Transcript Knowledge Based Economy: Framework, Korea`s

Fiscal Policy in Korea for building
Infrastructure and
its Knowledge based economy
October 9, 2003
WB-Vietnam-Korea Conference
on Public Expenditure
Moon-Kyu Bang
Ministry of Planning and Budget
Republic of Korea
Contents
I. Korea’s Public Expenditure in building SOC and
Knowledge based economy
II. Korea’s Building Infrastructure
III. Korea’s Transition into Knowledge Based
Economy
• Knowledge Revolution in Korea
• Its strategy for building a KBE
I-1. Korea’s Economic Miracle
Per capita GDP
Thousands of 1985
international dollars
8
Korea’s GDP/Capita growth(61-96) : average 7.9%
GDP per capita(PPP): US$14,731(96), US$17,380(00)
Rep. of Korea
Difference
attributed to
Knowledge
6
4
2
Ghana
0
1
1958 1962 1966 1970
Difference due
to physical and
human capital
1974 1978 1982 1986 1990
Source: WBI knowledge for development program
2. Public Expenditure for this Miracle
• Korea’s public expenditure has focused on building
- physical capital (SOC) and human development,
- its knowledge based economy.
< Expenditure ratio by sectors in the integrated public finance (%) >

‘70
economic development 27.7
education
16.7
socail welfare
6.2
‘80
28.5
14.6
‘90
30.5
17.0
‘97
31.2
16.4
‘03
25.0
15.1
6.7
9.8
10.5
16.4
• Expenditure in economic development and education is very
 high compared with other countries.
USA(01)
economic development 9.3
education
1.9
socail welfare
50.1
UK(99) Japan(recent) Korea(03)
6.6
16.2
25.0
3.7
6.0
15.1
51.9
38.4
16.4
2
Korea’s Public investment to SOC
 For 40 yrs, SOC investment has been very high
< Public SOC investment ratio to GDP (%, 2000) >
Korea
France
Germany
UK
Itary
2.9
1.0
1.2
0.9
0.6
• SOC investment ratio to total size of general account
: 11.1 % (‘93)  15.9 % (03)
• Huge jump in SOC stock accumulation but still way to go
: SOC Stock value in 1995 price
0.7 (‘68)  388.3 trillion won (‘97)
• 40 yrs investment  SOC Stock is still small
3
<Stock of transportation facilities to GDP* (%, 1999)>
Korea
Japan
USA
UK
Germany
42
61
73
114
91
(* accumulation ratio)
Public Expenditure to support KBE
 Aggressive Investment in R&D, Education and IT infra
 R&D investment : 2.9% of GDP, 4.8% of cetral government budget
< R&D investment ratio to GDP (IMD,2003, %) >
Korea
USA
Japan
France
UK
2.92
2.80
2.98
2.20
1.85
 Education has been a stepping stone for Korea’s miracle
< Expenditure ratio to the Integrated Public Finance (%) >
USA(01)
UK(99) Japan(recent) Korea(03)
education
1.9
3.7
6.0
15.1
 Investment in IT infra and training
- For 3 yrs (00~02), 7.9 trillion won invested (annually 2% of IPF)
4
- Information highway : 1.2 trillion won (95~03)
Total R&D Expenditure (PPP, 1996)
Scientists & Engineers (per million people)
6000
5000
Japan
Russia
4000
US
Australia
Denmark
3000
Germany
Canada
UK
2000
