Why is the South Korean growth experience different? An analysis of the differences of per capita GDP between South Korea and South Asian countries

The economic growth of South Korea, particularly from 1962 till now, has been at the least outstanding. There have been many explanations of the causes of this remarkable achievement of South Korea, with most of the explanations attributing the rapid industrialization and growth of South Korea to the adoption of an outward-looking strategy by the country in the early 1960s. The South Asian countries have been trying to adopt trade oriented strategies for many years now. But none of the South Asian countries has been able to reach the ‘developed country’ status as yet. Hence, this paper is an endeavor to find out what explains the differences in growth between South Korea and the developing countries of South Asia, and what we can learn from all this. The results suggest that the main factors that have evidently caused the differences in per capita GDP between South Korea and Bangladesh, India, Pakistan, Nepal and Sri Lanka, on average, are labor, per capita human capital and physical capital. Trade openness is also another significant determinant, but their exact effects are not overwhelmingly positive, if the marginal effects estimated in this paper are taken into account. Financial liberalization is seen to be impacting differences in per capita physical capital more than differences in per capita GDP, but it is not statistically significant in all specifications. Hence, the most important lesson to be learnt from the South Korean growth experience is that, no matter how much a country increases trade or liberalizes its economy, if the country does not manage to improve its human capital and production technology through these policies, it will not prosper in the long run.