In fact, there are several problems in using die elements of the Leonuef inverse in this static input output table as complete indicators of die demand-side effects on steel indusuy growdi First of all,

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Table 5.4 Induced steel output in Korea by a unit change in final demand for major steel-consuming industries, selected years, 1963-88 (value based)"

1963 1970 1975 1980 1985 1988 Finished steel ^ _{1.848 2.162 2.480 2.719 2.695 2.733} Finished steel (=/) _{1.087 1.059 1.127 1.266 1.194 1.197} Fabricated metal _{0.074 0.266 0.346 0.339 0.300 0.287} Machinery _{0,118 0.217 0.242 0.176 0.201 0.207} EL machinery _{0.047 0.034 0.119 0.072 0.078 0.088} Transport equipment _{0.082 0.099 0.097 0.145 0.159 0.118} Construction _{0.134 0.161 0.177 0.190 0.196 0.199}

Water, electricity and gas _{0.019 0.021 0.028 0.038 0.044 0.055}

Mining _{0.036 0.050 0.061 0.080 0.077 0.078}

Pig iron and semis ^ 1.581 1.941 2.695 3.108 3.274 3.242 Pig iron and semis (=/) '' _{1.088 1.167 1.372 1.643 1.570 1.593}

Finished steel _{0.252 0.334 0.569 0.632 0.770 0,769}

Notes a The figures are row elements of 'the Leontief inverse net of intermediate imports' in the input-

output table for a total of 65x65 sectors. That is, {Yy) = [I-yi^]-iand7,y =(dQ/dQJ). See footnote 5. Other industries not presented here have coefficients generally less than 0.01.

b The row sum of the Leontief inverse, indicating the total effect on the i th productive system

when each final demand increases by unity.

c In the Leontief inverse, J a shows the largest value and is greater than 1. The value of (Y,, -1) can be interpreted as the indirect effect of a unit change in final demand for i th industry products on its own production.

Source Bank of Korea, Input-Output Tables, various issues.

Table 5.4 shows firstly that the sum of the steel-row elements of the Leontief inverse in Korea - the total effects on steel production of a unit increase in final demand for all industries - increased over time (see the rows of Xy Yy). This implies that, as the Korean economy continued to industrialise throughout the 1970s and 1980s, the direct and indirect effects on steel industry development of the demand side of the Korean economy increased.

Secondly, the industries consuming steel more intensively had a stronger impact on the steel industry's production system when the final demand for these industries increased (Table 5.4 and Figure 5.2). Besides the steel industry itself, the steel- intensive manufacturing industries such as metal products, machinery, transport equipment as well as the construction sector exhibited the highest values among the steel-row elements in the Leontief inverse. As shown in Table 4.3, these industries increased their importance in the Korean economy throughout the 1980s. Growth of

djTiamic analysis of the input-output models would be more appropriate in rapidly changing economies. Moreover, the effects of domestic steel demand as intermediate input cannot be fully captured, even if part of these effects are reflected through the effects of final demand for the industries using steel as intermediate inputs. In the presence of external scale economies, which may be the case for the steel industry in rapidly developing countries, the effects on development of the steel industry of increasing domestic demand for steel induced by growth of the economy and of steel-consuming industries would be much more complicated, and the static linear input-output model may not be able to capture all the effects. Nevertheless, the estimates reported in Table 5.2 can be used as proxies for the effects.

these industries induced substantial rises in steel demand due to their high degrees of input requirements for steel, indicating that they made an increasing contribution to expansion of steel production.

Thirdly, the estimates of row elements corresponding to the pig iron and semi- fmished steel sector in the Leontief inverse suggest that demand-induced effects on production increases in pig iron and semi-fmished steel stemmed mostly from growth of the sector itself and the downstream rolling sectors (Table 5.4).' In relation to the backward integration process of the Korean steel industry discussed in Chapter 3, this confirms that development of upstream iron and crude steel processing in the Korean steel industry was strongly influenced by growth of the rolling sector, which resulted inevitably in rapidly rising domestic demand for steel primary forms and pig iron.

While Table 5.4 suggests that, in Korea, domestic demand had increasingly important effects on steel industry growth throughout the 1970s and 1980s, the channel through which it influenced the steel industry may be more complicated. Some examples of how domestic demand influenced development of the Korean steel industry can be found in the history of POSCO.

Firstly, one of the influential factors in the Korean government's decision to establish POSCO, to expand its capacity rapidly and to establish another integrated mill was the rapid growth in domestic steel demand at the time, to the point where it far outstripping domestic supply (Kim, 1976; POSCO, 1988; and Innace and Dress, 1992). POSCO's construction plan, procurement of equipment and field design also responded to characteristics of the current and anticipated domestic demand. In the construction process of the Pohang works, for example, POSCO constructed rolling facilities first in order to meet the rapidly increasing domestic demand for finished steel (POSCO, 1988; and Innace and Dress, 1992).'° POSCO (1988) states that it was to help to ease the nation's steel shortage. POSCO was then able to produce hot strip and some finished steel products with imported semi-finished steel slabs and other primary forms, while the construction of steel-making converters and blast furnaces was still in process. This provided the company with an immediate cash flow and the opportunity to achieve profitability faster (POSCO, 1988; and Innace and Dress, 1992).

9. Since semi-finished steel manufacturing uses pig iron as the most important input, the input-output