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FALLING BEHIND AND MOVING AHEAD: THE BRAZILIAN AND SOUTH

KOREAN PROCESS OF INDUSTRIALISATION

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FALLING BEHIND AND MOVING AHEAD: THE
BRAZILIAN AND SOUTH KOREAN PROCESS
OF INDUSTRIALISATION

Igor Rocha1

“Don't listen to ‘comparative advantage’ advice. Whenever we wanted to

do anything the advocates of comparative advantage said, ‘We don't have
comparative advantage.’ In fact, we did everything we wanted, but whatever we
did, we did well.”

Sung Sang Park, Governor of the Bank of Korea from 1986 to 19882.

“The best industrial policy you can have is not have one.”
Pedro Malan, Brazil's Finance Minister from 1995 to 20033.

Introduction

Comparisons of the Latin American and East Asian industrialisation experiences are very
commonplace. At a first glance, until the 1980s, Brazil and South Korea presented similarities
in terms of political and economic development. During the 1960s and 1970s, both countries
were governed by dictatorial regimes and had their development path based on the so-called
national development plans which sought to strengthen the heavy industrial base –
metallurgical, chemical and metal-mechanic industries. Under the developmental agenda,
although through different strategies, the results achieved by a state-led industrialisation were
not negligible, showing a strong economic and industrial growth with both economic blocks
increasing their share of manufactured products in the global value added. From 1950 to

PhD at University of Cambridge.

1

Quoted in Robert Wade, “East Asia’s Economic Success, Conflicting Perspectives, Partial Insights, Shaky
2

Evidence. World Politics, Volume 44, Issue 2 (Jan., 1992), 270-320.

Quoted in David Trubek, “Toward a new law and development”, The World Bank Legal Review, volume 4,
3

2012, 287.

1
1980, the Brazilian share increased from 1.65% to 3.12% and in South Korea this number
rose from 0.33% to 0.76%4.

However, in spite of the vigorous growth, in both economies, after the 1980s some
structural problems came up, reversing this similar economic dynamism. In both countries
exogenous shocks like oil crises in 1973 and 1979, the Volcker interest rates shock in 1979
and the debt crisis in 1982 triggered a severe imbalance in the public finances and a deep
current account deficit. On the one hand, Brazil as well as the rest of Latin America was badly
affected by these shocks due to its large current account deficits and its large stock of external
debt. This vulnerability, associated with an abrupt cut-off in bank financing, plunged the
country into a serious crisis and caused a deep disarticulation of the state to provide active
policies for the national industry. Consequently, economic growth was seriously retarded
giving rise to the commonly used term “lost decade”. On the other hand, Korea dealt with the
crisis in a much less traumatic way since its strategy of industrialisation was relatively less
dependent on foreign debt and the Japanese banks “recycled” the country’s liabilities.
Therefore, the Korean state and corporations consolidated and expanded the domestic
industrial base through an industrial partnership with Japan.

In contrast to Korea, the Brazilian economic weakness caused by exogenous and

endogenous shocks gave rise to the neoliberal view that spread through the perception that
severe macroeconomic imbalances and the institutional framework of a model based on the
Import Substitution Industrialisation (ISI) did not promote the development of a competitive
industrial base as observed in international markets. The adoption of the neoliberal agenda
supported by the World Bank and the International Monetary Fund (IMF) exposed Latin
American economies to a doubtful development strategy based on the free market doctrine to
conduct the development path5. In a different development strategy, Korea, as well as other
Asian countries, did not embrace the neoliberal agenda in such “fundamentalist” way. In fact,
the state directed and coordinated investment decisions to expand the productive structure and
achieve levels of technology compatible with competing in external markets. While the
Korean strategy of development based on “getting prices wrong” resulted in a trade and
productive dynamism never observed before in the emerging world6, Brazil and Latin
America as a whole followed a perverse strategy through neoliberal reforms that subjected the

Source: GGDC 10-Sector Database.

4

See, for instance, Frenkel et al. (1992).

5

See Amsden (1989).

6

2
country to low rates of economic growth followed by cycles of stop-and-go over the last three
decades. This debate has reopened different interpretations of the development model adopted
by Brazil and South Korea as well as endogenous and exogenous dimensions that shaped their
industrial structures.

Focusing on by factors which include the sectoral composition of countries and the
role of the state in guiding the development path, the main contribution of this chapter is an
identification of factors that determined different routes of economic dynamism followed by
Brazil and South Korea from the 1980s onwards. Thus the chapter is divided in eight sections,
apart from this introduction. The first section elucidates briefly the whole of the
developmental state for economic growth. The second section describes the developmental
era in both countries in a comparative perspective detailing the development plans
implemented from 1950s to the late 1970s. The third section makes an attempt to balance the
role of public and private sectors in the formation of these late industrialised countries. Thus,
seeking to answer why the decoupling in growth rates was much more drastic in Latin
American countries vis-à-vis Asian economies, the fourth section explains the genesis of the
debt crisis. The fifth section analysis the reason behind the technological decoupling between
these two economies and the trajectory of technological learning undertaken by South Korea.
The rise of the neoliberal era is described in the sixth section to give the necessary support to
understand the economic policy change after the 1980s. Therefore, the outcomes in terms of
industrialisation and sustained economic growth in a long term perspective are approached in
the seventh section highlighting the dichotomy between Brazil and South Korea in terms of
labour productivity, catching-up and exports. The last section presents some concluding
remarks.

1. The Developmental State promoting a Big Push in economic growth

In the economic literature on development, there are a vast range of studies stressing
the transformative power of industrialisation in the economic system. Classical Structuralist-
Kaldorian contributions by Rosenstein-Rodan (1943), Nurkse (1953), Lewis (1954),
Hirschman (1958), Myrdal (1957), Kaldor (1966, 1967) and Chenery (1960, 1979) pointed
out that the study of long-term economic growth involves the role of industrialisation as
engine of economic growth. These “sector- specific” approaches emphasised the special
properties of manufacturing (such as highest potential of productivity, spillover effects, strong

3
forward and backward linkages, as well as technological and pecuniary externalities) and the
way in which these properties spread to the economy as a whole stimulating the economic
growth. However, the economic literature has also stressed that successful cases of
industrialisation were not a spontaneous process. Therefore, the developmental literature has
discussed the active role played by the state in the industrialisation process of many latecomer
economies7.

Although the concept of developmental state has been applied in a number of contexts,
contemporaneously, the state’s commitment to developmentalism has been expressed through
common policies and institutions designed to achieve national economic development. In this
sense, Chang (1999, p.183-192) defines a developmental state as “a state which can create and
regulate the economic and political relationships which support sustained industrialization (...)
This state takes the goals of long-term growth and structural change seriously, ‘politically’
manages the economy to ease the conflicts inevitable during the process of such change (but
with a firm eye on the long-term goals), and engages in institutional adaptation and innovation
to achieve these goals.”

Additionally, a central element in this context has been the 'pro-investment'

macroeconomic environment for industrial growth. As a general characteristic, the
instruments implemented by the developmental agenda comprised controls over interest rates
and credit allocation, including particularly long-term financing with low interest rates. In
addition to financing, a set of tax and tariff measures such as customs tariff protection, tax
exemptions, and special depreciation allowances were applied to provide protection to the
nascent industry. Moreover, measures to boost enterprises’ profit margins and therefore the
potential investible resources available to corporations were widely implemented. In the case
of South Korea, for instance, it is also possible to mention policies for technology acquisition,
incentives to activities of R&D and the promotion of cartels for specific purposes such as
standardisation, specialisation and exports (Akyuz et al., 1998).

As pointed out by Coutinho (1999), the sequence of sectoral priorities, as suggested by

Hirschman, and companies to support, in order to carry forward the development agenda,
were part of development process that involved financial institutions (e.g. development banks)

Even the World Bank at the height of the neoliberal revolution acknowledged that in most Asian economies,
7

especially those in East Asia, the State did more than get the “prices right”. Actually, the intervention was
carried out basically with three policy instruments: (i) the promotion of specific industries, (ii) directed-
investment programmes and (iii) the promotion of exports. For details, see ‘The East Asian Miracle' published in
1993 by the World Bank.

4
and planning (e.g. committees, ministries, departments). In this process, the state’s initiative
and leadership was a general rule varying from case to case according to the interaction and
coordination with the private sector. In short, elements of planning, selection, intervention and
dirigisme were present in all successful cases of rapid industrialisation. The creation of
competent bureaucracies of the state, organised under meritocratic criteria to operate the most
important institutions, constituted an indispensable condition for coordination of industrial
policies.

Furthermore, the implementation of development plans, especially in the most critical

stages of heavy industrialisation, demanded a clear concentration of political power in the
executive authority that was structured around a certain core of the bureaucratic system able
to organise and give coherence to the multiple instruments used for the implementation of
sectoral programmes. In this sense, both in Brazil and South Korea fit paradigmatically in the
pattern described above, evidently under peculiar political and historical contexts. The most
important divergences from the pattern of industrial development in these economies refer to
the interrelation between the state and private spheres as well as distinct forms of international
trade insertion and investment pattern (Cheng et al., 1998). Therefore, while in South Korea
the domestic private capital, represented by the Chaebols, played a decisive role in the
evolution and development of Korean industry, in Brazil economic growth and investments
were driven by state-owned enterprises and multinational companies established in the
country during the 1950s and 1960s. Both dynamics are analysed in the next two sub-
sections.

2. Mapping the Golden Age of the Industrialist Era

2.1. Brazil: 1930-1980

For the five decades between 1930 and 1980, the concern with the development of the
productive structure remained a central element in the analysis of economic growth. The
period of transition from a primary export model to a strategy of Import Substitution
Industrialisation (ISI) was widely discussed by theorists such as Furtado (1959), Tavares
(1972) and Cardoso de Mello (1982), Suzigan (1988), Serra (1982), Malan & Bonelli (1983).
In Brazil, between the 1930s and the end of the Second National Development Plan (PND II)
in 1979, this theoretical framework was extremely important for the development strategy

5
adopted through industrial diversification supported by the state. From 1930 until 1980, the
Brazilian economy had a remarkable growth record achieving one of the highest rates of
growth in the world. During this period gross domestic product grew at an annual average rate
of 6.5%, while real GDP per capita increased at an annual rate of 3.8%. In this context
throughout this fifty-year period, the growth strategy adopted was based on ISI policy. Under
the ISI regime, Brazil based its strategy of development in a strongly state-led orientation
which was theoretically formalised by the Latin American structuralist view which
incorporated relevant arguments of the infant industry8, and the Keynesian economics
approach.

As presented by Furtado (1959) and Tavares (1972), the Brazilian development until
1930 could be defined as an outward orientation, via a primary-export model, whose demand
was determined exogenously. In this dynamic, the agricultural-export sector was responsible
for the growth of the product, the formation of national income and the capacity to import.
With the primary sector crisis in the late 1920s, together with the effects of the Great
Depression in the 1930s, there was a strong decrease in export revenues – due to the decrease
of exports earnings as a result of the plunge of coffee prices – and, consequently, a sharp drop
in the import capacity that represented a reduction of 50% in the quantum of imports. This
phenomenon forced the country to develop new productive activities, with the support of the
domestic demand previously met by imports (Tavares, 1972). Therefore, a new dynamic
started to be shaped with domestic demand playing a central role in the strategy of
development9. In contrast to the previous period, the external sector lost relative importance in
the composition of national income whereas the participation and dynamism of the domestic
market increased in the economy. Moreover, the external sector which was previously a
source of demand started to contribute to the expansion and diversification of the productive
structure supplying capital goods and intermediate goods.

Based on this structural dynamic, during Vargas’ government (1951- 54), the
apparatus that enabled the process of a state-led industrialisation started to be consolidated
and inspired by the opportunities created by the reconfigured international division of labour
in the post-war period. This view was closely in line with the framework of historical analysis
formulated by the new generation of economists coalesced at the Economic Commission for
Latin America (ECLA), created by the Economic and Social Council of the United Nations in

See Hamilton (1790) and List (1841).

8

Furtado (1959) denominated this phenomenon as a ‘displacement of the dynamic centre’.

9

6
194810 (Ioris & Ioris, 2013). The perspective in vogue was that the Brazilian economy had to
establish the basis for a more dynamic process of industrialisation. During Vargas’s
government, industry advanced though import substitution of consumer goods by national
private capital and some intermediate goods through state-owned enterprises (SOE).

Inspired by the ECLAC developmental thinking, in 1951, the Industrial Development

Commission (CDI) was created to formulate a plan of industrialisation alongside with specific
projects to create and expand priority sectors such as energy, metallurgy, mineral processing,
chemical, textile, rubber and building materials. Its creation was a strengthening of the
government's role as an economic agent and favoured the collaboration between industries
and the state11. Moreover, in 1952, the Brazilian government concerned with the country’s
infrastructure led to the creation of the Brazilian National Bank of Economic Development
(BNDE)12. The BNDE started out as a vehicle to provide long-term financing for the renewal
of large infrastructure projects such as energy, steel and transportation, as well as providing
resources for heavy industrialisation. At the same time, many state-owned enterprises were
created to support and propel the ongoing process of industrialisation particularly in areas less
appealing to the private sector. A remarkable example is Petrobras, which was established in
1953 to undertake activities of exploration, production, refining of oil and its derivatives.

During the 1950s, credit policies, multiple exchange rates and preferential tariffs for
imports for specific sectors were extensively adopted to boost the industrial growth. In this
way, an important step taken by the Brazilian government was the resolution (Instruction 70)
issued by the Superintendence of Currency and Credit (SUMOC) in 1953, which ranked
imports according to their essentiality13. This normative instruction established five exchange
rate categories, depending on the item being imported. Imports considered of national interest,
particularly fuel, wheat and print paper, were subsidised while other items were strongly
discouraged by over-taxation. Furthermore, the government offered a variety of incentives to
attract Foreign Direct Investment (FDI), such as tax cuts and subsidies. Thus, in 1955, the

The commission is nowadays described as the Economic Commission for Latin America and the Caribbean
10

(ECLAC), with its headquarters in Santiago, Chile.

11
The CDI was abolished in 1954 with the end of the Vargas government, but reborn in 1956 during Juscelino
Kubitschek’s government with the name of the Development Council.
The acronym was later changed to BNDES when “social development” was added to the name in 1982.
12

This instruction represented a stimulus for at least three reasons. First, by rising domestic prices of specific
13

imports it consolidated protection for producers of industrial goods. Second, it provided concession of exchange
subsidies for capital goods and basic inputs required for the process of industrial development. Third, with the
additional revenues obtained by the auctioning of foreign currency to importers of ‘non-priority’ goods, it raised
public funding for government investments in infrastructure (Studart, 1995).

7
Superintendence of Currency and Credit (SUMOC) issued a resolution (Instruction 113)
which allowed imports of capital goods without exchange cover to be counted as direct
foreign investment14. In practice, under a regime of multiple exchange rates, these resolutions
provided a subsidy for imports operations and together they served as the two most important
tools of commercial policy to support the process of import substitution.

In 1956, the recently elected President Juscelino Kubitschek launched the Targets Plan
(Plano de Metas – 1956-60) to accelerate the process of industrialisation. The slogan in vogue
at the time was that Brazil would advance “fifty years in five”15. The main aim was to achieve
the heavy industrialisation with ISI deepening in sectors such as automotive, shipbuilding,
heavy electrical equipment and machinery, allowing a significant expansion of the capital
goods sector. With regard to basic industries, the plan particularly addressed industries such
as steel, non-ferrous materials, heavy chemicals, petroleum, pulp and paper. As result of
developmental policies the investment-to-GDP ratio grew from an average of 14.91% in
1951-55 to 16.04% in 1956-60. In this investment promotion agenda, a central role was
played by the state, whose participation in national investment increased from 23.80% in
1951–55 to 29.78% in the period 1956–60. During the Targets Plan, the Gross Domestic
Product (GDP) grew in average 7.7% and the manufacturing industry rose 11.37% per
annum16.

