A Comparative Report Between South Korean And Argentinian Urbanisation

This report aims to analyse the urban development in South Korea and Argentina from the mid twentieth century to the current day and therefore compare and contrast their urbanisation. Urbanisation is the movement of people and industry into towns and cities from rural areas.

South Korea

South Korea is a presidential representative democracy. It is a predominantly mountainous country with a large coastline situated in the Korean Peninsula in East Asia. The climate is hot and humid in summer with a rainy season and cold winters. The United Nations in 2016 estimated the population to be over 51 million, with 81.7% of those people living in urban areas.

Previously under Japanese colonial rule, South Korea’s current political and economic climate has also been heavily shaped by its split from North Korea, or the Democratic People’s Republic of Korea. After the Second World War in 1948, Korea was liberated from being under Japanese rule and split into two states: the North was afflicted with the Communist Soviet Union and on the other hand, the South was aligned with Western countries. These separate governments both made claim to the land of the other state, which led to the Korean war from 1950-53. Post conflict, the countries remained divided. The resulting two economies were poor, having paid the cost of war and opportunity cost of production; shown in the very low South Korean GDP per Capita in 1960 of $79 (Chun, 2010). South Korea had shortages of food, high levels of extreme poverty and unemployment twinned with political instability. Post Korean War, the South was the more agricultural than the relatively industrial North, with over half of its export commodities in 1960 being agricultural.

The latter half of the twentieth century saw a great change of economic sectoral development in South Korea. Rostow described this shift from agriculture towards urbanisation through his “five stages of growth” model, moving from “traditional” agriculture, through the “preconditions to take-off” stage which was characterised in South Korea by increased steel production. This was followed by the “take-off” stage of development where primary production was replaced by secondary production with technologically developed industries such as car and ship building (Rostow, 1960). This meant a stark difference from 1960 to 2003, when only 6.1% of exported commodities were agricultural, compared to 79.8% being HCI products. The Prebisch-Singer hypothesis states that due to higher income elasticity of demand, as incomes rise and technology improves, the relative prices of secondary goods are higher than primary produce (Prebisch, 1950). Those who shift towards secondary produce production experience a more favourable terms of trade. As well as this, the movement away from rural production towards secondary production in towns and cities increases the demand for labour, which causes a shift in the expected wage rate and incentivises internal migration into the urban areas (Harris – Todaro 1970). The capital of South Korea, Seoul, has become home to labour intensive secondary produce manufacturing, such as car firms Kia and Hyundai, and thus seen a dramatic rise in its inhabitants from one million in 1950 to ten million in 2019. Increased population density and industrialisation can allow for specialisation and economies of scale, making production more efficient and increasing output.

This increased urbanisation: both industrial output and increased urban population density has a positive externality. As activity increases, so does congestion, which necessitates a higher provision of infrastructure, such that the level of congestion dictates the level of such provision (Robinson, 2009). This spillover effect can have a multiplier effect via increased employment, income, disposable income and therefore consumption. The economic growth during the urbanisation of South Korea has been great, with a $26,152 GDP per capita as of 2017. This can also benefit those not living or working in cities as urban workers send income home to their families in rural areas, as well as the higher average income increasing government tax revenue which in turn gives the opportunity for provision of more state welfare and investment.

However this urbanisation has its negative externalities too. The increased urban population density can cause issues due to the time lag of infrastructure provision. As population density rises and the infrastructure is not there to support it, there can be congestion, pollution and rising cost of living causing urban poverty (Ravallion, 2002). Seoul has big problems with pollution which can seriously affect the health of those living and working in the city. Another environmental externality in South Korea is deforestation to make way for urban development, which causes coastal erosion, food shortages and destroys habitats. Those living in affected rural areas or working in affected markets have lower incomes and increased costs of living which causes a significant decrease in their standards of living. Ecosocialists, such as Caroline Lucas, believe that development and urbanisation prevent environmental sustainability. As the climate is a non-rivalrous and non-excludable good, there is an agency problem and thus a “tragedy of the commons” (Hardin 1968) and the social cost of production and consumption is not considered. Additionally, there is more significant cost to rural communities and smaller towns. As people migrate from agricultural sectors into cities, there can be a social cost to rural areas as the opportunity cost of urban development can be forgone rural development and disrupted communities and families.

Argentina

Argentina is a federal constitutional republic and representative democracy. It is the eighth largest country in the world and situated in south east of Latin America. Its terrain includes The North, the Andes, the Pampas, and Patagonia and has a long coastline with the Atlantic ocean. Due to its size, the climate varies considerably with hot deserts, temperate areas and also very cold mountainous regions. The United Nations estimated in 2017 that Argentina had a population of 44 million people with an urban population of 92.3%.

