Explain this chart.

[Tetro Kornbluth]

Especially the bit between 1950 and 1975.

To quote Nicholas Eberstadt of the *shudder* AEI:

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See also here

[King]

In the 80s the Kims went mad and decided to spend all their money and resources on the military instead of developing their nation.  A terrible move for any economy, but a death kneel for a communist one.

[bgwah]

http://en.wikipedia.org/wiki/Miracle_on_the_Han_River

[opebo]

Capitalist machinations.

[Tetro Kornbluth]

http://en.wikipedia.org/wiki/Miracle_on_the_Han_River

So why the divergence post-1975?

As the article notes the 'miracle' is said to have started in 1961 but it actually took more than a decade and a half to overtake the North.

In the 80s the Kims went mad and decided to spend all their money and resources on the military instead of developing their nation.  A terrible move for any economy, but a death kneel for a communist one.

That was only true once it became clear that the South was more successful.

But again, if it is purely a question of economic model then how do we explain relative parity for the first 25 post-war years?

[© tweed]

http://en.wikipedia.org/wiki/Miracle_on_the_Han_River

So why the divergence post-1975?

increased capital mobility?  financialization allowing for increase in Western investment?

[Tetro Kornbluth]

http://en.wikipedia.org/wiki/Miracle_on_the_Han_River

So why the divergence post-1975?

increased capital mobility?  financialization allowing for increase in Western investment?

Possibly, but wouldn't there have been a significant investment gap (Between the West and ROK on one side and the USSR/China and DPRK on the other) much earlier than that?

[Vosem]

Capitalist machinations.

[memphis]

In the 80s the Kims went mad and decided to spend all their money and resources on the military instead of developing their nation.  A terrible move for any economy, but a death kneel for a communist one.

Why does that sound so familiar?

[Beet]

Since I know nothing about North Korea's history, I'll go with the one-size fits all answer. Socialism is not inferior to capitalism in the short run at capital investment and gaining returns from it. All you need to invest capital is organization and access to preexisting know-how, and North Korea had plenty of that. However, eventually you get to the top of the Solow Model that DeadFlagBlues posted in Tweed's thread. Without that mystical "alpha", a.k.a. "technology", a.k.a. "total factor productivity", a.k.a. "the oracle of delphi", you reach a sort of a ceiling. North Korea reached it, relative to South Korea, in the mid-1970s. Of course, there is more to the North Korea story, but we would need seanobr or someone who actually knows what they're talking about to participate.

[True Federalist (진정한 연방 주의자)]

Rather than socialism vs. capitalism, a far more important factor for North Korea was its self-imposed isolationism while conversely South Korea embraced the world.  Under the Juche ideal, North Korea was to be as self-sustaining as possible and so it deliberately cut back on international trade and the like.  Despite that, it was still somewhat helped out by support from other communist regimes, but support from both China and the Soviet Union for North Korean industry was considerably cut back in late 1970s as both basically said to Kim, fine be self-reliant.

That insistence upon self-reliance and indifference to international trade is exemplified by the closure of Kaesong earlier this year.

[King]

Ernest sort of answers Beet.  The mystical technology variable of the Solow growth model is probably why the South succeeded more than the North in the 60s and 70s.  The Juche philosophy made it difficult for the North slower at adapting to new technological advancements than even other nations in the Soviet bloc. 

[Indy Texas]

South Korea was a military dictatorship until the late 1970s and I believe the early '70s were when Park Jung-hee began liberalizing the economy. The South Korean economy began growing rapidly about the same time Japan's did, and they both undertook fairly similar approaches to economic growth - capitalist mixed economies dominated by large, diversified private companies, and a government that aggressively promoted exports.

Institutions matter, but "good government" isn't a sufficient condition to economic growth. If it were, Tanzania wouldn't still be a desperately poor country despite having one of the most stable, least corrupt governments in the developing world.

[Ban my account ffs!]

I think the answer is obvious:

The North never got the funk:

http://www.youtube.com/watch?v=0KPMN_CboWU

http://www.youtube.com/watch?v=iauQGJuqoqo

[Indy Texas]

I think the answer is obvious:

The North never got the funk:

http://www.youtube.com/watch?v=0KPMN_CboWU

http://www.youtube.com/watch?v=iauQGJuqoqo

http://www.youtube.com/watch?v=VJNBfBr-OGU

North Korea has many problems. Their choreography and showmanship is not one of them.

[bgwah]

http://en.wikipedia.org/wiki/Miracle_on_the_Han_River

So why the divergence post-1975?

As the article notes the 'miracle' is said to have started in 1961 but it actually took more than a decade and a half to overtake the North.

In the 80s the Kims went mad and decided to spend all their money and resources on the military instead of developing their nation.  A terrible move for any economy, but a death kneel for a communist one.

That was only true once it became clear that the South was more successful.

But again, if it is purely a question of economic model then how do we explain relative parity for the first 25 post-war years?

Do you make six figures right when you start med school? No, it will be years before you reap the benefits.

[politicus]

North Korea had most of the country's industry prior to partition and they also have most of the minerals. When South Korea took of with a state protected export economy (the state providing cheap loans to the big conglomerates and keeping wages artificially low with strict anti-labour laws and oppression of workers) the industry in the South managed to accumulate more and more capital and expanded rapidly. North Korea on the other hand was isolated and had no access to the new technological developments and spend too many of its resources on the military. Add a couple of natural disasters and you get stagnation.

[Ban my account ffs!]

I think the answer is obvious:

The North never got the funk:

http://www.youtube.com/watch?v=0KPMN_CboWU

http://www.youtube.com/watch?v=iauQGJuqoqo

http://www.youtube.com/watch?v=VJNBfBr-OGU

North Korea has many problems. Their choreography and showmanship is not one of them.

Then you don't know what the funk is all about.

[Gustaf]

I think plenty of answers have been provided, but I'd like to note that good institutions does not just mean stable or non-corrupt government. It's broader than that.

It is reasonable to expect there to take some time before the effect of superior reforms really kick in.

Also, this graph is a bit misleading since it uses a linear scale. Just eyeballing it and making a rough calculation, what looks like a flat line from 1950 to 1975 is probably something like an average of 5% growth, even though there is a war in between as well. So both countries are doing pretty decently, probably due to post-war build-up etc. Eventually North Korea hit the ceiling for where you get with Communist planned economy, while South Korea continued upwards.

[Gustaf]

To clarify, if South Korea averaged yearly GDP growth of 5.35% after WWII they would hit a GDP per capita of $3 000 in 1975 and one of about $19 000 in 2010, roughly consistent with the graph. The exponential trend is just becase growth is inherently exponential, not necessarily because anything dramatic happened.