In the early 1960s, however, the Brazilian economy showed serious economic
imbalances alongside with an unstable political period. In the economic side, the constant
increase in public expenditure during the 1950s led to a severe budget deficit, which was
largely financed by the expansion of the monetary base, causing a sharp increase in inflation
rates (Britto, 2008). On the political side, President Quadros’s resignation in 1961 initiated a
serious political crisis that culminated in a military coup in 1964. Due to this critical scenario,
both the GDP growth and investment rate presented a volatile trend. These variables
combined with a significantly lower import coefficient, led many economists to diagnose the
end of ISI growth model.

With the rise of the military regime, the Government Economic Action Plan (PAEG)
was launched to give emphasis to short-term policies to combat inflation, inherited from the
14
Since the Brazilian Central Bank was created in 1964, prior to this year, the responsibilities of a central bank
were shared by the National Treasury, the Brazilian Bank and the Superintendence of Currency and Credit
(SUMOC), which was later expanded to become the Central Bank.
See Lessa (1983) and Lafer (2002).
15

See Appendix 2.1.

16

8
Target Plan, and make structural reforms. Thus, from 1964 to 1966, under the mandate of
General Castello Branco, the military government undertook a tight fiscal and monetary
policy to tackle increasing inflation and public deficit. The military government conducted
structural reforms which encompassed three pillars, i.e. finance, taxation and external sector17.
Therefore, the financial reform implemented by the PAEG sought to create mechanisms of
long-term financing to avoid the inflationary financing of the public sector and allow the
private sector to recover the industrial investment. The financial reform led to the creation of
the Central Bank, and the establishment of a series of indexation mechanisms to protect long-
term contracts from inflation. Moreover, the BNDES changed its focus from lending to public
projects to financing private companies18. In terms of tax reform, the state implemented the
value added tax (VAT) that increased govern revenues as percentage of GDP from 17% in
1964 to 20.9% in 196619. Despite the success of the Plan, particularly regarding stabilisation
and reforms, the country was still trapped in a cycle of mediocre economic growth.

Therefore, in 1967, under the administration of the General Costa e Silva, there was a
radical change in the economic policy. The Minister of Finance, Antonio Delfim Neto,
promoted expansionary monetary and fiscal policies that were successful in inducing
economic recovery. These policies, associated with the return of external liquidity, restored
the mechanisms of the state to provide funding for public and private agents. From 1968,
reaching an investment rate of 18.7% of GDP, ISI returned to deepen and to promote the
country’s economic growth, under a strong developmental thinking. The First National
Development Plan (I PND: 1972-1974) was launched to promote investments concentrated
especially in the durable goods sector and infrastructure. Consequently, the economy
experienced unprecedented economic growth, fuelled by private consumption and public
investment in infrastructure.

This period corresponds to the so-called “Brazilian miracle” (1968-1974) in which the
country grew an average of 11.7% per annum. During the peak of the economic miracle, from
1970 to 1973, the capital goods industry grew at an annual rate of 22.5%. In this interregnum,

For more details about reforms implemented during the 1960s, see Simonsen (1970) and Lara-Resende (1989).
17

In 1965, in order to support the development of the machinery and equipment industry, the first subsidiary of
18

BNDES, namely Government Agency for Machinery and Equipment Financing (FINAME) was created. In the
ISI model, the domestic machinery industry was seen as a strategic sector to overcome the dependency on
foreign imports of capital goods and therefore foster industrial growth. FINAME had the objective of providing
medium- and long-term funding for the development of the machinery and equipment industry. It comprised
financing purchase and sales operations and exports of Brazilian machinery and equipment, as well as imports of
goods of the same nature not produced domestically.
Source: Brazilian Development Bank (BNDES). For historical series, see BNDES (2001).
19

9
the durable consumer goods industry maintained growth rates of 25.5% per annum. However,
given the macroeconomic instability caused by the first oil shock in 1973, the "economic
miracle" ended imposing a new challenge to the government that took office in 1974.
Therefore, the development of a new developmental project faced a scenario in which the
Brazilian industrial structure was not fully diversified and the country was still very
dependent on import of capital goods and basic inputs, such as oil.

Under the developmental aegis, the Second National Development Plan (PND II:
1975-1979) emerged as an attempt to maintain the economic growth even in face of a strong
international instability. This last economic programme of the Brazilian developmental era
was announced in order to advance the industrialisation model in an environment marked by
the absence of a consolidated and coordinated long-term funding system. The new programme
guidelines focused on continuing ISI, particularly accelerating it in intermediate and capital
goods, and correct productive weaknesses. The industrial policy also sought to propel sectors
related to basic inputs, food and energy as a way to overcome the external constraint.
Thereby, the measures adopted sought to generate profound changes in the productive
structure (Castro & Souza, 2004; Castro, 2001).

The main pillars of the Brazilian industrial policy were the combination of trade
protectionism, promotion of investments by state-owned enterprises and financing granted by
the BNDES. These measures sought to coordinate the expansion of the domestic supply and
maintain high rates of investment in a gradually adverse scenario (Carneiro, 2002). After the
first oil shock in 1973, the refusal of II PND to adopt a strategy more cautious in face of the
dramatic external environment led to a gradual replacement of the private investment by the
public sector to maintain the high rate of economic growth20. Therefore, public investments
increased from 23.5% in 1974 to 28.5% of the total investment in 1979, while private
investments for the same period fell from 60% to 55% (Serra, 1982; Coutinho & Reichstul,
1982). Although distant from the technological frontier in many industries, ISI
regime resulted in a diversified industrial structure, deeply regulated, integrated and driven by
the domestic market which resulted in a profound change in the productive structure and a
progressive de-linking from the international economy with increasing shares in the global
GDP.

See also Lessa (1977).

20

10
Table 2.1 - Brazilian Economic Development Plans and Economic Indicators
Sectoral Composition
Economic GDP Export/ Import/ GFCF/ Primary
Manuf. Services
Development Plan Growth GDP GDP GDP Sector
Targets Plan
(1956-1960) 8.12 5.86 6.22 16.04 11.62 20.42 62.25

PAEG
(1964-1968) 5.30 6.46 5.86 16.10 10.32 21.07 62.41

I PND
(1972-1974) 11.35 7.60 10.40 20.85 7.24 22.80 63.37

II PND
6.42 7.06 9.10 22.54 6.20 21.67 64.58
(1975-1979)
Source: Elaborated by the author, using data from The Brazilian Central Bank, Brazilian Institute of Geography
and Statistics (IBGE), Ipeadata, World Bank – World Development Indicators, The Conference Board and
Groningen Growth and Development Centre and UNCTAD.
Note: GDP = Gross Domestic Product, GFCF = Gross Fixed Capital Formation and Manuf. = Manufacturing.
PAEG = Government Economic Action Plan, First National Development Plan = I PND and Second
National Development Plan II PND.

2.2. South Korea: 1945-1980

As widely documented in the literature, South Korea is one of the most successful
trajectories of economic development in the second half of the twentieth century (Jones &
Sakong, 1980; Bénabou, 1982; Pack & Westphal, 1986; Amsden, 1989, 2001; Canuto &
Ferreira, 1989; Chang, 1994, 1998, 2002; Canuto, 1994 and Rodrik, 1994). However, the
immediate post war period was characterised by extreme economic disorganisation and
stagnation due to geopolitical turbulences. In 1945, Korea emerged from World War II under
US occupation after a long period of Japanese domination. Shortly after the proclamation of
the Republic in 1948, the country was the scene of a new war with North Korea that lasted
from 1950 to 1953. During this period, South Korea struggled to take the first steps in a
process of industrial development. At that time, the manufacturing sector was very incipient
and the weak industrial bourgeoisie was entirely dependent on the state.

After the Korean Armistice in 1953, South Korea moved from a majority agrarian
economy to an industrialised country, showing levels of income per capita and well-being
much higher than any other developing nation. In the 1950s, under President Syngman Rhee’s
government, South Korea adopted ISI model and focused in the following measures: (i)
support for the non-durable consumer goods sector, particularly with low capital intensity,

11
though favoured credits and import licenses; (ii) the creation of national capitalist groups
through subsidised privatisations of several companies, including banks; (iii) the
implementation of a broad agrarian reform in order to reduce social tensions and create a new
social base to support the dictatorial regime; (iv) efforts to reduce illiteracy and promote basic
education. Over this decade, Rhee’s dictatorial regime led this process based on the support
given by the US and economic groups that were favoured during the period (Coutinho, 1999).

Additionally, as explained by Frank et al. (1975), from 1953 to 1960, most of South
Korea's imports were financed by foreign aid grants from the United Nations Korea
Reconstruction Agency (UNKRA) and the United States bilateral assistance programme. Both
sources of foreign aid were used to import food and essential industrial raw materials as well
as capital goods. Between 1954 and 1960, foreign assistance, excluding donations by foreign
voluntary organisations, financed more than 70 percent of total imports. Furthermore, about
74 percent of South Korean investment was financed by foreign aid from 1953 to 1960. From
1953 to 1960, GDP grew on average 4.37% per annum and the only bad year was 1956 with
0.48% of GDP growth. However, this rapid economic growth also resulted in a surge of
inflation. The consumer price index (CPI) increased on average 40.8% per annum between
1953 and 1957, reaching its highest point in 1956 when the inflation rate peaked to 68%21.
Therefore, concerned about inflation, both the South Korean Government and the Office of
the Economic Coordinator (OEC)22 established a plan to control the rampant inflation rate.
After the implementation of the programme in 1957, the annual rate of domestic inflation
declined sharply.

In 1960, the lack of political support and a wave of popular uprisings led by students
culminated in the resignation of President Rhee. After a year of political instability, in May
1961, a military coup overthrew the Chang Myon government that had come to power
following the student revolution. Park Chung Hee, presided over South Korea from 1961 until
his assassination in 1979. During this period, General Park’s administration resulted in an
impressive economic growth in parallel to a dynamic process of industrialisation through
successive five-year plans. The remarkable characteristic throughout this process was a
coordinated state planning associated with a sequence of clear objectives that resulted in a
substantial increase in the economy's investment rate. The investment rate increased from

21
Source: OECD statistics database. The national reference year for the CPI index is 2010.
The US government established the Office of the Economic Coordinator under the UN Command in Korea to
22

coordinate between the US and Korean governments and other aid agencies (Kim & Kim, 2014).

12
11.70% in 1961 to 39.00% in 1979, and the GDP grew in average almost uninterruptedly
10.01% per annum23.Additionally, this period was marked by a considerable shift towards the
adoption of the strategy of export promotion.

In the beginning of the 1960s, the South Korean industrial structure was still incipient
and poorly diversified. Moreover, it was based essentially on the production of non-durable
products. In this way, to overcome the problem of foreign exchange shortage and US
dependence, General Park launched a programme of investments (first five-year plan, from
1962 to 1967) to expand the manufacturing industry with strong incentives for exports. The
strategy was based on taking advantage of the alliance with the US government to penetrate
the large North American market. The textile and clothing sector led this first export effort,
complemented by other light industries. Therefore, a series of policy reform programs were
introduced. One of the first acts of the government of Park Chung Hee was to nationalise all
commercial banks and establish many state-owned specialised banks24.With this control over
finance, the government could closely manage and monitor progress of industrial investment,
all development projects, and export performance (Amsden, 1989). Moreover, seeking to
improve competitiveness, the currency was devalued and a unitary floating exchange rate was
adopted (Seong, 2001). Tax subsidies were also widely implemented (indirect taxes
exemption, income tax reductions, tax premiums linked to performance targets, drawback,
etc), estimating its volume as equivalent to 10% of exports in the period (Coutinho, 1999).

The second five-year plan (1967-1971) came to reinforce the Government’s

commitment with the export-oriented growth strategy. Exports as share of GDP increased
continuously from 11.02% in 1967 to 14.16% in 197125. It is important to highlight that,
although export promotion was the main aim of South Korean development policy,
investments in infrastructure and the domestic market also received attention during the
period. As the industrialisation process progressed, the need for a structured heavy industrial
base to provide intermediate inputs domestically became increasingly evident. For instance,
the Korean government created the national steel company, POSCO, in order to foster the
development of a national industry. Therefore the industrial policy advanced to giving the
necessary support for the development of industries such as chemicals, machinery, and
iron/steel. Thus, as explained by Amsden (1989), a central characteristic of the South Korean

Source: Bank of Korea, Economic Statistics System.

23

Although pressures to liberalise in the 1980 led the government to privatise commercial banks, the South
24

Korean government maintained its control over commercial banking system (Amsden, 1989).
Source: Bank of Korea, Economic Statistics System.
25

13
development relied on the combination of strategies to promote exports and the ongoing
process of ISI.

At the beginning of the 1970s, President Park announced the third five-year plan
(1972-1976) for the transition to a heavy and chemical industrialisation. Industries receiving
particular attention included iron/steel, nonferrous metals and petrochemicals. Additionally,
this plan sought to provide the basis for shipbuilding, automobiles, machinery and equipments
industries. The programme was supported by a broad range of policy instruments. In 1973, the
South Korean government established the National Investment Fund (NIF) to supply funds to
support the heavy and chemical industrialisation, as well as to help increase exports, through
low-cost financing. Furthermore, since Korean entrepreneurs' capacities to obtain foreign
capital was very limited due to the low creditworthiness of domestic firms, the government
began to guarantee the reimbursement of all foreign loans, regardless of whether they were
initiated by public or private companies (Seong, 2001). Additionally, to support the export-
oriented growth further, export incentives were expanded. In this way, tax incentives were
deepened and the Export-Import Bank of Korea (Korea Eximbank) was created in 1976 to
finance export operations with favourable interest rates (Coutinho, 1999). Along with these
policies, the government overhauled the education and training systems to promote and secure
engineers and skilled workers into the heavy and chemical industrialisation26.

The fourth five-year (1977-1981) plan strengthened and fostered the development of
industries designed to compete effectively in the world’s industrial export markets. Therefore,
based on efforts undertaken in the previous plan, these major strategic industries comprised
technology and skilled labour-intensive industries such as shipbuilding, automobiles,
electronics, machinery and equipment. In the late 1970s, the measures adopted in the third and
fourth five-year plans resulted in a rapid change in the industrial structure. Under the
developmental perspective, South Korea achieved a substantial increase of the manufacturing
share in the GDP. From 13.17% in 1950 the manufacturing share in the GDP rose to 27.62%
in 1979, particularly due to the massive efforts of the developmental agenda to consolidate the
industrial base comprising light, heavy and chemical industries. In an intra-industrial analysis
both the productive and export structure shifted gradually from labour-intensive sectors to

Aiming to support the heavy and chemical industrialisation, in terms of education policy, “the government also
26

introduced a skills licensing system to encourage every Korean worker to possess at least one skill. In addition,
for each field of engineering the government actively recruited outstanding Korean scientists abroad and
established a modern laboratory where research on the improvement of production technologies was encouraged
in collaboration with industry researchers and university professors” (Seong, 2001, p. 10).

14
capital-intensive ones by the end 1970s. Although costly to establish, from infant industries
these capital-intensive sectors became progressively more competitive in the international
market.

