South Korean Development Model
11.03.2017, 11:42


JEL Classification: JEL N, JEL O, JEL P

УДК 327:94


Південна Корея - одне з економічних чудес кінця ХХ століття. Країна, спустошена війною, яка мала у 1950-х роках дохід на душу населення менше, ніж на Гаїті, в Ефіопії, Індії або Ємені, досягла безпрецедентного економічного розвитку і перетворилася на економічного гіганта у 1980-х, а в ХХІ столітті стала однією з найпередовіших країн світу. Процес характеризувався швидкою індустріалізацією, феноменальними темпами зростання і соціальними перетвореннями. Дане дослідження містить міркування про можливість застосування корейської моделі в інших країнах.

Ключові слова: корейське диво, індустріалізація, соціальні перетворення, модернізація.

Частина ІІ

1. Korean model of development beyond industrialization epoch

The 1987 democratic transition of South Korea and the 1997 economic crisis were historical events that refashioned the Korean model of development. Korean model of industrialization became difficult to sustain in the environment of democratization and globalization. It was impossible to maintain authoritarian methods of policy implementation or protectionist and mercantilist economic policies any more.

Democratization of Korea was peaceful, gradual and represented a historical trigger for further growth. Roh Tae-woo became president for the 13th presidential term in the first direct presidential election in 16 years. The government set out to eliminate past vestiges of authoritarian rule by revising laws and decrees to fit democratic provisions. Freedom of the press was expanded, university autonomy recognized, and restrictions on overseas travels were lifted. However, the growth of the economy had slowed down compared to the 1980s, with strong labor unions and higher wages reducing the competitiveness of Korean products on the international market, resulting in stagnant exports, while commodity prices kept on rising. Shortly after Roh's inauguration, the Seoul Olympics took place, raising South Korea's international recognition and also greatly influencing foreign policy. Roh's government announced the official unification plan of Korean Peninsula, "Nordpolitik", and established diplomatic ties with the Soviet Union, China, and countries in East Europe.

Financial crisis 1997 was primarily the result of hasty deregulation and the failure of the government to monitor the situation and led to reform of the Korean model of development. Globalization progressed too fast, making the Korean economy vulnerable to external factors. The major issue was that over the years the private sector (chaebols) had loaded up on debt in order to fund expansion and their debt reached over 500% ratio to their assets. The result was bankruptcy of flagship names such as KIA which ended in Hyundai Motor hands and the collapse of the third largest chaebol Daewoo. Unemployment rose from 2,2 to 7,9%. IMF "bailed out" Korea with a 58,3 billion USD aid package but in return to shock therapy conditions. The crisis had wide-range implication for Korean society and economy. The country showed unique capability of mobilization of the nation to overcome the hardships and ordinary Koreans donated voluntarily personal gold treasures that were melt into ingots ready for sale on international markets to help chaebols in troubles to bail out. But perhaps the most extraordinary aspect of the campaign was not the sums involved, but the willingness of the Korean people to make personal sacrifices to help to save their economy.

New Korean model was formed with strategies of adaptation to globalization in the political environment very different from industrialization period and as a reaction to the fast global connectivity and informatization. In fact, promotion of information started to play a positive role in transforming Korean model into a more transparent and accountable one. The new model is going through modifications, it is based on looking for high added value sectors and on introduction of new technologies with large support for innovations. The pursue of this blueprint is very strong and has been reflected not only by the highest inputs into R&D among OECD countries (4,3% GDP, 2016) but also on systematic front by the creation of the new institution - ministry of science, IT and future planning - with the role of building creative economy.

2. Replication possibility of Korean paradigm

Legacies and lessons of Korea´s macroeconomic management

2.1. What lessons could be learnt

Combination of historical and cultural circumstances conducive to development existed in South Korea and this helped government policies to work. There are some unique factors but also a number of traits in Korea's development paradigm that can serve as positive lessons for other industrializing countries in the development macro-management.

Korean experience exemplifies the continual process of interaction between government and market. Government intervention had been justified, whenever necessary, in order to enhance economic efficiency as a whole. International competitiveness of Korea's exports was the result as much of realistic exchange rates and market-based low wages as of government subsidies and policies. It is worth noting that public enterprises were established mainly in infrastructure activities that required massive capital-intensive technologies but Korean public enterprises were rarely involved for long in activities commercially competitive with the private sector.

