overly con- centrated in the light manufacturing sectors; the heavy sectors are relatively large aLnd expanding rapidly. The important point is that selective import substitution has permitted the concentration of scarce investment resources in one or a few sectors at a time and thereby enabled greater exploitation of scale economies and of linkages among closely allied act:ivities. All in all, the structural changes induced by the shift to the outward-looking policy regime resulted in a more efficient allocation of resources as exports of labor intensive manufactured products ex- panded to finance rapidly growing imports of foodgrains and capital and skill intensive manufactured products. Beginning in the late 1960s and continuing into the 1970s, a smooth transition appears to be under- way toward exploil:ing Korea's emerging comparative advantage in skill intensive products. Textile exports, for example, have shifted toward quality articles of finished clothing and specialty items such as camping equipment and away from cloth and lower quality apparel. Simultaneously, itaport substittttion in the producer goods sectors is proceeding selectiLvely where ec:onomies of scale can be achieved, though there may be some cases of premature domestic production. Part of the explanation for Korea's rapid and sustained growth thus lies in the efficiency with which available resources have been Korea: 5-10 1/ allocated, and hence in the policies adopted with the changeover to an outward-looking strategy. In addition to changes in trade policy, com- plementary mDnetary and fiscal reforms played an important role. During the first half of the 1960s, the government relaxed controls on interest rates, increased tax revenues, rationalized its internal budgeting operations, and started on a continuous campaign of varying success to stabilize in- flation at a low rate. These policies led to greatly increased savings and a better directed allocation of investment funds. Without them, the resources required for rapid growth would have been lacking. In addition, wages and the cost of capital have been kept reasonably in line with relative factor scarcities. Korea's experience with export-led industrial development has been striking not merely on the narrow grounds of GNP growth rates alone. As a result of also being labor-intensive, industrial development has produced rapid employment growth at the same time that labor productivity has been rising. Thus, Korea does not at present have a serious unem- ployment problem. In turn, the distribution of income is not markedLy un- equal. In fact, surveys reveal that the distribution of consumption expenditure among Korean households tends to be more nearly equal than it is elsewhere in the world and that this distribution does not appear to have 1/ Norton (1971) makes the same argument. Korea: 5-11 1/ deteriorated over time. Exports have thus proven to be a powerful engine of economic growth and, due to their labor intensity, have con- tributed greatly to rapid employment growth, which in turn has doubtless been a major factor in maintaining a relatively even distribution of consumption. While Korea's successful development derives from its outward- looking strategy and the resulting process of export-led, labor-in- tensive industrialization, other factors have helped. The most obvious of these is the high level of foreign assistance, during the 1950s and early 1960s, which contributed to building the infrastructure for subsequent growth. And, foreign capital inflows from all sources have continued to be substantial thereafter. Between 1960 and 1975, roughly 40 percent of total investment was financed from abroad. At the same time, it should be emphasized that foreign capital inflows have been used efficiently: Korea's gross incremental capital-output ratio (around 2.4) is quite low compared with those in other developing countries. Moreover, the availability of private foreign capital to Korea has largely been in response to its favorable export performance, so that one must be careful not to conceive of capital inflows since the mid-1960s as being "exogenous." Political factors made it possible to change policy in the early 1/ See Frank, Kim:, and Westphal (1975), Chapter 11, for details regarding this and the following points. Adelman (1974) and Renaud (1976) survey the evidence regarding Korea's income distribution in detail. Korea: 5-12 1960s and to maintain sound policies thereafter. Since shortly after the overthrow of the Syngman Rhee regime, which was partly stimulated by its economic mismanagement, Korea has had a strong government motivated and able to impose far-reaching economic policies, including frequent devaluations of the currency and tax measures which have kept government savings at high levels except immediately after the rise in energy prices. In turn, where the government has intervened in labor markets, it has generally-been to counter organized labor, which as a result is not a powerful interest group. But, at the same time, in the framework of free labor markets, wages have risen in response to labor market conditions, so that in the fifteen years since 1960 the average real wage in mining and manufacturing increased 5.5 percent per annum. Also important were the "initial conditions" at the start of Korea's rapid industrialization.- With respect to the determinants of income distribution, Japanese colonial occupation led to the virtual destruction of the landed aristocracy which had ruled Korea prior to the Japanese takeover. A far-reaching land reform was initiated by the United States occupation government after World War II and completed by the Korean government in 1952. This, along with the economic dislocation caused by the wars and the departure of the Japanese, produced a relatively egalitarian distribution of assets throughout the society. Additionally, Korea inherited from its Confucian past a culture in which a very high value is placed on education. Through parents' efforts, and Korea: 5-13 despite the fact that public expenditures on education in Korea have been low by international standards, it has one of the highest literacy rates in the world and a very high proportion of secondary and uni- versity graduates. The large investment in human capital has yielded a highly skilled labor force obtained without great expenditure of public resources. While a variety of factors have contributed to Korea's successful development, the key fact nonetheless remains that economic policies have made a large contribution to fostering what appears to be a reasonably efficient and equitable process of industrialization. Thus Korea provides an almost classic example of an economy following its comparative advantage and reaping the gains predicted by conventional economic theory. Since Korean entrepreneurs first demonstrated their capacity to expand exports rapidly, there has been debate within the government between the advocates of an even more outward-looking, laissez-faire strategy and the supporters of increased government intervention. The latter tend to fall into one of two camps: those who believe it necessary for the government actively to promot:e new export lines in anticipation of Korea's shifting compalative advantage and in response to threatened or actual import restrictions in it:s major overseas markets; and those who believe the economy is too dependent upon exports. Neither of these schools appears to have been justified bv events since 1968. In overall terms, government intervention Korea: 5-14 has, if anything, diminished over time. Yet Korean entrepreneurs have successfully developed a number of major new export lines and have "gotten around" textile export quotas, which are expressed in volume terms, by shifting toward higher quality, higher value-added varieties. In turn, the Korean economy's performance during and immediately after the recent world recession has been far better than that of most other developing economies and than expected by the government. A related question concerns the role of export targets in explaining Korea's successful export performance. As we have noted previously, the government established annual export targets broken down quarterly and in considerable detail by commodity, market, and domestic exporter starting in 1962. Export targets have generally been met, and indeed exceeded, for the export promotion campaign has had high priority, as may be seen in the following. Adjoining the Minister of Commerce and Industry's office is an "export situation" room laid out so that potential export shortfalls can be found at a glance. A large staff main- tains alsost daily contact with the major exporters and it is not uncommon for the Minister to intercede in the event of possible difficulties in meeting targets. Korea's President receives monthly briefings regarding current export performance and prospects. The emphasis on export promotion was given further expression in 1969 when exporters began to be graded into four classes on the basis of export performance, with the highest export achievements bringing the national medal of honor, public Presidential commendation, and a number of more material benefits including relaxation of tax surveillance. Korea: 5-15 It would be naive to conclude from this that targets independently set by the government determined actual export levels, for the targets were meant to be indicative and as such were set jointly by the government and the various exporters' associations. Further- more, as noted, export targets were by-and-large exceeded, even when revised upwards during the course of a.year. Though both adequate export incentives and export targets were part of Korea's overall export promotion policy, which makes it impossible unambiguously to separate the effects of each, it is very clear that failure to provide adequate incentives would have severely retarded export growth. In this sense, export incentives were a necessary condition for Korea's phenomenal export performance. Were export targets also a necessary condition? Possible evidence that export targets may have had a part in stimulating exports in some sectors comes from the effective incentive estimates for 1968. It will be recalled (see Section 3.5) that several export sectors appear to have operated as cartels and, through protection, received higher incentives to sell on the domestic market than to export. Under the circumstances, exporting can of course be explained in terms of discriminaLting monopoly, but equally the government may have encouraged the formnation of cartels in these industries to promote statically inefficient, non-traditional exports through using the export targeting system.-/ In fact, export subsidies such as the wastage allowance rate 1/ On the distinction between static and dynamic comparative advantage, see Chenery (1965). Korea: 5-16 sometimes appear to have been jointly negotiated between government and business simultaneously with export targets. But whether these sectors would have exported less without export targets is a matter of speculation. And, in any event, these industries together accounted for no more than 20 percent of Korea's manufactured exports in 1968. With respect to most exports, the targets complemented incentives without which rapid export growth would not have been possible. One important function filled by the export targeting system has been to keep the government well informed regarding export performance so that timely changes could be made in incentives, often including ad hoc assistance to individual exporters. The other function of the export targeting system and its trappings has been to publicize the importance attached by the government to exports: export incentives are well-advertised and access to them is immediate. An atmos- phere has thus been created in which businessmen can be certain that the incentive system would reward efforts to export. Businessmen have responded by taking the substantial risks of expanding production and capacity for export. Korea: B-1 BIBLIOGRiPHY Adelman, Irma, editor (1969). Practical Approaches to Development Planning: Korea's Second Five-Year PIan. Baltimore: Johns Hopkins Press. Adelman, Irma (107h). "South Korea.." In Chenery, Hollis, et al. Redistribution with (Growth. London: Oxford University Press (for the World Bank and the Institute of Development Studies, University of Sussex). Balassa, Bela (1971). "Industrial Policies in Taiwan and Korea." Weltwirtschaftliches Archiv, band 105, heft 1, 55 - 77. Balassa, Bela, and Associates (1971). The Structure of Protection in Developing Countries. Baltimore: Johns Hopkins Press (for the World Barik). Balassa, Bela (1977). Policy Reform in Developing Countries. London- Pergamon Press. Bhagwati, JagcLish (1965). "On the Equivalence of Tariffs and Quotas.2' In Baldwin. Robert E., et al., editors. Trade Growth, and Balance of Payment: Essays in Honor of Gottfried Haberler. Chicago: Rand MlcNally. Brown, Gilbert T. (1973). Korean Pricing Policies and Economic Development in the 196 0's. Baltimore: Johns Hopkins Press. Chenery, Hollis B. (1965). "Comparative Advantage and Development Policy," Surveys of Economic Theory, Vol. II: Growth and Development. New York: St. Ilartin's Press. Chenery, Hollis B., S. Shishido, and-T. Watanabe (1962). "The Pattern of Japanese Growth, 19114-1954," Econometrica, 30, 98-139. Chenery, Hollis and Moises Syrquin, with the assistance of Hazel Elkington (1975). Patterns of Development4 1950-1970. London: Oxford University Press (for the World Bank). Choe, Boum Jong (1975). "An Economic Study of the Masan Free Trade Zone." In Hong and Krueger (1975). Cohen, Benjamin I. (1973). "Comparative Behavior of Foreign and Domestic Export Firms in a Developing, Economy." Review of Economics and Statistics 60: 190-197. Cole, David C., and Princeton N. Lynan (1971). Korean Developmient: The Interplay of Politics and Economics. Cambridge: Harvard University Press. Cole, David C., and Larry Er.Westphal (1975). "The Contribution of Exports to Employment :in Korea." In Ilong and1 Krueger (1975). Fan-, George (1971). "Import Substitution and Export Expansion: Their Measurement and Example of Their Application," The Pakistan Development Review, 11, 1-17. Korea: B-2 Frank, Charles R., Jr., Kwang Suk Kim, and Larry E. Westphal (1975). Foreign Trade Regimes and Economic Development: South Korea; A Special Conference Series on Foreign Trade Regimes and Economic Development, Volume VII. New York: National Bureau of Economic Research. Guisinger, Stephen E. (1970). "The Theory and Measurement of Effective Protection: The Case of