Monthly Archives: August 2021

Human Capital

Chapter 5


The Escape from Oppression and Poverty: a Developmental History of Korea

Income and education levels tend to be positively associated across countries and over time, an observation, which led a prominent economist to wonder “are we looking here at the effect of education on economic growth, or vice versa?” (Easterlin(1981: 7)) As in much of the rest of the world, the twentieth century saw living standards and educational attainment in Korea improve in parallel. Having been set off by the port opening in 1876 and set on track by the initiative taken by the colonial government, the progress in literacy and primary schooling speeded up significantly in the decade following the decolonization in 1945, when incomes hardly improved.

These facts suggest that the Korean human capital accumulation neither caused nor was caused by economic growth. Instead, they appear to indicate that the shifts in the distribution of power and resources drove both educational progress and economic development. Indeed, in the middle of the growth miracle McGinn, et al.(1980: 240) concluded that “The evidence is not consistent with a conclusion that education generated growth … It does seem likely that changes occurring in other sectors of the Korean society occurred also in education”. Consistent with Engerman and Sokoloff(2000)’s account of the divergence occurring between North and Latin America in terms of land and power inequality impinging on public provision of mass schooling and growth, this inference needs to be balanced by the divergent interpretations of the South Korean growth miracle highlighting education as one of key driving forces and by the abundance of evidence of income growth promoting schooling in the rest of the world.

This chapter takes a close look at the interaction between human capital accumulation and economic growth and between public provision of education and private demand for learning, focusing on the rise of literacy and primary schooling up to 1960 and leaving the subsequent propagation of secondary education to be discussed the following chapter. We begin by presenting the aggregates outlining the course of the Korean human capital accumulation. The second and third section analyze the literacy improvement and the advance of primary school, respectively, in the decades leading up to 1945. We then discuss how the de-colonization helped literacy and primary education surge in South Korea. The final section concludes by highlighting that the rapid accumulation of the Korean human capital took place against the background of the transition from a limited to an open access order.

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Technological Progress

Chapter 4


The Escape from Oppression and Poverty: A Developmental History of Korea

Leaving behind the secular decline in living standards, Korea embarked on modern economic growth around 1900, which developed into a growth miracle in South Korea, but degenerated into a growth disaster in North Korea. This chapter performs three different types of calculations to show that the long swing in the Korean living standards were driven primarily by technological change, although it depended importantly on capital accumulation. We then explore why productivity improved more rapidly in South than in colonial Korea to suggest that the rate of technological progress depended on the research activities in the private sector, rather than state intervention to foster learning by doing.

We begin by estimating the parameters of the neoclassical growth model in colonial and South Korea, which suggests that faster technological progress accounts for nearly half of the post-colonial growth acceleration. This result is confirmed by the primal and dual estimates of factor productivity growth for pre-colonial, colonial, and North and South Korea. More than two thirds of the aggregate growth from 1960-90 came from the increase in capital input justifying the fundamentalist (known also as accumulationist) perspective. The absorptionist (known also as assimilationist) view is supported by productivity advancing faster in South Korea than in the rest of the world to account for nearly half of the South Korean per capita output growth during the growth miracle.

To identify the causes driving the “productivity miracle”, we begin with growth accounting by sector to generate evidence having mixed implications on the growth effect of the South Korean industrial policy, which includes the reduced importance of the efficiency gains from intersectoral reallocation of resources after 1945 and faster productivity improvement in manufacturing than in nontradable sectors.

An analysis of a panel dataset comprising thirty-six manufacturing sectors during the high growth era reveals that learning by doing can account for a tiny fraction of total factor productivity improvement. Given the implausibility of production experience being accumulated entirely by the South Korean industrial policy, the dynamic efficiency gains attributable to the intervention has to be smaller than the tiny fraction. This conclusion is consistent with the substantial growth-retarding effect of the South Korean financial repression as implied by the small deadweight loss, which has been isolated by simulating a computable general equilibrium model.

Finally, we estimate the parameters of a knowledge accumulation equation to conclude that the post-1945 acceleration of productivity growth resulted from an increase in the number of and the improvement in the quality of research workers, which took place against the background of the rapid human capital accumulation after the de-colonization.

