Economic growth and economic development 196

Introduction to Modern Economic Growth
prosperity. Korea was split into two, with the two halves organized in radically
different ways, and with geography, culture and many other potential determinants
of economic prosperity held fixed. Thus any differences in economic performance
can plausibly be attributed to differences in institutions.
Figure 4.3 uses data from Maddison (2001) and shows that the two Koreas have
experienced dramatically diverging paths of economic development since separation:
14000

12000

10000

8000
South Korea
NorthKorea
6000

4000

2000

0
1950

1960

1970

1980

1990

1998

Figure 4.3. Evolution of income per capita North and South Korea
after the separation.
By the late 1960’s South Korea was transformed into one of the Asian “miracle”
economies, experiencing one of the most rapid surges of economic prosperity in
history while North Korea stagnated. By 2000 the level of income in South Korea
was $16,100 while in North Korea it was only $1,000. There is only one plausible
explanation for the radically different economic experiences of the two Koreas after
1950: their very different institutions led to divergent economic outcomes. In this
context, it is noteworthy that the two Koreas not only shared the same geography,
but also the same culture, so that neither geographic nor cultural differences could
have much to do with the divergent paths of the two Koreas. Of course one can
say that South Korea was lucky while the North was unlucky (even though this
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