ABSTRACT
The most striking feature of Korean economic development is the synergy between internal factors and external factors, such as the role of foreign capital and technology. To analyse this, it is proposed to adopt a framework that combines appropriate aspects of all three theories. This chapter explores a middle ground drawing on all three views but with the developmental-state view as the most useful starting point. The economic system has been shaped by the interaction of internal and external factors dealing with both micro and macro-economic matters. The economic system develops through a process of institutional evolution, influenced by external factors. The term institution refers to an economic agent within a country such as the government, business and finance. In general, in developing countries where capital is in short supply, foreign investment supplements local capital in the process of industrialisation. Like the role of government and other internal factors, the role of external factors is complex and changes over time.