Table 2.2 - South Korean Economic Development Plans and Economic Indicators
Sectoral Composition
Economic GDP Export/ Import/ GFCF/ Primary
Manuf. Services
Development Plan Growth GDP GDP GDP Sector
1st Five-Year Plan
(1962-1966) 8.34 6.70 16.32 16.04 41.68 15.25 40.41

2nd Five-Year Plan

(1967-1971) 11.46 12.65 23.81 25.34 30.45 19.25 46.15

3rd Five-Year Plan

(1972-1976) 10.50 24.81 30.40 27.16 27.43 24.24 44.23

4th Five-Year Plan

7.44 28.53 33.23 34.02 21.52 27.44 44.05
(1977-1981)
Source: Elaborated by the author, using data from The Bank of Korea (BOK) and The World Bank – World
Development Indicators.
Note: GDP = Gross Domestic Product, GFCF = Gross Fixed Capital Formation and Manuf. = Manufacturing.

3. The role of the State and private sector in the industrialisation process

3.1. Creating National Champions: The South Korean Chaebols

In South Korea, a relatively small domestic market size and scarce natural resources
endowments culminated in an outward-oriented industrial policy in order to re-orient
industrial production in favour of exports. In this perspective, the export orientation was an
inevitable strategy to promote economic development given that on one hand the domestic
market was insufficient, particularly for sectors that exhibit increasing returns to scale, and on
the other hand extractive industries were not internationally competitive to generate foreign
exchange. Therefore, the production and exports of manufactured goods sought to overcome
the lack of foreign exchange to support the industrial development which usually requires
imports of capital goods, components and raw materials not produced domestically. Thus,
taking advantage of its special political status with the United States government, South
Korea focused on the large US market as its main export target (Coutinho, 2000)27.

See also Amsden (1989) and Zysman & Doherty (1995).

27

15
 Over the decades, South Korea sought to plan and prepare its manufacturing industry
for exports, taking into account the structure of the economy and opportunities in world trade.
This trajectory also represented an industrial upgrading strategy from 1950s to 1980s. Thus,
during the 1950s and 1960s, the industrial policy focused on light manufacturing
characterised by unskilled-labour-intensive sectors, then in 1970s shifted to sectors marked by
skilled labour and economies of scale, i.e. particularly heavy and chemical industries. Finally,
in the 1980s, dynamic sectors with high technological content and specialised labour became
part of the industrial structure. In short, South Korea directed their efforts to constitute a
dynamic competitive advantage rather than by their static comparative advantage in cheap and
unskilled labour.

Another important characteristic of the South Korean development was the

tight control over the FDI inflows in the 1950s and 1960s. Therefore, the South Korean
government sought to develop privileged national economic groups in order to propel the
process of industrial growth. The large diversified corporate conglomerates – the so called
Chaebols – were structured over a robust state-controlled financial sector and closely
resembled the Japanese zaibatsu (family-owned conglomerate), which is different from the
current Japanese corporate ‘families’ centred on a bank, namely keiretsu (Chang, 2003). The
Chaebols were largely controlled by their founding families, centralised in ownership,
generally formed by subsidiaries to produce components for exports and heavily dependent on
government loans and loan guarantees in their early years.

Articulated through trading companies, these Korean conglomerates were very

effective tools for the exploration and development of foreign markets along the
industrialization process. Initially, the Chaebols exported traditional manufactured products,
and subsequently as outsourced suppliers began to export parts and components of complex
products. Later, the Chaebols focused on exports of consumer and capital goods, to assume
the position of world leaders in several markets. Recently, these South Korean conglomerates
internationalised their production via direct investments abroad. The following Table presents
the ten largest Chaebol groups from the late 1950s to 2000.

16
Table 2.3 – The 10 largest Chaebol groups in South Korea from late 1950s to 2000
Rank Late 1950s Mid-1960's 1974 1983 1990 1995 2000
1 Samsung Samsung Samsung Hyundai Hyundai Hyundai Hyundai
2 Samho Samho LG Samsung Daewoo Samsung Samsung
3 Gaepung LG Hyundai Daewoo Samsung Daewoo LG
4 Daehan Daehan Hanjin LG LG LG SK
5 LG Gaepung Ssangyong Ssangyong Ssangyong SK Hanjin
6 Tongyang Samyang SK SK Hanjin Ssangyong Lotte
7 Keukdong Ssangyong Hanhwa Hanhwa SK Hanjin Daewoo
Hankook
8 Hwashin Daenong Hanjin Hanhwa Kia Kumho
Glass
Dong-Ah
9 Donglip Panbon Kukje Daelim Hanhwa Hanhwa
Const.
HanilSyn.
10 Taechang Tongyang Daelim Lotte Lotte Ssangyong
Textile
Source: Lim (2010, p. 41).

Several studies pointed out that the establishment and expansion of Chaebol
conglomerates were inspired, directed and supported by the state (Amsden, 1989; Wade,
1992; Chang 1993). Although many measures were implemented to promote South Korean
industrial development, such as devaluation of the domestic currency and restrictions on
foreign investment28, the expansion of South Korean conglomerates relied on reinvestment of
profits and domestic finance, both public and private. The government directed large volumes
of credit to Chaebols through banking institutions, such as The Korean Development Bank,
The Korea Long-Term Credit Bank and The Korea Export-Import Bank, which were directly
or indirectly controlled by the state and provided a predominant share of investment capital in
industry29. As a matter of fact, credit was channelled by the state into specific sectors through
numerous policies and institutions to enhance economic performance and encourage the
formation of export driver clusters. Complementarily, the expansion of South Korean
conglomerates depended on foreign loans (about 20 times the size of FDI), half of which were
public.

Furthermore, in this process, a remarkable characteristic of the South Korean industrial

policy over other developing countries, particularly those in Latin America, relates to the role
of the state to discipline, penalise and reward big business according to their performance. In

As stated by Laplane et al. (2013) and, until 1980, an essential characteristic of the economy was restrictions
28

on foreign direct investment inflows, relaxed only in cases of new technologies and managerial expertise
transfer. According to Leung-Chuen (2001), from 1965 to 1985, foreign direct investment was less than 2% of
gross capital formation.
These specialised banks received funds partly from the government, from private deposits and by issuing
29

bonds in international financial markets.

17
other words, differently from Latin America, incentives and resources to guide private sector
activities were result-oriented, i.e. contingent upon performance. As highlighted by Amsden
(1989), in cases of underperforming, badly managed or bankrupt firms, the state refused to
bail them out and allowed better managed ones to acquire them. In addition to important
measures mentioned before, the state awarded good performers with licenses in other
industries, leading to further diversification. Moreover, the state propelled high-risk infant
industries, rewarding entrants with licenses in more lucrative sectors. Therefore, Kim (1993)
pointed out that this development strategy not only resulted in rapid economic growth and
productive diversification of the South Korean industry, but also affected market
concentration. Thus, in the late 1970s, 93% of all commodities and 62% of all shipments were
produced in monopolistic, duopolistic or oligopolistic market conditions, under which the
three largest producers dominated more than 60% market share30.

3.2. Contrasting developmental patterns

In contrast to South Korea, Brazil has always been recognised internationally for its
large domestic market. Therefore, with an inward orientation, from the 1950s to the end of the
1970s, Brazil achieved high rates of growth through effective industrial policies that
succeeded in a strong industrialisation process, especially in emerging sectors of the national
economy31. This strategy was sustained by the tripod of transnational companies (TNCs),
state-owned enterprises and private domestic firms. During, for instance, the Brazilian
Miracle, the investment rate grew from 16.20% of GDP in 1967 to 20.37% in 1973 and a
large expansion of GDP marked the economy. In this process, the manufacturing share in
GDP reached its historical peak of 23% in 1973.

In this process a strong pro-cyclical movement of investments by state-owned

enterprises (SOEs) marked the pattern of economic growth. Between 1966 and 1973, SOE
investments increased about 19% each year32. The military government had an active
industrial policy and created SOEs with the explicit purpose of developing new industries
essentially to produce basic industrial inputs and to expand the country’s infrastructure. In the

30
At that time this monopolistic pattern was a central characteristic in the South Korean economy. In Taiwan,
for instance, the economy was mostly based on private small and medium enterprises (which had very limited
and overall unsophisticated access to credit) and large state-owned firms. In comparison to Latin American
countries this market concentration did led to the development of rentier capitalism.
See also Furtado (1959), Tavares (1972) and Serra (1982).
31

Data calculated using constant domestic prices. For more details, see Trebat (1983).
32

18
Brazilian developmental agenda, state-owned enterprises were considered a “shortcut to
industrialization—an expediency forced upon policymakers by the absence of a well-financed
domestic private sector and by Brazil’s reluctance to allow transnational corporations into
certain” sectors such as infrastructure (Trebat, 1983, p. 116). Additionally, it was in this
period that the military government (1964-1985) promoted the highest expansion of SOEs.
Figure 2.1 shows the number of SOEs by their year of creation.

Figure 2.1 – Number of state-owned enterprises created in each year (1950-1990)

25
Brazilian
Miracle
20

15

10

0
1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990
Source: Musacchio & Lazzarini (2014)

In the developmental era, Brazil – and Latin America as a whole – also sought to
deepen its industrialisation by opening the economy to a massive FDI inflow from the United
States, Western Europe, and eventually Japan for the production of manufactured goods33.
During Kubitscheck’s government there were, for example, policies that aimed to combine
foreign investments in the most dynamic segments of the manufacturing sector (e.g.
automobile) with national raw material suppliers. Even in the face of Brazilian trade
protectionism, TNCs established industrial plants due the promising large domestic market to
explore. In this way, foreign investments were strongly pro-cyclical and associated with
opportunities opened by the industrialisation process particularly during Kubitschek’s
government, the Brazilian economic miracle, and also in the final stages of the industrial

Whereas foreign investors in Latin America traditionally had concentrated on export-oriented projects in
33

mining, oil, and agriculture, post-war FDI emphasised import-substituting investments in advanced
manufacturing industries like automobiles, chemicals, machinery, and pharmaceuticals whose output was
destined primarily for the relatively large domestic markets in Latin America (Gereffi, 1989).

19
structure composition by the time of the Second National Development Plan (II PND) –
during the General Geisel’s Government.

However, it is important to note that the Brazilian pattern of industrial development

generated a productive imbalance in favour of TNCs. Despite some successful cases in the
manufacturing industry, such as Embraer in the aircraft industry, the industrial policy in
Brazil did not foster the creation of nationally-controlled industries as in South Korea.
Moreover, the industrial bases were built on imported ready-made technologies instead of
ones domestically developed through a gradual process of absorption, adaptation and
innovation. Consequently, the economy became gradually more dependent of transnational
companies and state-owned enterprises. During the late 1970s, TNCs were responsible for one
third of industrial production. Moreover, more than one half of the production was
concentrated in specific sectors such as electrical equipment, transport equipment,
pharmaceutical and chemical products. In terms of categories, TNCs had a very significant
share in the production of durable consumer goods and capital goods, but a smaller presence
in intermediate goods and consumer durables. As with the South Korean Chaebols, these
enterprises operated with a high market concentration wherein the 100 largest transnational
companies represented two-thirds of total production in Brazil (Gonçalves, 1996).

Another factor that differentiates Brazil from South Korea is the country's relationship
with banks. As mentioned before, the South Korean state facilitated the accumulation of
capital through public banks (socialising banking risks and controlled margins) that provided
means to business groups to continually increase their debt levels (with long-term financing
and low interest rates) in order to successively undertake ambitious investment projects in
consonance with the five-year development plans. In contrast, in Brazil, banks were never
nationalised and the private banking system was relatively distant to the industrialisation
process, limited to short-term financing for working capital without offering long-term and
relevant credits for large investments. Therefore, it was up to the public banking, i.e. BNDES
and Banco do Brasil (BB), to provide long-term financing to the development of the national
industry. In the case of transnational companies (and large state-owned enterprises),
additional resources of long-term financing were obtained through external loans and
financial resources provided by parent company (Coutinho, 1999).

20
 4. External Debt and Exogenous Shocks

In spite of different trends regarding the interaction with the external market, in terms
of productive structure, both Brazil and South Korea achieved the phase of heavy
industrialisation. However, during the 1970s, the massive effort to climb the ladder of the
world production in a turbulent economic environment profoundly affected the public
accounts. In both Brazil and South Korea, although in different proportions, given the lack of
foreign exchange, the military government had gradually accumulated external debts with
international private banks to finance the current account deficit and maintain the booming
economic growth. This excessive external financing increased economic vulnerability and
exposed these countries to external shocks. However, South Korea was less affected, as its
path of “self-reliance” and import substitution industrialisation relatively made it less
insolvent in terms of external debt-exports ratio, allowing a leeway in its economy (Maddison,
1985; Singh, 1985).

The two oil price shocks in 1973 and 1979, and the Volcker interest rate hikes in 1979
had huge deleterious effects in both economies. The former affected the trade balance of oil
dependent developing countries while the latter triggered the surge of international interest
rates that increased the debt burden of emerging countries. For instance, the Brazilian external
debt in real dollars rose sharply from US$ 14.8 billion in 1973 to US$ 55.8 billion in 197934.
At the same time, the net current account deficit increased from US$ 2.0 billion (2.48% of the
GDP) to nearly US$ 11.0 billion (4.79% of the GDP)35. To make matters worse, Brazil's
inflation rate peaked dramatically to 77.25% in 197936. In the case of South Korea, adverse
consequences of the economic environment were similar, although of a different magnitude.
The external debt in real dollars increased from US$ 4.3 billion in 1973 to U$S 20.3 billion in
1979. Moreover, since South Korea was dependent on imported oil to foster the development
of petrochemicals industries, the increase of oil prices affected negatively not only the
inflation that reached 28.7% in 1980, but also the industrial productive capacity.
Consequently, in 1980, the investment rate in GDP dropped 3.40 percentage points and the
country showed a negative economic growth of 1.70%.

34
Source: Ipeadata.
35
Source: Brazilian Central Bank.
36
Source: Ipeadata.

21
Figure 2.2 – External Debt, total (% GDP) and Total external debt/exports (ratio), 1961
- 2013
External Debt, total (% GDP)

Brazil South Korea

60 60

50 50

40 40

30 30

20 20

10 10

0 0
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013

1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013
Total external debt/exports (ratio)
Brazil South Korea
5 5
4,5 4,5
4 4
3,5 3,5
3 3
2,5 2,5
2 2
1,5 1,5
1 1
0,5 0,5
0 0
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013

1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013

Source: Elaborated by the author, using data from The Bank of Korea (BOK), Collins & Park (1989), World
Bank, Brazilian Central Bank and OECD.

The nail in the coffin of such macroeconomic imbalance was Mexico's default in 1982
that culminated in an abrupt credit crunch for developing countries in the second half of that
year. In this context, a recessive economic environment plagued the economies with high
external debt. This problem associated with protectionist policies implemented by developed
countries during the 1980s complicated still further the economic environment for emerging
economies. Additionally, a strong economic integration took place between OECD economies
under the aegis of financial globalisation. It led to a heavy process of international mergers
and acquisitions associated with high direct investment flows by large companies from

22
industrialised nations. In this way, the rise of regional trading blocs and the intensification of
intra-industry and intra-firm trade marked the period. In short, the process of greater
interdependence and integration that took place in the 1980s was concentrated within the
OECD and a handful of eastern Asian countries, including South Korea (Coutinho, 2000).

