South Korea's economic success is well-documented. It shows that a country can leap from being one of the poorest in the world to one of the richest (an OECD member) in just one generation. This paper first reviews the broad literature, both in English and Korean, on Korean economic developments and the major contributing factors over the last 33 years . It then attempts to shed some light on the prospects for the Korean economy. Major contributing factors for Korea's rapid economic development include a high accumulation of physical and human capital, a high saving rate, an export-led development strategy, state intervention in the economy, efficient management and conducive culture. The prospects of the Korean economy appear bright but it would be difficult for other developing countries to emulate the Korean model.
This study analyses cultural effects on economic development in South Korea. It introduces the concept of transaction costs as an operational intermediary between culture and economic development. Using this approach, it is found that culture affects economic development through its impacts on transaction costs in the static case. In the dynamic case, culture affects the economy through its impacts on the creative capacity of citizens. To assess the role of culture in future economic development, recent changes in Korean culture are examined. These include rising individualism and declining sense of community and trust; weaker appreciation of cooperation, compromise, and acceptance of dissent, and rising inclination towards confrontation; and the failing rule of law and rising perception of injustice. These all raise transaction costs. In addition, the future orientation is fading, as suggested by decreasing savings and investment rates, and by decline in the fertility rate. In view of these recent changes, Korean culture will have a negative effect on the future economy, compared to its positive influence in earlier decades from the 1960s. Culture is therefore not ceteris paribus. Even if all else remains the same, the prospects of the Korean economy will be tainted by the influence of culture.cultural analysis, South Korea, economic development,
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