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Nature of South Korean Economic Growth[1]

Nature of South Korean Economic Growth[1]

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An Empirical Inquiry into the Natureof South Korean Economic Growth
 
Francisco Garcia-BlanchCID Working Paper No. 74September 2001
©
Copyright 2001 Francisco Garcia-Blanch and the President andFellows of Harvard College
 
at Harvard UniversityCenter for International Development
Working Papers
 
 Francisco Garcia-Blanch
ii
 Korean Economic Growth
An Empirical Inquiry into the Nature of South Korean Economic Growth
Francisco Garcia-Blanch
Abstract
South Korea has experienced spectacular economic growth rates over the last forty years.How did this economic “miracle” occur? Economic growth in Korea can be explained interms of geography, demography, human development or economic convergencetheories. However, the debate over the role of legal, political and institutionaldevelopment in Korean economic growth is perhaps the most complex of all. This paper offers an empirical estimation of the explanatory variables of growth, touching uponlegal, political, cultural and institutional developments, and measures the impact of  physical and human capital and productivity increases on economic growth. Usinggrowth regressions, I find that the early protection of property rights and, to a lesser extent, contract enforcement, was extremely important in achieving ex-post growth inSouth Korea. On top of that, this East Asian country has benefited from a very successfullegal tradition from an economic perspective: the German legal system. The uniformcomposition in terms of race and language has also favored economic growth in Koreawhile political stability has been crucial over the development period. This last proposition is also tested in a second empirical exercise where I estimate the role of different factors of production, technical change and productivity growth in South Korea.The role of capital accumulation is very important while productivity growth is importantand the growth in human capital is moderate. However, productivity is negative only in periods of high political instability, reinforcing the link between growth, productivity,and political developments.
Keywords:
Economic growth, Korean economy, political economy, law and economics
JEL Codes:
K11, N15, O47, O50, O53 ________________________________________________________________ Francisco Garcia-Blanch is a PhD. candidate in applied economics at ComplutenseUniversity of Madrid and a graduate of the Kennedy School at Harvard. He has also beena reciprocity fellow in the Group in Asian Studies in the University of California atBerkeley and a Korea Foundation Fellow in Seoul National University.
Acknowledgements:
I am very grateful to Prof. Dwight Perkins for invaluablesuggestions and support. I would also like to thank Lorenzo Isla for excellent researchassistance and Carlos Arteta for sharing his data. All errors on the paper are, of course,only mine
.
 
 
 Francisco Garcia-Blanch
1
 Korean Economic Growth
“In human life, economics precedes politics or culture.”Park Chung Hee,
The Country, The Revolution and I.
 
1. INTRODUCTION
South Korea
1
has experienced spectacular economic growth rates over the lastforty years. The magnitude of the so-called Korean economic “miracle
2
” is bestexplained by comparing Korea with some African countries in the mid XXcentury. The per capita GDP of South Korea in 1960 was inferior to that ofSenegal or Mozambique. Forty years later, the GDP per capita of Senegal hardlyreaches $1,650 and that of Mozambique stands at $1,000. On the other side, thelast available figures
3
indicate that Korea’s GDP per capita has gone up to$13,300. Even after the serious currency and financial crisis of 1997-98, Korearemains as one of the economic success stories of the second half of the XXcentury. How did this economic “miracle” occur? Can other countries replicateKorea’s strategy successfully? The debate on the sources of this magnificentgrowth is by no means over. As I will discuss in this paper, economic growth inKorea can be explained in terms of geography, demography, humandevelopment or economic convergence theories. However, the debate over therole of legal, political and institutional development in Korean economic growthis perhaps the most complex of all. Many social scientists that have had a chanceto study Korea would agree that politics have played a key role in the economicdevelopment of this resource-poor country. Are there ways to test thisempirically?This paper begins by explaining the initial conditions that Korea departed fromin the early fifties and sixties and contrasts them with (1) starting point
1
The official name of South Korea is the Republic of Korea (ROK). South Korea is also referred to in this paper as Korea.
2
World Bank (1993)

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