Westphal, Larry E.

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Swarthmore College Works Economics Faculty Works Economics 9-1-1986 Review Of "Sources Of Economic-Growth In Korea: 1963-1982" By K.-S. Kim and J.-K. Park Larry E. Westphal Swarthmore College, lwestph1@swarthmore.edu This work is brought to you for free and open access by . It has been accepted for inclusion in Economics Faculty Works by an authorized administrator of Works. For more information, please contact myworks@swarthmore.edu. Follow this and additional works at: https://works.swarthmore.edu/fac-economics  Part of the Economics Commons Let us know how access to these works benefits you  Recommended Citation Larry E. Westphal. (1986). "Review Of "Sources Of Economic-Growth In Korea: 1963-1982" By K.-S. Kim and J.-K. Park". Journal Of Economic Literature. Volume 24, Issue 3. 1245-1247. https://works.swarthmore.edu/fac-economics/311 American Economic Association  ReviewReviewed Work(s): Sources of Economic Growth in Korea: 1963-1982. by Kwang-Suk Kimand  Joon-Kyung ParkReview by: Larry E. WestphalSource: Journal of Economic Literature, Vol. 24, No. 3 (Sep., 1986), pp. 1245-1247Published by: American Economic AssociationStable URL: http://www.jstor.org/stable/2725885Accessed: 21-09-2017 15:48 UTC JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a widerange of content in a trusted digital archive. We use information technology and tools to increase productivity andfacilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available athttp://about.jstor.org/termsAmerican Economic Association is collaborating with JSTOR to digitize, preserve and extendaccess to Journal of Economic LiteratureThis content downloaded from 130.58.65.13 on Thu, 21 Sep 2017 15:48:05 UTCAll use subject to http://about.jstor.org/terms Book Reviews 1245 concerned with interdisciplinary communica- tion and synthesis. KENNETH E. BOULDING University of Colorado, Boulder Sources of economic growth in Korea: 1963- 1982. By KWANG-SUK KIM AND JOON-KYUNG PARK. Seoul: Korea Development Institute, 1985. Pp. xx, 217. Available from The Korea Development Institute, P. 0. Box 113, Chun- gryang, Seoul, Korea. JEL 85-0449 In his preface, Edward F. Denison states that this study by Kwang-suk Kim and Joon-kyung Park is sufficiently comparable to his own stud- ies to permit comparison with them. Denison's evaluation is important for it suggests that Kim and Park achieved their objective, which was to enable comparative analysis that would pro- vide insights into the sources of Korea's ex- traordinarily rapid growth. Table 1 gives the comparative numbers. In the Korean study, the various elements were measured as follows. Capital: the simple aggre- gation of tangible fixed assets and inventories, with adjustment to reflect depreciation, plus land, which is assumed constant over time. La- bor: an index which reflects changes in total employment, in the average number of hours worked per week (with a partially offsetting adjustment for resulting efficiency changes), in the age and sex distribution of the workforce, and in the distribution of the workforce among classes of educational attainment. Allocation: the effects of labor reallocation from primary to other sectors as well as away from self-em- ployment in the nonagricultural sectors. Scale: economies of scale. associated with larger out- put and with changes in the composition of demand toward production characterized by greater increasing returns. Methods of estimation are an adaptation to Korean data of those used by Denison and Wil- liam K. Chung in their 1976 study of Japanese growth. Lack of relevant data means that the Korean estimates are necessarily somewhat more crude and that some sources (allocational effects from changes in trade barriers, for ex- ample) are neglected. As Table 1 shows, the growth of total inputs accounted on average for a considerably smaller share of the growth of output in OECD countries than in Korea (the shares are respec- TABLE 1 CONTRIBuTIONS TO STANDARDIZED GROWTH RATES OF NATIONAL INCOME (PERCENTAGE POINTS) Other Korea Japan Countries:a Various 1963-82 1953-71 Periods Output 8.13 8.81 4.21 Total Input 4.89 3.95 1.76 Capital 1.58 2.10 .86 Labor 3.31 1.85 .89 (Education) (.39) (.34) (.29) Output/Input 3.24 4.86 2.45 Allocation .66 .95 .71 Scale 1.49 1.94 .78 Residual 1.09 1.97 .96 Sources: Korea: Kim and Park (1985, pp. 67-68,169); Japan and others: Denison and Chung (1976, pp. 42-43). Notes: Standardized growth rates incorporate adjust- ments to remove the influence of cyclical elements. a Simple averages of estimates for Belgium, Den- mark, France, Italy, the Netherlands, Norway, the United Kingdom, and West Germany, 1950-62; Can- ada, 1950-67; and the United States, 1948-69. tively 46 and 60 percent). Indeed, factor inputs have grown comparatively fast in Korea. Com- parisons can readily be made only for nonresi- dential business sectors and then only among Korea, Japan, and the U.S. The respective an- nual growth rates of capital are 8.45, 10.17, and 3.63 percent; of labor, 4.95, 2.60, and 1.19 (Kim and Park 