South Korea is categorized as high-income country by the World Bank, to get
important insight regarding development processes and policy by analyzing each of
the four board approaches of Development that are:
(1) Stages of Growth
(2) Structural Patterns
(3) Dependence Revolution
(4) Neoclassical Counterrevolution
1. Stages of Growth:
South Korea has been subjected to linear manner growth, there has been reports of
the highest investment in national income has been reported by South Korea. To
comprehend the reason of such ascent the named “Stages of economic growth”
published in 1960’s doesn’t sate any formula as well about how the growth has taken
place, however during that time the investment ratio was 15% which was quite low to
take the lead in 1965, however the ratio rose to 37% in 1990 and later remained
close to 40% in year 2000 to 2007,South Korea certainly has been an example to
prove Rostow’s stance of driving to maturity when it comes to an economic growth.,
He claim that it takes 60 years to achieve a maturity a level in economic
establishment starting from the initiation of a flight.
His notion was that the grater the productivity gap between two progressive
countries, the speedier the income can grow since the take off has been initiated.
South Korea has reached to a level of that maturity without a doubt due to it’s unique
types of imports and exports.
2. Structural Patterns
South Korean structural patterns of development has been duly observed as a game
changer in its economy. As we closely observe south Korean structural model, this
country has increased its agricultural sector productivity, Shifted labor from farming
to heavy and small industries, growth of capital stock, education, skills, demographic
transition in controlling the fertility. South Korea made sure to bring about land
reforms so agriculture sector kept growing. Expansion of labor in an industrial sector
has also marked its way. After 1970 the rural sector had kept flourishing due to the
agricultural reforms.
3. Dependence Revolution
In the early 1970s, third five-year plan focused on heavy and chemical industries.
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Hence new engine of growth shifted from light manufacturing to heavy
manufacturing. Meanwhile, Korea continued with its export promotion and import
restriction policies. The production of automobiles began while imported cars virtually
disappeared from the market. Increase in exports was roughly 45 percent a year.
In the late 1970s because of increase in oil prices, the cost of its oil imports
increased by 200 percent in a year. In the early 1980s, exports in heavy industries
reached UD$17.5 billion. Soon by the mid-1980s, Korea's economic growth was
recognized internationally and world criticized its export intensive economy.
Unfavorable global conditions hit Korea's export intensive economy. Korean policy
makers realized the need to open markets and create more competition and to boost
the international competitiveness of domestic industries.
An important transformation occurred in Korea's trade policy in the sixth five-year
plan, which witnessed the change in trend from heavy industry toward export –
oriented consumer products, including electronics and high tech. Foreign investment
policies were relaxed in response to a decrease in domestic investment, cross-
border capital movement increased significantly. Restrictions on imports were
removed, but a variety of non-tariff barriers complicated trade structure. In 1986,
Korea for the first time achieved a favorable trade balance, a trade surplus of
US$4.2 billion. However the transformations in the trade policy eventually lead to
challenges in the 1990s. In the 1990s domestic consumption of luxury
goods increased including high tech and electronics products which reduced exports
which resulted in Korea's trade deficit and current account deficit. In the mid-1990s
Korea reduced tariff rates and import restriction on autos, high tech products and
financial services.
4. Neoclassical Counterrevolution
Many successful examples of economic development, such as South Korea, exhibit
long periods of sustained capital accumulation. This process is characterized by a
gradually rising investment rate along with a moderate rate of return to capital, both
of which are strongly at odds with the standard neoclassical growth model that
predicts an initially high and then declining investment rate with an extremely high
return to capital. We show that minor modifications of the neoclassical model go a
long way towards accounting for the transition dynamics of the South Korean
economy. Our modifications recognize that (i) agriculture (which makes up a large
share of the aggregate economy in the early stage of development) does not rely
much on capital and (ii) the relative price of capital declined substantially during the
transition period.
