1. State-led industrial policy: In South Korea, the government played a significant role in developing the country's economy by implementing state-led industrial policies. For instance, the government provided subsidies, preferential access to credit, and tax incentives to specific industries such as shipbuilding, steel, and electronics. This led to the growth of companies like Samsung, Hyundai, and LG, which became globally dominant players in their respective industries. Similarly, in China, the government implemented its 12th Five-Year Plan, which included policies aimed at developing strategic high-tech industries such as green energy, biotechnology, and next-generation IT. Government support and investment in these sectors played a key role in China's rapid economic development.
2. Market failures and externalities: The institutional theory assumes that markets are efficient and always allocate resources optimally. However, in some cases, markets fail to allocate resources efficiently, resulting in externalities that require government intervention. For example, in China, pollution has become a major problem as a result of rapid industrialization. The government had to intervene by implementing strict environmental regulations to limit pollution levels. Similarly, in South Korea, the government intervened to protect the agriculture sector by implementing import tariffs on agricultural products to prevent them from being undercut by cheaper imports. These examples illustrate that government intervention is sometimes necessary to address market failures and externalities and ensure sustainable economic growth.
The “institutional theory” suggests that by establishing property rights, free and open markets, and the rule of law, a country will create the incentives necessary for markets to develop and the economy to grow without much other government intervention. Describe how evidence from South Korea and China suggests that, in some cases, the government must play a larger role.
(Answer in 2-3 points with clear examples from China and South Korea)
1 answer