This article argues that Korea's prevailing strong belief in self-sufficiency and the legacy of the state-led and overly regulated external policies which dominated prior to the 1997 financial crisis had become an obstacle to Korea's seeming pursuit of economic liberalism based on inward foreign direct investment (FDI). Although the momentum of globalization ignited during the 1997 financial crisis has enabled Korea to undertake a speedier market opening and draconian structural reforms, there has been no fundamental turnaround yet in the mindset of the Korean government, bureaucrats, corporate sector, or the people in general-the ultimate measure of globalization. This article critically evaluates the impacts of the legacy of the state-led economic development (economic nationalism/mercantilism) model on Korea's newly adopted FDI-led globalization strategy.
Key words: South Korea, economic development in Asia, foreign investment in East Asia, globalization
Since the late 20th century, one of the most dynamic objectives of the Korean economy has been the emergence of South Korea (Republic of Korea or ROK) as a major player in the Northeast Asian market through foreign direct investment (FDI)-driven globalization. With this goal set as a policy focus, the Korean government has sought to become a prime location for foreign investors. During the four-year period after the financial crisis (1998 to 2001), Korea attracted about $52 billion in FDI, which is nearly double the entire amount of the previous four decades.1 More recently, while the total inward FDI during the period of 1962 to 1997 was minimal, total FDI during the eight-year period of 1998 to 2005 alone tallied about $91 billion on a notification basis. This is nearly quadruple the $25 billion posted during the previous thirty-five years, or about 79 percent of the $115-billion aggregate FDI figure recorded from 1962 to 2005.2
This is a unique development, if not contradictory, in view of the stark fact that historically Korea has faced the long task of overcoming combative nationalism resulting from numerous invasions by foreign powers. A strong belief in self-sufficiency was inevitably fortified with an aversion to things foreign. Though modern Korea has found it imperative to integrate into the global economy, the prevailing legacy of the mercantilist, state-led and overly-regulated external policies that dominated prior to the financial crisis3 has become an obstacle to Korea's pursuit of a market-driven, FDI-led globalization.
In one important respect, the momentum of globalization gathered during the financial crisis of 1997 was a blessing in disguise. Severe as they were, the International Monetary Fund (IMF)-mandated reform programs enabled Korean policy makers to tackle head-on some of the practices that had hobbled the Korean economy for several decades-restrictions on trade and investment, rigidities of the labor market, excessive regulatory regime, and chaebol-(a mostly family-owned and -managed group of conglomerates) dominated economic and industrial structure. Indeed, Korea's unprecedented liberalization drive in the wake of the financial crisis was par excellence in comparison with some other countries that had been similarly afflicted. As a result, given a forward-looking leadership, Korea could end up becoming one of the most open, market-driven economies in the world, rivaling such countries as Singapore, the Netherlands, and Ireland.
Yet, many Koreans have tended to believe that their government was forced to adopt liberalization measures under external pressure, rather than viewing them as being truly beneficial to themselves and to their own economy. Under the Roh Moo- Hyun government, which came into power in 2003 with its leaning toward egalitarianism, the National Assembly, the judiciary, the tax authority, several interest groups, and the media have all added fuel to the rise of economic nationalism by exaggerating the fears of a growing foreign presence in Korea. …