1985, pp. 54-55 and 131; Deni- son and Chung 1976, pp. 33 and 31; Denison 1979, pp. 62 and 29). Perhaps most striking is what the compara- tive numbers reveal about the atypically fast growth of labor input in Korea. Contrary to plausible speculation, but consistent with what the data show, little of the difference can be traced to a faster pace of human capital accu- mulation in Korea-the respective rates of hu- man capital accumulation are 0.72, 0.53, and 0.61 (see the immediately preceding refer- ences). This finding is consistent with what Noel F. McGinn and his colleagues concluded in a 1980 study of education in Korea: "Korea's rate of educational expansion is not unique. .This content downloaded from 130.58.65.13 on Thu, 21 Sep 2017 15:48:05 UTCAll use subject to http://about.jstor.org/terms 1246 Journal of Economic Literature, Vol. XXIV (September 1986) What is unique . . . is that a high level of hu- man resources was developed early and de- spite a low per capita income" (p. 66). The return to education in Korea-as it is typically measured using relative wage data- also appears to be comparatively low. This is virtually impossible to document by reference to the individual studies because of differences in the information presented. However, it is supported by McGinn and colleagues (1980, pp. 175-80), who speculate that the compara- tively low return may be the result of institu- tional factors that compress the structure of wages in Korea. Compression of the wage structure might also explain the notably small contribution made by labor reallocation to Ko- rea's growth. In turn, the division of the re- maining total factor productivity growth (TFPG) between scale economies and the re- sidual should be considered at best illustrative owing to the heroic assumptions necessary to accomplish it. Kim and Park provide separate estimates for 1963-1972 and 1972-1982. The intertemporal differences are noteworthy. But, given the competing hypotheses that might explain them, it is apparent that no profound conclu- sion can be reached without further research. The contribution of TFPG fell from 4.04 per- centage points in 1963-72 to 2.44 percentage points in 1972-82; the residual fell from 1.89 to 0.30 percentage points. The authors ad- vance several possible explanations: the atten- uation with time of the TFPG-inducing effects of the early-1960's policy reforms which put Korea on the track of export-led growth; the relative shift toward capital-intensive, import- substituting industrialization during the 1970s; the increasing levels of industrial concentra- tion in industries that remained sheltered from import competition; the overestimation of la- bor input growth during the latter period be- cause of neglect of the increasing number of hours spent by the male workforce in paramili- tary training and activities; and-consistent with explanations offered for the finding of re- duced TFPG after 1973 in many countries- the impact of two successive oil shocks. I would add that the decline in TFPG may largely reflect changes in the trend of capacity utilization rates over time. The generally ac- cepted estimate by Young Chin Kim and Jene K. Kwon (1977) is that capacity utilization rates in manufacturing increased at about eight per- cent per year between 1962 and 1971. From all indications, capacity utilization rates fell from 1972 to 1982. In turn, Kim and Kwon found that the residual in an estimation of con- tributions to manufacturing output growth fell from 36 to eight percent when changes in ca- pacity utilization rates were taken into ac- count. How do the comparative numbers obtained via the Dension approach stack up against comparative numbers from other methods? I know of only one study with which compara- sion can be made, that by Laurits R. Christen- sen and Dianne Cummings (1981). They ex- amined the sources of Korean growth in comparison with those of eight OECD coun- tries for the period 1960 to 1973, and found that TFPG accounted for 43 percent of Korea's growth versus an average of 47.5 percent for the OECD countries. Their estimate for Korea may be compared to that obtained by Kim and Park for 1963-1972-49 percent. Can one reach any tentative conclusion from these two studies about the comparative im- portance of TFPG in a rapidly industrializing country? Owing to the problematic effects of the oil shocks, I would discount the relevance of the Korean estimates for 1972-82 and, based on the Korean and Japanese estimates, con- clude that it matters whether one is consider- ing relative or absolute contributions. The rela- tive contribution of TFPG may not be inherently different, but the absolute contribu- tion appears to be substantially greater than in the typical industrialized country. To conclude: Kim and Park have produced estimates that should be of considerable inter- est to many economists. Except to specialists, however, the book itself will be of limited in- terest, and this for several reasons. It makes very little reference to the relevant literature on Korean development, even to other studies of the sources of Korean