Foreign Aid and Economic Development: The Success Story of South Korea*

Abstract

By joining the Development Assistance Committee of the Organisation for Economic Co‐operation and Development in December 2009, South Korea became the first country to do so after having been a recipient of aid for about 50 years. Once one of the poorest nations in the world and a major aid recipient, South Korea has emerged as the thirteenth largest economy in the world and a major donor country. Throughout South Korea's rapid development period, foreign assistance played a critical role in producing the country's miraculous economic growth. In fact, South Korea is one of the very few cases in which foreign aid succeeded in promoting self‐supporting economic development of the recipient country. This article deals mainly with foreign assistance and economic development in South Korea and explains how foreign aid was used and how it contributed to the economic development of South Korea, focusing on the role of government ownership and commitment. In South Korea, foreign aid was employed successfully to overcome various national challenges and to support state‐led development projects, spurring economic development. In particular, this paper highlights the importance of strong government commitment and ownership, with which South Korea effectively managed foreign aid and minimized institutional cost. The South Korean case contrasts with many other developing countries in which foreign aid has been largely wasted and failed to bring about self‐supporting economic development of the recipient countries.

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