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The Developing Economies

Volume 35, Number 4 (December 1997)

The Developing Economies ■ The Developing Economies Volume 35, Number 4 (December 1997)
■ B5
■ 105pp.
■ Published in December 1997
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Tamio Hattori and Yukihito Sato, "A Comparative Study of Development Mechanisms in Korea and Taiwan: Introductory Analysis," pp. 341-57.

This article is the introduction to a special issue of The Developing Economies which presented the results of a research project by the Institute of Developing Economies that examined the development mechanisms in Korea and Taiwan. Our conclusion in this article is that their development mechanisms, despite their similar development patterns of export-led industrialization, have been essentially different: a government-led mechanism in Korea as opposed to a market-led mechanism in Taiwan. We verified this difference through comparative studies of the two economies covering trade balances, the growth of total factor productivity, the scale of enterprises and business groups, and the development processes of individual manufacturing sectors. In our explanatory discussion we propose that the difference in the mechanisms is based on: 1) the amount of accumulation in the economy at the time postwar industrialization started, 2) the relationship between government and society, and 3) the mechanism of social network formation.

Satoru Okuda, "Industrialization Policies of Korea and Taiwan and Their Effects on Manufacturing Productivity," pp. 358-81.

In this paper the total factor productivity (TFP) of the manufacturing sectors in Taiwan and the Republic of Korean was measured and compared using the growth accounting method. Through descriptive analysis, inefficiency in the Korean manufacturing sectors was revealed, especially for the period prior to 1986. Also for the period posterior to 1986, it was found that TFP tended to contribute more to the value-added growth in both countries. An econometric analysis with industrialization-related variables revealed a contrast in the structure of TFP growth between the two countries. Import penetration, capital intensity, and growth of real output were estimated to exert a positive productivity impact in Taiwan, reflecting Taiwan's flexibility and superiority in factor utilization compared with Korea. It was estimated that the export ratio did not have any major productivity impact in both countries, in contrast with the results reported by the World Bank (The East Asian Miracle: Economic Growth and Public Policy, New York: Oxford University Press, 1993).

Makoto Abe and Momoko Kawakami, "A Distributive Comparison of Enterprise Size in Korea and Taiwan," pp. 382-400.

Research to date on the economic development of the Republic of Korea and Taiwan has frequently contrasted the two economies by depicting the former as centered on large-scale enterprises and the latter on small and medium-size enterprises (SMEs). The purpose of this study is to see if the appropriateness of this perception will also be verified by the statistical data.
In Section I the authors utilized census data on the Korean and Taiwanese manufacturing sectors to compare the distribution pattern of the sizes of enterprises in the two economies. However, on examining the available data for making this comparison, the authors discovered that for Korea the statistics provided are those at the level of the establishment (a physical unit engaging in industrial activities such as a factory, workshop, office, or mine) while the statistics for Taiwan are those at the enterprise level. Mindful of this difference, the authors looked at the portion of the economy accounted for by large-scale establishments in Korea that employed 500 workers or more and by enterprises in Taiwan employing the same number of workers, and they discovered that the portion that these large-scale businesses account for, especially in the area of output, has steadily declined since the 1980s. When comparing the share of total production that these large-scale establishments/enterprises account for in the two economies, the authors concluded that those in Korea accounted for a larger share of that economy's production than did their counterparts in Taiwan. The authors then compared the portion of the economy accounted for by establishments in Korea and enterprises in Taiwan that employed less than ten workers, and they found that the portion of the two economies that these very small-scale production units accounted for has also been on the decline.
Section II compares the portions of the two economies accounted for by large business groups. After comparing the percentage of GDP accounted for by the total sales of these business groups, the authors found that large business groups in Korea have played a far more important role in Korean economy than has been the case for such groups in Taiwan. This difference in the importance of such business groups in the two economies has also played an significant part in fostering the perceived dichotomy of large-scale enterprises playing the important role in Korea versus SMEs being the important players in Taiwan.
Section III compares the percentage of total exports accounted for by SMEs, and shows that SMEs in Taiwan account for a larger share of exports than do their counterparts in Korea. This section also shows that in Taiwan the share of export sales for SMEs has consistently exceeded that for non-SMEs, while in Korea the relationship between enterprise size and the rate of export sales has been directly proportional. This difference in the size of the major export players is another factor fostering the perception of the Korean economy being centered on big business while Taiwan's is on SMEs.
Although there were difficulties and limitations when comparing the data of the two economies, the statistical comparison undertaken in this study shows that in general big business has played the major role in the development of the Korean economy while in Taiwan's economic development this role has been played by SMEs. Thus the statistical data also verifies the perceived dichotomy of these two economies.