Pakistan." Unpublished Ph. D. Thesis, Harvard University. Han, Kee Chun (1970). Estimates of Korean Capital and Inventory Coefficients in 1968. Seoul: Yonsei University. Hasan, Parvez (1976). Korea: Problems and Issues in a Rapidly Growing Economy (A World Bank country economic report). Baltimore: Johns Hopkins Press (for the World Bank). Hong, Wontak and Anne 0. Krueger, editors (1975). Trade and Development in Korea. Seoul: Korea Development Institute. Hong, Wontak (1976). Factor Supply and Factor Intensity of Trade in Korea. Seoul: Korea Development Institute. Kim, Kwang Suk (1971). "Trade and Industrial Policy in Korea (19h5-1970)." Seoul: Korea Development Institute (mimeo.). Kim, Young Chin, and Jene K. Kwon (1976). "The Utilization of Capital and the Growth of Output in a Developing Economy: Case of South Korean Manufacturing Industry, 1962-1971." Dekalb, Ilinois: Department of Economics, Northern Illinois University. Kuznets, Paul W. (1977). Economic Growth and Structure in the Republic of Korea. New Haven: Yale University Press. Lee, Seung Yun (1971). A Study of Price Comparison(s) between Domestic Producers' Unit Prices and International Prices. Seoul: Sogang University. Leontief, W. (1954). "Domestic Production and Foreign Trade: The American Capital Position Re-Examined," Economia Internazionale, 7, 9-38. Lewis, Stephen R., Jr., and Ronald Soligo (1965). "Growth and Structural Changes in Pakistan's Manufacturing Industry, 1954-196h," Pakistan Development Review, 5, 9h-139. Little, Ian M., Tibor Scitovsky, and iaurice Scott (1970). Industry and Trade in Some Developing Countries: A Comparative Study. London: Oxford University Press (for the Organization for Economic Cooperation and Development). McDiarmid, Orville John (1977). Unskilled Labor for Development: Its Economic Cost. Baltimore: Johns Hopkins University Press (for the World Bank). Norton, Roger D (1971). "The South Korean Economy in the 1960's," Washington: The World Bank, Development Research Center. Korea: B-3 Ranis, Gustav (1971). "The Role of the Industrial Sector in Korea's Transition to Economic Mlaturity," presented to the ILCORK (International Liaison Committee of Rese2arch in Korea) Conference on Industrialization in Korea, Seoul, Korea. Rhee, Yung W., and Lar:ey E. .Westphal (forthcoming). "A Micro, Econometric Investigation of the Impact of industrial Policy on Technology Choice." Journal of Development Economics. Suh, Sang Chul. (1975). "Development of a New Industry through Exports: The Electronics Industry in Korea." In Hong and Krueger (1975). Suh, Suk Tai (1975). "Import Substitution and Economic Development in Korea." Seoul: Korea Development Institute, Working Paper No. 7519. Westphal, Larry E. (1971). "An Intertemporal Planning Ilodel Featuring Eccnomies of Scale." In Chenery, Hollis B., et al. Studies in Development Planning. Cambrige: Harvard University Fress. Westphal, Larry E., ancl Irma Adelman (1972). "Reflections on the Political Economy of Planning: The Case of Korea." In Jo, S. H., and S. Y. Park, editors. Basic Documents and Selected Papers of Korea's Third Five-Year Economic Development Plan (l972-197). Seoul: Sogang University. Westphal, Larry E., ancl Kyu Soo Kim (1977). "The KDI Input-Output Data Bank." Seoul: Korea Development Institute (mimeo.). Annex Table 1 Korea: A-1 Nominal Rates of Protection in 1968: Production, Exports and Imports in 1966 Industry or Product Category Legal Tariff Actual Price Comparison Nominal Rate Import Import Export Coverage Sales in Total Special Tariff Export Import of Protection Control Share Share & Weights World Market Prices Basis Domestic Average Exports Domestic Total (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) I. Agriculture, Forestry, & Fishing 1. Rice NIC 25% 0% 14.2% 14.0% .6% 1.3% 84.9% 1865 139262 141127 Polished rice NIC 25 0% 0 14.2% 14.2 14.0 R(SL) .6 1.3 100.0 1865 139262 141127 P 2. Barley & Wheat IC 23 0 46.5 46.5 23.0 .0 83.8 0 35094 35094 Barley NIC 25 0 0 58.2 58.2 58.2 R(SL) .0 .0 43.8 0 15367 15367 P daked Barley NIC 25 0 0 37.0 37.0 37.0 R(SL) .0 .0 42.2 0 14822 14822 P Wheat IC 10 0 0 38.7 38.7 38.7 R(SL) 68.1 .0 14.0 0 4905 4905 P 3. Pulses & Misc. Cereals NIC 25 10 .0 .0 .0 .3 69.2 33 9606 9639 Soy beans NIC 25 0 12 -7.7 .0 .0 R(SL) .0 .0 83.2 2 8021 8023 Z Millet NIC 25 0 -7.2% -7.2 .0 .0 R(SL) .0 1.9 16.8 3-1 1585 1616 Z 4. Potatoes NIC 40 0 .0 .0 .0 .5 92.1 161 2-901 30062 Potatoes NIC 40 0 0 -55.7 .0 .0 AA .1 1.8 29.1 160 8595 8755 Z Sweet potatoes NIC 40 0 -70.4 .0 .0 AA .0 .0 70.9 1 21306 21307 z 5. Vegetables NIC 206 113 91.3 89.6 .0 1.9 58.7 311 15919 16230 Red pepper NIC 277 217 161 129.6 129.6 129.6 R(SL) .0 .0 68.8 0 11173 11173 P Chinese cabbage NIC 40 0 1.2 1.2 1.1 AA .0 6.2 31.2 311 4746 5057 p Garlic NIC 40 0 AA N 6. Fruit NIC 25 .0 .0 .0 1.6 78.5 118 7304 7422 Apples NIC 25 0 -27.5 -34.0 .0 .0 PR .0 2.4 62.9 113 4557 4670 Z Pears NIC 25 0 -20.0 -44.4 .0 .0 PR .0 .3 16.2 3 1195 1198 z Peaches NIC 25 0 -58.3 .0 .0 PR .0 .1 20.9 2 1552 1554 z Notes appear at the end of the table on pages A-22 and A-23. Korea: A-2 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 7. Tobacco NIC 150 14 .0 .0 .0 .0 99.9 0 9558 9558 Leaf tobacco NIC 150 0 14 -9.0 .0 .0 R(SL) .0 .0 100.0 0 9558 9558 Z 8. Medical Crops X 25 -35.4 -35.4 .1 39.1 51.6 535 833 1368 Ginseng X 25 0 -35.4 -35.4 -35.4 -35.4 R(SL) .1 39.1 100.0 535 833 1368 P 9. Misc. Crops NIC 24 2 21.6 21.6 .0 .0 38.5 0 2842 2842 Cotton NIC 10 0 4 -23.3 .0 .0 A .0 .0 53.8 0 1530 1530 Z Hemp NIC 20 0 0 9.3 9.3 9.3 AA .0 .0 21.9 0 624 624 P Sesame NIC 60 0 63.4 63.4 63.4 R .0 .0 20.0 0 568 568 P Wild sesame NIC 60 0 175.4 162.6 162.6 162.6 R .0 .0 4.3 0 120 120 P Mulberry leaves NIC 10 0 AA N 10. Poultry NIC 21 0 20.1 19.6 .0 2.5 88.3 313 12370 12683 Eggs NIC 35 0 0 29.9 29.9 29.9 28.3 R .0 5.3 46.3 313 5560 5873 P Chickens NIC 10 0 0 12.0 12.0 12.0 R .0 .0 53.7 0 6810 6810 P 11. Livestock NIC 10 0 .0 .0 .0 .0 62.4 2 24462 24464 Hogs NIC 10 0 0 -23.3 .0 .0 R(SL) .0 .0 47.8 0 11697 11697 Z Native cattle NIC 10 0 0 -18.2 .0 .0 R(SL) .0 .0 52.2 2 12765 12767 Z 12. Forest Products NIC 10 10 5.7 5.7 13.1 .0 9.9 1 2572 2573 Timber IC TO 0 10 5.7 5.7 5.7 AA 13.1 .0 100.0 2572 2573 P Green manure NIC 0 0 M N 13. Fishing X 35 1 .0 .0 .0 18.4 58.9 2653 11783 14436 Fresh fish X 35 0 1 -11.5 -11.5 ,0 .0 R .0 18.4 100.0 2653 11783 14436 Z Fresh laver NIC 25 0 R N It. Processed Food 14. Slaughtered & Processed Meat NIC 35 13 .0 .0 .1 .0 84.2 1 16691 16692 Beef NIC 35 0 0 -13.2 .0 .0 AA .1 .0 57.4 0 9577 9577 Z Pork NIC 35 0 26 -18.7 .0 .0 AA .0 .0 25.2 0 4206 4206 Z Cattle & pig intestines NIC 35 0 40 -27.3 .0 .0 AA .0 .0 17.4 1 2908 2909 Z Korea: A-3 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 15. Dairy Products IC 93 3 17.4 17.4 52.5 .0 41.2 0 521 521 Margarine NIC 100 0 3 -58.7 .0 .0 R .6 .0 65.5 0 341 341 Z Powdered milk IC 80 0 0 39.8 39.8 39.8 R 84.0 .0 20.7 0 108 108 P Condensed milk IC 81 1 4 65.8 65.8 65.8 PR 11.1 .0 13.8 0 72 72 P Pasteurized milk NIC 60 0 11 R N 16. Processed Fruits & Vegetables XIC 111 48 10.8 6.8 13.9 36.8 59.5 94 162 256 Canned fruits IC 104 4 18 18.7 13.6 13.6 13.6 R 16.8 .0 27.3 0 70 70 P Canned mushrooms X 107 7 56 .0 .0 .0 .0 AA .0 100.0 36.7 94 0 94 P Dried fruits & vegs. IC 121 61 91 -12.5 .0 .0 AA 14.3 .0 28.1 0 72 72 Z Jelly & jam NIC 100 0 1 40.0 40.0 40.0 R .0 .0 7.9 0 20 20 P Kimchi & salted radish NIC 100 0 AA N 17. Canned Seafoods X 100 3 10.9 1.6 .0 85.2 100.0 473 82 555 Seafoods X 100 0 3 10.9 10.9 10.9 1.6 R .0 85.2 100.0 473 82 555 P 18. Sea Weed X 31 9 -60.1 -32.6 .0 45.9 87.0 3160 3730 6890 Agar-agar X 98 18 89 16.8 16.8 16.8 4.4 M .0 74.0 15.6 797 281 1078 P Dried layer X 25 0 2 -66.4 -66.4 -66.4 -39.4 R .0 40.7 84.4 2363 3449 5812 P 19. Other Processed Seafoods K 35 17 .0 .0 .0 26.3 82.7 1708 4783 6491 Dried fish X 35 0 0 -20.4 -20.4 .0 .0 R .0 50.1 24.5 798 795 1593 Z Cooked fish NIC 35 0 0 - 3.3 .0 .0 R .0 .0 18.2 0 1179 1179 Z Frozen seafoods X 35 0 29 - 4.9 - 4.9 .0 .0 R .0 24.5 57.3 910 2809 3719 Z 20. Grain Milling IC 35 0 .0 .0 24.8 .0 49.0 1 9822 9823 Wheat milling IC 35 0 0 -24.4 .0 .0 R(SL) 24.8 .0 100.0 1 9822 9823 Z Rice polishing NIC 0 0 R(SL) N 21. Bakery Products NIC 123 4 24.0 24.0 .0 .0 34.9 0 1237 1237 Bread and cakes NIC 123 23 4 24.0 24.0 24.0 AA .0 .0 100.0 0 1237 1237 P Biscuits NIC 123 23 4 AA N 22. Confectionery NIC 119 0 9.4 9.3 .7 1.4 79.2 29 2012 2041 Candy NIC 100 0 -26.2 .0 .0 R 1.2 2.3 62.7 29 1251 1280 Z Chewing gum NIC 150 0 1 24.8 24.8 24.8 PR .0 .0 37.3 0 761 761 p Korea: A-4 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 23. Refined Sugar NIC 40 40 .0 .0 .1 3.2 97.1 194 5916 6110 Sugar NIC 40 0 40 -14.4 .0 .0 R .1 3.2 100.0 194 5916 6110 Z 24. Seasonings & Oils NIC 95 15 11.1 11.1 .0 .1 62.1 11 9298 9309 Soy sauce NIC 102 2 23 -61.6 .0 .0 M .0 .4 33.7 11 3123 3134 Z Monosodium gluta- mate NIC 141 41 6 -54.7 .0 .0 PR .2 .0 22.5 0 2094 2094 Z Sesame oil NIC 98 38 89 22.0 22.0 22.0 R .0 .0 7.4 0 689 689 P Powdered red pepper NIC 60 0 26.1 26.1 26.1 R(SL) .0 .0 36.4 0 3393 3393 P 25. Other Food Pre- parations NIC 84 19 18.0 17.6 1.6 2.2 80.7 192 8380 8572 Manufactured ice X 0 0 -18.5 .0 .0 AA .0 12.0 10.6 109 800 909 Z Chinese vermicelli NIC 101 1 21 -5.4 - 9.5 .0 .0 AA .0 .0 9.3 0 797 797 z Sweet potato starch NIC 80 0 24.9 24.9 24.9 AA .0 .0 11.6 0 994 994 P Bean curd NIC 100 0 -43.7 .0 .0 R .0 .5 27.1 11 2310 2321 Z Millet jelly NIC 100 0 0 19.5 19.5 19.3 AA .0 .8 15.8 11 1346 1357 P Mixed fodder IC 21 1 2 6.2 .9 .9 .9 R 10.6 4.9 14.5 61 1178 1239 P Yeast NIC 163 83 151 103.3 103.3 103.3 R .0 .0 11.1 0 954 954 P Bean sprouts NIC 100 0 AA N III. Beverages & Tobacco 26. Beer NIC 150 8 5.8 5.5 .1 5.9 100.0 353 5592 5945 Beer NIC 150 0 8 5.8 5.8 5.5 R .1 5.9 100.0 353 5592 5945 P 27. Other Alcoholic Beverages NIC 138 14 19.5 19.5 .1 .1 95.8 13 12285 12298 Spirits NIC 106 6 22 23.2 23.2 23.2 R .0 .1 26.7 4 3275 3279 P Soju NIC 150 0 19.2 19.2 19.2 R .0 .0 56.0 1 6883 6884 P Chungju (sake) NIC 150 0 49 16.6 16.6 16.6 R .0 .0 15.2 0 1871 1871 P Fruit wine NIC 150 0 32 -41.0 .0 .0 R 2.7 3.0 2.1 8 256 264 Z 28. Soft Drinks NIC 100 1 3.2 3.2 .0 .0 88.2 0 1550 1550 White carbonated water NIC 100 0 1 4.4 4.4 4.4 R .0 .0 72.2 0 1119 1119 P Brown carbonated water NIC 100 0 1 -13.0 .0 .0 R .0 .0 27.8 0 431 431 Z Korea: A-5 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 29. Processed Tobacco NIC 150 3 -13.5 -12.7 .0 6.3 100.0 1823 27047 28870 Cigarettes NIC 150 0 3 -13.5 -13.5 -12.7 PR(SL) .0 6.3 100.0 1823 27047 28870 P IV. Mining & Energy 30. Coal NIC 10 10 10.0 9.71 .0 2.9 99.5 407 13573 13980 Anthracite NIC 10 0 10 25.7 25.7 10.0 9.71 AA .0 2.9 100.0 407 13573 13980 T 31. Iron Ore NIC 0 .0 .0 .1 9.2 100.0 165 1636 1801 Hematite X 0 0 .n .o AA 1.7 5°.5 15. 15 117 282 Z Magnetite NIC 0 0 - 7.3 - 7.3 .0 .0 R .0 .0 84.3 0 1519 1519 Z 32. Tungsten Ore X 0 .0 .0 .0 85.0 100.0 2587 457 3044 Tungsten X 0 0 - 2.6 - 2.6 .0 .0 AA .0 85.0 100.0 2587 457 3044 Z 33. Lead Ore X 0 .0 .0 .0 75.5 99.9 455 148 603 Lead X 0 0 37.7 37.7 .0 .0 AA .0 75.5 100.0 455 148 603 Z 34. Zinc Ore X 0 .Q .n .0100.0 100.0 406 0 406 Zinc X 0 0 -27.2 -27.2 .0 .0 AA .0 100.0 100.0 406 0 406 Z 35. Gold. Silver & Copper Ores NIC 0 21.3 20.4 .0 4.5 92.5 29 617 646 Gold NIC 0 0 84.5 84.5 84.5 R(SL) .0 .0 24.1 0 156 156 P Silver X 0 0 - 5.6 - 5.6 .0 .0 AA .0 12.3 20.1 16 114 130 Z Copper NIC 0 0 -22.0 .0 .0 AA .0 3.6 55.8 13 347 360 Z 36. Other-Metallic Minerals NIC 0 .0 .0 .0 .0 92.8 0 592 592 Bismuth NIC 0 0 3.7 .0 .0 AA .0 .0 21.9 0 130 130 Z Molybdenum NIC 0 0 6.4 .0 .0 AA .0 .0 78.1 0 462 462 Z Antimony NIC 0 0 AA N 37. Quarry Products X 10 3 .0 .0 .9 10.8 52.0 194 1596 1790 Marble NIC 16 1 3 -20.9 .0 .0 AA .0 .0 6.5 0 117 117 Z Sand & stone NIC 10 0 3 - 5.1 .0 .0 AA .0 5.5 87.4 86 1479 1565 Z Gravel XIC 19 9 19 -13.0 .0 .0 AA 100.0 100.0 6.1 108 0 108 Z Korea: A-6 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 38. Graphite X 10 .0 .0 .0 18.9 93.0 177 760 937 Amiorphor graphite X 10 0 -50.8 -50.8 .0 .0 AA .0 18.9 100.0 177 760 937 Z 39. Talc X 18 18 11.1 2.7 .0 75.9 100.0 306 97 403 Talc X 18 8 18 11.1 11.1 11.1 2.7 AA .0 75.9 100.0 306 97 403 P 40. Fluorite X 10 .0 .0 .0 42.0 100.0 237 327 564 Fluorite X 10 0 -38.8 -38.8 .0 .0 AA .0 42.0 100.0 237 327 564 Z 41. Silica Sand & Limestone NIC 9 9 4.3 4.2 .0 1.7 89.7 12 679 691 Silica sand NIC 67 57 70 33.4 33.4 33.4 30.9 AA .0 7.5 13.6 7 87 94 P Limestone NIC 0 0 -66.8 -66.8 .0 .0 AA .0 .8 86.4 5 592 597 Z 42. Non-Metallic Minerals XIC 16 8 1.0 .7 60.2 38.0 73.1 206 335 541 Kaolin X 40 30 40 -64.3 -64.3 .0 .0 AA .0 61.4 29.2 97 61 158 z Asbestos IC 15 0 15 -24.9 15.0 13.8 AA 95.5 7.9 4.6 2 23 25 T Silica stone NIC 10 0 -20.u .0 .0 AA .7 .0 27.2 0 147 147 Z Agalmatolite NIC 10 0 -37.5 .0 .0 AA .0 .0 19.2 0 104 104 Z Rock crystal XIC 10 0 -50.8 .0 .0 AA 100.0 100.0 19.8 107 0 107 Z Diatom earth NIC 20 0 AA N 43. Raw Salt NIC 147 147 93.5 93.5 .0 .0 100.0 0 435 435 Solar salt NIC 147 -107 147 93.5 93.5 93.5 R .0 .0 100.0 0 435 435 P V. Construction Materials 44. Cement XIC 15 11 3.1 2.7 10.2 11.8 100.0 1015 7596 8611 Portland cement XIC 15 0 11 27.0 3.1 3.1 2.7 AA 10.2 11.8 100.0 1015 7596 8611 P 45. Clay & Concrete Products NIC 50 0 7.1 7.1 3.9 .5 78.4 22 4158 4180 Red clay tile NIC 70 0 -43.7 .0 .0 AA .0 .0 8.6 0 360 360 Z Clay tile NIC 70 0 0 73.7 73.7 70.0 63.8 AA 4.7 8.9 5.4 20 205 225 T Fire brick IC 20 0 4 - 2.9 -19.3 .0 .0 AA 27.8 .0 10.0 0 418 418 Z Concrete brick NIC 50 0 -25.5 .0 .0 AA .0 .0 11.2 0 467 467 Z Concrete block NIC 50 0 -31.4 .0 .0 AA .0 .1 21.5 1 900 901 Z Concrete roofing tile NIC 50 0 -33.6 .0 .0 AA .0 .0 14.3 0 600 600 Z Korea: A-7 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) Concrete pipe NIC 50 0 -24.1 .0 .0 AA .0 .2 11.2 1 467 468 Z Concrete telephone pole NIC 50 0 -23.4 .0 .0 AA .0 .0 10.5 0 439 439 Z Hume pipe NIC 50 0 0 57.7 50.0 50.0 AA .0 .0 7.3 0 303 303 T 46. Other Clay & Stone Products NIC 53 7 .6 .6 .0 .0 70.5 0 2174 2174 Grinding wheel NIC 73 23 63 - 7.3 .0 .0 AA .0 .0 4.6 0 101 101 Z Carbon ba-z . N0 ..C . 