How S.Korea and Taiwan progressed and expanded their economies

South Korea, Taiwan, Malaysia and Indonesia all suffered from Japanese occupation during the Second World War. But in the decades of peace that followed, South Korea and Taiwan revived, grew their economies and became rich. Their GDP per capita – what everyone in the country earns per year if income is equally distributed – are now on par with developed Western countries.

Malaysia, however, plateaued once it reached upper-middle income, a term the World Bank uses to define countries with a per capita GDP higher than US$1,045 but lower than US$12,736. In the meantime, Indonesia is still struggling in the lower-middle income level with GDP per capita below US$4,125.

Around two decades after the second world war, in 1967, Malaysia led the four economies in GDP per capita at US$317.Taiwan’s was US$281 , South Korea’s US$161 and Indonesia’s US$54.

Observers dubbed the growth of these four, along with Japan, Hong Kong, Thailand and Singapore in the 1980s and 1990s, as the Asian Miracle. Their GDP per capita grew twice as fast between 1965 and 1990 compared to more developed Western countries such as those Europe and North America.

The GDP per capita increase in these countries was accompanied by poverty reduction and a narrowing of the gap between the rich and poor.

The 1997 Asian Financial Crisis hit these economies hard. Korea saw its GDP per capita slump by 33.4%, Taiwan by 8.5%, Malaysia by 29.6% and Indonesia by 56.4%, bringing Indonesia back to low-income level

But by 2017, the average income in Korea had again grown, to nearly US$30,000. Taiwan’s grew to US$24,000. Malaysia and Indonesia’s were behind with US$9,952 and US$3,847 respectively.

Economists use GDP per capita as an indicator of a country’s productivity rate – the output it has produced over a certain period. The higher the per capita GDP of an economy, the higher will be the productivity of its citizens. South Korea and Taiwan’s high GDP reflects their high productivity rate compared to Malaysia and Indonesia.

Three things determine a country’s productivity: labor, capital, and something known as total factor productivity (TFP), which represents efficiency and technology. For example, better management systems to reduce red tape could signal efficiency, while the use of technology to automate tasks that would take up a lot of time if done manually, technology.