Institutions and Economic Development: The Case of Korea

Institution building is essential for economic development. In this regard this paper reviews how institutions were built in Korea since 1960s, how they have contributed toward Korean economic development, and reasons why some of them no longer serve their intended purposes. The paper argues that the government-led development strategy using financial repression to channel resources to the 'desirable' sectors often dominated by Chaebols, though quite successful in the earlier years, began to lose its fruitfulness from the latter of 1980s. The system is now the main hindrance to further development and the ultimate cause for the current Korean economic crisis. The paper argues that Korea needs to overhaul the entire economic management .system and accompanying institutions toward more open, transparent, and rule-based systems and institutions.