What is the main reason behind the disparity in the growth rates of South Korea and North Korea over the last sixty years?

Question

What will be an ideal response?

Answer 1

Over the last sixty years, South Korea has been one of the fastest growing economies in the world while North Korea has almost stagnated. The main reason behind this difference is the type of institutions that exist in both countries. Resources in North Korea were allocated through central planning, private property was outlawed, and markets were banned. Therefore, the citizens of North Korea did not have any incentive to increase work effort and productivity. On the other hand, South Korea was a market-based economy that provided incentives to businesses for investment and industrialization and invested in the education of South Koreans. With the right incentives in place, investors and entrepreneurs in South Korea focus on investment and increasing economic activity, leading to economic growth.