growth. Hence the ader is denied useful insights-for example, concerning the possible validity of the authors' estimates-and the authors fail to capitalize on different findings (some with respect to quite important details) to pinpoint fruitful areas for further research. In turn, the book does not provide all of the comparative information thatThis content downloaded from 130.58.65.13 on Thu, 21 Sep 2017 15:48:05 UTCAll use subject to http://about.jstor.org/terms Book Reviews 1247 one wants; comparisons are almost exclusively in terms of percentage contributions to growth. Moreover, the text by-and-large either discusses the derivation of the estimates or sim- ply reproduces what is in the tables. It is also annoying that there are a variety of minor er- rors of various sorts that could have been recti- fied with careful editing. LARRY E. WESTPHAL Swarthmore College REFERENCES CHRISTENSEN, LAURITS R. AND CUMMINGS, DIANNE. "Real Product, Real Factor Input, and Productivity in the Republic of Korea, 1960- 1973," J. Devel. Econ., June 1981, 8(3), pp. 285- 302. DENISON, EDWARD F. Accounting for slower eco- nomic growth: The United States in the 1970s. Washington, DC: Brookings Institution, 1979. DENISON, EDWARD F. AND CHUNG, WILLIAM K. How Japan's economy grew so fast: The sources of postwar expansion. Washington, DC: Brookings Institution, 1976. KIM, YOUNG CHIN AND KWON, JENE K. "The Utiliza- tion of Capital and the Growth of Output in a Developing Economy: The Case of South Korean Manufacturing," J. Devel. Econ., Sept. 1977, 4 (3), pp. 265-78. McGINN, NOEL F. ET AL. Education and develop- ment in Korea. Cambridge, MA: Harvard U. Press, 1980. 300 Domestic Monetary and Fiscal Theory and Institutions 310 DOMESTIC MONETARY AND FINANCIAL THEORY AND INSTITUTIONS Money and markets: Essays by Robert W. Clower. By ROBERT W. CLOWER. Edited by DONALD A. WALKER. Cambridge, New York and Sydney: Cambridge University Press, 1984. Pp. xv, 277. $37.50. ISBN 0-521- 26231-3. JEL 85-0757 Robert Clower's influence on the course of macroeconomics and monetary theory over the past twenty years is indisputable. This vol- ume, which collects his papers in these areas, is aptly titled, since his idee fixe throughout this time has been that macroeconomics must pay careful attention to the role of money and that money can only be understood through attention to the actual processes of exchange- to markets as they really are rather than to the abstract auctions of Walrasian theory. A collection of papers by a single author is justified only if in some sense the whole is greater than the sum of its parts. This collec- tion meets this criterion-but just barely. Such a collection is warranted if it makes important papers more easily accessible. This volume does. Clower's influence is largely at- tributable to just two of the papers reprinted here: "The Keynesian Counter-revolution: A Theoretical Appraisal," in which he formu- lated his famous "dual decision hypothesis" and showed how Walras' Law might not hold in disequilibrium; and "A Reconsideration of the Microfoundations of Monetary Theory," in which he popularized the use of the finance- (or cash-in-advance or Clower) constraint in models of monetary economics. The former paper spawned the voluminous literature on fixed-price models, which Clower now only grudgingly acknowledges as his progeny. The latter paper introduced a technique for model- ing money that has been adopted by econo- mists of every theoretical complexion-includ- ing new classicals (e.g., Robert Lucas) whom Clower openly disparages. "The Keynesian Counter-revolution" was originally published in a Swiss journal in German and then in an English version in a British conference volume. The "Microfoundations" paper was first pub- lished in the Western Economic Journal before its change of name to Economic Inquiry and before Clower's stint as editor brought it its present high stature. Although both papers are also available in anthologies, it is convenient to have them reprinted here. A second justification for such a collection would be that together the papers tell a coher- ent tale not obvious when taken separately. And to some extent this is also true. The themes of the importance of disequilibrium, of the analysis of dynamic processes, of the im- portance of the exchange mechanism in mone- tary analysis are developed in slow steps across the eighteen published papers. Clower's own Afterword (and to a lesser extent Donald Walk- er's Introduction) help to bind the papers to- gether. Unfortunately, one's progress across this difficult terrain is often hampered by wea- riness: the same points are hammered again and again with little variation (in one case atThis content downloaded from 130.58.65.13 on Thu, 21 Sep 2017 15:48:05 UTCAll use subject to http://about.jstor.org/terms

Review Of  Sources Of Economic-Growth In Korea: 1963-1982  By K.-S. Kim and J.-K. Park

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Review Of Sources Of Economic-Growth In Korea: 1963-1982 By K.-S. Kim and J.-K. Park

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