by
Myung Soo Cha
Preface
Chapter drafts coming soon for comments!
A 46-pages short version is here👇:
Presentation by David Weil at the Summer Conference of the Korean Economic History Society, August 26, 2022.
Professor Weil’s lecture has addressed four issues, but I would like to focus on fertility transition and its impact on economic growth to suggest a half-baked idea about how to avoid the demographic meltdown caused by fertility decline. Quality-adjusted population density certainly is a useful perspective, about which I have little to say. The overview of fertility decline in different parts of the world puts the East Asian experience nicely in perspective.
Both fertility and growth are endogenous variables, which makes it challenging to identify the causal links between the two. To measure the impact of an exogenous fertility decline on growth, Ashraf, Weil and Wilde (2013) simulated a parameterized model. Although various causal channels have been explored, the relevance of the model may be limited for the South Korean high growth from 1960-90, when rapid fertility transition occurred in parallel with a equally rapid increase in savings ratio and the spread of secondary education. In Ashraf, Weil and Wilde (2013), individuals save a fixed portion of their incomes, and schooling costs do not exist.
The fertility decline, savings boom, and educational progress were interdependent developments in the sense that child quantity and quality and financial assets represent key assets parents hold to prepare for old age. From 1960-90, the South Korean government invested in secondary schools driving the propagation of secondary schooling by making it less costly and more accessible. It also lifted financial repression consistently and rapidly improving returns for savers. The interventions probably led parents to rebalance their portfolio away from child quantity toward child quality and physical capital, transforming South Korea from being a labor- to capital abundant country and causing the country to grow rapidly through accumulation and technological progress.
I have analyzed the three-way interaction in chapter 6 of the book I am writing, The Escape from Oppression and Poverty: A Developmental History of Korea, available from https://thetwinmiracles.wordpress.com/. As I found out from simulations using three overlapping generations model, the fertility transition and savings boom were driven by the financial liberalization and to a less extent by school building, while the birth control campaign hardly mattered.
The augmented life cycle savings perspective suggests a policy alternative that might help avoid demographic meltdown without increasing public spending unsustainably. The South Korean fertility decline in recent decades has been driven importantly by the growth of social welfare, which reduces not only the need to save, but also the demand for child quantity and quality. Hence establishing a policy rule to provide a greater amount of better quality care for persons raising a greater number of children at their own expense, and vice versa, will boost fertility and the sustainability of the public sector. Likey to be politically difficult to market, the proposed reform is only too fair.
Applying difference-in-differences method to a county-level panel dataset comprising colonial and South Korea, this study finds that the post-colonial land redistribution lowered the level of total factor productivity by disrupting the efficient allocation of farmland across cultivators varying in skill. The equality shock abolished credit arrangement between tenants and landlords, tightening financial constraints for the post-1945 farmers, which reduced the use of chemical fertilizer and draught animals. Lastly, the disappearance of sharecropping contract increased the use of organic fertilizers indicating the rise in work intensity due to the removal of Marshallian inefficiency.
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This paper empirically evaluates the two opposite representations of the pre-1945 Korean comfort women. Far exceeding the estimate advocated by migration view, the scale of mobilization as estimated using demographic information falls within the range proposed by slavery view. Indicating one in every four conscriptions to be coercive, Bayesian inferences from testimonial evidence suggest that claims of forced enlistment were typically reliable, which is consistent with their occurrence being not random but correlated with conscriptional idiosyncrasies. Marrying ages plunged, and childbirths surged indicating the widespread fear of abduction in the early 1940s. Health measures suggest that the sex workers fared worse than the rest of the Korean population, which is consistent with slavery view.
Chapter 5
of
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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Chapter 4
of
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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(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.
Chapter 3
of
The Escape from Oppression and Poverty:
A Developmental History of Korea
This chapter describes Korea’s transformation from being a poorly commercialized economy controlled by aristocrats into a market economy based on democracy. Broader and deeper than can be described as institutional changes, the development is better labelled as the transition from limited to open access order. As North, Wallis, and Weingast(2000: 18, 23) defined, limited access order refers to a state, where elites enjoy privileges in terms of “property rights and access to resources and activities”. Under an open access order, all citizens have “the right to form organizations that can engage in a variety of economic, political, and social activities”.
