Does bureaucratic capacity matter for growth miracles? This paper investigates how much the effect of an industrial policy during South Korea’s growth miracle depends on bureaucratic capacity. We find that the bureaucrats implementing the policy greatly change its effect on exports – the variable targeted by the policy and key to South Korea’s economic success. These bureaucrats manage offices that promote exports on appointments to 87 countries between 1965, when South Korea was one of the world’s poorest countries, and 2000. We exploit the three-yearly rotation of managers between countries to show that increasing bureaucrat ability by one standard deviation causes a 37% increase in exports. This effect is comparable to the policy’s average effect – estimated from office openings. Hence, this industrial policy entirely depends on bureaucratic capacity: It has no effect when implemented by a bureaucrat one standard deviation below average. We find evidence for a key mechanism via which better bureaucrats increase exports: transmitting information about market conditions. Under better bureaucrats South Korean exports increase more strongly with a country’s import demand – taking advantage of this demand. Finally, we investigate whether bureaucrat experience increases South Korean exports. We isolate quasi-random variation in experience: a product’s import demand growth during the bureaucrat’s first appointment. Such experience increases exports in subsequent appointments of this bureaucrat. This highlights that organizational capacity grows endogenously, implying a novel channel for path dependence in organizational capacity.
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Philipp Barteska and Jay Euijung Lee
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