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The spatial pattern of industrialization

Economic policy and regional development

The growth of major cities in the 1960s

In the 1950s, the South Korean economy was barely recovering from the destruction of the civil war. In 1961, per capita GNP was US$83, and agriculture and fishery had the lion's share of GNP (36.9 per cent). The volume of exports was 14.4 per cent of imports, and 78.1 per cent of exports consisted of primary products. Domestic savings were a mere 2.9 per cent of GNP and the population was growing at an annual rate of 3 per cent. There were shortages of domestic raw materials, skilled labour, and capital. The prospect of economic growth was bleak.

The South Korean government launched the first Five-Year Economic Plan in 1962, with an emphasis on expanding labour-intensive light manufacturing. With overseas financing, the plan was expanded to improve the trade balance by increasing production in import-substituting sectors. With limited capital to invest, the investment policy was unavoidably selective in choosing the targets of industry and area. The strategy of growth poles in regional development projects and unbalanced growth in industrial policy were the only options open to the government at the time. The economic planning strategy chosen in the 1960s was, in fact, selective governmental support for export-oriented manufacturing industry, particularly labour-intensive light industries such as shoes, plywood, and textiles. In order to raise the capital to finance public and private investment projects, the government forced domestic savings by high interest rates and taxes, and also by a reverse interest structure (for example, 30 per cent for fixed-term deposits and 26 per cent for a loan in 1966). In addition, international borrowing was extended to finance various infrastructural and regional development projects and to pay for the large trade deficit.

Economic growth in the 1960s averaged 8.8 per cent, almost doubled from the 1950s (4.5 per cent). Growth was prominent in the manufacturing and social overhead investment sectors. Per capita GNP increased sharply during the first five-year planning period, from US$83 in 1961 to US$125 in 1966, and doubled again by the end of the second economic plan (1967-1971) to US$278. Exports increased by 36.2 per cent during the period of the first economic plan. The share of manufacturing products in exports increased from 21.9 per cent in 1961 to 86.0 per cent in 1971.

During the 1960s the growth of industrial activity was heavily concentrated in the vicinity of the major metropolitan areas. To take advantage of the good infrastructure, manufacturing activities were prepared to locate in the major metropolitan areas. Using the same reasoning, the government established sizeable industrial estates in and around Seoul, Pusan, and Taegu. During the period 1960-1969, Seoul accounted for 38.5 per cent of the increase in manufacturing employees (553,790) and Kyungnam province surrounding Pusan took 23.7 per cent. Thus Seoul's share in the nation's employment increased from 23.3 per cent in 1960 to 33.9 per cent in 1970 (see table 5.1). The growth in manufacturing employment in Seoul and Kyunggi province far surpassed that in other regions. The share of manufacturing employment in the Capital region (Seoul and Kyunggi province) increased from 33.6 per cent in 1960 to 49.8 per cent in 1970 (see fig. 5.2).

The regional balance strategy in the 1970s

In the early 1970s, the world economy was shaken by the energy crisis. In addition, the stability of international trade regulated by GATT and IMF was jeopardized by the instability of the US dollar. Domestically, the same period was also marked by a chain of alarming political events, such as "Yushin" (a "revitalizing reform" that included a constitutional amendment to change presidential elections from direct to indirect in October 1972) and the declaration of a National Emergency (December 1972). These events dampened the growth of the Korean economy for several years in the early 1970s.

The South Korean government launched the Third Five-Year Economic Plan (1972-1976) with an emphasis on establishing basic and strategic industries to provide a domestic supply of material inputs for the export sector. To this end, the government directed its resources to the heavy and chemical industries.

In 1973, the economy recovered from the shocks. After 1975, with the recovery of the world economic situation, the effects of the industrial policy were eloquently demonstrated in terms of the growth in labour productivity. The scale of manufacturing operations also increased, from 38.6 workers per firm in 1972 to 61.1 workers in 1981, and the number of establishments also increased from 25,248 in 1972 to 33,431 in 1981. In addition, the government's support for key industries started to have an effect. The share of heavy industry in GNP increased from 35.9 per cent in 1970 to 52.4 per cent in 1981. By 1981, per capita GNP reached US$1,678 (1970 prices).

Table 5.1 Industrial location by region, 1960-1989

Sources: Economic Planning Board, Report on Mining and Manufacturing Census, 1960, 1970, 1980, 1989.

To mitigate the concentration of population and industrial activities in major metropolitan areas, the government's industrial policy increasingly promoted the establishment of the industrial bases of strategic industries in the provincial areas. The First National Land
Development Plan (1972-1981) and the Third and Fourth Five-Year
Economic Plans aimed to emphasize rural development and regional development. Under the National Land Utilization and Management Act (1972) and the Provincial Industry Development Act (1970), provincial industrial estates were established in the cities of the southern agrarian regions such as Kwangju, Chungju, Iri, Kunsan, and Suncheon.

