Determinants of economic growth and genuine progress in South Korea

South Korea is a nation that has experienced extraordinary economic growth over the last several decades. To investigate whether this growth has come at a cost to the genuine progress of the nation’s citizens, this thesis examines South Korea’s annual Gross Domestic Product (GDP) per capita from 1970 to 2005 and compares it with a Genuine Progress Indicator (GPI) constructed for the same time period. An analysis is then conducted to determine if the drivers of economic growth in South Korea also drive the GPI. The GPI constructed for South Korea uses consumption expenditure as a base, adjusted for income distribution, and incorporates various other components according to their impact on genuine progress. Variables that are considered to exhibit a positive impact on the genuine progress of a nation are welfare from publicly-provided service capital and benefits derived from non-paid household labour. Variables such as foreign debt, the cost of crime, and air pollution are deemed to have a detrimental impact on genuine progress. Moreover, the estimation of an empirical model developed by the study finds that the variables that drive growth in GDP per capita in South Korea are different to the variables that drive growth in GPI per capita. While physical capital, research and development, exports, and inflation are all important in determining South Korea’s GDP per capita, once social and environmental aspects of economic growth are taken into account, only physical capital is found to have a significant positive effect on genuine progress. The difference in the drivers of GDP per capita and GPI per capita suggest that policy makers should not rely solely on GDP per capita as an indication of the well being of a nation. Rather, policy makers should seek additional social and environmental data that will provide a more comprehensive perspective of the status of a nation.