Poland
1000
Switzerland
Finland
France
Netherland
Korea
Austria
Spain
Italy
China
Turkey
Brazil
0
India
0
0.5
1
1.5
2
R&D expenditure as % of GNP
2.5
3
3.5
a. Initial industrialization: ‘60s
Economy
• Take-off (‘60s)
Key Policies
• develope Seoul-Pusan
Highway, Pusan Port
: launched the 1st 5 yr
economy development plan • focus on steam power
• Export-oriented policy
plant (urgent needs)
: policy loan, promoting
• main resources from
general exporters
foreign borrowing
• Top 5 Exports : Iron, Tungsten, • KIST (‘66)
Silk, Anthracite, Cuttlefish
• expand primary
education
5
b. Accelerated industrialization: 70’s
Economy
Key Policies
• Building SOC investment
• Promoting Heavy and
system : National Land
Chemical Indusry (HCI)
Development Plan
• Seoul Metro, Honam
Highway, yongdong
• Top 5 Exports:
Highway, Industrial
- Textiles, Plywood, Wigs, Iron Ore,
complex
- HCI ratio to manufacturing:
41 51%
Electronics
• nuclear power plant
- able to supply electricity
more than demands
6
• established KDI (‘71)
c. Industry rationalization : 80s
Economy
• Industry Restructuring
: expansion  upgrading
• Top 5 Exports
: Textiles, Electronics, Iron &
Steel Products, Footwear,
Ships
7
Key Policies
• high growth, trade surplus 
inflation pressure  slow
SOC investment  SOC
shortage  high cost
• develop LNG base, regional
energy supply system
• upper secondary & tertiary
education (Vocational HS &
Junior Colleges)
• National R&D program
d. Transition into KBE: 90s~03
Economy
Key Policies
• Established the special account for
• Competitiveness,
transportation facilities
Knowledge-based
• private investment to SOC
Economy
• Inchon Airport, High speed
railway
• Top 5 Exports:
• Informatization highway project
 1990: Electronics, Textiles,
Footwear, Iron & Steel Products, : 97-05, 831 bllion won
Ships
• E-government project (01~07)
 2000: Semiconductor, Motor
: 1 trillion won
Cars, Computers, Ships,
Petroleum Products
• Public investment in higher ed.
8
II-1. Korea´s SOC Investment
 During ‘60~‘02, average growth of SOC investment is 14.5 %,
• much higher than GDP growth : 7.9 % during ‘61~’99
• SOC investment ratio to GDP : 0.6 % (‘60)  5.6 %(‘02)
(trillion won=about $ billion, 1995 price)
- SOC (A) Investment
- GDP (B)
- SOC/GNP(B/A, %)
9
60
70
80
90
00
02
0.1
1.4
5.7
15.4
31.3
29.2
16.3
0.6
56.2 115.0 263.4 478.5 524.7
2.4
5.0
5.8
6.5
5.6
(The value in 1960 is adjusted by 1970 value)
Infrastructure Investment and Ratio to GDP
(billion won, (%) , 1995 price)
35,000
31,284
(6.5)
30,000
25,000
29,219
(5.6)
25,438
(6.7)
20,000
15,373
(5.8)
15,000
10,000
5,000
-
10,466
(6.3)
99
(0.6)
289 1,369
(1.3) (2.4)
2,131
(2.6)
5,745
(5.0)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2002
10
(Bank of Korea)
II-2. Mobilizing Resources for Soc Investment
 Investment Increase rate (%)
60s
30.1