Government's role continued in providing the directions of the economy by participating directly or indirectly in basic economic activities and by guiding private sector activities. Flexibility and adaptability to changing circumstances including dynamic sequencing of industries have been a major strength in Korea's industrial policy. The important point to note is that both factors - endowment conditions as well as a set of articulate, conscious policy measures - contributed to a dynamic sequencing in industrial development for comparative advantage. As the economy becomes large and diversified, there should be a gradually reduced role of the government and an increased liberalization of the economy.

In regard to outward looking orientation the Korean experience tells us that success in industrial exports cannot come overnight through some quick-fix magic formula. Korean model is an eclectic one that while emphasizing an outward-looking policy, considered the protection of selective import substituting no less important. Korea's pace of import liberalization has been extremely cautious and gradual. Perhaps one important lesson learnt from Korea's experience with outward oriented strategy would be that such a strategy provides an effective instrument to gauge performance of the domestic sectors of the economy, thereby forcing them towards increased efficiency and technological progress.

Korean experience shows the importance of concrete but flexible planning and management of action policies. The distinctive virtues of Korean management were the pragmatism and flexibility of its policies as well as effectiveness in implementation. Detachment from so called "straightjacket" economic ideologies and dogmas and their willingness to experiment on what would work best at a given time and place seem to have been the key to Korea's success. A distinctive trait of the Korean model lies in the ability of policymakers to quickly and flexibly manipulate both positive and negative external factors to promote their own goals, formulate plans to realize their goals, and effectively implement these plans under an efficiently functioning bureaucratic system.

Korean model is not that of industrialization only at the expense of all other areas. For instance, despite the priority accorded to industrial development, the agricultural sector has not been totally ignored. In fact, there were periods, in particular, during the earlier part of the 1970s when agriculture came to the fore of development strategy. By and large, the goal of governmental policies has been avoidance of an excessive urban-rural disparity in income. The Korean government did not have to spend a large amount of its budget for social welfare and could concentrate its limited resources on high-growth sectors of the economy.

Perhaps the most tangible lesson that the Korean experience tells us is the importance of human capital investment. Koreans, in common with other East Asian newly industrialized countries have shown an awesome commitment to investment in human capital both by way of the quantity and the quality of education. The unusual educational zeal is partly cultural, but also reflects the result of government measures to increase the efficiency of public education. Related to the issue of human capital is efficient management at the company´s level as well as the high quality of the labor force; both have been fundamental strengths of Korea's industrialization process. Korean manufacturing sector was characterized by efficient factor use and high rates of capacity use by international standards. On the other hand, labor productivity grew at an average rate of about 7% per year during the 1966-76 period.

From the point of view of the experience of Korea´s industrialization policy the Korea´s economic success can be characterized as a developmental cycle in the following ways: 1/ government selection of industries and corporations to be supported, 2/ mobilization of tax and financial resources and the drafting the trade policies supporting selected industries and corporations, 3/ government-led restructuring of industries and corporations in distress.

2.2. Korea´s attempts to internationalize the Korean model through ODA

Korea´s international development cooperation takes three forms - concessional loans, grant aid and the Knowledge Sharing Program (KSP) that is particularly designed to identify and share lessons drawn from Korea´s development experience with developing countries. Korea launched KSP recognizes "knowledge sharing" as an effective and innovative tool for economic development. KSP offers comprehensive development assistance programs to partner countries which include in-depth analyses of current conditions, policy recommendations in priority areas and policy training workshops. As an alternative to theory-oriented policy recommendations from advanced countries, it has drawn much attention from developing countries as well as international organizations. Korean Development Institute since 2011 has carried out the modularization of Korea´s development experience which documents in detail policies that greatly contributed to Korea´s economic development. This program consists of 118 modules for sharing Korea´s developing experience. The goal of modularization is to increase the applicability of the Korean model in developing countries.

Major role in disseminating Korean model of development to developing countries has got so called New Village Movement or New Community Movement (Saemaul Undong) that South Korea tries to present as a global strategy for global rural development and modernization. This movement was in the 1970s and 1980s the most important modernization campaign in Korea´s countryside - a rural development scheme - which had far-reaching impacts on her society and economy. It was not until the late 1990s that the campaign began to attract serious scholarly attention. Once manifestation of nationalism is now an exportable model and has been adapted by several countries including Vietnam, Cambodia, Rwanda. Korea is working on "exporting" experience of this model also through UNDP programs.

