REVISITING THE SOUTH KOREAN

EXPERIENCE OF ECONOMIC
DEVELOPMENT

I
TABLE OF CONTENTS

Table of Contents..........................................................................................................I

INTRODUCTION............................................................................................................1

This paper confirms the interventionist notion that the successful economic
development of Korea was mainly rooted in the aggressive role of government.
Korean policy has strategically changed in direction but not in degree. Carefully
sequenced “target shifting” and “constant upgrading” by government were the
ultimate sources of Korea’s outstanding economic performance in the early
stages of development........................................................................................1

WHAT IS DEVELOPMENT............................................................................................1

geography and history in brief....................................................................................2

STAGES OF INDUSTRIAL DEVELOPMENT................................................................3

Economic Take Off.......................................................................................................3

Close cooperation between the government and export industries: South

Korea’s rapid and sustained development can be ascribed to a combination of social
and economic factors: the high level of industriousness and literacy among the
people, the introduction in the early 1960s of economic reforms (including land
reform). The reforms were aimed at:..........................................................................3

Financial diplomacy: These developmental programs required enormous

amounts of capital. As the level of United States assistance had stabilized, the Park
regime turned to "financial diplomacy" with other countries. The normalization of
relations with Japan in 1965 brought Japanese funds in the form of loans and
compensation for the damages suffered during the colonial era. Park made a state
visit to the Federal Republic of Germany in 1964 that resulted in the extension of
government aid and commercial credits. The availability of funds and the increasing
level of exports elevated Seoul's credit rating, making it possible to increase
borrowing in the open international market. Further, the conflict in Indochina
stimulated economic growth. Seoul's export drive also owed much to the availability
of an educated labor force and a favorable international market. ..............................5

Semi-Industrial Development.......................................................................................5

Structural Adjustment..................................................................................................7

Globalization.................................................................................................................9

11

Restructuring..............................................................................................................11
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DEVELOPMENT STRATEGIES...................................................................................14

Strategic Openness....................................................................................................14

Heterodox Macroeconomic Policies For Stability....................................................15

Creation Of Institutions For Productive Investment................................................15

Agricultural Development( Phases of development theke data dhukbe, High & low
grain policy er beparta dhukbe).....................................................................15

Industrial Development And Structural Change( Phases of development theke data

dhukbe)............................................................................................................15

Creation Of Technological Capabilities....................................................................16

Technological Learning And Innovation...................................................................16

Poverty Reduction Strategies (data dhukate hobe).................................................17

Rethinking The Strategies After The Crisis..............................................................17

SOUTH KOREAN ECONOMIC DEVELOPMENT: STATUS QUO...............................19

THE FUTURE FOR THE KOREAN ECONOMY...........................................................22

FINANCIAL SECTOR MANAGEMENT AND THE ROLE OF GOVERNMENT IN THE

ERA OF GLOBALIZATION..............................................................................23

ASSESSING THE DEVELOPMENT SCENARIO: BANGLADESH vs. SOUTH KOREA

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CONCLUDING REMARKS..........................................................................................30

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LIST OF FIGURES

Figure 1. The outstanding recovery from the Asian crisis......................................11

Figure 2. (a) HDI trends of South Korea and other countries from 1990-2005; (b)
The HDI gives a more complete picture than income...................................21

Figure 3. HDI index of South Korea in between 2006-2010......................................21

Figure 4. GNI, PPP (current international $) trend for South Korea........................22

LIST OF TABLES

Table 1. GEOGRAPHIC, SOCIAL, AND ECONOMIC INDICATORS AT A GLANCE…3

TABLE 2. COMPARISON OF MAJOR ECONOMIC INDICATORS……………………..27

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INTRODUCTION

The rise of Asia was a transforming event of the economic and political history of the
second half of the twentieth century. The average growth rate of East Asian countries
exceeded the average growth rate among other countries by 1.7% a year. Many Asian
economies have shared in the success first Japan; then the tigers, South Korea,
Singapore, Hong Kong, and Taiwan, China; then the new industrializing economies such
as India, Malaysia. This term paper focuses on South Korea’s spectacular economic
growth Over the past 50 years.. This nation has advanced from being one of the world’s
poorest countries in the 1950s to one of the richest in the 1990s. In 1996 it was
designated a “high-income” country by the World Bank and joined the Organization
Economic Cooperation and Development (OECD) in Paris as an industrialized, aid-
giving country. Again in 1997 the scenario changed as South Korea became the
principal victim of the 1997 Asian crisis. The paper reviews the outstanding economic
journey of South Korea. The paper revisits various phases of development and
development strategies in Korea and points out similarities and contrasts between the
development scenarios of South Korea and Bangladesh.

In assessing the performance of South Korea, the key issues discussed are as follows:
• The main economic strategies that turned World’s one of the poorest countries
into one of the richest countries.
• Essential features that characterize the fundamental role of the Government of a
country to attain sustainable economic development.

This paper confirms the interventionist notion that the successful economic development
of Korea was mainly rooted in the aggressive role of government. Korean policy has
strategically changed in direction but not in degree. Carefully sequenced “target shifting”
and “constant upgrading” by government were the ultimate sources of Korea’s
outstanding economic performance in the early stages of development.

WHAT IS DEVELOPMENT

Some clarification of the key term ‘development’ is necessary in order to avoid

ambiguities and confusion. This paper will consider development as growth with some

1
structural change or at least the assumption that this type of growth is the most crucial
condition necessary for development. The concept of growth is derived by adding explicit
distributional elements to growth, particularly inequality and poverty. Finally development
discussed here is really an extension over time and space of freedom, particularly the
positive freedom to lead the type of life the individual has reason to value.

GEOGRAPHY AND HISTORY IN BRIEF

A small country (38,622 square miles), Korea is located on a peninsula that protrudes
southward from the northeastern corner of the Asian continent. It is an old country,
whose people evolved as one nation from the seventh century until 1945, when the
country was divided by the United States and the Soviet Union at the end of World War
II. The ensuing cold war created two Korean governments, one in the north known as
the Democratic People's Republic of Korea, and another in the south known as the
Republic of Korea. The two Koreas engaged in a bitter war between 1950 and 1953 and
remained divided as of today, even though the two governments began talk to each
other in 1971.

The Republic of Korea (South Korea) occupies the southern portion of a mountainous
peninsula projecting southeast from China and separating the Sea of Japan from the
Yellow Sea. South Korea’s only land boundary is with North Korea. With over 47 mil lion
people, South Korea has one of the world’s highest population densities—much higher,
for example, than India or Japan— while the territorially larger North Korea has about 24
million people.