Yukihito Sato, "Diverging Development Paths of the Electronics Industry in Korea and Taiwan," pp. 401-21.

This paper examines the process and mechanism of economic development in the Republic of Korea and Taiwan through a comparative analysis of the electronics industry in each country.
 The paper will show that in its initial stage of development, the electronics industry in both economies had the same type of dual structure: a domestic demand sector based on the protected domestic market, and an export sector intended to capitalize on low-wage labor for the international market. However, this dual structure in the two economies faded away after the mid-1970s as their respective indigenous export-oriented enterprises began to develop. But the primary industrial players in each economy were very different. In Korea they were comprehensive electronics manufacturers affiliated with chaebols, and in Taiwan they were small and medium-size enterprises. Differences in the two economies' development mechanisms have brought about this divergence in development paths. In Korea this mechanism has been characterized by the government's positive role and the chaebol's readiness to react to the government's leadership. In Taiwan the development mechanism has been based on the private sector independent from the government. As an extension of such diverged development paths, ICs and personal computers showed spectacular growth in Korea and Taiwan after the 1980s. The development of ICs in Korea was primarily the result of a decisive role played by the chaebol's sizable financial resources, while the competitiveness in personal computers largely reflected the agility and flexibility of Taiwanese small and medium-size enterprises.

Masahiro Wakabayashi, "Democratization of the Taiwanese and Korean Political Regimes: A Comparative Study," pp. 422-39.

Both authoritarian until the mid-1980s, the political regimes of Taiwan and the Republic of Korea differed significantly in the nature and degree of stability. While the Korean regime was a quasi-military state, the Taiwanese regime can be characterized as a quasi-conquering state. The Taiwanese regime was more stable than the Korean regime. These differences were responsible for the differences in the democratization processes of the two states. The Korean democratization process belonged to the "transplacement" type while the Taiwanese process to the "transformation" type.

Ichiro Numazaki, "The Laoban-Led Development of Business Enterprises in Taiwan: An Analysis of the Chinese Entrepreneurship," pp. 440-57.

This article analyzes the attitudes and behavioral patterns of the laoban, the "bosses" who own and manage small and medium-scale enterprises, and elucidates the six salient features of entrepreneurship among the Taiwan Chinese: independence, risk taking, moneymaking, family assets over corporate capital, partnership, and guanxi. The laoban can and does produce organizational and managerial innovations and therefore is an "entrepreneur" in a Schumpetarian sense. The author further argues that the Chinese family is the incubator of laoban and Chinese society nourishes and sustains the laoban-style entrepreneurship. The author maintains that the laoban have been the driving force of Taiwan's economic development which has been characterized by the predominance of relatively small "family firms" concentrated in the production of export-oriented consumer goods.

Tamio Hattori, "Chaebol-Style Enterprise Development in Korea," pp. 458-77.

Korean economic development centered mostly on business conglomerates called chaebol. In the process of economic development, chaebol enterprises ceaselessly grew in size, giving rise to an industrial structure and formation very different from those of Taiwan. The Korean development pattern, like that of Taiwan, resulted from entrepreneurs' efforts to minimize their risks in a given environment, the consequence in Korea was the formation of chaebol conglomerates. The difference between Korea and Taiwan was in their business environments. (1) For Korean entrepreneurs, establishing a number of subsidiaries and growing gradually into a chaebol was a short-cut which minimized risks and maximized benefits. (2) The government exercised monopoly control over the acquisition and allocation of investment funds. (3) Human networks based on shared home regions and alma maters worked to convey the thoughts and inclinations of the government to private firms and vice versa.