A second significant factor was the Korean government's policy of promoting exports, which was set in motion in 1965. Initially, the government introduced a number of fiscal and financial incentives, which I will discuss more later. A third factor was Korea's abundant and highly productive labor force. This gave Korea a strong comparative advantage in producing labor intensive products and provided the impetus for the notable expansion for exports. In order to expand total exports over time periods, however, Korea turned to new export industries that were expected to have a comparative advantage with abundant labor, but skilled labor at this time, such as shipbuilding, electronics, and steel industries. This attempt was viewed as a manufacturing shifting of its emphasis from light industries to heavy industries which later started to produce intermediary goods as substitutes for imports (Kwack, 77). However, this government's promotion of heavy industries for large-scale economies led to under-investment in light manufacturing industries causing productive gap between small and large firms. Actually, the large firm that runs heavy industries has been given priorities, and small and medium firms relatively disregarded in government's allocation of loanable funds and other administrative preference. As a result, conglomerates later known as chaebol (family owned conglomerate) have been formed through this expansion of heavy industries. Government's Policy Before 1961 As seen above, the Korean government has been focused on import substitution for economic growth during 1953 ~ 65 period and followed by export expansion policy after 1965. However, to progress its policy efficiently, the government had to face to one of serious problem, poverty. After two major wars, the country even with a food shortage experienced lack of capital. There was no source for savings and investment to finance economic growth domestically, so it depended heavily on foreign capital which inflow in a form of mostly aid and loan in the early stage of economic growth.
