Macro Theory II: Bonus Assignment (not mandatory): Case Studies on Economic Growth Miracles and Disasters
1 Objective
The goal of this assignment is to analyze the factors that contribute to excep-tional economic growth and the reasons behind economic stagnation or collapse, with a focus on developments from the 20th century onward in specific regions such as East Asia and Latin America. Students will study two cases: one of a growth miracle where a country achieved rapid and sustained economic growth, and one of a growth disaster where economic policies led to stagna-tion or decline.
Maximum possible points: 15. These points will be allocated be-tween your midterm and final exam at my discretion. Individual submissions are not permitted. You may work in groups of up to six members, separate from your existing groups for mandatory assign-ments.
2 Case Study 1: South Korea – A Growth Mir-acle
2.1 Background
South Korea was one of the poorest countries in the world after the Korean War (1950-1953), with a per capita GDP lower than many African nations at the time. External factors such as global trade, financial crises, and geopolitical influences also played a role in shaping its economic trajectory. However, over the last six decades, South Korea has transformed into one of the world’s leading economies.
2.2 Key Factors in Growth
• Government-Led Industrial Policy: The government promoted key industries such as electronics, shipbuilding, and automobiles.
• Export-Oriented Strategy: Focus on high-quality goods for interna-tional markets rather than domestic consumption.
• Investment in Education: Heavy investment in education and work-force skills increased productivity.
• Chaebol System: Large conglomerates like Samsung, Hyundai, and LG were supported by government policies and access to credit.
• Macroeconomic Stability: Stable inflation and fiscal policies provided a foundation for sustained growth.
• Technological Advancement: Transition from labor-intensive manu-facturing to high-tech industries, making South Korea a leader in innova-tion.
2.3 Results
• GDP per capita increased from $158 in 1960 to over $30,000 in 2020.
• South Korea became the 10th largest economy in the world.
• High levels of infrastructure development and urbanization.
• Strong focus on research and development (R&D), making it one of the most innovative economies.
2.4 Discussion Questions
1. What lessons can other developing countries learn from South Korea’s growth experience?
2. What risks did South Korea face in its rapid growth, and how did it manage them?
3. How important was government intervention in shaping South Korea’s economic success?
3 Case Study 2: Argentina – A Growth Disaster
3.1 Background
At the beginning of the 20th century, Argentina was one of the richest countries in the world, with a per capita GDP comparable to that of countries like France and Germany. However, it failed to sustain its economic dominance and has experienced repeated economic crises.
3.2 Key Factors in Economic Decline
• Import Substitution Industrialization (ISI): Protectionist policies discouraged trade and led to inefficiencies in domestic industries.
• Political Instability: Frequent coups and changes in government policies created uncertainty.
• Excessive Government Spending and Debt: Heavy borrowing led to unsustainable public debt.
• Hyperinflation: Poor monetary policies resulted in inflation rates ex-ceeding 3,000% in the late 1980s.
• Overreliance on Commodities: Dependence on agricultural exports made Argentina vulnerable to global commodity price fluctuations.
• Failure to Reform.: Unlike South Korea, Argentina did not transition to a knowledge-based economy and struggled with corruption.
3.3 Results
• Frequent debt defaults and IMF bailouts.
• Economic stagnation and income inequality.
• Brain drain: Many skilled professionals emigrated due to instability.
• Inflation remains a chronic problem, with recent rates exceeding 100% in 2023.
3.4 Discussion Questions
1. What key turning points or policy missteps led Argentina, despite its early economic advantage, to fail in sustaining long-term growth?
2. What role did government policies play in Argentina’s economic downfall?
3. How could Argentina break free from its cycle of crises and achieve sus-tained growth?
4 Assignment Instructions
• Write a comparative analysis of these two case studies, focusing on policy decisions, economic structure, and institutional factors.
• Use at least three academic or credible sources to support your arguments.
• Format: 5-7 pages, double-spaced, Times New Roman, 12pt font.
• Due Date: [March 9, 2025].
5 Assessment Criteria
• Depth of analysis (30%)
• Use of data and evidence (25%)
• Clarity and coherence of argument (20%)
• Engagement with discussion questions (15%)
• Proper citation of sources (10%)
6 Conclusion
This assignment will help students understand how economic policies, institu-tions, and historical contexts shape long-term economic outcomes. By compar-ing South Korea’s remarkable rise to Argentina’s struggles, students will gain insight into the key determinants of economic success and failure.