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International Economics

Research Monograph

Understanding Korean Economic Development from the Perspectives of Agricultural Development and Structural Transformation

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  • Author Hyeok Jeong, MYUNGHEON LEE
  • Date 2015/02/28
  • Series No. Research Monograph 2015-02
  • Language Korean
SUMMARY This monograph studies the process of structural transformation of Korea during the period of remarkable growth, focusing on the role of agriculture. Understanding the structural transformation, defined as a phenomenon of the overall shift of resources from agriculture to non-agriculture, has a critical importance because such process not only deliver the growth of per capita income hence the improvement of individual welfare, but also accompanies fundamental progress and transformation of a society such as industrialization and urbanization which involves the changes of life style as well as the mode of technology. In particular, most failures of development in many developing countries are due to their failure to transform themselves from agricultural to industrial economies. Thus, understanding the precise feature of such process from Korea’s development experience would provide significant hints to promote the development of current developing countries.

We find that the productivity growth of agricultural sector rather than that of industrial sector played a key role for Korea’s structural transformation. This finding is an interesting surprise because most existing literature on Korean industrialization tends to focus on industrial policies in relation to export promotion. There are no doubts that industrial policies and export promotion played an important role for the economic development in Korea. However, our finding sheds new lights on the importance of agricultural development in understanding Korea’s development process in terms of structural transformation. Specifically, this study shows that agricultural productivity growth is an integral factor in driving the development during the initial take-off stage.

Based on the above finding, this monograph pursues to deepen our understanding of the agricultural development of Korea in various dimensions. We study how the structural changes happened within the agricultural sector by comparing the agricultural development paths across nations as well as tracing the changes of the key characteristics of Korea’s agriculture. We find that there were two critical changes in mid-1970s and mid-1990s for Korea’s agriculture. In particular, we try to propose the how Korean agriculture should transform itself for the new period of low growth after the year 2000.

We construct the long-run time-series database of agricultural inputs, outputs, and productivity for the 1955-2012 period using various sectoral and micro surveys. Here we try to articulate what difficulties exist in estimating the agricultural productivity in long span of time.

The evolution of the rural household income since 1960 until now is another important topic of this monograph. This part of research illuminates that the average rural household was higher after 1970s than the average urban household income in Korea. However, this income ordering was reversed after mid-1980s and the rural income continued to fall relative to the urban income. We find that major reason for this reversal is the continual deterioration of human capital of rural households relative to the urban households rather than the differences in returns to schooling between rural and urban areas.

We also try to identify the roles of Korea’s two important dimensions of agricultural development such as agricultural water development and the agricultural land reform. We emphasize the rational division of labor among diverse agents of state, local governments, public enterprises, and association of farmers in developing agricultural water system, and the importance of establishment of legal and institutional infrastructure in promoting such development.

The research on land reform aims to provide an empirical analysis to identify, although being incomplete, the causal direction of land reform on agricultural land productivity growth. For this purpose, the land reform study first describes the debate if introducing owner-farmer system indeed improved the land productivity compared to the colonial landowner system and sorts out the relevant list of variables for the empirical analysis using simple regression. This study shows that there were no serious moral hazard problems regarding landowners’s management and tenants, but the incentive effects of farmers by having their own land were strong in improving the land productivity.

Main contributions of this monograph are to shed new lights on the importance of agricultural development for the structural transformation, which is perhaps the most important first step in national development. We showed that it was indeed the case of Korean economic development. We hope our findings provide new insights for development policy design such that development strategy should be balanced between agricultural and industrial sectors and it needs to focus on productivity growth, in particular the agricultural productivity during the initial stage of development.
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