The division of the Korean peninsula in 1945 created two distorted economic units. North
Korea inherited most of the mineral and hydroelectric resources and most of the existing
heavy industrial base built by the Japanese during their lengthy occupation. South Korea
was left with a large, unskilled labor pool and most of the peninsula’s limited agricultural
resources. Although both the North and South suffered from the wide spread destruction
caused by the 1950s Korean War, an influx of refugees added to the South’s economic
woes. For these reasons, South Korea began the postwar period with a per capita gross
national product far below that of the North. Table 1 presents geographical, social and
economic indicators of South Korea.

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Table 1. Geographic, Social, and Economic Indicators at a glance
Capital: Seoul
Area: 98,500 km
Population: 47 million (2000)
Population (annual growth rate): 1.0% (1990—2000)
GNI per capita: U.S. $8,910 (2000)
GNI per capita (PPP): U.S. $17,340 (2000)
GDP per capita (average annual growth rate): 4.7% (1990—2000)
Agriculture as share of GDP: 5% (2000)
Exports as share of GDP: 38%(2000)
Under age 5 mortality rate (per 1,000 live 9(1999)
births): <1% (2000)
Child malnutrition (underweight): 41% (1997)
Females as share of labor force: 2% (1999)
Illiteracy rate (age 15+): 0.875 (high) (1999)

STAGES OF INDUSTRIAL DEVELOPMENT

ECONOMIC TAKE OFF

The shift in orientation was reflected in the First Five-Year Economic Development Plan
(1962-66), and the subsequent second (1967-71), third (1972-76), and fourth (1977-81)
five-year economic development plans. The nation’s successful industrial growth began
in the early 1960s, when the government instituted the following economic reforms:

• emphasizing exports;
• emphasizing labor-intensive light industries;
• carrying out currency reform;
• strengthening financial institutions;
• introducing flexible economic planning.

Close cooperation between the government and export industries: South

Korea’s rapid and sustained development can be ascribed to a combination of social and
economic factors: the high level of industriousness and literacy among the people, the

3
introduction in the early 1960s of economic reforms (including land reform). The reforms
were aimed at:
• expanding exports;
• expanding labor-intensive industries;
• the gradual removal of import barriers;
• the extreme flexibility of economic management (always ready to react to signals
and incentives coming from the economy);
• the close cooperation between government and private industry;
• the autonomy of the banking system;
• the development of an efficient financial market.

But the close cooperation between government and export industries during the period
of rapid catch-up with the West is perhaps the most important key to understanding the
success of its outward-looking industrialization strategy.

The economic planning board: South Korea's economy grew rapidly under Park
Chung Hee. The military leader, with little previous political or administrative experience,
and lacking a developmental program, turned to the economists and planners for
assistance. The Economic Planning Board was established in 1961.

Encouraging private entrepreneurs: Park’s policies encouraged private

entrepreneurs. A program of rapid industrialization based on exports was launched.
Some remarkable policies are as follows:
• the currency was drastically devalued in 1961 and 1964
• preferential treatment in obtaining low-interest bank loans,
• import quotas for raw materials were eased
• Private saving was encouraged by raising interest rates and funds were
borrowed from abroad.
• Exports also were encouraged by direct subsidies;
• all taxes and restrictions on the import of intermediate goods that were to be
used to produce export products were removed.

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As the existing industries--textiles, clothing, and electrical machinery, among others--had
been stagnant owing to a lack of imported raw materials, these policies produced
immediate results. Some of these businesses later became the chaebol.

Financial diplomacy: These developmental programs required enormous amounts of

capital. As the level of United States assistance had stabilized, the Park regime turned to
"financial diplomacy" with other countries. The normalization of relations with Japan in
1965 brought Japanese funds in the form of loans and compensation for the damages
suffered during the colonial era. Park made a state visit to the Federal Republic of
Germany in 1964 that resulted in the extension of government aid and commercial
credits. The availability of funds and the increasing level of exports elevated Seoul's
credit rating, making it possible to increase borrowing in the open international market.
Further, the conflict in Indochina stimulated economic growth. Seoul's export drive also
owed much to the availability of an educated labor force and a favorable international
market.

South Korean businesses discovered that they could successfully compete abroad. As
idle capacity was used up and the demand for new manufacturing investment rose,
increasing numbers of foreign investors were attracted to South Korea. Substantial
successes were achieved under the first two five-year economic development plans.
Foreign exchange earnings improved as export and foreign receipts rose. The
government also took steps to increase tax revenues and stabilize consumer prices.
Much of the price stabilization program was carried out at the expense of farmers, who
were forced to accept the government's policy of low grain prices.

SEMI-INDUSTRIAL DEVELOPMENT
From 1963 to 1978, real GNP rose at an annual rate of nearly 10%, with average real
growth of more than 11% for the years 1973—1978. While South Korea’s national
production was rising throughout the 1960s and 1970s, the annual population growth
rate declined to 1.7%, resulting in a 20-fold increase in per capita GNP In those two
decades. Per capita GNP which reached $100 for the first time in 1963, now exceeds
$10,000, far above that of North Korea.

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Saemaul Undong: Agricultural development lagged behind until 1971, when the
government shifted to a policy of high grain prices and inaugurated the Saemaul Undong
(New Community) Movement aimed at improving the farm village environment and
increasing agricultural production and income.

Diversification in production and trade: Official statistics indicated rapid economic

growth. The manufacturing sector provided the main stimulus, growing by 15 percent
and 21 percent, respectively, during the two plans. Domestic savings rates grew and
exports expanded significantly. A new economic strategy emphasizing diversification in
production and trade proved generally successful in the 1970s.

Expanding heavy and chemical Industries: Under the third plan, the government
made a bold move to expand South Korea's heavy and chemical industries, investing in
steel, machinery, shipbuilding, electronics, chemicals, and nonferrous metals. South
Korea's capability for steel production and oil refining rose most notably. Refineries for
zinc and copper and modern shipbuilding facilities were constructed; automobiles began
to be exported to a few markets. The plan sought to better prepare South Korea for
competition in the world market and to facilitate domestic production of weaponry.

Oil price hike and its impact: The quadrupling of oil prices beginning in 1973
severely threatened the South Korean economy, which depended heavily on imported oil
for energy production. Construction contracts in the Middle East, however, provided the
necessary foreign exchange to forestall a balance-of-payments crisis and to continue the
high rate of growth.

Side effects of growth oriented economic strategy: The growth-oriented economic

strategy emphasizing exports inevitably produced side effects. Although the government
previously had been able to manage these side effects and effectively surmount various
economic crises, the situation began to deteriorate in 1978. The crises were as follows:

• The emphasis on exports had produced a shortage of domestic consumer goods

that was exacerbated by the increasing demands brought about by rising wages
and the advance in living standards.