The restrictive access to international finance and foreign-exchange constraints began

to obstruct output growth, investment and fiscal revenues. Indeed, Latin American countries
were derailed by exogenous shocks mainly because of their high external debt rather than
their closed trade regimes (Hughes & Singh, 1991). Moreover, in a strategy of development
based on deficit-financing to keep up growth impetus, the liquidity contraction triggered a
fiscal and financial fragility of the state that culminated in a deep disarticulation of the state to
provide active policies for national industry (Carneiro, 2002; Belluzzo & Almeida, 2002).
Furthermore, the overall scenario of uncertainty marked by the threat of hyperinflation and
disarticulation of the state blocked the private sector from engendering economic recovery.
Unlike South Korea, due to a strategy based on transnational companies and state-owned
enterprises, the domestic business sector was unable to centre itself on large private groups
capable of competing internationally (Coutinho, 2000). The glorious decades of the Brazilian
developmental era, marked by the highest levels of manufacturing share in GDP and
investment rates, ended with one of the most radical policy shifts in the history of developing
economies. It moved away from its state-led ISI policy into a massive process of economic
‘liberalisation’ and de-regulation (Palma, 2005).

South Korea, in contrast, adopted a more pragmatic and progressive neoliberal agenda.
Given the assassination of General Park Chung Hee in 1979 and the debt crisis, in early
1980s, the South Korean economy went through a period of recession and restructuring.
However, unlike Brazil, in a much more constructive way, the country implemented measures
to overcome the crisis and strengthen the ambitious growth strategy. Therefore, after this
turbulent period, under the government of General Chun Doo Hwan (1980–1987), the
economy achieved a rapid recovery. In this process the decisive alliance between the South
Korean government and the Japanese economic system was decisive. On the financial side, as
explained by Canuto (1994) and Coutinho (2000), the Japanese banks had a decisive role in
face of the US credit crunch giving the necessary means to promote a new dynamic decade.
As described by Iqbal (1988), the US net loans by large US banks declined from US$ 2.3
billion in 1981 to US$ 0.7 billion in 1983, creating a slack taken up by Japanese banks and by
alternative instruments such as bonds and notes. From 1981, bonds and notes rose from less

23
than 2% of annual gross medium- and long-term borrowing to around 23% by 1984 (ibid,
147). On the productive side, the country linked its leading industrial sectors to the South
Korean production system, enabling the country advance in technological learning and
manufacturing upgrading37.

Throughout the 1980s the Korean government introduced additional measures to

enhance industrialisation policies and strengthen the economy’s industrial pillars. The state
did not expose domestic producers to international competition in an ideological
fundamentalist neoliberal way, but instead directed and coordinated investment decisions
(‘disciplining’ the capitalist élite) to achieve levels of technology and productive structure to
make them able to compete in external markets. In face of the international economic
recovery led by the American growth after 198338, South Korea and other Asian NICs
invested massively in their manufacturing goods exports without a harmful counterpart on
credit levels and inflation as in Latin America. Moreover, the Korean developmental state
guided the capital accumulation process in order to overcome the obstacles to peripheral
industrialisation.

5. Technological Learning and Industrial Development

During the 1980s, while Brazil struggled in the ‘lost decade’, the South Korean
government seeking to embark on a new cycle of expansion encouraged the country’s large
Chaebols to establish partnerships with Japanese leading companies. As a bargaining chip,
South Korea offered to Japan its capacity to mobilise resources and qualified working force to
produce components and/or assemble electronic products under the original equipment
manufacturer (OEM) agreement. At the same time, Korean enterprises started to acquire
complete production units from Japan to accelerate the learning process mainly in the
electronics sector (consumer goods, telecommunications, information technology (IT),
memory semiconductors and capital goods). Moreover, Japanese engineers were hired to
transfer manufacturing know-how, essentially new knowledge and techniques, to their South
Korean colleagues (Coutinho, 1999).

In this regard, another special peculiarity was the emergence of salaried managers responsible for exploiting
37

the borrowed technology and focus on shop floor management to optimise technology transfer (Amsden, 1989).
From 1983 to 1989 the US grew on average 4.43%. In this period, the most expressive GDP growth was in
38

1984 when the country registered an expansion of 7.26%. GDP growth rate at constant dollars prices. Source:
The World Bank.

24
 Despite the neoliberal rhetoric at that time, the state continued determining the
direction and priorities of the development process39. Therefore, the fifth five-year plan
(1982–1986) turned to the development of high-tech industries, particularly, IT and electronic
industries which received essential support from the state. A strong thrust was given to
electronics, including production of memory chips used in computers, consumer goods, and
telecommunications products. Inspired by the Japanese industrial policy, the Government
established Deliberation Councils in order to act as a state instrument to identify and target
industrial opportunities, evaluate process of merging and acquisitions, and approve financing
suggestions proposed by lending institutions (Chang, 1994). Furthermore, large Chaebols that
were already present in the electronic consumer goods sector since the 1970s, such as
Samsung and Lucky Goldstar, received further incentives to undertake new projects.
Additionally, from the mid-1980s, in an effort to lessen the South Korean trade deficit with
Japan, the government strengthened the incentive structure for the automobile industry and
capital goods industry sector 40(Coutinho, 2000).

Given the long-term planning of the South Korean economic policy, the sixth five-
year plan (1987-1991) undertook policies to improve competitiveness combined with
measures to enhance the technological capacity of the production system. As stated by Chang
(1993), the constant upgrading of the industrial structure based on the development of local
technological capabilities was seen by South Korean policy-makers as the most concrete way
of achieving sustained growth and structural change. In this sense, technology acquisition and
licensing contracts were encouraged. Moreover, R&D incentives were expanded in an effort
to promote the private sector’s R&D investment. Furthermore, tax credits for corporate
expenditures on human resources development were also implemented (Lee, 2000). Under
clear guidelines, the government sought to encourage the private sector to take initiatives in
order to prepare South Korea’s industrial base to reach the world's technological frontier. In a
Schumpeterian perspective, the state provided the necessary means to constitute a dynamic

As argued by Palma (2004), the economic reforms implemented in East Asia were less fundamentalist when
39

compared to Latin America due the distinct economic level of economic fragility during the debt crisis and
external political pressure from the US government.
40
In terms of trade policy, during the 1980s, the large US market was the main focus of the South Korean export
programme. For this purpose, the government sought to avoid its currency’s overvaluation against the dollar.
Moreover, the South Korean government took advantage of its special political relationship with US and
expanded the exports. The growth of the US economy pulled Korea’s exports generating a substantial
improvement in the trade balance. The surplus of dollars helped to balance the South Korean deficit with Japan.

25
national innovation system (NIS) for the development and spread of new technologies41. The
following Table reveals that these efforts resulted in a drastic jump in terms of innovation
activities, principally from 1980 to 1985.

Table 2.4 - Major indicators of innovation activities

1970 1975 1980 1985 1990 1995
Total R&D/GNP 0.39 0.44 0.58 1.56 1.88 2.71
Private R&D/GNP 0.09 0.15 0.21 1.17 1.52 2.20
Governamental R&D/GNP 0.30 0.29 0.37 0.39 0.36 0.51
Number of Researchers 5,628 10,275 18,434 41,473 70,503 128,315
R&D expediture/researcher
(Thousand Won) 1,874 4,152 15,325 27,853 49,514 73,574
Researcher/10,000 popular 1.80 2.90 4.80 10.10 16.40 28.60
Number of corporate R&D Labs 0 12 54 183 966 2,270
Applied Patents 1,846 2,914 5,070 10,587 25,820 78,499
Utility Models 6,617 7,290 8,558 18,548 22,654 59,866
Industrial Design 4,522 6,707 10,075 18,949 18,769 29,978
Trademark 5,124 9,476 13,558 26,069 46,826 71,852
Source: Lee (2000).

In this strategy, the alliance with the Japanese economy was decisive. From Japan’s
point of view, the outsourcing of certain products under OEM agreements to countries within
the Asian axis represented a crucial strategy. It helped to maintain the Japanese
competitive edge in export markets, especially after the yen overvaluation due to the Plaza
accord in the second half of the 1980s. In the South Korean counterpart it was a great
opportunity to assimilate the last stages of the productive process and to develop internally its
own technologies. Subsequently, South Korean companies started to develop gradually their
Own Brand Manufacture (OBM), replacing the OEM strategy. For example, while supplying
Japan with intermediary inputs such as petrochemical products, paper, steel products, and
non-ferrous metals, South Korea acquired capital goods, especially machinery, from leading
Japanese companies and redeveloped them according to its own industrial needs. As a
developing economy, South Korea took advantage of the technological gap with Japan to
successfully absorb, assimilate and adapt cutting edge process and products and consequently
boost the economy in terms of productivity and GDP growth.

In short, South Korea’s partnership with Japan was fundamental not only for the
recovery of the economy from the debt crisis, but also provided the means to move ahead
enhancing the industrial structure toward the new paradigm of microelectronics42. Through a

For a detailed analysis on the dynamic involving technological dynamics, innovation and economic growth,
41

see the first chapter of this thesis.

For more details about technological revolutions, see Perez (2002).
42

26
strategic export dynamism and industrialisation, South Korean policy makers sought to
maximise the benefits of FDI inflows and technology that they could extract from
transnational corporations, to ensure efforts to strengthen domestic capacity (UNCTAD,
2002). According to Amsden (2009), the development of technological capabilities was the
most important factor of differentiation between South Korean developmental trajectory and
the Latin America one. In Latin America, the limited success attained by scientific-
technological development occurred due to the absence of technological learning policies
linked to the expansion of the industrial base and exports promotion. As Fajnzylber (1983)
pointed out, ISI was marked by a ‘frivolous protectionism’, in the sense that it did not protect
the domestic industry with the perspective to assimilate and develop cutting-edge
technological industries and strengthen competitiveness43.

This situation got worse in face of the external debt crisis of the 1980s that did not
allow Brazil to keep up with the new technologies and the country’s manufacturing industry
became delayed compared to other latecomer economies. In contrast, the South Korean state
played a central role coordinating the private sector (“disciplining” the capitalist élite),
establishing priorities and managing instruments and incentives to establish a dynamic
industrialisation and rapid technological progress. During the debt crisis, unlike Brazil, the
economic policy comprised a strategy to enhance the manufacturing technological upgrading.
Therefore, through a close relationship with Japan in terms of commercial, technological and
financial agreements, the South Korean state strengthened the Chaebols in order to build a
competitive electronic complex to become a world leader in terms of brands, technologies
endogenously created and large companies with a worldwide presence (Coutinho, 1999).

In broad terms, it is important to emphasise that this pattern of technological assimilation was a common trend
43

in other Asian countries. For example, China has engaged itself in the transformations of global productive
structures through a clear orientation of its national development policy aiming not only to compete in various
markets, but also to absorb and develop capabilities from the technology transfer of multinational companies
operating in the country, in order to create competitive national groups (Nolan, 2001). The Chinese dynamism
focused not only on producing cheap manufacturing goods but also on the huge market for the world production
of machinery and equipment with high-level technology. The high-performing East Asian countries recognised
the imperative of joining the world economy through the promotion of labour-intensive manufactured exports,
but clearly did not limit its expansion in this statement. Therefore Asian countries successfully expanded the
manufacturing sector in a process of assimilation, incorporation and diffusion of new products and techniques,
with a consequent increase in the production and productivity which changed the underdeveloped position in the
global GDP share. In this way, it is no mere coincidence that Asia constituted much more technology intensive
industry than Latin America.

27
 6. The “fundamentalist” neoliberal shock

The abrupt and very painful internal/external macroeconomic adjustment in Brazil –

much larger than suffered by South Korea – opened the way for a radical and widespread
change in the economic paradigm of the region and the emergence of the neoliberal agenda44
(Palma, 2003). Both exogenously and endogenously, the neoliberal view spread through the
perception that severe macroeconomic imbalance and the institutional framework of a model
based on ISI did not promote internalisation of the changes observed in the external
environment. Authors such as Franco (1998), Bacha & Bonelli (2005), Krueger (1985) and
Balassa (1988) attributed to the ISI model and the strategy based on the infant industry
protection the relative prices distortions which, in turn, resulted in low rates of growth,
investment and productivity. According to the neoliberal camp, ISI led to an inefficient
allocation of resources and impacted negatively the level of competitiveness of the economy.
Through this interpretation the state-led industrialisation based in the prevailing economic
policy started to be harshly questioned by a new view in the literature known as the
"Washington Consensus" or, in the words of Franco (1998), "the new economic model"45.

Therefore, the period which started in the 1980s with neoliberal reforms contrasts with
the preceding decades when economic growth was mainly based on industrial diversification,
with the manufacturing industry playing an important role in the development strategy46.
Since the 1980s, the adoption of the neoliberal “fundamentalist” agenda supported by the
World Bank and the International Monetary Fund (IMF) has exposed not only Brazil, but all
of the Latin American economies to a doubtful development strategy based on the free-market
doctrine47. In the face of the neoliberal ascendancy, industrial policies and foreign trade
interventions were gradually denied. In this sense, policies in favour of more trade and
financial openness were implemented in pursuit of a reduced role of the state in the economy.
These guidelines were strongly marked by an extreme move towards trade and financial
liberalisation, market deregulation, attraction of new flows of FDI, privatisation of state-
owned enterprises, and withdrawal of selective industrial policies.

Palma (2000, p. 6), states that the rise of the fundamentalist neoliberal thinking in Latin America was mostly a
44

consequence of the substantial economic weaknesses of these economies. Likewise in the 1930s, “an external
shock that found Latin America in an extremely vulnerable position not only brought about the need for a very
painful internal and external macroeconomic adjustment, but also laid the foundations for a radical and
widespread change in economic thinking”.
See also Kuczynski & Williamson (2003).
45

See also Hughes & Singh (1991).

46

See, for instance, Frenkel (1992).

47

28
 The implementation of economic reforms in Brazil began in the late 1980s, after the
onset of reforms in other Latin American countries such as Argentina, Mexico and Chile
(Abreu, 2003). The main objective of the reforms was to dismount the ISI apparatus and
establish a market-oriented model. In other words, neoliberalism emerged in Brazil to reverse
almost every aspect of the growth strategy previously followed by the country. Thus, it was
taken for granted that the recovery of economic growth would be strictly connected to the
reduction of state intervention. From this perspective, “market deregulation and trade
liberalisation would not only stimulate tradable production but would also significantly
increase private investment, while higher interest rates would boost domestic saving and
reverse capital flight” (Palma, 2005, p.18). The recovery of private investments would
ultimately lead to an increase in the investment-to-GDP ratio, interrupting the downward
trend observed in the 1980s.

The restructuring of production and trade would take an essentially positive character
resulting in significant allocative and in technical efficiency as a result of increased scale of
production. Moreover, it would contribute to the resumption of the economic growth
trajectory in a more specialised production structure in line with the country's comparative
advantages, allowing the shift of emphasis from domestic to foreign markets as a driver of
economic growth (Moreira, 1999). Moreover, the neoliberal view interpreted the weakness of
the domestic industry as a consequence of the protected market and vertical integration of the
productive system, which in turn, would block access to high-quality inputs, impeding
domestic industry from adopting large-scale production methods. The industrial policy at that
time turned to the adoption of horizontal policies vis-à-vis vertical ones. Furthermore, the
exportability of the economy would increase in face of the specialisation in sectors in which
the country has comparative advantages, thus reinforcing the necessity to promote the
development through the market mechanisms. Additionally, it was hoped to have the support
of foreign capital to head a new investment cycle with greater specialisation, modernisation,
productivity, technology transfer and international integration.

These propositions have turned to a structural change in the pattern of growth based on
production diversification supported by ISI, with a strong state directing. The model focused
on the productive capacity expansion with the protection of the domestic industry was
abandoned in favour of policies for market openness. The domestic industry was exposed to
international competition without any sectoral selectivity. It was expected of the Brazilian
industrial sector to produce in terms of price and quality compatible with the world market,

29
enhancing the competitiveness through market mechanisms. The process should not be driven
by demand anymore, particularly by public investment, but based on changes on the supply
side and grounded on competition and technological innovation (Barros & Goldstein, 1997).