Argentina was colonised by the Spanish from the 16th century and declared independence in 1816. It became fully independent in 1861 following decades of civil war. The end of the 19th century was a time of great prosperity in Argentina, being the country with the highest GDP per capita in 1895. This was based on Export Oriented Industry, sending primary goods to the rest of the world, such as beef and textiles, in an era of free trade before the First World War. Argentina did start to industrialise, to a small extent, so that their food such as beef could be transported and thus they did have a level of early urbanisation although this was slow.

Due to its dependency on its Export Oriented Industry, Argentina was severely affected when the World Wars greatly reduced global trade from 1914-1945. As shown in Rostow’s model, Argentina had not developed into the “take off stage” (Rostow, 1960), which meant that they were dependant upon primary produce. According to the Prebisch-Singer hypothesis, primary product dependency leads to a worsening balance of trade relative to more urban secondary goods manufacturing (Prebisch, 1950). Prebisch, as an Argentine economist, was able to experience this effect first hand in Argentina and as a result his paper “The Economic Development of Latin America and its Principal Problems” is very relevant to Argentine development and urbanisation.

In 1946, Colonel Juan Peron came to power. His economic policy favoured state control of industry and a command economy. Critics of state planning such as Hayek believe that no state will ever have enough information to coordinate production efficiently (Hayek, 1944) and thus this inefficiency led to poor growth. In 1965, Argentina had a GDP per capita of $1,727 (World Bank) – no longer the global highest.

Argentina tried to mitigate this and stimulate growth with a loan from the IMF in 1958. Low oil prices allowed Argentina to access extensive cheap loans (Kay, 2002). By having these loans, Argentina was able to invest in industry such as steel, and was able to develop to Rostow’s “preparation to take – off” stage (Rostow, 1960). This increase of industrialisation led to the growth of urban economies and population in cities such as Buenos Aires. This was a large urban development shift and the Argentine economy has grown to a GDP per capita of $14,398 as of 2017 (World Bank).

However, foreign debt made Argentina’s economy exposed to fluctuations in exchange rates and global demand, and extremely high inflation in the 80s meant that their debt grew rapidly to unpayable levels. Argentina brought in a new currency in 1992, the – peso – which was pegged to the US dollar, which fixed the price level of Argentine goods. This prevented fluctuations in the peso’s exchange rate and made the real value of Argentine exports high. This reduced their competitive advantage, worsening their terms of trade and this led the economy into a recession. Increased borrowing causes an increase in imports, entrenching the Argentine economy in the import substitution industrialisation model. This was known as the “‘lost decade’ of the 1980s when Latin American economies failed to grow.” (Kay, 2002). With lower growth the government’s revenue and spending therefore is reduced. The increase of urbanisation and a large population density without government spending on infrastructure can cause overcrowding and poor living conditions, as well as a large gap between the rich and poor within the country. High demand for housing causes demand pull inflation and in real terms house prices increase. There are currently 12 million people living in the capital Buenos Aires and bad housing is rife with slums and shanty towns, as well as poor water and air quality. Standard of living for those in urban areas is therefore low for many.

South Korea & Argentina

In 2018, South Korea had a population of 51 million and the 11th largest global economy by GDP. Compared to the Argentine economy which was 26th, despite their historical advantage and a reasonably similar population of 44 million. When looking at South Korea alongside Argentina, the effect of the debt crisis on the success of Argentine urbanisation is highlighted. When the fall in oil prices ignited vast debt inflation in Argentina, their agriculture was vulnerable having not previously modernised its agriculture, in the most part due to lower government investment as a result of their previous IMF debt. The more efficient peasant based agricultural sector in South Korea on the other hand, as well as the safety net of their natural resources, meant that South Korean industry was less affected (Kay, 2002). As the South Korean industry was further developed as in Rostow’s stages of development (Rostow, 1960), and had a more skilled workforce (Kay, 2002), they were able to have Export Oriented Industrialisation. EOI can increase production, urbanisation and growth through comparative advantage, specialisation and economies of scale. Argentina had less successful urbanisation. As urban industry grew and expected wages increased, urban population grew to 92.3% (compared to South Korea’s 81.7%). Migration and the increased supply of labour was too fast and the excess labour caused low real wages, and thus high relative costs of living (Ravallion 2002) and when paired with their high debt, caused worse standards of living.

For two ex-colonial countries industrialising at a similar time with similar population sizes, it could be expected that they would not have many differences. Both had similar progression through Rostow’s stages of development, for instance their economies developed steel and car industries. Both countries even had to receive loans from the International Monetary Fund; Argentina in 1958 and later South Korea in 1997. However, their experience of urbanisation has made significant difference to their economies today.

Bibliography

1. Seung-Hun Chun: Strategy for Industrial Development and Growth of Major Industries in Korea, 2010.
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3. JR Harris, MP Todaro: Migration, unemployment and development: a two-sector analysis, The American economic review, 1970
4. Frederick Hayek: The Road to Serfdom, 1944.
5. International Monetary Fund, 2018
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9. Martin Ravallion: “On the urbanization of poverty”, Journal of Development Economics, 68: 435-442, 2002
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14. World Bank