In addition, the U.S. had imposed restrictions on South Korean textile (and other) exports as a condition of foreign aid, in which the aim of such aid was to be for domestic purposes entirely, and not for export competition with producers in the U.S. Thus, through 1962, South Korea's exports continued to be minimal, as typified by the situation in the textile industry.
At that time, the government in Seoul, the capital city, set up a relatively elaborate system of subsidies and other policies in order to encourage exports (Amsden, 1989). Using Japan as a model, the South Korean government manipulated its foreign exchange rate so that it tended toward undervaluation for exports and for imported products that it wanted to keep out (various manufactured goods), and overvaluation for imported items that it needed (like raw materials). Such mechanisms included tariffs, surcharges, and guaranteed deposits for importers. The overall aim here was to encourage exports and discourage imports, where feasible and desired, in order to create trade surpluses with which to accumulate foreign reserves and investment capital, and also to pay for raw materials, which the country generally lacked and had no choice but to import. In addition, the government encouraged the formation of large, diversified conglomerates called chaebols, which were modeled after Japan's keiretsus. Through close cooperation with a relatively few big companies, it was felt, the government was better able to implement its program and influence the national economy overall. Additional policies to promote exports included loan subsidies to exporters, tax and tariff exemptions, wastage allowances, and general government support through means including schools, roads, and utilities.
The above policies turned out to be highly successful in the main. In addition, most importantly, exports and industry in general in South Korea began diversifying (Handbook of Korea, 1993)...
The Story of South Korea's Economic Development. (2000, January 01). In LotsofEssays.com. Retrieved 03:22, January 26, 2015, from http://www.collegetermpapers.com/viewpaper/1303631628.html