In terms of American Economy, interest rates effect against light manufacturing industries and service industries becomes more understandable when one considers the terms of loans these industries would usually get. While heavy and industries mainly rely on long-term capital for their equipment, light industries and especially service industries are more likely to depend on short-term capital, which aggravates these industries' wage performance portion that has been affected by the real interest rates (Raynold, Prosper 1994).
While real interest rates had an important role in presenting the legacy of industrial policy and the trace of government's targeting that sacrificed other sectors, the real interest rates linkage has another important dimension in understanding the mechanism that received international economic influences.
Conventional wisdom dictates that an international economic fluctuation, such as oil shock, would influence the economy overall, including the wage performance of an economy. Indeed, international economic variables do affect the economy. It is very well known that foreign exchange rates are one of the key variables that affect the export performance of Korean industries.
Industrial policy, in other words, seemed finally to have arrived in force on the American scene. The period from 1968 through 1992 can be divided into four major phases: the Vietnam War phase (1968-1972), the oil shocks (1973-1979), the Volcker era (1979-1986), and the Greenspan era (1986). From 1968 through 1973, the United States experienced inflationary growth fueled by the Vietnam War, which in the context of fixed nominal exchange rates led to a progressive real overvaluation of the dollar and a declining trade balance. This, coupled with a development and commodities boom around the world at that time, began a process of globalization in the manufacturing sector that has marked U.S. economic development ever since (Seater, John J., 1993)...........
