Export expansion has been a major feature of the Korean model. Exports have
typically grown faster than any other component of aggregate output; thus,
when output (GDP) rose at annual rates of 4.3, 9.7, and 8.6 percent in 1953-63,
1963-73, and 1973-90, respectively, the corresponding annual increases in
exports averaged 10.4, 44.0, and 12.4 percent. Consequently, Korea's growth
has been labeled "export-led," and exports have played an increasingly impor-
tant role in the growth process. Whereas exports accounted for less than 10
percent of total output during the mid-1960s, their share in the total rose to
35-40 percent by the late 1980s.

One reason for Korea's phenomenal export expansion was the very low level
of exports before 1965. Subsequent increase has been large because it is
measured from a small base. Low exports before 1965 and rapid growth
afterward require explanation of what first retarded and later stimulated exports
and trade. Explanation is divided here to separate policy change from the real
or underlying forces that have allowed Korean producers to exploit compara-
tive advantage. New policies that would restructure incentives were needed to
encourage export, but these were insufficient to explain the explosive growth
that followed or the early concentration in labor-intensive manufactures.
Explanation lies, rather, in the combination of low labor costs and efficient
allocation of scarce entrepreneurial talent with the new institutions and policies
needed to develop untapped comparative advantage.

How do exports contribute to growth? Beside the fact that exports, like any
other expenditure category, are a component of GNP such that any increase in
exports will raise GNP, there are indirect effects of export expansion that should

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