A New Role for Fiscal Policy
and Tax Finance in Korea
Since the launching of the First Five Year Plan in 1962, Korea has experienced rapid growth and tremendous structural transformation it its economy. On average, real GNP has increased more than 8 percent per year, and annual export earnings often have exceeded 30 percent. At the same time, Korea's economic structure has been significantly transformed. For example, the agriculture, forestry, and fishery sectors fell from 36.5 percent of GNP in 1962 to 10.8 percent of GNP in 1988; the manufacturing and mining sectors grew from 16.2 percent of GNP to 32.3 percent of GNP during this period. These statistics illustrate Korea's rapid transformation from a traditionally agricultural society into a newly industrializing country during a period of 26 years. In 1987, Korea's GNP was seventeenth and its trade volume was fourteenth in the world. Thus, Korea has become one of the leading middle-income economies. Although Korea lacks sufficient resources, capital, and technology, several factors have enabled it to achieve this rapid growth, including diligence, persistence, manpower development through education and, to quote Professor Arthur Lewis, "the will to economize."
Korea's past economic strategy, characterized as government-led and export-oriented, has played a significant role in its rapid industrialization. This strategy, which placed the highest priority on economic growth, mobilized the energy of the entire nation to boost growth in the 1960s by stressing the export of labor-intensive, light industry goods; by optimizing Korea's comparative advantage; and by placing strong reliance on the inflow of foreign capital under the prevailing economic conditions such as a low savings rate, a small domestic market, and insufficient natural resources. In the 1970s, the focus of the economic strategy