Lessons the U.S. can learn from 50 years of Korean industrial policy

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A mega block is suspended by the heavy lift barge in Samsung heavy industries shipyard in South Korea

Professor Munseob Lee wins national accolades on macroeconomic research covering half a century of data from Korea

Munseob Lee portrait

Munseob Lee, assistant professor at the UC San Diego School of Global Policy and Strategy (GPS), has been honored with the 2023 Sherman Family Korea Emerging Scholar Lecture Award. 

Given annually by The Korea Society, the Sherman lecture recognizes one emerging scholar each year and provides them the opportunity to present their work to a wider audience. Lee will give a public lecture titled “The Return of Industrial Policy: Lessons from Korea,” focusing on his research, on Dec. 6 at The Korea Society in New York, a hybrid event available to attend in person or online. 

“Receiving the prestigious award and joining the exceptional ranks of previous winners has truly humbled me,” Lee said. “Those who came before me delved into crucial and current matters such as national identity and the path to democracy, delivering exceptionally well-crafted and perceptive lectures. It brings me great satisfaction to extend my perspectives on industrial policy beyond the boundaries of the classroom.”

Lee shared that his dedication to the study of the Korean economy was nurtured by two influential mentors: the first was professor Chang-Tai Hsieh, his doctor adviser, who motivated Lee to reexamine the roles of government and institutions using contemporary economic models and recently available data. Subsequently, after joining GPS, professor Stephan Haggard became an additional source of inspiration and expanded his viewpoint on political economy and developmental state perspectives. 

“Both mentors heavily influenced my research endeavors and kindly provided letters of recommendation for the award,” Lee said.

Does industrial policy work?

Lee’s nomination stemmed from a joint paper with professors Yongseok Shin and Minho Kim, which delved into the Korean government’s 1973 initiative to bolster exports through the development of heavy and chemical industries. Using newly digitized microdata, Lee and his coauthors determined that the policy had a significant positive impact on the targeted industries, resulting in faster growth than that of the non-targeted industries. 

However, because of the preferential treatment to certain companies, production activities became more concentrated, and many inputs were allocated to unproductive firms. In short: Korea’s industrial policy successfully increased the size of chosen sectors, but it came at the expense of a rise in concentration within those sectors. 

The paper demonstrates that the effects of industrial policy can be complex and multifaceted, and policymakers need to carefully consider the potential costs and benefits of these policies before implementing them.

Why it matters

“While not a widely established domain within economics, the Korean economy presents numerous captivating scenarios for exploration,” Lee said. “As a macroeconomist, I find ample intriguing cases in Korea that hold implications for policy formulation in the U.S.”

Recently, the COVID-19 pandemic and the rise of China as a major global economic power have renewed the debate about the U.S. government’s role in shaping the economy. 

“Despite the fact that industrial policy is back, we still don’t understand whether it works,” Lee said. “We have important examples to draw on, and they have not been adequately studied.”

During the East Asian growth miracle period from the 1960s through the 1980s, Lee explained, governments were heavily involved in the economy and selectively nurtured specific industries. The apparent success of these policies has inspired many developing countries to adopt similar strategies to achieve economic growth. 

“While industrial policy can lead to significant growth in targeted industries, it can also exacerbate misallocations of resources and distortions in the market,” Lee said.

To learn more about Korean industrial policy, read Lee, Shin and Kim’s working paper “The Plant-Level View of an Industrial Policy: The Korean Heavy Industry Drive of 1973.” And to learn more about Lee’s research, watch his interview in our “Driven to Solve” series.

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Virginia Watson is the communications editor for the School of Global Policy and Strategy. She has spent her entire career in editing, writing and design, both in industry and higher education. She holds a master's in technical and professional communication from Auburn University and a B.S. in journalism with a minor in graphic design from Troy University.
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