5, > 4, 40.2 40.2 40.2 Pr .u .u i.3 U 29 29 P Slate NIC 60 0 -8.5 .0 .0 AA .0 .0 67.9 0 1477 1477 Z Slacked lime NIC 35 0 -26.0 .0 .0 AA .0 .0 10.5 0 229 229 z Marble NIC 40 0 36 -37.9 .0 .0 AA .0 .0 4.8 0 104 104 Z Talc powder NIC 20 10 16 -25.5 .0 .0 AA .0 .0 10.9 0 234 234 Z Electrode NIC 20 0 6 AA N VI-A. Intermediate Products I 47. Cotton Yarn tIC 40 _ ,0 .0 1.0 .0 97.5 2 20704 20706 Cotton yarn NIC 40 0 0 -12.7 .0 .0 R 1.0 .0 100.0 2 20704 20706 Z 48. Silk Yarn X 60 0 .0 .0 .0 77.2 91.4 3063 905 3968 Silk yarn X 60 0 0 -2.9 -2.9 .0 .0 AA .0 77.2 100.0 3063 905 3968 z 49. Worsted & Woolen Yarns NIC 81 1 80.1 78.7 4.3 1.8 91.5 B4 4534 4618 Worsted yarn NIC 81 1 0 101.4 101.4 101.2 R 4.9 1.2 48.6 27 2218 2245 P Woolen yarn NIC 81 1 1 176.0 59.8 58.8 58.4 R 3.6 2.4 51.4 57 2316 2373 P 50. Hemp & Flax Yarn NIC 80 1 39.9 39.7 .0 .5 99.9 2 442 444 Hemp & flax yarn IC 80 0 1 39.9 39.9 39.7 PR .0 .5 100.0 2 442 444 P 51. Other Yarns XIC 59 6 34.5 30.1 25.9 12.8 91.3 482 3291 3773 Staple fiber IC 45 15 25 42.9 42.9 42.5 AA 71.9 .9 12.0 4 450 454 P Stretch nylon X 64 9 6 33.0 33.0 28.3 R .0 14.4 41.2 223* 1330 1553 p Polyacrylic X 60 0 1 33.4 33.4 33.4 28.6 R .0 14.4 46.8 255* 1511 1766 p 52. Rope & Fishing Nets NIC 70 11 13.1 12.9 2.0 1.7 79.0 33 1910 1943 Rope NIC 70 0 1 -23.1 .0 .0 R 5.7 .0 33.2 0 646 646 Z Fishing nets NIC 70 0 17 19.8 19.8 19.8 19.3 R .0 2.5 66.8 33 1264 1297 P 53. Lumber NIC 27 26 .0 .0 1.1 1.3 74.2 104 8172 827b Lath & shingles NIC 27 2 26 -9.5 .0 .0 AA 1.1 1.3 100.0 104 8172 8276 z Korea: A-8 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 54. Plywood X 50 5 .0 .0 j 73.8 95.6 8106 2874 Veneer sheet X 50 0 10980 5 -31.2 .0 .0 M .7 73.8 100.0 8106 2874 10980 Z 55. Leather & Fur NIC 54 46 Cattle, horse & .4 .4 .0 .0 70.6 0 1686 1686 0 pig leather NIC 33 8 23 1,1 1.1 1.1 AA .0 .0 33.6 0 567 Box calf NIC 65 5 567 P 58 -10.7 .0 .0 R .0 .0 56. Synthetic Resins 66.4 0 1119 1119 Z & Fibers NIG 62 52 68 3685 Urea resin (PVC) 36,8 36.8 2.5 .0 Urea IC resin 50 (PV 0 77.2 0 1750 1750 1 75.6 75.6 75.6 R 27.2 Filament nylon fiberNIC .0 6.9 0 -1271 121 P 63 3 60 31.9 31.9 31.9 R .0 .0 85.4 0 1494 1494 P Vinylon fiber NIC 63 3 4 56,4 56.4 56.4 R .0 .0 7.7 0 135 135 p 57. Petroleum Gasoline Products XIC 41 0 K 0 013 -26,2 -23.5 10.3 10.3 89.8 2004 17487 19491 Gasoline X 50 0 -25.5 1 _ _ __ -25.5 -22.8 AA 3.1 10.4 l..4 655* Diesel oil X 50 5658 6313 p 0 0 -25.1 -25.1 -22.5 AA 4.7 10.4 t9.2 798* 6861 7659 P Heavy oil IC 20 0 0 -29.6 -29.6 -26.7 AA 28.6 9.9 18.1 346* 3166 3512 Bunker C oil XIC 20 0 P 0 -26.7 -26.7 -26.7 -24.0 AA 10.3 10.2 10.3 205* 1802 2007 P 58. Briquettes NIC 35 11 18.9 18,9 .0 .0 8.4 0 13212 13212 Holed briquettes NIC 35 0 11 18.9 18.9 18.9 AA .0 .0 100.0 0 13212 13212 P 59. Other Coal Products IC 5 5 S,O 5.0 57.6 .0 100.0 0 124 Coke IC 5 124 0 5 18.9 5.0 5.0 AA 57.6 .0 100.0 0 124 124 T 60. Glass Products NIC 93 33 92 8.7 .5 5.7 8019 t41 2346 Glass sheet X 2487 81 31 77 171.0 25.1 25.1 21.6 R 1.4 14.0 40.4 141 864 1005 P Liquor bottles NIC 100 0 8 -25.3 .0 .0 AA .0 .0 42.4 0 1054 1054 Medicine bottles NIC 100 0 Z 8 -25.4 .0 .0 AA .0 .0 17.2 0 428 428 z 61. Pig Iron IC 10 5 15.2 14.4 65.8 5.5 100.3 21 362 Pig iron IC 10 383 0 5 15.2 15.2 14.4 R 65.8 5.5 100.0 21 362 383 P 62. Steel Ingots NIC 12 9 11.8 11.8 ,0 .1 82.3 4 5363 Steel ingots NIC 10 5367 0 8 24.9 10.0 10.0 AA .0 .1 82.2 4 4405 4409 T Billets NIC 20 0 16 33.9 20.0 20.0 AA .0 .0 17.8 0 958 958 T 63. Copper X 29 28 29.0 25.0 .0 13.9 100.0 184 1136 Electrolytic copper X 1320 29 4 28 44.7 29.0 25.0 AA .0 13.9 100.0 184 1136 1320 T Korea: A-9 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 64. Other Non- Ferrous Metals XIC 13 11 35.2 31.3 15,2 11.2 80.6 115 912 1027 Gold ingots IC O a o 33.3 33.3 33.3 R(SL) 11.0 .0 54.3 0 558 558 p Silver ingots XIC 0 0 0 -2.7 .0 .0 R(SL) 56.5 61.2 18.3 115 73 188 z Lead ingots NIC 29 4 26 36.5 36.5 36.5 R .0 .0 19.7 0 202 202 p Zinc ingots NIC 79 29 58 78.2 78.2 78.2 R .0 7.7 0 79 79 p VI-B. Intermediate Products II 65. Cotton Fabrics X 100 0 31.7 24.2 7.1 23.8 85.6 z/46 8499 i1545 Cotton sheeting X 100 0 0 23.0 2.2 2.2 1.8 PR 9.8 19.5 66.5 1496* 6180 7676 P Cotton shirting X 100 0 0 103.7 103.7 103.7 70.0 ER .0 32.5 13.0 490* 1016 1506 P Jeans X 100 0 1 273.2 100.0 67.8 PR .0 32.2 20.5 760* 1604 2364 T 66. Silk Fabrics IC 150 1 74.0 67.6 28.6 8.7 99.9 77 S11 888 Silk fabrics IC 150 0 1 74.0 74.0 74.0 67.6 R 28.6 8.7 100.0 77 811 888 P 67. Worsted & Woolen Fabrics _ 100 9 47.7 43.4 .0 9.0 96.3 586 5920 6506 Worsted fabrics NIC 100 0 6 226.0 37.8 37.8 34.6 R .0 8.5 68.2 375* 4060 4435 P Woolen fabrics X 100 0 16 186.0 69.4 69.4 62.3 R .0 10.2 31.8 211* 1860 2071 p 68. Hemp Fabrics IC 100 1 24.6 24.3 19.4 1.0 100.0 8 816 824 Hemp fabrics NIC 100 0 0 -14.3 .0 .0 PR .0 .0 62.1 0 512 512 Z Flax & ramie fabrics IC 100 0 3 90.0 66.0 66.0 64.3 R 39.2 2.6 37.9 8 304 312 p 69. Rayon Fabrics XIC 100 0 3.3 2.1 22.6 36.8 100.0 1932 3319 5251 Rayon fabrics X 100 0 0 7.0 3.3 3.3 2.4 R .0 27.1 86.7 1232 3319 4551 P Tire cord XIC 66 26 51 81.0 81.0 .0 R 100.0 100.0 13.3 700 0 700 p 70. Other Fabrics X 100 0 42.7 35.7 .0 16.5 97.6 768 3897 4665 Nylon fabrics X 100 0 0 130.5 28.0 28.0 23.8 R .0 15.0 71.4 501* 2831 3332 p Tricot, roschel X 100 0 0 81.8 81.8 81.8 65.4 R .0 20.0 28.6 267* 1065 1332 p 71. Dyeing & Finishing NIC 0 .0 .0 IQ .0 100.0 0 2441 2441 Dyeing & finishing NIC 0 0 -47.5 -77.7 .0 .0 .0 .0 100.0 0 2441 2441 Z 72. Wood Products NIC 63 5 2.3 2.3 3.4 .6 61.9 22 3918 3940 Boxes & containers NIC 51 1 5 -5.8 .0 .0 R .2 1.3 43.4 22 1687 1709 z Cross-ties IC t0 0 1 10.0 10.0 AA 19.1 .0 14.6 0 574 574 T Wardrobes NTC 100 0 3 -7.5 .0 .0 R .0 .0 21.4 0 845 845 z Korea: A-10 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) Desks & tables NIC 100 0 3 -28.0 .0 .0 R .0 .0 11.4 0 450 450 Z Metal cabinets NIC 71 1 21 8.6 8.6 8.6 PR .0 .0 9.2 0 362 362 p UnbPleached kraft IC 0 0 .0 .0 98.4 .0 37.9 Unbleached kraft_ 0 9 9 pulp IC 0 0 0 .0 .0 M 98.4 .0 100.0 Semi-chemical pulp NIC 10 0 10 0 9 9 Z AA N 74. Paper & Paperboard NIC 47 2 15.3 15.3 7.6 .4 78.0 34 Newsprint IC 30 8011 8045 0 5 9.0 9.0 8.9 MA 14.7 Wood-free paper 1.1 37.3 34 2967 3001 p NIC 60 0 0 27.5 27.5 27.5 R .0 .0 30.5 0 2456 2456 P Kraft paper NIC 50 0 0 9.0 9.0 9.0 R 7.5 .0 22.7 0 Manila board NIC 60 1831 1831 P 0 2 16.1 16.1 16.1 R .0 .0 9.5 0 756 756 P 75. Other PaperProducts NIC 91 6 Asphalt roofing 12.4 11.9 1.8 4.4 60.2 168 _ 3662 3830 paper X 61 1 0 -14.2 .0 .0 R 1.7 12.0 13.9 64 468 Metal-coated paper NIC 68 532 z 8 35 19.5 19.5 19.5 R .0 Paper containers .0 15.6 0 597 597 P NIC 101 1 1 13.0 13.0 12.5 Notebooks R 2.2 3.9 70.5 104 2596 2700 p NIC 100 0 100 PR N 76. Tires & Tubes X 100 33 Automobile tires .0 .0 .0 83.0 522 X 100 0 33 -7 .0 .0 2995 3517 N R .0 14.8 100.0 522 2995 3517 Z 77. Other Rubber Products NIC 63 25 18.5 18.5 .8 .0 48.5 0 1043 1043 Hoses NIC 61 1 14 -19.0 .0 .0 R .0 .0 15.9 0 166 Shaped belts NIC 94 24 166 Z 80 79.0 79.0 79.0 R .0 Flat belts .0 10.0 0 104 104 P NIC 70 0 1 4.9 4.9 4.9 Reclaimed rubber R .0 .0 19.5 0 203 203 P NIC 10 0 10 -55.2 .0 .0 MA 3.9 .0 18.6 0 194 Reclaimed tires NIC 100 0 33 194 Z 13.0 13.0 13.0 R .0 .0 17.3 Sponges NIC 60 0 180 180 p 0 36 39.5 39.5 39.5 R .0 .0 18.7 0 196 196 P 78. Basic Inorganic Chemicals IC 53 28 24.0 23.5 18.0 2.1 74.9 35 Sulphuric acid NIC 40 1595 1630 5 27 -5.0 .0 .0 MA Hydrochloric acid 2.9 1.8 16.7 5 267 272 z NIC 104 69 100 68.1 68.1 68.1 AA .5 .0 13.7 0 224 224 Calcium carbide NIC 35 0 0 P -18.7 .0 .C AA .0 .0 20.7 Sodium silicate NIC 0 337 337 Z 52 2 51 -3.4 .0 .0 Caustic soda AA .0 .0 5.7 0 93 93 IC 37 2 34 42.5 Z 37.0 36.5 AA 65.7 1.4 8.9 2 144 146 T Korea: A-ll (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) Oxygen NIC 25 0 58.3 25.0 24.3 AA 3.4 3.0 16.3 8 258 266 T Aluminum sulfate NIC 51 11 16 74.2 74.2 74.2 R .0 .0 3.7 0 61 61 p Calcium carbonite X 73 13 1 -10.4 .0 .0 R .0 11.0 11.2 20 162 182 0 Active carbon IC 136 76 90 7.9 136.0 136.0 R 53.3 .0 3.1 0 50 50 T 79. Processed-Oils & Fats IC 46 25 37.8 37.8 11.1 .0 68.4 0 859 859 Linseed oil NIC 40 0 20 54.0 54.0 54.0 PR .0 .0 13.5 0 116 116 P Rice bran oil NIC 60 0 28.4 28.4 28.4 PR .0 .0 32.0 0 275 275 p Glycerine IC 49 9 49 1.5 49.0 49.0 AA 24.8 .0 36.0 0 309 309 T Fatty acids NIC 21 1 23 20.5 20.5 20.5 PR 3.6 .0 18.5 0 159 159 P 80. Synthetic Dyes1 , IC 85 62 55.8 55.8 61.8 .0 100.0 0 316 316 Synthetic dyes- IC 85 25 62 -50.9 55.8 55.8 AA 61.8 .0 100.0 0 316 316 1/ 81. Other Basic Or- ganic Chemicals NIC 49 27 19.8 19.4 5.3 2.0 42.6 15 747 762 Formalin NIC 45 5 30 7.7 7.7 7.7 AA 3.8 .0 72.7 0 554 554 P Acetylene X 50 0 10.9 10.9 9.2 AA .0 15.5 12.7 15 82 97 P Rubber sulphur- ation agent IC 63 43 53 -13.2 63.0 63.0 AA 24.2 .0 8.3 0 63 63 T D.O.P. NIC 74 24 3 117.4 117.4 117.4 R .0 .0 6.3 0 48 48 P Synthetic per- fume NIC 60 0 50 MA N Mixed perfume NIC 125 65 125 R N 82. Explosives NIC 33 30 1.0 1.0 1.7 .1 100.0 2 1321 1323 Explosives NIC 33 13 30 1.0 1.0 1.0 R(SL) 1.7 .1 100.0 2 1321 1323 P /An exceptional case: the nominal rate of protection is equal to the weighted average of the legal tariff and zero, the weights respectively being the shares of imports (.618) and domestic production (.382) in domestic supply. Korea: A-12 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 83. Paint & Printing Ink NIC 102 59 72.2 71.7 5.5 .8 100.0 12 1543 1555 Paint NIC 103 33 54 74.7 74.7 73.9 R 6.0 .9 81.5 12 1255 1267 P Printing ink NIC 98 28 82 61.5 61.5 61.5 AA 3.4 .0 18.5 0 288 288 P 84. Pesticides NIC 32 31 52.3 52.3 .4 .0 100.0 0 1080 1080 Pesticides NIC 32 7 31 52.3 52.3 52.3 R(SL) .4 .0 100.0 0 1080 1080 P 85. Other Chemical Products NIC 65 18 16.6 16.6 .0 .1 56.4 1 827 828 Matches NIC 100 0 29 41.4 41.4 41.3 PR .0 .3 40.2 1 332 333 P Zinc oxide NIC 42 2 10 -14.1 .0 .0 AA .0 .0 59.8 0 495 495 Z 86. Fertilizers IC 0 0 5.1 5.1 69.8 .0 99.6 0 4635 4635 Lime nitrate IC 0 0 0 - 3.0 .0 .0 R(SL) 97.0 .0 3.9 0 179 179 Z Urea IC 0 0 0 -20.9 .0 .0 R(SL) 22.5 .0 87.8 0 4070 4070 Z Composite fertilizer NIC 0 0 0 61.3 61.3 61.3 R(SL) .0 .0 7.1 0 329 329 p Phosphate fertilizer IC 0 0 0 62.7 62.7 62.7 R(SL) 98.5 .0 1.2 0 57 57 P 87. Steel Sheet & Bars IC 27 5 30.6 29.7 41.6 3.1 96.3 191 6039 6230 Steel sheet IC 35 0 8 81.3 81.3 81.3 R 78.1 .0 16.8 0 1046 1046 P Steel bars NIC 25 0 18.2 18.2 17.6 R 9.2 3.4 64.4 137 3876 4013 P Steel angles NIC 26 1 14 14.3 14.3 14.3 R .0 .0 8.5 0 527 527 P Wire rod IC 25 0 25 36.9 36.9 33.8 R 23.7 8.4 10.3 54 590 644 P 88. Steel Pipes XIC 41 4 127.6 110.8 52.0 13.2 77.9 79 522 601 Steel pipes XIC 41 1 4 127.6 127.6 110.8 R 52.0 13.2 100.0 79 522 601 P 89. G&lvanized & Plated Steel X 50 34 48.0 1.2 .0 97.6 65.3 1952 48 2000 Zinc-plated iron X 50 0 34 48.0 48.0 1.2 R .0 97.6 100.0 1952 48 2000 P 90. Cast & Forged Steel IC 37 7 10.6 10.5 21.3 .1 70.8 2 1757 1759 Cast iron IC 40 0 25 16.8 16.8 16.7 R 13.0 .4 27.9 2 489 491 P Cast iron pipe IC 40 0 0 7.8 7.8 7.8 R 27.3 .0 60.7 0 1068 1068 P Steel tires NIC 10 0 0 26.2 10.0 10.0 AA .0 .0 11.4 0 200 200 T Korea: A-13 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 91. lion-ferrous Pri- mary Products NIC 37 16 9.8 9.7 4.8 1.5 41.5 11 717 728 Cast aluminum NIC 40 0 16 -17.7 .0 .0 R .0 1.2 67.0 6 482 488 Z Aluminum plate IC 30 0 17 30.0 29.4 R 13.3 2.1 33.0 5 235 240 T Copper plate & pipe X 40 2 21 R N Copper wire NIC 40 1 21 R N 92. Iron Bar & Frame NIC 40 7 .0 .0 .0 .0 79.6 0 685 685 Metal gate NIC 40 0 12 -20.3 .0 .0 R .0 .0 59.4 0 407 407 z Metal window frame NIC 40 0 0 - 4.8 .0 .0 R .0 .0 40.6 0 278 278 z 93. Metal Construction Products NIC 57 16 22.5 22.4 6.8 .2 59.7 4 2177 2181 Bolt NIC 52 2 7 -36.7 .0 .0 R .0 .4 23.3 2 507 509 Z Iron nail IC 70 0 48 48.1 48.1 47.9 R 12.0 .4 11.1 1 242 243 p Iron wire NIC 40 0 4 56.9 56.9 56.8 R i.8 .3 17.3 i 376 377 P Wire rope NIC 40 0 4 21.8 21.8 21.8 21.8 R .0 .0 16.8 0 367 367 P Sash IC 40 0 5 36.8 36.8 36.8 R 36.0 .0 9.6 0 210 210 P Water stopcock NIC 114 14 56 -10.6 .0 .0 AA .0 .0 10.8 0 235 235 Z Radiator NIC 71 1 10 .8 .8 .8 .8 AA .0 .0 11.1 0 240 240 P 94. Tools & Other Metal Products IC 67 19 49.9 46.4 24.5 7.1 69.5 107 1411 1518 Carpentry tools IC 69 19 57 69.4 68.6 R 57.7 1.1 5.9 1 89 90 T Factory hand tools NIC 64 14 34 115.3 63.7 63.7 AA .0 .0 10.4 0 158 158 T Shovels NIC 74 4 37 -11.7 -11.7 .0 .0 AA .0 .0 13.2 0 201 201 Z Five-gallon cans NIC 51 1 5 75.9 75.9 75.9 R .0 .0 11.7 0 178 178 P Metal drums IC 20 0 5 105.5 105.5 105.5 R 83.4 .0 4.4 0 67 67 P Food cans NIC 51 1 5 22.7 22.7 22.7 R .0 .0 5.7 0 86 86 P Bottle caps NIC 104 4 18 - 3.2 .0 .0 R .0 .0 9.6 0 146 146 Z Other cans X 51 1 5 83.2 83.2 70.6 R .0 15.5 26.5 61 342 403 P Umbrella ribs NIC 112 12 1 31.6 31.6 31.6 31.6 R .0 .0 5.9 0 89 89 P Lighters X 100 0 44 7.7 7.7 4.3 R .0 44.7 6.7 45 56 101 P 95. Light Bulbs IC 78 16 16.0 16.0 28.4 .0 72.7 0 886 886 Tungsten bulbs NIC 98 28 50 -39.9 50.0 50.0 PR .0 .0 29.2 0 259 259 AT Fluorescent bulbs IC 70 0 2 -27.4 2.0 2.0 PR 36.0 .0 70.8 0 626 626 AT Korea: A-14 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 96. Insulated Wire & Cable IC 59 6 79.5 78.6 11.1 1.1 100.0 18 1514 1532 Wire NIC 65 5 10 80.5 80.5 79.3 R .0 1.5 57.0 13 861 874 P Cable IC 51 1 1 78.3 78.3 77.7 R 22.5 .8 43.0 5 653 658 p 97. Synthetic Resin Products NIC 103 7 .0 .0 .0 4.7 100.0 260 5283 5283 Synthetic resin products NIC 103 3 7 -4.2 .0 .0 R .0 4.7 100.0 260 5283 5283 Z VII. Nondurable Consumer Products 98. Knit Products X 150 31 28.7 20.4 .1 28.7 79.2 2362 5858 8220 Underwear X 150 0 42 11.5 11.5 11.5 7.1 PR .2 38.4 70.7 2233 3578 5811 P Socks NIC 150 0 13 55.6 _55.6 55.6 52.6 PR .0 5.4 29.3 129 2280 2409 P 09. Apparel & Accessories X 154 5 11.8 9.9 .1 16.3 39.9 2264 11642 13906 Men's suits X 155 5 4 76.0 -10.2 .0 .0 PR .1 11.1 78.8 1217 9739 10956 Z Avercoats NIC 150 0 9 75.8 75.8 75.8 PR .0 .0 12.7 0 1766 1766 P Work clothes X 150 0 27 26.0 26.0 26.0 3.0 PR .0 88.4 8.5 1047 137 1184 P Dress shirts NIC 150 0 66 PR N Knit goods X 150 0 36 PR N 100. Straw Products NIC 70 40.4 39.3 .0 2.8 48.8 44 1545 1589 Grass mattress 41C 70 0 40.4 40.4 39.3 AA .0 2.8 100.0 44 1545 1589 P Other straw pro- ducts NIC 50 0 AA N 101. Ribbon. Tape & String X 70 0 19.4 13.5 9,1 30.5 100.0 Ribbon, tape & 260 593 853 ____ string X 70 0 0 19.4 19.4 13.5 R 9.1 30.5 100.0 260 593 853 P Korea: A-15 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 102. Other Textile Products X 100 14 .0 .0 1.9 42.5 100.0 882 1193 2075 Other finished products X 100 0 14 -6.7 -6.7 .0 .0 PR 1.9 42.5 100.0 882 1193 2075 Z 103. Printing & Publishing NIC 24 0 .0 .0 2.4 .9 58.0 81 9271 9352 Daily newspapers NIC O 0 0 -65.6 .0 .0 R .2 .2 50.7 8 4737 4745 Z Books NIC 50 0 0 -10.2 .0 .0 R 4.7 2.1 36.2 72 3317 3389 z Periodicals NIC 50 0 0 - 2.8 .0 .0 R 4.0 .1 13.1 1 1217 1218 Z Printed materials NIC 52 1 5 R N 104. Leather Shoes NIC 100 14 7.4 7.1 .4 4.6 87.1 167 3469 3636 Men's shoes NIC 100 0 14 11.3 11.3 10.5 PR .6 6.8 67.3 167 2281 2448 P Women's shoes NIC 100 0 14 -1.3 .0 .0 PR .0 .0 32.7 0 1188 1188 z 105. Other Leather Products NIC 107 78 15.1 15.1 .0 .4 70.9 4 1022 1026 Vinyl trunks NIC 111 11 93 42.0 42.0 42.0 R .0 .0 35.9 0 368 368 P Student bags NIC 107 7 103 -45.6 .0 .0 R .0 .0 38.2 0 392 392 Z Hand bags NIC 100 0 18 -45.4 .0 .0 R .0 1.5 25.9 4 262 266 Z 106. Rubber Shoes X 100 41 .0 .0 .0 17.0 65.1 872 4270 5142 Canvas footwear NIC 100 0 58 -62.4 .0 .0 PR .0 .1 58.6 2 3009 3011 Z Rubber boots X 100 0 -55.5 .0 .0 PR .0 40.8 41.4 870 1261 2131 z 107. Drugs NIC 50 34 4.5 