Although lacking a pragmatic interpretation, the neoliberal view supported by the

World Bank and IMF gradually promulgated the idea that the adoption of the neoliberal
agenda would replace positively outdated elements of the “old economic model”. These
interpretations changed the way that economists and policy makers understood the problems
faced by peripheral countries and their possible solutions48. Even though distant from a sense
of reality, these studies suggested that developing countries which adopted a market led
strategy, i.e. liberalisations and great exposure to the free-market forces, achieved high levels
of economic growth.

Therefore, the “Structuralist-Kaldorian” way to visualise the problems in the

peripheral countries was left out49. The Kaldorian links running from growth to productivity,
related with the presence of underutilised resources during the growth process, have also been
ignored, as well as the links between productivity convergence, domestic production linkages
and external balances (Ocampo & Parra, 2006). Policies designed to promote the
manufacturing sector lost strength during this period and were virtually abandoned as a result
of the then-prevailing maxim that “the best industrial policy is no industrial policy” (Stallings
& Peres, 2000). As pointed out by Palma (2013, p. 3), “what characterises Brazil’s (and the
rest of Latin America’s) economic reforms was an attitude of ‘throwing in the towel’ vis-à-vis
the previous state-led import substituting industrialisation strategy (ISI)”50. In this context, the
rentier characteristic of the country’s capitalist élite was reinforced undermining any
perspective of sustained economic growth51.

In contrast, as indicated in the vast literature on East Asian industrialisation, the

strategy followed by South Korea (and most East Asian countries) has been remarkably

See Williamson (1989).

48

See, Amsden (2001), Lall (2001) and Palma (2004).

49

According to Palma (2004), Latin America moved to “a standardised environment in which the only issue at
50

stake was who would best (and most faithfully) implement the 'new' model”.
The term ‘rentier’ is applied in a Keynesian perspective. According to Keynes, the rentier preference for
51

liquidity affects negatively the level of productive investment and employment. In this perspective, for example,
the economic dynamic is undermined by rentier forces that operates in a speculative manner and influence the
economic policy for its own interests. For that reason, Keynes advocated for 'the euthanasia of the rentier' and
the creation of a new kind of capitalist culture of cooperation between private and public authorities (Keynes,
1936).

30
different from trade liberalisation, in the traditional (and “fundamentalist’) sense52. In South
Korea, the economic reforms were implemented mainly as a pragmatic mechanism to
strengthen the existing development model (Palma, 2003). It means that, in the same period,
South Korea managed to transform its initial catching-up efforts into a dynamic and
sustainable process of capital expansion and development. Rather than a pure and simple
adherence to neoliberalism, the Asian experience has been characterised by the maintenance
of a strong state control over the socioeconomic transformations and by the pragmatism in the
management of intermediate and instrumental objectives such as the economic
internationalisation and administration of the fiscal and monetary policy (Cunha & Acioly,
2009). In this sense, after the 1980s the history in the global development would was very
different from the previous decades, with all gains of economic growth obtained practically
only by the South Korean economy, or in terms of region – vis-à-vis Latin America – by
developing Asia53.

7. Brazil falling behind and South Korea moving ahead

7.1. Brazil: FDI flows and the loss of industrial dynamism

As aforementioned, after the golden age of the industrialist era, the neoliberal agenda
promulgated by free market prophets in the IMF and World Bank and their faithful apostles –
particularly in Latin America – led to a productive restructuring of the Brazilian economy. In
terms of FDI, the massive inflow in the country was prompted by a dramatic process of
privatisation, especially in the second half of the 1990s. Therefore, the amounts of FDI
directed to the country were much higher than previous decades mainly due to cross-border
mergers and acquisitions (M&A) involving SOEs. Sales of stated-owned enterprises increased
in the second half of the 1990s, peaking in 1998 at the height of the privatisation process, and
remained high in the early 2000s, consolidating the presence of international groups in the
national productive structure54. Moreover, FDI inflows were directed to the consolidation of

See, Ocampo & Parra (2006).

52
53
The booming growth clustered in the 1960s and 1970s were widespread in the developing world during the
“golden age”, tended to disappear in the 1980s, except in East Asia, and became somewhat more common in the
1990s, but at levels far below those of the “golden age” (Ocampo & Parra, 2006).
54
During the National Programme of Desestatisation (Plano Nacional de Desestatização – NPD), the sales
revenue of federal state-owned enterprises since the creation of PND in 1990 until December 2008, totalled U$S
30.8 billion. This amount, plus the amount of debt transferred to the private sector of around $ 9.2 billion,
represented a total result for the NPD in the order of $ 40 billion. With regard to telecommunications, the sales

31
 oligopolistic structures on a global scale, the size of which is evidenced by the amount of
M&A operations. This profile of FDI flows helps us understand why investment flows
remained high even after the Asian crisis in 1997, the Russian crisis of 1998 and even the
Brazilian crisis that resulted in the devaluation of the Real in 1999 (Sarti & Laplane, 2002).
After this period, the data reveals a transformation of the pattern of M&A, i.e. the process was
not restricted to the purchase of state-owned enterprises, and thus a representative amount
M&A operations involved the private sector between 2003 and 2008 (Carneiro, 2002 ).

Figure 2.3 - Brazil: Foreign Direct Investment, 1990-2008

50
45
40
35
30
US$ billions

25
20
15
10
5
0

FDI M&A

Source: Elaborated by the author, using data from Unctad.

FDI in the form of M&A involving state-owned enterprises and the private sector
culminated in an increasing foreign participation in the domestic economy structured on the
existing stock of productive capacity, with the aim of directing the production mainly to the
domestic and the regional markets. Therefore, especially in the second half of the 1990s, there
occurred an intense change in the ownership structure of the companies. However it did not
trigger a notable expansion of the productive capacity, i.e. greenfield investments, and
consequently did not raise the investment rate of the economy. In contrast to previous
decades, when investment in new production plants were the main mechanism to reach new
markets, the FDI during the 1990s turned to acquisitions of Brazilian enterprises as the main
mechanism to access the domestic market.

revenue for the same period was around U$S 29 billion, totalling U$S 31.1 billion when added U$S 2.1 billion
of transferred debts. The overall result of privatisations carried out in Brazil from 1990 to 2008 reached US$
105.8 billion distributed at federal and state levels.

32
 As noted by Laplane et al. (2001), the increased participation of transnational
corporations in the Brazilian productive structure and foreign trade did not result in significant
structural change in favour to the expansion of the manufacturing sector neither in a positive
evolution in terms of international insertion. In addition, Transnational Corporations (TNCs)
began to integrate the new global productive paradigm expressed in the concept of global
value chains. Thus, TNC operations began to be fulfilled in a more fragmented value chain
that is geographically dispersed. In this regime, multinational subsidiaries in Brazil operated
mostly as buyers of products from other parts of the global value chain to meet domestic and
regional markets. In rare exceptions, these subsidiaries followed the role of global suppliers
within this international division of labour (Hiratuka, 2003).

Moreover, it is important to highlight some important changes in the sectoral

composition of FDI flows received by the Brazilian economy after the monetary stabilisation
and intensification of neoliberal reforms. Through the comparison of accumulated stocks of
FDI until 1995 and until 2000, it is possible to see the depth of changes during the period.
Thus, the data shows practically an inversion of the percentage between manufacturing and
services. Furthermore, unlike 1990 and 1995, between 1996 and 2000, services received
63.96% of FDI, while the industry and primary sectors received 33.71% and 2.33%
respectively. These numbers confirm the concentration of FDI flows in non-tradable sectors,
which still require remittance of profits and dividends without generating foreign exchange
through exports. Therefore, the boom in FDI flows occurred mainly in the service sector via
privatisations in telecommunications and electricity, as well as the restructuring of the
financial system. Thus, due to the opening of the economy and the privatisation process, there
was a fall in the share of industry in FDI vis-à-vis sectors related to public services.

From 2001 to 2003, the net inflow of FDI fell to $ 12.9 billion, largely influenced by
uncertainties regarding the new government and the turbulent international context after 2001.
The average share of FDI directed to services declined while that in the primary sector
increased. The former fell to 56.5% and the later grew to 7.3%. The manufacturing sector
increased its share to 36.1%, led mainly by the automotive sector. In 2004, with the new wave
of international liquidity and lower domestic economic instability, the FDI inflow reached
US$ 20.3 billion, with significant share of 26.4% (US$ 5.3 billion) in the food and beverage
industry. The sectoral analysis of FDI inflows indicates that, in spite of the concentration in
services, the primary sector showed a substantial growth impacted by the commodity prices

33
boom. The FDI maintained an increasing rate, reaching US$ 21.5 billion in 2005, US$ 22.2
billion in 2006, US$ 33.7 billion in 2007 and US$ 43.9 billion in 2008.

Table 2.5 - Stocks and inflows of foreign direct investment in Brazil, by sector
Stocks (%) Inflows (%)
Sector 1995* 2000* 2001 2002 2003 2004 2005 2006 2007 2008 2009
Agriculture , livestock and min. 2.22 2.33 7.10 3.40 11.53 5.29 10.20 6.13 14.78 29.61 14.70
Manufacturing 66.93 33.71 33.27 40.23 34.92 52.84 29.75 39.33 36.10 31.93 39.17
Automobile 11.60 6.17 7.37 9.36 7.48 4.20 4.30 1.29 2.59 2.20 7.11
Chemical Products 12.79 5.87 7.35 8.38 7.10 6.73 3.55 5.10 2.23 2.46 3.62
Food and Beverages 6.78 4.48 2.67 9.97 3.17 26.38 9.64 3.33 5.39 5.10 1.78
Eletric Mat. and Communic. Equip. 1.88 2.11 5.54 2.90 2.53 1.31 1.84 1.46 2.38 1.92 2.46
Services 30.85 63.96 59.63 56.37 53.55 41.87 60.05 54.54 49.12 38.46 46.13
Post and telecommunications 0.96 18.21 19.63 22.32 21.77 14.66 8.83 5.47 1.81 2.20 4.82
Electricity, gas and water 0.00 6.91 6.85 8.17 5.03 5.82 7.30 10.49 1.83 2.07 3.19
Financial Intermediation 4.87 11.80 10.09 6.77 4.69 4.64 6.01 13.46 17.35 8.92 8.30
Sales (retail and wholesale) 6.72 9.52 6.87 7.64 6.30 5.89 12.92 6.57 8.21 5.84 9.09
Total (%) 100 100 100 100 100 100 100 100 100 100 100
US$ (Millions) 41,696 103,015 21,042 18,778 12,902 20,265 21,522 22,231 33,705 43,886 30,444
Source: Elaborated by the author, using data from The Brazilian Central Bank.
Note: (*) Stock accumulated.

In short, the strategy adopted by the government to attract FDI flows did not propel the
manufacturing sector or exports in the 1990s due to three main reasons. First, FDI was
directed to non-tradable sectors during the privatisation process, such as public utilities.
Second, a large portion of FDI was in the form of mergers and acquisitions, not expanding the
productive capacity. Third, the logic of investment, even in manufacturing sectors, was
primarily associated with the aim to explore the potential of the domestic market without
policies to promote internal intersectoral linkages. In the 2000s, except in 2004, the FDI flows
were directed to other industries but not effectively channelled to tradable sectors, specifically
manufacturing. Furthermore, during this decade, the FDI focused on the primary sector
essentially due to the global commodities prices boom.

7.2.The loss of manufacturing and productive disarticulation

Although from the neoliberal rise onwards the average annual growth rate of the world
economy fell from 4.67% (1950-1979) to 3.34% (1980-2010), in Brazil it was still more
drastic. The late 1980s and the whole decade of 1990s were marked by neoliberal reforms that
took form practically eliminating quantitative controls, non-tariff barriers to trade55, reducing

55
According to Carneiro (2002), non-tariff barriers to trade, which many saw as the main protectionist
instrument, were completely removed after Annex C (a list of 1,300 products whose imports were forbidden
because similar domestic products were available) was abolished.

34
import tariffs56 and denying public policies focused on promoting growth in strategic sectors
for the country’s industrial development. This environment, combined with currency
appreciation and extremely high interest rates to control inflation resulted in a negative
restructuring of the domestic economy in the second half of the 1990s. During this period, to
face the challenges of the new adverse economic environment, companies began to take strict
adjustment measures to rationalise their production by replacing local inputs with imported
ones57. Therefore, as argued by Belluzzo & Almeida (2002), there was a “shrinking” of
supply chains, which were also affected by “predatory” imports. Thus, industrial companies
began to look for ways to improve their competitiveness by cutting costs, replacing local
products with imported inputs and reducing inter-sectoral linkages still under development
(Rocha, 2011).

In the face of an adverse economic environment to expand the manufacturing sector,

short cycles of demand were met by imports58. In an economic environment marked by
currency overvaluation, as demand expanded, this dynamic was constantly reproduced. From
2002 the commodities boom favoured the economy and it was associated with a better
international context, leading to optimistic expectations about the aggregate demand. In this
context, both the levels of investment and the installed capacity showed a rising trend.
However, due to the productive disarticulation legacy and the strategy of economic
development strongly dependent on the primary sector, the levels of investment to expand the
productive capacity were not sufficient to keep up with demand growth. Moreover, the
massive inflow of capital due to both trade relations with Asian economies and speculative
financial transactions resulted in a strong appreciation of the domestic currency. This process
caused a consequent increase in imports of manufactured goods, which rose by 155% at
constant prices between 2002 and 200859.

During the period of “overrated boom”, not even manufacturing activities associated
with commodity extraction and processing were expanded. Moreover, although still relatively
56
The custom tariffs were reduced based on the country’s structure of comparative advantages. Nominal import
tariffs were reduced by 55.3% between 1990 and 1994, with the maximum tariff not exceeding 40%.
See Rocha (2011), for more information on the imported input coefficients.
57

58
According to the Brazilian Institute for Geography and Statistics (IBGE), the penetration coefficient for
intermediate goods rose from 2.7% in 1990 to 10.5% in 1998. As argued by Laplane & Sarti (2006, p. 276), from
a trade balance perspective, this process “turned the surplus in the trade in manufactured goods registered in the
first half of the decade into a deficit from 1995 on, clearly indicating that it would be difficult to keep the
economy on a growth path. The trade balance was more significantly negative precisely in 1997, when industrial
production was growing at the highest rates, reinforcing the interpretation that the increasing imported contents
of local products were generating an even more pronounced deficit.”
Calculated by the author based on data from FUNCEX (Foreign Trade Study Centre Foundation).
59

35
 diversified, most of the companies operating in Brazil are not closely related to each other and
still very concentrated in low-tech segments, expressed by the predominance of resource-
based companies, basic input suppliers and consumer goods producers (Fleury & Fleury,
2009). The absence of a wide manufacturing industry and dense supply chains has limited
growth in terms of technological progress and productivity, causing an excessive dependence
of exogenous expansions.

Given this aforementioned dynamic, perhaps one of the main results of the
“fundamentalist” process of economic reforms was the undermining of any prospect of rapid
and sustained economic growth. The only achievement of neoliberal policies was to establish
an economic dynamic of successive “stop-and-go” cycles derived from a fragile productive
structure. Therefore, from the 1980s onwards, the country’s growth rate collapse was extreme
both in terms of GDP and manufacturing value added growth. The former sharply declined
from 6.74% to 2.75%, while the latter slumped from 8.41% to 1.90% in the respective period.
In 1980, the share of manufacturing in GDP represented 21.13%, however, in 2010 this
number dropped dramatically to 17.96%. Furthermore, data for the Latin American region
confirmed this trend. During the period of 1950 to 1979 the region grew on average 5.39%,
and from 1980 to 2010 this average rate fell by half, i.e. to 2.73%60.

