Changing Comparative Advantage in the Republic of Korea, 1960-2000 Republic of Korea (South Korea) is a medium-sized, densely populated, resource-poor, and peninsular country in northeast Asia. Geographically, South Korea's land mass is approximately 100,032 square kilometres - about one-third of the size of Malaysia[ Malaysia has a total area of approximately 330,000 square kilometers, with Peninsular Malaysia covers 131,598 square kilometers, Sarawak covers 124,449 square kilometers and Sabah covers 73,711 square kilometers.]. In 1949, the total population of South Korea was calculated at 20,188,641 people. In 2010, South Korea's population stands at 48.5 million, the 26th largest in the world - almost double of Malaysia[ In 2010, the population of Malaysia is around 27.5 million.]. Few Countries began life with a more limited set of probabilities than the Republic of Korea. Liberated from its 40 years of colonial status (1905-1945) by the defeat of Japan in World War II, Korea was soon wracked by civil war (1950-1953) and divided it into two nations. Many observers were pessimistic about the future of non-communist South Korea. The industrial capacity of the country was mostly located in communist controlled North Korea, and South Korea has little to offer besides the dedication and hard work of its people. Yet, over the following 50 years, few countries have grown faster. The Republic of Korea is an economic success story that is worth studying.As shown in Table 1, Republic of Korea's per capita GDP in 1960 was lower than such Sub-Saharan African countries Senegal - to say nothing of most countries in Asia and Latin America. But nowadays, South Korea is one of the G-20 major economies. It is a high-income developed country and is a member of OECD. From 1960 to the present, per capita income in the Republic of Korea grew at the rate of 5.95 percent per year, in real terms (Table 2). At this rate, per capita income doubles every 12 years, and over the span of one generation, average incomes increase nearly four times. Besides the rising incomes is an equally impressive growth in the productivity, which increased by a factor of over the 40 years span from 1960 to 2000. Table 1: Comparative GDP Per Capita for 1960 & 2004 Country Per Capita GDP in 1960, US$ (2000) Per Capita GDP in 2004, US$ (2000) Ghana 412 1440 Senegal 1776 1407 Korea 1571 18424 Malaysia 1801 12133 Philippines 2039 3939 Sri Lanka 866 4272 Taiwan 1444 20868 Thailand 1059 7274 Argentina 7838 10939 Brazil 2644 7205 Mexico 3719 8165 United States 12892 36098 Source : Penn World Table 6.2 Table 2: Indicators of the Korean Economy 1960 1970 1980 1990 2000 GDP per Capita, US$ (2000) 1571 2777 4830 9959 15881 Output per worker (1960=100) 100 170 277 534 824 Openness 4.52 14.94 35.21 43.01 86.31 Source : Penn World Tables , author's calculations Korea economic strategy for the first few years after the Korean War was to limit imports and concentrate on producing imports substitutes, a common strategy for developing countries in the 1950s. Korea was one of the first to recognize its limitations and to change its policies. In 1960 and 1961, political changes led to a change in economic policies and a more aggressive engagement with the world economy. Korea removed many of its restriction on imports and began to promote export oriented industries. Between 1960 and 2000, its openness index increased more than 19-fold, from 4.52 to 86.31. Initially, Korea's export efforts were limited to the commodities on hand, mostly minerals, a few agriculture and marine products (for example, seaweed) and very simple consumer goods. Over several decades after 1960, its export industries evolved several times, from simple product required more skills and greater capital. After its first few years of exploring comparative advantages, Korea developed competitive sectors in wigs, textiles, shoes, and plywood. With the increase in income came increases in skills and financial capital. This permitted the development of more skill and capital intensive industries such as steel, shipbuilding, household appliances and electronic sub-assemblies. Eventually, these were followed by cars, computers and electronics. In the first decade of the new millennium, Korea is a highly income industrial economy and capable of exporting the most technologically advanced products available in several fields. Clearly its history demonstrates that comparatives advantage it's not unchangeable, and that it can be a vehicle for raising incomes and promoting development. An increasing share of Korea's output was sold in world markets. Consequently, production was not limited to the growth in its domestic markets. In addition, its goods had to be competitive in quality and price. Its ability to obtain imports at world prices was also important, but standing behind Korea's competitiveness was its rapid increase in productivity. Without more output per hours of work, income could not have risen as fast as they did and Korea ability to shift its comparative advantage from low skill to increasingly higher skill products could not have gone forward. In turn, productivity increases require a host of complementary changes, ranging from the development of universities and research institutes to organizational changes and the raising of financial capital for investing in new machinery and equipment. There was great development in education during the 1950s. Korea's primary school enrollment rate had been only around 45 percent at the time of liberation from the Japanese colonial rule in 1945. With the introduction of universal primary education in 1950, Korea primary school enrollment increased from 59.6 percent in 1953 to 86.2 percent in 1960. The high-school enrollment rate increased from 12.4 percent in 1953 to 19.9 percent in 1960. The illiteracy rate dropped from 78 percent in 1945 to 28 percent in 1960. Although investing in people by itself was not enough to promote growth in the absence of complementary industrial and trade development, it provided the basis for Korea's subsequent takeoff. In the process of promoting exports and raising productivity, Korea encountered number of obstacles including its own bureaucratic inflexibility, problems in marketing to foreign markets that are radically different from Korea, and a shortage of technical management and industrial expertise. The Korean experience is an example of a country that used its comparative advantage to develop export markets. At the same time, it also used the competitive pressures of foreign competition to raise its own productivity and quality standards, which in turn raised the incomes of its citizens. Korea's success was a joint product of efforts by its government, the private sector, and a number of public -private organizations. The role that each of these played is still hotly debated. Is Korea's success due to the wise guidance of government policies, or did those policies play a secondary (or even a negative) role to markets and competition Question 1 What are the contributors to economic success of the Republic of Korea? What enabled Republic of Korea to increase in income? Question 2 How does the Republic of Korea developed & used its comparative advantage? Question 3 How does Korea managed to continue the rapid growth? Question 4 What is the special characteristic of Korean workers? Question 5 What are the international brands of Korea that you know? Can you name a few? Question 6 What is the comparative advantage of your country? What are the main economics activities in your country? . Question 1 What are the contributors to economic success of the Republic of Korea? What enabled Republic of Korea to increase in income? Question 2 How does the Republic of Korea developed & used its comparative advantage? Question 3 How does Korea managed to continue the rapid growth? Question 4 What is the special characteristic of Korean workers? Question 5 What are the international brands of Korea that you know? Can you name a few? Question 6 What is the comparative advantage of your country? What are the main economics activities in your country