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 • Price controls imposed on producers of consumer goods discouraged the
manufacture of these goods.
• The inflow of dollars rapidly expanded the money supply and inflation became a
serious problem. According to a Bank of Korea report, consumer prices rose
only 14.4 percent in 1978, but most observers agreed that the actual rate was
near 30 percent. The high rate of inflation continued into 1979. According to a
report issued by the Economic Planning Board in August 1979, the average
household's cost of living had gone up 26.3 percent from the previous year.
• Although wages had been rising rapidly during the previous several years--
spurred by shortages of skilled and semiskilled workers--the rise in wages began
to slow down. The average wage increased 12 percent during the preceding
year of August 1979.

Stabilization measures: To address these ills, Park had replaced the economic team
in the cabinet in December 1978 and adopted stabilization measures entailing the
lowering of the growth rate:
• a stringent tight-money policy;
• a switch of investment capital planned for heavy industries to light
industries producing consumer products;
• a reduction of price controls to encourage more production of consumer
goods; and
• assistance for the poor.
But these measures caused
• a recession;
• produced a succession of bankruptcies among small and medium
loan-dependent enterprises;
• increased unemployment.

STRUCTURAL ADJUSTMENT
Internal economic distortions, the political and social unrest that followed 1979
assassination of President Park, and the effect of world economic developments, such
as the drastic increase in world oil prices in 1979, triggered a severe recession in South
7
Korea in 1980. The economy recovered somewhat in the following two years, but it was
not until the spring of 1983 and the strengthening of economic recovery in the United
States that South Korean economic performance began to take on the buoyancy of
earlier days.

From high to stable growth: The nation’s economic planners have shifted their
emphasis from high to stable growth. After registering 5% real GNP growth in 1985, low
by traditional standards, the South Korean economy re bounded impressively. The years
1986— 1988 were widely viewed as the economy’s most successful ever, as booming
exports South Korea continued to manage its large external debt (about $42 billion in
1992) and had an annual rate of real per capita income growth, second only to Thailand,
between 1985 and 1995 (7.6%).

Shift from Capital intensive towards labour intensive technology: The new
regime inherited an economy suffering from all the side effects of Park's export-oriented
development program and policy of expanding heavy and chemical industries. The
international economic environment of the early 1980s was extremely unfavorable, a
situation that further restricted South Korea's exports. It was necessary, therefore, for the
Chun regime to concentrate on stabilization and it devoted its first two years to
controlling inflation while attempting to bring about economic recovery. Investment was
redirected from the capital intensive heavy and chemical industries towards labor-
intensive light industries that produced consumer goods. Import restrictions were lifted.

Reforms and after effects: While South Korea had suffered a negative growth rate in
1980, it attained an 8.1 percent growth rate in 1983. The economy began to improve in
1983 because of:
• stringent anti-inflationary measures;
• the upturn in the world economy;
• Exports began increasing in mid-1983 and the economy began to gain strength;
• A good harvest in 1983 also helped.

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South Korea attained its 1983 export target of US$23.5 billion, a 7.6 percent increase
from 1982. In December 1983, Seoul unveiled its revised Fifth Five-Year Economic and
Social Development Plan. The plan called for:

• steady growth for the next three years Per capita GNP was to rise to US$2,325
by 1986. The annual growth rate was planned to average 7.5 percent though the
actual performance was higher. The real GNP growth rate was 7 percent in 1985,
but for the next three years 12.9 percent, 12.8 percent, and 12.2 percent,
respectively.
• low inflation, projected to be held at 1.8 percent,
• sharply reduced foreign borrowing.
• Exports were to rise by 15 percent a year.

GLOBALIZATION
As a major new force in the international economy and one of the most economically
powerful of the newly industrializing countries, South Korea represented the most
conspicuous example of successful long-term development. South Korea is now the
tenth largest trading economy in the world. At this phase some significant changes took
place.
• In 1995, the World Bank reclassified South Korea as a “high-income” country.
• The election of former dissident Kim Dae Jung as president in 1997 symbolized
the emergence of South Korea as a democratic country as well, sweeping away
the last remnants of military rule.
• Between 1965 and 1996, exports grew by more than 16% a year.
• Heavy investment in education, as well as high savings and capital
accumulation, led to a phenomenal 11% annual increase in labor productivity in
the 1960s and 1970s.
• Export growth has shifted from labor-intensive light industry (textiles and
footwear) to skill-intensive, high-quality production (electronics, automobiles) as
South Korea adapted foreign technologies to its tow-wage but increasingly well
educated labor force.

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Asian currency crisis: But in the waning months of 1997, the country fell victim to the
Asian currency crisis as its currency, the won, lost almost 30% of its value and the
economy went into an economic decline.
The causes were many and varied, including:

• an accumulation of unreported domestic and foreign debts;

• a persistent merchandise and current account trade deficit causing a depletion of
foreign-exchange reserves;
• a banking system that lacked ‘transparency” (full disclosure of its bad-debt
problem).

The International Monetary Fund had to be called in to save the won and the faltering
economy with a record $57 billion rescue plan.
In return, South Korea was required to:
• introduce radical market reforms to its bureaucracy-dominated economy
• establish a financial- watchdog agency,
• abolish interest- rate ceilings
• improve financial disclosure
• have all of its huge conglomerates, the chaebol, which dominate Korean industry
• open their financial books.

Many were then forced into bankruptcy when they could no longer be bailed out as in the
past by a politically accommodating central bank. The long-run impact of the 1997 Asian
crisis on the Korean economy remains uncertain. The 1997 real GDP growth rate of 6
turned to a negative 5% in 1998, the first year of falling output since 1980. Ur more than
doubled from 3.59 to 9% and bankruptcies skyrocketed from under 1,000 per month in
1997 to over 3,300 in 1998. Few analysts doubted that South Korea would recover from
this crisis and resume its successful development. But South Korea did recover strongly
from the crisis as shown in Figure 1.

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 FIGURE 1. The outstanding recovery from the Asian crisis

RESTRUCTURING
The global slowdown in 2001—2002 presented South Korea’s economy with another
test of its resiliency. Among the major Asian economies, Japan stands out for having
long since joined the ranks of the wealthiest industrial countries. So have Singapore and
Hong Kong.
Korea’s per capital income is at about half that level, along with that of Taiwan, China.
If Korea is to raise its living standards to those of the industrialized countries, it will have
to approximately double its relative dollar income. The Korean government has indeed
set itself the goal of doubling per capita income to $20,000 a head within ten years. This
will require a per capita growth rate of about 7 percent per annum. The question is, is
this possible?