Figure 2.4 – Brazil: Manufacturing Share in GDP and Value Added by Technology
Intensity (%)
40 100%

90%
35
GDP (1950-79) = 6.74% High Tech
80%
30
GDP (1980-10) = 2.75% 70%
Manuf. Share in GDP

25 60%
22.03 21.83 21.13
19.72
20 18.37 17.89 17.96 50% Medium Tech
40%
15
30%
10
20% Low Tech
5 10%

0 0%
1950 1960 1970 1980 1990 2000 2010 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: Elaborated by the author, using data from The Groningen Growth and Development Centre and
ECLAC-PADI database.
Note: Manufacturing gross value added at constant 2005 national prices (in millions). Classification of
manufacturing industries by technology group based on UNIDO (2013). For details, see appendix 2.3.

See Appendixes 2.1 and 2.2.

60

36
 In contrast, the analysis of the data for South Korea shows a very different
development path. From 1953 to 1979, South Korea registered an average of GDP and
manufacturing value added growth of 8.70% and 9.51% respectively. However, after the
neoliberal reforms, the country did not experience such dramatic loss in terms of economic
dynamism. Although from 1994 onwards the economic reforms implemented in the country
sought to strengthen liberalising policies initiated in the 1980, its nature was totally different
from the huge endeavour seen in Brazil. As pointed out by Palma (2012), economic reforms
in Korea were implemented as pragmatic mechanisms to help lift specific pressing economic
and financial constraints in order to continue and strengthen their existing ambitious
industrialisation strategies. Even during the Asian crisis in 1997, in spite of the re-articulation
between state and private sector, the role of the state was central. To overcome the crisis,
there was a reorganisation of the corporate structure with processes of mergers and
acquisitions gaining momentum. However, it is important to note that in this process the state
played a central whole to stimulate companies to focus on their core activities. Therefore, the
South Korean state remained active either through long-term programmes for the
development of high-tech sectors, or ensuring important long-term funding sources through
public banks.

Figure 2.5 – South Korea: Manufacturing Share in GDP and Value Added by
Technology Intensity (%)
40 100%
GDP (1980-10) = 6.33% 35.24 90%
35
High Tech
30.28 80%
30
70%
Manuf. Share in GDP

25 23.24 60%
GDP (1950-79) = 8.70%
20 50% Medium Tech
17.62
40%
15
30%
10 7.78 20% Low Tech
5 3.34 10%
1.69
0%
0
1953 1960 1970 1980 1990 2000 2010 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: Elaborated by the author, using data from The Groningen Growth and Development Centre and ECLAC
and UNIDO.
Note: Manufacturing Gross value added at constant 2005 national prices (in millions). Classification of
manufacturing industries by technology group based on UNIDO (2013). For details, see appendix 2.3.

37
 As shown by Figure 2.5, along the period of 1980 to 2010, the country showed an
average rate of economic growth of 6.33% and the manufacturing sector grew on average at
2.37%. Despite the noticeable slow down in manufacturing growth rate, the manufacturing
sector sharply expanded reaching 35.24% of the GDP (in 1980 this number was 17.62%). The
manufacturing sector as an engine of economic growth was also a remarkable characteristic of
other Asian economies. From 1980 to 2011, the “first and second-tier” NICs adopted this
strategy of economic growth as a common denominator. For instance, in the first-tier NICs,
the manufacturing sector increased from 22.52% to 23.10% of the GDP. In a similar trend, the
‘second-tier’ NICs grew from 22.62% in 1980 to 29.14% in 201061.

7.3.Labour productivity

From a Kaldorian perspective there is a positive relationship between the rate of

growth of output in manufacturing and the rate of growth of labour productivity in the
economy. Therefore, the graph bellow (Figure 2.6) illustrates that from 1950 to 1980 Brazil
experienced a productivity growth similar to South Korea. Moreover, the data reveals that
from 1950 to 1976, Brazil’s labour productivity level was higher than South Korea’s.
However, after 1980 the trajectories of these two developing economies diverged. On the one
hand, South Korea (despite 1997) maintaining a strong dynamism reducing its annual growth
rate productivity after 1980 only 0.80 %, i.e. a declining from an average of 5.19% (1950-
1979) to 4.39% (1980-2010). On the other hand, Brazil’s average annual productivity growth
rate collapsed to the point of becoming negative until 1993. From 1980 to 2010, despite the
widely reported commodities prices boom from 2002 to 2008, the Brazilian labour
productivity growth rate was more than eight times lower than the South Korean one. During
the same period, Brazil’s average productivity level was more than twice lower than those of
South Korea’s, i.e. US$ 11,760 and US$ 26,997 respectively62.

61
In East Asian countries, the manufacture share in GDP grew at much higher rates than in Brazil (or any other
Latin American country) resulting in significant increase in the share of global GDP. More interesting, perhaps,
is the fact that in most East Asian economies the share of manufacturing sector in the GDP did not suffer the
Latin American slowdown or the reduction like in the developing countries. Furthermore, headed specially by
China, India and ASEAN-4 - Malaysia, Thailand, Indonesia, and the Philippines – the Asian axis more than
doubled its share in the global GDP. The gains were not higher because controversially China has become the
most important participant in many essential markets of these countries and therefore made it harder for them to
abandon the industrialisation pattern based on “sub-contracting” and move forward in the direction of industrial
development common to NICs – Korea, Taiwan, Hong Kong, and Singapore (Palma, 2005).
Labour productivity per person employed in 1990 US$ (converted at Geary Khamis PPPs).
62

38
 In terms of productivity “catching-up” with the US, the graph also shows clearly the
dichotomy between Brazil and South Korea. Until 1980 Brazil was ahead of South Korea in
the process of “catching-up”. Indeed, from 1950 to 1980 Brazil engendered a strong process
of productivity growth where labour productivity as share of the US labour productivity
increased by 11.66 percentage points. In other words, from 18.99% in 1950 this number
jumped to 30.65% in 1980. In a similar trend, for the same period, South Korean productivity
grew from 11.86% to 27.52%. However, this productivity trend was drastically reversed after
1980. Thus, while South Korea maintained an upward trend reducing its productivity gap with
the US very rapidly from 27.52% to 65.07% in 2010, Brazil fell behind with productivity
level relative to the US declining to 19.56% in 2010. Additionally, it is important to highlight
that in terms of regions the South Korean and Brazilian trends were followed similarly by the
“first-tier” NICs and Latin America respectively both before as well as after 1980.

Figure 2.6 – Labour Productivity and ‘Catching-up’ with the US, 1960-2010

Labour Productivity ‘Catching-up’ with the US

50,000 80%
NICs 1
South
45,000
Korea 70%

40,000
60%
SK LP (1980
35,000 South
Labour Productivity as Share of US LP

- 2010) =
Labour Productivity US$ ( PPP - 1990)

4.39% 50%
Korea
30,000

25,000 40%

20,000 SK LP (1950 LA
- 1979) = 30%
5.19% Brazil
15,000 Brazil
20%
10,000
NICs 2
BR LP (1980
BR LP (1950 - 2010) = 10%
5,000
- 1979) = 0.52%
3.32%
0 0%
1950 1960 1970 1980 1990 2000 2010 1950 1960 1970 1980 1990 2000 2010

Source: Elaborated by the author adapted from Palma (2011). Data from The Groningen Growth and
Development Centre.
Note: Labour productivity per person employed in 1990 US$ (converted at Geary Khamis PPPs).

39
 7.4.Manufacturing Share and Income ‘Catching-up’

The Figure below illustrates empirically the dichotomy between Brazil and South
Korea in terms of sectoral composition and economic development. During the whole period
(1953-2010), South Korea gradually increased the share of manufacturing in the GDP and
reduced the income gap with the US. Therefore, from 1953 to 2010, the manufacturing share
in GDP relative to US grew from 0.13 to 3.2163. Moreover, except for some periods such as
1995-2000 when the country was affected by the Asian Crisis (1997), the income per capita
showed a constant increase in relative terms to the US. From 8.93% of the US income per
capita in 1953, in 1980 and 2010 this variable reached 22.15% and 70.25% respectively.

Figure 2.7 - Share of manufacturing in GDP and relative income gap with the US, 1950-
2010

South Korea: Progressive Trajectory Brazil: Regressive Trajectory

40 25

2010 24
35

23
05
30
00 60 75
22
70
% Manuf. South Korea in GDP

% Manuf. Brazil in GDP

25 80
95 21
90 65
20 20
85 05
00
80 19 85
15 55 95
50 2010
75 18
90
10
17
70
5 65 16
60
53 55
0 15
0% 20% 40% 60% 80% 0% 10% 20% 30% 40%
Gap GDP Per Capitawith the US Gap GDP Per Capita with the US

Source: Elaborated by the author, using data from The Groningen Growth and Development Centre.
Note: GDP per capita in 1990 US$ (converted at Geary Khamis PPPs) and Manufacturing Gross value added at
constant 2005 national prices (in millions).

( )
Manufacturing share in GDP relative to US is calculated as:
63
( )

40
 In contrast to South Korea which moved ahead even after the advent of neoliberal
reforms, Brazil drastically fell behind (in a cyclical fashion) in terms of manufacturing share
in the GDP and income gap reduction with the US. From 1950 to 1980, the Brazilian
economy showed a high volatility in terms of degree of industrialisation and income gap
reduction with the US, but with a substantial improvement of these indicators. In 1950, the
Brazilian income per capita (in PPP) was 17.48% of the US income, and manufacturing
corresponded to 18.37% of GDP. In 1980, the Brazilian income increased to 27.96% of the
US income, and, during the same period, the manufacturing sector reached 21.13% of GDP.
However, after 1980, this overall trend changed dramatically. As showed by the Figure above,
the Brazilian economy embarked on a regressive trajectory both in terms of manufacturing
expansion in GDP and income gap reduction with the US economy. The most dramatic period
was during 1980 to 1995 when the Brazilian economy regressed 15 years both in terms of
income per capita catching-up. From 2005 to 2010, this relative loss was reversed but mostly
by a boom in commodities, finance, and household credit64. Taking into account the
“Kaldorian-Structuralist” perspective, it is not by chance that the persistent difficulty of
overcoming the middle-income barrier appears to be closely related to the manufacturing
sector loss in the GDP.

7.5.Export-trajectories: Two historical distinct patterns

From 1950 to 1980, Brazil and South Korea had the rise of manufacturing in GDP as a
common denominator in the strategy of economic growth. In South Korea this pattern of
development was followed by a strong increase of exports in GDP. From the 1960s until
1987, both the share of manufacturing and exports in GDP grew practically constantly in a
convergent pattern (see Figure 2.8). This trend was also followed by a significant increase of
manufacturing exports in GDP that represented more than 75% of total exports in the GDP65.
By contrast, Brazil pursued a development path based on its large domestic market.

It is important to emphasise that the commodity prices boom started in 2002, while the finance and household
64

credit boomed from 2003 onwards, during the Lula’s government. See, for instance, Gottschalk & Prates (2006).
It is important to emphasise that the outward-orientation was a common trend in economic policy principally
65

in East Asian NICs. Therefore, the development mainspring underpinned over the outward orientation
coordinated by the State which directed the necessary private investment to sustain the export driver in order to
generate foreign exchange via manufactured exports. During this initial phase of export expansion, the rapid
growth of the East Asian NICs – Korea, Taiwan, Hong Kong, and Singapore – was founded on light, labour-
intensive industries like textiles, garments and electronic equipment. In subsequent phases, however, the East
Asian NICs achieved success in much heavier industries like steel, petrochemicals, shipbuilding, vehicle
manufacture and computers that were less well suited to their original factor endowments (Gereffi, 1989).

41
Therefore, different to Korea, Brazil followed a resilient performance of the GDP export-
share. In numbers, while South Korea achieved a share of 23.13% of manufacturing exports in
the GDP in 1980, Brazil by contrast had its exports of manufactured goods during the whole
developmental era under 5% of GDP. Curiously, due to the inward-orientation, the constant
increase of the manufacturing sector performed inversely to exports share in GDP. In other
words, despite a strong growth performance in Brazil, the share of manufacturing in GDP
took place at the expense of the GDP export-share, i.e. in a divergent pattern (see Figure
2.8)66.

Figure 2.8 - Share of Manufacturing and Exports in GDP (%) (1960-2010)

South Korea: Convergent Pattern Brazil: Divergent Pattern

60 25

50
20

40
15
30
10
20

5
10

0 0
1960 1970 1980 1990 2000 2010 1950 1960 1970 1980 1990 2000 2010

Export/GDP Manufacturing Export/GDP Manufacturing

Manuf. Exp/ GDP Manuf. Exp/ GDP

Source: Elaborated by the author, using data from The Bank of Korea (BOK), World Bank, The Conference
Board and Groningen Growth and Development Centre.
Note: Export/GDP = Gross exports/GDP and Manufacturing = manufacturing value added/GDP. Data are
in constant 2005 US dollars.

In terms of exports, despite the rapid process of industrialisation, Brazil did not
overcome the historical dependence of its Ricardian comparative advantages, i.e. natural
resource endowments. Over the years, Brazilian agriculture and mining sectors were not only
important to supply the domestic market but also a central source of foreign exchange. In
theoretical terms, it is important to highlight that Raúl Prebisch and his intellectual heirs at the
ECLAC had during the 1950s and 1960s an economic thinking characterised by a deep

Palma (2005) identifies this phenomenon not only as a strategy characterised by a strong anti-export bias, but
66

also as a consequence of weak demand for Latin American primary commodities in OECD markets since the
Korean War.

42
criticism regarding the growth-enhancing capacity of unprocessed primary commodity
exports in “peripheral” countries. However, this strong developmental thinking – which was
very influential in Latin America at that time – propelled particularly the diversification of the
productive structure rather also exports. Additionally to a negligent export policy, an
important external factor also affected this trade pattern. The massive inflow of foreign capital
contributed to finance the current deficit and consequently eased the pressure to increase the
share of manufacturing products in exports. During the 1970s the Brazilian government tried
to work around the situation through stimulus to manufactured exports, however, this in turn
was highly restricted due the turbulent international environment of the decade. In short, due
internal and external factors, the Brazilian economic policy was substantially ineffective in
increasing exports of manufactured goods when compared to South Korea (and other East
Asian countries)67.

South Korea, in turn, instead of accepting its traditional Ricardian comparative

advantages (essentially associated with cheap labour), sought to manage the industrial policy
to create an institutional environment that allowed the country to follow the Japanese example
of industrialisation and develop a pattern of production and export upgrading over the
decades68. As pointed out by Palma (2005), the extraordinary success of the East Asian
economies was based on external and internal factors. On the external front, following a
“flying geese” paradigm led by Japan, South Korea increased the exports to the OECD
markets, especially the USA, for manufactured goods within a process of productive
regionalisation. On the internal one, South Korea built a structure around a skilled labour
force, property rights, political settlement and institutional capability that allowed the country
to produce competitive manufactured goods. In Kaldorian terms, this dynamic based on the
production and exports of manufacturing products imbued special growth-enhancing
properties that triggered a process of cumulative causation not shared by other sectors and
consequently strengthened the foundations for sustained growth. Not by chance, from the
1950s to 1970s, the South Korean (and East Asian) economy climbed the ladder to establish
the pillars for long-term economic growth.

