Development Lessons from Asia: The Role of Government in South Korea and Taiwan

Abstract

South Korea and Taiwan share common structural characteristics and export-led industrialization. Several studies have documented an active role of government, beyond correcting market failures (H. Pack and W. E. Westphal, 1986; Paul Kuznets, 1988). But the role of government differs. The Taiwan government has been supportive rather than interventionist, whereas the Korean government has been collaborative and even coercive in relations with the private sector. Government in both countries helped launch and sustain the export-led strategy, taking into consideration the initial conditions in industrial organization and structure, capital markets and trade. Although the strategy contributed to export development, once put in place, the respective governments have been unwilling and unable to adjust their role to changing circumstances. This rigidity accounts for the inefficiency of government in Korea in the 1970s and in Taiwan in the 1980s.