Small and Medium Enterprises in Korea: Achievements,Constraints and Policy Issues

This paper provides an overview of the evolution of the small and medium enterprise sector in Korea during the past quarter century. It shows how the industrial structure of Korea has changed dramatically over this period reflecting much greater shares in employment and value added by SMEs. It reviews the evidence on SME dynamism showing that SMEs have contributed to the enormous transformations that have taken place in the Korean economy since 1975, especially with regard to exports, foreign investment and productivity performance. It discusses the role of subcontracting as well as that of government and non-governmental institutions in supporting SME development. Finally, it examines the link between variations in the economic importance of SMEs, as measured by their shares in employment, and aspects of growth and inequality to assess whether SMEs function as business cycle shock absorbers and inequality-reducing mechanisms.