In ECLAC’s economic thinking, a key structural economic characteristic of peripheral economies refers to the
67

deterioration in their terms of trade over time due different income – elasticity of demand – as “dynamic
disparity of demand”. Therefore, according to ECLAC’s point of view, ISI model was a central measure for
diversification of the productive industry and expansion of exports based on a dynamic manufacturing sector.
For a detailed explanation of the Latin American Structuralism approach, see the first chapter of this Thesis.
68
About the Japanese leadership on the Asian pattern of development see Arrighi et al. (1993), Akyus (1996),
UNCTAD (1996), Ozawa (1991, 1995, 2001) and Palma (2005).

43
 Nevertheless, the South Korean economy also faced turbulences in trade. In the late
1980s to early 1990s, some of its most important manufactured products, particularly
microelectronics, began to experience a persistent drop in prices. It was essentially a result of
rapid standardisation (or “commoditisation”) and an increased supply of its manufactured
products in the global market. In an attempt to reverse this situation the corporate sector
sought to expand the market share, increasing investment in new productive capacity. This led
to overinvestment, which in turn exacerbated the global excess supply in international markets
and further downward pressure on prices69. The declining manufacturing profitability resulted
in a strong change in the finance structure of investment70. From an industrial structure
characterised by the retention of profits, the economy shifted to a situation characterised by
domestic and foreign debt. Therefore, this process caused an increase in the microelectronics
sectoral deficit that rose from around 5% in 1987 to almost 20% of GNP in 1996 (Palma,
2013). In late 1997, South Korea experienced a severe economic downturn derived from the
so-called Asian Crisis. However, despite important ideological changes that engendered
neoliberal reforms, the state maintained an active role, either through long-term policies for
the development of high-tech sectors and exports, or by ensuring important long-term funding
sources through public banks.

Brazil, by contrast, after the ‘lost decade’ embarked in the neoliberal agenda under the
illusion that the market forces per se would create the necessary conditions to the
consolidation of the productive structure and exports promotion. As proved by the facts,
neither the manufacturing share expanded in the GDP nor exports of manufactured products
increased. Moreover, as a result of an extremely weakened production structure resulting from
over a decade of strongly market-oriented policies, production and exports of primary
products became the engine of Brazil’s growth. In 2002, demand for Brazilian commodities
began to rise more intensely because of the growth of the Asian economies, particularly that

69
Palma (2013) suggests that the collapse of exports in microelectronics was significantly explained by the
Taiwanese memory-chips exports that increased massively during the period. For instance, due the excess of
supply in the global market, the price of memory chips fell approximately 80% in 1996 alone. In this process,
South Korea was strongly affected since a significant amount of its exports consisted in this type of product.
70
Chang et al. (1998), also points out that the political and economic shift of the period contributed to worsen
the profitability of the South Korean microelectronics sector. The rise of the neoliberal agenda weakened
domestic sectoral policies and affected the transparency between the State and corporations. The manufacturing
sector became increasingly exposed to state corruption and vested interests. As argued by Chang “ large sums of
money did flow from big business to politicians and top bureaucrats (…) there was a fundamental transformation
in the state–business relationship in Korea, which meant that the major manufacturing sectors became less
insulated from corrupt political exchanges than they had been previously” (Chang et al. 1998, p. 741).

44
of China71. This demand for natural resources and raw materials has pushed up commodities
prices in the world market, benefiting the Brazilian economy. The boom of commodity prices
pulled the Brazilian exports, adding substantial dynamism to the economy but without a
change in the industrial structure to expand the manufacturing sector and increase the export
of manufactured products. Without developmental policies, the current export pattern has
showed little capacity to generate growth-sustaining processes of cumulative causation.
Therefore, it is not by chance that the Brazilian economy has been over decades limited to a
middle-income level. The current productive structure limited the growth-enhancing
characteristics of the manufacturing sector, such as externalities and spillover effects that may
help set in motion processes of cumulative causation that take advantage of dynamic
economies of scale, increasing returns, etc (Palma, 2012).

Furthermore, this productivity and trade relations resemble in some ways the centre-
periphery relationship outlined by Prebisch, where Brazil (as well as Latin American
countries as a whole – with the exception of Mexico and the Central American countries)
exports commodities and raw materials to China, and imports manufactured goods from Asian
countries. In this way, Latin America has assumed the role of the periphery, exporting natural
resources and raw materials, while Asian Countries have gradually assumed the core or
central position, exporting manufactured goods to the region. Brazil’s development has
become strongly dependent on China’s growth and development. Although these structural
bottlenecks had been widely discussed in the Latin America structuralist theory and in the
Kaldorian approach, their contributions seemed to have relatively low influence on economic
policy after the neoliberal rise.

8. Concluding remarks

Taking into account the role of the state in guiding the development path, this chapter
sought to compare the industrial development in Brazil and South Korea and identify factors
(endogenous and exogenous) that determined different routes of economic dynamism in these
economies. Therefore, the chapter showed that a successful process of industrialisation

Between 1990s and 2000s, the Chinese economy practically doubled its number both in the GDP growth and
71

productivity, highlighting its dynamism over the rest of the world. A similar trend was followed by India and
SEAN-4 which, together with NICs, showed their capabilities to expand and conquer other markets. In both
groups, their performance in terms of average of growth rates presented a plateau in 1990s and 2000s with a
peak in 2010.

45
required an active developmental state to expand the manufacturing sector. Both in Brazil and
South Korea during the industrialisation era, policies implemented involved controls over
interest rates, credit allocation, and a set of tax and tariff measures to provide protection to the
nascent industry. Moreover, particularly in South Korea, policies for technology acquisition,
incentives to activities of R&D and the promotion of cartels for specific purposes such as
standardisation, specialisation and exports were also a central characteristic.

Despite general similarities, while in South Korea the domestic private capital,
represented by the Chaebols, played a decisive role in the evolution and development of
Korean industry, while in Brazil economic growth and investments were driven by state-
owned enterprises and multinational companies established in the country during the 1950s
and 1960s. Moreover, while South Korea pursued a process of industrialisation with a clear
outward orientation, Brazil, due its large domestic market and restricted access to OECD
markets, followed a pattern of industrial growth with an inward orientation. Moreover, despite
different trends regarding the interaction with the external market, in terms of productive
structure both Brazil and South Korea achieved the phase of heavy industrialisation in the late
1970s.

Conversely, this massive effort to climb the ladder of world production in a turbulent
economic environment profoundly affected public accounts. In both economies, although in
different magnitudes, given the lack of foreign exchange, the military government gradually
accumulated external debts with international private banks to finance the current account
deficit and maintain the booming economic growth. This excessive external financing raised
economic vulnerability and exposed these countries to external crises. Thus, the two oil price
shocks in 1973 and 1979, and the Volcker interest rate hikes in 1979 drastically affected both
countries. With the outbreak of the debt crisis in 1982, the Brazilian economy, which was
vulnerable due to its large current account deficit and external debt, faced an abrupt cut-off in
bank financing that plunged the country into a serious crisis and caused a deep disarticulation
of the state in providing active policies for national industry. Consequently, during the 1980s,
economic growth was seriously retarded giving rise to the commonly used term “the lost
decade”. In contrast, South Korea dealt with the crisis in a much less traumatic way since its
strategy of industrialisation was relatively less dependent on foreign debt and Japanese banks
“recycled” the country’s liabilities. Therefore, South Korea not only recovered rapidly from
the debt crisis, but also strengthened the manufacturing sector and the production of cutting-
edge technological products. By contrast, Brazil struggled in the debt crisis of the 1980s that

46
did not allow the country to keep up with new technologies and consequently the
manufacturing industry became delayed compared to Asian latecomer economies.

From the 1980s, Brazil embarked on a “fundamentalist” neoliberal agenda which

sought to reverse almost every aspect of the growth strategy previously followed by the
country. The neoliberal policies were strongly marked by an extreme move towards trade and
financial liberalisation, market deregulation, attraction of new flows of FDI, privatisation of
state-owned enterprises and the withdrawal of selective industrial policies. In contrast, the
neoliberal polices implemented in South Koreas were remarkably different from the Brazilian
neoliberal fundamentalist agenda. In South Korea, the economic reforms were much more
pragmatic, seeking to transform the initial catching-up efforts into a dynamic and sustainable
process of capital expansion and development. Even after the 1980s, the South Korean
experience was characterised by the maintenance of a strong state control over the
socioeconomic transformations and by the pragmatism in the management of intermediate and
instrumental objectives such as the economic internationalisation and administration of the
fiscal and monetary policy.

In Brazil, the main result of the “fundamentalist” process of economic reforms was to
reinforce the rentier instincts of the country’s capitalist élites and undermine any perspective
of sustained economic growth. Therefore, the neoliberal agenda established an economic
dynamic of successive “stop-and-go” cycles derived from a fragile productive structure and
lack of effective demand. From the 1980s onwards, the country’s growth rate collapsed both
in terms of GDP and manufacturing value added growth. Moreover from an intra-industry
perspective, the composition of the manufacturing sector stagnated over the decades. In
contrast, South Korea presented a distinct development path. Thus, after the neoliberal
reforms, the country did not experienced such dramatic loss in terms of economic dynamism.
The economy grew on average by more than 6% per year and the manufacturing sector
expanded sharply. Furthermore, in terms of intra-industry technology composition, the share
of high-tech industries rose significantly, reaching around 61% of the manufacturing share.

The deleterious effects of premature de-industrialisation in Brazil vis-à-vis South

Korea’s thriving manufacturing expansion clearly impacted the evolution of labour
productivity and catching-up. Analysing the data there is little doubt that the remarkable
neglect of manufacturing since economic reforms lies at the heart of country’s productivity
stagnation. In contrast to the period from 1950 to 1980 when in both countries manufacturing

47
and productivity expanded considerably, from 1980 to 2010, due to the manufacturing
collapse, Brazilian productivity practically stagnated. Even during the commodities prices
boom from 2002 to 2008, the Brazilian economy productivity growth was extremely poor.
Brazilian average productivity growth was more than eight times lower than that of South
Korean. Moreover, during the same period, Brazil’s average productivity level was more than
two times lower than those of South Korea’s. Thus, while South Korea maintained an upward
trend reducing its productivity gap with the US very rapidly, Brazil embarked on a noxious
trajectory.

In terms of income catching-up, while South Korea moved ahead after the advent of
neoliberal reforms, Brazil drastically fell behind (in a cyclical fashion) in terms of
manufacturing share in the GDP and income gap reduction with the US. The most dramatic
period was during 1980 to 1995 when the Brazilian economy regressed 15 years both in terms
of income per capita catching-up. Taking into account the “Kaldorian-Structuralist” approach,
it is not by chance, that the persistent difficulty to overcome the middle-income trap appears
to be closely related to the manufacturing sector loss in the GDP. Analysing the exports
trajectories the dichotomy between these economies are also very clear. On the one hand,
South Korea pursued an outward strategy of economic growth expanding exports of
manufacturing products, particularly high-tech products, taking into account the special
growth-enhancing properties of this sector. In contrast, Brazil was always historically
dependent on its Ricardian comparative advantages, i.e. natural resource endowments. During
the developmental era, all efforts made to overcome this structural dependence were very
resilient and after the neoliberal rise practically inexistent. Therefore, in Kaldorian-
Structuralist terms, the Brazilian trade composition based on exports of primary products
showed little capacity to generate growth-sustaining processes of cumulative causation and
consequently mitigated any possibility of dynamic economic growth.