4.5 3.6 .1 100.0 12 8628 8640 Drugs NIC 50 19 34 4.5 4.5 4.5 R(SL) 3.6 .1 100.0 12 8628 8640 P 108. Soap & Surfactants NIC 70 2 .0 .0 .1 .0 72.9 0 2575 2575 Laundry soap NIC 70 0 2 -21.6 .0 .0 R .1 .0 100.0 0 2575 2575 Z 109. Cosmetics & Tooth- paste NIC 139 3 22.7 22.7 1.8 .0 100.0 0 1373 1373 Cosmetics NIC 150 0 4 17.7 17.7 17.7 R .5 .0 78.5 0 1078 1078 P Toothpaste NIC 100 0 0 40.9 40.9 40.9 R 6.4 .0 21.5 0 295 295 P Korea: A-16 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 110. Pottery NIC 77 37 50.3 50.3 3.7 .0 60.2 0 655 655 Insulators IC 47 7 9 66.7 47.0 47.0 AA 12.1 .0 27.8 0 182 182 T Porcelain table- ware NIC 100 0 74 80.3 80.3 80.3 80.3 R .0 .0 46.4 0 304 304 p Earthenware NIC 70 0 2 -25.4 .0 .0 AA .0 .0 25.8 0 169 169 Z 111. Measuring Instru- ments IC 47 33 63.4 63.1 11.7 .4 72.8 1 242 243 Balance IC 50 0 12 50.0 49.2 MA 34.8 1.6 25.1 1 60 61 T Water meter NIC 20 0 9 54.3 54.3 54.3 R .0 .0 36.6 0 89 89 P Taxi meter NIC 70 0 69 80.8 80.8 80.8 R .0 .0 38.3 0 93 93 P 112. Medical & Sani- tary Instruments IC 56 9 1.9 1.9 13.3 .0 90.8 0 438 438 Glass medical pro- ducts NIC 40 1 16 -1.0 .0 .0 PA .0 .0 35.8 0 157 157 Z Artificial limbs NIC 20 0 30.1 20.0 20.0 AA .0 .0 2.1 0 9 9 T X-ray equipment IC 20 0 13 20.0 20.0 PA 66.8 .0 7.5 0 33 33 T Gauze & bandages NIC 73 3 5 -36.9 .0 .0 PA .0 .0 54.6 0 239 239 Z 113. Optical instru- ments X 70 37 16.4 11.1 6.0 32.0 88.5 59 125 184 Microscope IC 15 0 3 15.0 15.0 PA 33.0 .0 6.5 0 12 12 T Eyeglasses NIC 70 0 5 -30.4 .0 .0 R .0 9.1 35.9 6 60 66 z Eyeglass frames X 82 12 80 35.1 35.1 17.6 R 3.6 49.9 57.6 53 53 106 P 114. Photographic Materials NIC 108 54 108.0 108.0 .0 .0 99.8 0 133 133 Sensitive paper NIC 108 8 54 203.7 108.0 108.0 R .0 .0 100.0 0 133 133 T 115. Jewelry & Lacauer- ware NIC 95 73 61.1 61.1 .0 .0 99.4 0 1115 1115 Precious metal & jewelry NIC 104 4 88 74.5 74.5 74.5 PR .0 .0 82.0 0 914 914 P Lacquerware NIC 55 5 6 -25.9 -25.9 .0 .0 R .0 .0 18.0 0 201 201 Z 116. Processed Bristles X 35 0 .0 .0 .2 82.9 66.8 2062 425 2487 Worked pig hair NIC 35 0 0 -14.0 -14.0 .0 .0 A .0 .0 17.1 0 425 425 Z Wigs XIC 70 0 0 -42.7 -42.7 .0 .0 PA 100.0 100.0 82.9 2062 0 2062 z Korea: A-l7 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 117. Toys & Sporting Goods X 101 13 5.6 4.3 .0 22.6 48.1 59 202 261 Games X 100 0 2 -59.8 .0 .0 R .0 40.4 52.1 55 81 136 Z Metallic toys NIC 102 2 26 -46.2 .0 .0 R .0 .0 31.4 0 82 82 Z Dolls NIC 100 0 8 29.3 29.3 29.3 26.6 R .0 9.4 16.5 4 39 43 P Sporting goods NIC 53 2 49 AA N 118. Musical Instru- ments NIC 102 61 22. 8 22.5 6.7 1.3 76.3 4 305 309 Piano NIC 101 1 68 -28.4 .0 .0 R 8.2 1.7 74.1 4 225 229 Z Organ NIC 108 38 73 108.0 108.0 108.0 R 5.4 .0 11.3 0 35 35 P Phonograph records NIC 100 0 17 69.7 69.7 69.7 R(SL) .0 .0 14.6 0 45 45 P 119. Stationery NIC 106 48 21.1 20.9 1.3 .9 42.0 6 661 667 Fountain pens X 211 111 210 73.7 73.7 61.6 R 9.0 16.4 5.5 6 31 37 P Ball-point pens NIC 127 27 121 -78.3 .0 .0 R .0 .0 16.2 0 108 108 Z Pencils NIC 106 6 33 -21.6 .0 .0 R 1.9 .0 46.8 0 312 312 Z Compass NIC 108 8 15 27.2 27.2 27.2 AA .0 .0 12.0 0 80 80 P Tape NIC 70 0 1 275.9 275.9 275.9 R .0 .0 4.8 0 32 32 P Stencil paper NIC 60 0 9 7.1 7.1 7.1 R .0 .0 14.7 0 98 98 P 120. Personal Accessor- ies NIC 101 18 .0 .0 .0 2.5 27.3 5 198 203 Buttons NIC 101 1 1 -36.1 -36.1 .0 .0 R .0 2.4 81.8 4 162 166 z Fans NIC 100 0 97 -12.8 -12.8 .0 .0 PR .0 2.7 18.2 1 36 37 Z 121. Other Manufactur- ing NIC 57 34 48.3 48.3 .0 .0 81.4 0 1392 1392 Filter NIC 50 0 49 46.1 46.1 46.1 46.1 R .0 .0 67.4 0 938 938 P Fire extinguishers NIC 70 0 2 52.7 52.7 52.7 R .0 .0 32.6 0 454 454 p VIII. Consumer Durables 122. Household Metal Products IC 102 28 4.3 4.0 25.8 6.9 59.7 141 1903 2044 Aluminum tableware NIC 100 0 30 -2.7 -2.7 .0 .0 R .0 .8 43.9 7 890 897 Z Stainless table- ware NIC 104 4 28 -29.6 -29.6 .0 .0 R .0 .0 31.5 0 643 643 Z Korea: A-18 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) Brass products NIC 101 1 10 31.7 31.7 31.7 R .6 .0 7.6 0 155 155 P Oil burner NIC 109 39 88 44.0 44.0 44.0 R .0 .0 3.7 0 75 75 P Stainless fork XIC 100 0 5 - .6 - .6 .0 .0 R 82.5 48.9 13.3 134 140 274 Z Aluminum contain- ers NIC 100 0 30 R N 123. Household Elec- tronic Equipment XIC 101 23 72.2 33.6 36.7 53.5 92.3 908 790 1698 Radio XIC 100 0 2 74.2 74.2 28.5 R 46.0 61.6 82.6 865 538 1403 p Television X 104 4 68 35.6 68.0 58.1 R .0 14.6 17.4 43 251 294 AT 124. Electronic Com- ponents IC 113 48 112.3 112.3 32.1 .0 5.3 0 13 13 Vacuum tube NIC 50 0 43 -48.5 43.0 43.0 R .0 .0 15.4 0 2 2 AT Speaker IC 126 56 49 195.9 126.0 126.0 AA 36.1 .0 84.6 0 11 11 T 125. Electric Appliances NIC 117 102 113.7 113.7 7.7 .0 80.6 0 382 382 Fan NIC 118 18 105 120,8 120.8 120.8 R .0 .0 72.5 0 277 277 P Refrigerator IC 117 17 95 42.0 95.0 95.0 R 23.3 .0 27.5 0 105 105 AT 126. Bicycles & Carts NIC 98 19 20.8 20.7 .2 .3 65.7 4 1395 1399 Bicycle NIC 100 0 20 -28.0 20.0 19.9 R .2 .3 92.1 4 1285 1289 AT Cart NIC 70 0 36.8 36.8 36.8 AA .0 .0 1.9 0 26 26 P Coal carrier NIC 71 1 15 27.6 27.6 27.6 AA .0 .0 6.0 0 85 85 P 127. Watches & Clocks NIC 89 80 72.9 72.2 .1 .9 68.0 7 754 761 Watch NIC 112 62 124 141.1 141.1 138.2 R .0 2.1 44.7 7 333 340 p Electric clock NIC 70 0 35 -34.0 .0 .0 R .3 .0 41.3 0 314 314 Z Alarm clock NIC 76 6 74 74.2 74.2 74.2 74.2 R .0 .0 14.0 0 107 107 P IX. Machinery 128. Prime Movers XIC 60 19 41.5 35.1 31.9 15.3 71.9 133 735 868 Diesel engine XIC 70 0 2 13.7 13.7 8.3 AA 63.7 39.8 37.7 130 197 327 P Motor NIC 50 0 1 43.5 43.5 43.1 AA .0 .9 37.8 3 325 328 P Gasoline engine NIC 66 16 64 64.0 64.0 R .0 .0 24.5 0 213 213 AT 129. Boilers IC 50 4 4.0 4.0 11.7 .0 100.0 0 919 919 Boilers IC 50 0 4 -20.3 4.0 4.0 H 11.7 .0 100.0 0 919 919 AT Korea: A-19 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 130. Metal Working Machinery IC 21 4 4.5 4.5 69.4 .0 41.3 0 214 214 Lathe IC 20 0 1 -71.8 1.0 1.0 AA 76.8 .0 67.3 0 144 144 AT Drill press NIC 65 45 58 -34.2 58.0 58.0 AA .0 .0 4.7 0 10 10 AT Shaper IC 20 0 10 -54.4 10.0 10.0 AA 30.0 .0 7.5 0 16 16 AT Gear cutter NIC 10 0 1 -76.5 1.0 1.0 AA .0 .0 11.2 0 24 24 AT Boring machine NIC 20 0 2 -62.3 2.0 2.0 AA .0 .0 9.3 0 20 20 AT 131. Metal Processing Machinery IC 28 6 12.9 12.7 75.0 1.6 60.4 2 123 125 Rolling machine IC 10 0 10 -14.9 -14.9 10.0 9.4 AA 23.1 6.3 25.6 2 30 32 AT Welder IC 70 0 7 40.3 40.3 40.3 R 56.2 .0 20.0 0 25 25 P Metal press IC 30 0 4 -32.7 4.0 4.0 AA 90.0 .0 29.6 0 37 37 AT Extrusion machine NIC 10 0 4 -10.9 4.0 4.0 AA .0 .0 24.8 0 31 31 AT 132. Farm Machinery NIC 59 27 52.4 51.8 .0 1.0 68.7 4 380 384 Power tiller NIC 50 0 1 26.2 26.2 26.2 R .0 .0 22.4 0 86 86 P Sprayer NIC 55 5 20 64.0 64.0 64.0 R .0 .0 30.5 0 117 117 p Pedal thresher NIC 70 0 51 60.2 60.2 57.9 AA .0 3.9 26.8 4 99 103 P Power thresher NIC 70 0 51 60.2 60.2 60.2 AA .0 .0 13.5 0 52 52 P Straw rope machine NIC 50 0 3 40.7 40.7 40.7 AA .0 .0 6.8 0 26 26 P 133. Mining & Construction Machinery IC 10 3 3.1 3.0 64.8 2.9 55.4 17 573 590 Mining machinery IC 10 0 3 -13.2 3.0 2.9 AA 65.3 3.0 97.8 17 560 577 AT Concrete mixer NIC 10 0 3 8.3 8.3 8.3 PR .0 .0 2.2 0 13 13 P 134. Textile Machinery IC 16 1 .6 .6 89.0 .0 51.5 0 658 658 Twisting machine IC 5 0 0 -63.4 .0 .0 AA 995 .0 3.9 0 26 26 AT Silk loom NIO 20 0 0 -41.8 .0 .0 MA .0 .0 34.7 0 228 228 AT Knitting machine NIC 20 0 1 -17.7 1.0 1.0 MA .0 .0 38.1 0 251 251 AT Cotton spinning machine NIC 5 0 1 -35.5 1.0 1.0 MA .0 .0 23.3 0 153 153 AT Korea: A-20 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 135. Special Industrial Machinery IC 35 16 17.8 16.8 49.9 5.9 37.6 21 334 355 Rice pearling machine NIC 70 0 62 -45.3 62.0 62.0 PR .0 .0 9.6 0 34 34 AT Flour milling machine IC 20 0 0 -58.3 .0 .0 PR 74.0 .0 5.6 0 20 20 AT Barley pearling machine NIC 70 0 62 -41.7 62.0 62.0 PR .0 .0 5.3 0 19 19 AT Band saw NIC 20 0 1 14.8 14.8 14.8 AA .0 .0 10.4 0 37 37 P Letter press XIC 40 0 36 -33.6 36.0 23.7 AA 87.2 34.2 17.2 21 40 61 AT Casting machine NIC 10 0 1 - 7.5 1.0 1.0 AA .0 .0 11.0 0 39 39 AT Rubber working machine NIC 20 0 0 -14.1 .0 .0 AA .0 .0 6.2 0 22 22 Briquette making machine NIC 50 0 5 - 1.2 5.0 5.0 PR .0 .0 21.4 0 76 76 AT Brick making machine NIC 20 0 9 -10.6 9.0 9.0 PR .0 .0 6.5 0 23 23 AT Paper converting machine NIC 10 0 3 -40.5 3.0 3.0 R .0 .0 6.8 0 24 24 AT 136. General Industrial Machinery NIC 51 9 9.4 9.4 .0 .0 49.3 0 410 410 Air compressor NIC 21 1 4 -53.5 4.0 4.0 AA .0 .0 9.5 0 39 39 AT Water pump NIC 54 4 10 -18.1 10.0 10.0 R .0 .0 90.5 0 371 371 AT 137. Office & Service Machines NIC 83 60 28.6 28.6 4.4 .0 14.9 0 44 44 Typewriter NIC 88 38 75 14.5 14.5 14.5 AA .0 .0 73.7 0 32 32 P Mimeograph IC 70 0 17 4.7 17.0 17.0 AA 22.6 .0 15.9 0 7 7 AT Duplicator NIC 70 0 17 150.9 150.9 150.9 R .0 .0 10.4 0 4 4 p 138. Sewing Machines XIC 71 23 23.0 14.7 70.1 36.0 66.8 177 315 492 Sewing machines XIC 71 1 23 -52.7 23.0 14.7 PR 70.1 36.0 100.0 177 315 492 AT 139. Machinery Components IC 81 68 70.2 63.7 48.2 9.2 42.0 33 326 359 Bearing XIC 82 32 73 70.2 73.0 65.7 R 50.7 10.1 91.4 33 295 328 AT Gear NIC 70 0 23 42.9 42.9 42.9 R .0 .0 8.6 0 31 31 p Korea: A-21 (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (1) Generators IC 10 6 6.0 6.0 94.2 .0 34.1 0 9 9 140. Generator IC 10 0 6 -8.1 6.0 6.0 R 94.2 .0 100.0 0 9 9 AT Tr, nf.,rz s v_ Mr 66 R RO n RO.n Oe .e 63.5 0 576 5?6 NIC 70 0 1 90.9 90.9 90.9 R .0 .0 75.9 0 437 437 P Transformer NIC 52 2 10 83.2 83.2 83.2 R .0 .0 24.1 0 139 139 P Condenser NIC 72 8 33.4 33.4 .0 .0 93.8 0 869 869 142. Electric Motors Electric motor NTC 72 2 8 33.4 33.4 33.4 R .0 .0 100.0 0 869 869 p 143. Industrial Electric Equipment IC 31 19 25.4 25.0 86.7 1.4 25.6 2 144 14b 20 0 1 24.4 21..4 24.L R 98.3 0 8.9 0 13 13 p Current transformer IC Rectifier IC 28 8 22 33.1 28.0 28.0 AA 62.8 .0 71.9 0 105 105 T Welding machine NIC 51 1 15 -16.7 15.0 13.9 AA 3.8 7.3 19.2 2 25 27 AT 144. Electronic Equipment IC 55 47 47.7 46.5 36.5 2.3 97.2 37 1542 1579 XIC 70 0 40 46.3 46.3 40.5 PR 77.1 12.6 18.6 37 257 294 P Telephone NIC 50 0 45 13.7 45.0 45.0 R .0 .0 68.8 0 1087 1087 AT Switchboard Watt meter NIC 65 12 64 38.6 64.0 64.0 R 9.2 .0 12.6 0 198 198 AT 145. Other Electrical Equipment XIC 88 27 27.2 24.4 20.2 10.4 85.1 69 595 664 Storage battery IC 140 70 99 -11.2 99.0 99.0 R 49.1 .0 23.3 0 155 155 AT Dry cell X 70 0 2 -47.2 2.0 1.7 R .5 13.5 76.7 69 440 509 AT X. Transport Equipment 146. Steel Ships IC 10 0 16.5 16.3 79.4 1.3 100.0 36 2801 2837 IC 10 0 0 16.5 16.5 16.3 R 79.4 1.3 100.0 36 2801 2837 P Steel ship 147. Wooden Ships NIC 51 42 42.0 42.0 .0 .0 38.3 0 302 302 1 42 .3 42.0 42.0 R .0 .0 6.6 0 20 20 AT Passenger vessel NIC 51 Fishing vessel NIC 51 1 42 12.5 42.0 42.0 PR .0 .0 93.4 0 282 282 AT Railroad Equipment NIC 0 0 55.1 55.1 5.2 .0 96.8 0 1882 1882 148. Passenger car NIC 0 0 0 -39.1 .0 .0 R(SL) 8.1 .0 19.8 0 373 373 AT Freight car NIC 0 0 0 86.6 86.6 86.6 R(SL) 5.5 .0 63.6 0 1196 1196 P Oil tanker NIC 0 0 0 .4 .4 .4 R(SL) .0 .0 16.6 0 313 313 P Korea: A-22 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 149. Motor Vehicles IC 124 19 90.5 90.3 56.9 .2 45.2 4 2288 2292 Sedan IC 151 1 30 99.8 99.8 99.8 R 37.1 .1 63.2 1 1448 1449 p Microbus NIC 80 0 104.8 104.8 104.8 R 9.3 .0 18.3 0 420 420 p Large bus IC 80 0 46.7 46.7 46.6 R 76.7 .3 14.8 1 338 338 p Truck IC 80 0 13 33.4 33.4 32.6 R 92.5 2.4 3.7 2 82 84 p 150. Automotive Repairs NIC 0 .0 .0 .0 .0 100.0 0 3114 3114 Automotive repairs NIC 0 0 -61.0 .0 .0 .0 .0 100.0 0 3114 3114 Z Sources: Bank of Korea. Report on the Preparation of the Input-Output Tables for 1966. Seoul, Korea: Bank of Korea, 1968. (In Korean.) Korean Customs Association. Tariff Table. Republic of Korea. 1968. Seoul, Korea: Korean Customs Association, 1968. Lee, Seung Yun. A Study on Price Comparison Between Domestic Producer's Unit Prices and International Prices. Seoul, Korea: Sogang University, 1971. (Data adjusted by the authors.) Ministry of Commerce and Industry. Public Notices on Exports and Imports. 1968. Seoul, Korea: reproduced by the Korean Traders Association, 1968. (In Korean.) Notes: All tariff and price comparison observations are for 1968. Import and export shares, coverage and weights, and sales in world prices are based on data for 1966. Values in world prices are domestic price values deflated by (l+t ),where t is the applicable nominal rate of protection expressed as a proportion. Sectoral averages (the underlined figures opposite the sectors' ndesignations) of total legal tariffs, actual tariffs, and nominal rates of domestic protection are weighted averages using world price domestic sales figures (i.e., production less exports) as weights. Products for which we have no estimate of nominal protection have been excluded from these averages. Gol(3): The total legal tariff rate is equal to ffl+t r)(l+t )-_ 7xl00, where t is the regular tariff rate and t is the special tariff rate (both rates expressed as proportions). Col(5): The actual tariff rate is equal to tariff collections divided by the 1968 c.i.f. value of imports. A blank field indicates that there were no imports of the item in 1968. Cols(6) Price comparisons between domestic and world prices are expressed in terms of the implied nominal rate of protection. Entries for the & (7): export price comparison are ThPd/p,)-_7xl00.0 where p is the domestic ex factory, producer's price and p is the c.i.f. export price. Entries for the import pfice comparison are LPd/Pm)-2x100. where Pd is as before and Pm is the c.i.f. import price. Col(8): Authors' estimate of the rate of nominal protection to protected domestic sales; not a weighted average for total domestic sales as in the other tables except Table 1. GOl(9):Equal to the weighted average of the nominal rates of protection to exports and to domestic sales, the weights being the world market price values of exports and domestic sales respectively. The nominal rates of protection to all exports, except ginseng, are zero; for ginseng, the nominal rate of protection to exports is equal to that to domestic sales as there is an export tax. Note that the sectoral average nominal rates of protection given in this table do not correspond to those in other tables since sales of intermediate inputs to exporters are here assumed to be at domestic prices due to the absence of estimates of the volume of unprotected domestic sales. Korea: A-23 Col(10): The symbolic entries under this column are defined as follows: PR, imports prohibited; R, imports restricted; AA, imports automatically approved; and (SL), import control is exercised under special legislation. C01(11): The share of imports in total domestic supply (domestic production less exports plus imports), using world price values. Co0(12): The share of exports in total domestic production, using world price values. Col(13): For each industry, "coverage" gives the percent of total domestic production (in world price values) included listed under the industry. For each product, the "weight" is that product's share of the industry's domestic production (in world prices) covered by the sample. 