South Korea in the Fast Lane: Economic Development and Capital Formation

481 Pages·2007·2.04 MB·English

by  Young-Iob Chung

South Korea in the Fast Lane
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SOUTH KOREA IN THE FAST LANE
Economic Development and Capital Formation
Young-Iob Chung
Professor Emeritus of Economics
Eastern Michigan University
1
2007
3
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LibraryofCongressCataloging-in-PublicationData
Chung,Young-Iob.
SouthKoreainthefastlane:economicdevelopmentandcapitalformation/
Young-IobChung.
p. cm.
Includesbibliographicalreferencesandindex.
ISBN978-0-19-532545-4
1. Korea(South)—Economicconditions—1948–1960. 2. Korea(South)—Economic
conditions—1960– 3. Korea(South)—Economicpolicy. 4. Savingandinvestment—
Korea(South)—History. I. Title.
HC467.9.C48 2007
338.95195—dc22 2006035252
1 3 5 7 9 8 6 4 2
PrintedintheUnitedStatesofAmerica
onacid-freepaper
To professors Ragner Nurkse and Robert F. Burns
of Columbia University
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preface
Post–World War II South Korea is a divided half of a small, densely populated
countrywithruggedterrainandfewnaturalresources.1UntiltheendofWorld
War II, Korea languished politically and culturally in the shadow of the major
powersofAsia—namely,ChinaandJapan—havingbeenruledbyJapanfornearly
all of the first half of the twentieth century and having traditionally attracted little
interest from the outside world.In recent decades, however, both Southand North
Koreahaveattractedtheworld’sattention:SouthKoreahasgainedareputationas
an underdeveloped country that has successfully undergone spectacular economic
growthsincetheKoreanWar,whileNorthKorearemainsasoneofonlytwoorthree
survivingcommunistcountries, isolated fromtheoutsideworld,andhasbecomea
focus ofmanycontroversies and concerns.
Theso-calledmiraculouseconomicgrowthinthesouthernhalfofthepeninsula
has, in a very short time period, transformed South Korea from basically a de-
pendent,colonial,agrarianeconomyintoamajorindependentandindustrialpower
that is now considered one of a dozen or so top industrialized countries in the
world.As a result, an increasing number of scholars and journalists have begun to
studyandwriteaboutSouthKorea’sphenomenalsuccessineconomicdevelopment
in recent decades. There have been a number of significant publications and tech-
nicalstudiesrelatedtosomeaspectsofSouthKorea’seconomicsuccessandcapital
formation.However,therehasbeenlittlecomprehensiveanalysis,eitherinEnglish
or Korean, of South Korea’s post–Korean War economic development and capital
formation.ThisbookattemptstofillthevoidandexamineshowSouthKoreaandits
peoplehavesucceededinsavingtheirincomeandinvestment,enablingthecountry
to industrialize and develop its market-oriented economy.
Along with the previous volume dealing with capital formation and the eco-
nomic transformation of Korea during the 70-year period between 1876 and 1945,
viii Preface
this book has been in the making for many years. Although there remain areas in
which thorough analysis with more reliable data would make this study more de-
finitive, I am pleased that this volume is ready for public scrutiny at this time.
Overtheyears,incompletingthisbook,Ihavebecomeindebtedtomanypeople,
including the pioneers in the field. I am particularly grateful to the late professors
Ragnar Nurkse and A. R. Burns of Columbia University, who instilled in me, as
wellasinmanyotherscholarsandstudents,theimportanceofthesubjectofcapital
formation and economic development in less developed countries and who moti-
vated me to undertake this project. Among many who have given me encourage-
ment and support for this project over the years, I am particularly grateful to my
mentorsandlongtimefriendsJaisonKim,SunkiBaik,HyunJoonYoo,PoongShik
Park,JinChunKo,KyuHyeongChoi,andEungMoCho,whohaveassistedmein
a variety of capacities, particularly while I was in Korea conducting research for
this book. Likewise, my gratitude goes to colleagues, staff, and numerous former
students, especially those from Korea and Thailand, at Eastern Michigan Univer-
sity,whohaveshownkeeninterestsandassistedmeinnumerousways.Also,Iwish
to convey again my gratitude to Eastern Michigan University, the Korea Founda-
tion,andtheAcademyofKoreanStudiesfortheirsupportandfinancialassistance.
I am also indebted tomanypeoplefor their assistance inthe publication ofthis
book: Janet Opdyke and John Donohue, who have meticulously edited the entire
manuscript with patience, care,andacriticaleye that madethe manuscriptclearer
and more readable; In Song Kim, who has devoted his precious time to assisting
me with this as well as the previous publication; and Terry Vaughn and Catherine
Roes of Oxford University Press, for making publication a satisfying experience.
Ofcourse,Ialonebearthefullresponsibilityforanyerrors,omissions,misinterpre-
tations, or misapprehensions in the text.
Lastbutnotleast,Iwishtoexpressmygratitudeagainfortheunderstandingand
encouragement of my daughters, Jeewon and Jeanie, and especially of my wife,
Oke, who has paid a heavy price for the writing of this book for so long. I cannot
begin to speak of what I owe to her support and affection.
contents
Abbreviations and Weights and Measures, xiii
1. Introduction, 3
2. Economic Development and Structural Changes, 7
Economic Development before 1945, 7
Stages of Economic Development, 12
Structual Changes, 19
Industrial Structure and Organization, 34
Urbanization, 37
Factors Affecting Economic Growth and Structural Changes, 37
Summary and Conclusions, 41
3. Aggregate and Sectoral Investment, 43
Aggregate Investment, 44
The Nature of Investment, 48
Public Investment, 49
Private Investment, 61
Estimated Domestic Physical Investment, 71
Investment in Human Capital, 72
Summary and Conclusions, 76
4. Industrial and Foreign Exchange Policies, 78
The Government’s Role in Investment, 79
Industrial Policies, 84
Policies Affecting Business Investment, 90
Government Property Divestiture Programs, 92