1. Comparison of South Korea & Taiwan
NIE development model reconsidered

2. Comparison Population land area South Korea:51 million
Taiwan: 23.5 million
land area
South Korea:96,920 km2
Taiwan: 32,260 km2

4. Lowest Fertility Rates in World
Ranking
Country
Total Fertility Rate
219
South Korea
1.26
220
Puerto Rico
1.22
221
Hong Kong
1.19
222
Taiwan
1.13
223
Macau
0.95
224
Singapore
0.83

5. South Korea and Taiwan Purchasing power parity GDP
South Korea: US$2 trillion (14th)
Taiwan: US$1 trillion (22nd)
GDP growth rate
South Korea: %
Taiwan: %

6. NIE development models
Singapore, Hong Kong, Taiwan, and South Korea
export-oriented industrialization
state guidance
state involvement in economic development
high investment in human capital formation

7. NIE development model dead?
South Korea in 1997
negative growth for the 1st time in 2 decades
unemployment rate rose from 3% to 7%
per capita GNP almost shrank by half
Taiwan in 1997
economic growth slowed down
still robust
Is the NIE development model in crisis?

8. South Korea and Taiwan development becomes state’s priority
commitment to private property & market
government’s strategic industrial policy
state agencies formulate and implement strategic policies (e.g. Japan’s MITI)
sound macroeconomic management
bureaucratic autonomy from interest groups

9. South Korea and Taiwan Military strongman rule from 1960s to 1970s
Park Chung Hee ( )
Taiwan
Chiang Kai-Shek ( )

10. Park Chung Hee
Experience with Japan’s wartime economic management in Northeast China
Economic Planning Board
Ministry of Trade and Industry
Ministry of Finance
import substitution => export orientation
normalization with Japan
Vietnam War

12. Financial sector Government owned and controlled
all 5 commercial banks
including the central bank (Bank of Korea)
all 6 special banks
2 of the 3 non-bank financial institutions

13. Financial sector Foreign Capital Inducement Law
control private sector’s access to foreign capital
business activities were directed by the state

14. Growth-first goal Low interest rate to induce firms to grow
favored large firms
firms compliant with state policies and plans
excessive demand for capital
inflation favored large debtors
inflation discouraged domestic savings
reliance on foreign debts
vulnerable to external shocks

16. Heavy Chemical Industrialization
HCI plan in 1970s
heavy and capital-intensive industries
strengthening of state intervention
foundation for the emergence of chaebol
combined net sales of the top 10 chaebol
% of GNP
% of GNP
% of GNP

17. South Korea’s foreign debts
million US$
billion US$
government preferred foreign borrowing over foreign direct investment
maintain domestic ownership of industries
in 1990s private sector borrowed heavily
billion US$
billion US$

19. Top chaebol
Debt to equity ratio of top chaebol

20. Taiwan’s financial sector
Control inflation and maintain stability
Central Bank of China ultra-conservative
government controlled financial sector
nationalized the banking system
private commercial banks were not allowed to operate until 1991
71.3% of the assets of all financial institutions were in government-owned banks

21. Result of financial control
Traditional family networks became the major source of capital
limited the size of Taiwan’s companies
small and medium-sized firms
limited the expansion of firms
limited the debt-equity ratio of firms
most large, capital-intensive, technology-intensive industries were state-owned

22. Equity-first versus growth-first
Government’s anti-inflation policy
encouraged savings
Government avoided concentration of economic power
Government promoted equitable distribution of income
Government’s reluctant to use preferential financial treatment to large firms