6 Cols(14) to (1 ):All values are in million 1968 won. C01(17): The symbolic entries under this column give the basis for the estimate of the nominal rate of protection to domestic sales: P, used import price comparison; T, used legal tariff rate; AT, used actual tariff rate; Z, set nominal protection equal to zero; and N, no price comparison observation available so nominal protection not estimated. * Export figure estimated on the assumption that product exports are proportional to product output in domestic prices; the product composition of exports within this industry is not given or is incomplete in the Bank of Korea input-output data. Korea: A-24 ANNEX TABLE 2.A NOMINAt AND EFFrCTIVE PROTECTIDN: INDIVIDUAL INDUSTRIES ---- NOMINAL P2OTECTION---- ------------------------- EFFECTIVE PROTECTION-------- !NDUSTRY/CA-EGODY TARIFF NOMTNAL --------SALASSA--------- --------- CORDEN--------- DOM NVFP DOM AVFP EXP DOn AVER EXP DOM AVER I A;;RICIJL-iR1S, FOPESTRY, P ISII Nr; 1. RICE NIC 23.Li 23.4 13.3 13.3 -0.3 14.9 14.9 -0.3 14.5 1U.5 2. SIRLEY & WHEAT I-C 22.9 22.8 u6.14 46.1 -0.2 68.3 68.1 -0.2 66.6 66.5 3. PULSES f MISC. CEEZALS NIC 24.9 24.P 0.0 0.n -0.1 -0.7 -0.7 -0.0 -0.7 -0.7 14. POTATOES NIC 39.9 19.7 0.0 0.0 -0.1 -1.1 -1.1 -0.1 -1.1 -1.1 5. VEGETA3LES NIC 205.7 203.5 91.0 90.1 -0.3 143.8 142.4 -0.3 139.7 138.4 6. ERTIIT NIC 24.2 23.6 0.0 0.0 -1.7 -15.4 -15.1 -1.3 -12.2 -11.9 7. TOBACCO NIC 137.6 137.6 0.0 0.0 -0.4 -2.9 -2.9 -0.4 -2.8 -2.8 8. MEDICAL CROPS X 15.9 2.2 -35.4 -35.4 -112.6 -45.4 -43.0 -42.0 -44.8 -42.4 9. MISC. CROPS NIC 21.3 21.2 18.9 18.8 -0.3 22.7 22.7 -0.3 22.2 22.1 10. POULTRY 1:IC 21.2 20.9 20.0 19.8 -1.1 12.4 12.3 -1.0 11.4 11.3 11. LIVESTOCK NIC 8.9 8.9 0.0 0.0 -0.6 -13.5 -13.5 -0.6 -12.9 -12.9 12. FOREST PRODUCTS NIC 9.8 9.fi 5.6 5.6 -0.5 4.6 4.6 -0.5 4.4 4.4 13. FISHING NIC 32.1 29.9 0.0 0.0 1.9 -4.5 -4.1 1.8 -4.2 -3.8 II PROCESSED ?OOD 14. SLAUGHTEPED P PROCESS7D MEAT x 33.Q 30.0 0.0 o.0 -7.2 -5.4 -5.5 -4.0 -3.5 -3.6 15. DAIFY PRODUCTS IC 93.1 93.1 17.3 17.3 -8.2 35.2 35.2 -4.9 22.7 22.7 16. PROCESSED FFUITS S VFGETABLES X 111.1 88.1 10.R 8.6 -2.6 -28.7 -23.8 -2.1 -23.7 -19.6 17. CANNED SEAFOODS X 100.r 28.7 10.9 3.1 -11.2 19.7 2.3 -3.0 11.8 1.6 18. SEA WEED X 30.5 21.3 - 0.1 -l1.9 -1.2 -93.2 -66.8 -1.1 -85.3 -61.0 19. OTHER PROCESSED SEAFOODS x 35.C 21.8 e.o 0.0 -5.3 -9.1 -7.8 -3.8 -6.8 -5.8 20. GRATN MILLING NIC 34.V 314.4 0.0 0.0 -5.1 -15.1 -15.1 -4.1 -12.6 -12.6 Source: Authors' estimates. Units: In percent. Korea: A-25 ANNEX TABLE 2.A NO¶INAf AND EFFECTIVE PROTFCTION: INDIVIDUAL INDUSTRIES ---- NOMINAL PROTECTION---- ------------------------- EFFECTIVE PROTECTION… INDUSTRY/CATEGORY TAFIFF 4JOMINAL -------- BALASSA--------- --------- CORDEN--------- DOM AVER DOM AVEF EXP DOM AVER EIP DOM AVER 21. BAKERY PRODUCTS NIC 122.8 122.8 24.0 23.9 -16.3 154.4 154.4 -5.0 73.7 73.7 22. CONFECTIONERY NIC 118.P 118.8 9.4 9.4 -4.7 -19.6 -19.6 -3.5 -15.0 -15.0 23. REFINED SUGAP NIC 39.9 38.8 0.0 0.0 -0.3 -44.2 -43.1 -0.3 -38.0 -37.1 24. SEASONINGS & OILS NIC 94.8 94.4 11.1 11.1 -4.0 -23.2 -23.1 -3.0 -18.3 -18.2 25. OTHER FOOD PREPARATIONS IC 83.6 82.9 17.8 17.7 -10.9 61.1 60.7 -6.2 39.1 38.8 III BEVERAGES & TOBACCO 26. BEER NIC 148.3 139.1 5.7 5.4 -5.4 -13.3 -12.9 -3.8 -9.9 -9.5 27. OTHER ALCOHOLIC BEVERAGES NIC 133.4 133.4 18.8 18.8 -7.1 29.1 29.1 -4.5 20.0 20.0 28. SOFT DRINKS NIC 98.3 96.4 3.1 3.1 -6.8 -22.0 -21.7 -4.2 -14.5 -14.3 29. PROCESSED TOBACCO NIC 149.9 139.9 -13.5 -12.6 -1.3 -44.7 -42.1 -1.1 -40.8 -38.5 IV MINING & ENERGY 30. COAL NIC 9.8 9.6 9.8 9.6 -1.9 5.1 5.0 -1.7 4.5 4.4 31. IRON ORE x 0.0 0.0 0.0 0.0 -0.4 -6.5 -1.0 -0.3 -5.9 -0.9 32. TUNGSTEN ORF x 0.0 0.0 0.0 0.0 -0.5 -6.2 -1.8 -0.5 -5.8 -1.7 33. LEAD ORE X 0.0 0.0 0.0 0.0 -2.4 -15.1 -7.5 -2.0 -12.9 -6.3 34. ZINC ORF K 0.0! 0.0 0.0 0.0 -2.5 -13.3 -5.3 -2.1 -11.3 -4.4 35. GOLD, SILVER,& COPPER ORES XIC 0.0 0.0 16.9 14.0 -2.7 20.4 16.8 -2.0 15.4 12.6 36. OTHER MFTALLIC MINERALS x 0.0 0.0 0.0 o.0 -2.6 -7.3 -3.8 -2.1 -6.0 -3.1 37. QUARRY PRODUCTS NIC 10.0 9.2 0.0 0.0 -0.4 -5.4 -5.0 -0.4 -5.1 -4.7 38. GRAPHITF NIC 9.5 9.3 3.0 0.0 -2.0 -10.4 -10.3 -1.7 -8.9 -8.8 39. TALC X 17.7 6.5 10.9 4.0 -1.6 8.0 2.1 -1.3 6.7 1.7 40. FLUORITE x 10.0 7.7 0.0 0.0 -1.9 -11.7 -9. 4 -1.1 -9.5 -7.7 Korea: A ANNEX TABLE 2.A NOMI4AII AfiD EFFECTIVE PROTECTION: INCIVIDUAL INDUSTRIES ---- NOMINAL PROTECTION---- ------------------------- EFFECTIVE PROTECTION------- INDUSTRY/CATEGORY TARIFF NOMINAL -------- BALASSA--------- --------- CORDEN--------- DOM AVrR DCM AVER EXP DOM AVER EXP DOM AVER 41. SILICA SAND & LIMFSX'ONE NIC 8.1 7.8 4.0 ?.9 0.2 -2.4 -2.4 0.2 -2.2 -2.1 42. NON-METALLIC rINERALS KIC 99. 2.5 0.7 0.2 -1.3 -2.8 -1.7 -1.1 -2.5 -1.5 43. RAW SALT NIC 142.0 142.0 90.3 90.3 -7.1 196.9 196.9 -4.6 133.1 133.1 V CONSTRUCTION MATERIALS 44. CEMENT NTC 14.E 13.? 3.0 2.8 -5.0 -16.5 -15.6 -3.7 -12.8 -12.0 45. CLAY & CONCRETE PRODUCTS NIC 48.2 47.9 6.9 6.8 -4.3 -1.8 -1.8 -3.2 -1.4 -1.4 46. OTHER CLAY & STONE PRODUCTS NIC 50.8 49.2 0.6 0.6 -7.5 -19.5 -19.2 -5.1 -14.0 -13.7 VI-A INTERMEDIATE PRODUCTS I 47. COTTON YARN -NIC 23.2 23.1 0.0 0.0 19.0 -19.4 -19.3 13.7 -15.0 -15.0 48. SILK YARN X 34.8 5.3 0.0 0.0 -2.4 -3.2 -2.5 -2.1 -2.8 -2.2 49. WORSTED & WOOLEN YARNS NIC 61.0 59.5 60.4 58.8 -113.1 1787.1 1872.8 94.1 383.2 380.1 50. HEMP & ELAX YARNS NIC 76.9 74.6 38.4 37.2 -6.5 124.4 121.5 -4.3 90.6 88.3 51. OTHER YARNS IC 40.2 38.7 23.4 22.4 7.4 19.7 19.3 4.1 12.4 12.1 52. ROPF S FISHING NETS X 60.0 45.9 11.2 8.6 -1.8 -16.0 -13.1 -1.4 -12.8 -10.4 53. 1U MER NIC 25.Q 25.7 0.0 0.0 33.6 -29.9 -29.5 19.0 -18.5 -18.2 54. PLYWOOD X 45.q 10.2 0.0 0.0 70.7 -54.3 34.9 30.9 -28.4 16.0 55. LEATHER & FOIP NIC 44.9 44.9 0.3 0.3 -1.3 -15.0 -15.0 -1.0 -12.1 -12.1 56. SYNTHETIC RESINS F FIBEPS IC 41.1 40.6 24.4 24.1 -0.7 53.0 52.4 -0.4 37.1 36.7 57. PETPOLEUM PRODUCTS NTC 40.3 38.3 -26.2 -24.9 1.0 -69.8 -66.7 1.0 -66.2 -63.3 58. BRTOUETTES N'! 34.7 34.7 18.8 18.R -45.9 60.4 60.4 -16.0 27.6 27.6 59. OTHFR CCAL PRODIICTS NIC 4.6 0. 4.6 4.6 -12.9 -14.6 -14.6 -5.9 -7.6 -7.6 c,-). 'LtISC 0P81Dr6c4S IC 90,2 37.8i 9.0 8.7 3.1 -6.5 -6.3 2.2 -4.9 -4.8 Korea; A-27 ANNEX TABLE 2.A NOMINAL AND FFFFCTIVE PPOTECTION: INDIVIDUAL INDUSTRIES ---- NC'INML PROTECTION---- -------------------------EFFECTIVE PROTECTION- INDUSTRY/CATEGOPY TARIFF NOINAL BALASSA-------- ---------CORDEN--------- DON AVER DOM AVER FXP DOM AVER EXP DOM AVER 61. PIG IRON IC 9.5 9.t 14.5 14.3 -29.7 55,6 54.8 -12.4 28.9 28.4 62. STEEL INGOTS NIC 11.4 11.4 11.4 11.4 -17.9 -24.0 -24.0 -7.1 -12.2 -12.2 63. COPPER IC 27c 2 9 7-= 27-9 27.8 -36.1 86.6 86.3 -9.8 35.4 35.3 64. OTHER NON-FERROUS METALS XIC 11.7 8.6 31.C 22.8 -16.6 144.4 114.8 -7.4 80.7 61.2 VI-B INTERMEDIATE PRODUCTS II 65. COTTON FABRICS X 88.0 71.6 27.9 23.4 -32.6 284.6 269.9 -8.7 169.5 1S2.1 66. SILK FABRICS XIc 130.3 91.6 64.3 45.2 12.7 535.0 445.3 4.0 260.6 198.8 67. WORSTED & WOOLEN FkBRICS K 76.6 68.0 36.6 32.4 -3.1 19.8 17.5 -2.3 15.3 13.5 68. HEMP FABRICS ItC 93.3 90.8 22.9 22.3 -3.2 4.1 3.9 -2.8 3.6 3.4 69. RAYON FABRICS X 89.8 66.7 3.0 2.2 3.2 -36.8 -27.5 2.6 -30.3 -22.5 70. OTHER FABRICS XIC 67.8 37.9 28.9 16.2 5.7 23.6 16.5 4.0 17.6 12.0 71. DYEING S FINISHING NIC 0.C 0.0 0.0 0.0 -1.3 -24.3 -24.3 -0.9 -18.5 -18.5 72. HOOD PRODUCTS NIC 61.6 58.8 2.2 2.1 -5.1 -11.9 -11.6 -3.5 -8.5 -8.3 73. FliP' IC 0.0 0.0 0.0 0.0 -8.8 -11.9 -11.9 -5.8 -8.1 -8.1 74. PAPER g PAPERBOARD IC 45., 44.9 14.8 14.8 -9.4 22.7 22.7 -5.7 14.8 14.8 75. OTHER PAPER PRODUCTS NIC 84.2 79.3 11.5 10.9 -4.0 6.1 5.6 -2.8 4.4 4.t 76. TIF FS g VIBES NIC 9g., Q3.9 0.0 0.0 1.5 -53.9 -51.2 1.2 -44.3 -42.1 77. OTRER RPBBER PODUiCTS NIC 54.0 50.4 15.9 14.8 -2.1 1.8 1.5 -1.4 1.3 1.1 78. BASIC INOFGANIC CHEMICALS IC 49.3 47.5 22.5 21.6 -0.7 38.0 36.8 -0.4 22.1 21.4 79, PROCESSED OILS & FATS IC 115.1 44.3 37.0 36.3 5.7 149.6 148.0 2.2 78.4 77.4 8C. SYNTH2TIC DYES IC 81.2 78.2 53.3 51.3 -22.3 1929.1 2120.9 4.8 136.7 132.9 Korea: A-28 ANNFX TABLE 2.A NOMTNAI AND EFFFCTIVF PROTF.CTICN: INDIVIDIIAL INDUSTRIES ---- NOMINAL PROTECTION-- -------------------------- EFFECTIVE PROTECTION- - TNDUSTRY/CATEGORY TARIFF NOMTNAL --------- -------- BAJ.ASSA…--------- …CORDEN --------- DOM AVER DOM AVER EXP DOM AVER EXP DON AVER A1. OTHER BASIC ORGANIC CHEMICALS NIC 41.6 41.6 16.8 16.8 2.1 9.5 9.5 1.4 6.4 6.4 82. EXPLOSIVES NIC 24.6 24.6 0.8 0.8 1.0 -41.1 -41.1 0.7 -30.9 -30.9 83. PAINT & PRINTING INK NIC 95.8 95.0 67.8 67.3 -9.5 565.3 563.9 -0.9 144.8 143.8 84. PESTICIDES NIC 28.F 28.8 47.0 47.0 1.7 78.6 78.6 1.3 62.0 62.0 85. OTHER CHEMICAL PRODUCTS IC 63.4 62.9 16.1 16.0 -1.1 7.6 7.6 -0.7 5.4 5.4 86. FERTILIZERS IC 0.0 0.0 5.0 4.8 -10.8 -4.7 -4.9 -6.3 -2.9 -3.0 87. STEEL SHEET & BARS IC 25.n 24.4 2R.6 27.8 15.8 1525.8 1665.9 -7.5 138.7 136.3 88. STEEL PIPES IC 35.5 34.6 110.6 107.6 6.0 -262.4 -254.0 28.8 -3417.7 -3137.8 89. GALVANIZED & PLATED STEEL IC U4.4 44.3 U2.6 42.6 94.6 501.8 501.9 -9.1 127.0 126.9 90. CAST & FORGED STEEL NIC 35.5 35.3 10.2 10.2 -5.7 -4.2 -4.2 -3.9 -3.0 -3.0 91. NON-FFRROUS PRIMARY PRODUCTS XIC 29.3 19.2 7.9 5.1 -4.3 -25.9 -19.2 -2.8 -17.7 -12.9 92. IRON BAR S FRAMF NIC 39.4 38.6 0.0 0.0 -3.1 -32.7 -32.2 -2.5 -26.5 -26.0 93. METAL CONSTRUCTION PRODUCTS IC 53.9 52.3 21.1 20.4 -6.0 7.8 7.5 -3.8 5.3 5.0 94. TOOLS & OTHER MFTAL PRODUCTS XIC 57.7 36.2 43.2 27.1 -7.6 94.3 61.6 -4.3 57.8 36.6 95. LIGHT BULBS NIC 75.9 71.4 15.6 11.7 -3.9 5.2 4.7 -2.7 3.7 3.4 96. INSUILATED WTRE S CABLE IC 56.6 55.8 76.3 75.2 10.6 -311.6 -305.5 112.1 1654.8 1669.9 97. SYNTHETIC RESIN PRODUCTS NIC 92.2 -8q.6 0.0 0.0 4.5 -38.9 -37.8 3.5 -31.1 -30.2 VII NONDURABLE CONSUMER GOODS 98. KNIT PRODUCTS X 14Q.6 61.3 ?8.6 11.7 -3.2 39.8 16.2 -2.4 31.0 12.4 99. APPAREL & ACCESSOET7S X 154.1 106.9 11.8 8.2 -1.1 -30.7 -22.4 -0.8 -24.7 -17.9 100. STRAW PRODUCTS NIC 67.6 65.5 39.0 ?7.P -2.4 68.9 66.9 -2.0 57.9 56.2 Korea: A-29 ANNEX TABLE 2.A NOMINU. AND EFFFCTTVF PPOTECTION: INDIVIDUAL INDUSTRIES ---- NOmINAL PFDTECTION---- ------------------------- EFFECTIVE PROTECTION -- INDUSTRY/CATEGORY TARIFF NONINAL -------- BALASS --------- --------- CORDEN--------- DOM AVER DOM AVEP EXP DOM AVER EIP DON AVER 101. RIBBON, TAPE, STRING S X 66.7 52.1 18.5 14.4 -2.5 19.2 14.9 -2.0 15.8 12.2 102. OTHER TEXTILF PRODUCTS XIC 95.8 38.7 0.0 0.0 -4.2 -47.1 -23.0 -3.1 -36.1 -17.3 103. PRINTING S PUBLISHING NIC 24.2 24.1 0.0 0.0 -1.0 -21.2 -21.1 -0.8 -16.6 -16.5 104. LEATHER SHOES x 99.9 89.9 7.4 6.7 -2.0 -3.6 -3.5 -1.7 -3.0 -2.9 105. OTHER LEA"HEP PRODUCTS X 101.7 88.1 14.4 12.5 -8.4 19.8 16.8 -4.5 11.8 9.9 106. RUBBER SHOES X 99.3 56.3 0.0 0.0 1.9 -52.2 -30.5 1.5 -42.8 -24.8 107. DRUGS NIC 49.8 49.7 4.5 4.5 0.5 -13.5 -13.5 0.3 -9.3 -9.3 108. SOAP & SURFACTANTS IC 69.8 69.8 0.0 0.0 2.2 -49.4 -49.4 1.7 -39.0 -39.0 109. COSMETICS & TOOTH PASTE NIC 13B.8 138.8 22.6 22.6 -7.1 25.2 25.2 -4.3 16.1 16.1 110. POTTERY IC 76.8 76.4 49.8 49.6 -5.2 180.8 180.1 -2.5 97.3 96.9 111. MEASURING INSTRUMENTS NIC 44.9 40.9 61.1 55.7 -18.1 279.1 260.1 -6.3 120.6 110.8 112. MEDICAL S SANITARY INSTRUMENTS IC 53.9 53.0 1.9 1.8 -2.9 -26.3 -25.9 -2.1 -19.8 -19.5 113. OPTICAL INSTRUMENTS X 60.7 19.7 14.2 4.6 5.8 -7.7 0.9 14.2 -5.8 0.7 114. PHOTOGRAPHTC MATERIALS XIC 100.4 79.7 100.4 79.7 7.9 -339.9 -257.0 -153.0 1274.6 1193.2 115. JEWELRY & IACQUERWARE NIC 94.9 92.7 60.9 59.5 -4.3 129.8 127.2 -2.8 88.3 86.4 116. PROCESSED BRISTLES x 0.0 0.0 0.0 0.0 -3.3 -2.9 -3.3 -2.4 -2.2 -2.4 117. TOYS & SPOPTING GOODS XIC 100.4 74.9 5.6 4.2 -3.6 -20.3 -16.5 -2.4 -14.3 -11.6 11P. IUSSIAL INSTRUMENTS XIC 99.9 89.a 22.4 20.1 -9.0 38.2 34.2 -4.9 22.3 19.8 119. STATIONERY NIC 104.8 102.5 20.9 20.4 2.6 13.1 12.9 1.6 8.6 8.5 120. PEESONAL ACCESSORIES XIC 0.0 0.0 0.0 0.0 -3.1 -2.8 -3.1 -2.5 -2.3 -2.5 Korea: A-30 AVNEX -ABLE 2.A VCMINAL AN'D 'FFECTTVF P7OTECTFON: IYLIVIDlIAL INDUSTRIES ----NOMNTl.Tl PRnTECTION-- ---- --------------------- EFFECTIVE PROTECTION-------- TN!ISTTY/CATE3flPY TARIrF NCMINAL --------PALASSA--------- ---------CORDEN--------- DO AVFR DOi AVER EYP DO! AVER EtP DON AVER 121. OTH-P hANlIIFACrURING x 52.1 41.9 44.5 35.8 27.6 114.8 102.1 15.8 75.6 65.8 VITT COiSll:-. D'IPhBLES 122. HcO(lSt_il/TD METAL PPODUCTS YIC 99.6 42.0 3.2 3.5 -3.7 -38.9 -33.3 -2.5 -27.8 -23.7 123. IHOUSEH(Lr) FLFCtE O?1ITr FOUTPMENI XTc ln.l 69.6 72.1 49.7 -11.6 223.7 163.8 -5.1 114.0 80.3 124. FLFC-'OtCTC CONPINENV'- X:c 23.1 1.6 22.9 1.6 -2.9 51.2 1.5 -2.1 39.2 1.1 125. ILECTFIr APPLIiNCYS - TC 117.5 115.5 113.5 111.6 19.5 -1288.1 -1249.5 -21.7 558.9 552.1 126. eICY^LrS F C:A.-TS NIC q7.? 96.6 20.7 20.5 -5.3 6.7 6.7 -3.5 4.7 4.7 1 27. 0'TciP'S F' CLOCKS IC 87.9 86.7 71.7 70.6 -69.7 603.8 600.2 -8.3 160.2 158.2 TX Y-I'E 128. PlIME tOVYF'S XI( 59.6 53.6 41.2 37.1 -9.5 98.7 89.6 -5.4 61.0 55.1 129. BeTT,F?S NIC 49.3 49.3 3.9 3.9 -3.3 -24.6 -24.6 -2.6 -20.0 -20.0 130. M'-lXL WnFKITG MYA7HTNE?Y TC 21.0 20.9 4.5 4.5 -4.3 -13.7 -13.6 -3.3 -10.6 -10.6 1 ij * V-bT P7(TiC?SI\' EA ur' :;,,y I JC 26.8 26.0 12.3 11.9 -5.3 5'. 2 4.9 -3.8 3.8 3.6 132. E;PY NZCHTNEPY iC 59.1 58.2 52.1 51.2 -25.5 231.0 228.1 -8.1 94.9 93.4 133. MTINIG S CON!SRtIUCTT(N MACHINPPY 9 .R 9.6 3.1 3.e -4.1 -22.6 -22.3 -3.0 -17.2 -17.0 134. TiXTILE MACHINERY IC 14.2 13.9 9%5 0.c -3.7 -21.3 -21.0 -2.8 -16.8 -16.5 11'. :DFCt?L TNDUJSTRIL MACHiN'FPY IC 32.9 29.7 16,6 I1. -6.0 13.4 11.8 -4. 2 9.7 8.5 116. GiVW?'!RAL T'DUJ¢T?IkL la,:HTNERY TC 50.2 49.7 3.3 9.2 -4.4 -6.8 -6.8 -3.3 -5.2 -5.2 137.' OFFITCE StFVICF JACJiIN.S lIr 82.7 70.4' 28.4 24.2 -6.3 49.7 42.4 -4.1 34.2 29.0 1'8. SHTNr, M.rCHITNES IC 67,1 t 64.5 21.7 20.9 -5.9 19.9 19.1 -3.5 14.5 13.9 1 3Q. MACHIUK!7Y COMPOXI=NT" 71.5 68.4 62.0 59.4 -6.8 273.4 265.0 -2.5 127.2 123.4 140. 