70s
15.4
80s
10.3
90s
7.4
00s
15.5
In 60s : Foreign borrowing (World Bank, countries)
In 70s : building SOC investment system
• Budget expenditure in SOC increased
• National Land Developmet Plan
In 80s : slows down to avoid inflation pressure from
current account surplus (low oil price, strong Yen)
 high transportation cost and
weak competitiveness in 90s.
11

 In 90s : Expansion of public spending to stimulate economy

• SOC investement ratio to general account
11.1 % (93) 14.2% (97)  15.9 % (03)


• The special account for transportation facilities opened
- It sets up a stable base to mobilize funds for SOC investment
- Main revenue : transportation tax, fee, etc.
- 5 sub accounts for road, railway, port, airport, etc.
• Private Investment Promotion Law (95) established
- During 90~01, total 33.2 billion US$ is invested
- Private investment ratio to SOC in general account increases.
: 0.2% (95)  9.6% (02)
• SOC for building knowledge based economy strengthened
12
- Informatization highway (97-05, 831 billion won)
- E-government project (01~07, 1 trillion won)
II-3. Soc Indicator in Asian countries
SOC total
Road
Railway
(㎞/㎢)
4.51
(29)
0.88
(20)
0.0313
(18)
31,319
(8)
4.74
(38)
- Singapore 8.66
4.71
0.0002
15,283
8.76
(1)
(2)
(47)
(20)
(3)
5.68
0.17
0.0059
14,985
6.45
(18)
(38)
(37)
(22)
(22)
5.48
3.05
0.0533
105,960
6.85
(1)
(4)
(16)
(2)
(19)
(rank)
- Malaysia
- Japan
14
(1,000 person)
Port etc.
(10 point)
- Korea
(㎞/㎢)
Airport
(10 point)
III. Krea’s transition to Knowledge Eeconomy
1. Background : Fundamental Problems in economy
Booz Allen&Hamilton
Second-Tier Korea
McKinsey
Productivity Reality
Knowledge
of 8 Industries
Productivity
Gap
(Half of USA)
Gap
Korea’s World Competitiveness declines :26 (‘95) 30 (‘97) 41(‘99)
Advanced Nations
15
Knowledge-Based, productivity-led
Economic Growth Strategy
Macro
Road Map to KBE: Background and Proceeding
IMF
Crisis
Crisis
Management
(-6.7 % G)
Rebound & Recovery
(10.9 % ---> 9.3%)
Setback & Regaining
(3.0% -> 6.2 %)
NEAC
12
‘97
‘98
12
Policy Forum
(KDI -MOFE)
KBE
‘00
1999
Presidential
Mandate
10 11
5
Research
Project
‘01-02
1 4
Public
Hearing
Strategy
Report
Implementation
3-Years
Action Plan
The WB joined
(W B-OECD:
Korea’s KBE Report)
Knowledge Campaign by the Press (e.g.Vision Korea Campaign)
16
Booze-Allen-Hamilton Report
McKinsey Report
Monitor Report
?
3. Moving into a Knowledge driven economy
1. Government : Strong Push
- Cyber Korea 21 (99) : Top 10 Informatization Country
- The 3-yr Action Plan for Knowledge based economy: 00-02
- SOC for building knowledge based economy strengthened
: Informatization highway (97-05, 831 bllion won)
: E-government project (01~07, 1 trillion won)
2. Media : improving public awareness
- Maeil Business Newspaper, Vision Korea Campaign (96)
3. Private sector
- knowledge management boom, cultural changes in work place
4. Venture Movement
- KOSDOQ market opened in 1996 (like US NASDOQ)
- 380 venture firms listed - Total Mk Value/GDP: 11%
17
 Push to Internet Uses
 IT training during 99~04 : 190 billion won
- 15 million people (housewives, soldiers, students,
etc.)
 Various programs conducted
- Internet PC Drive : Supplied 2 Million Low-Price PCs in 1999)
- Internet Skills Education for 10 Million Students
- Internet Skills Education for 2 Million Housewives
(Partnership with 1,057 private institutions)
- Internet Skills Education for 100,000 Elder Citizens
- Internet Skills Education for 600,000 Soldiers
- One Million Free Homepages
- Ten Million Free Internet Ids
18
- Used PC Donations to Schools
Nationwide Informatization (as of 2002)
•
•
•
•
Internet Users : 26 mil. (total population 47.6 mil.)
High Speed internet : 19 per 100 persons (world 1st)
Mobile phone service : 68 per 100 persons
Internet Banking: 31%, Cyber trading: 67 %
1998
•
•
•
•
19
E-procurement rates :
19.3 %
Customs process for imports : 2 days
Low income Internet users :
5.0 %
Female internet users :
7.7 %
2002
 91.6 % (‘03)
 2.5 hrs
 34.9 %
 52.4 %
IT Industry is a new Growth Engine in Korea
 IT industry grows fast in its production, exports and creates jobs.
(‘97-’02):
IT Industry
21.6 %
GDP growth
5.6 %
1998
IT share of GDP (%)
9.3
IT export share (%)
23.0
Mobile phone set exports (US $ bil.) 1.8
No. of IT companies (thou.)
10.2
No. of IT employees ( mil.)
1.0
2002
 14.9
 29.4

