Skip Navigation
| Skip Navigation |
|
|
|
|
|
|
All years referred to in this memorandum are fiscal years unless otherwise noted. All dollar amounts are expressed in 1997 dollars unless otherwise noted. Numbers in text and tables may not add to totals because of rounding. |
What role does foreign aid play in promoting the economic development and improving the social welfare of countries in Africa, Asia, and Latin America? That question is difficult to answer and has been the subject of much debate among development specialists as well as Members of Congress and the American public.
Drawing on the works of other scholars, this memorandum analyzes the role of foreign aid in the development of South Korea and the Philippines between 1953 and 1993. It is one of three memorandums that are being published as background for The Role of Foreign Aid in Development, a Congressional Budget Office (CBO) study published in May 1997. The memorandums are intended to illustrate more fully the themes identified in the main study.
Eric J. Labs of CBO's National Security Division prepared the memorandum under the general supervision of Cindy Williams and R. William Thomas. Richard Fernandez, Kim Kowalewski, and Christopher Williams, of CBO provided valuable comments. Many officials of the Agency for International Development (AID), the World Bank, the Asian Development Bank, and the Organization for Economic Cooperation and Development also provided information. In particular, the author would like to thank Ellen Peterson and Cheryl Warner. The author would also like to thank Nicholas Eberstadt of the American Enterprise Institute and Harvard University, who reviewed an earlier draft of the manuscript. The author and CBO, however, bear full responsibility for the final product.
Sherry Snyder edited the manuscript. Judith Cromwell prepared it for publication.
Questions about the analysis may be addressed to Eric Labs.
SUMMARY
INTRODUCTION
SOUTH KOREA'S HISTORICAL LEGACIES
INFLUENCE OF GOVERNANCE ON SOUTH KOREA'S DEVELOPMENT
INFLUENCE OF DOMESTIC ECONOMIC POLICIES ON SOUTH KOREA'S DEVELOPMENT
ROLE OF FOREIGN ASSISTANCE IN SOUTH KOREA'S DEVELOPMENT
INFLUENCE OF GOVERNANCE ON THE PHILIPPINES' DEVELOPMENT
INFLUENCE OF DOMESTIC ECONOMIC POLICIES ON THE PHILIPPINES' DEVELOPMENT
ROLE OF FOREIGN ASSISTANCE IN THE PHILIPPINES' DEVELOPMENT
DEVELOPMENT IN SOUTH KOREA AND THE PHILIPPINES
BIBLIOGRAPHY
| TABLES | |
| 1. | Social Indicators for South Korea and the Philippines, 1967 and 1992 |
| 2. | Transformation of the South Korean Economy, 1954-1982 |
| 3. | Comparison of Various Economic and Social Indicators for South Korea and Japan, 1994 |
| 4. | Domestic and Foreign Saving in South Korea, 1958-1974 |
| 5. | Economic Indicators for the Philippines, 1965-1973 |
| 6. | Economic Indicators for the Philippines, 1973-1979 |
| 7. | Standard-of-Living Indicators for the Philippines, 1962-1986 |
| 8. | Economic Indicators for the Philippines, 1980-1988 |
| FIGURES | |
| 1. | Gross National Product per Capita for South Korea and the Philippines, 1960-1994 |
| 2. | Foreign Assistance to South Korea, 1953-1993 |
| 3. | Foreign Assistance to the Philippines, 1953-1993 |
SUMMARY
The Congressional Budget Office (CBO) is publishing a series of memorandums that describe the role that foreign aid has played in the development of various countries. The memorandums illustrate the broad themes identified in CBO's May 1997 study The Role of Foreign Aid in Development. The countries are studied in pairs: South Korea and the Philippines, Costa Rica and Honduras, and Botswana and Zambia. This memorandum examines the development history of South Korea and the Philippines. Although both countries have received substantial amounts of foreign assistance, South Korea has been relatively more successful in achieving long-term economic and social development.
In 1960, the Philippines was slightly richer than South Korea. The Philippines had a slightly larger per capita gross national product (GNP) and a far larger base of natural resources. By the 1990s, however, Korea's per capita GNP was three times greater than that of the Philippines. In addition, South Korea's social indicators have shown greater improvement.
Many different factors explain the divergence in development between South Korea and the Philippines. Some are unique to the individual countries. But what seemed to matter most was that the political and economic policies of South Korea over the past 30 years were much more favorable to long-term growth and development than those of the Philippines. Foreign aid helped South Korea's development somewhat, but it arguably hindered the Philippines' development by reinforcing the government's political and economic policies.
The most important period in South Korea's development began after the fall of the regime of Syngman Rhee in 1960. General Park Chung Hee, who took over in a military coup in 1961, instituted a process of economic reform. He devalued the currency, reformed interest rates, imposed tighter fiscal policies, lowered trade barriers, and, especially, put in place a number of incentives to encourage exports. In many ways, South Korea's exports were the central driver of its successful development. The government has maintained a relatively open, market-based economy ever since. In addition, the government has been stable and a competent administrator, with only relatively modest amounts of corruption.
Foreign aid after 1960 contributed to South Korea's successful development. It provided an extra pool of capital that the economy used for saving and investment. The Agency for International Development (AID) provided extensive technical support to the officials and agencies responsible for South Korea's export drive. U.S. military aid helped Korea with its defense needs and thus possibly freed up some resources that could be used for development rather than for the military. Foreign assistance also helped improve South Korea's health, education, and agriculture sectors.
In contrast, the election of Ferdinand Marcos as the Philippine president in 1966 led the country down a path that was ultimately counterproductive to long-term development. Marcos pursued more inward-oriented economic policies than those pursued by South Korea. Marcos's policies produced aggregate economic growth initially, but in the 1980s the Philippine economy experienced a severe crisis, leading to substantial declines in per capita GNP. Moreover, the average rural or urban worker was far worse off at the end of the Marcos era than at its start. Corruption and self-aggrandizement on the part of Marcos and his family and friends contributed to the economy's problems. Reforms under Marcos's successors--Corazon Aquino and Fidel Ramos--have made some progress in reversing the damage done by the Marcos era, but the Philippines' future, though promising, remains uncertain.
The record of foreign aid to the Philippines is mixed. On the one hand, foreign aid contributed to some of the improvement in the social indicators, particularly those for health and education. On the other hand, to the extent that $33 billion in foreign assistance (in 1997 dollars) to Marcos perpetuated his hold on power, it undermined the Philippines' long-term development. Much of that money was apparently lost, wasted, or diverted by the Marcos government. However, foreign assistance has apparently helped the Philippines emerge from the problems created during the Marcos era.
This document is available in its entirety in PDF.