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Working Paper

The Philippines and South Korea : Divergent Growth and a Test of Hypothesis

페이스북
커버이미지
  • 저자 Robert Z. Aliber
  • 발행일 1991/01/01
  • 시리즈 번호 9101
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요약 This paper has examined the difference in the economic
structures of Korea and the Philippines as away to evaluate
several hypotheses about why the economic growth rate in
Korea surged relative to the rate in the Philippines. In the early
1960s, the consensus was that the potential for economic growth
on the Philippines was substantially higher than that in Korea,
Twenty years ago, per capita incomes in both countries were
similar, and so were the populations. Since then, per capita
income in Korea has increased much more rapidly than per
capita income in the Philippines, primarily because national
income in Korea has grown rapidly, and secondarily, because the
population in Korea has grown less rapidly. Until 1980, the
Philippines achieved high rates of growth in national income and
per capita income, although not as high as the rates in Korea.
Since 1980, however, the experiences of the two countries have
differed sharply. The rate of economic growth in Korea has
remained high, although not as high as in the 1970s; in contrast,
national income has fallen significantly in the Philippines in the
1980s. Korea has made a much more successful adjustment to
the external debt crisis than has the Philippines, in part because
of its large export base in manufactures. In retrospect, much of
the apparent growth in the Philippines in the 1970s involved the
significant improvement in its terms of trade -- a transient
phenomenon that would continue only as lond as the world
economic boom continued.

Korea`s growth rate began to increase sharply relative to
the growth rate in the Philippines in the second half of the
1960s. Manufacturing output in Korea increased much more
rapidly than in the Philippines. Prior to the surge in
manufacturing output, the savings and investment rates in the
two countries were similar. Once Korea began to experience a
higher rate of economic growth, its savings rate increased; the
increase in the savings rate facilitated an increase in the
investment rate.

That Korea experienced a more rapid rate of economic
growth reflects the productivity and rapid expansion of the
Korean manufacturing industry, and the large productivity gains
in manufacturing. The circle appeared virtuous -- rapid
productivity gains led to declining prices of manufactured output,
which led to rapid growth in exports. And as demand for
exports increased, productivity gains continued to be rapid. Since
Korean goods are sold abroad primarily on the basis of price
rather than on the basis of brand name, Korean growth reflected
the international competitiveness of its manufactured exports.
Hence, the growth of its manufacturing sector accounts for the
surge in its growth rate. Korean goods were extremely
competitive of its manufactured exports. Hence, the growth of its
manufacturing sector accounts for the surge in its growth rate.
Korean goods were extremely competitive in international
markets, so Korean exports increased rapidly relative to its
income, which was increasing much more rapidly than incomes
in other countries. As a result of the growth of exports, the
ratio of imports to gross domestic product has increased sharply.
In Korea, international specialization surged.

The key question is why the growth rate of the export of
Korean manufactures in the late 1960s was so much higher than
of Philippine manufactures. The self-evident answer is
competitiveness. Both countries sell their goods in foreign
markets on the basis of price. Korea had a more rapid inflation
rate in the late 1960s than the Philippines. But the real, or price
level-adjusted, exchange rate depreciated much higher inflation
rate, and so the depreciation of its currency was necessary; the
Philippines, in contrast, seemed much more intent on maintaining
the established parity for its currency.
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