This study presents a system dynamics methodology to evaluate quantitatively the effect of the Korean government’s development policy, such as tax reductions, on the industrial economy. System dynamics is often perceived as an optimized means to identify the dynamic inter-relationships among various factors of development policies, and in particular the industrial characteristics and uncertainties of the coastal shipping industry. The results of simulations used in this study shows that the impact of development policies such as tax reductions would increase shipping demand for about 4 years, and that tax incentives could raise the demand volume for cabotage cargo from 5.26 to 11.11%, through the available freight- down by 90∼95% points. The system dynamics approach used in this paper represents an initial attempt to use this methodology in studies of the coastal shipping industry. On the basis of our simulations, the industrial effects of other development policies, such as ship financing support, investment of social overhead, or crew supply, could also be analyzed effectively. Additionally, it should be possible to extend these results by developing a comprehensive model encompassing these various analyses.