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The Shrimp that Became a Tiger

Transformation Theory and Korea’s Rise After the Asian Crisis

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Bernhard Seliger

South Korea underwent a dramatic change in the last one and a half decades, from being considered a «tiger in trouble» in the wake of the Asian crisis to a showcase of economic development. The judgment of 1998 was itself a complete reversal of the previous enthusiastic reviews of world record-high growth for several decades, from the 1960s to the 1990s. Korea, once considered a shrimp between two mighty whales, Japan and China, veritably made a jump to become a tiger. And, after the steep decline of 1998, this tiger again showed its claws. This book deals not with the causes of the crisis in retrospect, but rather with the implications for the development of a new economic model in South Korea. It argues that the crisis and the following institutional change can best be understood by applying the theory of economic transformation.

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PART 2 THE KOREAN FINANCIAL AND ECONOMIC CRISIS – A SHORT REVIEW

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79 Chapter 5: A Review of Five Years of DJnomics: Understanding the Economic Crisis in South Korea as a Transformation Crisis of its Political and Economic Culture 5.1 The Korean economic crisis and reform process – an overview The economic development of Korea was long characterized by isolation. For the past 3,000 years, Korea has been ethnically and culturally homogenous, and the current North Korean-Chinese border has remained unchanged for centuries. Exchange with the outside world was rare and only happened through the nomi- nal suzerain China and limited interaction with Japan. Only in the last quarter of the nineteenth century did Western pressure finally open the country. After a period of increasing Japanese involvement, Korea became a Japanese colony in 1910 and did not regain independence until 1945. Economically, Korea was deeply transformed by its period as a Japanese resource colony (especially for rice from South Korea and mining products from North Korea). To further enhance their exploitation, the Japanese modernized the economic structure in Korea. Korean general trading companies (chaebol) followed the Japanese keiretsu model, and, after liberalization, became the backbone of Korean industry. After World War II and the division of Korea into two occupation zones, fol- lowed by the Korean War which caused extensive destruction to large parts of the country, North and South Korea took divergent economic paths. North Korea built a Stalinist economic system characterized by central planning, shortage and – after the breakup of the Soviet Union – famine. Ideologically, it was built upon the...

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