From Hermit Kingdom to Miracle on the Han: Sources of Policy Change in Korea’s Trade Transformation

In 1960, South Korea's exports were about 1 percent of GDP, and its ability to import depended almost entirely on U.S. aid. After changing its foreign exchange policies in the mid-1960s, Korea's exports surged to more than 10 percent of GDP by the end of the decade. This paper explores the political and economic context (as well as the individual actors) behind the shift in policy that enabled this dramatic export growth to occur. The United States helped initiate the process by withholding financial assistance, pressuring Korea to devalue its currency and reform its foreign exchange regime. The Korean government initially resisted taking these steps but in 1964 it became firmly committed to an export promotion strategy to boost foreign exchange earnings and end its dependence on American aid.