'ElF.RA1'0Si .4,o 9.13 88 1.52 R9 -11.6 -11.1 -3.1 -9.2 -8.8 Korea: A-31 ANNEX TABLE 2.A NOMINAL AND EFFECTIVE PROTECTION: INDIVIDUAL INDUSTRIES ---- NOMINAL PROTECTION---- ------------------------- EFFECTIVE PROTECTION-------- INDUSTRY/CATEGORY TARIFF NOMINAL -------- BALASSA--------- --------- CORDEN--------- DOM tVER DOM AVER EXP DOM AVER EXP DOM AVER 141. TRANSFORMERS xic 64.6 43.8 87.6 59.4 -45.6 837.4 718.3 -4.9 225.2 160.8 142. ELECTRIC MOTORS - NIC 70.6 70.6 33.0 33.0 -7.6 146.0 46.0 -4.8 30.5 30.5 143. INDUSTRIAL ELECTRIC EQUIPMENT NIC 30.9 30.1 25.1 24.4 -5.0 15.2 14.7 -3.2 10.3 10.0 144. ELECTRONIC EQUIPMENT IC 54.0 51.7 46.5 44.6 -12.3 119.7 115.4 -5.8 64.5 61.9 145. OTHER ELECTEICAL EQUIPMENT NIC 84.9 83.2 26.2 25.7 -7.9 52.5 51.5 -4.1 30.3 29.7 X TRANSPORT EQUIPMENT 146. STEEL SHIPS IC 10.0 10.0 16.4 16.4 -3.2 5.6 5.6 -2.5 4.5 4.5 147. WOODEN SHIPS IC 50.3 50.3 41.7 41.7 -4.0 109.7 109.6 -3.0 84.7 84.7 148. RAILROAD EQUIPMENT IC 0.0 0.0 55.1 55.1 14.9 -435.6 -435.6 -29.0 202.4 202.4 149. MOTOR VEHICLES IC 124.2 121.5 90.0 88.0 47.4-18404.8-13412.0 -13.5 247.7 243.2 150. AUTOMOTIVE REPAIRS NIC 0.0 0.0 0.0 0.0 -2.7 -25.5 -25.5 -2.2 -21.4 -21.4 Korea: A-32 ANNEI TAD&E 2.0 NOMINAL PROTECTION AND U?PBCTIVE SUBSIDY: INDIVIDUAL INDUSTRIES ---- NOnrIIAL PROTICTION--lr- ---------------- …----E-------!ECTIVE SUSIDY -------- INDUSTRY/CATEGORY TARIFF IOIINAL -------- ALASSA------- ---------CO8DEN------- DON AVER DON AVER ziP DON AVER ZIP -DO8 AVER AGRICUITUJRZ FOR3STRY, & FISHING 1. RICE NIC 23.4 23.4 13.3 13.3 2.6 19.7 19.7 2.6 19.2 19.2 2. BARLEY E 4HeAT IC 22.9 22.8 46.4 46.3 4.7 76.0 75.6 4.6 74.2 74.0 3. PULSES RISC. CEREALS 0 NIC 24.9 24.8 0.0 0.0 7.1 3.6 3.6 7.0 3,6 3.6 4, POTATOES NIC 39.9 39.7 0.0 0.0 9.0 2.5 2.5 9.0 2.5 2.5 5. TEGETABLES NIC 205.7 203.S 91.0 90.1 6.0 154.0 153.4 5.8 150.4 149.0 6. FRUIT NIC 24.2 23.6 0.0 0.0 1.3 -15.S -15.1 2.5 -12.3 -11.9 7. TOBACCO NIC 137.6 137.6 0.0 0.0 -0.0 -2.5 -2.5 -0.0 -2.4 -2.4 8. MEDICAL CROPS 1 15.9 2.2 -35,4 -35.4 -39.8 -44.9 -40.5 -39.2 -44.3 -40.0 9. RISC. CROPS NIC 21.3 21.2 18.9 18.8 -4.8 21.2 21.1 -4.7 20.7 20.6 10. POULTRY NIC 21.2 20.9 20.0 19.8 8.3 11.9 11.9 7.S 10.9 10.9 11. LIVESTOCR NIC 8.9 8.9 0.0 0.0 -0.5 -13.9 -13.9 -0.4 -13.3 -13.3 12. FOREST PRODUCtS NSIC 9.8 9.6 5.6 5.6 0.5 4.8 4.7 0.S 4.5 4.6 13. PISHINO SNIC 32.1 29.9 0,0 0.0 11.9 1.1 1.8 11.0 1.0 1.7 II PROCESSED WOOD 14. SLAUG8TIEED S PROCESSED MEAT 1 33.9 30.0 0.0 0.0 28.3 -16.1 -12.8 1S.6 -10.4 -6.4 15. DAIRY PRODUCTS IC 93.1 93.1 17.3 17.3 -13.8 15.4 15.6 -8.2 10.0 10.0 16. PROCESSED FRUITS S VEGETABLES X 111.1 88.1 10q8 8.6 29.5 -43.0 -29.5 23.3 ^35. -24.4 17. CANNED SEAFOODS Y 100.0 28.7 10.9 3.1 12.7 6.2 10.6 9.1 4.7 7.8 18. SEA WEED X 30.5 21.3 -60.1 -41.9 -2.6 -97.8 -70.5 -2.3 -89.5 -64.4 19. OTHER PROCESSED SEAFOODS X 35.0 21.8 0.0 0.0 2.6 -28.0 -17.8 1.9 -20.9 -13.1 20. GRAIN MILLING NIC 34.4 34.4 0.0 0.0 -2.9 -13.3 -13.3 -2.4 -11.1 -11.1 9ource: Authors' estimates. Units: In percent. ANNEX TABLE 2.B NOMINAL PROTECTION AND EFFECTIVE SUBSIDY: INDIVIDUAL INDUSTRIES ---- NCMINAL PROTECTION---- --------------------------- EFFECTIVE SUBSIDY------- INDUSTRY/CATEGORY TARIFF NOMINAL -------- BALASSA--------- --------- CORDEN--------- DOM AVER DOM AVER EXP DON AVER EXP DOM AVER 21. BAKFRY PRODUCTS NTC 122c8 122.8 2U.0 23.9 -15e8 131.9 131.9 -4.8 63.0 63.0 22. CONFEC'IONFRY NIC 118.e 118.8 9.4 9.4 -17.8 -35.0 -35.0 -13.0 -26.9 -26.9 23. REFINED SUGlAR NIC 39.9 38.8 0.0 n.0 4.6 -50.6 -49.3 3.9 -43.6 -42.5 24. SEASONINGS S, OILS NIc 94.8 94.4 1. 11.1 -43 -36.5 =''." - - 28. ? 29.- 25. OTHER FOOD PREPARATIONS IC 83.6 82.9 17.8 17.7 0.4 46.6 46.3 0.2 29.8 29.6 III BEVERAGES & TOBACCO 26. BEER NIC 148.3 139.1 5.7 5.4 -8.1 -29.0 -27.8 -5.8 -21.5 -20.6 27. OTHER ALCOHOLIC BEVERAGES NIC 133.4 133.4 18.8 18.8 -14.8 8.4 8.4 -9.4 5.8 5.8 28. SOFT DRINKS NIC 98.3 96.4 3.1 3.1 -1.1 -28.1 -27.6 -0.7 -18.6 -18.3 29. PROCESSED TOBACCO NIC 149.9 139.9 -13.5 -12.6 18.5 -42.4 -38.8 16.8 -38.8 -35.5 TV MINING & ENERGY 30. COAL NIC 9.8 9.6 9.8 9.6 7.1 8.8 8.7 6.2 7.7 7.7 31. IRON ORE x 0.0 0.0 0.0 0.3 -0.4 10.1 0.7 -0.4 9.3 0.6 32. TIUNGSTEN ORE x 0.0 0.0 0.0 0.0 4.7 -28.6 -2.7 4.4 -26.8 -2.5 33. LEAD ORE x 0.0 0.0 0.0 n.0 3.6 -22.1 -6.8 3.1 -18.8 -5.7 34. ZINC ORE x 0.0 0.0 3.0 0.) 4.2 -17.4 -1.3 3.5 -14.8 -1.1 35. GOLD, SILVER, & COPPER ORES XIC 0.0 0.0 16.9 14.0 11.4 28.6 25.9 8.4 21.6 19.5 36. O"HEe METALLIC MINERALS x 0.0 0.0 0.0 0.0 -1.6 -11.3 -4.0 -1.3 -9.3 -3.3 37. QIJARRY PEODUlCTS q7C 10.0 9.2 0.0 0.0 5.5 -3.9 -3.2 5.2 -3.7 -3.0 38. GRAPHITE NIC 9.' 9.3 0.0 0.0 -0.1 -11.5 -11.4 -0.1 -9.9 -9.8 39. TALC X 17.7 6.5 10.9 4.0 0.8 -0.0 0.5 0.6 -0.0 0.4 40. FLIIORITE x 10.0 7.7 0.0 0.0 3.5 -16.3 -12.0 2.8 -13.3 -9.8 Korea: A-34 ANNEX TABLE 2.B NOMINAL PROTECTION PND EFFECTIVE SUBSIDY: INDIVIDUAL INDUSTRIES ---- NOMINAL PROTECTION---- --------------------------- EFFECTIVE SUBSIDY--------- TNDUSTRY/CATEGORY TARIFF NOMINAL -------- BALASSA--------- ---------CORDEN--------- DOM AVE2 DCO AVPR EXP DOM AVER EXP DOM AVER 41. SILICA SAND & LIMFSTONE NIC 8.1 7.8 4.0 3.9 4.2 -3.1 -2.9 3.7 -2.8 -2.6 42. NON-METALLIC MINERALS XIC 9.9 2.5 0.7 0.2 1.7 -8.9 -1.1 1.5 -8.0 -1.0 43. RAW SALT NIC 142.0 142.0 90.3 90.3 -41.6 168.5 168.5 -26.9 113.9 113.9 V CONSTRUCTION MATERIALS 44. CEMENT NIC 14.6 13.3 3.0 2.8 7.1 -15.1 -13.4 5.3 -11.7 -10.3 45. CLAY S CONCRETE PRODUCTS NIC 48.2 47.9 6.9 6.8 -5.8 -17.4 -17.3 -4.3 -13.3 -13.3 46. OTHER CLAY F STONE PRODUCTS NIC 50.8 U9.2 0.6 0.6 -1.3 -21.8 -21.2 -0.9 -15.6 -15.1 VI-A INTERMEDIATE PRODUCTS I 47. COTTON YARN NIC 23.2 23.1 0.0 0.0 16.7 -23.8 -23.8 12.1 -18.5 -18.5 48. SILK YARN X 34.8 5.3 0.0 0.0 -5.2 -17.6 -7.4 -4.5 -15.7 -6.4 49. WORSTED S WOOLEN YAPNS NIC 61.0 59.5 60.4 58.8 -16.9 1556.7 1627.7 14.1 333.8 330.3 50. HEMP S FLAX YARNS NIC 76.9 74.6 38.4 37.2 99.6 181.0 179.1 65.9 131.8 130.2 51. OTHERi YA.RNS IC 40.3 38.7 23.4 22.4 55.6 52.9 53.0 31.1 33.2 33.1 52. ROPE & FISHING NETS X 60.0 45.9 11.2 8.6 21.1 -20.2 -11.8 16.2 -16.2 -9.4 53. LUNdER NIC 25.9 25.7 0.0 0.0 25.1 -42.5 -42.1 14.3 -26.3 -26.0 54. PLYWOOD X 45.9 10.2 0.0 0.0 95.6 -68.7 48.5 41.8 -35.9 22.3 55. LEATHER S FUR NIC 44.9 44.9 0.3 0.3 -12.5 -30.2 -30.2 -9.8 -24.4 -24.3 56. SYNTHETIC RESINS S FIBERS IC 41.1 40.6 24.4 24.1 28.9 71.2 70.8 19.1 49.9 49.5 57. PET2OLEiTJ PRODUCTS NIC 40.3 38.3 -26.2 -24.9 2.1 -73.1 -69.8 2.0 -69.4 -66.2 58. BRIQU1ETTES NIC 34.7 34.7 18.8 18.8 -47.9 46.1 46.1 -16.7 21.0 21.0 59. OTHER COAL PRODUCTS NIC 4.6 4.6 4.6 4.6 -22.8 -24.5 -24.5 -10.3 -12.6 -12.6 6,2. SLPSS PRODUCTS IC 90.2 87.8 9.0 8.7 4.8 -16.4 -15.9 3.5 -12.4 -12.0 Korea: A-35 ANNEX TABLE 2.B NOMINAL PROTECTION AND EFFECTIVE SUBSIDY: INDIVIDUAL INDUSTRIES ---- NCMINAL PFOTECTION---- --------------------------- EFFECTIVE SUBSIDY-------- INDUSTRY/CAT GF0EY TARIFF NOMINAL -------- BALASSA--------- --------- CORDEN--------- DOM AVER DOM AVER EXP DOM AVER EXP DON AVER 61. PIG IRON IC 9.5 9.4 14.5 14.3 674.2 499.6 501.2 280.4 260.0 260.2 62. STEEL INGOTS NIC 11.4 11.4 11.4 11.4 -13.2 -29.1 -29.1 -5.3 -14.8 -14.8 63. COPPER 'C 27.9 27.P 27.0 7.° 1 -2.c a '.2 - 1. a -,.u 2'.o 2-." 64. OTHER NON-FERROUS METALS XIC 11.7 8.6 31.0 22.8 17.8 125.7 105.9 7.9 70.3 56.5 VI-B TNTERMEDIATE PRODUCTS TI 65. COTTON FABRICS X 88.0 73.6 27.9 23.4 350.4 295.9 298.4 66. 93.8 176.2 168.1 SILK FABRICS XIC 130.3 91.6 64.3 45.2 40.9 480.0 404.6 13.0 233.8 180.6 67. WORSTED & WOOLEN FABRICS x 76.6 68.0 36.6 32.4 -9.0 -1.5 -2.3 -6.7 -1.2 -1.8 68. HEMP FABRICS VIC 93.3 90.8 22.9 22.3 -6.3 -8.4 -8.3 69. RAYON -5.5 -7.4 -7.3 FABEICS x 89.8 66.7 1.0 2.2 15.7 -37.7 -25.2 70. 12.6 -31.0 -20.6 OTHvR FABRICS XIC 67.8 37.9 28.9 16.2 22.0 22.3 22.2 71. DYFING & FINISHING 15.6 16.6 16.2 NIC 0.0 0.0 0.0 0.0 -6.8 -33.6 -33.6 72. -5.0 -25.6 -25.6 WOOD PRODUCTS NIC 61.6 58.8 2.2 2.1 3.4 -14.5 -13.8 73. 2.3 -10.4 -9.9 PULP IC 0.0 0.C 0.0 0.0 20.9 14.8 14.8 74. PAPER S PAPERBOARD 13.7 10.0 10.0 TC 45.0 44.9 14.8 1U.8 -12.8 4.2 4.2 7S. -7.8 2.7 2.7 *THER PAE-FR PPODUCTS NIC 84.2 79.3 11.5 10.9 -5.2 -10.7 -10.4 76. -3.6 -7.8 -7.6 TIRFS & TUBES NIC 99.2 93.9 0.0 0.0 -17.5 -69.6 -67.1 77. OlTHER RUBBER PRODUCTS -14.0 -57.2 -55.1 NIC 54.0 50.4 15.9 14.8 -7.5 -16.6 -16.1 7R. BASIC INORGANIC CHEMICALS -5.1 -11.8 -11.4 IC 49.3 47.5 22.5 21.6 17.1 32.8 32.3 70. PROCESSED OILS & FATS 9.2 19.1 18.7 IC 45.1 U4.3 37.0 36.3 87.2 109.2 109.0 V'. SYN'ETTC DYES 33.9 57.3 56.9 IC 81.2 78.2 53.3 51.3 -95.3 1995.7 2201.2 20.4 141.4 137.9 ANNEX TAbLE 2.8 Korea: A-36 NOMINkL PROFECTION AND EFFECTIVE SUBSIDY: INDIVIDUAL INDUSTRIES ---- N')MINAL PROTECTION---- --------------------------- EFFECTIVE SUBSIDY-------- TNDUSTRY/CATEGORY TARIFF NOMINAL -------- BALASSA…-------- --------- CORDEN--------- 0CM AVFR DOM AVER EXP DOM AVER EXP DON AVEB 81. OTHER BASIC ORGANIC CHEMICALS NIC 41.6 41.6 16.8 16.8 -2.1 -6.6 -6.6 -1.4 -4.4 -4.4 8?9. EXPLOSIVES NIC 24.6 24.6 0.8 0.8 6.3 -39.0 -39.0 s.4.5 -29.3 -29.3 83. PAINT & PRINTING INK NIC 95.8 95.0 67.8 67.3 -79.3 569.5 567.8 -7.7 145.9 t44.8 84. pESTICIDES NIC 28.F 28.8 47.0 47.0 -10.9 73.7 73.7 -8.4 58.2 58.2 95. OTHF CHEMICAL PRODUICTS 8C 63.u 62.9 16.1 16.0 10.5 15.8 15.8 7.2 11.3 11.3 86. FERTILIZERS IC 0.C 0.0 5.0 4.8 60.6 46.5 47.0 35.1 29.0 29.2 R7. STEEL SHEET & BARS IC 25.0 24.4 2R.6 27.8 -68.8 1451.6 1592.8 32.6 131.9 130.3 88. STEEL PIPES IC 35.5 3U.6 110.6 107.6 3.1 -244.7 -236.9 15.0 -3186.6 -2926.6 89. GALVANIZED & PLATED STEEL IC 44.4 44.3 42.6 U2.6 -714.8 634.9 635.3 68.8 160.7 160.6 90. CAST & FORGED STEEL NIC 35.5 35.3 10.2 10.2 -2.7 -17.3 -17.2 -1.9 -12.5 -12.4 91. NON-PERROUS PRIMARY PRODUCTS XIC 29.3 19.2 7.9 5.1 3.7 -32.5 -21.4 2.4 -22.3 -14.4 92. IRON BAR & FRAME NIC 39.4 38.6 0.0 0.0 3.4 -33.4 -32.8 2.7 -27.0 -26.5 93. METAL CONSTRUCTION PRODUCTS TC 53.9 52.3 21.1 20.4 11.8 5.4 5.5 7.4 3.6 3.7 94. TOOLS 6 OTHER MFTAL PRODUCTS XIC 57.7 36.2 U3.2 27.1 8.0 89.7 63.5 4.4 55.0 37.7 95. LIGHT BULBS NIC 75.9 71.4 15.6 1b*7 -1.6 -17.7 -16.9 -1.1 -12.6 -12.0 96. INSULATED WIRE S CABLE IC 56.6 55.8 '76.3 75.2 -6.1 -275.5 -270.4 -64.5 1463.1 1478.1 97. SYNTHETIC FESIN PRODllCTS NIC 92.2 89.6 0.0 0.0 7.1 -45.1 -43.8 5.6 -36.1 -35.0 VII NONDURABLE CONSUMER COODS 98. KNIT PRODUCTS x 149.6 61.3 23.6 11.7 3.1 17.9 9.8 2.3 14.0 7.5 99. APPAREL S ACCESSOilES X 154.1 106.9 11.8 8.2 7.9 -37.5 -24.7 6.2 -30.2 -19.8 100. STRAW PRODUCTS NIC 67.6 65.5 39.0 37.8 3.3 62.5 60.8 2.7 52.5 51.1 Korea: A-37 ANNEX TABLE 2.B NOMINAL PROTFCTION AND EFFECTIVE SUBSIDY: INDIVIDUAL INDUSTRIES ---- NOMINAL PROTECTION---- ----------------- ^---------EFFECTIVE SUBSIDY------- INDUSTHY/CATEGORY TARIFF NOMINAL -------- BALASSA--------- --------- CORDEN--------- DOM AVER DOM AVER FXP DON AVER EXP DOM AVER 101. RIBBON, TAPE, & STRING x 66.7 52.1 18.5 14.4 13.2 15.1 14.7 10.6 12.4 12.1 102. OTHER TEXTILE PRODUCTS XIC 95.8 38.7 0.0 0.0 -0.3 -57.3 -25.2 -u.3 -43.9 -19.u 103. PPINT'NG S PUIBLISHIN( NIC 24.2 24.1 0.0 0.0 6.8 -24.3 -24.2 5.1 -19.0 -18.9 104. LEATHER SHOES X 99.9 89.9 7.4 6.7 6.3 -11.8 -10.1 5.2 -9.9 -8.5 105. OTHER LEATHER PRODUCTS X 101.7 88.1 14.U 12.5 12.6 2.6 3.7 6.8 1.5 2.2 106. RUBPER SHOES Y 99.3 56.3 0.0 0.0 2.7 -64.9 -37.9 2.2 -53.2 -30.8 107. DRUGS NIC 49.8 49.7 4.5 4.5 -3.6 -36.4 -36.3 -2.4 -25.1 -25.0 108. SOAP & SURFACTANTS IC 69.8 69.8 0.0 0.0 -3.7 -55.4 -55.4 -2.8 -43.8 -43.8 109. COSMETICS & TOOTH PASTE NIC 138.8 138.8 22.6 22.6 99.7 3.0 3.0 60.5 1.9 1.9 110. POTTERY IC 76.8 76.4 49.8 49.6 110.4 179.0 178.7 52.3 96.3 96.1 111. MEASURING INSTRUMENTS NIC 44.9 40.9 61.1 55.7 91.1 265.8 254.7 31.7 114.9 108.4 112. MEDICAL & SANITARY INSTRUMENTS IC 53.9 53.0 1.9 1.8 16.6 -30.0 -29.2 12.1 -22.6 -22.0 113. OPTICAL INSTRUMENTS x 60.7 19.7 14.2 4.6 25.0 -11.6 11.8 18.1 -8.8 8.7 T 114. PHO OGRAPHIC MATERIALS XIC 100.4 79.7 100.U 79.7 -6.8 -327.8 -251.2 132.2 1228.9 1166.4 115. JEWELRY & LACQUERWARE NIC 94.9 92.7 60.9 59.5 23.2 103.8 102.3 15.0 70.6 69.4 116. PROCESSED BRISTLES X 0.0 0.0 0.0 0.0 2.0 -7391.8 -0.4 1.5 -5723.4 -0.3 117. TOYS S SPORTING GOODS YIC 100.4 74.9 5.6 4.2 14.1 -29.9 -20.1 9.5 -21.1 -14.0 118. MUSICAL INSTRUMENIS XIC 99.9 89.9 22.u 20.1 33.7 29.0 29.4 18.1 16.9 17.0 119. STATIONEFY NIC 104.8 102.5 20.9 20.4 40.7 7.3 7.9 25.4 4.8 5.2 120. PERSONAL ACCESSORIES XIC 0.0 0.0 0.0 Q.0 3.6 -8.7 1.7 2.9 -7.1 1.3 Korea: A-38 ANNEX TABLE 2.f NOMINAL PROTECTION AND EFFECTIVE SUBSIDY: INDIVIDUAL INDUSTRIES ---- NOMINAL PflOTECTION---- --------------------------- EFFECTIVE SUBSIDY - -------- INDUSTPY/CATE-,ORY TARIPFF NOMINCTAL -------- BALASSA --------- --------- CORDEN--------- DOM AVER roM AVER EXP DON AVER EXP DON AVEB 121. OTHER MANUFACTURING X 52.1 41.9 u3.5 35.8 70.4 97.5 93.6 40.4 64.2 60.3 VTII CONSUMER DURABLES 122. HOUSEHOLD METAL PRODUCTS XIC 99.6 92.0 L.2 3.5 8.8 -42.6 -34.5 6.0 -30.5 -24.5 123. HOUSEHOLD ELECTRONIC EQUIPHEN2 XIC 101,1 69.6 72.1 49.7 -28.9 134.5 92.8 -12.8 68.5 115.5 124. ELECTRONIC COMrONENTS XIC 23.1 1.6 22.9 1.6 8.6 64.9 13.3 6.3 49.6 9.8 125. ELECTRIC APPLIANCES IC 117.5 115.5 113.5 111.6 -138.7 -1034.9 -1008.4 154.0 449.0 445.5 126. BICYCLES & CARTS NIC 97.2 96.6 20.7 20.5 0.6 -6.9 -6.9 0.4 -4.9 -4.8 127. WhTCHES g CLOCKS IC 87.9 86.7 71.7 70.6 395.6 572.8 571.8 47.0 152.0 150.7 II MACHINRRY 128. PRIME MOVERS XIC 59.6 53.6 41.2 37.1 7.5 83.9 77.5 4.3 51.9 47.6 129. BOILERS NIC 49.3 49.3 3.9 3.9 -6.6 -29.3 -29.3 -5.2 -23.8 -23.8 130. METAL WORKING MACHINERY IC 21.0 20.9 4.5 4.5 -7.0 -18.9 -18.9 -5.3 -114.7 -14.7 131. METAL PROCESSING MACHINERY IC 26.8 26.0 12.3 11.9 21.9 13.7 13.9 15.6 10.2 10.3 132. WARN. MACHINERY IC 59.1 58.2 52.1 51.2 91.3 202.2 201.0 29.0 83.1 82.3 133. MINING S CONSTRUCTION MACHINERY NIC 9.8 9.6 3.1 3.0 -0.1 -25.8 -25.4 -0.1 -19.7 -19.3 134. TEXTILE MACHINERY IC 14.2 13.9 0.5 0.5 -0.1 -20.3 -20.0 -0.1 -16.0 -15.8 135. SPECIAL INDUSTRIAL MACHINEEY IC 32.9 29.7 16.6 15.0 -0.1 6.2 5.7 -0.1 4.5 4.1 136. GENERAL INDUSTPIAL MkCHINERY IC 90.2 49.7 .3 9.2 0.7 -10.8 -10.7 0.5 -8.3 -6.2 137. OFFICE F, SRRVTCE MACHINES XIC 82.7 70.4 28.4 24.7 11.2 46.3 41.8 7.3 31.9 28.6 138. SEWING, MACHTNES IC 67.1 64.5 21.7 20.9 -15.3 4.9 4.2 -10.8 3.5 3.0 139. MACHINEFY COMPUOiENM'S r ; 14 2.0 6U 59.4 -4.6 246.3 238.8 -1.7 114.6 110.3 1lU0. SENFRATORS Nit :. 5. . z.1 6.1 7.3 19.5 4.8 5.8 Korea: A-39 ANNEX TABLE 2.B NOMINAL DROTECTION AND EFFECTIVE SUBSIDY: INDIVIDUAL INDUSTRIES ---- NOMINAL PROTIECTION---- --------------------------- EFFECTIVE SUBSID…-------- TNDTISTRY/CATEGORY TARIFr NOMINAL -------- BALASSA--------- --------- CORDEN--------- DOM AVER DOM AVER FXP DOM AVER EXP DOM AVER 141. TRANSFOfMERS XIC 64.6 43.8 87.6 59.4 26.7 728.0 633.4 2.9 195.8 141.8 142. ELECTRIC MOTORS NIC 70.6 70.6 33.0 33.0 30.5 25.9 25.9 19.0 17.2 17.2 143. INDUSTRIAL ELECTRIC EQUIPMENT NIC 30.9 30.1 25.1 24.4 2.6 2.3 2.3 1.7 1.6 1.6 144. ELECTRONIC EQUIPMENT IC 54.0 51.7 46.5 44.6 1.4 89.2 86.3 0.7 48.1 46.3 145. OTHER ELECTRICAL EQUIPMENT NIC 84.9 83.2 26.2 25.7 -12.8 30.7 30.0 -6.6 17.7 17.3 X TRANSPORT EQUIPMENT 146. STEEL SHIPS IC 10.0 10.0 16.4 16.4 15.0 18.4 18.4 11.8 14.8 14.8 147. WOODEN SHIPS IC 50.3 50.3 41.7 41.7 -2.4 110.4 110.3 -1.8 85.3 85.2 148. RAILROAD EQUIPMENT IC 0.0 0.0 55.1 55.1 12.5 -440.7 -440.7 -24.3 204.8 204.8 149. MOTOR VEHICLES IC 124.2 121.5 90.0 88.0 21.5-17969.4-13101.4 -6.1 241.8 237.6 150. AUTOMOTIVE REPAIRS NIC 0.0 0.0 0.0 0.0 -8.1 -32.0 -32.0 -6.7 -26.8 -26.8 Korea: A-40 rNNF'X TABLE 2.C trnrT- InAl '-FImt3 !Owl FOP INDIVIVlliL INDriSTRIES I F.l)TS ?Y/ --VALtE L.4 i r°-1 D 5K F P- C- - L7AL A--- VALI' AD0.FD ---TOTAL VlIllE ADDED IN dORLD PRICES--- -iOMINAL INPUT--- CkTF(;ORY IMDOSI' EXPO T FyPqP- U111-T-( tN tc17SFTt( nnE;-E3 …-hALASS'-…----- ------ COPDEN P'--T-CT-O-- 9 HAPE SH;RiE -'LF 5Ij.c F .10PT nwflu1': EXPi FT DOMESTIC EXPORT DOMESTIC EXPORTS DOMESTIC I kORICItL"'IFE, FORESTBY, ', FISH1IN5 1. PTCE NIC r. 0.0 0.0 176130.6 n.o 169816.1 o.n 147837.3 0.0 151251.3 1.7 5.6 2. IARLP.Y & WdFAT' TC ?7.3 0.? 