Chaebol Investments and Government Policy

It is argued that one key reason behind Korea's stalling economic growth is the lack of sufficient investments in facilities, especially by the chaebol companies. The government charges the chaebols with under-investing and has put considerable pressure on them to invest more aggressively. Since one main pathological feature of the chaebols has been their propensity co over-invest, this paper examines whether there has been a change in chacbol behavior. Evidence shows chat chaebols are not under-investing in facilities. The chaebols arc engaging in investments that make business sense, even though these levels of investment may fall short of what the government would like to sec. By misreading the true situation, the government may be initiating a complex power game with the chaebols, which will prove to be counter-productive.