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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 33, No. 2, pp.163-194
ISSN: 1225-0279 (Print)
Print publication date 30 May 2020
Received 19 Jul 2018 Revised 24 Feb 2020 Accepted 02 Mar 2020
DOI: https://doi.org/10.22905/sje2020.33.2.003

Theory and Empirics of the Institutional Evolution of Economic Development: An Application to Korean Economy

Sung-Hee Jwa
Sung-Hee Jwa, Ph.D. in Economics, Chairman, President Park Chung Hee Memorial Foundation, Former Visiting Professor of Seoul National University, and Former President of Korea Economic Research Institute. 386 World cup-ro, Mapo-gu, Seoul 03906, South Korea, Tel: +82-2-716-9345 jwa4746@naver.com

JEL Classification: B52, C51, E14, O10, O45, P10

Abstract

This study empirically applies the theory of institutional requirement for economic development to explain Korea’s modern history of economic development. The study theoretically derives the argument that the economic discrimination (ED) policy regime “rewarding high performance relative to low performance” is the necessary condition for economic development, whereas the economic egalitarianism (EE) policy regime “disregarding the differences of performances” is the sufficient condition for economic stagnation. The paper then describes some details of the institutional evolution of Korean economy for the last 60 years and presents three testable hypotheses for Korea’s development history. 1) Institution-led growth hypothesis: The rise and fall of Korea’s economic growth was respectively led by the ED and EE policy regimes. 2) Corporate-led growth hypothesis: The rise and fall of Korea’s economic growth was led by the rise and fall of the corporate sector growth instigated by the ED and EE policy regimes, respectively; and 3) Political cycle of economic growth: The rise and fall of Korea’s economic growth was led by the political cycle of economization of politics and politicization of economy, respectively. These hypotheses are empirically verified by utilizing a new model of corporate production function. Policy implication is that Korea’s current economic difficulties can only be cured by reversing the current anti-corporate EE policy regime to the corporate-friendly ED policy regime.

Keywords:

Economic discrimination (ED), Economic egalitarianism (EE), ED policy regime, EE policy regime, Institution-led growth, Corporate-led growth, Corporate production function

Acknowledgments

The author appreciates two anonymous referees and especially the Editor, Prof. Lee Keun for their useful comments on the early draft. The author also thanks Dr. Taekyu Lee, an economist at the Korea Economic Research Institute for his assistance in empirical work, Dr. Tae-Joon Han, a senior fellow at the President Park Chung Hee Memorial Foundation for useful comments as well as assistance in English editing and Mr. Kyunghak Shim at the President Park Chung Hee Memorial Foundation for research assistance.

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