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How did Korea Overcom e Middle Dr. Income Trap? Choi Byung-il Korea Economic Research Institute Oct. 21, 2013


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Middle Income Trap

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Middle Income Trap and Economic Freedom

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Case of Korea

CONTENTS -2 2-

Korea Economic Research Institute


Middle Income Trap Politics overtakes economics

Stakeholders claim for more slices of the pie

Populism

A zero-sum game of redistributive politics Rent seeking activities become rampant

-3 3-

Korea Economic Research Institute


Middle Income Trap ď ś GDP per capita and Economic Freedom World Index in 2010 High Income Countries Middle Income Countries Low Income Countries

-4 4-

Korea Economic Research Institute


Middle Income Trap ď ś Middle-Income Trap: Per Capita Incomes Relative to the U.S.

-5 5-

Korea Economic Research Institute


Middle Income Trap and Economic Freedom  Income level(GDP per capita) and Economic Freedom are highly correlated:  Property Rights : 0.808  Freedom from Corruption : 0.822  Business Freedom: 0.763  Trade Freedom : 0.721

-6 6-

Korea Economic Research Institute


Middle Income Trap and Economic Freedom ď ś

Empirical result: Effect of Economic Freedom Index on GDP per capita (2001-2010) VARIABLES

Property Rights Freedom from Corruption Fiscal Freedom Government Spending Business Freedom Labor Freedom Monetary Freedom Trade Freedom Investment Freedom Financial Freedom Constant Observations R-squared

(1) lnrgdpl2 0.0127*** (0.00302) 0.00882** (0.00345) -0.000501 (0.00326) -0.00549*** (0.00186) 0.00584*** (0.00331) 0.00245 (0.00190) -0.00426 (0.00523) 0.0243*** (0.00280) 0.00213 (0.00250) -0.000792 (0.00231) 6.485*** (0.450) 318 0.807

(2) lnrgdpl 0.0127*** (0.00302) 0.00889** (0.00346) -0.000395 (0.00326) -0.00550*** (0.00186) 0.00576*** (0.00331) 0.00245 (0.00190) -0.00427 (0.00523) 0.0244*** (0.00280) 0.00218 (0.00250) -0.000870 (0.00231) 6.476*** (0.450) 318 0.807

(3) lncgdp 0.0116*** (0.00298) 0.00987*** (0.00340) -0.000281 (0.00321) -0.00528*** (0.00183) 0.00615*** (0.00326) 0.00250 (0.00187) -0.00903* (0.00515) 0.0255*** (0.00275) 0.00252 (0.00246) -0.000709 (0.00227) 6.773*** (0.443) 318 0.812

(4) lncgdp2 0.0111*** (0.00294) 0.0101*** (0.00336) -1.24e-05 (0.00317) -0.00532*** (0.00181) 0.00578*** (0.00322) 0.00269 (0.00185) -0.00921* (0.00509) 0.0252*** (0.00272) 0.00260 (0.00243) -0.000627 (0.00224) 6.829*** (0.438) 318 0.812

Note: T-statistics are reported in parentheses. Those followed by *** are statistically significant at the .01 level, ** at the .05 and * at the .01 level. All entries are rounded to the nearest decimal.

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Korea Economic Research Institute


Middle Income Trap: Winners and Losers ď ś Cross country comparison US$3000 as threshold for middle-income countries.

Source: Aiyar et al (2013)

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Korea Economic Research Institute


Case of Korea: Overcoming Middle Income Trap ď ś Trend of GDP per capita of Korea

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Korea Economic Research Institute


Case of Korea ď ś Democratization of 1987 : Strong demand for equity

Strike by Korean Broadcasting System (1990)

Strike by Hyundai Heavy Industry (1990)

General strike by labor unions (1996)

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Korea Economic Research Institute


Case of Korea ď ś Korea’s global orientation: Powerful countervailing force

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Korea Economic Research Institute


Case of Korea ď ś Business Freedom, Trade Freedom: Key to overcome MI Trap

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Korea Economic Research Institute


Case of Korea: Implication for Korea Now ď ś Challenge for being a stable advanced economy Institutionalizing Conflict Management System

- 13 13 -

Korea Economic Research Institute


Case of Korea: Implication for Korea Now

Rising Populism

Weakening Global Orientation

Inward-looking Attitude

- 14 14 -

Korea Economic Research Institute

Choi byung il efn 2013 bangkok  
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