1. Understanding the Korean Miracle E. Young Song Sogang University Summer, 2011

2. 2 I. Some Facts Republic of Korea (South Korea) Area: 98,480 sq km slightly larger than Indiana, US. Mostly hills and mountains arable land: 17.44% Google Map

3. Life Cycle of US workers Cocco J F Rev. Financ. Stud. 2005;18:535-567 The Review of Financial Studies Vol. 18, No. 2 © 2004 The Society for Financial Studies; all rights reserved.

4. Economics 1 Measuring GDP Gross Domestic Product: total value of goods and services produced in an economy during a specific year 1. Expenditure on domestically produced final goods Y = C + I + G + X – M Y: GDP C: Private Consumption I: Investment (machines and buildings) G: Government Consumption (public services) X: Exports M: Imports 2. Total Income generated inside an economy Y = labor income + capital income (interests, dividends, rents) + depreciations + indirect taxes 4

5. Composition of Korea’s GDP ( http://ecos.bok.or.kr/) 5

6. Real GDP Real GDP = GDP calculated in base year prices (to eliminate the influence of inflation) (to eliminate the influence of inflation) Physical quantity of production Economic growth rate = annual percentage change in real GDP 6

7. International Comparison of GDPs Exchange Rate = 1000 won per dollar GDP per capita of Korea in dollars = 20,000 X 1000 won / E = 20,000 dollars 1.E = 2,000 => 10,000 dollars 2.E = 500 = > 40,000 dollars A US worker produces 40,000 apples Price = 1 dollar GDP = 40,000 dollars A Korean worker produces 20,000 apples Price = 1000 won GDP = 20 million won 7

8. PPP (purchasing power parity) GDP Evaluates Korea’s GDP using US prices GDP per capita of Korea = 20,000 X 1 dollar = 20,000 dollars 1.E = 2,000 => 20,000 dollars 2.E = 500 = > 20,000 dollars A US worker produces 40,000 apples Price = 1 dollar GDP = 40,000 dollars A Korean worker produces 20,000 apples Price = 1000 won GDP = 20 million won 8

9. Law of 70 – power of compounding Q) A variable increases at the annual rate of x%. How many years before it will double? How many years before it will double? A) 70/x Korea 7% per annum Year 1960 1970 1980 1990 Income 1000 2000 4000 8000 India 2% per annum Year 1960 1970 1980 1990 1995 Income 1000 2000 9

10. Population 2009, World Bank CountryPopulation (millions)% 1China1,33119.7 2India1,15517.1 3United States3074.5 4Indonesia2303.4 5Brazil1942.9 6Pakistan1702.5 7Bangladesh1622.4 8Nigeria1552.3 9Russian Federation1422.1 10Japan1281.9 11Mexico1071.6 12Philippines921.4 13Vietnam871.3 14Egypt, Arab Rep.831.2 15Ethiopia831.2 16Germany821.2 17Turkey751.1 18Iran, Islamic Rep.731.1 19Thailand681.0 20Congo, Dem. Rep.661.0 21France630.9 22United Kingdom620.9 23Italy600.9 24Myanmar500.7 25South Africa490.7 26Korea, Rep.490.7 10

11. GDP 2009, World Bank CountryGDP (in trillion USD)% 1United States14.1024.7 2Japan5.078.9 3China4.998.8 4Germany3.335.8 5France2.654.6 6United Kingdom2.173.8 7Italy2.113.7 8Brazil1.572.8 9Spain1.462.6 10Canada1.342.4 11India1.312.3 12Russian Federation1.232.2 13Australia0.931.6 14Mexico0.881.5 15Korea, Rep.0.831.5 16Netherlands0.791.4 17Turkey0.621.1 18Indonesia0.540.9 19Switzerland0.490.9 20Belgium0.470.8 11

12. GDP in 2005 international prices 2009, World Bank 12 CountryPPP GDP (in trillion USD)share 1United States12.8020.4 2China8.2613.1 3Japan3.796.0 4India3.435.5 5Germany2.644.2 6United Kingdom1.993.2 7Russian Federation1.933.1 8France1.852.9 9Brazil1.832.9 10Italy1.602.5 11Mexico1.342.1 12Spain1.242.0 13Korea, Rep.1.242.0 14Canada1.171.9 15Indonesia0.881.4 16Turkey0.841.3 17Iran, Islamic Rep.0.771.2 18Australia0.751.2

13. 13 PPP GDP per capita in 2005 international prices 2009. World Bank. CountryGDP per capita 1Qatar 82,978 2Luxembourg 68,853 3United Arab Emirates 52,435 4Norway 47,676 5Singapore 45,978 6United States 41,761 7Switzerland 36,954 8Netherlands 36,358 9Ireland 36,278 10Austria 34,673 11Canada 34,567 12Australia 34,259 13Iceland 33,980 14Belgium 32,395 15Sweden 32,314 16Germany 32,255 17Denmark 32,252 18United Kingdom 32,147 19Finland 30,784 20Japan 29,692 21France 29,578 22Equatorial Guinea 28,857 23Spain 27,066 24Italy 26,578 25Greece 26,482 26Korea, Rep. 25,493

14. 14 Fifteen Growth Miracles, 1960-2000 Durlauf, S., Johnson, P., and Temple, J. (2005 )

15. 15 Fifteen Growth Disasters, 1960-2000 Durlauf, S., Johnson, P., and Temple, J. (2005 )

16. 16 Sachs and Warner (1995) Asian Miracle

17. Required Book: Schuman, Michael (2009) The Miracle: The Epic Story of Asia’s Quest for Growth, New York: HarperCollins 17