Markets and Trade

In any consideration of the Korean economy, it is necessary to examine both the supply side and the demand side of the equation. Although there is no one factor which explains the growth of Korea’s key industries, clearly demand is an important, if not the most crucial factor. Output on its own does not necessarily create demand. Increased demand can lead to greater output where factors of production are underemployed; but it can also lead to bottlenecks and inflated prices where factors of production are fully employed. In Korea, aggregate demand greatly stimulated production and, as demand increased, generated greater economies of scale. Moreover the expectation of growing demand boosted investment and stimulated entrepreneurships. Indeed without such a huge expansion in demand it is difficult to see how Korea’s industrial development could have taken place. It is therefore important to determine the major sources of effective demand and to explain how these sources (or markets) were created or penetrated. This chapter argues that rapid expansion of exports was not so much a result of government policies as of ‘external’ factors, in particular the role of Japan in Korea’s trade.