Looking back, the answer has to be yes. In 1950, a doubling of Korean per capita
income would still have left it far short of Peru or Namibia; talk of joining the ranks of the
world’s richest nations would have been inconceivable. South Korea has come so far
since then that to travel further seems perfectly possible. Over the six years 1997-2003 –
that is, the period including the Asian crisis – Korean growth per capita averaged a little
over 3.5 percent. That is well short of 7 percent, but includes both the crisis and the
11
recent global slowdown. The average for the five years after the crisis is 6 percent. This
suggests that 7 percent per capita growth is an extremely ambitious target. Nonetheless,
with continued good performance, and with some luck, Korea can achieve an average
growth rate of 7 percent for another decade. History suggests that this is quite possible.
Hong Kong’s per capita growth rates in the mid to late 1980s, beginning from an
equivalent income level, exceeded 7 per cent. Japan’s per capita growth rates in the mid
to late 1960s, again from a comparable starting point, exceeded 10 per cent. The years
since the crisis have been encouraging, not only because of the growth figures (Figure
6), but even more because of the Korean government’s commitment to reform.

The IMF’s 2003 Article IV report on Korea, published in February 2004, summarizes the
progress.
• Korea’s banking system is more solid and is lending on a more commercial basis
– which means more money for the small and medium enterprises that now
provide nearlynine tenths of Korea’sjobs..
• the chaebol have turned to the capital markets, and in consequence Korea now
has the largest bond market in Asia, outside Japan.
• The stock market has also grown and has more foreign participation than any
other Asian country.
• Corporate governance standards are now much improved, having once been
woeful, and corporate balance sheets are also far stronger.

This is very good news for Korea. But while there has been real progress, much remains
to be done. Last year’s slowdown highlighted some of the remaining problems.
In part, the slowdown could be blamed on

 a tough export environment;

 a flare-up of tensions with North Korea;
 credit card crisis;
 a new accounting scandal involving the South Korea Group chaebol;
 industrial unrest indicating that further progress was needed to be made in the
financial system, corporate governance, and with labor market reform.

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The credit card boom and bust is an example of the complexities of the regulation of a
rapidly-changing financial sector. Tax incentives helped to fuel the boom, which at its
peak saw four credit cards for every Korean adult and a six-fold expansion of usage
between 1999 and 2002. The risks grew, but the new credit-card companies were ill-
equipped to assess them. They tried to cool things down by requiring payment in full
each month, but this measure meant little, because customers were shifting debts from
one card to another. As the problems grew, and South Korean global scandal made the
bond markets extremely nervous, credit card companies faced increasing difficulty
getting credit to cover their growing portfolio of impaired assets.

Rescue: The government – in the form of the Korean Development Bank – stepped in
to rescue the largest company, LG Card, fearing, perhaps correctly, that a failure of
LG Card could throw the entire industry into crisis. That rescue is not without its costs.
The Korean government’s attitude, laudably, has been to try to minimize the costs of
moral hazard. Small and Medium Business Association, reported in IMF nature of the LG
Card bailout. It has also told the IMF that it remains committed to the principle that
bondholders, not taxpayers, have to bear the risks of investing in the bond market. If and
when investors come to believe that, the bond market should operate more efficiently.

Like the bond market, the stock market has developed well over the past few years, and
like the bond market, it has room to benefit further from continued reforms. The
unfortunate truth is that Korean corporate governance has had a poor reputation. As a
result, local firms continue to pay a premium for equity capital, and price-earnings ratios
remain below those elsewhere, including among regional competitors such as Taiwan,
India and Thailand As the markets come to believe that Korean corporate governance
has improved substantially, the Korea discount should begin to shrink. But real concerns
remain. According to the Korean Fair Trade Commission, there are wide and growing
disparities between ownership and control of the ten largest chaebol. Since the crisis,
the percentage of shares directly owned by controlling families has fallen to less than
four per cent, but they have maintained control through systems of cross-shareholdings.
This disparity offers clear opportunities for discrimination against minority shareholders,
and it is small wonder that the higher the disparity between ownership and control, the
higher the discount on the shares.

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The government continues to push for governance reform. The recent “Roadmap for
Market Reform” is aimed at reducing the disparity between ownership and control, while
recent accounting and auditing reforms should intensify market pressure on companies
to improve their governance and so earn cheaper capital. If the Korean economy is to
take advantage of the rapid developments both in its crucial high-tech sectors and in its
trading partners, Korea will need those improvements in corporate governance and the
cost of capital.

The missing piece of the jigsaw seems to be the structure of the labor market. As with
financial market reform and improvements in governance, labor market reforms since
the crisis have been a key element of recovery; but, as before, there is further to go.
Korea currently has two classes of worker: two thirds of employees are regular workers,
who enjoy some of the strongest employment protection in the OECD. At the same time,
temporary workers, with fewer rights, represent a growing proportion of the workforce.

Some European countries have also turned to this dual approach to add flexibility to a
rigid labor market, and the approach has been successful in helping reduce
unemployment. It would nonetheless be better to make the overall labor market more
flexible. As with other structural problems, the government has recognized the issue and
has plans on the table to deal with it – stepping back from individual trade disputes,
adding flexibility to employment contracts, and trying to narrow the gap between regular
workers and other workers. While these plans remain controversial, it is important that
the government is acknowledging the issue.

DEVELOPMENT STRATEGIES

This piece synthesizes the development strategies of Korea. Using a complex adaptive
systems approach, strategic openness, a set of heterodox macroeconomic policies,
creation of institutions for productive investment in both agriculture and industry,
avoidance of severe inequalities and political conflict, special initial conditions and
willingness to learn from unexpected developments are found to be some of these
factors.

STRATEGIC OPENNESS
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Strategic openness is evident to various degrees, with Thailand being the most open
and Vietnam the least. But in all cases there is a strategic commitment to export
promotion and further goals of moving up the value added ladder. It should be kept in
mind, however, that there can be a ‘fallacy of composition’ (Cline 1982; Khan 1983;
Mayer 2002; Razmi and Blecker 2006) in claiming that all that the developing countries
need to do is to pursue an export-led growth policy. Reciprocal demands may not exist
sufficiently and the ensuing competition for export markets in developed countries may
create winners as well as losers. Therefore, what may be needed in the future for other
aspiring countries is a strategic approach that includes the development of national and
regional markets and the creation of dynamic comparative advantage along with a
number of other policies and institution-building processes described below.