Fig. 5.2 Regional shares of manufacturing employment, 1963-1989 (Source: Economic Planning Board, Report on Mining and Manufacturing Census,1960, 1970, 1980, and 1989)

During the 1970s, the increase in the nation's manufacturing employees was 1,255,787, with Kyunggi province accounting for 31 per cent of the total increase, and Seoul and Pusan 16.6 per cent and 17.0 per cent, respectively. Strict policy measures to control growth in the major metropolitan areas seemed to be mildly effective in Seoul and Pusan, reducing their shares in total employment (see table 5.1).

Differential growth of the Capital region in the 1980s

During the period of the Fifth and Sixth Five-Year Economic Plans (1982-1986 and 1987-1991), the policy emphasis shifted towards economic stability and distributional goals. Along with the distributional focus, regional balance became a major policy objective. This was also stressed in the Second National Land Development Plan (1982-1991). With a rather dubious economic rationale, the idea of regional balance had been voiced more loudly by politicians and planners. Stringent policy measures were announced and to some extent implemented to control the growth of the Capital region (including Seoul and Kyunggi province, the area surrounding Seoul) and of Pusan to a lesser degree. The Capital Region Reorganization Law was enacted in 1982 "to redirect the population and industries from the capital region." In addition, under the Rural Income Source Development Act of 1983, 170 Rural Industrial Estates were established in provincial areas. However, the policy measures to control metropolitan growth only diverted the growth pressure to Kyunggi province. The growth of the Capital region accelerated during the 1980s, which, in turn, limited the vitality of Seoul and profoundly degraded the quality of life in the capital city.

The shares of employment in Seoul and Pusan were further reduced in the 1980s. Among the increases in manufacturing employment from 1980 to 1989, 46.7 per cent went to Kyunggi province, while much smaller proportions accrued to Seoul (7.5 per cent) and Pusan (7.9 per cent). The share of manufacturing employment in Seoul and Pusan fell from 50 per cent in 1970 to 29.4 per cent in 1989, while that in Kyunggi province and in Kyungnam province, the area surrounding Pusan, increased much more to offset the reductions in the core cities of the respective regions. The growth in manufacturing employment in Kyunggi region has been particularly vigorous. In 1960, manufacturing employment in Kyunggi province represented only 10.3 per cent of the national total and less than half that in Seoul. In 1989, it constituted 31.8 per cent of the national total, which was almost twice that of Seoul (see table 5.1).

Table 5.2 Rural-urban migration, 1961-1985 ('000 people)

Source: Korea Institute for Population and Health, Study for Population Movements, 1991, p.14.

Urbanization and rural-urban migration

With rapid industrialization, there has been massive rural-to-urban migration. The first wave of migration occurred during the second half of the 1960s.

Rural-to-urban migration constituted more than one-third of the total migration across regional, city, and county administrative boundaries in the 1960s. Rural-to-urban migration gradually increased throughout the 1960s and 1970s, peaking in the second half of the 1970s. During that period, 2,524,000 rural inhabitants, constituting 15.1 per cent of the rural population, moved into urban areas (see table 5.2). The share of the urban population increased from 28.3 per cent in 1960 to 57.3 per cent in 1970 and to 74.4 per cent in 1990 (see table 5.3 and fig. 5.3).

A large proportion of the rural out-migrants moved to Seoul during the past 30 years of industrialization. The rural-to-Seoul migrants constituted 44 per cent of the total rural-to-urban migration in the period 1965-1970 and then decreased gradually to 37 per cent in the period 1970-1975, 31 per cent in 1975-1980, and 30 per cent in 19801985. With the decrease in rural-to-urban migration, urban-to-urban migration had been growing. In the period 1980-1985, the urban-to-urban migration constituted 37.7 per cent of total migration, which was an increase from 28.9 per cent in the period 1961-1966 (see table 5.2). The pattern seems to follow Zelinsky's hypothesis of migration shifting from rural-urban to urban-urban migration with the progress of industrialization (Zelinsky, 1971).

The most noticeable change in migration occurred within the Capital region. The population of Seoul increased from 2.4 million in 1960 to 10.6 million in 1990. The share of immigrants to Seoul peaked in the period 1966-1970, constituting 48.1 per cent of total migrants. It has since been declining gradually. On the other hand, the share of immigrants into Kyunggi province rose from 9.7 per cent in the period 1961-1966 to 30.1 per cent in the period 1980-1985. According to one tentative estimate, the population in the Capital region in 1990 was 18.6 million, constituting 42.7 per cent of nation's total. The population increase in the Capital region amounted to 90.5 per cent of population growth in the nation between 1985 and 1990 (see table 5.4).

Table 5.3 The share of the urban population and the distribution of the industrial labour force, 1920-1990 (%)

Source: Korea Institute for Population and Health, Study for Population Movements, 1991, p. 12.

a. Excluding rural townships ("Eup").

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