Government and Economic Growth of Korea: From a Perspective of the Institutions Hypothesis

In the paper, we reshuffle the cluster of institutions for economic growth into market institutions and government institutions and, from this institutions perspective, analyze the roles of government in the Korean economic development from 1960s to 1980s. Our analysis suggests the two conditions for economic development: (i) either the society at large or some power groups in society should choose the government institutions which are in line with economic growth, and (ii) the government institutions should overcome market failure, caused by underdeveloped market institutions, and generate effective demands to spur sustainable growth. It should also be noted that the implementation of government-driven command and control system could be faced with a trade-off between short-run efficiency and long-run inefficiency in transition to a well-functioning market economy.