The Economic development profiles of Taiwan and South Korea have received significant scholarly attention, considering that they are arguably the most successful examples of nations that have grown from underdeveloped to developing nations through the 20th century and part of the current era. Once considered the poorest globally South Korea is currently the 12thlargest economy (Heo, and Terence, 8). Similarly, Taiwan has effectively transformed itself from a small island with a dark history of colonization into the 21st largest economy globally (Chan, and Cal, 18). Through each nation’s journey to economic growth there, have existed some similarities such as the fact that both countries experienced colonization, but developed their economies very rapidly under the government-led development paradigm. Nevertheless, an in-depth analysis of both Taiwan and South Korea shows that the economic development models employed in South Korea and Taiwan were somewhat different. For instance, the South Korean government monopolized the allocation of credit and thus it opted to provide partisan credit rates to big export-oriented corporations to promote economic development
Similarities in Economic Development of South Korea and Taiwan
Rapid and Consistent Development with Relatively Low-Income Inequality
Since the 1960s, the Gross Domestic Product (GDP) per capita in Taiwan and South Korea has unceasingly been on an upward trend over the last ten years. As indicated by (cite), South Korea’s GDP per capita in regards to purchasing power parity (PPP) value rose from an estimated $290 in 1960 to $28,384 in 2010 (Pilbeam, 1167). Similarly, Taiwan’s per capita income went up from an estimated $350 in the 1960s to about $32,529 in 2010. Each nation’s average increase of GDP per capita from 1960 to 2010 is estimated at 9.52 (South Korea) percent and 9.53 percent (Taiwan) (Pilbeam, 1168). It should be noted that consistently high economic growth is rare, considering that growth rates have a habit of fluctuating over time.
Transformation in Industrial Structure
Over the course of the last half-century, for both South Korea and Taiwan, the role of primary industries, chiefly the agricultural industry, decreased significantly with many resources being diverted towards manufacturing as the economy grew. For instance, back in 1962, the agricultural industry was considered the backbone of the South Korean economy as it accounted for about 36%of GDP (Kim, 128). During this period, manufacturing, as well as construction industries, could only account for 20% of the nation’s GDP (Kim, 128). Nevertheless, by the mid-1990s, the manufacturing and construction industries contributed an estimate of approximately 40% of South Korea’s Industry while agriculture only contributed about agriculture as well as fishing only contributed by 9 percent of GDP (Heo, and Terence 114). An in-depth analysis of the Taiwanese economy indicates a similar trend considering that back in 1960, approximately 28.5 % of the country’s GDP was a result of trade in the agriculture industry. However, the aforementioned figure declined to about 3.6% by 1992 (Taiwan Statistical Data Book, p.np). Conversely, the manufacturing industry rose from 35.2% of GDP in 1982, compared to 19.1% in 1960 (Taiwan Statistical Data Book p.np).
Government-led Development
There is a general consensus that a primary cause of the economic development seen in both Taiwan and South Korea is a result of the government’s roles in developing aggressive corporate policies. In accordance with the government-led development paradigm, what is known as a statist approach is described as a process where the government designs a groundbreaking plan that stimulates economic development. Subsequently, according to the plan, economic strategies are developed as well as implemented according to pre-set objectives that tend to be highly determinant of future growth. As indicated by Heo and Roehrig the private sector businesses are expected to follow the government set guidelines thus reflecting similar ambitions as their authorities (178). In such a case, the responsibilities held by the government grow significantly, particularly when there is the existence of policy shifts that may result in different winners (manufacturing stockholders) and losers (agriculture stakeholders) (Haggard 53). From the study conducted by Amsden (1989) and Wade (2004), it is clear that the governments in South Korea and Taiwan played a major part in bringing setting up and implementing policies that stimulated rapid economic growth.
Differences in Economic Development of South Korea and Taiwan
Government Role in Economic Development
The most prominent dissimilarity between the South Korean and Taiwanese economies the role played by the government in driving the country towards economic prosperity. Nevertheless, the point and pattern of government involvement in the respective economy were significantly dissimilar. As explained by (cite) the South Korean government took up a more ‘leadership’ role as the authority took control of the economy, compared to the Taiwanese government who opted to limit their intervention in the economy (Wade 61). Subsequently, the Korean government’s directorial hierarchy developed provided various channels of communication for discussions with the private sector businesses. The continuous close contact between government officials, researchers, as well as private businesses was kept in monthly Export Promotion Assemblies and Specialized Working Groups actions that were not seen in Taiwan.
