Competitive industrial policy and macro performance: Has South Korea outperformed Taiwan?

Taiwan adopted a competitive industrial policy before South Korea but pursued it more cautiously. According to orthodox theory, Taiwan's less interventionist policy should have increased its initial per capita income lead over South Korea. In fact, the income gap narrowed, and income distribution improved relatively in South Korea, casting doubt on the orthodox criticism of South Korean industrial policy. But some qualification of the South Korean success is in order. The South Korean gains were achieved at the cost of greater consumption fore gone and greater concentration of economic power than in the case of Taiwan. Moreover, the crucial post-1985 Taiwanese economic slow down was partly due to economic maturation as well as to tardy financial reform and to the opportunities created by the Chinese diaspora for Taiwanese firms to invest abroad.