115. 3571.3 66.8 56920. 3 66.9 33593.1 68.7 34413.3 0.4 10.2 3N PULSS F . 64.1 19412.4 59.9 16244.9 60.9 16363.1 51.3 16468.6 0.3 4.0 4. POTATOF'S 4 IC 0.0 0.7 210.0 1iC515.5 154.3 23611.6 154.3 23881.3 155.5 24054.9 0.2 4.2 5. VEGETAPLES; NIC 0.4 1.1 363.3 3u066.8 192.1 48003.7 192.7 19687.7 198.8 20263.2 0.4 19.6 S7> Q.5 2.c. 397.9 1S845.0 18n.7 6b27.2 183.8 8071.0 237.3 10201.4 2.2 22.0 7. TOBACCO Vic 2.3 0.0 0.0 1172P.8 0.0 860e.5 0.0 8860.4 0.0 9106.2 1.3 9.7 R. MIEDICAL CPnPS x 8.5 86.2 2395.8 385.1 1043.5 169.5 1816.8 310.4 1841.8 314.4 -7.8 6.4 9. MISC. CROPS NISC 1.2 1.3 33.6 11219.8 23.1 10171.9 23.2 8287.1 23.8 8483.4 0.8 8.7 10. ?OIILTRY "IC 0.3 1.2 371.7 29972.9 147.5 15121.4 149.1 13447.2 163.9 14645.9 0.8 28.2 11. LIVESTOCK NIC 0.3 0.1 82.9 67892.5 43.4 33680.3 43.6 38941.8 45.8 40703.4 0.8 19.3 12. ?OREST PDODUCTS NI ' 0.2 0.5 170.1 33552.1 133.6 29378.2 134.3 28084.3 139.3 29066.4 3.1 12.9 13. FISHINrI NIC 0.6 6.6 2923.2 41348.0 1847.9 26376.2 1813.0 27613.4 1950.8 29562.3 -4.2 10.5 II PROCESSED FOOD 14. SLAOGHTEPED S PROCESSED MEAT X 3.2 11.6 3700.2 2813A.0 31%.2 3672.6 334.2 3880.4 595.7 5869.2 0.8 0.9 15. DAIRY PRODUCTS IC 38.7 0.0 0.0 3355.1 0.0 1071.3 0.0 792.8 0.0 1229.8 2.4 14.3 16. PPOCESSFD FRU:TS C VEGETABLES 16. PROCE 1.9 20.7 147.0 5e3.s 58.5 183.4 60.1 257.3 74.2 311.4 2.4 53.4 17. CANNED SEAFOODS x 0.0 71.3 572.2 230.4 139.6 80.6 145.7 69.6 202.6 92.6 1.8 10.3 14. SEA WEED 0.0 30.3 U144.3 qS5 2509.9 430.1 2540.i 6311.7 2794.6 6898.3 2.6 5.1 19. 01THFS PPOCESSFD SEAPOODS; x 0.4 37.7 3808.3 6242.1 827.5 1584.7 874.0 1743.5 1228.8 2329.7 1.9 4.0 2^. GRATN M¶IT-LING. NIC 6.4 0.0 6.3 23337.n 2.6 13884.4 2.8 16357.4 3.4 19675.5 5.4 17.8 Source: Authors' estimates based on the Bank of Korea's 1966 and 1968 input-output tables. Notes: See Table 2.C. The assignment to trade categories is incorrect in three cases: sectors 17 (canned seafoods) and 104 (leather shoes) were incorrectly assigned to the NIC cate- gory, both should be X sectors; sector 44 (cement) should have been considered NIC but was placed under the X category. Sectors 44 and 104 had export shares very close to ten percent. Canned seafood exports were mis-classified in the origial input-output data, which was not discovered until quite late in the study; the export share of canned sea- food production was 71.3 percent. None of the aggregate figures bv trade category ap- pearing in the text have been corrected for these mis-classificat ons. Korea: A-41 ANNEX TAbLE 2.C kDDITIONAL INFOPMATION FOR INDIVIDUAL INDUSTRIES TNDUSTRY/ -- VALUE IN WORLD MARKET PRICES--- TOTAL VALUE ADDED ---TOTAL VALUE ADDED IN VORLD PRICES--- --NOMINAL INPUT--- CATEGORY IMPORT EXPORT EXPORT DOMESTIC IN DOMESTIC PRICES ----- BALASSA------ ------ CORDEN------ PROTECTION SHARE SHARE SALES SALES EXPORT DOMESTIC EXPORT DOMESTIC EXPORT DOMESTIC EXPORTS DOMESTIC 21. BAKERY PRODUCTS NIC (03 o0e 4e2 9515.6 0O2 2223z0 0.2 873.7 0.6 1830.0 0.9 12.1 22. CONFECTIONERY NIC 0.7 0.0 0.0 7012.8 0.0 1589.3 0.0 1977.7 0.0 2580.9 1.8 23.6 23. REFIIED SUGAR NIC 7.5 2.6 231.0 8756.7 114.9 2673.1 115.3 4787.1 135.6 5555.6 0.4 66.0 24. SEASONINGS S OILS "I 4 I C U OC Ns IC I.S6 C1 . ,.u. I 2 e SlCI *I.J 2tn2 . 'v,4 Ju)s. 4 27- 2..a rn,4.0- IJv.V S5. 9 73;O. 4 25. OTHER FOOD PREPARATIONS 2.3 3O. IC 13.5 0.8 186.9 23466.R 21.4 6655.5 24.0 4130.5 42.5 6457.3 1.9 9.8 IIT BEVERAGES & TOBACCO 26. BEER NIC 0.1 6.2 372.8 5614.1 127.1 1984.9 134.3 2289.5 187.2 3087.3 4.3 24.8 27. OTHER ALCOHOLIC BEVERAGES NIC 0.4 0.0 8.4 29592.C 1.4 8678.9 1.5 6721.5 2.4 9791.0 1.9 18.2 28. SOFT DRINKS NIC 1.0 2.0 59.9 3000.(, 1tl.4 715.2 15.4 916.6 24.8 1387.1 3.3 18.3 29. PROCESSED TOBACCO NIC 0.2 6.6 2318.4 32607.6 821.0 7326.9 831.4 13245.8 919.9 14491.0 0.8 8.4 lV MINING & ENERGY 30. COAL NIC 0.1 2.5 504.0 19865.3 266.8 12265.9 272.0 11667.7 312.2 13251.4 3.1 20.4 31. IRON ORE X 0.0 89.9 1846.9 207.5 1262.2 142.4 1267.0 152.2 1393.3 166.4 1.3 24.0 32. TUNGSTEN ORE X 0.0 78.7 2822.4 762.1 2079.1 563.5 2089.8 600.6 2241.0 641.4 2.4 30.7 33. LEAD ORE X 0.0 61.6 764.4 475.9 389.1 230.0 398.5 270.8 473.6 317.6 3*7 25.8 34. ZrNC ORE X 0.0 76.0 476.7 10,3 240.8 73.7 247.0 85.1 295.3 100.3 3.9 22.6 35. GOLD, SILVER, & COPPER ORES XIC 51.7 17.2 179.6 863.1 73.4 486.0 75.4 403.6 102.6 534.1 3.0 19.4 36. OTHER METALLIC MINEPALS X 0.0 76.4 571.2 175.8 2P7.2 92.5 294.9 99.7 363.2 120.8 4.3 12.9 37. QUARRY PRODUCTS NIC 0.0 7.9 474.6 5566.r 352.3 4176.4 353.8 4413.6 376.1 4675.8 1.9 26.6 38. GRAPHITE NIC 1.4 1.u 15.8 1142.2 9.1 649.8 9.3 725.2 10.9 848.5 4.5 25.7 39. TkLC X 0.4 63.3 394.8 229.2 230.9 158.8 234.7 147.1 282.2 174.7 4.1 24.5 40. FLUORITE XK n0.0 22.9 240.5 807.e 130.2 425.3 131.9 481.5 164.0 589.3 2.7 25.7 Korea: A-42 ANNEX TABLE 2,C ADDITIONAL INFORMPTTON FOR INDIVIDUAL INDlUSTRIES INDUSTRY/ --V4LUE IN WORLD MARKET PRICES--- TOTAL VALUE ADDED ---TOTAL VALUE ADDED IN WORLD PRICES--- --NOMINAL INPUT--- CATEGORY IMPORT EXPORT EXPORT DOMESTTC IN DOMESTIC PRICES ----- BALASSA ------ ------ CORDEN------ PROTECTION SHARE SHARE SALES SALES EXFORT DOMESTIC EXPORT DOMESTIC EXPORT DOMESTIC EXPORTS DOMESTIC 41. SILICA SAND & LIMESTONE NIC 0.7 2.9 39.9 1346.4 24.7 874.1 24.6 895.8 27.8 1001.7 -0.5 22.0 42. NON-METALLIC MINERALS XIC 88.5 7u.8 681.4 230.1 481.0 170.5 487.1 175.5 544.0 194.7 5.9 18.3 43. RAW SALT NIC 0.3 0.0 0.0 792.6 0.0 938.5 0.0 316.1 0.0 467.6 6.1 28.8 V CONSTRUCTION MATERIALS 44. CEMENT NIC 4.6 8.9 1573.9 16120.0 533.4 5442.1 561.3 6515.5 746.1 8409.1 3.7 20.2 45. CLAY & CONCRETE PRODUCTS YIC 5.7 0.5 58.8 11226.1 22.0 4836.9 23.0 4924.0 30.8 6417.6 3.9 17.8 46. OTHER CLAY & STONE PRODUCTS NIC 4.2 3.1 179.6 5534.4 52.1 1609.5 56.3 2000.0 82.2 2797.7 4.8 15.5 UI-A INTERMEDIATE PRODllCTS I 47. COTTON YARN NIC 2.9 0.1 33.6 24311.8 5.8 3785.6 4.9 4694.3 6.8 6040.6 -3.7 5.0 48. SItK YARN X 0.3 84.9 5702.5 1017.2 1412.6 296.8 1446.9 306.5 1660.4 344.6 0.9 1.4 49. WORSTED £ WOOLEN YARNS NIC 2.2 2.5 183.8 7084.0 0.7 2388.8 -5.5 126.6 6.6 590.3 -3.7 31.0 50. HEMP & FLAX YARNS NIC 0.7 3.1 36.8 1163.9 4.4 455.3 4.7 202.9 7.0 278.5 1.1 21.9 51. nTHER YARNS IC 46.4 4.0 407.4 9716.5 64.2 2264.5 59.8 1891.6 106.8 3015.0 -1.6 28.3 52. ROPE S FISHING NETS x 7.3 23.6 1089.9 3528.2 241.6 809.4 245.9 964.1 320.6 1205.8 0.6 23.7 53. LUMBER NIC 0.6 0.8 142.8 18502.6 38.8 3253.8 29.0 4640.5 51.1 7503.8 -11.5 12.6 54. r'LYWOOD X 0.3 77.9 18610.2 5288.7 3662.6 393.8 2145.2 861.4 4908.4 1646.6 -11.8 12.8 55. LEATHER & FUR NIC 2.5 0.1 3.1 3039.1 0.8 811.1 0.8 953.9 1.1 1182.0 0.5 8.2 56. SYNTHETIC RESINS & FIBERS IC 84.8 1.2 46.2 3659.4 11.3 1650.8 11.4 1079.1 17.3 1540.5 0.3 15.1 57. PETROLEUM PRODUCIS NIC 8.9 4.9 2067.4 40470.6 831.5 5450.0 822.9 18034.4 872.0 18996.9 -0.8 9.2 58. BRIQUETTES NTC 0.0 0.0 0.0 24271.4 0.0 5073.0 0.0 3163.1 0.0 6925.6 5.3 15.2 5q. OTHER COAL PRODUCTS NIC 0.0 0.0 0.0 147.3 0.0 27.1 0.0 31.7 0.0 61.4 3.7 13.4 60. GLASS PRODUCTS IC 15.q 2.6 134.4 5013.0 49.5 1899.3 48.1 2031.5 65.5 2683.4 -2.4 24.9 Korea: A-43 ANNEX TABLE 2.C ADDITIONAL INFORMATION FOR INDIVIDUAL INDIJSTRIES INDUSTRY/ -- VALUE IN WORLD MARKET PRICES--- TOTAL VALUJV ADDED ---TOTAL VALUE ADDED IN WORLD PRICES- --NOHINAL INPUT--- CATEGORY IMPORT EXPORT EXPOPT DOMESTIC IN DOMESTIC PRICES ----- EALASSA------ ------ CORDEN------ PROTECTION SHARE SHARE SALES SALES EXPORT DGMESTIC EXPORT DOMESTIC EXPORT DOMESTIC EXPORTS DOMESTIC 61. PIG IRON IC 80.6 1.4 4.2 289.2 0.3 62.3 0.4 40.1 0.9 77.0 3.7 9.3 62. STEEL INGOTS NIC 8.5 0.0 0.0 8963.5 0.0 927.8 0.0 1221.3 0.0 2399.9 2.1 20.1 63. COPPER IC 35.8 0.5 6.5 1423.5 0.2 275.3 0.4 147.5 1.3 360.5 2.7 25.3 o 4. CiT *ni;R NONi-P RO'J0.S .EmTALS XIC 47.1 26.4 403.2 1126.3 27.2 353.7 32.6 144.7 73.5 259.0 1.8 16.2 VI-B INTERMEDIATE PRODUCTS II 65. COTTON FABRICS X 5.8 16.4 3460.8 17657.3 36.6 4300.1 54.4 1118.1 203.3 1877.6 0.6 11.1 66. SILK FABRICS XIC 40.8 29.6 702.4 1666.9 36.5 991.6 32.4 156.1 101.7 320.6 -0.7 17.5 67. WORSTED & WOOLEN FABRICS X 2.7 11.3 1297.8 10209.5 330.6 3795.5 341.1 3169.1 458.4 4091.9 1.3 50.8 68. HEMP FABRICS NIC 1.6 2.7 45.1 1614.5 16.6 717.6 17.1 689.6 19.8 783.3 2.3 41.2 69. RAYON FABRICS X 8.1 25.7 1439.6 4155.5 500.0 1008.4 484.4 1596.1 603.1 1938.6 -2.0 32.1 70. OTHER FABRICS XIC 49.6 44.1 4437.3 5635.2 1087.2 1946.0 1028.8 1574.7 1452.9 2113.4 -2.1 35.8 71. DYEING & FINISHING NIC 0.0 0.0 0.0 3348.5 0.0 1176.4 0.0 1553.7 0.0 2040.9 1.3 28.9 72. WOOD PRODUCTS NIC 8.1 4.6 486.2 10173.8 141.4 3175.2 149.0 3603.2 217.4 5034.1 3.1 12.7 73. PULP IC 83.6 0.0 0.0 92.6 0.0 38.3 0.0 43.5 0.0 64.0 12.0 18.1 74. PAPER S PAPERBOARD IC 10.8 0.1 22.0 15149.6 4.1 4675.5 4.5 3810.2 7.4 5842.1 3.1 14.8 75. OTHER PAPER PRODUCTS NIC 6.7 5.9 591.1 9425.3 157.9 3258.5 164.5 3071.7 235.0 4196.1 2.0 17.2 76. TIRES S TUBES NIC 0.4 5.4 317.1 5571.5 112.4 1018.9 110.7 2209.5 137.9 2687.7 -1.0 41.3 77. O'HER RIUBBER PRODUCTS NIC 7.1 6.7 207.9 29n3.6 65.9 1097.1 67.3 1078.2 98.9 1519.6 1.4 31.9 78. BASIC TNORGANIC CHEMICALS IC 25.0 3.7 171.1 4509.1 41.7 1821.8 42.0 1320.0 78.0 2269.7 0.3 22.8 79. PROCFSSED OILS & FATS IC 31.3 1.8 42.0 2258.6 2.9 633.9 2.7 254.0 7.0 484.2 -0.5 25.7 80. SYNTHETTC DYES IC P3 r3.t 3.7 17.9 460.8 -0.t 134.5 -0.6 6.6 2.8 93.5 -0.9 32.1 Korea: A-44 ANNEX TABLE 2.C ADDITIONAL TNFORMATION FOR INDIVIDUAL INDUSTRIES INDUSTPY/ --VALUE IN WOPLD MARKET PPICES--- TOTAL VALUF ADDED --- TOTAL VALUtE ADDED IN WORLD PRICES- -- NOMINAL INPUT--- CArEGOY IMPORT EXPORT EXPORT DOMESrIC TN DOMESTIC PIICES ----- BALASSA ------ ------ CORDEN------ PROTECTION SHARE SHARE SALES SALES EXPORT DOMESTIC EXPORT DOMESTIC EXPORT DOMESTIC EXPORTS DOMESTIC 81. OTHER BASIC ORGANlC CHEMICALS VIC 4.2 0.0 0.n 2278.1 0.0 738.2 0.0 674.3 0.0 993.7 -0.9 24.8 82. EXPLOSIVES NTC 2.3 0.0 0.0 1312.3 0.0 254.2 0.0 431.4 0.0 573.8 -0.5 25.3 83. PAINT S PEINTING INK NTC 8.7 0.8 26.3 3199.1 0.5 1470.6 0.6 221.0 5.8 862.9 0.3 39.3 84. PESTICIDES NIC 0.0 0.0 0.0 1025.8 0.0 846.6 0.0 474.0 0.0 600.4 -1.7 25.8 85. OTHER CHEMTCAL PRODUCTS IC 33.7 0.8 18.9 2368.9 4.8 768.8 4.8 714.3 7.1 999.4 0.5 23.9 86. FERTILIZERS IC 43.3 3.9 453.6 11223.1 97.1 3075.0 108.8 3226.4 187.5 5172.9 4.8 11.8 87. STEEL SHEET 5 BARS IC 34.5 2.6 389.5 14734.1 -16.4 2706.5 -14.1 166.5 29.9 1831.7 0.7 13.0 88. STEEL PIPES IC 71.3 2.7 36.8 1315.3 -13.0 612.3 -12.3 -376.9 -2.6 -28.9 2.0 34.6 83. GALVANIZED S PLATED STEEL Ic 11.6 0.1 2.1 1625.9 -0.0 370.0 -0.0 61.5 0.2 242.9 1.1 27.8 90. CAST & FORGED STEEL NIC 4.3 0.6 40.9 7350.1 10.9 2316.9 11.5 2418.8 16.7 3354.5 2.9 21.4 91. NON-FERFOUS PRIMARY PRODUCTS XIC 47.3 34.5 951.3 1607.1 234.8 409.2 245.3 552.1 378.7 805.5 2.0 28.4 92. IRON BAR S FRAME NIC 0.0 2.0 31.5 1552.3 12.4 474.3 12.8 705.1 16.2 871.5 2.9 33.9 93. METAL CONSTRUCTION PR()DtlCTS IC 21.4 3.0 180.6 5829.1 37.7 1696.1 40.1 1572.9 64.1 2346.6 2.2 31.7 94. TOOLS & OTHER METAL PRODllCTS XIC 48.9 37.3 1101.4 t853.4 186.6 831.9 202.0 428.2 362.5 698.2 2.3 34.4 95. LIGHT BULBS NIC 4.7 5.9 174.3 2767.7 52.0 1043.1 54.1 991.5 79.3 1391.1 2.4 27.6 96. INSULATED WIRE S CABLE IC 10.6 1.4 86.1 5P70.8 -19.0 1990.5 -17.2 -893.3 -1.6 168.2 2.2 29.8 97. SYNTHETIC RESIN PRODUCTS NIC 0.0 2.9 330.7 11201.9 130.7 2913.5 125.0 4768.2 160.1 5956.9 -3.6 35.4 VII NONDURABLE CONSUMER GOODS 98. KNIT PRODUCTS x 0.1 59.0 15260.7 10586.1 3700.7 4412.5 3824.1 3156.6 5109.0 4048.0 1.3 27.1 99. APPAREL & ACCESSOEIFS X 1.5 30.7 17796.4 40259.7 6262.8 11256.4 6330.9 16238.3 8067.8 20167.5 0.8 48.4 100. STRAW PRODUCTS JTC o.C, 3.2 184.9 5636.2 57.8 ?505.4 59.3 2075.8 72.1 2468.3 1.4 24.3 Korea: A-45 ANNEX TABLE 2.C ADDITIONAL INFORMATION FOR INDIVIDUAL INDUiSTRIES INDUSTRY/ --VALUE IN WO3LD MARKET PRICES--- TOTAL VALUE ADDED ---TOTAL VALUE ADDED IN WORLD PRICES--- --NOMINAL INPUT--- CATEGORY IMPORT EXPOET EXPOfiT DOMESTIC IN DOMESTIC PRICES ----- BALASSA ------ ------ CORDBN------ PROTECTION SHARE SHARP SALES SALES EXPOFT DOMESTIC EXPORT DOMESTIC EXPORT DOMESTIC EXPORTS DOMESTIC 101. RIBBON, TAPE, & STRING X 0.0 21.9 365.4 1306.4 137.6 675.5 141.1 566.8 175.4 689.2 2.0 21.5 102. OTHER TEXTILE PRODUCTS XIC 16.7 59.6 2412.q 1635.6 754.0 323.2 786.9 611.3 1062.0 797.8 2.7 34.4 103z DPTINTG . PUB1TLISHTNf NIC 3.9 0.5 146.0 31539.8 54.0 10463.3 54.5 13281.3 71.7 16991.3 0.8 19.4 104. LEATHER SHOES X n.1 10.0 592.2 5314.8 216.3 2153.6 220.8 2234.3 267.5 2653.8 1.5 17.9 105. OTHER LEATHgR PRODUCTS X 3.5 13.4 451.5 2911.5 67.0 731.2 73.1 610.3 136.8 1020.8 2.1 15.8 106. RUBBER SHOES X 0.0 43.2 3523.8 4628.8 1198.9 844.3 1176.2 1765.4 1470.6 2152.1 -1.2 37.2 107. DRUGS NIC 4.5 0.3 63.0 19115.3 22.6 6687.9 22.5 7733.9 34.0 11214.7 -0.4 24.1 108. SOAP 6 SURFACTANTS IC 19.9 0.0 0.0 4407.6 0.0 832.0 0.0 1644.2 0.0 2080.0 -1.3 34.9 109. COSMETICS F TOOTH PASTE NIC 2.0 0.0 0.0 2554.4 0.0 1147.8 0.0 916.8 0.0 1433.0 5.0 30.9 110. POTTERY IC 39.6 0.5 7.4 1542.9 1.1 905.8 1.2 322.5 2.5 599.3 1.4 19.7 111. MEASURING INSTRUMENTS NIC 0.5 8.9 35.7 367.1 3.2 220.5 4.0 58.2 11.4 134.5 3.2 26.7 112. MEDICAL & SANITARY INSTRUMENIS IC 39.7 1.8 6.3 341.6 2.0 93.0 2.0 126.1 2.8 167.5 1.8 22.7 113. OPTICAL INSTRUMENTS X 0.0 67.6 439.9 211.1 131.1 64.2 124.0 69.5 171.0 92.1 -2.9 29.7 114. PHOTOGRAPHIC MATERIALS XIC 84.0 20.6 50.4 193.9 -15.2 108.2 -14.1 -45.1 0.7 12.0 2.3 22.8 115. JEWELRY S LACQUERWARF NIC 1.9 2.3 49.4 2099.1 13.2 1577.3 13.8 686.4 21.4 1009.5 2.3 35.6 116. PROCESSED BRISTLES X 95.6 100.0 7814.1 2.2 2622.9 0.9 2711.0 0.9 3609.8 1.1 2.3 2.3 117. TOYS S SPORTING GOODS YIC 17.3 25.4 190.0 557.5 46.0 132.9 47.8 166.6 71.2 235.5 1.6 20.2 118. MUSICAL TNSTRUMENTS XIC 30.5 10.0 72.5 650.3 16.0 260.7 17.6 188.6 32.6 323.6 4.3 22.5 119. STATIONERY NIC 2.4 2.2 53.5 2359.2 14.3 821.8 13.9 726.9 22.4 1098.2 -1.3 31.5 120. PERSONAL ACCESSORIES XIC 91.5 85.5 236.2 40.1 93.9 17.9 97.0 18.4 122.0 22.6 3.0 3.0 Korea: A-46 ANNEX TABLE 2.C ADDITIONAL TNFORMATION FOR INDIVIDUAL INDUSTRIES INDUSTRY/ --VALUE IN WO'LD MARKET PRICES--- TOTAL VALUE ADDED --- TOTAL VALUE ADDED IN WORLD PRICES--- --NOMINAL INPUT--- CATEGORY t m IMPOPT EXPORT EXPORT DOMESTIC IN DOMES IC PRICES ----- BALASSA ------ ------ CORDEN------ PROTECTION SHARE SHARE SALES SALES EXPORT DOMESTIC EXPORT DOMESTIC EXPORT DOMESTIC EXPORTS DOMESTIC 121. OTHER MANUFACTURING X 3.7 19.6 438.9 1799.6 62.1 612.6 48.7 285.3 84.8 433.3 -4.0 34.6 VIII CONSUKER DURABLES 122. HOUSEHOLD METAL PRODUCTS KIC 27.8 17.7 605.8 2812.7 192.0 647.2 199.3 1059.0 290.3 1481.5 2.5 39.8 123. HOUSEHOLD ELECTRCNIC ZQUIPMENT XIC 29.9 31.1 1329.3 2943.1 174.0 1863.7 196.8 575.7 446.8 1129.4 2.8 46.0 124. ELECTRONIC COMPONENTS xiC 51.6 92.9 2389.8 183.8 665.C 92.9 684.8 61.4 930.0 80.3 1.5 10.3 125. ELECTRIC APPLIANCES IC 40.6 1.7 24.1 1381.5 -3.2 1057.4 -2.7 -89.0 2.4 