The Political Economy of South Korean Development Cooperation with Vietnam: The Impact of Economic Aid and the Knowledge Sharing Program

Since the Asian Financial Crisis, South Korean political economy has been wavering between a “neoliberal turn” and a path toward “progressive welfare state,” putting the adequacy of the developmental state model in question. Nevertheless, the Korean government appears undeterred from promoting the developmental state model to other, less-developed countries through international cooperation. It is eager to showcase the past, state-led “development experience” as a part of its foreign aid – Official Development Assistance (ODA) – policy. As an emerging ODA donor, the government has announced that it will provide a “Korean Model of Development Cooperation.” The economic bureaucracy, which used to consist of the core of the developmental state, has fully embraced the effort to venture into a new territory by not merely providing foreign aid in terms of concessional loans, but also exporting the knowledge of economic development.

Vietnam’s economic growth in recent decades is often presented as strong evidence for Korea’s newfound prowess in ODA. As the biggest recipient of Korean ODA, Vietnam maintained impressive 6-8% of annual GDP growth rates before the global economic crisis of 2008. In this paper, we will first conduct an econometric analysis of the impact of total foreign aid on the Vietnamese economy between 1986 and 2010, and separate out the contribution from South Korean ODA. And then, to fully understand the goals and purposes of Korea-Vietnam development cooperation, we will extend our analysis to the institutional changes this cooperation involves.

The Knowledge Sharing Program (KSP) is Korea’s flagship economic cooperation program that centers on policy research and consultation in partnerships with various developing countries. The main implementation agency is Korea Development Institute (KDI), which was created as a research arm of the mighty Economic Planning Board, a supra-ministry that functioned as the control tower of the authoritarian developmental state in the past. The most important “strategic development partner” is Vietnam, which received continuous support from the KSP between 2006 and 2009.

Vietnam is the poster child of the KSP not only because of the size and duration of the program, but of the content of policy consultation. From the beginning, it covered many crucial policy issues regarding economic development, such as WTO accession, state-owned enterprise reform, macroeconomic stabilization, and FDI. In 2009, economic bureaucracies from both countries agreed that the most important core of Korean development experience was economic planning, and put the focus of the KSP squarely on Vietnam’s ten-year development strategy and five-year implementation plan. By all accounts, it looks as though the Korean developmental state found its worthy successor in Vietnam. Therefore, while the developmental state model might become even more outdated in its country of origin, ODA could prove to be a new way that the old model survives and thrives once again, this time outside its own territory. Based on the Vietnam field research we conducted in the past few years, we will lay out the blueprint of Vietnamese development model as envisioned by the KSP and how much of it has become reality.