The transition did not refer to the rise of markets eclipsing the state, but to the rise of impersonal transactions and the growth of the public sector occurring in parallel. The mutual dependence of markets and state capacity is indicated by successful market economies being typically associated with government activism to support mass education, provide infrastructure, and organize social insurance (Lindert(2004); North, Wallis, and Weingast(2009)).
The illegalization of status order in 1894 marked the beginning of the Korean evolution from a limited to an open access order, which was carried forward by the introduction of the rule of law under Japanese rule and the post-colonial land redistribution. The development was completed by the establishment and consolidation of democracy in South Korea in the late 1980s, an achievement discussed separately in chapter 7.
This chapter has four sections, describing the primitive state of the public sector and markets in pre-colonial Korea, the growth of state capacity and the sphere of markets under Japanese rule, and the emergence of state intervention in South Korea, and, finally, comparing the institutional setting in the three regimes…..
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A brief review of Mizoguchi, et al.(2019)’s estimate of the national accounts of colonial Korea prepared in response to the request from the Maddison Project, focusing on the comparison with Cha and Kim (2012).
Mizoguchi, et al. (2019) Kankoku, kitachosen, Azia choki keizai tokei [Historical Statistics of Asia: South and North Korea], vol 4 (溝口敏行、外 アジア長期経済統計 4 韓国・北朝鮮) (Tokyo：Toyokeizaishimposha)
Cha, Myung Soo and Nak Nyeon Kim (2012) “Korea’s First Industrial Revolution,” Explorations in Economic History
There exist three key differences between Cha and Kim(2012) and Mizoguchi, et al. (2019), which refer to 1) the structure of the national accounts estimated, 2) the growth trends, and 3) the structural change under Japanese rule.
While Cha and Kim (2012) provides estimates from expenditure and production sides, Mizoguchi, et al.(2019) focuses on GDP, leaving out GDE, which has been available in previous estimates by Mizoguchi(1988).
As Cha and Kim(2012) shows, per capita output growth took place consistently under Japanese rule without either slowing down or speeding up. According to Mizoguchi, et al.(2019), per capita output was being reduced in the 1910s, which was followed by accelerating growth in the following two decades. As a result, per capita output growth from 1911-40 was 2.3% (Cha and Kim(2012)) vs. 1.5% (Mizoguchi, et al.(2019)) per year.
The gap in per capita output growth arises from output, rather than population, growth estimates being divergent. Although the two studies estimated population growth using different sources (mortality information from genealogies in Cha and Kim(2012) vs. from the colonial police in Mizoguchi, et al.(2019)), the population growth from 1911-40 are marginally different, 1.3% (Cha and Kim(2012)) vs. 1.2% (Mizoguchi, et al.(2019)).
Turning to structural change, both estimates indicate declining share of agricultural output and rising share of manufacturing output. However, while the tertiary sector accounts for an increasing share of GDP in Cha and Kim(2012), Mizoguchi, et al.(2019) suggests that it contracted in terms of output share (by more than 17% points) and absolute magnitude (by nearly 40%) in the 1910s, which was followed by expansion in the 1920s and 1930s.
The shrinking service output in the 1910s appears as counterfactual, given the evidence of population growing over 1% per year and rapid expansion of market activities driven by the improvement in communication and transportation in the 1910s. In addition, given that colonial Korea remained a small open agricultural economy, I found it implausible that incomes grew faster in the 1920s than in the preceding decade, when primary producers like colonial Korea suffered a hugely negative terms of trade shock (known as the interwar agricultural depression), than in the 1910s, when the agricultural term of trade improved sharply as European countries embarked on monetary expansion to finance WWI.
The stature growth under Japanese rule as predicted by per capita output growing 2.3% per year is reasonably close to observed height growth, which is 2.1 centimeter (Kim and Park, 2011, EEH). According to Steckel(1995, JEL), one percent growth in per capita output tends to be associated with stature growing by 0.0397 centimeter, which implies Koreans becoming taller by 2.4(=0.0397 x 2.3 x (1940-1911)) centimeters from 1911-40.
Mizoguchi, et al.(2019) provides per capita output series in terms of 1990 GK dollars, which can conveniently plugged into the Maddison database without further modification. I found it puzzling however that the income gap between Japan and Korea as suggested by the GK dollar figures was wider in 1940 than in the early 1950s, when the South Korean living standards had suffered a series of adverse supply shocks including de-colonization, the split into two Koreas, and finally the devastating Korean War from 1950-53. This issue, which has been raised by a paper by Nak Nyeon Kim and Ki-Joo Park published in Hitotsubashi Journal of Economics in 2017, exists, probably because the per capita output estimate by Mizoguchi, et al.(2019) grows too slowly.