205.1 2.6 35.8 126. BICYCLES & CARTS NIC 4.6 0.6 52.5 8624.4 14.0 3025.6 14.8 2835.0 22.1 4038.0 2.8 34.7 127. WATCHES F CLOCKS IC 46.7 1.4 22.1 1503.3 0.2 803.7 0.6 114.2 5.3 430.4 2.8 36.1 IX MACHINERY 128. PRIME MOVERS XIC 85.2 10.1 193.2 1724.6 35.8 863.8 39.5 434.8 69.5 702.6 3.3 27.6 129. - BOILERS 9ic 0.0 0.0 0.0 2929.5 0.0 1034.6 0.0 1372.9 0.0 1691.6 3.3 36.7 130. METAL WORKING MACHINERY IC 11.0 0.1 1.1 1998.0 0.4 706.1 O.u 817.7 0.5 1049.0 3.3 21.2 131. METAL PROCESSING MACHINERY IC 80.3 3.0 8.4 270.1 2.2 92.8 2.3 88.2 3.3 118.5 2.6 18.8 132. FARM MACHINERY IC 33.2 1.7 23.1 1369.4 1.6 651.5 2.2 196.8 7.0 478.9 3.8 29.0 133. MINING S CONSTRUCTION MACHINERY NIC 0.0 1.8 22.1 1228.3 7.8 395.4 8.1 510.9 11.0 671.1 3.3 27.5 134. TEXTILE MACHINERY IC 91.4 1.8 31.5 1750.6 12.3 625.5 12.8 794.7 16.7 1009.2 3.5 24.1 135. SPECIAL INDUSTRIAL MACHINERY IC 30.3 9.6 67.2 630.7 19.0 249.7 20.3 220.1 29.3 305.0 3.5 23.1 136. GENERAL INDUSTRIAL MACHINERY IC 70.5 1.0 21.0 2066.1 7.3 794.9 7.7 852.7 10.3 1115.5 3.5 26.3 137. OFFICE S SERVICE MACHINES XIC 72.5 14.8 67.2 386.5 17.1 185.1 18.3 123.7 28.0 179.5 3.2 23.4 118. SEWING MACHINES IC 38.8 3.9 80.8 2007.7 23.8 859.4 25.0 716.8 35.7 981.9 3.0 28.6 139. MACHINERY CnMPONENTS IC 64.8 4.3 65.1 1451.7 6.4 828.7 6.8 221.9 18.3 477.0 1.1 30.2 140. GENERATORS NIC 0.0 7.1 4.2 54.9 1.9 25.2 2.0 28.5 2.5 35.9 5.3 33.4 Korea: A-47 ANNEX TABLE 2.C ADDITIONAL INFOPMATION FOR INDIVIDUAL INDUSTRIES INDUSTRY/ --VALUE IN WORLD MARKET PRICES--- TOTAL VALUE ADDED ---TOTAL VALUE ADDED IN VORLD PRICES--- --HUIN.AL InPuT--- CATEGORY IMPORT EXPORT EXPORT DOMESTIC IN DOMESTIC PRICES ----- BALASSA------ ------ CORDEN------ PROTECTION SHARE SHARE SALES SALES EXPORT DOnESTIC EXPORT DOMESTIC EXPORT DOMESTIC EXPORTS DOMESTIC 141. TRANSFORMERS YIC 66.3 32.1 1245.3 2628.6 15.8 1748.2 29.1 186.5 269.3 693.5 1.4 38.3 142. ELECTRIC MOTORS NIC 0.0 0.0 0.0 1519.7 0.0 671.0 0.0 459.5 0.0 693.4 3.6 35.0 143. INDuSTRIAL ELECTRIC EQUITPMNT NIC 0.0 2.6 18.9 717.8 5.4 286.4 5.6 248.7 8.7 366.3 3.1 40.5 144. ELECTRONIC EQUIPMENT IC 37.2 4.2 120.9 2773.8 16.6 1245.1 18.9 566.8 40.0 1051.1 3.1 35.6 145. OTHER ELECTRICAL EQUIPMENT NIC 2.1 2.0 53.6 2580.2 8.6 873.5 9.3 572.7 18.1 993.3 2.2 23.7 X TRANSPORT EQUIPMENT 146. STEEL SHIPS IC 72.4 0.1 4.2 3856.8 1.3 1521.2 1.4 1440.3 1.8 1790.1 1.9 26.8 147. WOODEN SHIPS IC 75.8 0.1 2.1 2286.8 0.5 1387.7 0.5 661.6 0.7 856.9 1.5 15.9 148. RAILROAD EQUIPMENT IC 40.2 0.0 0.0 5297.3 0.0 781.4 0.0 -232.8 0.0 501.1 1.5 39.7 149. ROTOR VEHICLES IC 53.8 2.2 366.4 16467.1 -27.3 9156.6 -18.6 -50.0 65.3 3716.7 3.1 44.0 150. AUTOMOTIVE REPAIRS NIC 0.0 0.0 0.0 7316.7 0.0 3170.9 0.0 4258.7 0.0 5079.8 4.7 48.6 Korea: M-1 Annex on Me:hods of Measuring Effective Incentives This annex defines the various effective incentive measures em- ployed and reviews3 their relevance and shortcomings.I Effective incentive measures pertain to value added, which is estimated by deducting the value of intermediate inputs plus depreciation from sales receipts neit of indirect taxes. Producer price value added is calcula- ted in the prices actually received and paid by the producer, whereas world price value added is that obtained when output and intermediate inputs plus depreciation are zalued in the domestic currency equivalent (at the market exchange rate) of world prices. An effective incentive rate is the differ- ence between producer price and world price value added expressed as a percent of the latter. It is thus an estimate of the degree to which incentive policies raise or lower value added relative tc that under a neutral, free trade policy regime. Since effective incentive rates are influenced by the degree of currency over- or under-valuation, the rate for a particular activity has little significance in isolation and must either be assessed in terms of its position within the relative structure of effective in- centive rates across industries or be corrected for the currency's over- or under-valuation. Most of our discussion is focused on the relative struc- ture of effective incentive rates; "net" effective incentive rates, corrected for Korea's modest degree of currency over-valuation, are also presented. Effective protection estimates quantify the impact of those policy instruments that indirectly determine an activity's producer price value added by affecting the market prices of outputs and inputs. Tariffs, quotas, 1/ For further details, see the methodological papers by Balassa cited in the Acknowledgements. Korea: M-2 indirect taxes, and exemptions therefrom are thus taken into account, as are rebates on overhead charges and wastage allowance subsidies. The depreciation charge deducted to obtain producer price value added is the producer's recorded depreciation expense; this figure is deflated by a sector specific deflator to determine depreciation in world prices.- Non-tradeable intermediate inputs create some difficulty because it is a priori unclear whether protection affects only factor rewards in the specific processing activity or those in the domestic industries supplying non-tradeables as well. Two standard conventions exist to compute effective protection where there are non-tradeable inputs. Both assume that pro- tection on inputs into non-tradeables production is passed on to the pur- chaser; that is, protection on inputs to non-tradeables reduces producer price value added in the production of products requiring these non-tradeables as inputs. The conventions differ with respect to the factor rewards for which effective protection is calculated. Under the Balassa method, value added includes only that in the specific processing activity, and it is assumed that effective protection on non-tradeables is zero.- Corden (1971) uses an alternative formulation that adds the in- directly generated value added in those domestic industries supplying 1/ The deflator is a weighted average of the legal and nominal rates of protection -- with exemptions taken into account -- on each type of capital good, with a further distinction made between domestically produced and imported capital goods of the same type. The weights are proportional to the share of each capital good in the sector's total capital stock valued at world prices. 2/ This method, sometimes referred to as the Scott or adjusted Balassa method [see Ray (1973)], is defined and further discussed in Balassa and Associates (1971), Appendix A. Korea: M-3 non-tradeables. Arguing that protection affects factor rewards in these industries as well, he concludes that one should measure the effective incentive to domestic resources both in the processing industry and in the induced production of non-tradeables. The Corden convention implicitly assumes that it is not possible to separate the effects on value added in the processing activity and in non-tradeables production.- We present estimates under both methods. There are theoretical grounds for believing the Corden convention to be superior if effective protection rates are used to gauge the allocational impact of protective measures.- Effective subsidy rates add the incentive effects of policy instru- ments, such as direct tax and credit preferences, which directly affect producer price value added. These policy instruments do not, by its very definition, change value added in world prices. The impact of differential direct tax rates and accelerated depreciation on business income is measured by computing norm tax payments based on the average business income tax rate. 1/ Another way of stating the relationship between the Balassa and Corden conventions is to note that both apply the semi-input-output method to decompose the plurchase of non-tradeable inputs into three components: A) total indirect intermediate inputs of tradeables valued in world prices; B) total indirect payments of tariffs and indirect taxes plus tariff equivalents (including nominal protection on domestically purchased in- puts); and C) total indirect value added in the non-tradeables producing sectors. Under the Balassa method, the sum of these magnitudes (i.e., what the producer actually paid) is deducted to obtain producer price value added, and the sum of A) and C) is deducted to obtain world price value added. Under the Corden method, the sum of A) and B) is deducted in the former case, and A) a:Lone is deducted in the latter. 2/ See Ray (1973), where it is shown that the ranking of industries by effective protection rates differs under the two conventions if the ranking of sectors by direct factor use is not the same as that by direct plus total indirect (in the production of non-tradeables) factor use and that the Corden method correctly ranks industries by the direction of output changes induced by protective measures if certain assumptions, including that of no final demand for non-tradeables, are met. Korea: M-4 The norm in this case assumes that each firm would pay the same average tax rate and use uniform depreciation guidelines under a neutral tax policy. The difference between the norm and actual tax payments is the estimated direct tax subsidy to the producer; it may be negative or positive, depending upon whether the producer paid a higher or lower tax rate than the average. The algebraic sum of the estimated tax subsidies over all producers is zero, however. The incentive effect of differential interest rates on long and short term foreign and domestic credit is determined in an analogous fashion. Norm interest payments are computed assuming that the same average interest rate would be paid by all producers under a neutral credit policy, the average rate being determined as the ratio of total actual interest payments to total outstanding loans. The interest subsidy is thus the difference between an interest payment at the average interest rate and the actual interest payment. Individual producers receive either positive or negative credit subsidies, but the algebraic sum of these over all producers is zero. Direct tax and interest subsidies are added to producer price value added to compute the effective subsidy rate. The "adjusted" producer price value added figure is an estimate of what value added would have been in the absence of tax and credit preferences if net factor returns were unaltered from their actual value under the full set of incentive policies. Sectors receiving subsidies from the tax and credit system will have higher rates of effective subsidy than of protection while sectors not receiving such sub- sidies will exhibit the reverse pattern. Since the sum of all subsidies over all producers is zero, the aggregate effective subsidy rate must equal the aggregate effective protection rate. Korea: M-5 The interpretation of efEective incentive rates is not generally straightforward, for it is unclear whether a high incentive rate is indica- tive of a high level of incentives (i.e., high excess profits) for factors to move into a particular activity, a high degree of inefficiency (i.e., wasteful use of input:s or inappropriate choice of technique) in a commodity's processing, or a combination of both. Similarly, low effective incentive rates may indicate factor rewards below their opportunity costs or a high degree of efficiency,, "High" and "low" in this context are to be understood in relative terms. I:nterpretation is made more difficult where it is not known whether producers have had sufficient time to respond completely to the incentive policies; in other words, whether the economy was in approximate equilibrium in the period for which effective incentives were estimated. Moreover, even in equilibrium, the circumstances of marginal and infra- marginal producers may differ cons:Lderably, while the estimates are averages over all producers within the particular sector. The ambiguity results fromL,implicitly using actual market factor prices to measure producer price value added and may be resolved in one of two ways. Detailed information on differences in the prices paid for identical factor inputs and profit rates across sectors would serve to identify where there are excess factor rewards and their precise form. Alternatively, the direct estimation of domestic value added at shadow prices from data on factor inputs would yield a measure of allocative efficiency.l/Neither avenue was open to uii without expending a great deal more effort on basic data collection than could be afforded. However, the effective subsidy measure does adjust for direct tax and credit preferences. If one assumes that these are the only factor price (including profit rate) differentials across sectors and further assumes that market factor prices in Korea are 1/ See Bruno (1972). Korea: M-6 close to their shadow values, then our estimates identify efficiency differences. There is very little extant information to investigate the possible existence of other market factor price differentials, though many observers have argued that market factor prices are close to shadow values in Korea. Our own conclusion is that effective subsidy rates on total sales are most likely dominated by efficiency aspects. Effective subsidy rates on domestic and export sales separately, on the other hand, are heavily influenced by the differential profitability of selling in these markets. Due recognition must also be given to the theoretical result that effective incentive rates, even those calculated at equilibrium, may not I/ indicate the direction of resource flow in response to incentive policies. If this is generally the case, the interpretation of effective incentive measures in terms of the allocative effects of incentive policies is invalid. The measures merely offer a convenient way of summarizing and interpreting incentive policies. Additional Bibliography Bhagwati, Jagdish N., and T. N. Srinivasan (1973). "The General Equilibrium Theory of Effective Protection and Resource Allocation." Journal of International Economics, 3, 259-282. Bruno, Michael (1972). "Domestic Resource Costs and Effective Protection: Clarification and Synthesis." Journal of Political Economy, 80, 16-33. Bruno, Michael (1973). "Protection and Tariff Change under General Equilibrium." Journal of International Economics, 3, 205-226. 1/ See Bhagwati and Srinivasan (1973) and Bruno (1973). Korea: M4-7 Corden, Warner M. (-971). The Theory of Protection, Oxford: Clarendon Press. Ray, Alok (1973). "Non-Traded Inputs and Effective Protection: A General Eauilibrium Analysis," Journal of International Economics, 3, 245-257. PUB HG3881.5 .W57 W67 no.263 Westphal, Larry E. Industrial policy and development in Korea PUB HG3881.5.W57 W67 no.263 Westphal, Larry E. Industrial policy and developnent in Korea /