Getting Interventions Right: How South Korea and Taiwan Grew Rich, Issue 4964
Most explanations of Korea's and Taiwan's economic growth since the early 1960s place heavy emphasis on export orientation. However, it is difficult to see how export orientation could have played a significant causal role in these countries' growth. The measured increase in the relative profitability of exports during the 1960s is too insignificant to account for the phenomenal export boom that ensued. Moreover, exports were initially too small to have a significant effect on aggregate economic performance. A more plausible story focuses on the investment boom that took place in both countries. In the early 1960s both economies had an extremely well- educated labor force relative to their physical capital stock, rendering the latent return to capital quite high. By subsidizing and coordinating investment decisions, government policy managed to engineer a significant increase in the private return to capital. An exceptional degree of equality in income and wealth helped by rendering government intervention effective and keeping it free of rent seeking. The outward orientation of the economy was the result of the increase in demand for imported capital goods.
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activities allocation Amsden argument bureaucracy chaebol Chinese Petroleum Corporation comparative advantage coordination failure countries credit subsidies discussed domestic early East Asian economic growth economic performance economists explain export boom export incentives export orientation export subsidies export-GDP ratio export-led growth export-oriented policies Figure firms Gini coefficient government intervention government policy Hong human capital Hyundai Hyundai Cement increase in exports increase in investment industries initial conditions intermediate investment boom investment demand investment subsidies Jones and Sakong Korea and Taiwan Korean and Taiwanese Korean govemment linkages macroeconomic manufacturing modem sector NBER Working Paper non-tradables output percent physical capital POSCO President Park price of exportables priority profitability of exports public enterprises real exchange rate regime relative price relative profitability rent-seeking return to capital returns to scale Rodrik role scale economies share of GDP significant Source South Korea Table tradables trade Wade World Bank