HETERODOX MACROECONOMIC POLICIES FOR STABILITY

Korea displays more of a mix of heterodox policies. It seems that the rigidity of the
Washington consensus particularly in this area is rejected by the experiences of
developing economies like Korea, Malaysia and Vietnam.

CREATION OF INSTITUTIONS FOR PRODUCTIVE INVESTMENT

Korea seems to have gone much further than other East Asian countries much earlier.
Starting with the reforms in the 1960s, it moved through several successive stages and
is now trying to find an appropriate technological niche in a world that is moving towards
a convergence of information, bio and nano technologies by 2050. The role of state in
the creation of these institutions is still very prominent.

AGRICULTURAL DEVELOPMENT( PHASES OF DEVELOPMENT THEKE DATA DHUKBE , HIGH & LOW

GRAIN POLICY ER BEPARTA DHUKBE )

Korea had an egalitarian land reform after the end of Japanese colonialism. South Korea
was self-sufficient in rice production in 1977, but rising demand and several
disappointing harvests have since made it a net importer. Its economy is rapidly
approaching full maturity—a marked change from the 1960s and 1970s, when it was a
major recipient of U.S. foreign assistance (direct U.S. aid to South Korea ended in
1980).

INDUSTRIAL DEVELOPMENT AND STRUCTURAL CHANGE( PHASES OF DEVELOPMENT THEKE

DATA DHUKBE )

15
The strategic perspective in this important area suggests that the successful countries
pursued, to various degrees, a continuously unfolding and dynamic set of policies with
much trial and error.

CREATION OF TECHNOLOGICAL CAPABILITIES

Here the Korean case stands out as a very apt illustration of creating technological
capabilities throughout the entire growth and development trajectory in definite states.
Among various aspects of capacities, emphasis should be on technological capabilities
because without these, sustained growth is impossible. In this era of open market
competition, private companies cannot sustain growth if they rely upon cheap products;
they need to be able to move up the value-chain to higher-value added goods based on
continued upgrading and improvement and technological innovation. Furthermore,
private companies had better be ‘local’ companies, whenever possible, including locally
controlled JVs, not foreign controlled subsidiaries of the MNCs. MNCs subsidiaries are
always moving around the world seeking cheaper wages and bigger markets. Therefore,
they cannot be relied upon to generate sustained growth in specific localities or countries
although they can serve as useful channels for knowledge transfer and learning.
Malaysia also recognizes this essentially strategic aspect of creating technological
capabilities during medium to long-run development.

TECHNOLOGICAL LEARNING AND INNOVATION

Promoting national innovation systems requires, in particular, the creation of specific
institutions and technological learning over time. Ultimately, if development is to continue
beyond the catching-up phase, this may present the set of the most crucial policy
challenges. Here, the study on Korea is an admirable attempt to sum up the lessons.
There are specific features here to which Lee (2008: 5) draws our attention. Therefore,
while the ultimate goal and criterion of development is to raise the capabilities of local
private companies, the process needs pilot agencies to guide and coordinate the whole
process. Such needs exist because key resources are so scarce, and thus had better be
mobilized for uses in sectors or projects with greatest externalities. Latecomer agencies,
such as large state-owned investment banks can merge gaps in a country that is
seeking to industrialize. All the East Asian countries built specific state agencies that
played a role in guiding the process of industrialization. In Korea the institutions
established in the 1960s under the Park regime included the Economic Planning Board
to set economic plans; the Ministry of Trade and Industry to support industrial policy and
16
export; and the Ministry of Finance to finance economic plans. Both state and civil
society have to play important roles. At an earlier stage, the state necessarily plays a
large and activist role. At a later stage, however, the creation of technological capability
has to rely on a private-public partnership at both the precompetitive and the competitive
phases of innovation (Khan 2004a).

POVERTY REDUCTION STRATEGIES (DATA DHUKATE HOBE )

This is a varied set of policies that are necessary in addition to growth. Although growth
is a very important component of such a strategic approach to poverty reduction, in all
cases under review specific policies targeting both rural and urban poverty were
undertaken. In addition to the set of nine factors discussed above, there are also
somewhat random, historically contingent factors. wars and revolutions to more usual
changes in domestic and international political factors and changes in policies that
depended on crucial personalities such as that of President Park in Korea in the 1960s.
It is difficult to evaluate policy success or failure simply in terms of subsequent economic
performance.

One important lesson that follows from this is that even if a country is successful in
growing through a combination of strategies, policies and circumstances, without explicit
attention to equity and ecology, sustainable growth and equitable development may not
automatically occur but rather the contrary may happen. It is, then, an added imperative
for the policymakers to include these salient goals in policy formulation and institution-
building. While no pre-determined futures are foreordained in this complex world, a
thoughtful diagnosis of these problems at a relatively early stage may introduce solutions
that can be implemented before it is too late.

RETHINKING THE STRATEGIES AFTER THE CRISIS

Ten years ago the combination of heterodox and neoclassical approaches was widely
though not universally seen as a successful development model. Views on that strategy
are now more complex, partly in the light of subsequent research, partly because of the
traumatic experiences of the crises, and partly because what worked in the past may not
work in an increasingly integrated world economy.

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We focus first on the neoclassical part of growth – on the roles of factor accumulation
and of technical progress. One key issue is how productive capital investment in the
miracle economies was. The data suggest that in Korea, from the mid 1970s to the mid
1990s, the share of investment in GDP rose from 25 per cent to 40 per cent, while the
share of total capital income in GDP fell from 55 per cent to under 40 per cent. More and
more investment was producing less and less income. The weakness of financial
systems in Korea suggests that the loans the banks had been making were not
productive, supporting the idea that many of the investments financed by the loans were
also not productive – and thus that rates of investment and capital accumulation in those
economies were excessive. If the financial system is forced to finance such investments,
it will need to be subsidized – for example, through repeated recapitalizations of the
banks. One of the conclusions drawn after the Asian crisis was that extremely high rates
of investment as a share of GDP, for instance in excess of 40 percent of GDP, are too
high to be efficient.

A related key issue, already discussed, is how much of growth was produced by
technical progress. The World Bank study of 1993 concluded that a third of growth came
from total factor productivity growth. But subsequent work has found that TFP growth
has been about half that10. In Korea, less than 20 per cent of growth between 1960 and
1994 seems to have come from TFP growth. These conclusions suggest that the pre-
crisis growth rates in some of the miracle economies were not sustainable.11 But there
has not been any questioning of the role of human capital investment in theKorean
Economy. Human capital accumulation was seen as essential to East Asian growth not
only because better trained, more educated labor is in general more productive, but also
because the development and implementation of more advanced technologies requires
the inputs of highly trained labor. The leading East Asian governments, including
Korea’s, have recognized the importance of the role of human capital in growth, and are
trying to strengthen technological training and their educational systems. These efforts,
coupled with openness to foreign technologies and the best ideas the world has to offer,
will stand their economies in very good stead.

