Economic Development and Inflation: Lessons from the Korean Experience

Inflation in Korea is cost-push inflation originating from the economic growth strategy. This rapid growth-oriented, industrialization-oriented, export-driven, and big firm-oriented strategy has formed both an industrial structure which is dependent on foreign factors and a market structure which is monopolistic. It has, at the same time, caused the slowdown of agriculture. The external dependency of the industrial structure has in turn generated a price structure in which domestic prices are sensitive to foreign price movements. The monopolistic structure has additionally given rise to a price structure where a cost increase is easily linked to a price increase. In sum, induced by the Korean experience the argument that the inflation must be tolerated for rapid economic growth cannot be justified.