Getting Interventions Right: How South Korea and Taiwan Grew Rich

78 Pages Posted: 1 Sep 2000 Last revised: 30 Jul 2010

See all articles by Dani Rodrik

Dani Rodrik

Harvard University - Harvard Kennedy School (HKS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: December 1994

Abstract

Most explanations of Korea's and Taiwan's economic growth since the early 1960s place heavy emphasis on export orientation. However, it is difficult to see how export orientation could have played a significant causal role in these countries' growth. The measured increase in the relative profitability of exports during the 1960s is too insignificant to account for the phenomenal export boom that ensued. Moreover, exports were initially too small to have a significant effect on aggregate economic performance. A more plausible story focuses on the investment boom that took place in both countries. In the early 1960s both economies had an extremely well- educated labor force relative to their physical capital stock, rendering the latent return to capital quite high. By subsidizing and coordinating investment decisions, government policy managed to engineer a significant increase in the private return to capital. An exceptional degree of equality in income and wealth helped by rendering government intervention effective and keeping it free of rent seeking. The outward orientation of the economy was the result of the increase in demand for imported capital goods.

Suggested Citation

Rodrik, Dani, Getting Interventions Right: How South Korea and Taiwan Grew Rich (December 1994). NBER Working Paper No. w4964. Available at SSRN: https://ssrn.com/abstract=226563

Dani Rodrik (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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