As to Asian industrial policy, We believe the World Bank’s view over a decade ago
remains sensible: that some degree of government involvement can in principle be
successful, and that it was successful in practice, too, in some Asian economies by

18
allowing new industries to overcome coordination failures and exploit economies of
scale. We also believe the potential for such interventions to go wrong is very high, both
because the government may make the wrong decisions, and also because they are
conducive to corruption. In most cases the best approach is for a country to create a
supportive business environment, including policies and institutions that encourage
innovation, investment and exports in general, and to leave investment allocation
decisions to the private sector.

In this perspective, the policy of financial repression looked much less attractive than it
had before. The financial sector plays a crucial role in the efficient allocation of
resources in a market economy. A banking system that has been forced to make policy
loans to favored sectors is more likely to be weak than one not subject to such
government direction – and the crises showed that the costs of banking crises can be
massive, particularly in high-saving countries in which the ratio of financial assets to
GDP is very high. This experience confirmed the desirability of having a strong well
regulated banking system, lending on commercial criteria.

Following the crisis, the debate over industrial policy is losing much of its relevance. The
truth is that interventionist policies are less and less practical in the modern global
economy, especially as countries join the World Trade Organization – but also because
the growing complexity of international patterns of specialization makes successful
government intervention harder. Whatever the arguments over the successes and
failures of government activism, what cannot be disputed is that the Korean
development strategy has relied on continuing openness and engagement with the world
economy. The crisis was a reminder of the challenges that such openness can bring.
SOUTH KOREAN ECONOMIC DEVELOPMENT: STATUS QUO

There are various indicators that are used to define the development scenario of a
country. This section of the report will focus on three such indicators for South Korea to
indicate the current status of their economy. The indicators are Human Development
Index (HDI), Human Poverty Index (HPI) and the Gross National Income (GNI).

The human development index (HDI) which looks beyond GDP to a broader definition of
well-being. The HDI provides a composite measure of three dimensions of human
19
development: living a long and healthy life (measured by life expectancy), being
educated (measured by adult literacy and gross enrolment in education) and having a
decent standard of living (measured by purchasing power parity, PPP, income). HDI
provides a broadened prism for viewing human progress and the complex relationship
between income and well-being. Of the components of the HDI, only income and gross
enrolment are somewhat responsive to short term policy changes. For that reason, it is
important to examine changes in the human development index over time. The human
development index trends tell an important story in that respect. Between 1980 and 2007
Korea (Republic of)'s HDI rose by 0.97% annually from 0.722 to 0.937 today as shown in
Figure 2 (a).

The HDI for Korea (Republic of) is 0.937, which gives the country a rank of 26 th out of
182 countries with data. By looking at some of the most fundamental aspects of people’s
lives and opportunities the HDI provides a much more complete picture of a country's
development than other indicators, such as GDP per capita. Figure 2 (b) illustrates that
countries on the same level of HDI can have very different levels of income or that
countries with similar levels of income can have very different HDIs.

20
 FIGURE 2. (a) HDI trends of South Korea and other countries from
1990-2005; (b) The HDI gives a more complete picture than income.

A more recent trend is plotted in Figure 3.

Figure 3. HDI index of South Korea in between 2006-2010

The Human Poverty Index (HPI) is an indication of the standard of living in a country,
developed by the United Nations (UN). For highly developed countries, the UN considers
that it can better reflect the extent of deprivation compared to the Human Development
Index. HPI as summarized by the UNDP human development report is a composite
index measuring deprivations in the three basic dimensions captured in the human
development index — a long and healthy life, knowledge and a decent standard of living.
HPI data of South Korea in the 2010 Human Development Report (February) is 41.11.

PPP GNI (formerly PPP GNP) is gross national income converted to international dollars
using purchasing power parity rates. An international dollar has the same purchasing
power over GNI as a U.S. dollar has in the United States. Gross national income (GNI) is
the sum of value added by all resident producers plus any product taxes (less subsidies)
not included in the valuation of output plus net receipts of primary income (compensation
of employees and property income) from abroad. According to the World Bank
international comparisons program database South Korea had a PPP GNI of about
$1.37 Trillion. The Per capita PPP GNI for South Korea reported for the same year was
$ 21530 and the nation was ranked 49 among 210 listed countries. Figure 4 presents the
PPP GNI trend of South Korea in between 1980 and 2008.The GDP growth rates for

21
South Korea as reported by the US state department are as follows: GDP growth rate:
2004, 4.6%; 2005, 4.0%; 2006, 5.2%; 2007, 5.1% ; 2008, 2.2%.

Figure 4. GNI, PPP (current international $) trend for South Korea

THE FUTURE FOR THE KOREAN ECONOMY

Having listened to me explain that the Asian development model has been called into
question, outline the difficulties involved in managing financial and capital market
liberalization, and detail the challenges lying ahead of the Korean economy, one might
come to pessimistic conclusions about Korea’s future. That would not be justified. While
Korea does indeed face challenges, so does every other country. And in Korea’s case,
there is excellent reason to believe that it will meet those challenges – for Koreans have
demonstrated an extraordinary capacity to overcome difficulties, most recently during the
Asian crisis. We have to start by acknowledging the incredible record of growth over the
past fifty years, which has been matched by very few others. When we also recall the
vigor with which Korea bounced back from its severe crisis, it would take a bold
forecaster to dismiss that much history and predict stagnation ahead. In addition, the
Korean government has displayed a strong commitment to reform and a sophisticated
awareness of where reform is needed. Policies have been improving since the crisis and
you will recall that for every concern I have been able to list, the government has plans
in motion to address it.

Finally, Korea is at the heart of a regional economy that is growing at unprecedented

speed. For some time, many saw the growth of the Chinese economy as a threat to
22
Korea, and it is certainly true that some companies and sectors will suffer from the
intense competition. But the growing Chinese market is also a fantastic opportunity for
Korea. Korean exports expanded by over 20 per cent in 2003, and China is now the
country’s largest trading partner. To continue to take advantage, Korean companies will
have to be nimble. If governance, access to credit, and labor market flexibility continue
to improve, there is little doubt that they will be. The Korean government hopes to double
the average citizen’s income within a decade. It is an ambitious target, but if policies and
the external economy are right, it is within reach.