Where did the divergence originate? The answer seems to lie in the different ways how service output, accounting for the lion’s share of the tertiary sector, has been estimated. As described in detail in N. Kim, ed. (2012) Han’guk ui kyongje songchang [The Korean Economic Growth], 1910-2010 (Seoul National University Press), service sector output in Cha and Kim(2012) represents the sum of output from different branches of service sector, which has been estimated using different types of information and following separate procedures depending on sub-sector. Mizoguchi, et al.(2019) set service output equal to the number of service labor input times the wage rate in service sector, and the contraction of service output in the 1910s is driven by the decrease in their labor input estimate by more than 30% from 1911-20.
The labor input estimate used in Mizoguchi, et al.(2019) is based on the information on “gainful employment” by sector, which included the time series of the number of part time service workers normally employed in agriculture. Mizoguchi, et al.(2019) incorporated the part time workers in the labor input in service sector using a fixed discount factor, 0.5. As resources were being reallocated away from agriculture in pre-1945 decades, the number of the part time service workers fell, driving the downward trend in the service sector labor input and output in the 1910s in Mizoguchi, et al.(2019). The decline in the number of the part time service workers took place in tandem with the increase in full time service workers, suggesting occupational specialization in progress, whereby the part time workers probably earned a rising share of their incomes as service workers over the 1910s. Hence, it seems more reasonable to me to incorporate the part time workers into service sector labor input applying an increasing, rather than a constant, discount factor (say from 0.25 to 0.75?). Service output re-estimated using this procedure might increase in the 1910s as in the following decades.
Last, but not least, estimating the aggregate output from the two distinct perspectives carries the advantage of allowing one to check the integrity of estimates as well as to obtain additional insight on the causes driving economic growth.
South Korea presents an unusual episode of effective escape from hunger and oppression. Having remained one of the poorest countries of the world until as recently as 1960, according to the International Monetary Fund, the country stood in 2019 roughly on a par with Britain in terms of purchasing power parity adjusted per capita output. Having long suffered oppression under various forms of nondemocracy until the late 1980s, South Koreans today bask in political freedom and civil liberty, which led the Economist to publish in 2017 a list of twenty top democracies including South Korea, but excluding the United States. The growth miracle and democratic revolution deserve attention from lay persons and academics around the world, because they potentially provide insights for people striving to raise living standards and to break themselves loose from the shackles of tyranny.
Historical Statistics of Korea provides historical and quantitative perspectives for the two remarkable transitions South Korea achieved. Rather than simply bringing together available data generated under the pre-colonial, colonial, post-colonial regimes, we focused on establishing coherence among distinct sets of data produced using different technologies to meet a variety of purposes. The inconsistency issue presents a challenge for those trying to make sense of the amazing story of success, because it can frustrate efforts to take advantage of the regime shifts occurring in modern Korea as natural experiments. As we hope, Historical Statistics of Korea helps economists, political scientists, and sociologists identify the deep, as opposed to proximate, forces driving the escape to freedom and prosperity and clarify the path dependent nature of the development.
Historical Statistics of Korea embodies the outcome of the two decades of research by 22 economists and economic historians associated with the Naksungdae Institute of Economic Research, a private sector and non-profit organization established by Byung Jick Ahn and Daekeun Lee in 1987. Composing this preface, we fondly recall how our research program has been inspired by late Toshiyuki Mizoguchi leading the project to estimate the national accounts of colonial territories of pre-1945 Japan at the Institute of Economic Research, Hitotsubashi University. The Historical Statistics of Korea program also benefited from being associated with the Center of Excellence project the institution has carried out under the leadership of Konosuke Odaka and Osamu Saito. We thank Tetsuji Okazaki for gladly accepting our work for publication as a part of Springer Studies in Economic History. Last, but not least, we are grateful to the South Korean taxpayers for generously supporting us through a series of research grants during the last two decades, including the most recent one, AKS-2014-KFR-123001. Hopefully, they will find in this volume their favor has been properly reciprocated.
Myung Soo Cha
Nak Nyeon Kim
Ki-Joo Park
Yitaek Park
Myung Soo Cha 