Moving out of Aid Dependency: Lessons from the South Korean experience Irma Adelman University of California, Berkeley

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

 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

 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 country’s own institutions and policies but also to existing global operational rules of global institutions

KOREAN EXAMPLE  In the early 1960’s 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 ( ) Labor-intensive export-led growth ( ) Heavy industry promotion ( ) Stabilization, liberalization and economic maturity( ) Financial crisis (1997–1999) Reform, restoration of growth (1999-present

 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