FINANCIAL SECTOR MANAGEMENT AND THE ROLE OF GOVERNMENT

IN THE ERA OF GLOBALIZATION

The Asian crisis and the other financial crises of the last ten years led to much reflection
on how to manage economies in this era of openness and globalization, and also on
how to strengthen the international system and make it less crisis-prone. Regardless of
globalization status, domestic macroeconomic management remains of central
importance. In many regards, the Economy of South Korea and their tradition of
conservative fiscal policy are excellent examples of the rewards for getting
macroeconomic basics right.

A conservative approach to fiscal policy can be supported by the institutional framework

– for instance, fiscal responsibility laws – and by being transparent with data and about
the intentions of the government. The choice of exchange rate, capital control, and
monetary policy regimes is closely interrelated. The crisis experience strongly confirms
that pegged exchange rate regimes are vulnerable if the capital account is open –
though to be sure, as the Malaysian and Chinese experiences confirm, vulnerability is
much greater for an overvalued than for an undervalued exchange rate.

As the controls are eased, the exchange rate should be made more flexible. To say that
the exchange rate should become more flexible is not to say that it should necessarily
float freely. Most countries will from time to time have reason to intervene in the foreign
exchange market. Large foreign exchange reserves are helpful in reassuring the
markets and providing the ammunition for intervention if needed. Once the exchange

23
rate is flexible, monetary policy needs to provide an alternative nominal anchor for the
economy.

It is necessary to have a strong financial system with effective supervisory institutions.

Banks should be run on commercial principles, with close attention to risk management.
Open and transparent securities markets are also very helpful. The ongoing creation of
free trade agreements in within ASEAN, for example, or between ASEAN and China, for
example – is likely to be a positive development, so long as global trade agreements do
not suffer as a result. In addition, there would be many advantages to negotiating an
overall regional agreement rather than a spaghetti bowl of bilateral and sub-regional
agreements. Over the very long run there could be major benefits to working with
permanently fixed exchange rates among Asian countries – and even, eventually,
globally. But this is a very long run goal indeed, and the lessons of Europe’s move to a
single currency are that intermediate regimes are crisis-prone. About 48.9% of Asian
trade stayed within the region in 2002. 24.3% was with.

Meanwhile, we see various attempts at regional monetary cooperation. Swap

arrangements, such as those of ASEAN plus 3, are no doubt useful. Other forms of
financial cooperation in the region, such as the Asian bond fund initiative, can also be
useful. It is sometimes said that governments are becoming less relevant in our
increasingly globalized world. On the contrary, the responsibilities of governments are as
vital as ever, even if global competition circumscribes the scope of some government
actions, such as in the taxation of capital. Certainly, the structure of fiscal policy, both on
the tax and spending sides – with a preference for moderate broadly-based taxes and
expenditure focused on education and health – can make a critical difference to growth
and social well-being. Governments continue to have the responsibility to ensure the
provision of public goods, many of them in the form of infrastructure. And it is the
government that has the responsibility for creating a supportive environment for
business and for investment. Finally – and especially since globalization brings with it
social change and the risk of occasional crisis – governments should provide a social
safety net that takes care of the poorest, while seeking to avoid creating the wrong
incentives. The market may achieve miracles, but some of the most important duties fall
to government.

24
ASSESSING THE DEVELOPMENT SCENARIO: BANGLADESH VS . SOUTH
KOREA

This section of the paper will critically asses, point out and discuss various similarities
and contrast in the development scenario between Bangladesh and South Korea. Such
discussion will provide insight on potential reform policies that could be taken by
Bangladesh to improve its development status. At the outset a brief country profile of
Bangladesh is provided and the subsequent discussion will include various comparative
aspects of both the countries. Table 2 presents a comparative list of major economic
indicators of both countries.

Bangladesh is located on the Tropic of Cancer in South Asia. It has the world highest
annual rainfall, which affects the topography and the location of economic activities.
Much of the territory is partly sub merged or subject to flooding during the rainy season,
and the cultivation of rice and jute employs a very large portion of the workforce.
Bangladesh is the most densely populated agricultural nation in the world, with 130
million people in 2000. It is also one of the poorest and least developed in Asia, with a
2000 per capita GNP of only $380, a life expectancy of 61 years, and a literacy rate of
below 30% for women. Its labor force is expanding rapidly as a result of high population
growth rates, and unemployment and underemployment currently exceed 20%. Although
its income is more evenly distributed than in many other LDCs, because of its very low
per capita income, Bangladesh has a high poverty rate (40% in rural areas in 1995).

Population Demography: The staggering difference in population demography

between Bangladesh and South Korea is one of the major contrasts that have
contributed towards the respective economic status of the two countries. Despite the
rapid urbanization process, over three quarters of the population still lives in rural areas,
most engaged in subsistence farming. In addition to its vulnerability to frequent
monsoons and other natural disasters, the economy of Bangladesh suffers from
structural constraints such as poor transportation and communications facilities, which
persist despite attempts by policy- makers to remove them.

Agricultural growth and industrial growth: In contrast to only 5% in South Korea,

agriculture accounts for approximately 25% of both GDP and exports in Bangladesh.

25
The relatively high dependence on agriculture has not allowed Bangladesh to absorb its
rapidly growing labor force. Due to the high elasticity and fixed gross output, agriculture
sector cannot contribute as much as industrial sectors can. South Korea started to
strengthen its industrial sector since 1960s, which had been the largest contributor to
their development

Labour force education and skill: Bangladesh’s labor force is largely unskilled and
uneducated, so despite the large population, human resource development is extremely
low. South Korea’s main strength is the high level of industriousness and literacy among
the people. In ‘60s the country had to start with labour intensive light industries. This
brought spectacular result because of their industrious and literate labour force.

Export Import:
In Bangladesh, the major export earnings come from Ready Made Garments (RMG),
Frozen Food, Tea, Jute etc. On the other hand, the major export earnings of South
Korea come from manufacture industry like Automobiles, Electronics, Shipbuilding etc.
In 2006-07, Bangladesh export earning was 12,053 US$ and import was -15,511 US$
and the trade deficit was about 3458 US$. In case of South Korea, Export was 150, 439
US$ and import was 141,098 US$ and the trade surplus was 9341 US$.

