8 - Korean Development Model: Lessons for Southeast Asia

Summary

Introduction

The 1990s saw an explosion of works on the fast-growing economies of East and Southeast Asia, by individual scholars as well as international development institutions. Influential books, by Amsden (1989) and Wade (1990) as well as by Johnson (1982), have explored the distinctive nature of the East Asian developmental state, especially the role of government in determining the allocation of resources to particular industries, in building industrial infrastructures through public firms, and in developing the educational system. The widely discussed report published by the World Bank (1993) on the East Asian “miracle” endeavoured to draw lessons, not just from the experience of Japan, South Korea, and Taiwan, but also from four fast-growing economies in Southeast Asia — Singapore, Indonesia, Malaysia, and Thailand. They all point out that high-performing Asian economies (HPAEs) are the only economies that achieve high growth and diminish inequality at the same time.

Most of literatures usually consider the region as economically integrated, coherent, and homogeneous. Terms such as “Asia-Pacific”, “Pacific Asia”, “East Asia”, “Asian Miracle”, “Yen Bloc”, “flying geese”, “tigers”, “dragons”, and so on have tended to reflect and encourage this perception. However, this perception is far from the truth: the countries of the region have little in common in terms of their nature, quality, and effectiveness of each development path.

For sure, the World Bank differentiates the first-tier, newly industrializing countries such as Taiwan and South Korea from the second-tier, newly industrializing economies (Indonesia, Malaysia, and Thailand). The World Bank stresses that, despite differences in their initial condition and industrializing period, the miracle in both regions would not have been possible but for market forces and government intervention with market-friendly industrial policies.

However, even little dragons, as the first group is called, show varied degrees of state intervention and various industrial policies and strategies for catching up. Shin and Chang (2003) insist that the states in Japan and South Korea played the role of market-substituting while other dragons, Singapore and Hong Kong, pursued the market-complementing strategy. Regarding the historical role and type of government, they also insist that even the Korean experience can be differentiated from the Japanese case.

In the midst of this lack of agreement about how the economic development in the region came about, this chapter tries to spell out the crucial aspects of Korean economic development.