An Empirical Inquiry into the Nature of South Korean Economic Growth

Abstract

South Korea has experienced spectacular economic growth rates over the last forty years. How did this economic “miracle” occur? Economic growth in Korea can be explained in terms of geography, demography, human development or economic convergence theories. However, the debate over the role of legal, political and institutional development in Korean economic growth is perhaps the most complex of all. This paper offers an empirical estimation of the explanatory variables of growth, touching upon legal, political, cultural and institutional developments, and measures the impact of physical and human capital and productivity increases on economic growth. Using growth regressions, I find that the early protection of property rights and, to a lesser extent, contract enforcement, was extremely important in achieving ex-post growth in South Korea. On top of that, this East Asian country has benefited from a very successful legal tradition from an economic perspective: the German legal system. The uniform composition in terms of race and language has also favored economic growth in Korea while political stability has been crucial over the development period. This last proposition is also tested in a second empirical exercise where I estimate the role of different factors of production, technical change and productivity growth in South Korea. The role of capital accumulation is very important while productivity growth is important and the growth in human capital is moderate. However, productivity is negative only in periods of high political instability, reinforcing the link between growth, productivity, and political developments.