Table 2: Comparison of major economic indicators

Factor Bangladesh South Korea
Population (Million) 130 47
GDP per capita (PPP) (USD) 1600 27,700
PPP, GNI (in Billion USD) 230.6 1370
HDI .937 .543
Export (Million USD) 12,053 150,439

Import (Million USD) -15,511 141,098

Trade balance (Million USD) -3458 9341
Population below poverty line 36.3% 15%
Unemployment 4.1% 2.5%
Rev.: 11.4 Billion US$ Rev.: 191 Billion US$
Budget
Expend. 16.3 Billion US$ Expend. 227 Billion US$
Public debt (% of GDP) 36.3 28.2
Agriculture 18.7% 3%
GDP composition Industry 28.7% 39.4%
Services 52.6% 57.6%
Investment (% GDP) 23.7 28.2
Industrial production growth 9.5% 7.6%
26
 Tea, cotton, textile, RMG, Automobile, electronics,
Major industry sugar, cement, chemicals, shipbuilding,
pharmaceuticals, paper steel, telecommunication
Rice, chicken, pigs, milk,
Rice, poultry, tea, beef,
Major agriculture egg, cattle, barley, root
potato, wheat, tobacco,
crops, fruit, vegetables, fish

Foreign Direct Investment (FDI):

Due to political instability, lack of technological advancement, unskilled labors many
foreign investors are often unwilling to invest in Bangladesh. But as the wage of labor is
low, it sometimes influences foreign investors to invest in Bangladesh. On the other
hand in South Korea, political sound environment for business and investment,
technological advancement and skilled labors often help the foreign direct investment
(FDI) but high wages of Korean labor often discourage the investors to invest in South
Korea. In 2007, foreign investment in Bangladesh was 666 million US$ and in South
Korea was 10 billion US$.

Budget deficit and dependence on donor agency loan and donor agency charted
policies:
The economy in Bangladesh is characterized by low domestic savings rate and a large
balance of payments deficit. In 2000, the country imported $8:5 billion but exported only
$5.7 billion. Consequently, external assistance (foreign aid, loans) continues to play an
important role in providing budgetary and balance of payments support. Thus, local
policies in Bangladesh, unlike developed countries like South Korea, are often
influenced by financial agencies and donor agencies such as World Bank, Asian
development bank and IMF. Often policies that are charted by those agencies prove to
be counterproductive to the overall development of the country and yet the due to factors
such as budget deficit, the government in most cases has to agree to those policies.

Government expenditure on public institutions and organizations:

In Bangladesh government is often being advised by donor agencies to limit
expenditure towards public sectors such as education, health. For a poor economy like
Bangladesh such intervention is often detrimental and the effects can go long way.
Countries like South Korea, where government is often much more powerful compared
governments in developing countries, donor agencies hardly can influence their major

27
policies. Regardless of their high per capita GDP, many of the developed nations are
increasingly investing in public sectors such as transportation, environment, education
etc.

Health Sector
Life expectancy is 48 of Bangladesh compared to 63 in South Korea. Infant mortality is
high; 96 per 1000 in Bangladesh and 8 in 1000 in South Malnutrition is also a problem.
In Bangladesh 36.3% people live below the poverty line. Poor people of Bangladesh do
not have much credit and their children are poorly nourished. They suffer from various
kinds of fatal diseases and due to lack of proper treatment most of them die at an
immature age.

Education, and Research and Development

Low levels of literacy, significant dropout rates, and inadequate and often irrelevant
curricula and facilities are the common problems for all developing countries like
Bangladesh. But it is not a problem of developed country like South Korea. Higher
education increases the employment rate and reflects growth and development of a
nation by an increased Gross National Income (GNI).The Gross National income of
South Korea is 1370 Billion USD for 47 million population which is much higher than
than Bangladesh which is only 230.6 billion USD for a huge population of 147 millon.

Import duty and globalization:

Import duty in Bangladesh is only 2.5% which greatly undermines the business
potentials of local products. To cope with globalization Bangladeshi government has to
keep the import duties low. The rate mentioned above is comparable to industrialized
countries like Germany, USA. Therefore, such low import duty fails to protect local
producers in Bangladesh. However, growing economies like India unlike Bangladesh
has import duty as high as 35%.

Remittance inflow:
As mentioned earlier, majority of the labour force in Bangladesh in contrast to South
Korea are unskilled. Thus the job market for this labour force is limited to certain
countries, predominantly in the middle-east countries and hence is very sensitive to
policies of those handful countries. In most cases Bangladeshi labors are employed in

28
non-technical jobs that pay very little. Thus, foreign workers fail to generate a sufficient
flow of foreign-exchange earnings relative to countries like South Korea.

Protecting local businesses and investors:

Unlike South Korea, Bangladesh does not have any policies that reserves and protect
the interest of the local businesses and investors. Hence, local businesses remain
vulnerable to giant multinational corporations or international investors.

Balance of payment crisis:

- Trade deficit
- Current account balance
- Credit line

Taxation:
The rate of return in Bangladesh is already too low and hence, further taxation will only
deteriorate the return scenario. Of the two forms of tax, indirect tax in the form of VAT is
almost successfully collected by the government while direct taxes remain largely
uncollected. Since burden of indirect tax is carried by everyone regardless of the income
level, direct tax mainly affects the affluent segment of the population. Thus due to lack of
effective tax enforcement measures, taxation in Bangladesh to certain extent contributes
towards increasing income gap and disparity.

Export promotion:
Success of South Korea over the past two decades suggests huge potential of export
promotion of secondary and manufactured products of developing countries. Accordingly
World Bank and IMF suggest that growth of developed countries is best served by free
market enterprises and withdrawal of government interventions. However, South Korea
started with protective strategies rather than open strategies.

Political goodwill and foresight/vision:

Both South Korea and Bangladesh have been under military regime for a significant time
of their political history. Yet, development performances of the two countries vary starkly
since the Korean leaders had political goodwill and exhibited political foresight in

29
sketching the future of the nation. Regrettably, their Bangladeshi counterparts have
failed to do so.

CONCLUDING REMARKS

To sum up, case study reviewed here presents a brief analysis of the growth and
development experiences of two Asian countries with stark economic contrasts.
Although no country can succeed by mechanically following the experience of another
country, a number of helpful policies, institutional lessons, and best practices can still be
learned from South Korea. In the spirit of experimentation pragmatic and innovative
steps can be taken by the policy makers. Dynamic learning and flexible institution-
building are essential components of such a strategic approach to development. In
discussing the Korean perspective, we have noticed a change in direction. The
aggressive role of the Korean government has changed to some extent after the Asian
currency crisis. Korea is deepening its integration with the global economy and
becoming more welcoming of foreign direct investment. And it should continue to
increase the flexibility of the domestic economy in a way that will enable the economy to
benefit from the rise of the Chinese economy and the rapidly changing shape of the
Asian economy – as it has in the last few years. In conclusion, it is the vision, good
political will and initiatives, foreign assistance, and above all contributions from
industrious South Korean nationals that have made it possible for South Korea to
achieve such incredible development and become one of Asia’s leading economies.

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