Policy and Economic Performance in Divided Korea during the Cold War Era: 1945–1991
New Lessons and Unexpected Findings

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The Korean peninsula, during the four-plus decades of the Cold War, provides a historically unparalleled real-world "experiment" in the relationship between a country's form of government and its economic performance. In 1945, an ethnically and culturally homogenous nation was suddenly divided by an arbitrary boundary line and subjected to two radically different and adversarial political economies for successive decades. When the Soviet Union collapsed in 1991, South Korea was well on its way to joining other industrial democracies as a member of the OECD, while North Korea was failing economically--and indeed, heading toward famine.

Not surprisingly, the painful disparities between North and South Korea's current circumstances are widely taken as proof of today's conventional wisdom that centrally-planned economies are doomed to fail against market-oriented alternatives (a narrative that draws heavily from the dramatic collapse of the USSR and the Soviet Bloc). In Policy and Economic Performance in Divided Korea during the Cold War: 1945–1991 (AEI Press, March 2010), AEI political economist Nicholas Eberstadt examines the factors that led to the outcome we now take for granted, and demonstrates that the explanation for North and South Korea's divergent paths is not so simple. Rather, he suggests that the race for material progress was just that: a race--the results of which were far from preordained at the outset.

In fact, the author points out that for much of that period, North Korea, not South Korea, seemed to be in the lead economically. By analyzing an extensive compilation of hard-to-find comparative data on economic performance for North and South Korea over two critical generations, Eberstadt finds that by a number of quantitative indicators, Kim Il Sung's North Korea actually outperformed democratic South Korea for much of the Cold War period--not only in the years immediately following partition, but perhaps even on into the 1970s. For example, Eberstadt finds that, through 1975, North Korea may actually have been more urbanized than the South, with a smaller percentage of its workforce in the agricultural sector. And, as late as 1988, according to official South Korean assessments, North Korea was more productive in heavy machinery and shipbuilding than South Korea.

Indeed, through at least 1970, North Korea's per-capita income appears to have been higher than that of the South. To explain these surprising findings, Eberstadt details the impact of government policies on the economic growth of both countries and offers some unorthodox observations about the results.

In light of Eberstadt's thorough analysis of the experience of the two Koreas between partition and the end of the Cold War, many aspects of prevailing economic development theory on issues such as planned versus market economies, military burden, the relationship between material advance and poverty, and the role of chance in economic performance may require reexamination.

An unprecedented insight into the complex operations of the Korean economies in the last half of the twentieth century, Policy and Economic Performance in Divided Korea during the Cold War Era is a scholarly, comprehensive work and an invaluable resource for any student of economic history in Asia.

Click here to view the release as an Adobe Acrobat PDF.

Nicholas Eberstadt is the Henry Wendt Scholar in Political Economy at AEI. He is available for interviews and can be reached at [email protected] or through his research assistant, Apoorva Shah, at [email protected] (202.862.5945).


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