Industrial Policy and Economic Transformation: A Comprehensive Case Study of South Korea, 1961 to 2024

Abstract

This paper presents a comprehensive case study of South Korea's industrial policy transformation from 1961 to 2024, examining how a low-income agrarian economy systematically evolved into the world's tenth-largest economy and a global leader in advanced manufacturing, semiconductors, and digital technology. Drawing on six decades of macroeconomic data, sectoral analyses, and policy documentation, we trace the sequential phases of Korea's development strategy, from import-substitution and heavy-chemical industrialisation under the Park Chung-hee era, through export-oriented liberalisation in the 1980s, the traumatic restructuring following the 1997 Asian Financial Crisis, and the contemporary pivot toward innovation-driven growth. Our analysis identifies five critical policy mechanisms that underpinned Korea's transformation: (i) strategic credit allocation through state-directed banking, (ii) conditional reciprocity in government-chaebol relations, (iii) massive human-capital investment coupled with technology absorption, (iv) adaptive institutional reform in response to crisis, and (v) the deliberate construction of national innovation systems. We evaluate the distributional consequences, including rising income inequality and household-debt burdens, and draw transferable lessons for developing economies pursuing structural transformation in the 21st century.