Oxford: Oxford University Press, 2022. xxi, 624 pp. (Tables, graphs, figures.) US$145.00, cloth. ISBN 9780198864424.
It is widely known that South Korea has achieved remarkable economic development since its independence from Japanese colonial rule and its devastating civil war (1950–1953) with the North. Naturally, South Korea has attracted a great deal of interest among development economists who have tried to explain how the South’s success came about. On the contrary, relatively little has been published in English about how South Korea will need to continuously grow to become a top rung advanced economy. Jaejoon Woo’s new book is a welcome supplement to this deficiency.
Despite the lack of English publications, the question of South Korea’s continual economic development has been on the minds of top Korean policymakers for many years as the economy slows down. Among the policy-making circle, the question is usually framed as: “What is the next industry that Korea should specialize in?” This line of questioning may be natural, as the nation has successfully moved from labour-intensive manufacturing (e.g., textiles) to capital-intensive (e.g., automobiles) and technology-intensive (such as semiconductors) industries over time. But Woo provides a refreshing perspective of focusing on the mechanism of growth rather than the industry in which to specialize.
The book is a massive undertaking. In its 600-plus pages, Woo covers not only trade and finance issues, but also social and political issues such as polarization and political business cycles. The study resembles a report by a research taskforce at a think tank rather than a monograph by a single author as the covered topics are typically beyond a single person’s expertise. One will also notice that the book is very much data-driven; there are more than 80 tables and 150 figures! The comprehensive and multi-faceted approach may be the reflection of the author’s diverse and broad career experience. In addition to spending more than 15 years in academia, Woo spent two years at Merrill Lynch in Hong Kong and five years with the OECD and IMF. Seemingly, such access to vast amounts of data and broad perspectives contribute to the books’ characteristics.
The book has 13 chapters in addition to the introduction and conclusions. The first two chapters deal with long-term growth performances and outlook. Using event analysis, chapter 2 examines the pattern of recovery following 11 recessions since the 1970s, showing that the recent recovery process lacked strong exports and investment during expansion, which in turn reveals structural problems rather than short-run macroeconomic cyclicality. Chapter 3 addresses the question of whether slower growth should be attributed to the convergence process expected from the neoclassical growth model. According to the author’s analysis of GDP growth decomposition and productivity growth regression, South Korea’s overall growth rate could reach above 3 percent despite the declining working-age population. On the other hand, in the absence of necessary domestic reform, the annual growth rate could fall below 1 percent in the coming decade.
Having established that decelerating growth is a long-term trend, the next three chapters discuss the structural problems that limit South Korea’s growth potential. Chapter 4 deals with the growing household and small businesses debt. Woo warns that the heavy burden of private debt may bring about prolonged low growth (like many European countries), a stagnant economy (like Japan), or even a serious financial crisis because of their vulnerability to negative shocks. Chapters 5 and 6 examine the economic consequence of growing inequality, which is shown clearly with standard measures such as the Gini coefficient. Woo looks further than the aggregate measures to the changes in wage dispersion in different dimensions such as firm size, industry, occupation, employment status (more than one third of workers are non-regular workers in Korea), gender, education level, and age.
The next two chapters deal with the political economy of growth. Woo points out that political ideology (authoritarian or democratic) did not affect the government’s economic policies much before the 1997–1998 Asian financial crisis, but that elections and party politics matter more as social polarization deepens. By examining the past five presidential administration (25 years), Woo found that conservative governments tend to outperform in growth in the early part of their administrations, whereas liberal governments tend to outperform in the later period, and that conservatives focus on long-term institutional arrangements whereas liberals focus on more on spending and distributive policies.
Woo discusses monetary and fiscal policies in the next two chapters. He reminds us of the fact that the South Korean central bank is constrained to act prudently by considering international macroeconomic conditions as well as domestic ones due to Korea’s relative openness in financial markets. While Korea has low government debt, the stimulus packages to fight the COVID-19 pandemic and its looming population crisis put pressure on governmental fiscal policy.
The next three chapters deal with international issues. Since the 1960s, Korea has been dependent on exports for its growth (exports account for about 40 percent of the GDP in recent years). While increased decoupling with China will certainly reduce trade with China—South Korea’s largest trading partner for the last few decades—Woo does not think the Korean export machine will run out of steam anytime soon. Since the Asian financial crisis, the Korean government has been aware of exposure to the global financial market and has tried to create a resilient institutional framework as well as bigger foreign exchange reserves. The last chapter deals with the security risk posed by North Korea. Woo goes goes through the mostly likely scenarios regarding the North’s nuclear threat and reunification process with consideration of the historical experiences of Germany and East European transitional economies.
Many development economists would find the general methodology used in the book such as growth accounting quite familiar. The most notable aspect of the book is the array of questions that Woo raises (which are many). While some may disagree with the author’s analysis and/or conclusions, most would find those questions important and interesting. While the book’s title alludes to crisis, the author seems to have an optimistic view toward South Korea’s future based on the country’s experience of overcoming several major crises. However, achieving successful structural reforms will not be an easy task, as there are no clear references to follow. Moreover, South Korea may not lead toward the optimal development path in an increasingly polarized society with impending population challenges.
Sunwoong Kim
University of Wisconsin, Milwaukee