The International Dimension
of Korean Tax Policy
Wan-soon Kim and Kwang-chul Lee
For more than two decades Korea has demonstrated impressive economic performance while continuing to maintain a heavy defense burden. Gross national product grew at an average annual rate of 10 percent in real terms, and per capita real GNP more than quadrupled, reaching US$4,127 in 1988. 1
Such sustained high output growth was due largely to Korea's outward-looking development strategy. Gross commodity exports and imports combined reached 65 percent of GNP in 1988. 2 As a result, Korea has grown to be the world's twelfth largest trading country, and its two- way trade share accounts for about 2 percent of the world's exports and imports.
Korea is now being listed among the few trade-surplus nations and is perceived not as a small developing country but as a strong industrial power with appreciable global market impact. It took Korea only a few years to move into the ranks of the newly industrialized economies. After 1962, the Korean economy suffered from a high rate of inflation. Despite the raid increase in exports, the balance-of-payments deficit continued to be a serious constraint on the steady growth of the economy During the energy crisis of the 1970s, when the cost of oil quadrupled, Korea's foreign debt grew at an alarming rate, peaking at US$47.6 billion in 1985, placing Korea fourth among the world's debtor nations.
Fortunately, due to several external factors that were largely beyond Korea's control, the situation began to turn around in the mid-1980s. Low oil prices, low world interest rates, and a lower value of the U.S. dollar against other major currencies all combined to significantly reduce Korea's real debt burden, improve its trade balance, and strengthen the