Moving out of Aid
Dependency: Lessons
from the South Korean
experience
Irma Adelman
University of California, Berkeley
Moving out of Aid Dependency: Lessons
from the South Korean experience
Accelerated development is possible
The essence of development policy consists
of the creation of dynamic comparative
advantage.

Requires anticipatory and coordinated
restructuring of :
-production and investment
patterns
- technology
- social development
- economic, social and political
institutions
- investment and trade policies
The critical factors needed to generate
economic
development are both tangible
and intangible
-leadership commitment to
development
- social capital, including not only the
level of
human resources but also
the degrees of social cohesion, social
trust, cooperative norms and
willingness to act in the social
good
- institutional and social resilience and
malleability
- appropriate policy design in
investment, capital accumulation,
technology and trade
 Government has a central role in the
promotion of economic development. But its
functions must adapt dynamically evolving
from prime-mover and direction-setter into
a quasi-Smithian State. A sound economy
therefore requires a sound State
 The economy, society, institutions and
policies must be malleable and capable of
even abrupt change
 The prospects for economic development
are intimately linked not only to the
country’s own institutions and policies but
also to existing global operational rules of
global institutions
KOREAN EXAMPLE
 In the early 1960’s South Korea was thought to be “a
bottomless sink” for foreign aid and “a hopeless case
 In what was thought to be a miracle it became a fully
developed and industrialized nation in a short period
 South Korean development went through 4 phases:
• Classical import substitution (1963-1966)
• Labor-intensive export-led growth (1967-1972)
• Heavy industry promotion (1973-1978)
• Stabilization, liberalization and economic
maturity( 1979-1996)
• Financial crisis (1997–1999)
• Reform, restoration of growth (1999-present
 WTO rules either prohibit or severely
restrict most measures used by South
Korea for its accelerated development
 Aid to South Korea was mostly untied;
current flows are tied