8.9
 22.1
 1.2
 Korea’s World leading producer: CDMA, TFT-LCD, D-RAM,etc.
20
4. Korea’s IT boom Model
 Market changed.
a. Created huge Demands
- Old Generation: Cyber trading rate, 69% (commission charge : 3%  0.3%)
- Young Generation: Computer game, “Starcraft”
b. Competition brought huge Supply; new tech  cost down
- PCS in mobile telecom ( mobile phone price : 1/10th)
- ADSL in high speed internet ( connection fee :  $12)
- PC café for online- computer game and cyber trading ($1 per hour)
 Government : facilitating changes in market
21
- Demand : training, banning s/w copy, low-priced PC policy
- Supply Side : building IT Infra, supporting venture startups (KOSDAQ) and
e-commerce, educating IT experts
* For Cyber 21 project (Mar.99-02), the gov’t invested US$19.7 billion
* Informatization highway (97-05, 831 billion won)
5. Key Factors of this Success
 Strong leadership and Entrepreneurship
- envisioning goals and strategy
“We fell behind in the industrial revolution but we won’t be left behind in the
Information revolution” (The President Kim’s Speech to the Parliament, ‘00)
 Aggressive Investment in R&D, Education and IT infra
 IT manufacturing Power and Chaebol’s Deep Pockets
- Korea’s IT h/w production’s ranked as 4th with 6.3% in the world market
- DRAM production (1st) : market share: 38% (00)  41.5% (01)
- TFT-LCD production (2nd) : market share: 42% (01, 2/4)  37% (02, 1/4)
- Mobile phone production
: market share: 6.5%(2000)  10.5%(2001)
: CDMA market share: 53.7%(00)
22
 Cultural characteristics suitable for Internet
- Well educated population : high teciary education
- Tendency to follow fashion  internet community, game
- Quick temper, living pattern (apartments)  broadband
internet, cyber apartment program(99)
- Shyness to public  active participation in cyber space
 IT Boom changes Korean Culture and Value System
- Knowledge & Technology (=make money) became a key to success in life
- Confucian Value has been changing into performance, Market Value system
Saving face, reputation, seniority, modest  show up, self-expression, money
- chaebol based business culture (lifetime employment)  venture (risk taking)
23
Internet Users in Korea
26,270
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
24
19,040
10,860
366
731
1995
1996
1,634
1997
3,103
1998
1999
2000
2002
Korea achieves top level informatization
Internet Users (per 100 people, 2002)
60
55.2
53.8
50
44.9
40.6
40
31.4
30
20
10
0
Korea
25
USA
UK
France
Japan
IT Industry Output and Share of GDP
189.1
200
Trillion Korean won
180
160
145.3
140
(13.1%)
88.1
80
60
(14.9%)
115
120
100
150.3
(12.9%)
(11.2%)
(9.3%)
40
20
0
26
1998
1999
2000
2001
2002
World’s Top Broadband Internet Users rate
Broadband Internet User (per 100 people)
25
19.1
20
15
10
5.6
3.8
5
1.3
0
27
USA
Korea
UK
OECD
Internet Usage (hrs per month)
18
16.2
16
14
12
10.5
9.6
10
8.2
7.6
8
6
4
2
0
Korea
28
USA
Germany
Canada
Japan
Source: Nielsen Co., January 2002
Online Stock Trading (June 2000)
60
57%
50
40%
40
28%
30
20
7.2%
10
1.8%
0
Korea
29
USA
France
Japan
Sweden
* Internet banking users : 11.3 million (2001)
Mobile Phones per 1,000 people(2000, WDI 2002)
800
720
700
600
567
526
493
500
398
400
300
200
100
0
Korea
30
US
France
Finland
Japan
- In 2001, Mobile phone users : 29 million (617 per 1,000 people)
- mobile internet handsets : 23.8 million
Mobile phone handset Exports
(billion US$)
14
11.8
12
10
8.5
7.3
8
6
4.8
4
2
1.8
0
1998
31
1999
2000
2001(est.)
2002(est.)
Korea holds 53.7% of world CDMA mobile handset
market which was US $14 billion in 2000.
IV. Prospect and Implication
 Korea has effectively invested for building SOC and its
knowledge economy, which enables its eonomic success
- Korea’s investment in Knowledge to GDP is ranked as 3rd in the world.
 Korea’s experience implies that the government should have
an effective strategy for developing its economy by stages.
- In the early stage, primary education, steam power plant focussed
- After building capacity, investment in knowledge strengthened
 But in 00s, huge demands for public expenditure in
- welfare including pension, medicare, etc.
- regional development and supports for S-North Korea relation
 Under this constraints, it’s important to continue effective
investment to SOC and KBE to sustain Korea’s succss 32
Korea’s Investment in Knowledge : world top three
Investment in Knowledge * as % of GDP (1998)
7
6
6
6.5
5.2
5
4.7
4.7
Japan
OCED
ave.
4.1
4
3
2
1
0
Korea
US
Sweden
France
( * = R&D + software + higher education )
* OECD Science, Technology and Industry Scoreboard 2001 - Towards a knowledge-based economy
33
THE END : Thank You