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rather to take it as a classic example. There are key similarities between the four Tigers, primarily regarding the drive to become involved in the world economy through increased trade, as well as state intervention in the development process (Krueger 1995). However, the differences are vast and well documented, so it is prudent to focus on one in this paper.
1.1 - A Few Words On South Korea’s Growth
From the mid to late 1960’s until the financial crisis of 1997, South Korea’s economic growth was nothing short of staggering. South Korea became a quintessential Developmental State, that is, the goal of the state is to promote sustained development, and economic growth (Fine, 2006). The details of South Korea’s drive for growth shall be discussed later, but in essence, the state maintained economic growth as a top priority (Hookon Park, 2000).
From the 1960’s until the mid 1990’s, Korea enjoyed almost unprecedented growth of GDP, and GDP per capita, as can be seen in Figure 1:
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Figure 1: Growth rates (%) of GDP per capita in Korea, 1965-1995
Source: Author’s calculations based on World Development Indicators, World Bank (2007)
In itself, these figures are staggering; even more so, when compared with inferior performance of industrialised countries including the United States and UK (OECD 2004). However, South Korea’s economic ascendency came to a grinding halt, albeit temporarily, with the 1997 financial crisis which gripped vast swathes of eastern Asia. The OECD reports GDP per capita in South Korea shrinking by 7.6% in the subsequent year, having grown at between 4% and 8.1% in the preceding years of the 1990’s.
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2.0 - Economic Growth Theories
2.1 - Introduction
This purpose of this chapter is to introduce the basic premise of two types of growth theory; Neoclassical or Old Growth Theory (OGT) and New Growth Theory (NGT), and provide a discussion of the results they provide. That is, to establish what factors contribute to the growth of a countries output. If it can be shown that particular theories go some way to explaining Korea’s growth, then this can further help the understanding of actions required to assist the development of other nations (see “Blueprint” chapter 4).
What this chapter does not intend to provide is a rigorous analysis of models, with tedious mathematical derivation and interpretation.
2.2 - Old Growth/Neoclassical Theory
Neoclassical growth models have attempted to explain economic growth in terms of factor inputs and subsequent outputs, but without internalising the driving force of growth; that is, the rate of growth is determined exogenously of the model (something that came to be one of the biggest criticisms of the theory). Robert Solow (1956, 1957) provided something of a benchmark model, the Solow Model. Jones (2002) provides a useful adaptation of this model. The basic form, with technology;
Y = Kα(AL)1-α
This equates the inputs of capital (K), and labour (L), with diminishing returns to each input (K and L, with 0 < α < 1), with ‘technology’ (A), used as a loose proxy for many variables in an economy that drive productivity. This very basic model has many derivations (see Jones
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2002), a significant one being that the economy grows at an exogenous rate, g, the growth rate of technological progress ‘A’. The finer points of the model aside, the implication is that the economy errs toward a ‘steady state’; where investment in new capital is eno