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Review of Mitsuhiko Kimura, The Economics of Colonialism in Korea: Rethinking Japanese Rule and Aftermath

(Tokyo: The Japan Institute of International Affairs, 2021. pp. 233. 1 fig. 38 tabs.
ISBN 9784866581248 Hbk. ¥2,500)

Forthcoming in Economic History Review

One of the pioneers of the cliometric research into Korea’s economy past, Mitsuhiko Kimura has written a readable introduction to the economic development of Korea under Japanese rule (1910-45) focusing on state capacity, structural change, living standards, the state control during WWII, the developmental legacy for North and South Korea, and, finally, the balance sheet of the colonialism for Japan.

After a brief prelude describing pre-colonial Korea as a country with low agricultural productivity and abundant mineral resources, the author begins in chapter one with what the colonial state has achieved, highlighting 1) the ability to maintain public order, 2) the cadastral survey to modernize land property rights, 3) and public enterprises.

Chapter two shows that colonial Korea made an impressive progress in paddy field productivity, which was driven by the diffusion of high yield rice seed varieties and the state initiative to improve irrigation and spread the use chemical fertilizer. Portraying the industrialization of colonial Korea as uniquely rapid from the perspective of comparative colonialism, Kimura highlights indigenous participation, which prevented the development from becoming confined to enclaves.

Despite the agricultural and manufacturing development, living standards did not improve rapidly for ordinary Koreans (chapter three). While per capita rice consumption declined as a matter of trend, evidence of rising per capita consumption exists suggesting that non-rice food items accounted for an increasingly large portion of total consumption. Kimura calls attention to the increasing availability of public goods like law and order and hygiene. Chapter three closes with a survey of mixed evidence on the trend in stature, which include a recent time series estimate of rising height of individuals of lowest income groups.

Chapter four is devoted to the expansion of the sphere of the state during WWII as indicated by the sharp increase in the number of public employees of the Korean ethnicity, the introduction of state control over consumption and production, the mobilization of labor force, and finally the creation of war industries.

Under Japanese rule the northern half of colonial Korea performed better than the southern half in terms of agricultural as well as manufacturing growth. After 1945, North Korea suffered growth disasters, while South Korea achieved a growth miracle. Chapter five attributes the reversal of fortune to North Korea inheriting the wartime system of control and embracing socialism and to South Korea making a clean break with the war economy and replacing it with a market system.

The final chapter asks what Japan gained by occupying Korea. Little in financial, if not geopolitical, terms. While the colonial rule did not cost a fortune for Japan, the metropole did not make enormous profits from its preferential relation with Korea either, because the trade with or investment in the area accounted for a small fraction of the Japanese overseas transactions. Having earned more than they could have by staying put in Japan, Japanese expatriates had to return to their homeland in 1945 leaving behind much of the wealth they
accumulated in the former colony, and some of them lost lives.

The six chapters read like independent short stories on separate topics, some of which are closely interrelated and deserve to be narrated as such to help readers reconcile seemingly conflicting pieces of evidence and see how discrete facts fit together as parts of a broader picture of growth and structural change. The state initiative to improve public health speeded up mortality transition and population growth preventing workers’ living standards rapidly despite the
impressive progress made in agriculture and manufacturing sectors. The health campaign improved epidemiological environment, reducing the amount of nutrients required to defend body system against inflections and allowing workers to grow taller and enjoy an increasingly diversified pattern of consumption despite stagnant real earnings.

Putting the seemingly disconnected pieces of evidence into perspective justifies a more optimistic assessment of the performance of colonial Korea than Kimura proposes. In addition to contributing directly to the rise in living standards, improving health implied longer life expectancy, hence a larger amount of lifetime earnings despite stagnant real earnings per day.

Lifetime incomes increased over time, also because the public investment in schooling raised primary school enrollment rates, increasing the share of skilled workers in labor force capable of making a greater amount of transfer to elderly parents. The developmental picture becomes even brighter, when the colonial trends are put side by side with the declining living standards in pre-colonial centuries of slower population growth.

Lastly, the alleged North Korean continuity and South Korean discontinuity with the colonial past remain less than adequately substantiated. Kimura does not consider the destruction caused by the Korean War, and the state control during WWII and the North Korean collectivization of agriculture and establishment of state enterprises are entirely different matters. The wartime control did not represent a thorough rejection of, but transitory aberration from the pre-WWII market economy guided by classical liberalism. Far from being totalitarian, the war economy depended importantly on markets. For instance, as a report published in 2001 by the South Korean government shows, even ‘comfort women’ were enlisted not forcibly by the state, but by private recruiters. Hence, one might as well argue that South Korea prospered by preserving the institutional legacy of Japanese rule, while North Korea failed by destroying it.