Korean ODA intends to focus on the well-known effective principle - "teaching people to fish" rather than simply "giving them fish" and is based on soft power rather than hard power. The increase of Korean e-government systems to partner countries has increased Korea´s standing in the global community as well as its "brand value" and has enabled the diffusion of the Korean model through information technology.


If a new book of economic history of the period after World War II is to be written, South Korea economic achievements should feature, without doubt, on the first place. It is a miracle in the sense that the country was able to achieve in three decades such structural economic changes what other countries did in one century.

South Korea is an important country in the community of nations and in our modern world - not just economically but also culturally and politically. Overshadowed in North Korean problem, Chinese growth and Japan´s cultural power, South Korea has never got the credit it has deserved. However this country has become a political model for Asia. Around the region there are countries with successful economies but authoritarian politics, such as Singapore and China. Only Japan presents a serious challenge in the region to South Korea in terms of combined economic and democratic development.

There are no established theories, panaceas or sure formulas in social science that could bring universal receipt for all countries. There are some general aspects of Korea´s successful story but also some very distinctive characteristics of Korea´s capitalism based on old cultural influence like Confucianism and the unique means of industrial development known as chaebol system. The study of Korean transformation is interesting by itself. We should look at the Korean model of development as a successful combination of a number of factors and as a dynamic interplay of historical political environment, external geopolitical factors and domestic factors such as human capital endowment (skilled and educated labor force), effective institutions (vigorous entrepreneurship), Confucian culture, outward-looking economic policy orientation (greater investments and growth in export markets), political leadership commitment to development and taking into account speed and range of transformation as well as historical evolution.

There are lessons to be learnt also on negative side from Korean paradigm. In simple words it is a lack of balance. Korea has overcome a number of crisis over the last years and gone on to achieve stunning economic growth but excessive focus on industrialization and economic development while depriving the society of freedom and democracy brought a lot of social problems. This path created command-driven labor force and made the creativity a generally missing point in Korean society. Korean economy started to be unbalanced, dominated by the country´s top five companies and their affiliates. Role of chaebols has been reflected not only in getting economy upward but on the other side also in stifling small and medium enterprises. Chaebols do not provide solutions for youth unemployment and their growth don´t necessarily lead to a trickle-down effect. Hidden unemployment and polarization of income is striking in Korean society and these disparities are one of highest among OECD countries. Though the country has achieved high level of informatization and the highest internet penetration in the world, she suffers to high extent from the lack of interaction with the outside world. Even more, despite high GDP per capita Koreans belong to the most unsatisfied people in the world with the highest percentage of suicides. Overwhelming accent on economic pursuit brought a highly career oriented culture with only a little space for inward oriented human activities. Every success comes at certain price.


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Slovak Ambassador

to the Republic of Korea


Южная Корея - одно из экономических чудес конца ХХ века. Страна, опустошенная войной, которая имела в 1950-х годах доход на душу населения меньше, чем на Гаити, в Эфиопии, Индии или Йемене, достигла беспрецедентного экономического развития и превратилась в экономического гиганта в начале 1980-х, а в XXI веке стала одной из самых передовых стран мира. Процесс характеризовался быстрой индустриализацией, феноменальными темпами роста и социальными преобразованиями. Данное исследование включает в себя рассуждения о возможности применения корейской модели в других странах.

Ключевые слова: корейское чудо, индустриализация, социальные преобразования, модернизация.


South Korea is one of economic wonders of the late twenties century. War-torn desolated and poverty-stricken country in the 1950s with a per capita income less then Haiti, Ethiopia, India or Yemen, achieved unprecedented economic development and legendary growth that brought her from one the most backward countries into an economic giant by the 1980s and later on one of the most advanced countries in the world in the 21st century. The process was characterized by rapid industrialization, phenomenal growth rates and incremental social transformation. Instead, the paper focuses on some selected aspects that, though sometimes forgotten to get a due attention, but substantially subscribed on the Korea´s industrialization successful story. The study includes considerations of the applicability of Korean model on other countries.

Keywords: Korean miracle, industrialization, social transformation, modernization

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