S-Space College of Social Sciences (사회과학대학) Center for Social Sciences (사회과학연구원) Korean Social Sciences Review (KSSR) Korean Social Sciences Review (KSSR) Vol.03, No.01/02 (2013)
Chaebols and Their Effect on Economic Growth in South Korea
- Kim, Keunsoo
- Issue Date
- Korean Social Sciences Review(KSSR), Vol.3 No.2, pp. 1-28
- chaebol; Korean economic growth model; ownership structure; economic effect; employment inducement coefficient
- Translated from the article published in the Journal of Korean Development Economic Association, Vol. 18, No. 2 (2012), with permission from the Korea Development Economics Association.
- Chaebols, a South Korean form of business conglomerate, achieved high profits after the Asian currency crisis and dramatically reduced their debt-equity ratios. At the same time, chaebols continued to increase their assets at high growth rates. However, ownership shared by their heads tended to be gradually smaller, resulting in more serious separation of cash flow ownership from corporate control power. Concentration of economic power driven by chaebols continued to increase. Despite their business success and huge expansion, their labor demands and contributions to domestic economy sharply decreased after the currency crisis. The average number of employees for 5 major chaebols was about 460,000 during 2006 to 2010, which was less than 480,000 during 1991 to 1995. Value added and employment inducement coefficients of total exports in South Korea, mainly driven by large companies like chaebols, have consistently and substantially decreased since 1995. This study suggests four reasons why chaebols’ successful growth does not have as strong an effect on the South Korean economy as before. First, the industry structure has been changed from labor intensive to capital and technology intensive industries, resulting in less demand for labor. Second, increases in new technology and labor productivity substantially reduced labor inducement coefficients of exports across all industries. Third, because of globalization effect, large companies like chaebols have easy access to cheaper or competitive oversea intermediate goods. Strong dependence of their exports on imports, however, reduced the positive effects of exports on the economy. Last, substantial increases in overseas investments by chaebols after the Asian currency crisis resulted in less demand for domestic labor. The dwindling effect of the chaebols on the South Korean economy implies that the export-driven economy model did not appear to be successful in activating the domestic economy after the currency crisis.