Dealing with Increasing Labor Costs
During the last half-century, the Taiwanese and South Korean economies have been faced with increasing labor costs which inhibited international competitiveness. However, the dissimilarities in corporation sizes in both nations led to different effects of economic development. As indicated by Heo and Roehrig, in South Korea, the existence of labor unions led to increased strikes that led to lower productivity (74). In reference to the reports provided by the International Labor Organization (1999), in the 1990s South Korea had the largest number of lost workdays in the continent of Asia due to the aforementioned industrial actions the earnings of the manufacturing industry went up by an estimated 7.8% per year between 1992 and 1996 (Heo, and Roehrig 77). Nevertheless, the sales growth in the same industry went down by about 20% in 1995 and a further 10% in 1996 (Heo, and Roehrig 78). During this period, the South Korean government took a back seat in solving labor-management issues a factor that was contrary to the pre-set regulations. Similarly, the Taiwanese economy also went through a similar period of wage increments; however, unlike the South Korean authorities, the government dealt with the issues closely. As explained by Wade, instead of allowing management to take control of the labor dispute, the Taiwan government developed policies that made the labor market much flexible thus enabling manufacturers to hire affordable workforce from Southeast Asian nations (64). Due to weak labor unions, the government was able to enact these policies with limited resistance; additionally, since SMEs were the majority stockholders in the economy the movement of labor was widely accepted. From the information that is provided above it is clear that both Taiwan and South Korea dealt with increasing labor costs much differently a factor that led to South Korea experiencing an economic slump in 1997 an incidence that was hardly experienced in Taiwan.
Capital Financing: Foreign Loans vs. Domestic Capital
Another dissimilarity between South Korea and Taiwan is how the two nations employed dissimilar financing strategies. As indicated by Heo, and Roehrig, the South Korean government relied heavily on loans from international partners as compared to the Taiwanese authorities who depended on domestic savings from the stock market (66). In other words, individuals in the South Koran government considered a direct foreign investment as a risk to the nation’s sovereignty; subsequently, they used foreign loans, which made it easier for the government to control credit allocation for export-oriented industries as well. Nevertheless, this policy only worked in the short term as it led to the 1997 financial crisis in South Korea after banks tried to capitalize on high-interest rates after the authorities liberalized the financial sector to join the OECD.
Conclusion
Over the course of the last half-century, Taiwan and South Korea have enjoyed rapid economic development. As explained in the study presented the two nations share a variety of similarities such as transformation in industrial structure from agriculture to manufacturing, rapid development with relatively low-income inequalities, and government-led development. Nevertheless, at the same time, the two economies highlighted some dissimilarities such as the government’s part in economic development capital financing, as well as how they dealt with increasing wage rates.
Works cited
Amsden, Alice. “The state and Taiwan’s economic development.” Bringing the state back in 78 (1985).
Chan, Steve, and Cal Clark. Flexibility, Foresight and Fortuna in Taiwan’s Development. Routledge, 2013.
Haggard, Stephan. “Institutions and growth in East Asia.” Studies in comparative international development 38.4 (2004): 53.
Heo, Uk, and Terence Roehrig. South Korea since 1980. Cambridge University Press, 2010.
Heo, Uk, and Terence Roehrig. South Korea’s rise: Economic development, power, and foreign relations. Cambridge University Press, 2014.
Kim, Sunhyuk. The politics of democratization in Korea: The role of civil society. University of Pittsburgh Pre, 2000.
Pilbeam, Keith. Finance & financial markets. Macmillan International Higher Education, 2018.
Taiwan Statistical Data Book 2002. https://www.ndc.gov.tw/en/News_Content.aspx?n=607ED34345641980&sms=B8A915763E3684AC&s=867857BCAE3909E7
Wade, Robert. Governing the market: Economic theory and the role of government in East Asian industrialization. Princeton University Press, 2004.