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Abstract

The Korean economy is based on a government led and export oriented growth model centered on business groups or conglomerates known as chaebols which have close relationships with the government. The government led growth model, also known as Guided or Managed Capitalism, relies on a government dominated, but privately owned, business sector. The private business sector is itself dominated by chaebols which are family owned or controlled business groups. These groups are supported by preferential relationships with the government. While the chaebol system was an important element of South Korea's early industrial growth, it ultimately had to be reformed. The access to cheap and easy credit as well as protected domestic markets led many chaebols to make poor investment decisions. The weaknesses of the chaebols became apparent during the Asian financial crisis. Many of them collapsed in a short period of time because they were heavily invested in export-oriented industries, and thus exposed to the risk of a downturn in foreign markets.

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