48
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Appendix 2.1 - Brazil’s Macroeconomic Indicators, 1950-2013 (%)
Manuf. GFCF Sectoral Composition
GDP Export/ Import/ GFCF/ External
Year Exp/ Primary Manuf.
Growth GDP GDP GDP Debt/GDP Public Private Manuf. Construction Services
GDP Sector Growth
1950 6.80 9.20 7.60 - 12.79 - 34.17 65.83 14.05 18.37 5.82 61.76 -
1951 4.90 9.60 11.30 - 15.45 - 23.60 76.40 13.35 18.10 5.70 62.85 5.59
1952 7.30 7.10 9.90 - 14.82 - 23.33 76.67 13.19 17.41 4.92 64.48 5.38
1953 4.70 6.60 5.60 - 15.06 - 22.88 77.12 12.78 18.32 4.57 64.32 9.33
1954 7.80 6.70 6.80 - 15.76 - 24.95 75.05 12.36 18.08 4.63 64.92 9.48
1955 8.80 7.60 6.80 - 13.49 - 24.26 75.74 12.34 18.60 4.92 64.14 10.93
1956 2.90 6.80 5.80 - 14.46 - 20.89 79.11 11.71 18.92 5.36 64.01 5.53
1957 7.70 5.60 6.20 - 15.04 - 30.75 69.25 11.96 18.74 5.58 63.71 5.58
1958 10.80 5.70 6.10 - 16.98 - 32.71 67.29 11.51 20.43 5.80 62.26 16.71
1959 9.80 5.90 6.60 - 17.99 - 28.64 71.36 11.71 21.98 5.92 60.38 12.84
1960 9.40 5.30 6.40 - 15.72 - 35.89 64.11 11.24 22.03 5.86 60.88 10.60
1961 8.60 5.80 6.20 - 13.11 - 44.20 55.80 10.89 22.08 5.64 61.38 11.10
1962 6.60 6.70 8.00 0.19 15.51 17.69 39.27 60.73 10.85 22.64 5.95 60.56 8.19
1963 0.60 8.60 9.00 0.18 17.04 15.04 31.68 68.32 10.79 21.86 5.92 61.42 -0.49
1964 3.40 6.50 5.60 0.36 14.99 15.20 33.69 66.31 10.68 22.25 6.14 60.93 5.29
1965 2.40 7.60 5.40 0.57 14.71 16.79 46.18 53.82 11.79 20.41 6.13 61.67 -4.70
1966 6.70 6.50 5.80 0.46 15.92 13.21 38.03 61.97 9.75 21.25 6.24 62.75 11.67
1967 4.20 5.70 5.80 0.53 16.20 11.00 40.74 59.26 9.87 20.32 6.17 63.64 2.18
1968 9.80 6.00 6.70 0.45 18.68 11.99 33.97 66.03 9.53 21.13 6.30 63.04 14.20
1969 9.50 6.70 6.70 0.60 19.11 12.40 38.04 61.96 9.08 21.32 6.28 63.32 11.19
1970 10.40 7.00 7.40 0.86 18.83 14.66 38.59 61.41 8.61 21.83 6.39 63.17 11.86
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 Manuf. GFCF Sectoral Composition
GDP Export/ Import/ GFCF/ External
Year Exp/ Primary Manuf.
Growth GDP GDP GDP Debt/GDP Public Private Manuf. Construction Services
GDP Sector Growth
1971 11.34 6.50 8.20 0.90 19.91 16.85 32.86 67.14 8.45 21.97 6.46 63.12 11.87
1972 11.94 7.30 8.90 1.28 20.33 19.51 37.18 62.82 7.85 22.45 6.48 63.23 13.96
1973 13.97 7.80 9.00 1.53 20.37 17.67 28.43 71.57 7.02 23.00 6.52 63.47 16.62
1974 8.15 7.70 13.30 1.83 21.85 18.15 35.68 64.32 6.85 22.95 6.77 63.42 7.74
1975 5.17 7.20 11.00 1.77 23.33 19.34 36.06 63.94 6.77 22.25 6.98 64.00 3.81
1976 10.26 7.00 9.40 1.53 22.42 20.88 47.17 52.83 6.27 22.52 7.20 64.02 12.12
1977 4.93 7.20 7.90 1.73 21.35 21.41 44.50 55.50 6.44 21.77 7.68 64.11 2.28
1978 4.97 6.70 7.90 2.10 22.27 25.94 37.94 62.06 5.85 21.14 7.83 65.18 6.11
1979 6.76 7.20 9.30 2.55 23.36 24.97 29.68 70.32 5.68 20.66 8.06 65.60 6.86
1980 9.23 9.00 11.20 3.19 23.56 27.03 28.01 71.99 5.87 21.13 8.35 64.65 9.11
1981 -4.25 9.60 10.00 3.46 24.31 28.61 30.14 69.86 6.40 19.51 8.08 66.01 -10.38
1982 0.83 7.90 8.60 2.74 22.99 31.52 30.48 69.52 6.48 19.48 7.89 66.15 -0.18
1983 -2.93 12.20 9.70 4.24 19.93 49.48 30.32 69.68 6.85 18.82 6.92 67.41 -5.85
1984 5.40 15.00 8.80 5.34 18.90 53.82 27.12 72.88 7.10 18.93 6.48 67.49 6.16
1985 7.85 12.90 7.50 5.03 18.01 49.82 29.29 70.71 7.27 19.07 6.39 67.27 8.34
1986 7.49 9.20 6.60 4.00 20.01 43.13 27.65 72.35 6.46 19.67 6.98 66.89 11.30
1987 3.53 9.80 6.40 4.42 23.17 42.92 27.20 72.80 6.93 19.47 6.89 66.70 0.95
1988 -0.06 11.70 6.10 5.32 24.32 37.13 26.62 73.38 6.97 18.79 6.67 67.57 -3.41
1989 3.16 8.90 5.50 4.35 26.86 27.77 20.62 79.38 7.03 18.88 6.72 67.38 2.88
1990 -4.35 8.30 8.30 3.53 20.66 26.30 25.23 74.77 7.22 17.89 6.35 68.54 -9.46
1991 1.03 8.30 8.30 4.26 18.11 30.54 24.01 75.99 7.37 17.45 6.12 69.07 -2.36
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 Manuf. GFCF Sectoral Composition
GDP Export/ Import/ GFCF/ External
Year Exp/ Primary Manuf.
Growth GDP GDP GDP Debt/GDP Public Private Manuf. Construction Services
GDP Sector Growth
1992 -0.54 10.90 8.40 5.22 18.42 35.10 27.02 72.98 7.42 17.47 6.04 69.08 -0.56
1993 4.92 10.50 9.10 5.18 19.28 33.91 24.30 75.70 7.78 17.15 5.81 69.26 -3.65
1994 5.85 9.50 9.20 4.39 20.75 27.31 21.61 78.39 7.52 17.92 5.85 68.71 8.29
1995 4.22 7.30 8.80 3.24 20.54 20.67 18.53 81.47 7.68 18.52 6.05 67.75 6.83
1996 4.09 6.60 8.40 3.06 18.65 21.07 19.98 80.02 7.82 18.29 6.19 67.70 -0.32
1997 3.39 6.80 9.00 3.26 19.13 22.56 18.33 81.67 7.70 18.58 6.48 67.24 5.25
1998 0.36 6.90 8.90 3.31 18.55 27.87 20.95 79.05 7.92 18.51 6.52 67.05 0.14
1999 0.49 9.40 10.80 4.42 17.01 40.12 14.24 85.76 8.12 18.46 6.27 67.14 0.60
2000 4.38 10.00 11.70 5.00 18.33 35.92 13.88 86.12 8.09 19.72 6.10 66.09 12.03
2001 1.28 12.20 13.50 5.72 18.44 40.38 15.22 84.78 8.36 19.50 5.88 66.26 0.41
2002 3.08 14.10 12.60 6.31 17.96 44.74 18.34 81.66 8.78 19.31 5.60 66.32 1.88
2003 1.22 15.00 12.10 6.87 16.67 42.03 15.32 84.68 9.22 19.36 5.39 66.03 0.63
2004 5.66 16.40 12.50 7.77 17.38 32.88 14.94 85.06 8.98 20.25 5.44 65.32 10.45
2005 3.15 15.10 11.50 7.12 17.22 21.06 15.09 84.91 8.98 19.88 5.38 65.76 1.03
2006 4.00 14.40 11.50 6.43 17.26 18.01 16.93 83.07 9.06 19.44 5.43 66.08 1.50
2007 6.01 13.40 11.80 5.62 18.07 17.23 15.61 84.39 8.94 19.48 5.38 66.21 6.03
2008 5.02 13.70 13.50 5.37 19.49 15.54 18.14 81.86 9.06 18.84 5.58 66.51 0.57
2009 -0.23 11.00 11.10 3.73 19.21 16.62 21.05 78.95 8.82 17.49 5.56 68.13 -7.51
2010 7.57 10.87 11.90 3.49 20.59 15.92 22.24 77.76 8.92 17.96 5.79 67.33 10.10
2011 3.92 11.89 12.62 3.53 20.64 15.46 18.50 81.50 9.03 17.55 5.86 67.56 0.10
2012 1.76 12.59 14.03 3.78 20.21 18.27 20.22 79.78 - - - - -
2013 2.74 12.55 15.04 3.92 20.53 20.32 20.75 79.25 - - - - -
Source: Elaborated by the author, using data from The Brazilian Central Bank, Brazilian Institute of Geography and Statistics (IBGE), Ipeadata, World Bank – World
Development Indicators, The Conference Board and Groningen Growth and Development Centre and UNCTAD.
Note: Data for GDP Growth and Gross Fixed Capital Formation (GFCF) in current Prices. Sectoral composition calculated from data at constant 2005 national prices (in
millions).
59
Appendix 2.2 - South Korea’s Macroeconomic Indicators, 1950-2013 (%)
Manuf. GFCF Sectoral Composition
GDP Export/ Import/ GFCF/ External
Year Exp/ Primary Manuf.
Growth GDP GDP GDP Debt/GDP Public Private Manuf. Construction Services
GDP Sector Growth

1950 - - - - - - - - - - - - -
1951 - - - - - - - - - - - - -
1952 - - - - - - - - - - - -
1953 - - - 14.70 - - - 49.07 8.41 1.78 40.74 -
1954 7.20 - - - 11.00 - - - 41.69 10.84 2.17 45.30 16.01
1955 5.80 - - - 11.70 - - - 46.88 10.65 2.52 39.95 18.48
1956 0.70 - - - 8.30 - - - 49.15 10.75 2.41 37.70 15.44
1957 9.20 - - - 14.30 - - - 46.39 10.24 2.84 40.54 3.69
1958 6.50 - - - 11.50 - - - 42.22 11.51 2.59 43.68 5.68
1959 5.40 - - - 10.10 - - - 35.85 12.76 2.75 48.64 7.80
1960 2.30 3 12.60 - 9.70 - - - 38.17 12.30 2.63 46.90 5.04
1961 6.90 5 14.94 - 11.70 3.52 - - 41.09 12.09 2.56 44.26 1.01
1962 3.80 5 16.50 0.37 13.10 3.24 - - 37.90 13.17 2.65 46.29 8.29
1963 9.20 5 15.70 1.01 17.80 4.06 - - 43.66 13.84 2.43 40.07 9.62
1964 9.50 6 13.35 1.64 14.70 5.27 - - 48.11 14.91 2.37 34.61 0.64
1965 7.20 8 15.92 3.40 14.00 6.83 - - 41.20 16.95 2.84 39.01 13.40
1966 12.00 10 20.13 3.99 20.60 10.30 - - 37.51 17.39 3.02 42.07 7.13
1967 9.10 11 21.92 4.55 21.10 13.72 - - 33.49 17.64 3.19 45.68 14.90
1968 13.20 12 25.30 5.67 25.90 20.13 - - 29.72 18.96 3.99 47.33 15.32
1969 14.50 13 25.15 6.34 28.80 24.08 - - 30.05 19.35 4.75 45.85 8.85
1970 10.00 13 22.53 6.80 25.70 23.86 23.73 76.27 29.36 20.19 4.73 45.72 10.24
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 Manuf. GFCF Sectoral Composition
GDP Export/ Import/ GFCF/ External
Year Exp/ Primary Manuf.
Growth GDP GDP GDP Debt/GDP Public Private Manuf. Construction Services
GDP Sector Growth
1971 10.50 14 24.19 8.36 25.20 28.05 24.26 75.74 29.64 20.10 4.07 46.18 9.77
1972 7.20 18 22.85 11.95 21.20 31.57 22.60 77.40 28.90 21.20 3.75 46.15 9.78
1973 14.80 27 29.99 18.61 25.70 29.28 16.94 83.06 27.25 23.85 4.05 44.85 17.25
1974 9.50 25 35.67 18.49 32.30 29.05 15.51 84.49 27.27 24.68 4.15 43.90 9.92
1975 7.90 25 33.33 17.65 29.10 37.03 19.14 80.86 27.64 24.90 4.36 43.11 6.64
1976 13.10 28 30.17 21.51 27.50 33.55 19.26 80.74 26.07 26.57 4.21 43.15 12.67
1977 12.30 29 29.41 21.17 30.60 31.42 18.55 81.45 25.44 26.27 5.17 43.12 5.08
1978 10.80 27 30.29 20.68 34.20 27.31 18.53 81.47 23.75 26.62 7.24 42.39 11.64
1979 8.60 25 31.64 19.18 38.00 29.09 18.20 81.80 22.09 27.62 7.96 42.32 3.04
1980 -1.70 30 37.63 23.13 34.60 40.07 21.66 78.34 17.75 28.27 7.82 46.17 0.41
1981 7.20 32 37.19 25.11 32.70 42.54 24.32 75.68 18.57 28.42 6.75 46.26 3.39
1982 8.30 31 33.38 24.40 32.30 45.40 19.93 80.07 17.27 28.07 7.26 47.40 -1.45
1983 13.20 31 31.81 24.55 32.90 44.60 19.19 80.81 15.90 29.19 7.61 47.31 3.83
1984 10.40 31 31.36 26.68 32.50 43.07 18.32 81.68 15.03 29.85 7.42 47.69 7.91
1985 7.70 30 29.23 26.66 33.00 45.08 19.39 80.61 14.94 29.17 7.29 48.60 -0.49
1986 11.20 33 28.42 26.64 32.80 37.16 17.88 82.12 13.47 30.69 6.70 49.14 7.98
1987 12.50 35 28.93 28.92 33.10 32.18 16.18 83.82 12.21 31.51 7.01 49.27 7.56
1988 11.90 34 27.13 27.92 34.60 21.68 16.06 83.94 12.07 32.17 7.34 48.43 2.21
1989 7.00 29 26.62 23.30 37.10 17.08 15.08 84.92 11.20 30.76 8.57 49.48 -2.56
1990 9.80 26 26.89 21.35 39.50 16.43 14.15 85.85 10.17 29.34 11.20 49.29 0.36
1991 10.40 24 26.88 20.08 41.40 16.40 15.39 84.61 9.22 29.61 12.40 48.77 1.17
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 Manuf. GFCF Sectoral Composition
GDP Export/ Import/ GFCF/ External
Year Exp/ Primary Manuf.
Growth GDP GDP GDP Debt/GDP Public Private Manuf. Construction Services
GDP Sector Growth
1992 6.20 25 25.70 19.98 38.50 16.57 16.50 83.50 8.79 29.35 11.89 49.97 0.43
1993 6.80 25 24.15 19.54 37.50 16.83 16.18 83.82 8.00 29.71 11.97 50.32 0.40
1994 9.20 25 25.27 19.54 38.60 17.61 15.61 84.39 7.91 30.19 11.30 50.60 3.59
1995 9.60 27 27.66 20.86 39.20 19.48 14.97 85.03 7.49 30.69 11.41 50.41 3.19
1996 7.60 26 28.96 19.86 39.90 24.00 14.87 85.13 7.07 29.90 11.69 51.34 0.44
1997 5.90 30 30.39 22.10 37.60 28.84 16.22 83.78 6.49 29.50 11.83 52.17 0.04
1998 -5.50 42 30.55 32.10 27.90 40.26 19.17 80.83 6.02 30.50 10.07 53.41 -2.97
1999 11.30 36 29.65 27.02 31.20 28.75 17.88 82.12 6.14 31.45 8.83 53.58 12.60
2000 8.90 35 32.94 27.83 33.20 24.07 17.24 82.76 5.60 32.38 7.87 54.15 8.86
2001 4.50 33 31.18 25.60 31.90 21.77 18.02 81.98 5.29 30.64 8.14 55.93 -2.70
2002 7.40 31 29.33 24.59 31.20 21.13 17.01 82.99 4.92 30.70 8.29 56.09 2.38
2003 2.90 33 30.69 26.39 32.30 20.33 18.34 81.66 4.58 30.18 9.29 55.95 1.74
2004 4.90 38 34.47 30.59 32.30 19.39 18.28 81.72 4.56 32.19 8.95 54.30 4.44
2005 3.90 37 34.37 28.79 32.50 18.03 17.58 82.42 4.14 32.10 8.81 54.95 0.17
2006 5.20 37 36.39 28.78 33.00 22.66 16.73 83.27 3.92 31.71 8.70 55.66 2.55
2007 5.50 39 38.06 29.52 32.80 30.17 16.47 83.53 3.61 31.99 8.61 55.79 0.45
2008 2.80 50 49.97 36.60 33.00 31.52 16.88 83.12 3.42 32.81 8.17 55.60 -1.54
2009 0.70 48 42.86 36.11 28.60 38.21 20.75 79.25 3.27 32.50 8.03 56.20 0.66
2010 6.50 49 46.23 37.91 32.10 32.52 17.11 82.89 3.10 35.36 7.25 54.29 7.53
2011 3.70 56 54.25 39.68 32.90 33.27 16.31 83.69 3.15 36.35 6.77 53.73 7.53
2012 2.30 56 53.55 38.12 30.80 33.44 16.09 83.91 - - -
2013 3.00 54 48.86 36.99 28.80 32.46 15.98 84.02 - - -
Source: Elaborated by the author, using data from The Bank of Korea (BOK), Collins and Park (1989), World Bank, OECD and The Groningen Growth and Development
Centre.
Note: Data for GDP Growth and Gross Fixed Capital Formation (GFCF) in current Prices. Sectoral composition calculated from data at constant 2005 national prices (in
millions).
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Appendix 2.3 – Classification of manufacturing industries by technology group

International Standard Abbreviation used International Technology

Industrial Classification full in this chapter Standard group
description Industrial
Classification
code Revision 3
Food and beverages Food and beverages 15 Low-tech
Tobacco products Tobacco 16 Low-tech
Textiles Textiles 17 Low-tech
Wearing apparel, fur, leather Wearing apparel 18 and 19 Low-tech
products and footwear
Wood products (excluding Wood products 20 Low-tech
furniture)
Paper and paper products Paper 21 Low-tech
Printing and publishing Printing and 22 Low-tech
publishing
Furniture; manufacturing, not Furniture, not 36 Low-tech
elsewhere classified elsewhere classified
Coke, refined petroleum products Coke and refined 23 Medium-tech
and nuclear fuel petroleum
Rubber and plastic products Rubber and plastic 25 Medium-tech
Non-metallic mineral products Non-metallic 26 Medium-tech
minerals
Basic metals Basic metals 27 Medium-tech
Fabricated metal products Fabricated metals 28 Medium-tech
Chemicals and chemical products Chemicals 24 High-tech
Machinery and equipment, not Machinery and 29 and 30 High-tech
elsewhere classified; office, equipment
accounting and computing
machinery
Electrical machinery and Electrical 31 and 32 High-tech
apparatus; radio, television and machinery and
communication equipment apparatus
Medical, precision and optical Precision 33 High-tech
instruments instruments
Motor vehicles, trailers, semi- Motor vehicles 34 and 35 High-tech
trailers and other transport
equipment
Source: Unido (2013).

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