Moving out of Aid Dependency: Lessons from the South Korean experience

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Moving out of Aid Dependency Lessons from the
South Korean experience

• Irma Adelman
• University of California, Berkeley

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Moving out of Aid Dependency Lessons from the
South Korean experience

• Accelerated development is possible
• The essence of development policy consists of the
  creation of dynamic comparative advantage.
• Requires anticipatory and coordinated
  restructuring of
• -production and investment patterns
• - technology
• - social development
• - economic, social and political
  institutions
• - investment and trade policies

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• The critical factors needed to generate economic
  development are both tangible and intangible
• -leadership commitment to development
• - social capital, including not only the level
  of human resources but also the degrees of
  social cohesion, social trust, cooperative
  norms and willingness to act in the social
  good
• - institutional and social resilience and
  malleability
• - appropriate policy design in investment,
  capital accumulation, technology and trade

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• Government has a central role in the promotion of
  economic development. But its functions must
  adapt dynamically evolving from prime-mover and
  direction-setter into a quasi-Smithian State. A
  sound economy therefore requires a sound State
• The economy, society, institutions and policies
  must be malleable and capable of even abrupt
  change
• The prospects for economic development are
  intimately linked not only to the countrys own
  institutions and policies but also to existing
  global operational rules of global institutions

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• KOREAN EXAMPLE
• In the early 1960s South Korea was thought to be
  a bottomless sink for foreign aid and a
  hopeless case
• In what was thought to be a miracle it became a
  fully developed and industrialized nation in a
  short period
• South Korean development went through 4 phases
• Classical import substitution (1963-1966)
• Labor-intensive export-led growth (1967-1972)
• Heavy industry promotion (1973-1978)
• Stabilization, liberalization and economic
  maturity( 1979-1996)
• Financial crisis (19971999)
• Reform, restoration of growth (1999-present

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• WTO rules either prohibit or severely restrict
  most measures used by South Korea for its
  accelerated development
• Aid to South Korea was mostly untied current
  flows are tied